• Troubled Toshiba Sells Stake in Joint Venture with Carrier
    Posted by on February 7th, 2022 at 9:16 am

    A good way to find bargains is when another company is holding a fire sale. That’s sort of what’s happening with Toshiba. The company is a bit of a mess right now and they’re taking bold action to change course.

    The original plan was to split up into three different companies. The problem was that shareholders hated the idea. Now the plan is to split into two companies and sell off “non core assets.”

    One business will be their devices business (semiconductors). The other will be its infrastructure business which will carry the Toshiba name. The rest will be called Toshiba Tec Corp. which is their electronic equipment business.

    For us, the important news is that Toshiba will sell its stake in a joint venture with Carrier Global back to Carrier for around 100 billion yen ($870 million). Toshiba now owns a 60% stake in the venture, and they’re going to sell 55% of it to Carrier.

    The planned acquisition will strengthen Carrier’s position in one of the fastest-growing HVAC segments, as well as scale its global VRF product platform with leading and differentiated technology and the addition of a renowned brand to its portfolio.

    Established in 1999, TCC designs and manufactures flexible, energy-efficient and high-performance VRF and light commercial HVAC systems utilizing its own proprietary inverter technology, as well as commercial products, compressors and heat pumps. VRF delivers high-performance heating and cooling through systems that are typically all-electric and highly efficient, consistent with Carrier’s sustainability goals to reduce its customers’ carbon footprint by more than one gigaton by 2030.

    Carrier’s acquisition will include all of TCC’s advanced research & development centers and global manufacturing operations, strong product pipeline, and the long-term use of Toshiba’s deeply respected and iconic brand.

    “Carrier sees significant growth potential in the global VRF, light commercial and heat pump segments and is excited by the opportunity to expand our business through this strategic acquisition. TCC’s proven R&D expertise, strong global brand and talented employees will be tremendous additions to Carrier’s multi-brand channel strategy,” said Dave Gitlin, Chairman & CEO, Carrier. “We look forward to offering complementary, high-performance and sustainable solutions to our customers that will help them achieve their environmental goals.”

    The global market for VRF and light commercial equipment is the fastest growing HVAC equipment segment. Upon close, the acquisition will position Carrier as a VRF leader, more than doubling its sales in the market segment.

    “We are pleased that TCC employees will continue the growth and innovation journey of Toshiba’s HVAC business as part of Carrier, benefiting from its unparalleled global reach, strong dealer network and shared history of innovation,” said Satoshi Tsunakawa, President & CEO, Toshiba. “This is a value-enhancing opportunity for investors, customers and employees.”

    Today’s announcement builds on Carrier’s recent acquisition of Guangdong Giwee Group, a China-based manufacturer of HVAC products, offering a portfolio of high-quality products including VRF and light commercial air conditioners.
    Combined with Carrier’s existing partnerships, the acquisition strengthens Carrier’s portfolio of innovative, environmentally responsible solutions with a broader range of highly efficient, all-electric products, positioning Carrier to lead the world’s heating and cooling sustainability transformation.

    The acquisitions also demonstrate the company’s commitment to investing in growth, while delivering on Carrier’s commitment to increase product extensions and broaden geographic coverage. In addition, the acquisition is also another step in Carrier’s continuing efforts to simplify its HVAC joint venture structure.

    The acquisition is expected to close by the end of Q3, subject to customary closing conditions, including regulatory approvals. Upon closing, Toshiba will retain a 5% ownership stake in TCC, and Carrier will consolidate over $2 billion in unconsolidated revenue.

