Archive for 2013

• Morning News: July 31, 2013
  Eddy Elfenbein, July 31st, 2013 at 6:50 am

  German Unemployment Rises to 6.8% in July

  Beijing Offers Growth Assurance In Its Economic Balancing Act

  Following Bernanke Means Using Precedent of Unprecedented Policy

  Obama Offers New Deal on Corporate Taxes, Jobs

  Consumer Confidence Dips a Bit

  Schneider Electric to Buy Invensys for $5.2 Billion

  BNP Paribas Quarterly Net Falls 4.7% on Loan Provisions

  Panasonic’s Quarterly Profit Soars to $1.1 Billion

  Tough Times for the ‘Biggest Victim’ in Smartphone War

  Potash Sector Rocked as Russia’s Uralkali Quits Cartel

  AB InBev Profits From Premium Lagers, Price Hikes

  Bill Ackman’s Herbalife Nightmare Gets 100 Percent Worse

  JPMorgan Top Exec Blythe Masters Dodges Penalty As Bank Settles Energy Manipulation Charges For $410 Million

  Credit Writedowns: House Price Inflation Causing Problems for Many in the U.S.

  Cullen Roche: Why Didn’t QE Cause High Inflation?

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• Strong Earnings from Fiserv and AFLAC
  Eddy Elfenbein, July 30th, 2013 at 9:23 pm

  Thanks to a very good earnings report from Harris Corp. ($HRS), our Buy List had another market-beating day. Shares of HRS eventually closed at $56.97 which is a gain of 7.84% for the day. While the broader indexes are just shy of their all-time highs, the Nasdaq closed today at its highest level since September 29, 2000.

  The market was also excited that Facebook ($FB) climbed all the way back its IPO price. So IPO investors are back up to…nothing!

  After the closing bell, we had two more Buy List earnings reports; Fiserv ($FISV) and AFLAC ($AFL). For the second quarter, Fiserv earned $1.50 per share which was six cents better than Wall Street’s consensus. That’s a very good number. Quarterly revenues rose 11.8% to $1.14 billion which was a bit short of consensus.

  Fiserv said:

  Our strong second quarter results included revenue and earnings acceleration in-line with our full-year expectations,” said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. “Performance was led by 7 percent adjusted internal revenue growth in our Payments segment, solid sales and excellent free cash flow.

  Fiserv reiterated its full-year guidance of earnings ranging between $5.84 and $6.03 per share. For the first six months of 2013, Fiserv had earned $2.83 per share so I think they’re well on their way to hitting that guidance. Earnings are up 16% so far this year, and cash flow is up 22%. This company is clearly doing well. The stock is up 3.55% in the after-hours market.

  AFLAC reported Q2 operating earnings of $1.62 per share which was 11 cents better than estimates. Three months ago, the company gave us a range of $1.41 to $1.56 per share, so business is going better-than-expected. Plus, we have to consider that the yen/dollar exchange rate knocked 22 cents off earnings. Without that, operating earnings rose by 14.3%.

  For Q3, AFLAC sees operating earnings ranging between $1.41 and $1.51 per share. That’s less than the $1.56 per share Wall Street had been expecting. For the full-year guidance, AFLAC lowered the low-end of their range. The previous range was $5.99 to $6.37 per share. Now it’s $5.83 to $6.37 per share.

  Dan Amos, the CEO, said:

  Our objective for 2013 is to increase operating earnings per diluted share 4% to 7%, excluding the impact of the yen. Although we are above that range for the first half of the year, we plan on increasing spending in the second half of 2013. In Japan, we will increase expenditures on advertising and promotion for our new product launch in August. In the United States, we anticipate increased costs associated with initiatives related to health care reform. As such, we expect operating earnings to increase approximately 5% for the full year, before the impact of foreign currency. We will face a difficult comparison in the third quarter due to the tax benefit of $.10 per diluted share recognized in the same period last year. If the yen averages 95 to 105 to the dollar for the third quarter, we would expect earnings in the third quarter to be approximately $1.41 to $1.51 per diluted share. Using that same exchange rate assumption, we would expect full-year reported operating earnings to be about $5.83 to $6.37 per diluted share.

• Harris Jumps Nearly 8%
  Eddy Elfenbein, July 30th, 2013 at 10:04 am

  The S&P 500 broke above 1,693 this morning. Thanks to its great earnings report, Harris Corp. ($HRS) has jumped to $56.95 which is a 7.8% gain. After the close, we’ll get earnings reports from AFLAC ($AFL) and Fiserv ($FISV).

  

  Second-quarter earnings season is going well so far. Exactly 300 of the 500 stocks in the S&P 500 have reported, and 73% have beaten on sales while 55% have beaten on earnings. Of course, expectations for Q2 had been falling for more than a year.

  Today is the first day of the Fed’s two-day meeting. The policy statement will come out tomorrow. This is interesting because this meeting isn’t expected to be very important but the following meeting, in September, is expected to be very important. A growing number of Fed watchers think the central bank will announce its first tapering of its bond buying program. There may be some hints in tomorrow’s statement, but I doubt it will contain much.

