Archive for July, 2020

  • Church & Dwight Beats Earnings and Raises Guidance
    , July 31st, 2020 at 9:50 am

    Church & Dwight (CHD) reported very good earnings this morning. The household products company made 77 cents per share for its fiscal Q2. That beat the Street by 14 cents per share. Quarterly sales grew by 10.6% to $1,194.3 million.

    C&D now expect full-year sales growth of 9% to 10%. The initial outlook had been for 6.5% growth. The company also expects EPS to grow by 13%. That’s up from the initial range of 7% to 9%.

    The CEO said this was an “extraordinarily strong quarter” and I have to agree. Shares of CHD have been up as much as 5% this morning and they reached a new all-time high. The stock is up more than 33% for us this year.

  • CWS Market Review – July 31, 2020
    , July 31st, 2020 at 7:08 am

    “It is a capital mistake to theorize before one has data. Insensibly, one begins to twist facts to suit theories, instead of theories to suit facts.” – Arthur Conan Doyle

    What a busy week this has been! We had several more Buy List earnings reports. So far, our stocks are doing very well. In fact, the Buy List has nearly made back everything it lost earlier this year. The last few weeks have been particularly good for us. Since July 13, our Buy List has gained 7.53% compared with 2.88% for the S&P 500. This earnings season, all of our stocks have beaten Wall Street’s estimates (so far).

    On Thursday, the government said that the U.S. economy contracted at a 32.9% annualized rate during the third quarter (see chart below). That’s by far the worst on record. It’s three times worse than the previous record. We knew it was coming but it’s still jarring to see. Also on Thursday, we learned that jobless claims rose for the second-straight week. That’s after falling for 15 weeks in a row. I’m afraid that’s not a good sign.

    We also had a Federal Reserve meeting this week. The central bank didn’t make any changes to interest rates, but Chairman Jerome Powell said that economic growth is “well below” where it was before the pandemic. The Fed has signaled that it will keep rates near 0% though 2022. It may even be longer.

    But this week’s CWS Market Review is all about earnings. I’ll go over the seven earnings reports we got this week, and I’ll preview the batch coming next week. Let’s jump right in.

    Our Latest Buy List Earnings Reports

    Here’s our updated Earnings Calendar:

    Company Ticker Date Estimate Result
    Check Point Software CHKP 22-Jul $1.44 $1.58
    Eagle Bancorp EGBN 22-Jul $0.74 $0.90
    Globe Life GL 22-Jul $1.53 $1.65
    Silgan SLGN 22-Jul $0.65 $0.85
    Stepan SCL 22-Jul $1.20 $1.65
    Danaher DHR 23-Jul $1.08 $1.44
    Hershey HSY 23-Jul $1.13 $1.31
    RPM International RPM 27-Jul $1.01 $1.13
    AFLAC AFL 28-Jul $1.07 $1.28
    Sherwin-Williams SHW 28-Jul $5.85 $7.10
    Cerner CERN 29-Jul $0.61 $0.63
    Intercontinental Exchange ICE 30-Jul $1.04 $1.07
    Moody’s MCO 30-Jul $2.21 $2.81
    Stryker SYK 30-Jul $0.55 $0.64
    Church & Dwight CHD 31-Jul $0.63
    Trex TREX 3-Aug $0.65
    Disney DIS 4-Aug -$0.61
    Ansys ANSS 5-Aug $1.16
    Fiserv FISV 5-Aug $0.93
    Middleby MIDD 5-Aug $0.41
    Becton, Dickinson BDX 6-Aug $2.04
    Broadridge Financial Solutions BR 11-Aug $2.09

    Let’s start with RPM International (RPM). On Monday, RPM reported its fiscal Q4 earnings. This is for the quarter that ended on May 31. As I expected, due to Covid-19, the company had a tough quarter. Sales fell 8.9% but the breakdown was interesting. Sales were flat in the U.S. but down 25% internationally. While RPM withdrew its guidance, the company did say that it expected Q4 sales to fall 10% to 15%, so they beat that forecast.

    Net income fell to 84 cents per share from $1.02 per share last year. However, once you exclude charges and investment losses, then quarterly income fell 8.9% to $1.13 per share. Even though results were down, it was still the second-best quarter in the company’s history. Wall Street had been expecting earnings of $1.01 per share.

    RPM has a strong balance sheet and plenty of liquidity, so I’m hardly worried about their survival.

