Unemployment and Stock Returns
Posted by Eddy Elfenbein on January 27th, 2011 at 10:21 pm

One of the best times in stocks is when it’s a rotten time for everyone else. It’s sad, but true. When the stock market was a “screaming buy” in August 1982, the unemployment rate was close to 10%.

In March 2009, the jobless rate was 8.6% and it continued to rise to a peak of 10.1% in October 2009.

I broke out stock market returns since 1948 and sorted them by unemployment rate. Of the 63 years, a total of 396 months or 33 years saw the unemployment rate over 5.5%. Combined, the stock market produced an average annualized return of 15.0%.

For the remaining 360 months or 30 years, the unemployment rate was below 5.5%. The stock market produced an annualized return of 7.1%.

NICK and DLX Gave Us a Big Boost Today
Posted by Eddy Elfenbein on January 27th, 2011 at 5:44 pm

Today was an outstanding day for our Buy List. Thanks to great earnings from Nicholas Financial (NICK), that stock rallied for a 4.89% gain today. The shares closed at $12.22 which is NICK’s highest close in over four years.

The other big gainer was Deluxe (DLX) which rose 3.95% on better-than-expected earnings. The stock hit a new 52-week high today. We already have a 10.95% gain in DLX for the year.

We also saw decent gains from Ford (F) and Leucadia (LUK). Both Oracle (ORCL) and Leucadia made new 52-week highs. AFLAC (AFL) also hit a new 52-week high of $58.84 early in the day but it gave some back before the close.

For the day, the Buy List gained 0.74% which was well ahead of the 0.22% gain for the S&P 500. For the year thus far, we’re up 5.52% compared with the S&P 500’s 3.33%.

This is shaping up to be one of the best Januarys for Wall Street in a long time. My advice: Don’t get used to it.

Hawkins -17%, I Called It
Posted by Eddy Elfenbein on January 27th, 2011 at 1:46 pm

Hawkins Inc. (HWKN) is getting killed today. The stock is down about 17% due to a disappointing earnings report.

This caught Wall Street off guard, but NOT those who have been reading this website. Six weeks ago, I wrote, Time to Sell Hawkins:

I’ve watched Hawkins for years, so it’s odd for me to see the stock become so popular lately. The shares closed at a new all-time high of $49.20 — and I say that that is way too much. If I owned the stock (which I don’t), I’d sell it right now. It’s had a good ride, but $50 is simply too expensive.

Breaking Down NICK’s Earnings
Posted by Eddy Elfenbein on January 27th, 2011 at 1:07 pm

I’m looking through NICK’s earnings report and the numbers are very strong. For the calendar year, NICK earned $1.18 per share. That’s outstanding.

Even if NICK merely maintains the 38 cents per share rate of this past quarter for all of 2011, they’ll earn $1.52. That’s not even including the company’s overall net portfolio yield of about 7%.

I always like how the company breaks down the numbers in their reports. You can check out this spreadsheet for all the important numbers.

The story with NICK is that their portfolio has continued to do well but the provision for credit losses took a large bite out of the bottom line.

Here’s a look at NICK’s pre-tax earnings yield plus the credit losses. When you add them together, you can see that it’s been pretty stable.

Nicholas Financial Earns 38 Cents Per Share
Posted by Eddy Elfenbein on January 27th, 2011 at 10:07 am

More great earnings today, this time from Nicholas Financial (NICK): For their fiscal third quarter, NICK earned 38 cents per share which is a big jump from 25 cents per share last year.

Nicholas Financial, Inc. (NASDAQ: NICK), announced that for for the three months ended December 31, 2010 net earnings increased 54% to $4,475,000 as compared to $2,909,000 for the three months ended December 31, 2009. Per share diluted net earnings increased 52% to $0.38 as compared to $0.25 for the three months ended December 31, 2009. Revenue increased 11% to $15,995,000 for the three months ended December 31, 2010 as compared to $14,365,000 for the three months ended December 31, 2009.

For the nine months ended December 31, 2010, net earnings increased 58% to $12,033,000 as compared to $7,605,000 for the nine months ended December 31, 2009. Per share diluted net earnings increased 55% to $1.01 as compared to $0.65 for the nine months ended December 31, 2009. Revenue increased 11% to $46,679,000 for the nine months ended December 31, 2010 as compared to $42,216,000 for the nine months ended December 31, 2009.

According to Peter L. Vosotas, Chairman and CEO, “We are pleased to report record 3rd quarter revenue and earnings. Our results were favorably impacted by an increase in revenues and a reduction in the net charge-off rate. In the third quarter the Company entered the Illinois and Missouri markets, where we have signed leases for new branch locations in Chicago and St. Louis. We expect these new locations to be fully operational by the end of the fourth quarter. The Company will then operate in fourteen states with a total of 56 branch locations.

