Morning News: April 23, 2020
Posted by Eddy Elfenbein on April 23rd, 2020 at 7:06 am

Will the Coronavirus Pandemic Doom North Sea Oil?

Record U.S. Jobless Claims Wipe Out Post-Great Recession Employment Gains

Trump Signs Order Suspending Immigration to Curb Job Competition

U.S. House to Pass Nearly $500 Billion More In Coronavirus Relief

Private Equity to Get Squeezed Out of Another Stimulus Program

The $600 Unemployment Booster Shot, State by State

Credit Cards Start Cutting Limits for People Facing Tough Times

Bezos Takes Back the Wheel at Amazon

Warren Buffett’s ‘Fortress’ Is Breached by Coronavirus-Related Shutdowns

DealBook: Let’s Break a Deal

Ben Carlson: Do We Need to Worry About Government Debt? & Animal Spirits: Free Oil

Michael Batnick: Returning Cash to Shareholders is often Better than the Alternative

Roger Nusbaum: Is There Hope For A One Fund Portfolio?

Howard Lindzon: Panic With Friends – Oil Edition With Alan Shurr

Joshua Brown: Relief Payments Are Working

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Eagle Bancorp Earned 98 Cents per Share
Posted by Eddy Elfenbein on April 22nd, 2020 at 4:55 pm

After the bell, Eagle Bancorp (EGBN) reported Q1 earnings of $23.1 million. That works out to 98 cents per share which is a one-penny beat. Eagle now has total assets of $10.01 billion.

Here’s a major footnote. The compensation to the former CEO was $6.2 million, or 13 cents per share. So excluding that, Eagle made a nice $1.11 per share last quarter.

“For the first quarter of 2020, we are pleased to report continued growth in total loans and total deposits, continued superior operating leverage, and stable asset quality,” noted Susan G. Riel, President and Chief Executive Officer of the Company. Ms. Riel continued, “Capital levels remain strong and the Company’s assets ended the first quarter of 2020 at $10.01 billion, representing 19% growth over the first quarter of 2019, with total shareholders’ equity of $1.18 billion. Net income in the first quarter of 2020 resulted in an annualized return on average assets of 0.98% and an annualized return on average tangible common equity of 8.39%.”

(…)

The Company’s performance in the first quarter of 2020 as compared to the first quarter of 2019 was highlighted by growth in average total loans of 8.7%, growth in average total deposits of 10.0%, a net interest margin of 3.49%, and total revenue of $85.2 million. Ms. Riel noted that the Company focuses more on growth of average balances year over year since that measure relates more directly to income statement results. As compared to the fourth quarter of 2019, average loan growth in the first quarter 2020 was 1.6% and average deposits declined by 0.4%. Deposit growth tends to be seasonally lower in the first quarter of each year. The efficiency ratio, which measures the ratio of noninterest expense to total revenue, for the first quarter of 2020 was 43.83% as compared to 43.87% for the first quarter of 2019.”

The company had legal fees of $4.6 million last quarter. I think our thesis holds that this is a good bank that’s held back by legal fees. Once that matter clears, EGBN should get a much better valuation.

Globe Life Earns $1.73 per Share
Posted by Eddy Elfenbein on April 22nd, 2020 at 4:21 pm

After the close, Globe Life (GL) reported that net operating income for the quarter was $1.73 per share compared with $1.64 per share one year ago. That was one penny above expectations.

Some highlights:

• Net income as an ROE was 9.6%. Net operating income as an ROE excluding net unrealized gains on fixed maturities was 14.1%.
• Life underwriting margin at the American Income Life Division increased over the year-ago quarter by 7%. Health underwriting margin at the Family Heritage Division increased over the year-ago quarter by 11%.
• Life premiums increased over the year-ago quarter by 7% at the American Income Life Division. Health premiums increased over the year-ago quarter by 8% at the Family Heritage Division.
• Life net sales at the American Income Life Division increased over the year-ago quarter by 9%.
• Total health net sales increased over the year-ago quarter by 9%.
• 1.6 million shares of Globe Life Inc. common stock were repurchased during the quarter.

Globe Life sees full-year EPS ranging between $6.65 and $7.15. The earlier estimate was for $7.03 to $7.23 per share.

Silgan Beats Earnings and Raises Guidance
Posted by Eddy Elfenbein on April 22nd, 2020 at 8:48 am

Silgan Holdings (SLGN) reported Q1 earnings of 57 cents per share this morning. Wall Street had been expecting 49 cents per share. Net sales rose 0.3% to $1.03 billion.