    For the full year, RPM made $3.07 per share. That’s an increase of 13.3% over last year. Before the virus hit, RPM had been expecting full-year earnings to range between $3.30 and $3.42 per share.

    For fiscal Q1, which ends next month, RPM expects net sales growth “in low single digits and adjusted EBIT growth of 20% or more.” RPM isn’t providing any full-year guidance yet.

    After the earnings report, shares of RPM gapped up to a new 52-week high but pulled back later. I’m raising my Buy below on RPM to $90 per share. The company has raised its dividend every year since 1973.

    On Tuesday, Sherwin-Williams (SHW) had a great earnings. For their fiscal Q2, the paint people earned $7.10 per share. That easily beat Wall Street’s estimate of $5.85 per share. Sales fell 5.6% to $4.60 billion.

    For Q2, diluted net income increased to $6.48 per share. That’s up from $5.03 per share a year ago. However, there’s also 62 cents for “acquisition-related amortization expense.” That brings us up to $7.10 per share.

    The best news is that Sherwin is increasing its full-year range to $19.21 to $20.71 per share which includes $2.54 per share in acquisition-related amortization expense. That previous range was $16.46 per share to $18.46 per share, including a $2.54 per share acquisition-related amortization expense. For Q3, the company sees net sales up or down in the low single digits.

    This was an outstanding report. Sherwin also got to a new high this week. The stock has doubled since its March low. I’m raising our Buy Below to $700 per share.

    Last week, I told you that AFLAC (AFL) should be able to beat earnings and the duck stock did just that. After the closing bell on Tuesday, AFLAC reported Q2 earnings of $1.28 per share. Total revenues were $5.4 billion which was down a bit from the $5.5 billion of one year ago.

    Net income was $805 million or $1.12 per share. That’s up from $1.09 per share for last year’s Q2. With insurance companies, we always want to look at the adjusted earnings because investment gains and losses can have a big impact on net income. Adjusting for that brings us to $1.28 per share. Wall Street had been expecting $1.07 per share.

    During Q2, the yen/dollar exchange rate averaged 107.65. That was 2.1% stronger than the average rate from last year’s Q2. That knocked off a penny per share in earnings so adjusted for currency, AFLAC’s earnings rose 12.4% to $1.27 per share.

    AFLAC is usually pretty good at giving guidance, but they don’t have much to say this time, which is understandable. The CEO did say that AFLAC is committed to defending its dividend streak of 37 consecutive annual hikes. Clearly, the company is doing well. AFLAC remains a buy up to $37 per share.

    On Wednesday, Cerner (CERN) reported fiscal Q2 earnings of 63 cents per share. The range Cerner had given was for earnings of 60 to 64 cents per share. Wall Street had been expecting 61 cents per share.

    Overall, I’m pleased with these numbers. The healthcare-IT firm said that bookings were $1.34 billion, which was $100 million above the high-end of the company’s guidance. Quarterly revenue fell 7% to $1.43 billion. That was $10 billion below the company’s expected range.

    For the quarter, Cerner had operating cash flow of $259 million and free cash flow of $64 million. Total backlog now stands at $13.66 billion.

    Now for guidance. For Q3, Cerner expects revenue to range between $1.35 billion and $1.40 billion, and they expect full-year revenue between $5.45 billion and $5.55 billion. The latter range is a downgrade from their previous guidance.

    For earnings, Cerner expects Q3 to range between 70 and 74 cents per share. For the whole year, they see earnings between $2.80 and $2.88 per share. The previous range was $2.78 to $2.90 per share. Wall Street had been expecting $2.83 per share.

    At first, the shares dropped as much as 5.5% on Thursday, but the stock gained back some ground. I was pleased with these results even though the revenue forecast was a little light. I’m lifting our Buy Below on Cerner to $75 per share.

    On Thursday, Intercontinental Exchange (ICE) reported Q2 earnings of $1.07 per share. That’s a 14% increase over last year. Revenues rose 8% to $1.4 billion. ICE’s operating margin is at 59%. Wall Street had been expecting earnings of $1.04 per share.

    So far this year, ICE has bought back $1.1 billion of its stock and paid out $330 million in dividends. For Q3, ICE expects data revenues of $575 million to $580 million. ICE remains a buy up to $100 per share.

