Solid Earnings from FactSet
Posted by Eddy Elfenbein on June 25th, 2020 at 9:44 am

Press release:

FactSet (FDS), a global provider of integrated financial information, analytical applications, and industry-leading service, today announced results for its third quarter ended May 31, 2020.

Third Quarter Fiscal 2020 Highlights

Revenue increased 2.6%, or $9.6 million, to $374.1 million compared with $364.5 million for the same period in fiscal 2019. The increase is primarily due to higher sales of analytics, content and technology solutions (CTS) and wealth management solutions. Organic revenues grew 2.6% to $375.3 million during the third quarter of fiscal 2020 from the prior year period.

Annual Subscription Value (ASV) plus professional services was $1.52 billion at May 31, 2020, compared with $1.45 billion at May 31, 2019. The organic growth rate, which excludes the effects of acquisitions, dispositions, and foreign currency movements, was 5.0%. The primary contributors to this growth rate were higher sales in FactSet’s wealth and research workflow solutions and a price increase in the Company’s international region. Please see the “ASV + Professional Services” section of this press release for details.

Operating margin increased to 32.5% compared with 32.2% for the same period last year. Adjusted operating margin improved to 35.5% compared with 34.0% in the prior year period primarily as a result of reduced employee-related operating expenses due to the coronavirus pandemic.

Diluted earnings per share (EPS) increased 11.0% to $2.63 compared with $2.37 for the same period in fiscal 2019. Adjusted diluted EPS rose 9.2% to $2.86 compared with $2.62 in the prior year period primarily driven by an improvement in operating results.

The Company’s effective tax rate for the third quarter decreased to 15.0% compared with 18.6% a year ago, primarily due to an income tax expense in the prior year related to finalizing the Company’s tax returns with no similar event for the three months ended May 31, 2020.

FactSet increased its quarterly dividend by $0.05 per share or 7% to $0.77 marking the fifteenth consecutive year the Company has increased dividends, highlighting its continued commitment to returning value to shareholders.

FactSet updated its annual outlook for fiscal 2020. Please see the “Annual Business Outlook” section of this press release for details.

The Company announced changes to its Board of Directors including a new chair, two new members, and the retirement of two current members. Please see FactSet’s press release dated June 24 and its Form 8-K filing on June 25 for more details.

“We had a strong third quarter and executed well in challenging circumstances,” said Phil Snow, FactSet CEO. “I am inspired by the efforts I see across the Company as FactSetters go above and beyond to support our clients and each other. The steps we have taken position us well to finish our fiscal year on target as we continue to evaluate and solve for evolving industry needs.”

Morning News: June 25, 2020
Posted by Eddy Elfenbein on June 25th, 2020 at 7:06 am

‘We Are Definitely Not Out of the Woods’

U.S. Recovery Looks to Be Ebbing in States With Virus Outbreaks

U.S. Layoffs Remain Elevated As Weak Demand Persists After Businesses Reopened

Wirecard Collapses Owing Creditors $4 Billion

Bayer Bets On Science In Bid To Prevent Future Roundup Lawsuits

LeBron James Gets $100 Million Investment to Build Media Empire

Airbus Executive Says Jetmaker Reaches New Production ‘Sweet Spot’

Masayoshi Son Resigns From Board of Alibaba; Defends SoftBank Group’s Investment Strategy

Books Are a Great Fit for Quarantine. The Book Business, Not So Much.

The Woman Who Warned of WeWork’s Downfall Tells Her Story

Joshua Brown: You Can’t Undrop The Bomb

Ben Carlson: How Would Investors React If We Finally Get Some Inflation?

Michael Batnick: Animal Spirits: Inflation Ahead & Will the Dollar Crash?

Roger Nusbaum: Personal Finance Wednesday

Jeff Miller: Investing for the Long Term: Time to be Wary

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The Nasdaq’s Win Streak Looks to End
Posted by Eddy Elfenbein on June 24th, 2020 at 10:53 am

The stock market is down sharply today. At its low, the S&P 500 was down about 1.6%. The Nasdaq Composite looks to snap its eight-day win streak.

There are concerns about the growing numbers of coronavirus cases. The seven-day average of news cases is up 30% from a week ago. There’s even talk of reversing some of the recent re-openings.