For Q2, Silgan sees earnings between 55 and 70 cents per share. For the whole year, Silgan estimates earnings will range between $2.30 and $2.50 per share. That’s an increase from the previous range of $2.28 to $2.38 per share.

CEO Tony Allott noted that Silgan has been declared “essential” by many government agencies.

“Volumes grew at their strongest rate in March, as the coronavirus began impacting our Western markets. In our metal container business, volumes were up 8 percent in the quarter and, combined with strong operating results, drove record first quarter operating income. In our closures business, volumes grew by 5 percent, with a less favorable mix of products sold as growth in lower margin pumps for soaps and sanitizers were offset by declines in more complex sprayers and pumps for beauty products. Our plastic container business had another record performance with volume growth of 6 percent over the prior year quarter and continued strong operating results.

In February, the company raised its dividend by 9%. Silgan has raised its dividend every year for the last 16 years in a row.

Morning News: April 22, 2020
Posted by Eddy Elfenbein on April 22nd, 2020 at 7:11 am

With Selective Coronavirus Coverage, China Builds a Culture of Hate

Brent Oil Drops to 21-Year Low, Spreading Pain Across the Globe

Why Oil at Negative $100 Isn’t a Crazy Bet Anymore

‘I’m Just Living a Nightmare’: Oil Industry Braces for Devastation

Global CEOs See U-Shaped Recession Due to Coronavirus

Fannie, Freddie May Soon Buy Home Loans in Forbearance to Help Mortgage Firms

The Death of the Department Store: ‘Very Few Are Likely to Survive’

Everyone You Know Just Signed Up For Netflix

‘A Disaster’: Roche CEO’s Verdict on Some COVID-19 Antibody Tests

Facebook Invests $5.7 Billion in Indian Internet Giant Jio

Nick Maggiulli: Who Feels Rich Really?

Jeff Carter: Oil Crash Isn’t A Sign Markets Don’t Work

Ben Carlson: The Collapse of the Energy Sector

Michael Batnick: The Only Thing Working Right Now

Joshua Brown: Stop Doing Stupid Stuff With Your Money & Why Credit Card Losses Could Explode: What Are Your Thoughts?

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Stepan Earns $1.04 per Share
Posted by Eddy Elfenbein on April 21st, 2020 at 11:17 am

This morning, Stepan (SCL) reported adjusted Q1 earnings of $1.04 per share. That includes the impact of a power outage at their Millsdale plant. Excluding that, Stepan is doing quite well. The consensus of the three analysts who follow Stepan was for earnings of 78 cents per share.

If you’re not familiar with Stepan, the company is a major manufacturer of specialty and intermediate chemicals that are used in a broad range of industries.

Although Stepan is classified with other specialty chemical companies, it’s unique in the industry. Stepan doesn’t have a competitor or competitors to precisely match its businesses because its products have a specific focus.

Stepan makes surfactants, the key ingredients in consumer and industrial cleaning compounds. That includes things like detergents, fabric softeners, shampoos, and lotions. Surfactants make them clean and foam.

Stepan has three operating divisions. For Q1, Surfactants had operating income of $36.2 million. Polymers was at $7.5 million, and Specialty Products did $4.0 million.

The company is also in a strong position financially. Stepan currently has more than $250 million more in cash than in debt. Plus, it has access to a credit line of $350 million.

CEO F. Quinn Stepan, Jr. said:

“Excluding the impact of the Millsdale power outage, the Company had a solid start to the year. Surfactant operating income, excluding the Millsdale incident, was up significantly. Global Surfactant sales volume declined 1% due to strong volumes in the global consumer product end markets driven by increased demand for cleaning and disinfection products, as a result of COVID-19, offset by lower demand within our Functional Product end markets.

Mexican operations delivered strong year-over-year earnings growth. The Polymer business was down primarily due to the Millsdale power outage, impacting mostly our phthalic anhydride business. Rigid Polyol volume was flat as growth within North America and China was fully offset by lower demand in Europe as a result of COVID-19. Global Specialty Polyols results were up with all regions growing operating income year-over-year. Our Specialty Product business results were higher due to improved volume and margins within our MCTs product line due to pantry loading and higher demand in the infant nutrition market, as a result of the COVID-19 outbreak.”

Compared with last year’s Q1, Surfactant sales were down 6%. Polymer was down 11%. Specialty Products was off by 15%. Last quarter, Stepan paid out $6.2 million in dividends and bought back 260,605 shares for $7.2 million. Stepan has increased its dividend every year for 52 years.