  • Morning News: February 7, 2022
    Posted by on February 7th, 2022 at 6:14 am

    Time For a Victory Lap*

    Samsung, Blue Ocean Launch U.S. Stock Trading During South Korean Business Hours

    How China’s Communist Officials Became Venture Capitalists

    Adults Back in Charge of Stock Market as Fed Awakens Big Money

    Earnings Are Driving the Market but It’s Not Clear Where

    An American Labor Market Mystery

    Counting on ‘Endemic’: The Travel Industry Readies for a Potentially New Phase

    Peloton Deal May Pose Regulatory ‘Headache’ for a Tech Giant

    Spotify’s CEO Is ‘Deeply Sorry’ But Won’t Drop Joe Rogan

    Credit Suisse, a Coke-Smuggling Wrestler and Stashes of Cash

    A Side-Effect of China’s Strict Virus Policy: Abandoned Fruit

    Toshiba Now Plans To Split Into Two, Hikes Shareholder Return Targets

    Worker Absences From Covid-19 Hold Back Companies’ Growth

    Kohl’s Adopts ‘Poison Pill’ To Ward Off Hostile Takeover Bids

    The New Post-60 Career Paths

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  • January NFP = +467,000
    Posted by on February 4th, 2022 at 9:12 am

    The January jobs report is out and the U.S. economy added 467,000 net new jobs last month. The numbers for November and December were also revised much higher. The unemployment rate rose 0.1% to 4.0%.

    December, which initially was reported as a gain of 199,000, went up to 510,000. November surged to 647,000 from the previous reported 249,000. For the two months alone, the initial counts were revised up by 709,000. The revisions came as part of the annual adjustments from the BLS that saw sizeable changes for many of the months in 2021.

    “The benchmark revisions helped the numbers a bit just because it moved out some of the seasonal factors that have been at work. But overall the job market is strong, particularly in the face of omicron,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “It’s hard to find a weak spot in this report.”

    For January, the biggest employment gains came in leisure and hospitality, which saw 151,000 hires, 108,000 of which came from bars and restaurants. Professional and business services contributed 86,000, while retail was up 61,000.

    There was more good jobs news: The labor force participation rate rose to 62.2%, a 0.3 percentage point gain. That took the rate, which is closely watched by Fed officials, to its highest level since March 2020 and within 1.2 percentage points of where it was pre-pandemic.

    A more encompassing level of unemployment that counts discouraged workers and those holding part-time jobs for economic reasons dropped to 7.1%, 0.2 percentage point decline and to just above its pre-pandemic level.

    The job gains brought employment back to about 1.7 million below where it was in February 2020, a month before the pandemic declaration.

    The broader U-6 unemployment rate is nearly back to where it was pre-Covid. It’s now at 7.1%. The last pre-Covid low was 6.8% in December 2019.

    The Labor Force Participation Rate is down but it’s not quite as dire as some people think. The LFPR for prime working age (25 to 54) is back to 82.0% which is higher than where it was in 2017 and much of 2018.

  • Morning News: February 4, 2022
    Posted by on February 4th, 2022 at 7:04 am

    Central Bank Balance of Power Shift Raises Policy Error Risk

    Flatter U.S. Yield Curve Dominates Emerging-Market Trader Minds

    Why the World’s Biggest Ocean Shipping Lines Are Buying Cargo Planes

    Automakers, Chip Firms Differ on When Semiconductor Shortage Will Abate

    America Is Facing a Great Talent Recession

    Amazon Set to Add More Than $150 Billion in Wild Value Swing

    Meta Erases $251 Billion in Value, Biggest Wipeout in History

    6 Reasons Meta Is in Trouble

    A Change by Apple Is Tormenting Internet Companies, Especially Meta

    Snap Stock Is Soaring on a Surprise Profit. It Doesn’t Have All of Facebook’s Problems.

    Microsoft’s Videogame Boss and the Long Battle to Reinvent the Company

    World’s Most Influential Money Manager Enters the TikTok Sphere

    NBC Opens Olympics With ‘Worst Hand Imaginable’

    Why the Beijing Olympics Are Awkward for Corporate Do-Gooders

    More Thoughts on America’s Feel-Bad Boom

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  • Earnings from Hershey and ICE
    Posted by on February 3rd, 2022 at 9:04 am

    It’s a busy morning today. First, we had the jobless claims report. Weekly jobless claims were 238,000. That was a little below expectations of 245,000. This data series has crept higher over the past two months. The government will release its jobs report for January tomorrow.

