Smucker Earns $2.08 per Share
Posted by Eddy Elfenbein on June 6th, 2019 at 8:11 am

The J. M. Smucker Company today announced results for the fourth quarter ended April 30, 2019, of its 2019 fiscal year. Financial results for the fourth quarter and fiscal year include the contribution from Ainsworth Pet Nutrition, LLC (“Ainsworth”), which was acquired on May 14, 2018, and reflect the divestiture of the Company’s U.S. baking business on August 31, 2018. All comparisons are to the fourth quarter of the prior fiscal year, unless otherwise noted.

EXECUTIVE SUMMARY

Net sales increased $120.8 million, or 7 percent, driven by the addition of Ainsworth and the Company’s growth brands.

Net income per diluted share was $0.63, including a noncash impairment charge related to the Natural Foods business within the U.S. Retail Consumer Foods segment.

Adjusted earnings per share was $2.08, an increase of 8 percent.

For the full year, net income per diluted share was $4.52. Adjusted earnings per share was $8.29, an increase of 4 percent.

Cash provided by operating activities was $274.2 million, compared to $314.4 million in the prior year.

Free cash flow was $181.6 million in the quarter and $781.4 million for the full year.

The Company provided its fiscal 2020 outlook, with expected net sales growth of 1 to 2 percent and adjusted earnings per share to range from $8.45 to $8.65.

CHIEF EXECUTIVE OFFICER REMARKS

“We are pleased with the progress that we made during the year towards executing against our strategic plan, which supported fourth quarter adjusted earnings growth of 8 percent and full-year adjusted earnings growth of 4 percent. We successfully integrated Ainsworth, extending our leadership in pet foods, while our key growth brands delivered double-digit sales growth, demonstrating the power of our brands when supported by ongoing product innovation, including 1850® coffee and Jif Power Ups®. We continued to focus on productivity, allowing us to deliver on our cost reduction targets for the year, providing fuel for investment in future growth.”

“As we transition to fiscal year 2020, our organization is committed to delivering on its growth imperatives to lead in the best categories, build brands consumers love, and be everywhere our consumers want us to be. Disciplined investment in our brands across pet food, coffee, and snacking leaves us well-positioned to drive sustainable financial growth and enhance shareholder value for the long term.”

Morning News: June 6, 2019
Posted by Eddy Elfenbein on June 6th, 2019 at 7:00 am

Putin Aims to Revive the Economy With a Plan. And Pianos.

Trump Threatens China with Tariffs on Further $300 Billion of Goods

U.S., Mexico Extend Talks After Trump Claims Lack of Progress

Tech Giants Amass a Lobbying Army for an Epic Washington Battle

Huawei Digs In for a Drawn-Out Battle With Trump’s White House

Ohio To Juárez And Back Again: Why Tariffs On Mexico Alarm The Auto Industry

Fiat Walks Away From Renault Talks, Blaming French State

Beyond Meat’s Home in the Meat Aisle Sparks Food Fight

Amazon’s Drone Delivery Service is One Step Closer to Taking Flight

Uber Copter’s $200 Flights Launch in NYC on July 9th

‘Do I Know You?’ And Other Spam Phone Calls We Can’t Get Rid Of

Jeff Miller: Stock Exchange: Lemons, Lemonade Or Rip Van Winkle?

Roger Nusbaum: Smoothing Out Your Portfolio’s Ride

Ben Carlson: The Influencer Bubble

Be sure to follow me on Twitter.

Morning News: June 5, 2019
Posted by Eddy Elfenbein on June 5th, 2019 at 7:15 am

Global Economy Cools Faster Than Expected as Trade Tensions Rise, World Bank Says

Modern Monetary Theory’s Reluctant Poster Child: Japan

Mexican Officials to Meet Pence in Last-Ditch Talks to Avert Tariffs

First FedEx, Now Ford. China Clamps Down on U.S. Companies

Mnuchin’s Deadlocked China Trade Talks Hang Over Pivotal G-20

SEC Poised to Adopt Rules Aimed at Preventing Broker Conflicts, Boosting Disclosure

Stocks Jump as Fed’s Powell Suggests Rates Could Come Down

Confusing Options May Be Coming to Your 401(k). It Could Cost You.