Nicholas Financial, Inc. is one of the largest publicly traded specialty consumer finance companies based in the Southeastern states. The Company presently operates 54 branch locations in both the Southeastern and the Midwestern states. The Company has approximately 11,800,000 shares of common stock outstanding. For an index of Nicholas Financial, Inc.’s news releases or to obtain a specific release, visit our web site at www.nicholasfinancial.com.

Deluxe Earned 78 Cents Per Share
Posted by Eddy Elfenbein on January 27th, 2011 at 9:29 am

Deluxe (DLX) just reported adjusted earnings of 78 cents per share which was seven cents more than expectations. They also gave EPS guidance of $2.85 to $3.10 for this year which makes the forward P/E Ratio somewhere around eight.

Here’s the press release:

Deluxe Corporation (NYSE:DLX – News) reported fourth quarter revenue of $351.5 million, up 3% compared to the prior year, and adjusted diluted earnings per share (EPS) of $0.78 compared to $0.70 in the prior year. Adjusted diluted EPS for both periods excludes restructuring costs related to our cost reduction initiatives. Adjusted diluted EPS for 2009 also excludes the impact of transaction-related costs associated with acquisitions. Earnings were better than the previous outlook for the current period due primarily to favorable product mix, cost reduction and spending controls and a lower effective tax rate.

Reported diluted EPS was $0.68 on net income of $34.8 million in the fourth quarter of 2010 and was $0.59 on net income of $30.5 million in the comparable quarter of 2009. Results for 2010 include restructuring-related costs of $7.8 million, or $0.10 per diluted share, associated with infrastructure consolidations, operational improvements in sales, marketing and fulfillment, and other cost reduction initiatives. Results for 2009 included restructuring and transaction-related costs of $8.7 million, or $0.11 per diluted share.

“We are pleased to finish the year by delivering another solid quarter,” said Lee Schram, CEO of Deluxe. “With strong performance in all three segments, we reported revenue near the high end of our expectations. Business services revenue grew 17 percent over last year, while checks and forms performed well against our expectations. All this, combined with continued strong execution against our cost reduction program and spending controls drove higher than expected earnings per share.”

Fourth Quarter Performance

Revenue for the quarter was $351.5 million compared to $340.3 million during the fourth quarter of 2009. Small Business Services segment revenue of $204.2 million was $1.8 million lower than the comparable 2009 quarter as growth in business services, the Safeguard distributor channel and the Canadian businesses nearly off-set the decline in check and form usage. Financial Services revenue was $6.9 million lower than the fourth quarter of 2009 driven by lower order volume. Direct Checks revenue increased $19.9 million due to $21.5 million of revenue from the April 2010 acquisition of Custom Direct, Inc. Excluding the effect of Custom Direct products, Direct Checks would have been down only 4 percent due to strong customer re-order performance.

Gross margin was 64.0 percent of revenue compared to 62.8 percent in 2009. The favorable impact of the Company’s cost reduction initiatives was partially offset by increased material costs and delivery rates.

Selling, general and administrative (SG&A) expense increased $5.5 million in the quarter compared to 2009. Increased SG&A expense associated with the Custom Direct acquisition and our brand awareness and direct response advertising campaigns were partially offset by benefits from the continued execution of our cost reduction initiatives.

Operating income in 2010 was $60.9 million compared to $55.8 million in the fourth quarter of 2009. Operating income was 17.3 percent of revenue compared to 16.4 percent in the prior year driven primarily by benefits from our cost reduction initiatives.

Reported diluted EPS increased $0.09 from the prior year driven by the higher operating income and a lower effective tax rate.

Fourth Quarter Performance by Business Segment

Small Business Services revenue was $204.2 million versus $206.0 million in 2009. Revenue was lower in the quarter as growth in business services, the Safeguard distribution channel and the Canadian businesses did not fully offset volume declines in checks and forms. Operating income in 2010 increased to $32.7 million from $23.6 million in 2009. Restructuring and transaction-related costs were $4.2 million lower than in 2009.

Financial Services revenue was $88.0 million compared to $94.9 million in 2009. The decrease was primarily due to lower order volumes caused by check usage declines, partly offset by growth from non-check services. Operating income in 2010 decreased to $13.0 million from $17.8 million in 2009. Restructuring-related costs were $2.7 million higher than in 2009.

Direct Checks revenue was $59.3 million compared to $39.4 million in 2009. The Custom Direct acquisition in April contributed $21.5 million in the quarter which was partly offset by lower order volume resulting from the continued decline in check usage. Operating income in 2010 was $15.2 million, compared to $14.4 million in 2009. Restructuring-related costs were $0.6 million higher than in 2009.

