CR Bard’s Earnings Report
Eddy Elfenbein, April 23rd, 2017 at 6:39 pm
Not that it matters much now, but CR Bard (BCR) just released their Q1 earnings report which was scheduled for later this week.
Bard had previously said they expected Q1 EPS between $2.60 and $2.66, and full-year EPS between $11.45 and $11.75. It turns out for Q1, they made $2.87 per share. They now expect full-year EPS between $11.65 and $11.90. For Q2, they’re expecting $2.75 to $2.85 per share. Wall Street had been expecting $2.87.
I’ve lifted our Buy Below on BCR to $330 per share.
First quarter 2017 net sales were $938.8 million, an increase of 7 percent on an as-reported basis over the prior-year period. Excluding the impact of foreign exchange, first quarter 2017 net sales increased 8 percent over the prior-year period. Divested products and acquisitions in the last twelve months favorably impacted net sales growth by approximately 70 basis points.
For the first quarter 2017, net sales in the U.S. were $657.2 million and net sales outside the U.S. were $281.6 million, an increase of 5 percent and 14 percent, respectively, over the prior-year period. Excluding the impact of foreign exchange, first quarter 2017 net sales outside the U.S. increased 17 percent over the prior-year period.
For the first quarter 2017, net income was $178.1 million and diluted earnings per share were $2.37, an increase of 53 percent and 54 percent, respectively, as compared to first quarter 2016 results. Adjusting for amortization of intangibles and certain items that affect comparability between periods as detailed in the tables below, first quarter 2017 net income was $215.4 million and diluted earnings per share were $2.87, an increase of 22 percent and 23 percent, respectively, as compared to first quarter 2016 results.
In conjunction with the first quarter results, the company is also updating financial guidance for the full year and providing financial guidance for the second quarter of 2017. For the full year 2017, net sales are now forecasted to increase between 5 percent and 6 percent on an as-reported basis. Excluding the impact of foreign exchange, full year 2017 net sales are forecasted to increase between 6 percent and 7 percent over 2016. Full year 2017 diluted earnings per share, after adjusting for amortization of intangibles and certain items that affect comparability between periods, are projected to be between $11.65 and $11.90, representing growth between 13 percent and 16 percent compared to full year 2016 results.
For the second quarter 2017, net sales are forecasted to increase between 4 percent and 5 percent on an as-reported basis. Excluding the impact of foreign exchange, second quarter 2017 net sales are forecasted to increase between 6 percent and 7 percent over second quarter 2016. Second quarter 2017 diluted earnings per share, after adjusting for amortization of intangibles and certain items that affect comparability between periods, are projected to be between $2.75 and $2.85, representing growth between 8 percent and 12 percent compared to second quarter 2016 results.
The BCR/BDX Press Release
Eddy Elfenbein, April 23rd, 2017 at 6:32 pm
Here’s the press release:
FRANKLIN LAKES, N.J. and MURRAY HILL, N.J., April 23, 2017 /PRNewswire/ — BD (Becton, Dickinson and Company) (NYSE: BDX), a leading global medical technology company, and C. R. Bard, Inc. (NYSE: BCR), a medical technology leader in the fields of vascular, urology, oncology and surgical specialty products, announced today a definitive agreement under which BD will acquire Bard for $317.00 per Bard common share in cash and stock, for a total consideration of $24 billion. The agreement has been unanimously approved by the Boards of Directors of both companies.
The combination will create a highly differentiated medical technology company uniquely positioned to improve both the process of care and the treatment of disease for patients and healthcare providers. The transaction will build on BD’s leadership position in medication management and infection prevention with an expanded offering of solutions across the care continuum. Additionally, Bard’s strong product portfolio and innovation pipeline will increase BD’s opportunities in fast-growing clinical areas, and the combination will enhance growth opportunities for the combined company in non-U.S. markets.