    Stryker (SYK) had a tough quarter, but it still delivered an impressive profit. Quarterly sales fell 24%. Earnings fell 67.7% to 64 cents per share. Wall Street was looking for 55 cents per share.

    Here’s the breakdown by Stryker’s three business segments. Orthopaedics had a net sales decline of 29.9%. MedSurg’s net sales dropped 17.3% and Neurotechnology and Spine dropped by 29.6%. It was bad all across the board.

    Stryker is in a tough spot since the business environment is so poor for them. Still, it’s a solid and well-run outfit. I’m not worried about Stryker in the long term. Stryker remains a buy up to $200 per share.

    Moody’s (MCO) had an outstanding quarter. The ratings agency earned $2.81 per share. That’s 60 cents per share more than what Wall Street had been expecting.

    In fact, the results were so good that Moody’s significantly raised its earnings guidance. Moody’s now sees full-year earnings of $8.80 to $9.20 per share. That’s up from the previous forecast of $8.15 to $8.55 per share.

    This was an outstanding quarter. Moody’s remains a buy up to $290 per share.

    Six More Earnings Reports Next Week

    Church & Dwight (CHD) reports later today. This has been a steady winner for us. Unfortunately, C&D withdrew its guidance, but Wall Street expects Q2 earnings of 63 cents per share. Church & Dwight actually benefited from the coronavirus outbreak, especially brands like Arm & Hammer and some hygiene products.

    After that, we have six more earnings reports next week.

    Trex (TREX) has been a huge winner for us this year. Through Thursday, it’s up 55.6% for us. In May, Trex blew past Wall Street’s forecast for Q1. The deck company made 73 cents per share, 12 cents more than the Street’s consensus estimate. Quarterly sales rose 12% to $200 million. Gross margin rose 620 basis points to 44.8%.

    Trex has withdrawn its guidance but the company said it expects Q2 sales between $180 million and $190 million. Trex also halted all share repurchases. Their earnings report is due out on Monday. The Street consensus is for earnings of 65 cents per share.

    If I went into a lab and designed a company to be impacted by the coronavirus, it would probably look a lot like Disney (DIS). The company is focused on movies, sports and travel. It even has a cruise line. All these businesses have suffered. Disney will bounce back, but it will take time. Disney reports on Tuesday. For Q2, Wall Street is looking for a loss of 61 cents per share.

    Three more stocks are scheduled to report on Wednesday. Ansys (ANSS) had a solid report three months ago. The company made 83 cents per share which was three cents more than estimates.

    For Q2, Ansys expects earnings between $1.01 and $1.33 per share. For all of 2020, they see earnings between $5.61 and $6.23 per share. Wall Street had been expecting $1.43 for Q2 and $6.26 for the whole year.

    For Q2, Wall Street expects $1.16 per share.

    Fiserv (FISV) is having a rare “off” year for us. So far, the stock is down 13% this year. The company only matched Wall Street’s earnings three months ago. The company has also withdrawn its guidance.

    I did spot some encouraging signs in the last earnings report. For example, Fiserv’s adjusted revenue increased slightly to $3.48 billion. Free cash flow rose 3% to $760 million. Operating margin increased 10 basis points to 27.8%.

    Wall Street expects 93 cents per share for Q2. Only AFLAC and Fiserv have been on the Buy List for all 15 years.

    In the CWS Market Review issue from May 15, I told you I like Middleby (MIDD) below $60 per share. Since then, the stock has rallied over 40%. If you’re betting on an economic recovery, Middleby is a good way to play it. At one point, Middleby was down 60% for us on the year. It’s also doubled off its low. The consensus is for earnings of 41 cents per share.

    Becton, Dickinson (BDX) is due to report on Thursday. In May, Becton said it had earnings of $2.55 per share for Q1. That was 19 cents better than expectations. Quarterly revenue came in at $4.253 billion which topped the Street’s consensus of $4.13 billion. Their Life Sciences unit fared especially well.

    Becton recently got a massive order for 177 million syringes and needles for COVID-19 vaccination programs. The company withdrew its 2020 guidance. For Q2, Wall Street expects $2.04 per share.

    That’s all for now. Next week is the first week of the month and that’s when we get a lot of key economic reports. On Monday, the ISM Manufacturing Index comes out. Tuesday is factory orders. The ADP payroll report comes out on Wednesday. Thursday is another jobless-claims report. That leads us up to Friday and the July jobs report. 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!