Cash Flow Performance

Cash provided by operating activities for 2010 totaled $212.6 million, an increase of $6.2 million compared to 2009. The increase was due primarily to improved earnings and a contract settlement received during the third quarter, partially offset by higher performance-based compensation payments in the first quarter and higher income tax payments.

Business Outlook

The Company stated that for the first quarter of 2011, revenue is expected to be between $342 and $350 million. Diluted EPS is expected to be between $0.68 and $0.73. For the full year, revenue is expected to be between $1.375 and $1.415 billion, and diluted EPS is expected to be between $2.85 and $3.10, which includes benefits from an incremental $65 million in cost reductions, net of investment. The Company also stated that it expects operating cash flow to be between $205 million and $225 million in 2011. Capital expenditures are expected to be approximately $35 million.

“We have made tremendous progress in transforming Deluxe and still have many opportunities ahead of us in 2011,” Schram stated. “We believe we are entering the new year well positioned to grow revenue through clear alignment on our strategic direction, focus on our customers, diversity in our channels, and the extensive depth and breadth of our product and services offerings. If the economy improves, we should have further upward opportunity in our Small Business Services revenue.”

Quarterly Dividend

The Board of Directors of Deluxe Corporation declared a regular quarterly dividend of $0.25 per share on all outstanding shares of the Company. The dividend will be payable on March 7, 2011 to shareholders of record at the close of business on February 21, 2011. The Company had 51,360,017 shares outstanding as of January 24, 2011.

The stock has been as high as $25.33 today which is a 3.1% gain.

Morning News: January 27, 2011
Posted by Eddy Elfenbein on January 27th, 2011 at 7:33 am

ECB’s Bini Smaghi: Economic Recovery Uncertainty, Inflation Risks Increase

Japan’s Credit Rating Cut to AA- by S&P on Debt Load

Davos Seeks `Shared Norms’ as Reality Turns Grim on West

Gold Declines as Investor Demand for Wealth Protection Wanes

U.S. Stock Futures Edge Up Before Earnings Deluge, Data

U.S. Treasury Notes Rise Before Fed Prepares to Buy Notes After Japan Downgrade

United Continental, US Airways Surge as Profits Top Estimates Amid Demand

Nokia Sags on Weak Outlook, 16% Profit Drop

ConocoPhillips Profit Climbs on Refining, Oil Prices

Lilly Fourth-Quarter Profit Increases More Than Analysts Estimated

Nielsen, Demand Media IPOs Soar in Debuts

Leigh Drogen: Group Buying Is A Revolution, Not a Bubble

Greatest Ad Placement Ever

Buy List Earnings Calendar
Posted by Eddy Elfenbein on January 26th, 2011 at 10:33 pm

There are still lots of holes, but hopefully they’ll all be filled in soon.

CWS Buy List +4.74% YTD
Posted by Eddy Elfenbein on January 26th, 2011 at 7:47 pm

The Dow broke 12,000 today for the first time since June 20, 2008. However, the index closed the day just below the mark at 11,985.44. The S&P 500 got as high as 1,299.74 but closed at 1,296.63 which is its highest close since August 28, 2008. So we came very close to a double milestone day.

The Buy List rose by 0.46% today which slightly beat the S&P 500’s 0.42%. For the year, the Buy List is now up 4.74% to the S&P’s 3.10%. I hope we’re on our way to our fifth-straight market-beating year.

Today was another good lesson on the benefits of diversification. Even though Abbott Labs (ABT) got knocked down today by 2.52%, other stocks picked up the slack. Moog (MOG-A), for example, hit a new 52-week high. So did Deluxe (DLX) and AFLAC (AFL). I was happy to see that AFL got as high as $58.79. I said it was going to make a run for $60.

I should add that I have no idea why ABT dropped 2.5%. It’s still a very solid stock.

I’m also happy to see Ford (F) back above $18 where it belongs.

The big winner today was Gilead Sciences (GILD). By the closing bell, shares of GILD had gained $1.50 which was close to 4%. Again, I don’t know why Wall Street reacted this way. Gilead only beat by a penny. The reason why GILD should be rising is because it’s very inexpensive. Anyway, I won’t argue with stocks heading in my direction.

Today’s FOMC Statement
Posted by Eddy Elfenbein on January 26th, 2011 at 3:17 pm

The Fed has spoken:

Information received since the Federal Open Market Committee met in December confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions. Growth in household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, while investment in nonresidential structures is still weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Nothing here is unexpected. The only major change is that Thomas Hoening, the usual sole dissenter, has rotated off the committee. The Fed plans to continue doing what it’s been doing. The market is taking this in stride. The Dow is holding above 12,000 and the S&P 500 is closing in on 1,300.