So far, Energy and Financial stocks are down the most while Consumer Staples and Utilities are down the least. This suggests the market is concerned about the economy’s underlying strength. Sonos, the speaker-maker, said it’s going to cut 12% of its workforce due to the coronavirus.

There’s not much in the way of economic news today. Next week will be interesting because the stock market will be closed on Friday, July 3. That means that the jobs report will come out on Thursday. Also, the jobs report will come at the same time as the jobless claims report. It will be interesting to see if traders want to be net long going into the three-day weekend.

Morning News: June 24, 2020
Posted by Eddy Elfenbein on June 24th, 2020 at 6:31 am

Gold Shines As Coronavirus Surge Unnerves Investors

U.S. Eyes $3.1 Billion of EU, U.K. Imports for New Tariffs

The Pandemic’s Worst-Case Scenario Is Unfolding in Brazil

The Tiny Bank That Got Pandemic Aid to 100,000 Small Businesses

Can a Private-Equity Giant Invest in Oil While Saving the Planet?

TaskRabbit C.E.O. to Step Down, a Blow for Silicon Valley Diversity

The New Escapism: Isolationist Travel

Disney Exits Language School Business in China, Citing Coronavirus

Nick Maggiulli: Roth 401(k) vs. 401(k): Which is the Better Option?

Ben Carlson: Why Are Credit Card Interest Rates So High?

Michael Batnick: The Biggest Stock Market Rally Ever

Jeff Carter: Great Companies, Tough Times

Cullen Roche: Three Things I Think I Think – Market Bonanza!

Howard Lindzon: Keep It Simple and $QQQ Over $SPY

Joshua Brown: “The German Enron” & Why Public Banned Its Users From Trading in Hertz Shares

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All-Time High for the Nasdaq
Posted by Eddy Elfenbein on June 23rd, 2020 at 10:31 am

The stock market is up nicely so far today. This could be our sixth gain in the last eight sessions. The S&P 500 may be able to close at its highest point in nearly two weeks.

The Nasdaq hit a record high today. Michael Batnick points out that the Big Five (Apple, Google, Amazon, Facebook and Microsoft) now account for 22% of the S&P 500. That’s over $6 trillion. Four of the five are at new highs today. Only Google is left out.

The markets were nervous overnight as there were concerns about a trade deal between the United States and China. I’m glad to see that’s gone.

This morning’s new-home sales report showed an increase to 676,000 (that’s the annualized figure). Wall Street had been expecting 640,000. The previous three months were revised down.

Morning News: June 23, 2020
Posted by Eddy Elfenbein on June 23rd, 2020 at 7:07 am

Defying Dire Predictions, China Is the Bubble That Never Pops

Betraying Frustration with China, E.U. Leaders Press for Progress on Trade Talks

Thumping Data Drives Stocks And Oil Higher

ADNOC Inks $10 Billion Deal, Keeps Tight Control Of Costs Amid Market Downturn

Culture of Inflating Oil Reserves Helped Stoke U.S. Shale Boom

White House Adviser Navarro Walks Back On Comments China Trade Deal ‘Over’

The Risk of ‘Overnight Ruin’

Fearful Commuters on Trains, Buses Hold One Key to U.S. Recovery

A Multibillion-Dollar Opportunity: Virus-Proofing the New Office

Pandemic Travel Patterns Hint at Our Urban Future

Former Wirecard CEO Arrested On Suspicion Of Falsifying Revenue

Michael Batnick: A Small Update on the Giants

Jeff Carter: The Workplace

Howard Lindzon: Momentum Monday…Gold, Chinese Internet And Biotech Look Good

Joshua Brown: Something To Hate For Everyone

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NAR: Existing-Home Sales to Post “Strong Rebound”
Posted by Eddy Elfenbein on June 22nd, 2020 at 11:24 am

The stock market opened down a bit this morning but is now in positive territory. The Nasdaq is hovering right at 10,000.

This morning’s existing-home sales report showed a drop of 9.7% for May. The good news is that the National Association of Realtors expects a “strong rebound” in the coming months. There’s also been more talk of a surge in coronavirus cases, but for now, the markets don’t seem too worried.

On our Buy List, Sherwin-Williams (SHW) increased its sales guidance for the second quarter.

The Company now expects second quarter 2020 consolidated net sales to decrease by a mid-single-digit percentage compared to the second quarter of 2019. The Company’s prior guidance, issued April 29, 2020, was for second quarter 2020 consolidated net sales to decrease by a low to mid-teens percentage compared to the second quarter of 2019.

