• How Cognizant Avoided Charges
    Posted by on February 21st, 2019 at 11:20 am

    Interesting take from the WSJ on how Cognizant (CTSH) avoided charges.

    The case of Cognizant Technology Solutions Corp. shows how a company can avoid criminal charges even if its C-Suite was involved in alleged wrongdoing.

    Two former Cognizant executives—an ex-president and a former chief legal officer, who oversaw the company’s compliance program—were charged last week for allegedly approving illicit payments to help build a corporate campus in India.

    Not facing criminal charges: Cognizant itself. The Teaneck, N.J., company agreed to pay $25 million in disgorgement and civil penalties to settle its role in the case. The Justice Department said the company avoided criminal charges because it voluntarily disclosed the matter within two weeks of learning about it.

    The company’s internal investigation, its cooperation, remediation and the presence and effectiveness of Cognizant’s pre-existing compliance program also played a role, prosecutors said in a letter to Cognizant’s lawyers. Cognizant also agreed to cooperate in the Justice Department’s ongoing investigations.

    I was impressed by the way Cognizant handled this mess.

  • Hormel Foods Earns 44 Cents per Share
    Posted by on February 21st, 2019 at 9:09 am

    This morning, Hormel Foods (HRL) reported Q1 earnings of 44 cents per share. That matched Wall Street expectations. Sales rose 1% to $2.4 billion which is just below estimates. Operating margin was 13%.

    “We had a solid quarter with sales growth from Refrigerated Foods, Grocery Products and International,” said Jim Snee, chairman of the board, president and chief executive officer. “Three of our four segments generated earnings growth, which keeps us on track to deliver our full-year guidance.”

    “Our new Hormel Deli Solutions division is off to a great start as the next growth engine for our company,” Snee said. “In addition, many branded value-added businesses performed well this quarter, including our business in China and both Hormel and Jennie-O foodservice divisions. We also saw impressive growth from many retail brands, including SPAM®, Dinty Moore®, Herdez®, Wholly Guacamole®, Applegate®, Natural Choice® and Hormel® pepperoni.”
    “Again this quarter, our well-developed strategy of shifting our mix toward branded, value-added products in our domestic and international businesses more than offset significant declines in the commodity businesses,” Snee said. “We continue to intentionally transition our portfolio away from commodity products and the associated earnings volatility.”

    Hormel also reaffirmed its full-year outlook of $1.77 to $1.91 per share.

    “We are reaffirming our sales and earnings guidance for fiscal 2019,” Snee said. “We remain encouraged by the growth prospects in Refrigerated Foods, Grocery Products and International. The results we are seeing in our deli, foodservice and China businesses are exceeding expectations. While the fundamentals in the turkey industry are improving, Jennie-O Turkey Store will likely fall below our full-year expectations due to a lower retail sales outlook. While global trade uncertainty remains, we continue to execute on our well-defined strategy that focuses on building world-class brands, leading with innovation and insights, making smart investment decisions and building intentional balance into our business.”

  • Morning News: February 21, 2019
    Posted by on February 21st, 2019 at 7:11 am

    EU’s Jean-Claude Juncker: Brexit Is a ‘Disaster’

    Wall Street, Seeking Big Tax Breaks, Sets Sights on Distressed Main Streets

    SpaceX, Boeing Design Risks Threaten New Delays for U.S. Space Program

    Maersk Shares Plunge on Slowing Economies and Trade Tensions

    Lyft Sets Crucial Date in Race to I.P.O.

    Walmart Keeps Winning

    American Firm, Citing Ethics Code, Won’t Sell Genetic Sequencers in Xinjiang

    Warren Buffett Can’t Find Anything Big to Buy

    What’s Behind CVS Health’s Fourth-Quarter Loss?

    Elon Musk Can’t Help Himself

    Young Blood ‘Vampire’ Procedures Deemed Unsafe

    UBS Is Fined $4.2 Billion in French Tax-Evasion Case

    Jeff Miller: Do You Trade Big or Small?

    Ben Carlson: First Mover Alpha

    Jeff Carter: Debt Does Matter

    Be sure to follow me on Twitter.

  • Hershey Reaffirms Outlook For 2019
    Posted by on February 20th, 2019 at 3:01 pm

    Update from Hershey (HSY):

    In a presentation today at the 2019 Consumer Analyst Group of New York (CAGNY) conference, Michele G. Buck, President and Chief Executive Officer, The Hershey Company (HSY), reviewed the progress the company has made against its strategic plans and the company’s 2019 imperatives to drive sustainable, profitable growth and long-term shareholder value.

    During the presentation, Buck reaffirmed the company’s full-year 2019 financial expectations for net sales and earnings per share-diluted growth previously provided in its January 31, 2019, earnings release. Full-year reported net sales are expected to increase in the 1% to 3% range, full-year reported earnings per share-diluted are expected to increase 3% to 6% and full-year adjusted earnings per share-diluted are expected to increase 5% to 7%.

    Hershey made $5.36 per share last year so the current forecast works out to an earnings range of $5.63 to $5.74 per share.

  • Today’s Fed Minutes
    Posted by on February 20th, 2019 at 2:14 pm

    Here are the minutes from the last Fed meeting. This is when the Fed appeared to pivot from its previous aggressive stance.