    We also had two Buy List earnings reports. Intercontinental Exchange (ICE) said it made $1.34 per share. That was two cents more than expectations. ICE also raised its quarterly dividend by 15%, from 33 to 38 cents per share. The first quarter cash dividend is payable on March 31 to stockholders of record as of March 17.

    Hershey (HSY) reported earnings of $1.69 which topped the consensus estimate of $1.61 per share. Hershey said it expects 2022 earnings of $7.84 to $7.98 per share. The consensus on Wall Street had been for $7.57 per share.

  • Morning News: February 3, 2022
    Posted by on February 3rd, 2022 at 7:03 am

    Eurozone Inflation Rises to Fresh Record, Against Expectations

    Turkey’s Inflation Hits Nearly 50%, Highest in Two Decades

    BOE Hikes Rates as Four Officials Vote for a Bigger Increase

    Biden’s Pick for Bank Cop Faces a Contentious Senate Hearing

    What Does a Federal Reserve Governor Do?

    Meta’s ‘Unmitigated Disaster’ of a Quarter

    Facebook Owner Meta Set for $195 Billion Wipeout, Biggest in Market History

    Never Mind the Metaverse. Facebook Must Solve Its TikTok Problem

    Apple Makes Progress in India as iPhone Sales Rise 34% to Record

    Hershey’s Quarterly Profit Rose, Helped by Price Increases

    The Rise of the $2.5 Billion Ugly-Shoe Empire

    Jeff Zucker Leaves CNN In Limbo With Streaming Launch Weeks Away

    Carlyle’s Q4 Earnings Jump Nearly Fourfold on Record Asset Sales

    Spotify, Facing Pushback Against Joe Rogan, Reports Jump in Users

    Cremation Borrows a Page From the Direct-to-Consumer Playbook

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  • AFLAC Earned $1.28 per Share for Q4
    Posted by on February 2nd, 2022 at 4:21 pm

    After the bell, AFLAC (AFL) reported Q4 earnings of $1.28 per share. That’s an increase of 19.6%. The weaker exchange rate pinged earnings by five cents per share.

    Q4 revenues were $5.4 billion. That’s down from $5.9 billion in the fourth quarter of 2020.

    During Q4, Aflac spent $625 million to repurchase 11.1 million of its common shares. For the full year, Aflac deployed $2.3 billion in capital to repurchase 43.3 million of its common shares. At the end of December 2021, the company had 55.8 million remaining shares authorized for repurchase.

    Shareholders’ equity was $33.3 billion, or $50.99 per share, at December 31, 2021, compared with $33.6 billion, or $48.46 per share, at December 31, 2020. The annualized return on average shareholders’ equity in the fourth quarter was 12.4% and 12.9% for the full year.

    For the full year of 2021, total revenues were down 0.2% to $22.1 billion, compared with $22.1 billion for the full year of 2020. Adjusted earnings for the full year of 2021 were $4.0 billion, or $5.94 per diluted share, compared with $3.6 billion, or $4.96 per diluted share, in 2020. Excluding the negative impact of $0.06 per share from the weaker yen/dollar exchange rate, adjusted earnings per diluted share increased 21.0% to $6.00 for the full year of 2021.

    DIVIDEND

    The board of directors declared the first quarter dividend of $0.40 per share, payable on March 1, 2022 to shareholders of record at the close of business on February 16, 2022.

    OUTLOOK

    Commenting on the company’s results, Chairman and Chief Executive Officer Daniel P. Amos stated: “The company generated strong earnings for the year, largely supported by the continuation of low benefit ratios associated with pandemic conditions and better-than-expected returns from alternative investments. While we saw improvements in the quarter for both the United States and Japan, we continue to remain cautiously optimistic in the face of ongoing pandemic conditions.