Sherwin-Williams Increases Second Quarter 2020 Sales Guidance
Posted by Eddy Elfenbein on June 22nd, 2020 at 7:42 am

Press release:

The Sherwin-Williams Company (NYSE: SHW) today increased its net sales guidance for the second quarter of 2020. The Company now expects second quarter 2020 consolidated net sales to decrease by a mid-single-digit percentage compared to the second quarter of 2019. The Company’s prior guidance, issued April 29, 2020, was for second quarter 2020 consolidated net sales to decrease by a low to mid-teens percentage compared to the second quarter of 2019.

On a segment basis, second quarter net sales in The Americas Group are expected to be down by a high-single-digit percentage compared to the previous guidance of down by a low-double-digit to mid-teens percentage. Net sales in the Consumer Brands Group are expected to be significantly above the high end of the previous guidance of up by a high-single-digit to low-double-digit percentage. Net sales in the Performance Coatings Group are expected to be in line with the previous guidance of down by a high-teens percentage.

“Our employees have performed admirably during this challenging time to meet our customers’ needs,” said Chairman and Chief Executive Officer, John G. Morikis. “We are raising our second quarter sales guidance given our ability to capture and serve greater than expected demand in our North American architectural businesses.

“We are encouraged by the sequential improvement in all three of our business segments during the second quarter. In The Americas Group, we rapidly adapted to the pandemic by implementing curbside pickup in our stores, utilizing our fleet of over 3,000 delivery vehicles, and leveraging our e-commerce platform. We have gradually and safely reopened nearly all of our sales floors over the last month. DIY growth in our stores remains strong, while our residential repaint and new residential segments have improved at a faster rate than our property management, new commercial and protective and marine segments. In the Consumer Brands Group, the unprecedented demand from most of our retail partners has remained robust, driven by consumers who are nesting during the pandemic and focused on DIY projects. In the Performance Coatings Group, demand has been variable by end market and geography. Packaging remains our strongest performer, while demand in our coil business has been choppy following the slower reopening of many commercial construction projects. Our automotive refinish business remains under pressure as driving trends have not yet returned to pre-pandemic levels. Recovery remains sluggish in our general industrial and industrial wood businesses.

“Although uncertainties in the timing and pace of improvement in the U.S. and global operating environments continue, we remain confident in our ability to successfully manage through these challenging conditions while continuing to invest and execute on initiatives that will drive our long-term growth.”

The Company is scheduled to release second quarter 2020 financial results on July 28, 2020, at which time it will provide its outlook on third quarter sales and update its full year sales and earnings per share guidance.

Morning News: June 22, 2020
Posted by Eddy Elfenbein on June 22nd, 2020 at 7:09 am

Global Dollar Crunch Appears Over As Central Banks Rely Less On Fed Backstop

Why Japan’s Jobless Rate Is Just 2.6% While the U.S.’s Has Soared

Hedge Funds Exploit CLO Weakness Laid Bare by Corporate Distress

Pandemic Propels Old-School Bond Traders Towards An Electronic Future

New Hope for White-Collar Job Seekers? It Depends on the Job

Eerie Calm Settles On Housing Market, Defying Doomsayers For Now

Apple To Update Developers, Possibly Signal Split From Intel

Wirecard Says Missing $2 Billion Never Existed. Its Stock Is Down 85% In 3 Days

Club of World’s 10 Richest People Finally Gets A Member from Asia

Michael Batnick: An Army of Day Traders

Roger Nusbaum: Health Insurance Dysfunction

Jeff Miller: Weighing the Week Ahead: Understanding a Mixed Message

Ben Carlson: How Rare is a Double Dip Recession? & The Air Conditioning Effect

Howard Lindzon: Shopify, Spotify and Now Snapchat? What Is With The S’s…?

Joshua Brown: Revamping the Podcast & “Inequality Is The Defining Feature Of Our Economy Today”

Be sure to follow me on Twitter.

Bloomberg on Trex
Posted by Eddy Elfenbein on June 19th, 2020 at 4:13 pm

A nice profile from Bloomberg:

Last month, Trex Co. enticed homeowners cooped up during the pandemic with the siren song of sunshine and al fresco dining.

