Archive for October, 2014

• AT&T Breaks Below DTV Merger Band
  Eddy Elfenbein, October 23rd, 2014 at 11:06 am

  AT&T ($T) is down 90 cents per share today to $33.60. That’s also below the DirecTV ($DTV) merger band.

  To recap, the merger deal calls for:

  DIRECTV shareholders will receive $95.00 per share under the terms of the merger, comprised of $28.50 per share in cash and $66.50 per share in AT&T stock. The stock portion will be subject to a collar such that DIRECTV shareholders will receive 1.905 AT&T shares if AT&T stock price is below $34.90 at closing and 1.724 AT&T shares if AT&T stock price is above $38.58 at closing. If AT&T stock price at closing is between $34.90 and $38.58, DIRECTV shareholders will receive a number of shares between 1.724 and 1.905, equal to $66.50 in value.

  At this point, it basically means that DTV is worth $28.50 plus 1.905 shares of AT&T. With today’s drop, that makes the deal worth $92.51 for DTV.

• Morning News: October 23, 2014
  Eddy Elfenbein, October 23rd, 2014 at 6:58 am

  Eurozone Economy Picks Up Slightly in October, But France Weighs

  Spanish Unemployment Lowest Since 2011 as Economy Grows

  U.K.’s Falling Retail Sales Suggest Economy Losing Steam

  ‘Silicon Beach’ Brings Tech Boom to Los Angeles

  Potash Corp.’s Q3 Earnings Drop 11%, But Healthy Outlook Maintained

  Unilever Posts Slowest Quarterly Sales Growth Since 2009

  Boeing Profit Jumps 18% But Cash is Scarce

  Dow Chemical Profit Jumps 44%

  Yelp Swings to Profit for Second Consecutive Quarter

  Target Offers Free Holiday Shipping

  Hyundai Motor Looks to Placate Investors With Dividend Boost

  Pressure Intensifies for Recall of Takata Airbags

  Tesco Chairman to Leave as Accounting Missteps Hit Profit

  Credit Writedowns: Does The Secular Stagnation Theory Have Any Sort of Validity?

  Credit Writedown: The Roots of the Italian Stagnation

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• C.R. Bard Earns $2.15 per Share
  Eddy Elfenbein, October 22nd, 2014 at 4:29 pm

  CR Bard ($BCR) just reported Q3 earnings of $2.15 per share. The company told us to expect earnings to range between $2.07 and $2.11 per share.

  C. R. Bard, Inc. today reported 2014 third quarter financial results. Third quarter 2014 net sales were $830.0 million, an increase of 9 percent over the prior-year period on both an as reported and constant currency basis.

  For the third quarter 2014, net sales in the U.S. were $565.4 million, an increase of 13 percent over the prior-year period. Net sales outside the U.S. were $264.6 million, an increase of 3 percent over the prior-year period on a reported basis. Excluding the impact of foreign exchange, third quarter 2014 net sales outside the U.S. increased 1 percent over the prior-year period.

  For the third quarter 2014, net income was $131.3 million and diluted earnings per share were $1.69, an increase of 41 percent and 47 percent, respectively, as compared to third quarter 2013 results. Adjusting for items that affect comparability of results between periods as detailed in the tables below, third quarter 2014 net income was $149.2 million and diluted earnings per share, after adjusting for certain items that affect comparability between periods and excluding amortization of intangibles, were $2.15, an increase of 22 percent and 28 percent, respectively, as compared to third quarter 2013 results.

  Timothy M. Ring, chairman and chief executive officer, commented, “We are pleased this quarter with the continued execution of our strategic investment plan that we announced at the beginning of 2013. We said at the time that we expected the investments to begin generating returns in the back half of 2014, and that is happening. We continue to focus on executing our plan with the objective of improving revenue growth and profitability.”

• CA Technologies Earns 65 Cents per Share
  Eddy Elfenbein, October 22nd, 2014 at 4:12 pm

  CA Technologies ($CA) just reported fiscal Q2 earnings of 65 cents per share. That’s three cents better than estimates. Here are some details from the earnings report:

  Mike Gregoire, CA Technologies Chief Executive Officer, made the following comments:

  “We are starting to see traction in the market as a result of our efforts. Enterprise Solutions new sales were up for the second consecutive quarter. We continued to see solid performance in connection with renewals and we maintained financial discipline across the business. Although we are pleased with this progress, we remain focused on the work needed to drive sustained revenue growth.

  “The Application Economy is transforming business, creating new opportunity and enormous complexity for our customers. CA provides the software solutions businesses need to accelerate innovation, secure applications and manage their rapidly growing IT portfolios across multiple platforms. We are uniquely positioned to help our customers build the new capabilities they need to grow and reduce the complexity they need to manage, and have focused our business on solving these problems.”