    “Looking at our operations in Japan, I am encouraged by the 7.7% sales increase for the year, which included the first quarter introduction of our medical product EVER Prime and the September launch of our new nursing care product. However, we continued to navigate evolving pandemic conditions in Japan, including various states of emergency that may impact our ability to meet face-to-face with customers, which continues to be key to a recovery in sales.

    “In the U.S., I am pleased with the 16.9% sales increase for the year. At the same time, I am encouraged by reports of new small business formation and the resiliency of larger businesses. Our sales in the fourth quarter reflect increased face-to-face sales opportunities. We continue to work toward reinforcing our position and generating stronger sales in 2022, realizing we may face headwinds from pandemic conditions.

    “As always, we are committed to prudent liquidity and capital management. This includes maintaining strong capital ratios on behalf of our policyholders in both the U.S. and Japan. It goes without saying that we treasure our record of dividend growth. Coming off our 39th consecutive year of dividend increases, I am pleased with the board’s decision to increase the quarterly dividend by 21.2% in the first quarter, as we announced in November. Our dividend track record is supported by the strength of our capital and cash flows. At the same time, we remain in the market repurchasing shares with a tactical approach and focused on integrating the growth investments we have made in our platform. By doing so, we look to emerge from this period in a continued position of strength and leadership.”

  • Thermo Fisher Beats Earnings
    Posted by on February 2nd, 2022 at 9:00 am

    This morning, Thermo Fisher Scientific (TMO) reported Q4 earnings of $6.54 per share which was much more than Wall Street’s forecast of $5.27 per share. I said I was expecting a big earnings beat and I was right.

    For the entire year, Thermo made $25.13 per share. That was an increase of 28% over 2020. Thermo’s revenue grew 22% to $39.21 billion. The company’s most recent guidance had been for $23.37 per share.

    TMO’s quarterly revenue rose by 1% to $10.70 billion. The company had Covid revenue of $2.45 billion.

    For 2022, Thermo sees revenue of $42 billion. Wall Street had been expecting $40.7 billion. The company sees 2022 earnings of $22.43 per share. Wall Street had been expecting $21.87 per share.

    One other news item. The big jobs report is due out on Friday, but this morning we got a possible preview. ADP said that private payrolls fell by 301,000 last month. This was the first jobs loss since December 2020.

    According to ADP, Omicron wreaked havoc on the jobs market. The leisure and hospitality sector lost 154,000 jobs. The jobs gain number for December was revised downward to 776,000.

    Trade, transportation and utilities cut 62,000 while the other services category declined by 23,000.

    Manufacturing also lost 21,000 positions, while education and health services reported a drawdown of 15,000 and construction fell by 10,000.
    Service-providing industries were responsible for 274,000 of the job losses, with goods producers falling by 27,000.

    “The labor market recovery took a step back at the start of 2022 due to the effect of the omicron variant and its significant, though likely temporary, impact to job growth,” ADP chief economist Nela Richardson said.

    For Friday’s official government report, Wall Street expects to see a gain of 150,000 net new jobs.

  • Morning News: February 2, 2022
    Posted by on February 2nd, 2022 at 7:09 am

    Euro-Zone Inflation Unexpectedly Hits Record, Pressuring ECB

    Japanese Banks Sound Caution for Earnings As Omicron Highlights Bad Loan Risks

    Why Are Oil Prices So High and Will They Stay That Way?

    A Normal Supply Chain? It’s ‘Unlikely’ in 2022.

    Warehouse Space Is the Latest Thing Being Hoarded

    Consumers Are Pivoting Spending to Services Like Dining and Travel

    Wall Street Bankers Heading for Biggest Bonus Payday in Decade

    U.S. Job Openings, Quits Remained Elevated at End of Last Year

    First Black Woman Picked for Fed Draws GOP Fire Over Research

    Zuckerberg’s Plan to Overcome Washington’s Aversion to Metaverse

    Alphabet Stock Split Aimed at Bringing Google Shares to Masses

    Google Vanquished a Rival in Prague. Payback Could Hurt.