Short-Seller Pain That Began Monday Just Became a Bloodbath

GameStop: The Knife Keeps On Falling

How A Fight Over Beef Jerky Reveals Tensions Over SNAP In The Trump Era

Woodford ‘Extremely Sorry’ About Cash Freeze in Somber YouTube Video

Nick Maggiulli: The Goldilocks Zone of Personal Finance

Cullen Roche: Is the Bond Market Predicting Recession?

Howard Lindzon: This Is NOT A Coddling Accident!

Be sure to follow me on Twitter.

Morning News: June 4, 2019
Posted by Eddy Elfenbein on June 4th, 2019 at 7:56 am

A Slower Economy. A Trade War. Now, China Faces Rising Food Prices.

China Warns Citizens Against U.S. Travel, Citing ‘Frequent’ Shootings

U.S. Firms Fret as China’s FedEx Probe, Planned Hit-List Heightens Trade Frictions

Uber Under Tax Investigation by IRS, Foreign Authorities

Antitrust Troubles Snowball for Tech Giants as Lawmakers Join In

A Farewell for iTunes

The Couple Who Feds Say Scammed Berkshire Hathaway for Millions

The Buy-Side Trader Is Latest Job to Be Outsourced as Costs Rise

Walmart Faces Major India Test Over Unit Flipkart’s Legal Spat With Startup

Forget the Trade War. Citi Sees Brent at $78 Within Three Months

SEC Probes Siemens, GE, Philips in Alleged China Medical Equipment Scheme

Michael Batnick: Re-Kindled: Where Are the Customers’ Yachts & The Coddling of the American Investor

Jeff Carter: The Two Tribes & Corporate Fascism

Ben Carlson: Just the Facts About Market Corrections & Business Booms & Depressions: 1775-1943

Be sure to follow me on Twitter.

The Buy List YTD
Posted by Eddy Elfenbein on June 3rd, 2019 at 8:08 pm

Through today, our Buy List is up 14.36% while the S&P 500 is up 9.48%. That doesn’t include dividends.

Here’s a chart.

Lowest ISM Since October 2016
Posted by Eddy Elfenbein on June 3rd, 2019 at 10:30 am

The ISM report usually comes out on the first business day of the month which is today. The ISM report for May was pretty weak, just 52.1. The expectation was for 53.0. This was the lowest ISM since October 2016.

We’re still not in the danger zone. Historically, recessions line up with ISMs below 44 or 45. But we are closer. Combined with a partially inverted yield curve, this is not good. It’s especially bad with all the heated trade rhetoric.

This morning, the 10-year yield dropped below 2.10%.

Morning News: June 3, 2019
Posted by Eddy Elfenbein on June 3rd, 2019 at 7:08 am

These Are The Bad Times

Reeling From Tariff Threat, Mexico Begins Immigration Talks in Washington

Here Are the Most Interesting Items in China’s Trade White Paper

Wall Street Warns of Mounting Recession Risk From Trade War

Google and Amazon Are at the Center of a Storm Brewing Over Big Tech

Blackstone Bets on E-Commerce With $18.7 Billion Logistics Deal

World’s Longest Flight to Be Even Less Comfortable Than Expected

Virgin America Vanishes Along With Branson’s U.S. Dream

Can Tesla Ever Be More Than a Niche Automaker? Wall St. Increasingly Thinks No

AT&T’s Streaming Ambitions Hit a Snag: The Cost of HBO

Warren Buffett Charity Lunch Fetches Record $4.57 Million Winning Bid

For the Chao Family, Deep Ties to the World’s 2 Largest Economies

Roger Nusbaum: Markets Are In Trouble

Joshua Brown: The Land That Time Forgot

Jeff Miller: Is there Any Sense in the Conflicting Market Messages?

Be sure to follow me on Twitter.