This financially compelling transaction will be immediately accretive and is expected to generate high-single digit accretion to adjusted earnings per share (EPS) in fiscal year 2019. Approximately $300 million of estimated annual, pre-tax, run-rate cost synergies are expected by fiscal year 2020. Separately, BD also expects to benefit from revenue synergies beginning in fiscal year 2019. The transaction is expected to improve BD’s gross margins by approximately 300 basis points in fiscal year 2018, increase BD’s earnings per share growth trajectory to the mid-teens, and generate strong cash flow.
Vince Forlenza, BD’s chairman and chief executive officer, said, “Combining with Bard will accelerate our ability to offer more comprehensive, clinically relevant solutions to customers and patients around the globe, creating a strong partner for healthcare providers who are increasingly focused on delivering better outcomes at a lower total cost. Our two purpose-driven organizations are well-aligned strategically, sharing a strong track record of performance and a deep commitment to addressing unmet needs in today’s challenging healthcare environment. We expect the transaction to contribute meaningfully to BD’s plans for revenue growth and margin expansion, and generate outstanding value both near- and long-term for shareholders. I am excited to welcome Bard’s talented employees to our strong and dedicated team as we bring together two companies with such complementary capabilities, values and strong reputations for delivering superior results.”
Tim Ring, Bard’s chairman and chief executive officer, said, “We are confident that this combination will deliver meaningful benefits for customers and patients as we see opportunities to leverage BD’s leadership, especially in medication management and infection prevention. We also believe that we can expand our access to customers and patients through BD’s strategic selling capabilities, and that our fast-growing portfolio in emerging markets can significantly benefit from their well-established international commercial infrastructure. Our two companies share the conviction that a product leadership strategy focused on unmet needs and improved outcomes that provide economic value to the global healthcare system will provide long-term shareholder returns.”
John Weiland, Bard’s vice-chairman, president and chief operating officer, added, “BD and Bard share a common purpose with highly compatible organizations. We are very proud of the business and culture we have built over 110 years, focused on quality, integrity, innovation and service. We have long had great respect for BD and find in them a similarly strong, results-oriented culture that prioritizes execution and long-term value creation. In addition to significant benefits for our customers, patients, and shareholders, we believe this combination will provide our employees with new and exciting opportunities as part of a highly competent, dynamic global organization. We look forward to this next chapter in our company’s great history.”
Will create new opportunities to build on BD’s leadership position in medication management and infection prevention with an expanded offering of solutions across the care continuum.
Will bring together highly complementary product sets to create unmatched solutions for customers, enhancing growth opportunities for the combined company.
By combining Bard’s strong leadership position and innovation pipeline in fast-growing vascular access segments – PICCs (peripherally inserted central catheters), midlines and drug delivery ports – with BD’s leadership and innovation in IV drug preparation, dispensing, delivery and administration, the new company will be better positioned to provide end-to-end medication management solutions across the care continuum.
Will further expand BD’s leadership in infection prevention, with offerings positioned to address 75 percent of the most costly and frequent healthcare associated infections (HAIs). Through the combined solutions set, the new company will have a more comprehensive, clinically relevant offering to address Surgical Site Infections (SSIs) and Catheter-Related Blood Stream Infections (CRBSIs).
Bard’s strong product portfolio and innovation pipeline will increase BD’s opportunities in fast growing clinical areas, including peripheral vascular therapy, oncology and bio-surgery.
Bard’s clinically differentiated offerings create more meaningful scale and relevance for BD in high-growth categories of oncology and surgery.
Bard will expand BD’s focus on the treatment of disease states beyond diabetes to include peripheral vascular disease, urology, hernia and cancer.
BD’s leading global capabilities and infrastructure will further accelerate the combined company’s growth outside of the U.S., creating more opportunities for patients and clinicians around the world to benefit from BD’s and Bard’s product technology.
Together, BD and Bard will bring to market an expanded portfolio of clinically relevant products, with opportunities to drive near-term revenue synergies outside of the U.S.
Bard, which registered approximately 500 products internationally in 2016, has made significant progress expanding outside of the U.S. in recent years, particularly in emerging markets, where Bard is among the fastest growing medical technology companies.
Bard’s strong presence in vascular access and surgery will also help drive sales of the highly complementary CareFusion portfolio outside of the U.S.