    The attention seems to be on the size of the Fed’s gigantic balance sheet. This is the key part: “Almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve’s asset holdings later this year. Such an announcement would provide more certainty about the process for completing the normalization of the size of the Federal Reserve’s balance sheet.”

    I think this supports the notion that the Fed will leave rates alone for much of this year.

  • The Corporate Subprime Bubble
    Posted by on February 20th, 2019 at 10:45 am

    Bloomberg has an editorial addressing the growing bubble in subprime corporate debt. Here’s a sample:

    The U.S. is back in risk-taking mode. This time around, the problem is corporate debt, not mortgages — specifically, so-called leveraged loans. These are loans extended to firms that already have a lot of debt or a poor credit rating. It’s another kind of subprime financing, often used in corporate buyouts. Borrowers have ranged from Sears Roebuck to Mohawk Bingo Palace. As of December, an estimated $1.15 trillion of such loans were outstanding, more than twice as much as on the eve of the 2008 crisis.

    The boom bears striking similarities to the mortgage frenzy that preceded it. Instead of holding the debt, lenders sell it to be repackaged into so-called collateralized loan obligations, which — by allocating income into tranches with different levels of risk and return — transform a large chunk into triple-A-rated securities. Investor demand for these securities is so strong that it has pushed lenders to lower standards. They’ve largely stopped including loan covenants that, for example, require borrowers to avoid taking on too much debt or generate ample cash for interest payments.

    Some folks are claiming that “it’s different this time.” Bloomberg makes a few recommendations: stop subsidizing debt, have the Fed require banks to be better prepared and use new agencies to monitor the system.

    As Warren Buffett has said, “Only when the tide goes out do you discover who’s been swimming naked.”

  • Morning News: February 20, 2019
    Posted by on February 20th, 2019 at 7:15 am

    Putin Says Russia Will Target U.S. If It Puts Missiles in Europe

    U.S. Push for Stable Yuan May Unwind China’s Move Toward Markets

    Amid Trade Talks, China Urges U.S. to Respect its Right to Develop, Prosper

    The Big Problems Facing the Trade Talks

    Housing Is Already in a Slump. So It (Probably) Can’t Cause a Recession.

    Russian Hackers Targeted European Research Groups, Microsoft Says

    America’s Shale Boom Keeps Rolling Even as Wildcatters Save Cash

    Lockheed Unveils New F-21 Fighter Jet Configured for India

    Southwest Airlines Drops as Government Shutdown Hurts Revenue

    Apple to Target Combining iPhone, iPad and Mac Apps by 2021

    The Number That Shows What Warren Buffett Really Thinks of Berkshire Stock

    It’s Getting More Expensive to Get High

    Nick Maggiulli: How to Invest a Lump Sum

    Ben Carlson: First Mover Alpha

    Michael Batnick: Un-Complicating Investing

    Be sure to follow me on Twitter.

  • Ross Stores to Report on March 5
    Posted by on February 19th, 2019 at 9:54 am

    We now have the earnings calendar set for the next few weeks.

    Hormel Foods (HRL) will report this Thursday, February 21 along with Continental Building Products (CBPX). JM Smucker (SJM) is due to report on February 26.

    Ross Stores (ROST) just announced that they’ll report on March 5.

  • Selling Is Hard
    Posted by on February 19th, 2019 at 9:43 am

    Interesting article from Bloomberg Businessweek noting that selling is the hard part of stock picking.

    The researchers looked at more than 4 million trades among 783 portfolios from 2000 to 2016 and found that stockpickers actually showed skill when buying. However, the sales by these institutional investors cost them as much as 100 basis points, or a full percentage point, of yearly returns compared with a no-skill strategy of simply selling holdings at random, according to the study Selling Fast and Buying Slow by researchers from the University of Chicago, Carnegie Mellon University, MIT, and portfolio analytics firm Inalytics Ltd. The study concluded that one of the likely reasons for the discrepancy was “asymmetric allocation of cognitive resources.” Translation: Investors spend way more time analyzing what to buy than what to sell.

    Read the whole thing.

  • Walmart Contradicts the Government
    Posted by on February 19th, 2019 at 9:08 am

    Last week, the government released a terrible retail sales report for December. I was suspicious. The report was delayed by the shutdown, and if the awful numbers were correct, why haven’t we seen confirmation in other areas?

    This morning, Walmart released a blow-out report for Q4.

    Walmart’s all-important holiday sales blew past expectations, a sign the retailer can more than hold its ground against Amazon.

    Sales in the United States grew 4.2% over the holiday stretch compared with last year, including a 43% rise in digital sales.

    Walmart said its online sales got a boost from rolling out grocery pickup to stores across the country. It also expanded delivery to reach more shoppers. More than 10% of Walmart shoppers used curbside pickup in January, according to data from Cowen.

    Walmart’s online sales increased quickly after it added pickup and delivery to some stores and acquired new digital clothing brands like Eloquii and Bare Necessities.

    The company plans to bring curbside pickup to around 1,000 more stores this year, but predicts that online sales growth will slow to 35%.

    The retail giant looks to open higher today by 3.4%.