CWS Market Review – May 31, 2019
Posted by Eddy Elfenbein on May 31st, 2019 at 7:08 am

“Intelligent investment is more a matter of mental approach than it is of technique.”
– Ben Graham

There’s an old Wall Street adage: “sell in May and go away.” Indeed, the historical data shows that the best six-month stretch for investors has been from November to May while the worst has been from May to November.

This year, that advice was exactly right. The S&P 500 had its all-time highest close on the final day of April when the index closed at 2,945.83. The following day, the index reached its intra-day high of 2,954.13.

Since then, the market has gradually drifted lower. On Wednesday, the S&P 500 closed at its lowest level since March 8. The same day, the Dow slipped below 25,000 for the first time in 16 weeks. The S&P 500 is now below its 50-day moving average, and this week it briefly fell below its 200-day moving average.

So what has everyone so nervous? The tipping point was President Trump’s tweet from May 5 which escalated the Great Trade War of 2019. What’s interesting about this latest downturn is that it was foreshadowed by the bond market. Not only has the bond market rallied (a lot) but it’s also become inverted, though only partially.

Confused? Fear not. In this week’s CWS Market Review, I’ll explain what it all means. I’ll also take a look at our two recent Buy List earnings reports, Hormel Foods and Ross Stores. Later on, I’ll preview next week’s earnings report from JM Smucker. But first, let’s look at what has Wall Street on edge.

The Yield Curve Gets Inverted…But Only a Little

While the stock market has been weak lately, the bond market has been quite strong. Since November 8, the 10-year yield is down more than 1% (3.24% to 2.22%.) That’s a huge move. We’re in an unusual position right now because the current Treasury yield curve is inverted, but only partially. Treasury yields gradually decrease from one month out until three years out. After that, yields rise again. It almost looks like a check mark.

What explains a check mark curve? Perhaps the market expects one or two therapeutic rates within a broader tightening cycle. The futures market thinks there’s a 65% chance that the Fed will cut by the September meeting. It could happen, but I’m a doubter. Going by the Fed’s statements, they seem to like things as they are. For a rate cut to be on the table, I would expect to see decidedly worse economic news (and worse financial markets). We’re just not seeing it.

The Fed meets again in mid-June. It’s also a meeting where they’ll update their economic forecasts. Personally, I think that meeting will be a big snoozer. The Fed doesn’t like the perception, not unfairly held, that they’re Wall Street’s lackey. It took a pretty big market hissy fit last year just to get the Fed to back off on planned rate hikes. Actual rate cuts are quite another thing.

The Fed also doesn’t want to be seen as bailing out a president in a trade spat they most certainly oppose. The latest is that President Trump is hitting Mexico with a 5% tariff. There is, however, a possible finale to all the trade rhetoric. In June, there’s a big G20 meeting, and it’s possible that President Trump will announce a trade deal with President Xi Jinping of China.

The trade talk and bond-market rally has had an interesting impact on the stock market outside of simply going down. Over the past few weeks, a wide gap has opened between “high beta” stocks and those with low volatility. The more volatile stocks have been dropping the most, while the low volatility sector has been holding steady. Over the last few weeks, the high beta sector is down 10.25% while the low vol sector is higher by 0.75%.

When the stock and bond markets act like this, it means that investors are shunning risk and seeking safety. The 30-year Treasury is now near its lowest point since Election Day in 2016. Within the stock market, sectors like tech, energy and industrials have been lagging. On the other hand, defensive areas have been doing well.

Since our Buy List is concentrated in high-quality stocks, we’ve been doing very well lately, in a relative sense. Or more precisely, we’re flat while everyone else is dropping. For the year so far, our Buy List is up 14.94% to the S&P 500’s 11.25%. But you can really see the divergence in the last month. Since April 22, the S&P 500 is down 4.10% while our Buy List is actually higher by 0.17%. That’s an unusually big gap for such a short time period. This is exactly why we own high-quality stocks. Now let’s take a look at two recent earnings reports from our Buy List.