The combined company will have a large and growing presence in emerging markets, including $1 billion in annual revenue in China.
Under the terms of the transaction, Bard common shareholders will be entitled to receive approximately $222.93 in cash and 0.5077 shares of BD stock per Bard share, or a total of value of $317.00 per Bard common share based on BD’s closing price on April 21, 2017. At closing, Bard shareholders will own approximately 15 percent of the combined company.
BD expects to contribute approximately $1.7 billion of available cash to fund the transaction, along with, subject to market conditions, approximately $10 billion of new debt and approximately $4.5 billion of equity and equity linked securities issued to the market. Bard shareholders will also receive $8 billion of BD common stock. BD has also obtained fully committed bridge financing. At closing, BD estimates the combined company will have pro forma leverage of approximately 4.7x and is committed to deleveraging to below 3.0x leverage within three years of closing. BD expects to continue the suspension of its share repurchase program. BD is also committed to annual dividend increases while reinvesting in the business to continue to drive long-term growth.
The transaction is subject to regulatory and Bard shareholder approvals and customary closing conditions, and is expected to close in the fall of 2017.
BD has a successful integration track record, as demonstrated by its 2015 acquisition and integration of CareFusion. BD has put in place a plan to ensure a seamless integration with Bard. A designated integration team, comprised of senior members of both organizations, will be led by Bill Tozzi, a seasoned BD executive who most recently served as worldwide president of the Medication and Procedural Solutions business and earlier was corporate controller for BD. At the closing of the transaction, Tim Ring, chairman and chief executive of Bard, and an additional Bard director, are expected to join the BD Board of Directors, which will be expanded by two directors. BD is confident in its ability to achieve synergies as it brings together two world class companies and expects to offer opportunities for talented employees to become part of an even more dynamic global leader.
BD Organizational Update
BD expects to create a third segment within the company – BD Interventional — where the Bard businesses will report both operationally and financially. BD is separately announcing today the appointment of Tom Polen, 43, currently executive vice president and president of the BD Medical Segment, as president of BD, effective immediately. In his new role, Mr. Polen will oversee BD’s Medical and Life Sciences segments, as well as the new Interventional segment.
Transaction Conference Call and Webcast Information
BD and Bard will conduct a live conference call and webcast on April 24, 2017 at 8:00 a.m. (ET). The webcast of the conference call, along with related slides, will be accessible through BD’s and Bard’s websites. The conference call will also be available for replay through BD’s and Bard’s websites, or at (800) 585-8367 (domestic) and (404) 537-3406 (international) through the close of business on May 1, 2017, confirmation number 13011331.
BD Earnings Update
BD’s earnings conference call, previously scheduled for Thursday, May 4, 2017, has been rescheduled for Tuesday, May 2, 2017, at 8:00 a.m. (ET). BD will issue a press release detailing the quarter’s earnings earlier that morning. The webcast of the conference call, along with related slides, will be accessible through BD’s website at www.BD.com/investors and will be available for replay through Thursday, May 9, 2017.
Bard Earnings Update
Bard separately today announced first quarter 2017 financial results, which are available on Bard’s corporate website, and is canceling the previously scheduled earnings conference call on April 26, 2017.
Perella Weinberg Partners LP is acting as lead financial advisor to BD. Citi is also serving as a financial advisor to BD and will be providing fully committed financing. Skadden, Arps, Slate, Meagher & Flom LLP provided legal counsel to BD. Goldman, Sachs & Co. served as financial advisor to Bard. Wachtell, Lipton, Rosen & Katz served as legal advisor to Bard.
CWS Market Review – February 23, 2017
Eddy Elfenbein, April 23rd, 2017 at 6:09 pm
This is terrific news and it’s great seeing a long position get rewarded so handsomely.
Here’s how the deal work. BCR shareholders will get $222.93 per share in cash plus 0.5077 shares of BDX. That works out to $317 based on Friday’s close.
Here’s the press release.
Don’t worry. There’s nothing you have to do right now. The deal is expected to close this fall. I’ll have more details in upcoming issues of CWS Market Review. But first, I wanted to let you about this news as soon as possible.