“Does staying inside have you yearning for the outside?” the maker of wood-plastic composite decking asked restless recluses in a Facebook post. “Us, too.”

The bait of fresh air appears to be working. Requests for product samples and designs picked up considerably since an April lull, Chief Executive Officer Bryan Fairbanks said. Like RH, the company is expected by analysts to be a beneficiary of the pandemic-fueled home improvement craze as residents remodel, a sector that accounts for the majority of demand for Trex.

“The outdoor living theme is resonating with consumers,” Jefferies analyst Philip Ng said in an interview.

Shares of Trex, which sells products crafted from 50% recycled polyethylene and 50% reclaimed wood, hit a record $128 in late May, more than doubling from a March low. So far this year, the stock has gained about 33%.

Trex’s product appeals to homeowners tired of sanding, staining and stepping on the occasional splinter. The company manufactures composite decking and railing sold at retailers including Lowe’s Cos. and Home Depot Inc. as well as lumberyards. The Winchester, Virginia-based company also has a commercial segment, but it’s the residential business that drives sales, contributing the most to revenue last year.

Fairbanks, 51, took the helm in late April after working at Trex for more than 15 years, most recently as financial chief. He’s CEO at a pivotal point, as homeowners have had downtime to ponder how to beautify their backyards and as the company adds capacity to plants in Nevada and Virginia.

Demand for home remodeling and repair is improving by the day, said Benchmark analyst Reuben Garner, who pumped up his price target to a Street-high matching $136 this week. Meanwhile, Google searches for “Trex decking” are at all-time highs, he added.

“We believe that this is evidence consumers are increasingly looking to make investments in their homes,” he said Thursday in an email. “Trex is the most recognizable consumer brand in the composite decking space, and the product is more ‘DIY’ in nature than I think most investors may realize.”

Trex aims to capture a larger slice of the decking and railing market. The company estimates that as of 2019, composites like those made by Trex only account for about 20% by volume. For Trex, that means the lion’s share of the decking and railing market is ripe for conversion. Their strategy: go after wood.

This market opportunity is “the biggest part of the story,” Berenberg analyst Alex Maroccia said in an interview.

Last year, Trex launched its re-engineered Enhance Basics and Naturals collection, the company’s most affordable offering. Jefferies’ Ng said that’s a big positive as the lower maintenance and more durable nature of composites was already a draw, but the price was a sticking point.

Trex is the largest player in composite decking by market share. The company competes with Azek Co. and Fiberon, which is owned by Fortune Brands Home & Security Inc. Azek, the second-largest player in the industry, made its public debut last week.

Some differentiating factors between Trex and Azek include margins and debt, according to Berenberg’s Maroccia. Azek’s TimberTech decks use less recycled content than Trex’s products, and that lower proportion results in more expensive raw materials, the analyst wrote in a recent note. Azek, whose top holder is PE firm Ares Management, is also more highly leveraged than Trex, he said.

“I think they view them as a competitor, but not a true threat for the foreseeable future,” Maroccia said in an interview, referring to Trex’s perception of Azek.

While Maroccia has a buy rating, the majority of analysts tracked by Bloomberg rate Trex at hold, including Ng at Jefferies. For him, the company’s valuation is a roadblock from turning more bullish. Trex warrants a bigger multiple, but it trades at “too large a premium” to its repair and remodel peers, Ng said in a recent note.

Other investors hold a downright bearish wager on Trex’s long-term outlook. In April, famed “Big Short” investor Steve Eisman said in a CNBC interview that he was short the decking materials manufacturer. Short interest has come down from a peak at the end of April but now sits around 15% of float, according to data compiled by financial analytics firm S3 Partners.

Trex is in the midst of a $200 million capital expenditure program that is set to increase capacity by about 70%. The ramp up of additional lines to the Nevada facility will be completed by the end of the second quarter, management said in May. Meanwhile, the construction of a building for the Virginia facility is on schedule.

Trex is moving full speed ahead, but the potential impact of a resurgence in Covid-19 remains a question mark, as cases in some states continue to climb.

Berenberg’s Maroccia said a second wave of coronavirus could pull forward demand for Trex’s products, with homeowners throwing in the towel on travel. However, Ng at Jefferies said it could hurt Trex alongside the broader market, even though the company’s business has shown it’s more resilient.

“We’re not going to try to convince you that they’re recession-proof or second wave-proof,” Ng said.