Earnings from Hormel Foods and Ross Stores

We had two Buy List earnings reports last week. These were for companies that had quarters ending at the end of April. Let’s start with Hormel Foods (HRL). On Thursday, May 23, the Spam company reported fiscal-Q2 earnings of 46 cents per share. That beat expectations by one penny per share.

Despite the earnings beat, Hormel lowered its fiscal 2019 outlook. They now see sales of $9.5 billion to $10 billion. The previous guidance was $9.7 billion to $10.2 billion. They also lowered their EPS guidance to $1.71 to $1.85. The previous range was $1.77 to $1.91 per share.

Jim Snee, Hormel’s CEO, said that despite record sales, Q2 did not meet their expectations: “African swine fever in China started to impact global hog and pork markets this quarter, which led to rapidly increasing input costs. In response, we have announced pricing action across our branded value-added portfolio in the Grocery Products, Refrigerated Foods and International segments.”

Snee said that the lower guidance “is based on the input cost increases experienced in the second quarter and a forecast for volatile domestic pork prices in the second half of fiscal 2019.”

On Thursday, shares of Hormel gapped down at the open. At one point, HRL was off by 6.3%. After that, HRL rallied back, and it closed yesterday not far from where it was before the earnings. It’s as if the market thought it over and changed its mind.

Hormel’s outlook is troubling, but I’m still confident the company can manage its way through short-term issues. As a precaution, this week, I’m lowering my Buy Below on Hormel Foods to $42 per share.

Also on Thursday, Ross Stores (ROST) released its fiscal-Q1 earnings report. For the February/March/April period, Ross made $1.15 per share. Previously, the deep-discounter had given us an earnings range of $1.05 to $1.11 per share. As usual, their guidance was conservative. Comparable-store sales were up 2%.

Barbara Rentler, Chief Executive Officer, commented, “For the first quarter, we delivered sales gains at the high end of our guidance as well as better-than-expected earnings-per-share growth despite continued underperformance in Ladies’ apparel. While operating margin of 14.1% was down from the prior year, it was above plan mainly due to higher merchandise margin. As expected, this improvement was more than offset by increases in freight and wage costs and the timing of packaway-related expenses that benefited the prior-year period.”

For Q2, Ross sees comparable-store sales growth of 1% to 2%. For EPS, the company sees the exact same as Q1, $1.05 to $1.11 per share. Wall Street had been expecting $1.14 per share.

The company also updated its full-year guidance. Ross now sees earnings of $4.38 to $4.52 per share. That includes seven cents per share thanks to a favorable tax benefit. The previous range was $4.30 to $4.52 per share. Adjusting for that, in effect, ROST’s guidance range narrowed thanks to a one-cent increase at the low end and a five-cent decrease at the high end.

The shares pulled back after the earnings report, but it was nothing too serious. At one point on Wednesday, ROST dipped below $90 per share. I’m still a fan. Ross Stores is a buy up to $95 per share.

Earnings from Smucker on June 6

At the start of the year, I would not have guessed that JM Smucker (SJM) would be a 30% winner for us by May, but here we are. Of course, one of the best parts of our strategy is that we don’t have to make such guesses. We buy and we wait. The jelly people are due to report their fiscal-Q4 earnings next Thursday, June 6.

For their fiscal Q3, Smucker earned $2.26 per share, which nicely beat Wall Street’s estimate of $2.02 per share. Sales rose 6% to just over $2 billion. Most importantly, the company stood by its full-year forecast.

For the entire fiscal year, Smucker expects sales of $7.9 billion and earnings of $8.00 to $8.20 per share. They’ve already made $6.20 per share for the first three quarters, so that translates to a Q4 range of $1.80 to $2.00 per share. Wall Street expects $1.95 per share.

Smucker also said that results for FY 2020, which began on May 1, will be above Wall Street’s expectations. At the time, Wall Street had been expecting 2020 earnings of $8.22 per share. That consensus is now up to $8.33 per share. The current share price is about 14.5 times that, so the stock is reasonably valued.

Remember that Smucker is a lot more than jelly. Their divisions are coffee, retail consumer foods, retail pet foods and international. The stock actually got dinged on Tuesday and Wednesday of this week. Look for a solid earnings report.

