Morning News: July 30, 2020
Posted by Eddy Elfenbein on July 30th, 2020 at 7:04 am

China Tries Its Favorite Economic Cure: More Construction

German GDP Slumps By Most Since 1970 in the Second Quarter

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

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

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

How to Fight Against Big Tech’s Power

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

Kodak Pivots to Drugs After Failing at Photography and Crypto

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

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

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

Cullen Roche: The Investor’s Podcast Interview

Michael Batnick: The Permanent Portfolio

Ben Carlson: Animal Spirits: The Golden Age of Fraud

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

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Cerner Earns 63 Cents per Share
Posted by Eddy Elfenbein on July 29th, 2020 at 4:23 pm

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

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

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

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

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

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

Today’s Fed Statement
Posted by Eddy Elfenbein on July 29th, 2020 at 2:17 pm

Here’s the statement. Nothing unexpected.

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

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

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

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

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

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

Barron’s on Sherwin-Williams
Posted by Eddy Elfenbein on July 29th, 2020 at 1:48 pm

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

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

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

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

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

Morning News: July 29, 2020
Posted by Eddy Elfenbein on July 29th, 2020 at 7:02 am

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

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

Where Expiring $600 Unemployment Checks Will Hurt Most

Fed Faces Viral Wave, Mounting Risks to Recovery

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

A Handbook to Today’s Tech Hearing

Fintechs Face Pressure To Grow Up As Coronavirus Casts A Chill

All Eyes On Pandemic, Economy As Detroit Automakers Post Results

Deutsche Bank Posts Earnings Beat As Restructuring Continues Amid The Pandemic

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

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

Roger Nusbaum: All Weather Life

Nick Maggiulli: You Don’t Need Alpha

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

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

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AFLAC Earns $1.28 per Share
Posted by Eddy Elfenbein on July 28th, 2020 at 5:29 pm

After the closing bell, Aflac (AFL) 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 average 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. This time, however, is much more difficult.

Here’s the CEO:

“We expect full-year sales results in both countries to be significantly affected, but we also see potential for a modest sales recovery in the second half of the year, contingent upon the pace of economic recovery. At the same time, we are seeing a temporary decline in the benefit ratio in the U.S. as consumers defer treatment, which led to favorable results in this quarter. However, economic conditions and claims activity within this environment remain uncertain in both the Japan and the U.S. as both countries address the pandemic.

“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 and a tactical approach to capital allocation. In addition, we remain committed to defending and extending our 37-year track record of annual dividend increases and remain in the market repurchasing shares. At the same time, we are 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.”

Sherwin-Williams Beats and Raises Guidance
Posted by Eddy Elfenbein on July 28th, 2020 at 8:54 am

The Federal Reserve begins its two-day meeting today. The policy statement will come out tomorrow afternoon. We have two Buy List earnings reports today. AFLAC (AFL) reports after the closing bell and Sherwin-Williams reported earlier today.

For Q2, Sherwin-Williams (SHW) 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.

CEO John G. Morikis said:

While sales were down by a mid-single digit percentage overall, favorable customer and product mix, lower input costs and strong spending controls enabled us to deliver significantly improved performance compared to last year’s second quarter. Gross margin expanded 330 basis points to 48%, and adjusted earnings per share increased 8.1% to $7.10 per share. Adjusted EBITDA grew 6.2% to $979.0 million, or 21.3% of sales, compared to 18.9% in second quarter last year.

The best news is that Sherwin is increasing its full-year range to $19.21 – $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 $2.54 per share acquisition-related amortization expense. For Q3, the company sees net sales up or down in the low single digits.

Morning News: July 28, 2020
Posted by Eddy Elfenbein on July 28th, 2020 at 7:04 am

End Game for Oil? OPEC Prepares For an Age of Dwindling Demand

As Gold Smashes Records, Forecasters Ask Whether Peak Is Near

In Summer of Turmoil, Subdued ‘Fear’ Gauges Make Markets Uneasy

Amazon, Apple, Facebook and Google Prepare for Their ‘Big Tobacco Moment’ & Jeff Bezos Cast in a Role He Never Wanted: Amazon’s D.C. Defender

McDonald’s Global Sales Suffer As COVID-19 Lockdowns Limit Operations

Virginia Chick-fil-A Offering Free Food In Exchange For Coins Amid Shortage

Hotels Are Promoting the Nostalgia of the Family Road Trip & Longer, Slower, Farther: Savoring the Prospects of Future Travels

One of America’s Oldest Gun Makers Files for Bankruptcy for 2nd Time

Where to Invest $1 Million Right Now

Boaz Weinstein Piles Up 90% Gain in Hamptons, Bets on More Chaos

Malaysia Ex-PM Najib Razak Sentenced to 12 Years in Jail in 1MDB Unit Case

The Hunt for the Next Blockbuster Manga

Joshua Brown: Sad Old Man Rocks Making New High

Jeff Carter: Follow the Money

Ben Carlson: Patience Is A Virtue No One Has Time For Anymore

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Durable Goods Jump 7.3%
Posted by Eddy Elfenbein on July 27th, 2020 at 10:05 am

It seems each day on Wall Street, the mood is determined by the Big Five. Today, the major tech companies are leading the market strongly. The rest of the market is largely flat.

The price for gold has surged to an all-time high. This finally snapped gold’s previous high from 11 years ago. Adjusted for inflation, gold is still below its high from 1980.

This morning’s durable goods report for June showed an increase of 7.3% for June. That beat expectations by 0.1%. Durable goods were up 15.1% the month before.

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, jumped 3.3% last month, the Commerce Department said on Monday. These so-called core capital goods orders rose 1.6% in May and remained below their pre-pandemic level. Orders last month were boosted by strong demand for machinery, fabricated metals, primary metals and electrical equipment, appliances, and components.

Economists polled by Reuters had forecast core capital goods orders advancing 2.3% in June. Core capital goods orders fell 2.3% on a year-on-year basis in June.

On Thursday, we’ll get the Q2 GDP report. It may be the worst one on record.

RPM Beats Earnings, Rises to All-Time High
Posted by Eddy Elfenbein on July 27th, 2020 at 9:41 am

This morning, RPM International (RPM) reported 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.

RPM is a world leader in specialty coatings, sealants and building materials. The company has raised its dividend every year since 1973.

The shares are up nicely this morning and they hit a new all-time high.