  In March, I noted that Coach ($COH) had dropped to $48.43 per share which was cheap on a valuation basis, but there were good reasons for the low valuation. Since then, the stock has rallied to $60 per share. Today, however, the shares are getting slammed thanks to poor results in North America. Profits for the quarter fell 12%. Shares of COH are currently down $5 or 8.7%. I don’t think the problems are close to being fixed.

• Harris Reports Great Earnings
  Eddy Elfenbein, July 30th, 2013 at 9:05 am

  This morning, Harris Corp. ($HRS) reported fiscal fourth-quarter earnings of $1.41 per share which was 26 cents better than expectations. That’s a huge beat. Quarterly revenue dropped 5.3% to $1.36 billion which still topped estimates of $1.31 billion.

  Harris also had very good guidance for next year. For fiscal 2014, which ends in June of 2014, Harris sees earnings ranging between $4.65 to $4.85 per share on revenues of $4.95 to $5.05 billion. The Street had been expecting earnings of $4.62 per share on revenues of $5.03 billion. For the year, Harris earned $4.90 per share compared with $5.20 per share last year. Much of the decline was due to the government sequester.

  Fourth quarter results were solid in a tough government spending environment,” said William M. Brown, president and chief executive officer. “Performance benefited from our commitment to operational excellence and ongoing cost-reduction efforts, including restructuring actions announced in April that were executed faster than expected and generated fourth quarter cost savings. As we enter fiscal 2014, we now expect that restructuring and other actions will generate net annualized cost savings of approximately $60 million.”

  “We were particularly encouraged by the strong new orders momentum in the international tactical radio market. With a tactical book-to-bill of 1.49 and greater than one in both international and U.S. markets, tactical backlog increased substantially in the fourth quarter.”

  Harris is another good example of a high-quality stock delivering results after sluggish performance of its stock. Shares of Harris are only up 8% YTD which makes it one of the poorer performers on our Buy List. But what hasn’t changed is that it’s still a very well-run outfit.

• Morning News: July 30, 2013
  Eddy Elfenbein, July 30th, 2013 at 6:59 am

  We Don’t Know Where Larry Summers Stands On The Most Important Issue Facing The Fed

  Legal Costs Hit Deutsche Bank

  Barclays to Raise $12 Billion in New Capital

  Fiat Profit Rises as Spending Cuts Narrow European Losses

  JPMorgan Accused of Gaming Energy Bids as FERC Deal Looms

  Sony Earnings Face Setback as Loeb Criticizes Movie Unit

  BP Profit Misses Estimates as Gulf Spill Estimate Raised

  UBS Profit Rose 32% in Second Quarter

  Alcatel Posts Strong Second-Quarter, Signs Qualcomm Partnership

  Pfizer Earnings Beat Forecasts As Drugmaker Plans Split

  Hudson’s Bay Buying Saks for About $2.4 Billion

  7-Eleven Adds Bento Rigor to Slurpee Appeal in U.S. Push

  Icahn Rips Apart Dell’s Push For Deal Changes In Open Letter

  Jeff Carter: Who Raises Their Standard of Living in the Sharing Economy?

  Joshua Brown: Remember When Sequestration Was Going To Crush The Defense Stocks?

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• The NIPA Revisions
  Eddy Elfenbein, July 29th, 2013 at 1:03 pm

  This week, the government will revise the entire NIPA dataset which includes GDP. The GDP figures will be revised about 3% higher. Of course, it’s just on paper but it reflects how we think about the economy.

  Matthew Yglesias explains:

  Good news, Americans—you’re about to get richer.

  Well, not you, personally. But you in your capacity as a citizen of the mightiest economic empire the world has ever known. The Commerce Department’s Bureau of Economic Analysis is prepared to announce that America’s gross domestic product is 3 percent larger than previously estimated—about $1,500 extra worth of goods and services per person. What did we do to get so lucky?

  Nothing. We did nothing. But we’re getting richer anyway. As Robin Harding first reported over the weekend, we’re getting richer on paper because the BEA is changing how it calculates the national income and product accounts (NIPA) to bring it into line with recommendations promulgated by the United Nations back in 2008. The main idea is that in an economy that increasingly depends on the production of intangible goods, we need to recognize that the production of ideas is an important form of investment. So in the future, the BEA is going to count a company’s research and development as a form of investment just like the purchase of a new office building. And the creation of a durable work of art—a film, a season of television—that can be sold year after year will, likewise, be treated as a capital investment. These new calculations will also be applied retroactively, and thus, like magic, we’ll all be richer. Or, at a minimum, learn that we’ve been richer all along.

• Banks Are Powering Earnings Growth
  Eddy Elfenbein, July 29th, 2013 at 10:41 am

  The stock market is down slightly in early trading this week. There isn’t much movement on the Buy List so far, except that Nicholas Financial ($NICK) has given back a big chunk of its Friday surge. NICK closed last week at $15.94. Interestingly, that was on very heavy volume. There’s only been 800 shares today, but the last trade went off at $15.29.