  (…)

  Non-GAAP EPS in the second quarter of fiscal 2015 was negatively affected by $0.15 from an increase in the Company’s non-GAAP effective tax rate. The Company recognized a net discrete tax benefit of approximately $181 million in the first quarter of fiscal 2014, which impacted the non-GAAP effective tax rate for the second quarter of fiscal 2014. This net discrete tax benefit was primarily as a result of the resolution of uncertain tax positions relating to U.S. and non-U.S. jurisdictions.

  (…)

  CAPITAL STRUCTURE

  -Cash, cash equivalents and investments at September 30, 2014 were $3.193 billion.

  -With $1.763 billion in total debt outstanding and $139 million in notional pooling, the Company’s net cash, cash equivalents and investments position was $1.291 billion.

  -The Company is currently authorized to purchase $950 million of its common stock under its current stock repurchase program.

  -The Company distributed $111 million in dividends to shareholders.

  -The Company’s outstanding share count at September 30, 2014 was 440 million.

  OUTLOOK FOR FISCAL YEAR 2015

  The Company updated its fiscal year 2015 outlook, which represents “forward-looking statements” (as defined below).

  The Company expects the following:

  Total revenue to decrease in a range of minus 2 percent to minus 1 percent in constant currency, unchanged from previous guidance. At September 30, 2014 exchange rates, this translates to reported revenue of $4.27 billion to $4.33 billion.

  GAAP diluted earnings per share from continuing operations to decrease in a range of minus 12 percent to minus 8 percent in constant currency, unchanged from previous guidance. At September 30, 2014 exchange rates, this translates to reported GAAP diluted earnings per share of $1.73 to $1.80.

  Non-GAAP diluted earnings per share from continuing operations to decrease in a range of minus 20 percent to minus 18 percent in constant currency. Previous guidance was minus 21 to minus 19 percent in constant currency. At September 30, 2014 exchange rates, this translates to reported non-GAAP diluted earnings per share of $2.40 to $2.47.

  Cash flow from continuing operations to increase in a range of 5 percent to 12 percent in constant currency, unchanged from previous guidance. At September 30, 2014 exchange rates, this translates to reported cash flow from continuing operations of $1.01 billion to $1.08 billion.

  This outlook assumes no material acquisitions and a partial currency hedge of operating income. The Company expects a full-year GAAP operating margin of 27 percent, a decrease of one point from previous guidance, and non-GAAP operating margin of 37 percent, unchanged from previous guidance. The Company also expects to return to a normalized full-year GAAP and non-GAAP effective tax rate of approximately 30 percent, which would have a negative impact on GAAP and non-GAAP diluted earnings per share from continuing operations of approximately $0.43 and $0.59, respectively.

  The Company anticipates approximately 436 million shares outstanding at fiscal 2015 year-end and weighted average diluted shares outstanding of approximately 440 million for the fiscal year.

• Monthly Core CPI
  Eddy Elfenbein, October 22nd, 2014 at 10:33 am

  Here’s the annualized monthly core CPI. Today’s inflation report said that consumer prices rose 0.1% last month, and core prices were also up 0.1%.

• Morning News: October 22, 2014
  Eddy Elfenbein, October 22nd, 2014 at 7:09 am

  Euro Declines as Investors Weigh Prospects for More ECB Easing

  Sterling Drops After BoE Minutes Show Rate Rise Reluctance

  S&P 500 Rallies Most in One Year on ECB Stimulus, Apple Earnings

  Currency Wars Evolve With Goal of Avoiding Deflation

  Enforcer at Treasury Is First Line of Attack Against ISIS

  Jobless Rate Below 5% in 15 States

  Ocwen’s Backdated Letters May Violate Consent Order

  Yahoo Sales Top Estimates

  Verizon’s Bright Horizon

  Coca-Cola Announces Growth Plan As Profit Falls 14%

  Target Eyes Holiday Turnaround on Free Shipping, Faux Fur

  Heineken Blames Europe’s Wet Weather For Slump In Beer Sales

  Cullen Roche: Can We Identify Good & Bad Forecasters?

  Jeff Carter: Don’t Have An Idea? Be a Joiner

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• RIP: Nelson Bunker Hunt
  Eddy Elfenbein, October 21st, 2014 at 11:26 pm

  The Texas tycoon Nelson Bunker Hunt has died at the age of 88. More than 30 years ago, he and his brother tried to corner the silver market:

  “A billion dollars ain’t what it used to be,” he said in 1980 after silver stakes he amassed with two brothers, Herbert and Lamar, fell to $10.80 from $50.35 an ounce. In barely two months, their holdings and contracts for purchases — corralling a third to half the world’s deliverable silver — had plunged from a $7 billion value in January to a $1.7 billion loss in March.

  With the Hunts unable to cover enormous margin calls, the debacle endangered financial markets and brokerage houses, forcing federal regulators and the nation’s banks to step in with a $1 billion line of credit, a bailout that saved the system from a stampede and the Hunts from an immediate meltdown.

  Here’s a post I did last year on silver:

  Silver — The Poor Man’s Gold

  Silver, which is often called “the poor man’s gold,” has failed to move up recently even though gold has regained a tiny bit of its luster. Last Tuesday, April 16th, spot silver got down to $22 per ounce. That was Ag’s lowest print since October 5th, 2010.

