Hershey Earns $1.86 per Share
Posted by Eddy Elfenbein on November 6th, 2020 at 10:16 am

Good news this morning for Hershey (HSY). The chocolate company earned $1.86 per share for the third quarter. Wall Street had been expecting $1.72 per share.

Quarterly revenues were up 4.2% to $2.22 billion. That beat by $60 million. Organic sales grew by 3.8%. Consensus was for 2.5%.

“We had a strong third quarter, with accelerated reported net sales growth of 4%, adjusted diluted EPS growth of more than 15% and confectionery share gains across markets, including an almost 190 basis point gain in the U.S. Our core U.S. business remains healthy as consumers reach for small treats during the pandemic, and our decision to lean into Halloween ahead of the season supported consumers’ desire to find new and creative ways to celebrate safely. We also saw sequential improvement in the areas of our business hit hardest by COVID-19, including our international markets, owned retail locations and food service business,” said Michele Buck, The Hershey Company President and Chief Executive Officer. “We are continuing to focus on executing with excellence, investing in the business, and advancing our strategic priorities to deliver a strong fourth quarter and position us well for 2021.”

Hershey expects full-year earnings of $6.18 to $6.24 per share. That’s up 7% to 8% over last year. For the first three quarters of this year, Hershey has made $4.80 per share. That implies Q4 earnings of $1.38 to $1.44 per share. Wall Street had been expecting $1.38 per share. The stock is up about 2% in today’s trading.

U.S. Economy Added 638,000 Jobs Last Month
Posted by Eddy Elfenbein on November 6th, 2020 at 8:35 am

The economy created 638,000 net new jobs last month. The estimate was for a gain of 530,000.

The unemployment rate fell to 6.9%. The estimate was for 7.7%. The U-6 number fell to 12.1%.

The jobless rate decline was positive as it came with a labor force participation rate that rose 0.3 percentage points to 61.7%. An alternative measure that includes discouraged workers and those holding part-time jobs for economic reasons also declined, to 12.1% from 12.8% a month ago.

The survey of households showed an even stronger level of job growth, with the total employment level rising by 2.24 million and the employment to population ratio increasing by 0.8 percentage points to 57.4%. The household survey also showed a decline of 1.52 million in the total unemployed level and a drop of 541,000 in those considered not in the labor force.

The bottom line. The jobs numbers were decent but there’s a long way to go. We’re probably about 10 million jobs away from full employment.

Here’s the chart of nonfarm payrolls:

Here’s the unemployment rate:

CWS Market Review – November 6, 2020
Posted by Eddy Elfenbein on November 6th, 2020 at 7:08 am

“Successful investing is anticipating the anticipations of others.” – J.M. Keynes

What a news-filled week this has been! We had a presidential election, and they’re still counting the ballots. We may not know the winner for a few days. Wall Street doesn’t seem to mind. Over the last four days, the S&P 500 has gained more than 7.3%.

We also had a Federal Reserve meeting. As expected, the Fed didn’t alter interest rates. The October jobs report is due out later today, and, of course, there have been lots more Q3 earnings reports.

So far, none of our Buy List earnings reports has missed expectations. In fact, many of them have beaten by a lot. This week, Middleby trounced Wall Street’s consensus, and the shares jumped more than 17% in one day!

Broadridge Financial Solutions creamed estimates, and the stock rallied to a new 52-week high. Ansys gained more than 4% after its earnings report, and Trex also reported nice numbers.

In this week’s issue, I’ll go over all of our recent reports. I’ll also preview next week’s report from Disney. I should also mention that CWS Market Review turns 10 years old! We sent out our premiere issue on November 5, 2010. I can’t believe it’s been one full decade! Thanks to everyone for your support. Now, let’s jump right in.

More Buy List Earnings Reports

Here’s an updated look at our Earnings Calendar:

There’s a lot of earnings to get to. Let’s start with Broadridge Financial Solutions (BR). Last Friday, the company reported fiscal Q1 earnings of 98 cents per share. That’s a huge beat. Wall Street had been expecting 63 cents per share.

The best news is that Broadridge increased its earnings guidance for this fiscal year. The company now expects earnings growth of 6% to 10%. The previous range was 4% to 10%. Last year, BR made $5.03 per share, so the new guidance works out to a full-year range of $5.33 to $5.53 per share.