  On Thursday, Ford Motor ($F) lost a big part of its Wednesday rally. But the stock is currently back above $17 per share. We have a bunch more earnings this week, plus a Fed meeting and a jobs report. The government will also revised the entire set of its NIPA data. This means we will have entirely new numbers for the GDP data series. There’s nothing so surprising as the past.

  The latest numbers show that 265 companies in the S&P 500 have reported Q2 earnings so far. Of that, 73% have beaten on earnings and 56% have beaten on sales. That’s not bad. Of course, banks have been doing the heavy lifting:

  Earnings for companies in the S&P 500 are projected to climb 3.3 percent, led by a 27 percent increase in bank profits, based on more than 11,000 analyst projections compiled by Bloomberg. Without the financial industry, S&P 500 income would contract 1.2 percent.

  The National Association of Realtors said that pending home sales fell 1% in June. This is interesting to watch because rising mortgage rates have impacted the housing market, but I don’t think the damage will be long-lasting.

• Morning News: July 29, 2013
  Eddy Elfenbein, July 29th, 2013 at 6:30 am

  Kuroda Sees Japan Economy Weathering Planned Sales-Tax Rise

  China Orders Audit Of Local Government Debt

  EU Resolves Solar-Panel Trade Dispute With China

  Schaeuble Urges Pressure on Greece to Remain Before Vote

  Wall Street Tempers M&A Outlook as CEOs Await Fed Shift

  Obama Says He Has Narrowed Decision on Next Fed Chairman

  Is The Publicis-Omnicom Merger A Sign Of Strength Or Weakness?

  PC Industry Fights to Adapt as Tablets Muscle In

  Perrigo to Buy Elan for $8.6 Billion, Get Irish Domicile

  Apple-supplier Pegatron violates China workers’ rights: China Labor Watch

  What Next For The ‘Wall Street Refiners’ As JPM Exits Physical Commodities?

  Siemens Ousts Chief Over String of Setbacks

  DEJA VU: People Are Using Borrowed Money To Buy Stock Like It’s 2007 And 1999

  Howard Lindzon: Facebook Strikes Back, Apple Sells More Devices Than The Population Of 217 Countries

  Jeff Miller: Weighing the Week Ahead: Are You Ready for Action?

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• Q2 Earnings So Far
  Eddy Elfenbein, July 26th, 2013 at 11:00 am

  We’ve just crossed the halfway point of earnings season. The latest numbers from Bloomberg show that 260 of the 500 companies have reported so far. Of those, 73% have beaten earnings expectations and 57% have beaten on sales.

  According to S&P, Q2 earnings are tracking at $26.66. (That’s an index-adjusted number. One point in the S&P 500 is worth about $9 billion.) That’s an increase of 4.84% over the Q2 from last year. Earnings for Q3 are projected to grow by 14.67%, and another 26.57% for Q4.

  Wall Street currently expects full-year earnings for 2013 of $109.25. For 2014, the Street expects $122.74. That means the market is going for 13.66 times next year’s estimate.

  

• Big Beat for Moog
  Eddy Elfenbein, July 26th, 2013 at 8:40 am

  Moog ($MOG-A) just reported earnings of 90 cents per share (the June quarter is their fiscal third). Wall Street’s consensus was for 84 cents per share. Sales rose 10% to $671 million.

  Moog Inc. announced today third quarter sales of $671 million, an increase of 10% over last year’s $611 million. Net earnings of $34 million and EPS of $.75 were both lower as a result of asset write-downs totaling $.15 per share in the quarter. Excluding the effect of the write-downs, adjusted net earnings of $41 million were up 7% from last year and adjusted earnings per share of $.90 were 6% higher.

  And now for guidance:

  The Company modified its earnings per share guidance to $3.25 for the year ending September 2013. This includes $.15 per share in restructuring charges and $.15 per share in asset write-downs described previously. Sales are now forecast at $2.58 billion, up 5% year over year, with net earnings of $149 million.

  The Company also provided its initial projections for fiscal 2014 with sales of $2.67 billion and earnings per share in a range of $3.90 to $4.10, a 23% increase at the mid-point of the range.

  “This quarter had many moving parts,” said John Scannell, CEO. “Our underlying operations were strong and our restructuring efforts are paying off. We had two asset write-downs in the quarter — one in Medical and one in Industrial. In addition, we announced a strategic review of our Medical Devices segment. For the full year 2013, we are expecting our underlying operations to deliver $3.55 per share — a respectable performance given the challenges we have faced. We will have $.15 per share in restructuring and $.15 per share in asset write-downs so our bottom line for the year will be $3.25 per share. As we look forward to fiscal 2014, we believe we will see much stronger operating performance. We’re projecting a narrow range of outcomes for earnings and EPS. The midpoint would be earnings of $185 million, or $4.00 per share, a 23% increase.”

  This is very good news. The Street had been expecting $3.39 per share for this year and $3.90 next year.

  Moog is our #1 performer this year with a 39.5% gain YTD.