  Gold now trades at 62 times silver. During the worst of the financial crisis in 2008, gold got to more than 80 times silver. The Gold/Silver ratio has been an important ratio through history. Way back in antiquity, Plato mentioned that the ratio was 12-to-1. In 1792, the U.S. Congress, at the advice of Alexander Hamilton, passed the Coinage Act of 1792. This was the government’s first attempt at price-fixing (and not the last). The act defined a U.S. dollar as 371.25 grams of silver or 24.75 grams of gold. In other words, Hamilton pegged the Gold/Silver ratio at 15. In 1834, Congress had to bump it up to 16. The all-time high for the Gold/Silver Ratio came during the first Gulf War. On February 22, 1991, gold was going for 102 times silver.

  In 1979-80, there was an absolutely crazy rally in silver when two Texas brothers tried to buy all the silver in the world. What’s even crazier is that if it hadn’t been for those meddling exchanges, they would have gotten away with it.

  When Nelson Bunker Hunt and Herbert Hunt started their plan, silver was around $6 per ounce. By early 1980, it rose to $50 per ounce. Time Magazine estimated they made between $2 billion and $4 billion in just nine months. To pull this off, they had to borrow zillions of dollars. At one point, it was estimated that they held one-third of the world’s silver. Tiffany (TIF) took out a full-page article to denounce them.

  Since I’m probably the only person who knows this trivia, the Hunt brothers were the sons of the legendary oilman, Haroldson Lafayette “H.L” Hunt, Jr. Hunt the senior wrote a totally batshit-crazy novel based on his idea of a fascist utopia called “Alpaca.” It’s literally one of the worst books ever written. I remember one person calling it “1984, but Big Brother is the good guy.” I wish I were making this up.

  Not all the Hunts were nuts. Lamar Hunt was one of the most influential people in the development of modern football. He was the one who came up with the name “Super Bowl.”

  Anyway, back to silver. The Hunts were convinced that the Establishment was out to crush them and they were pretty much right. The exchange changed the margin requirement which forced the brothers to put up much more collateral. (By the way, one of my first jobs in this industry was making margin calls. That’s not a metaphor. I had to actually call people to tell them they had to sell or put up more money. Good times!)

  On March 27, 1980, the bottom fell out of the silver market. This is now known as “Silver Thursday.” The Hunts had to put up more money, but they couldn’t reach their margin requirement. The government was worried (tell me if you’ve heard this one before) that Wall Street banks were so much in debt to the Hunts that if the Hunts went under, so would the banks. In fact, a silver panic could start a banking panic.

  The Hunts had finally been broken, and even today, silver is still far short of its peak in 1980. The Hunts eventually become the models for brothers Randolph and Mortimer Duke in the movie Trading Places.

• Ugly Earnings Reports from McDonald’s
  Eddy Elfenbein, October 21st, 2014 at 9:22 pm

  Earlier today, McDonald’s ($MCD) posted its third-quarter results and they weren’t pretty. Net profits plunged 30% to $1.09 per share. Revenue fell 5% to $6.99 billion. The Street had been expecting $7.19 billion.

  Excluding a bunch of charges, the burger giant earned $1.51 per share which was 14 cents better than expectations. That’s about the only sliver of good news. The details of MCD’s report are not good. Same-store sales fell by 3.3% which was more than expected. Compare that to Chipotle where same-store sales grew by 19.8%.

  In Europe, McDonald’s same-store sales were down 1.4%, and in China, they dropped by 22.7%. There was a scandal in China involving a supplier changing expiration dates. (When it rains, it pours…)

  The company realizes they’re in trouble and need to turn themselves around. The shares lost 0.63% today. The big dividend is helping temper some of the decline. MCD now yields 3.74%.

• The S&P 500 Jumps 1.96%
  Eddy Elfenbein, October 21st, 2014 at 6:59 pm

  The S&P 500 rose 1.96% today to close at 1,941.28. This was the index’s best day all year. In fact, it was the index’s best day in more than a year. The last time the S&P 500 had a better day was on October 10, 2013 when it rallied 2.18%.

  Looking at the chart below you can see how much daily volatility has picked up. Over a three-month period, from April to July, the S&P 500 didn’t have a single day where it rose or fell by more than 1%. In the last 19 days, it’s happened 10 times.

  

• Joe Weisenthal to Host Show on Bloomberg
  Eddy Elfenbein, October 21st, 2014 at 6:28 pm

  Nine years ago, Barron’s wrote a small piece on two newfangled financial “bloggers.” This was a fairly novel concept at the time. The two bloggers were me and Joe Weisenthal. I’m still here but Joe has gone on to bigger and better things.

  I’m very happy by today’s news that Joe will be heading to Bloomberg to host a TV show and edit for a site about the markets. No one is more dedicated to financial news than Joe. I look forward to the show and I know he’ll do a great job.