“Broadridge reported strong first-quarter results, including 8% Recurring revenue growth and record first quarter earnings,” said Tim Gokey, Broadridge’s Chief Executive Officer. “Our continued growth highlights the long-term trends driving our business and the strength of our recurring-revenue business model. In addition, our strong cost actions helped drive significant margin expansion. This positive start to the fiscal year gives us additional confidence in our full-year guidance and enables us to increase our level of investment in our people, platforms and technology.

“We have updated our outlook to reflect our increased confidence in our full-year results. Our updated guidance now calls for recurring-revenue growth of 3-6% and Adjusted EPS growth of 6-10%,” Mr. Gokey added. “By investing now, we will be even better positioned to address our clients’ accelerating need for next-generation mutualization, resiliency and digital transformation.”

This is a quiet company that gets the job done. The stock rallied to a new 52-week high. We now have a 17% gain this year. Broadridge remains a buy up to $150 per share.

On Monday, Trex (TREX) said it made 41 cents per share for its fiscal Q3. That was three cents better than estimates. This stock has had a charmed year in 2020. For Q3, sales rose nearly 20% to $232 million.

Excluding some charges, Trex’s gross margins are running close to 40%. That’s very good. For Q4, the company didn’t provide any EPS guidance, but they see sales ranging between $210 million and $220 million. At the midpoint, that’s a 30% increase. For 2021, Trex expects double-digit sales growth (btw, they’re low-balling).

This earnings report is more good news. Trex also reinstated its share-buyback program. Through Thursday, we have a 77% gain this year in Trex. I’m lifting our Buy Below on Trex to $84 per share.

After the market closed on Wednesday, Ansys (ANSS) reported Q3 earnings of $1.36 per share. That beat the Street by 10 cents per share. The company said that growth in the Asia-Pacific region was particularly strong. Growth exceeded 10% in South Korea and Japan.

CFO Maria Shields said, “We reported a record third-quarter balance of deferred revenue and backlog of $880 million, an increase of 35% over the third quarter of 2019. Additional financial highlights reflecting the resiliency of our business model included ACV growth, which continues to be comprised of a high level of recurring sources at 78% for the quarter and 81% for the first nine months of the year.”

Now let’s look at guidance. For Q3, Ansys expects revenues between $542.3 million and $582.3 million and earnings between $2.36 and $2.67 per share. That’s a pretty wide range. For all of 2020, Ansys sees revenues between $1,610.0 million and $1,650.0 million, and earnings between $6.09 and $6.40 per share.

The stock gained 4.2% on Wednesday. Ansys remains a buy up to $340 per share.

We had two more earnings reports on Thursday morning. Middleby (MIDD) had an outstanding quarter. The company reported earnings of $1.34 per share. Wall Street had been expecting $1.04 per share. If you’re not familiar with Middleby, the company makes kitchen equipment for hotels and restaurants. Think big ovens and grills, and stuff with conveyer belts.

The stock got demolished during the market wipeout in February and March. Gradually, Middleby has worked its way back. This last quarter was a solid one for Middleby. Tim FitzGerald, CEO of Middleby said, “We delivered record cash flows, improved profitability, and enhanced our capital structure for the long-term.”

On Thursday, the stock jumped 17.1%. Middleby is a good example of how our buy-and-hold philosophy bails us out. I’m sure many nervous investors sold out near the low. We held on, and the shares have nearly tripled from their March low. This week, I’m lifting my Buy Below price to $133 per share.

Also on Thursday, Becton, Dickinson (BDX) said it made $2.79 per share for its fiscal Q4. Revenues increased 4.4% to $4.784 billion. Revenues inside the U.S. increased by 7.4%, while revenues from outside the country rose by just 0.5%. For the year, Becton made $10.20 per share.

I have to confess that I haven’t been pleased with Becton’s performance this year. One silver lining has been Becton’s work on the coronavirus. Recently, Becton’s rapid Covid-19 test was approved for Europe. That’s very good news, because the region has had trouble keeping up with the need for tests.

For next year, Becton expects sales growth in the high-single to low-double digits. The company sees earnings coming in between $12.40 and $12.60 per share. That’s growth of 21.5% to 23.5%. Becton remains a buy up to $250 per share.

Earnings Preview for Hershey and Disney

We have two reports remaining. Hershey (HSY) is due to report later today. Three months ago, the chocolate folks said they wouldn’t be providing financial guidance for Q3. I certainly understand.