    – Eddy

  • Morning News: July 31, 2020
    , July 31st, 2020 at 7:01 am

    Eurozone GDP Shrinks At The Fastest Rate In History, Losing 12.1% In The Second Quarter

    London’s Newest Ghost Town Was Financed by China

    How Strong Is Too Strong? Euro’s 10% Rally Fans Fears of Side Effects

    The Dollar’s Leading Rivals All Have Their Own Drawbacks

    People Fear They’ve Got Too Much Cash in Their Bank Accounts

    A Collapse That Wiped Out 5 Years of Growth, With No Bounce in Sight

    The U.S. Election Is Getting Ugly – And Investors Are Getting Nervous

    Does Trump Want to Save His Economy?

    How to Navigate the Coronavirus Real Estate Market

    Apple Delivers Blowout Earnings Amid COVID-19, Market Shrugs Off iPhone Delays

    When Tesla Hits the S&P 500, It’ll Spark the Wildest Passive Trade Ever

    Joshua Brown: Guns, Drugs or Wealth

    Michael Batnick: What Happens Next? & Smashing

    Ben Carlson: Why Is Gold Rising?

    Howard Lindzon: FAANGK – Eastman Kodak Joins FAANG Because Of The Government ‘Cash Cannon’ Game Show

    Be sure to follow me on Twitter.

  • Intercontinental Exchange Earns $1.07 per Share
    , July 30th, 2020 at 1:09 pm

    This morning, Intercontinental Exchange (ICE) reported Q2 earnings of $1.07 per share. That’s a 14% increase over last year. Revenues rose 8% to $1.4 billion. ICE’s operating margin is at 59%. Wall Street had been expecting earnings of $1.04 per share.

    Scott A. Hill, ICE Chief Financial Officer, added: “In the first half, we built on our track record of consistent revenue growth, expense discipline and earnings per share growth. This performance enabled us to return over $1.4 billion of capital to our stockholders through dividends and our stock repurchase program. As we turn to the second half, we are well positioned to achieve our growth objectives and are investing to strengthen our foundation for continued growth in the future.”

    So far this year, ICE has bought back $1.1 billion of its stock and paid out $330 million in dividends. For Q3, ICE expects data revenues of $575 million to $580 million.

  • GDP Plunges
    , July 30th, 2020 at 9:42 am

    A very busy morning. First, the Q2 GDP report showed that the U.S. economy contracted by 32.9% last quarter. That’s the steepest drop on record. As bad as it is, it actually beat expectations by a little bit. Q2 GDP is actually lower than what it was for the same quarter five years ago.

    Also this morning, initial jobless claims rose to 1.434 million. This was the second-straight weekly increase after 15 declines in a row. It was also the 19th week in a row that jobless claims topped one million.

    The S&P 500 is down about 1% in early trading.

  • Morning News: July 30, 2020
    , July 30th, 2020 at 7:04 am

    China Tries Its Favorite Economic Cure: More Construction

    German GDP Slumps By Most Since 1970 in the Second Quarter

    Winter Virus Surge Down Under Offers Warning of What’s Ahead

    A $158 Billion CLO Bet Is Putting the Insurance Industry at Risk

    The Gulf Between Republicans and Democrats on Coronavirus Aid, in 9 Charts

    How to Fight Against Big Tech’s Power

    Huawei Overtakes Samsung to Be No. 1 Smartphone Player in the World Thanks to China as Overseas Sales Drop

    Kodak Pivots to Drugs After Failing at Photography and Crypto

    As Japan Weighs Missile-Defence Options, Raytheon Lobbies for Lockheed’s $300 Million Radar Deal

    Shell’s Second-Quarter Profit Slumps 82% on Coronavirus Hit to Oil Prices, Energy Demand

    Inside Goldman’s Five-Day Race to Seal a 1MDB Deal With Malaysia

    Cullen Roche: The Investor’s Podcast Interview

    Michael Batnick: The Permanent Portfolio

    Ben Carlson: Animal Spirits: The Golden Age of Fraud

    Howard Lindzon: FAANG Goes To Congress (Without Netflix)…Should You Sell or Even Care? Maybe Just Buy More Gold….

    Be sure to follow me on Twitter.