CWS Market Review – April 21, 2017
Eddy Elfenbein, April 21st, 2017 at 7:08 am
“The market owes you nothing. Take full responsibility for everything that happens and your results will improve.” – Dan Zanger
We’re now in the high tide of earnings season. So far, 82 companies in the S&P 500 have reported earnings. Of those, 75% have beaten Wall Street’s expectations. Bear in mind that expectations are expected to be beaten. If you don’t beat expectations…well, that’s simply not expected. In recent years, the expectations’ “beat rate” has averaged 71%.
Our earnings have been very strong so far. We had five Buy List earnings reports this week, and all five topped expectations. After its earnings report, Snap-on jumped more than 5.7%, but Alliance Data Systems was our big winner. After its report, ADS rallied 8.3%. (Yes, this is the same stock recently rated “underperform” by Oppenheimer.)
We have nine more Buy List earnings reports due next week. This week’s issue will be all about earnings. I’ll run down the five reports from this week, and I’ll preview the coming batch for next week. By the way, you can always check out our complete Earnings Calendar. Now, let’s get to this week’s reports!
Five Buy List Earnings This Week
On Wednesday, Signature Bank (SBNY) led off our earnings parade by reporting very strong Q1 earnings of $2.15 per share. That’s 10 cents more than estimates, and it compares with $1.97 per share for last year’s Q1. On a technical note, the Q1 figure doesn’t include a tax benefit of $14.4 million.
Digging into the details, Signature’s numbers were strong. Net interest income rose 8.4%. Total assets increased 15.4% to $40.27 billion. In the last year, total deposits are up 17.2%. The key figure for any bank is net interest margin. For Q1, that was 3.14% for Signature. The medallion loans are still a headache, but it’s a manageable problem.
Signature’s stock has been sliding back for the last few weeks. On Monday, shares of SBNY slipped below $136. After the earnings report, the stock gapped up, then shot back down. Traders finally decided (correctly) that it was a decent report, and SBNY closed Thursday at $139.95 per share. Don’t let the volatility scare you. This week, I’m dropping our Buy Below down to $152 per share.
Thursday morning was very busy for us with four earnings reports. Let’s start with Alliance Data Systems (ADS), which was the big star. ADS reported “core” EPS of $3.91 per share which beat estimates by five cents per share. Quarterly revenue rose 12.1% to $1.88 billion. That topped estimates by $70 million.
This was a very good quarter for ADS. They’re standing by their full-year EPS guidance of $18.50. CEO Ed Heffernan said, “Overall, our outlook for full-year 2017 results remains consistent, and all indications continue to support our belief that a significant acceleration (or what I refer to as a ‘slingshot’) will occur in our core EPS growth rate as we move into the back half of 2017, and throughout 2018.”
On Wednesday, the shares gained $19.99 to close at $260.63. That’s a gain of 8.71%. (Last week, you may recall, Oppenheimer initiated coverage on ADS with an “underperform” rating. Nice timing, there!) This week, I’m raising our Buy Below price on Alliance Data Systems to $266 per share.
Moving on to Danaher (DHR), the company reported Q1 earnings of 85 cents per share. That beat estimates by a penny. Previously, the company said they expected Q1 earnings to range between 82 and 85 cents per share. Quarterly revenues rose 7% to $4.2 billion, and core revenue grew by 2.5%.
Danaher said they expect Q2 earnings between 95 and 98 cents per share. Wall Street had been expecting 99 cents. The company reiterated their full-year guidance of $3.85 to $3.95 per share.
As I look at Danaher’s report, there’s literally not one figure that should surprise anyone. This is what I expected. CEO Thomas Joyce said, “We are off to a good start in 2017.” Still, the shares dropped 4.1% after the earnings report. Danaher remains a buy up to $90 per share.
Sherwin-Williams (SHW) also had a very strong quarter. The paint people earned $2.27 per share for Q1. That was well ahead of Wall Street’s estimates of $2.05 per share. Previously, the company told us to expect a range between $2.03 and $2.12 per share. Sherwin saw particular strength in their Paint Stores Group.