    GM Earnings Rose Sharply in 2021

    Where Olympic Sponsor Coca-Cola Stands With China

    Cathie Wood’s True Believers Are Sticking With Her

    A Year On, GameStop Champion Roaring Kitty Is Quiet — Yet Much Richer

    Why Is Matt Damon Shilling for Crypto?

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  • CWS Market Review – February 1, 2022
    Posted by on February 1st, 2022 at 6:12 pm

    (This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

    The Stock Market Stumbled Into January

    The stock market certainly didn’t get off to a good start this year. For the month of January, the S&P 500 lost 5.26%. That was the market’s worst month since March 2020 and it was the worst January since 2009.

    Actually, it could have been worse. The S&P 500 posted big gains on the final two trading days of the month. In fact, we came very close to being in an official correction. From the market’s closing high on January 3 to the closing low from last Thursday, the S&P 500 lost 9.80%. The Nasdaq Composite did even worse and it’s still in correction territory.

    We’ve got a decent bump on Friday and Monday plus a nice gain today, but it’s too early to say the selling wave is over. How do we know when the coast is clear? That’s hard to say, but one encouraging sign is that the S&P 500 has poked its head back above its 200-day moving average (the green line in the chart below). We still have about 1.8% to go until the index breaks above its 50-day moving average.

    Don’t be surprised to see another downswing. The market likes to test and retest its recent low. Wall Street bears are easily startled, but they’ll soon be back, and in greater numbers.

    Wall Street has finally acclimated itself to the idea that the Fed is really truly going to raise interest rates. The futures market has literally priced the odds of a March hike at 100%. That sounds pretty certain. There’s even been some recent talk of the Fed hiking rates by 0.50%. Call me a doubter.

    The big question for the Fed is how inflation will behave. Consider some facts: Crude oil is up 65% in the last year, and it recently touched a seven-year high. Cotton is at a 10-year high. Orange juice futures got to their highest level since 2018.

    This morning, the Institute for Supply Management said that its ISM Manufacturing index fell to 57.6 last month. That’s the lowest number in 15 months. This signals that the factory sector of the economy may be slowing. Goldman Sachs cut its Q1 GDP growth forecast to 0.5% from 2%.

    Church & Dwight Rallies on Strong Earnings

    One of the ideas I try to stress to investors is understanding what kind of stocks they own. Specifically, investors should know if a stock they own is a defensive stock or a cyclical stock.

    It’s not that one kind of stock is better than the other. It’s that both groups move in big waves. That means that no matter how good or bad a given stock is, it can easily get wrapped up in the broader trend.

    By defensive stock, I mean a company whose business fortunes aren’t closely tied to the status of the economy. A perfect example from our Buy List is Church & Dwight (CHD). The company owns a broad range of consumer brands. They have everything from Arm and Hammer to Trojan, OxiClean and Nair.

    If the economy hits the skids, Church & Dwight’s business won’t be terribly impacted. It makes the kind of things people need all the time. Contrast that with a company like a chemical company or a homebuilder. Those sectors tend to be “feast or famine.” In fact, much of the business for these kinds of companies involves managing themselves between the busts.

    Over the summer, CHD warned us that Q3 was going to be weak. It saw earnings coming in at 70 cents per share. The official word was that they were “temporarily constrained by supply.”

    Apparently, they weren’t as constrained as advertised. CHD had a great Q3, earning 80 cents per share.

    Over the last few months, shares of Church & Dwight have performed quite well. Much of that is due to the market’s recent concerns that the economy may be slowing down. Lots of defensive stocks have done well. Another good example from our Buy List is Hershey (HSY).

    A few months ago, Church & Dwight told us to expect Q4 earnings of 61 cents per share. On Friday we got the report and again, CHD underestimated themselves. The company made 64 cents per share for its Q4. That’s up 20.8% from a year ago. Wall Street had been expecting earnings of 60 cents per share.