  • Cerner Earns 63 Cents per Share
    , July 29th, 2020 at 4:23 pm

    After yesterday’s close, Cerner (CERN) reported fiscal Q2 earnings of 63 cents per share. The range Cerner had given is was for earnings of 60 to 64 cents per share. Wall Street had been expecting 61 cents per share.

    Overall, I’m pleased with these numbers. Cerner said that bookings were $1.34 billion, which was $100 above the high-end of the company’s guidance. Quarterly revenue fell 7% to $1.43 billion. That was $10 billion below the company’s expected range.

    For the quarter, Cerner had operating cash flow of $259 million and free cash flow of $64 million. Total backlog now stands at $13.66 billion.

    “Cerner’s solid results during the pandemic reflect the commitment of our associates, the importance of Cerner’s solutions, and the resiliency of our business model,” said Brent Shafer, Chairman and CEO. “Our clients are heroes on the frontlines providing health care, and I am proud of Cerner’s ability to support them. COVID19 has brought Cerner’s vision and mission to life and strengthened our belief that Cerner is well-positioned to play a key role in shaping the future of health care.”

    Now for guidance. For Q3, Cerner expects revenue to range between $1.35 billion and $1.40 billion, and they expect full-year revenue between $5.45 billion and $5.55 billion. The latter range is a downgrade from their previous guidance.

    For earnings, Cerner expects Q3 to range between 70 and 74 cents per share. For the whole year, they see earnings between $2.80 and $2.88 per share. The previous range was $2.78 to $2.90 per share. Wall Street had been expecting $2.83 per share.

  • Today’s Fed Statement
    , July 29th, 2020 at 2:17 pm

    Here’s the statement. Nothing unexpected.

    The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

    The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

    The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

    The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

    To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor developments and is prepared to adjust its plans as appropriate.

    Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.

  • Barron’s on Sherwin-Williams
    , July 29th, 2020 at 1:48 pm

    Barron’s highlights the strong earnings for Sherwin-Williams (SHW):

    Covid-19 wasn’t all good news for the company: Net sales in its Americas group fell 8.4% in the quarter and fell 1.7% for the first half of the year as a whole, as DIY demand wasn’t able to make up for declines in other end markets. Its performance coatings group saw sales slip 16.5% and 9% for the quarter and first half, respectively. However, sales in its consumer brands group climbed 21.8% in the quarter and 9.8% in the first six months of 2020.

    For the full year, Sherwin-Williams expects to earn between $21.75 and $23.25 a share, up from its previous range of $19 to $21 a share, and above the $20.33 consensus estimate. (Its forecast excludes $2.54 a share in amortization expenses related to acquisitions.)

    Expectations were already high going into the report, given how much consumers are spending on their homes. Sherwin-Williams is up 1.4% to $642.55 in morning trading, bolstered by the strong results. The shares have gained 10% since the start of the year, while the S&P 500 is up less than 1% over the same period.

    However the company’s bottom-line results were much better than expected: Not only are people redoing their own homes, but new-home construction has led to an increase in demand from professionals as well. Many companies aren’t providing full-year guidance. Sherwin-Williams’ ability to raise its forecast—and say it plans to resume buying back shares in the second half of the year—was a welcome development.

  • Morning News: July 29, 2020
    , July 29th, 2020 at 7:02 am

    U.S. Is About to Unveil the Ugliest GDP Report Ever Recorded

    Americans Aren’t Making Babies, and That’s Bad for the Economy

    Where Expiring $600 Unemployment Checks Will Hurt Most

    Fed Faces Viral Wave, Mounting Risks to Recovery

    Oil and Gas Groups See ‘Some Common Ground’ in Biden Energy Plan

    A Handbook to Today’s Tech Hearing

    Fintechs Face Pressure To Grow Up As Coronavirus Casts A Chill

    All Eyes On Pandemic, Economy As Detroit Automakers Post Results

    Deutsche Bank Posts Earnings Beat As Restructuring Continues Amid The Pandemic

    Howard Lindzon: The DTC-fication Of The US Economy…Web Smith Joins Me On Panic With Friends

    Ben Carlson: What If We Get Inflation But Interest Rates Don’t Rise?

    Roger Nusbaum: All Weather Life

    Nick Maggiulli: You Don’t Need Alpha

    Michael Batnick: Does the Financial Media Affect the Stock Market?

    Joshua Brown: The Biggest Earnings Day Ever, The 10 Most Indebted Companies on Earth & Bitcoin Got the Gold Memo

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