After the Smucker report, we enter a dry patch for Buy List earnings. There’s not much until the Q2 earnings season heats up in mid-July. We have two Buy List stocks with quarters that ended in May. FactSet (FDS) will report its earnings on June 25. The other is RPM International (RPM), but they won’t report until mid-to-late July. Companies are allowed extra time with their fiscal Q4 report.

Speaking of FactSet, last week the company raised its dividend by 12.5%. The payout will rise from 64 cents to 72 cents per share. This is the 14th annual dividend increase in a row. The cash dividend will be paid on June 18 to holders of record at the close of business on May 31.

Before I go, I wanted to mention Check Point Software (CHKP). This is a very good company, but the shares have been knocked around lately. In April, CHKP beat earnings by a penny, but traders got spooked by poor guidance. In my opinion, that guidance wasn’t that bad. The day of the earnings report, the shares dropped 7.4%. What’s surprised me is that CHKP has fallen another 6.2% on top of that. Look for a bounce. I’m lowering my Buy Below on Check Point to $120 per share.

That’s all for now. Next week is the first week of June, and with that, we’ll get several of the key turn-of-the-month economic reports. The ISM Manufacturing report comes out on Monday. This is often a good gauge of the factory sector. ADP will release its payroll report on Wednesday. Then on Thursday, the jobless-claims report is due out. This all leads up to the big jobs report next Friday. That last report showed the lowest unemployment rate in five decades. 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: May 31, 2019
Posted by Eddy Elfenbein on May 31st, 2019 at 7:04 am

China Threatens Sweeping Blacklist of Firms After Huawei Ban

Trump to Impose Tariff of Up to 25% on Mexico Over Migrants

Fed May Consider Lower Rates if Inflation and Global Risks Worsen

Trade War Starts Changing Manufacturers in Hard-to-Reverse Ways

How Tariff Hikes are Squeezing the U.S. Furniture Business

Falling Mortgage Rates Are Enticing U.S. Homebuyers to Trade Up

Uber Will Reduce Promotions After Losing $1 Billion in a Quarter

Amazon Interested in Buying Boost from T-Mobile, Sprint

Gap Brand, Old Navy Post Weakest Sales in Three Years

LaCroix Faces a Crippling ‘Free Fall’ as It Turns ‘From Bad, to Worse, to Disastrous,’

A 600-Page Textbook About Modern Monetary Theory Has Sold Out

Howard Lindzon: The Death of Retail Is The Birth of Retail…Part 2

Jeff Carter: Skimping on Legal

Ben Carlson: The Podcast Power Law & Credit Card Benefits You Never Knew About

Be sure to follow me on Twitter.

Morning News: May 30, 2019
Posted by Eddy Elfenbein on May 30th, 2019 at 7:04 am

Yes, India’s Economy Is Growing, but Can You Trust the Data?

The Bond Market Is Giving Ominous Warnings About the Global Economy

Stocks Have Had Enough Of The Bond Rally

Wall Street’s Darkening Trade-War Gloom Means Tossing Old Advice

China Puts U.S. Soy Buying on Hold as Tariff War Escalates

Taking Aim at U.S., China Says Provoking Trade Disputes is ‘Naked Economic Terrorism’

The Department of Energy Is Now Calling Fossil Fuels “Molecules of Freedom” and “Freedom Gas”

U.S. Wants T-Mobile to Create New Competitor as Part of Deal

Tesla Woes Send Panasonic’s U.S. Solar Cells to Philippines

The Fiat-Renault Merger: Pitfalls and Potential Profits

Safe Or Scary? The Shifting Reputation Of Glyphosate, AKA Roundup

Uber Will Ban Riders With Low Ratings

Nick Maggiulli: Not Efficient, But Effective

Jeff Miller: Technical Warning, Lookout Below?

Michael Batnick: Where Does My Money Go?, The Podcast Power Law & Should I Invest in Life Insurance?

Be sure to follow me on Twitter.