For Q2, Sherwin expects earnings to range between $4.40 and $4.60 per share (that doesn’t include an adjustment of 25 cents per share for acquisition costs). Wall Street had been expecting $4.43 per share. For the whole year, the company now expects $14.05 to $14.25 per share (40 cents for acquisition costs). Wall Street had been expecting $13.71 per share. Sherwin’s previous range was $13.60 to $13.80 per share. This is very good news.
SHW jumped 4% on Thursday. It’s now one of our three 20% winners on the year. This week, I’m lifting my Buy Below on Sherwin-Williams to $331 per share.
For Q1, Snap-on reported earnings of $2.39 per share. That was three cents better than estimates, and it compares with $2.16 per share one year ago. Quarterly revenue grew 6.3% to $887.1 million which beat estimates of $876.9 million.
The stock jumped 5.7% in Thursday’s trading. That’s a nice change from three months ago when SNA dropped sharply after its earnings report. Snap-on remains a solid buy up to $161 per share.
Nine Earnings Reports Coming Next Week
Next week will be a very busy one for us with nine Buy List earnings reports. Express Scripts (ESRX) leads off on Monday. The stock has gotten a lot of political attention recently as some people like to blame them for high drug prices. More specifically, drug companies like to blame them for high drug prices. Shares of ESRX recently dropped to a three-year low.
For Q1, Express said it expects earnings between $1.30 and $1.34 per share. Wall Street chose the middle and expects $1.32 per share. For the whole year, Express sees EPS ranging between $6.82 and $7.02 per share. Right now, Express is a good value.
On Tuesday, Stryker (SYK) and Wabtec (WAB) are scheduled to report. For Q1, Stryker expects earnings to range between $1.40 and $1.45 per share. For all of 2017, they see earnings between $6.35 and $6.45 per share. For Q1, Wall Street expects $1.43 per share. SYK came very close to a new all-time high this week.
Wabtec had a terrible Q4 earnings report. From February 15 to March 27, the stock dropped 15%. It’s come back a little since then. Wabtec expects full-year 2017 earnings to range between $3.95 and $4.15 per share. For Q1, Wall Street is looking for 82 cents per share. Don’t bail on WAB just yet!
On Wednesday, Axalta Coating Systems (AXTA), CR Bard (BCR) and Fiserv (FISV) are up. Axalta has been a strong performer for us this year. They just bought Valspar’s Industrial Wood Coatings unit for $420 million. Wall Street is looking for earnings of 24 cents per share. They should beat that.
CR Bard continues to be a home run stock for us. We added BCR to our Buy List in 2012 at $85.50. The stock closed Thursday at $254.77 per share. (Quick lesson for investors: Many of our biggest home runs didn’t become massive winners until three or four years in.) For Q1, Bard expects EPS between $2.60 and $2.66, and between $11.45 and $11.75 for the whole year.
Fiserv is one of those companies like Danaher. I’m not terribly concerned with their quarterly earnings. They may beat or miss by a penny or two, but the larger trend is more important. Fiserv is a very solid company. Wall Street is looking for earnings of $1.19 per share.
Then on Thursday, it’s time for AFLAC (AFL), Cerner (CERN) and Microsoft (MSFT). Shares of AFLAC have come to life recently. On Thursday, the duck stock came within a penny per share of its all-time high. AFLAC has said that if the yen stays at ¥108.70 to the dollar, then they expect to make between $6.40 and $6.65 per share this year. For Q1, Wall Street expects $1.62 per share.
Cerner is our best-performing stock this year. Last year, it was one of our worst. The company said they expect Q1 earnings between 57 and 59 cents per share. Frankly, that’s lower than I hoped for. Wall Street is also subdued on Cerner. The consensus is for 57 cents per share. For the year, Cerner expects earnings between $2.44 and $2.56 per share. I’m a little cautious on Cerner right now.
Microsoft has been making so many good moves lately. The earnings have been very strong for the last few quarters and I’m expecting more of the same. Wall Street expects quarterly earnings of 70 cents per share.