    For the year, the company made $3.02 per share. That’s up 6.7% from a year ago. Full year net sales grew 6% to $5.19 billion.

    CEO Matthew Farrell said:

    Our brands once again experienced strong consumption in Q4 2021. In the U.S. we grew consumption in 11 of the 16 categories in which we compete. Five of our brands experienced double digit consumption growth including ARM & HAMMER® Scent Boosters, ARM & HAMMER® Clumping Litter, OXICLEAN® stain fighters, BATISTE® dry shampoo and ZICAM® zinc supplements. Consumption continues to outpace shipments as supply chain disruptions continue. This strong consumption would likely have been higher if not for the ongoing supply chain challenges. This demonstrates the strength of our brands as we gained share on 6 of the 13 power brands in a difficult supply environment. Global online sales grew 12.7% in 2021, and as a percentage of total sales has expanded to 15% for the full year.

    Church & Dwight said rising material costs have pinged their gross margins. The company also said it’s facing higher transportation costs and labor shortages. While they expect supply issues to gradually abate, the company is raising prices. By the end of this month, Church & Dwight expects to have taken pricing action on 80% of their portfolio brands. Fortunately, most CHD brands have a strong position in their respective markets so they can command higher prices. Companywide gross margins were 42.5% in Q4.

    The company also raised its quarterly dividend from 24.25 cents per share to 26.25 cents per share. That comes to $1.05 for the year. That’s a yield of a little over 1%. This is CHD’s 26th consecutive annual dividend increase.

    The market apparently liked the report as shares of CHD rallied 4.40% to close at $103. I continue to rate CHD a strong buy up to $110 per share.

    Rollins Is Worth a Look

    One of the best ways to find good investment opportunities is to follow excellent companies and wait for their share prices to fall apart.

    A good example is Rollins (ROL). The company is in the pest control business. In plainer terms, they kill bugs for money. Rollins is the parent company of Orkin.

    I realize it sounds icky, and it is, but that doesn’t mean it’s a bad investment. Quite the opposite. In his book One Up on Wall Street, Peter Lynch wrote, “Better than boring alone is a stock that’s boring and disgusting at the same time. Something that makes people shrug, retch, or turn away in disgust is ideal.” Yep, that’s Rollins.

    Check out the growth in its EPS:

    The red part of the line is the estimate.

    It’s amazing how few people know about this stock. Only five analysts on Wall Street bother following Rollins even though it has a market value of $15 billion. Years ago, Rollins was a diversified company with lots of holdings. They eventually spun off their oil and gas units into another company. What was left was the pest control business which is a very nice business to own.

    The company is able to maintain gross margins in excess of 50%. As it turns out, killing bugs is very profitable. Since 2000, shares of Rollins are up more than 55-fold.

    Check out this chart of ROL’s performance since May 2000. For context, see that blue line down there? That’s Berkshire Hathaway:

    Rollins now has two million customers at 700 locations around the world. The company currently pays a quarterly dividend of 10 cents per share, but it’s been known to hand out special dividends at the end of the year. I like companies that do that.

    Despite the company’s long-term success, the stock hasn’t done that well lately. Shares of ROL peaked at $43 in October 2020. Last week, the stock got as low as $28.51 per share.

    The earnings report came out last Wednesday and Rollins said it had Q4 earnings of 14 cents per share. That was one penny below estimates. This was the second quarter in a row that Rollins has missed estimates.

    Rollins has faced some serious issues over the past year. The SEC said it was investigating the company’s accounting. Rollins doesn’t appear to be consistent in how they’ve reported revenue. The company is working with the SEC to resolve these issues. The takeaway for us is that the stock is down a lot. I wouldn’t say the shares are cheap, but they’re much cheaper than they used to be.

    If Rollins can again command the earnings multiple that it used to have (around 45X), and if it can manage the earnings growth it used to have (12% to 14%), then this is a very inexpensive stock. Of course, that’s a lot of ifs. I’m going to keep a close eye on Rollins.

    That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

    – Eddy

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