Disney Makes Surprise Profit
Posted by Eddy Elfenbein on August 4th, 2020 at 4:16 pm

After the closing bell, Disney (DIS) reported a surprise Q2 profit of eight cents per share. I say surprise because Wall Street had been expecting a loss of 64 cents per share. That’s a huge beat.

The weak spot was revenue. For the quarter, Disney has $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.

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 shares are up 4.74% in after-hours trading.

Morning News: August 4, 2020
Posted by Eddy Elfenbein on August 4th, 2020 at 7:07 am

London Traders Hit $500 Million Jackpot When Oil Went Negative

U.S. Oil Production Dropped Massively In May, And Recovery Not In Sight

Gold ETF Holdings Are Booming and Only the U.S. Government Holds More

Lobbying For Russian Pipeline Spikes In Washington

TikTok, Trump and an Impulse to Act as C.E.O. to Corporate America, ByteDance Founder Defends TikTok’s U.S. Strategy In Staff Letter & Microsoft’s Rescue Attempt Of TikTok Endears Old Company To New Generation

Google Cloud Prepares For Black Friday ‘Peak On Top Of Peak’

The Caribbean Dilemma

Summer Recreation? It’s Backordered

Killer Mike Wants to Save America’s Disappearing Black Banks

Number Fever: The Pepsi Contest That Became A Deadly Fiasco

Ben Carlson: Why Housing Could Be One of the Best-Performing Asset Classes of the 2020s

Michael Batnick: The Most Lopsided Days

Howard Lindzon: Disruption Is Good! …Nasdaq 20,000…The Seeds Are Being Planted At An Accelerating Pace.

Joshua Brown: The 50 Fastest Growing RIAs, Valuation Since The Late 1990’s – Win Any Argument With Your Friends! & Monthly Candles Are Out! S&P 500, Treasury Yields, US Dollar, Bitcoin, Market Breadth & More

Be sure to follow me on Twitter.

Great Earnings from Trex
Posted by Eddy Elfenbein on August 3rd, 2020 at 4:19 pm

Great quarter for Trex (TREX). The deck stock earned 81 cents per share for Q2. That beat by 16 cents per share. Sales rose 7% to $221 million. Nice increases in gross and EBITDA margins.

“Strong second quarter results demonstrated continued broad-based demand for Trex decking and railing products reinforcing our leadership position in outdoor living. Trex Enhance® Basics and Naturals decking has significantly expanded the size of our addressable market and has accelerated our ability to take share from wood, while Trex Transcend® and Trex Select® decking continued to gain market share.

“Our gross margin performance reflected improvements in both Trex Residential and Trex Commercial. The 80-basis point expansion in Trex Residential gross margin was primarily due to improved throughput and reduced material costs in our Enhance product line, partially offset by startup costs for the new capacity in Nevada. Trex Commercial gross margin reflected quarter-specific project mix, as well as improvements in overall execution and manufacturing cost savings.

“Production efficiencies, stable raw material costs and disciplined SG&A spending drove strong operating leverage in the quarter, resulting in a 580 basis-point expansion in EBITDA margin and 33% growth in earnings per share in the second quarter,” noted Bryan Fairbanks, President and Chief Executive Officer.”

Now let’s look at guidance. For Q3, the company expects sales between $215 million and $225 million. The midpoint is a 13% increase over last year’s Q3. Wall Street had been expecting quarterly sales of $193.94 million.

Trex also announced a 2-for-1 stock split. This means that investors will get twice as many shares and the share price will fall in half. The split will happen on September 14. (The split will take effect the following day.)

The shares are up 3.7% in after-hours trading.

Stocks Reach 5-1/2 Month High
Posted by Eddy Elfenbein on August 3rd, 2020 at 10:47 am

The stock market had a very good July. The S&P 500 gained 5.51% for the month making it the fourth monthly gain in a row.

This morning, the index got as high as 3,299. That’s the highest intra-day level since February 20. We have new highs from Trex, Danaher, Ansys and Broadridge. Several others are very close.

On Friday, the 10-year Treasury closed at a record low of 0.55%.

This is an important week for economic news. This morning, the ISM Manufacturing Index came in at 54.2. That’s pretty good. It was the best ISM number since March of last year.

There’s more economic news due later this week. On Wednesday, ADP will release its payroll report for July. On Thursday, we’ll get another report on jobless claims. This has increased over the last two weeks. Then on Friday, we’ll get the July jobs report.

Morning News: August 3, 2020
Posted by Eddy Elfenbein on August 3rd, 2020 at 7:08 am

China Factory Activity Expands At Fastest Rate in 9 Years

Fed Is Headed for a Clash With Hedge Funds, Other Shadow Banks

Buy, Sell, Repeat! No Room For ‘Hold’ In Whipsawing Markets

Gold Can Do What Bonds Can’t in a Superlow-Rate World

Microsoft Talks To Buy TikTok’s U.S. Operations Spark Ire In China

Marathon Petroleum Sells Speedway to 7-Eleven Owner For $21 Billion

Men’s Wearhouse Owner Files for Bankruptcy & Lord & Taylor Files for Bankruptcy as Retail Collapses Pile Up

Swiss Industry Recovers From Covid-19 Slump and Redirects Orders

Apple Reportedly Eyes Turning iPhones Into Payment Terminals

In Showdown Between China and the West, HSBC Gets Caught in the Middle

Roger Nusbaum: It Boils Down To Having The Correct Asset Allocation

Jeff Miller: Weighing the Week Ahead: Is the Payroll Employment Report Accurate?

Howard Lindzon: SPAC SPAC SPAC SPAC SPAC

Ben Carlson: Why Would Anyone Own Bonds Right Now? & The Battle of the Bubbles

Michael Batnick: Animal Spirits: Fixed Income in a Low Rate Environment, It’s Either Sadness or Euphoria & Do Technology Stocks Dominate?

Be sure to follow me on Twitter.

Church & Dwight Beats Earnings and Raises Guidance
Posted by Eddy Elfenbein on 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
Posted by Eddy Elfenbein on 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:

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
Posted by Eddy Elfenbein on 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
Posted by Eddy Elfenbein on 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
Posted by Eddy Elfenbein on 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.