The outlook from the CEO:

“2020 is going to be a difficult year for the world, our country, our industry and Stepan Company. However, we believe that in the current environment our business is positioned better than most,” said F. Quinn Stepan, Jr., Chairman, President and Chief Executive Officer. “With empty store shelves around the world for disinfection and cleaning products, our surfactant volume in the Consumer Products end markets should remain relatively strong. Falling raw material prices may provide an opportunity for margin improvement. With dramatically lower oil prices, demand for surfactants within the oil field end-markets will be down. We anticipate our Agriculture business should approximate last year. Overall, we believe our Surfactant business should remain relatively recession resistant.

Our Polymer business most likely will face a reduction in demand as people defer or cancel re-roofing and new construction projects. We also anticipate higher North American costs due to the Illinois River lock closure scheduled during the second half of 2020. The long term prospect of this business remains attractive as energy conservation efforts and more stringent building codes should increase demand.

Our Specialty Product business should continue to benefit from higher MCT demand in the infant nutrition market as pantry loading and retail restocking occur. Our flavor and pharmaceutical product sales should be stable for the year.

We have a strong Balance Sheet with significant cash on hand. We have a $350.0 million revolver which is essentially untapped. Our debt maturity in 2020 is only $23.6 million. Given our balance sheet and available liquidity, we are well positioned to operate in the challenging near-term environment. We have paid a dividend for 62 consecutive years and expect to do so in the future. Despite the difficult current environment, we remain optimistic about the future at Stepan Company and our ability to deliver value for our customers and shareholders.”

The shares are basically unchanged today.

Morning News: April 21, 2020
Posted by Eddy Elfenbein on April 21st, 2020 at 7:15 am

Too Much Oil: How a Barrel Came to Be Worth Less Than Nothing

Oil Meltdown Spreads Beyond Expiring Contracts as WTI Slumps 42%

What the Negative Price of Oil Is Telling Us

London Stock Exchange Committed to Refinitiv Deal in Pandemic-Hit Markets

U.S. Debt to Surge Past Wartime Record, Deficit to Quadruple

Corporate America Seeks Legal Protection for When Coronavirus Lockdowns Lift

The Fed Is Buying $41 Billion of Assets Daily and It’s Not Alone

Trump Says He Will Suspend Immigration

Pandemic’s Costs Stagger the Nursing Home Industry

Coca-Cola Says Demand in April Has Been Weakened By Coronavirus Pandemic, Volume Off 25% So Far This Month

Huawei First-Quarter Revenue Growth Slows Sharply Amid U.S. Ban, Virus Headwinds

Howard Lindzon: Oil…We Got a Bleeder

Joshua Brown: The Day Oil Went to Zero & 6 in 10 Americans Are More Concerned With “Reopening” Too Soon

Ben Carlson: Different Strategies For Putting Cash to Work During a Bear Market

Michael Batnick: Is Inflation Coming Back?

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Oil Implodes
Posted by Eddy Elfenbein on April 20th, 2020 at 5:38 pm

The big news today wasn’t from the stock market. Instead, it came from the oil pits. The demand for oil plunged. As a result, the price for oil dropped through the floor.

Actually, not just through the floor, but several inches into the ground.

Since supply and demand are out of whack, there’s tons of oil that needs to be stored but there’s no place to put it. As a result, no one wants to own it—and I mean no one! The price for the May futures contract for West Texas Intermediate actually went negative.

That’s not a typo. They literally were paying people to take oil. The lowest price I saw was minus $37.63 per barrel.

I have to point out that we’re talking about the May futures contract. The later months aren’t so dire. The difference is that the over-supply shouldn’t be a big problem later this year. But right now, it’s a big deal. We’ve actually run out of places to store oil and that’s why no one wants to touch it.

Wow!
Posted by Eddy Elfenbein on April 20th, 2020 at 2:02 pm

Oil Plunges to a Multi-Decade Low
Posted by Eddy Elfenbein on April 20th, 2020 at 11:40 am

The stock market is down this morning, but the big news is from the oil pits. The price for oil has dropped to a 22-year low. At its low, the price for a barrel of oil was $10.53. As the old joke says, that’s not a bad price for a barrel.

The crash in the price of oil has been remarkable. There are two benchmarks for oil: West Texas Intermediate and Brent Crude. There’s an unusual gap between the two since Brent Crude is now much more. This suggests we have a problem with the storage of oil. American capacity is quickly running out.

Callie Cox points out an interesting stat. Last week, the Russell 3000 Growth Index rose 5.1% while the Russell 3000 Value Index lost 0.1%. That’s the biggest gap in nearly 20 years.

Tomorrow we have an earnings report from Stepan (SCL).