For Q2, sales fell 3.4%, but Hershey earned $1.31, which beat the Street by 18 cents per share. The company said it expects accelerated sales growth during the back half of this year. Hershey also expects pricing and cost management to drive margin expansion.

For Q3, Wall Street expects Hershey to earn $1.72 per share. Look for an earnings beat.

I’ve said that if I were to custom-design a company to be harshly impacted by the coronavirus, it would be hard to top Disney (DIS). The company makes films. It’s deep into sports and travel. As if that weren’t not enough, they have a cruise line.

Three months ago, Disney stunned the world by reporting a profit for its Q2. Not a big one, but it was a profit nonetheless. For Q2, the Mouse House earned eight cents per share. Wall Street had been expecting a loss of 64 cents per share.

The weak spot was revenue. For the quarter, Disney had $11.78 billion in revenue. That was below estimates for $12.37 billion. The only parts of Disney’s business that saw an increase in revenue were the direct-to-consumer and international-businesses sectors.

The big success story is Disney’s streaming service. I guess it helps that everyone is stuck at home! If you add up all the subscription services, Disney now has over 100 million paid subscribers. Disney+ is up to 57.4 million.

Revenue for their Parks, Experiences and Products business was down a staggering 85%. Disney’s Media Networks was only down 2%. As a result of the lockdown, Disney took a $3.5 billion hit to its operating income.

The success of Disney+ lies in the company’s recent reorg. I’m sure Disney looks at Netflix and wonders why they can’t have an earnings multiple like them. Solution: organize yourself to be more like them. We’ll see. In any event, Wall Street expects Disney to report a Q3 loss of 71 cents per share.

That’s all for now. I expect that the election will be resolved by next week. Fortunately, the stock market doesn’t appear nervous. Next Wednesday is Veteran’s Day. Wall Street is open, although many government offices will be closed. On Thursday, we’ll get another jobless-claims report. Also on Thursday, the CPI report is due out, and we’ll get an update on the federal budget. 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: November 6, 2020
Posted by Eddy Elfenbein on November 6th, 2020 at 7:00 am

China’s Central Bank Says Ant’s IPO Suspension Is To Safeguard Consumer, Investor Interests

With Ant’s IPO On Hold, China Emphasizes Need For Fintech Regulation

Smallest Job Gains In Five Months Expected As U.S. Labor Market Momentum Wanes

Gold Set for Biggest Weekly Gain Since July as Biden Closes In

Stock Market’s Post–Election Day Rally Shows That Gridlock In Washington Is Good for Wall Street

Facebook, Alarmed by Discord Over Vote Count, Is Said to Be Taking Action

On Election Day, Facebook and Twitter Did Better by Making Their Products Worse

Bitcoin Hits $15,500 as Post-Election Rally Loses Some Steam

Marijuana Stocks Surge As Investors Bet on a More Weed-Friendly U.S.

Berkshire Hathaway to Show Investors If Adventurous Moves Lifted Profit

The Faces of Americans Living in Big Debt

Ben Carlson: Everybody Lies: Pollster Edition

Michael Batnick: I Don’t B*llshit Myself & Animal Spirits: Farmland for the Modern Investor

Jeff Carter: Blockchain Voting

Cullen Roche: What the Heck Just Happened?

Howard Lindzon: Stocktwits CEO Rishi Khanna Joins Me On Panic With Friends to Discuss the Intersection of Financial Tech and Media

Joshua Brown: “There’s far too much variance during actual events because humans are often unpredictable.” & Cracking the YouTube Code

Be sure to follow me on Twitter.

Today’s Fed Statement
Posted by Eddy Elfenbein on November 5th, 2020 at 2:02 pm

Here’s today’s Fed policy statement:

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 COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year. Weaker demand and earlier declines in oil prices have been holding down consumer price inflation. Overall financial conditions remain accommodative, 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 continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Patrick Harker; Robert S. Kaplan; Loretta J. Mester; and Randal K. Quarles. Ms. Daly voted as an alternate member at this meeting.

Initial Claims = 751,000
Posted by Eddy Elfenbein on November 5th, 2020 at 11:48 am

This going to be another busy day for us. We already had two Buy List earnings reports this morning. Later today, we’ll get the Fed announcement. Don’t expect any change on rates.

This morning’s jobless claims report was 751,000. That’s down from 758,000 last week. Not bad, but still way above normal.

Meanwhile, new cases of the coronavirus topped 100,000. On the election front, they’re still counting the ballots. I have no idea what to expect, but this may take several days.

Earnings from Middleby and Becton, Dickinson
Posted by Eddy Elfenbein on November 5th, 2020 at 9:14 am

Middleby (MIDD) reported earnings of $1.34 per share. Wall Street had been expecting $1.04 per share.

The Middleby Corporation (NASDAQ: MIDD), a leading worldwide manufacturer of equipment for the commercial foodservice, food processing, and residential kitchen industries, today reported net earnings for the 2020 third quarter of $60.5 million or $1.10 diluted earnings per share on net sales of $634.5 million. Adjusted net earnings were $73.9 million or $1.34 adjusted diluted earnings per share. A full reconciliation between GAAP and non-GAAP measures are provided at the end of this press release.

“While the COVID-19 pandemic continues to have a major impact on our business, the quick and decisive actions we took earlier this year have strengthened our business and are reflected in the strong financial performance in the third quarter. We delivered record cash flows, improved profitability, and enhanced our capital structure for the long-term. While we have implemented the necessary adjustments for uncertain business conditions, we continue to invest in strategic technology and sales initiatives. Most importantly, we remain dedicated to supporting our customers, while keeping the safety and protection of our employees as our top priority,” said Tim FitzGerald, CEO of The Middleby Corporation.

Becton, Dickinson (BDX), a leading global medical technology company, today reported quarterly revenues of $4.784 billion for the fourth fiscal quarter ended September 30, 2020. This represents an increase of 4.4% over the prior-year period on both a reported and currency-neutral basis.

“I’m extremely proud of the team for their execution this quarter, as we delivered sequential improvement across each of our segments and successfully launched our Veritor SARS-CoV-2 assay. Collectively, we drove mid-single-digit revenue growth, building on the strength of our COVID-19 diagnostics revenues to overcome headwinds from both COVID-19 and Alaris,” said Tom Polen, CEO and president of BD. “Looking to fiscal 2021, BD remains focused on partnering with governments, health care systems, and health care professionals to navigate the COVID-19 pandemic, ensure access to rapid diagnostics and enable care for patients around the world. We are aligned on our priorities and steadfast in our commitments, including completing our Alaris 510(k) submission, investing in innovation and strategic growth initiatives, simplifying our processes and empowering our organization.”

Fiscal Fourth Quarter 2020 Operating Results

As reported, diluted earnings per share for the fiscal fourth quarter were $0.36, compared with $0.45 in the prior-year period, which represents a decrease of 20.0%. Adjusted diluted earnings per share were $2.79, compared with $3.31 in the prior-year period, which represents a decrease of 15.7%, or 15.1% on a currency-neutral basis.

Morning News: November 5, 2020
Posted by Eddy Elfenbein on November 5th, 2020 at 7:03 am

Stock Futures Jump As Potential Washington Gridlock Signals Less Regulatory Risk

As ‘Blue Wave’ Chances Crash, Wall St. Warms to Divided Government

Federal Reserve Meets Amid Major Uncertainties

No Matter Who Wins The Election, America Will Still Be In A Jobs Crisis

Election Uncertainty Taking Toll On Online Shopping

How Billionaire Jack Ma Fell to Earth And Took Ant’s Mega IPO With Him

Apple Faces Shortages in Power Chips for iPhone 12

Airbnb to Make IPO Filing Next Week, Braving COVID-19 Surge

A Small City Comeback, Interrupted

How VW’s Diesel Settlement Is Changing Fleets, From Schools to Seaports

ArcelorMittal Beats Profit Expectations After Lockdown Low

Ben Carlson: Trading the Election

Michael Batnick: Even If We Knew

Howard Lindzon: Uber, Lyft, Weed Win Big….Over in China The Government Reminds Everyone Who Is In Charge

Joshua Brown: Status Quo & President Biden’s Non-Acceptance Acceptance Speech

Be sure to follow me on Twitter.

Ansys Earns $1.36 per Share
Posted by Eddy Elfenbein on November 4th, 2020 at 4:31 pm

After the close, Ansys (ANSS) reported Q3 earnings of $1.36 per share.

Here are some highlights:

GAAP revenue of $367.0 million and non-GAAP revenue of $369.1 million

GAAP diluted earnings per share of $0.87 and non-GAAP diluted earnings per share of $1.36

GAAP operating profit margin of 24.5% and non-GAAP operating profit margin of 39.8%

Operating cash flows of $94.5 million

Deferred revenue and backlog of $879.9 million at September 30, 2020

ANSYS today reported third quarter 2020 GAAP and non-GAAP revenue growth of 7% in reported currency, or 5% in constant currency, when compared to the third quarter of 2019. For the third quarter of 2020, the Company reported earnings per share of $0.87 and $1.36 on a GAAP and non-GAAP basis, respectively, compared to $1.04 and $1.42 on a GAAP and non-GAAP basis, respectively, for the third quarter of 2019.

“Ansys delivered a strong third quarter in which we overachieved on both earnings and operating margin. While all of our major geographies showed growth, Asia-Pacific was particularly strong, with Japan and South Korea growing by double digits. We also saw double-digit growth in revenue coming from our indirect channel. With corporate initiatives around eco-friendly aircraft engines, Space 2.0 and national defense, we saw robust spending in the aerospace and defense sector during the quarter. We also recently signed a definitive agreement to acquire Analytical Graphics, Inc. (AGI), a leader in mission simulation and analysis, which will strengthen our simulation leadership within the key aerospace and defense sector. Finally, during Q3, our ESG initiatives focused on environmental sustainability, including our own carbon footprint as well as the efficiencies that our solutions are enabling for our customers,” said Ajei Gopal, Ansys president and CEO.

Maria Shields, Ansys CFO, stated, “Our solid Q3 financial performance reflects the strength of our core business and the continued dedication and focused execution of the Ansys employees and our partner ecosystem. Despite the challenging circumstances created by the prolonged pandemic, we delivered strong revenue performance, which drove earnings and operating margins. We reported a record third quarter balance of deferred revenue and backlog of $880 million, an increase of 35% over the third quarter of 2019. Additional financial highlights reflecting the resiliency of our business model included ACV growth, which continues to be comprised of a high level of recurring sources at 78% for the quarter and 81% for the first nine months of the year. The combination of our high level of recurring revenue sources, strong financial position and operating discipline positions us well to continue to prudently invest in the business for the long-term. This includes the pending acquisition of AGI, which demonstrates the continued execution of our growth strategy.”

Management’s 2020 Financial Outlook

The Company’s fourth quarter and fiscal year 2020 revenue and diluted earnings per share guidance is provided below. The Company is also providing its fiscal year 2020 guidance for ACV and operating cash flows. The revenue and diluted earnings per share guidance is provided on both a GAAP and non-GAAP basis. Non-GAAP financial measures exclude the income statement effects of acquisition adjustments to deferred revenue, stock-based compensation, amortization of acquired intangible assets and acquisition-related transaction expenses.

The financial guidance below reflects the Company’s current estimates of the adverse impacts of the global pandemic. This guidance is based on certain assumptions made by the Company and the Company’s evaluation of factual information it has determined to be relevant. Additional details related to the Company’s financial guidance, including assumptions and economic impacts of COVID-19, are detailed in its prepared remarks document.

The financial guidance below is not adjusted for the impacts of the Company’s recently announced agreement to acquire AGI. The acquisition closing date is unknown as it is subject to the receipt of regulatory clearance and the satisfaction of customary closing conditions. The transaction is not expected to have a meaningful impact on the Company’s 2020 results.

For Q3, Ansys expects revenues between $542.3 million and $582.3 million, and earnings between $2.36 and $2.67 per share.

For all of 2020, Ansys expects revenues between $1,610.0 million and $1,650.0 million, and earnings between $6.09 and $6.40 per share.

The Day After
Posted by Eddy Elfenbein on November 4th, 2020 at 9:37 am

I’ll confess that I didn’t stay up too late to watch the returns. I’m not much for political prognostications. Instead, I like to focus on markets.

For whatever reason, the major tech stocks opened significantly higher this morning. Google, Amazon and Microsoft are all up about 4% while Facebook is up 5.5%. In contrast, the Dow is up just 0.5%. The Russell 2000 Index of small-cap stocks is down.

Both Uber and Lyft are up about 15% after California voted to classify app-based drivers as independent contractors.

This morning’s ADP payroll report showed an increase in private payrolls of 365,000. That’s for the month of October. Wall Street had been expecting an increase of 650,000. The big news comes on Friday when the government releases the official numbers.

Ansys (ANSS) reports after the close.