HEICO Splits 5-for-4
This week, shares of HEICO (HEI) split 5-for-4. This means that shareholders now have 25% more shares. Our Buy Below price dropped from $90 to $72 per share.
For track record purposes, I assume the Buy List starts the year as a $1 million portfolio that’s equally divided among the 25 stocks. For HEICO, that meant a position of 518.4705 shares at a starting price of $77.15 per share. With the split, that becomes 648.0881 shares starting at $61.72 per share. HEICO won’t report earnings for another month.
That’s all for now. Next week will be jam-packed with earnings reports. The big economic news next week will come on Friday when the government releases its first estimate for Q1 GDP. It probably won’t be good. The Atlanta Fed’s GDPNow currently predicts Q1 growth of 0.5%. That may put off any rate hike plans for the Federal Reserve. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!
Morning News: April 21, 2017
Eddy Elfenbein, April 21st, 2017 at 6:33 am
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Update on Our Earnings Stocks
Eddy Elfenbein, April 20th, 2017 at 12:37 pm
as of 12:37
There’s Never Just One Stock Market
Eddy Elfenbein, April 20th, 2017 at 12:18 pm
Check out Josh Brown’s post from earlier today on the stealth bear market that hit Wall Street in 2015-16. He quotes Andrew Adams as saying that if you had invested in the 10 largest stocks in 2015, you would have been up 20% on the year, yet the other 490 stocks were down 3%.
The point is that we often talk about the S&P 500 as if it’s one giant stock. In reality, there are many currents and cross-currents running just below the surface. The index only tells us an average, and it’s a size-weighted average at that.
One good way to divide the market is by looking at high beta stocks compared with low vol stocks. Look at this chart from the last 20 months:
I’ll tell you that Low Vol is the blue line, which seems obvious since it’s so much less volatile. The red line is High Beta. Back to Josh’s point, we already had a nasty bear market. Sure, not everybody experienced it, but for those who did, it was rather unpleasant.
The Trump Rally was all about the red line, but the blue line started to perk up in February.
Four Buy List Earnings Reports this Morning
Eddy Elfenbein, April 20th, 2017 at 9:24 am
This was a busy morning for Buy List earnings reports. We had four before the opening bell. Let me go through each one.
Let’s start with Alliance Data Systems (ADS). The company reported “core” EPS of $3.91 per share which beat estimates by five cents per share. Quarterly revenue rose 12.1% to 1.88 billion. That topped estimates by $70 million.
This was a good quarter for ADS. They’re standing by their full-year EPS guidance of $18.50. The CEO said he expects significant acceleration in the back half of the year.
Moving on to Danaher (DHR). The company reported Q1 earnings of 85 cents per share. That beat estimates by a penny. Previously, the company said they expected Q1 earnings to range between 82 and 85 cents per share.
Danaher said they expect Q2 earnings between 95 and 98 cents per share. Wall Street had been expecting 99 cents. The company also reiterated their full-year guidance of $3.85 to $3.95 per share.
Sherwin-Williams (SHW) had a very strong quarter. The company earned $2.53 per share, but that included 34 cents from lower income, and an eight-cent charge for acquisition costs. That works out to $2.27 per share. The company had told us to expect a range between $2.03 and $2.12 per share, while Wall Street had been expecting $2.05 per share.
For Q2, Sherwin expects earnings to range between $4.40 and $4.60 per share (not including 25 cents per share in acquisition costs). Wall Street had been expecting $4.43 per share. For the whole year, the company now expects $14.05 to $14.25 per share (40 cents for acquisition costs). Wall Street had been expecting $13.71 per share. Sherwin’s previous range was $13.60 to $13.80 per share.
Last is Snap-on (SNA), which had a visit from President Trump earlier this week. The company earned $2.39 per share for Q1. That’s three cents better than estimates. Snap-on had quarterly revenues of $887.1 million which beat estimates of $876.9 million.
Q1 2017 Earnings Calendar
Eddy Elfenbein, April 20th, 2017 at 8:02 am
Over the next few weeks, 20 of our 25 Buy List stocks will report their first-quarter earnings results. Here’s a list of reporting dates, Wall Street’s consensus estimates and actual reported results: