Wednesday, December 14, 2011

JOY Global Shares Hit hard by Mining Equipment Outlook

Joy Global shares were down 10.75% at 2PM. Joy global warns that their production growth could be moderate because of weaker demand for commodities. Joy Global predicts growth to be at a “more tempered pace”. They reported revenue that was slightly short of analyst expectations. Spot prices for coal, copper and iron ore are down from highs set earlier this year by as much as 20 percent, the company noted in the announcement of its earnings. JOY will now shift their focus on long term growth.

Market Vectors-Coal ETF (-.69, -2.06%) has seen a 12% decline in the last month. Market Vectors-Coal ETF (the Fund) seeks to replicate as closely as possible the price and yield return performance of the Stowe Coal Index (COAL or the Index) by investing in a portfolio of securities that generally replicates COAL. There is some fear that the ETF could fall just below its October low of $27.50. Joy Global currently makes up 11% of KOL’s weight.


JOY Reports Sad Earning's

Joy Global released their annual report today, December 14, 2011. Despite positive words from CEO Mike Sutherlin, saying "Our fourth quarter was a good finish to an exceptional year,” the market interpreted the results in a much different manor. Missing their quarterly EPS $.06, a 3.3% miss, the stock opened down 4.84% and his since fallen further to an 11.85% loss for the day. The miss on EPS combined with a 2012 annual EPS target set by the company of anywhere between $7.00 and $7.40, a high range, especially considering the market is expecting 7.19, allowing for room for failure.

In the report itself, Joy Global stressed its increase in future bookings and a more forward approach discussing the future growth more than the current year’s success, or lack thereof. With the purchase of LeTourneau Mining, combined with the future bookings, does not rule out the possibility of a large comeback year, especially if Joy Global can hit the upper end of its projected EPS. The downsides continue with growth for mining in India and China not appearing as vibrant as once thought, with FactSet stating that the region will "grow at a more moderate rate in 2012." AS banks start to react to this news, favorability towards the stock is declining with JPMorgan lowering its price target for the company from $97 to $85, a 14% decrease. With so much growth of the company dependant on world macroeconomic success, JPMorgan felt that the company would continue its sluggish growth until we began to see more of an economic upturn.

- Matt Buechele

Monday, December 12, 2011

ECL Active in Acquisition Market

On Thursday, December 8, 2011 Ecolab Inc. announced the acquisition of the Brazilian pest control company InsetCenter, which has about $6 million in annual sales. Ecolab plans to merge InsetCenter into its existing pest elimination business in Brazil. The terms of the deal were not disclosed but Douglas M. Baker, Jr., Ecolab's Chairman and CEO commented on the announcement, saying, "This acquisition will substantially increase our Brazilian Pest Elimination service capacity and scale to our business, making us the leader in commercial pest elimination in Brazil”. Ecolab was up $0.03 (0.05%) at the close today after a late general market sell off.

It has been a very busy month for Ecolab with its acquisitions of Nalco, the world's leading water treatment and process improvement company and the Italian health care products maker Esoform and as of today, InsetCenter. I believe that the recent acquisitions coupled with its strong performance in recent months are a good indication of growth on a global scale.

-Drew Sweeney, Junior Analyst

Tuesday, November 29, 2011

JOY Global 'to the World'; Joy Global up 7% on the day

On November 29, 2011, Joy Global saw an incredible one day rise of $5.94 per share, to settle at a price of 84.72. This seven and a half percent rise was mostly due to the fact that we are in the midst of extremely volatile times for financial markets. Opening the day with the two positive stories, the legendary sales on Black Friday combined with positive news regarding negotiations concerning the debt crisis in Europe, was able to give way for a two a half percent rise in the Dow Jones Industrial.

The reasons pertaining to Joy’s particularly favorable numbers could be the result of a multitude of factors. Firstly, being one of the more risky companies within its sub-industry, Joy had dropped over 8 percent from November 18-25 on speculation of possible takeovers and moves into China by one of their main competitors, Caterpillar, Joy could have been undervalued coming into the day, and saw over exaggerated gains. The only official news released by the company for the day was its announcement that it would be giving out a dividend of $0.175 for the quarter, which did seem to be encountered as a surprise by the market. So with limited aspects for growth on the day, I do not think we can see this rise in the company’s market share as a significant source of growth, but rather a move with the market that could perhaps do the opposite with any negative news in the upcoming days.

-Matthew Buechele

Monday, November 21, 2011

Illinois Tool Works Sale

We made the decision to sell our position in Illinois Tool Works, Inc. Based on the fact that we hit our price target and believe our thesis upon which we bought into ITW has been fulfilled. Also, we are bearish on ITW going forward due to their high exposure to Europe, specifically Italy. We will be recognizing a 30% plus gain.

-John Astarita

Monday, November 14, 2011

Allscripts: Profit Rises and Beats Estimates

Allscripts beat analysts’ Q3 estimates and saw a significant jump in year-over-year growth, accelerating revenue, and net income. For the Q3, Allscripts Healthcare Solutions (MDRX) recorded revenue of $371.4 million, up 13% from last year’s Q3, with about 65% of this revenue noted to be reoccurring. System sales revenue grew 15% year-over-year, reflecting revenue sales from new client sales in the quarter. Professional services revenue increased 22% year-over-year and attributed to the decline in gross margin. Maintenance revenue climbed 9%, due to robust go-live activity in both their acute and ambulatory segments. Transaction processing and other revenue grew approximately 11%. Gross margin was recorded at 45.7% compared to 48.9% in the prior year, due to a broader mix of professional services and higher number of third-party system sales in the third quarter of 2011.

Operating profit margin was 20.3%. Furthermore, net income for Q3 totaled $47.3 million, a 28% increase over the $36.8 million over the last year. Diluted adjusted earnings per share were $0.25, a 32% increase over last year and beat analyst’s estimates of $0.23 earnings per share. For the third quarter of 2011, cash flow from operations totaled $42.2 million. They also eliminated $45.5 million in borrowings, the largest quarterly reduction to date. Allscripts recorded $267 million in bookings, representing a 34% growth year-over-year. It should be noted that these numbers have been adjusted and are non-GAAP, essentially excluding the costs related to its $1.3 billion buyout of Eclipsys last year.

Allscripts sees regulatory issues as an opportunity for growth in the future. The revisions in the healthcare system and adoption of EHR and IT services will likely contribute positively to Allscripts future performance. Because of this and their Q3 earnings, they have increased their non-GAAP revenue for the year to be in the range of $1.455 to $1.46 billion versus a prior range of approximately $1.44 to $1.45 billion. MDRX management slightly adjusted their operating income from $303 to $307 million. They estimate their net income to be in the range of $175 to $179 million, equating to a new EPS range of $0.91 to $0.93 per diluted share. Since their 3Q bookings performance did not reflect any international bookings, they expect their domestic bookings in the 4Q to be up substantially. Furthermore, they anticipate 90% of the balance with South Australian Public Health System to close in the 4Q, contributing to their estimate of 17% to 18% bookings growth for the year.

-Deven Gould, Health Care Sector Head
-Jorge Perez, Junior Health Care Analyst

Thursday, November 10, 2011

Hartford (HIG) Q3 Earnings

Hartford’s earnings continue to be a tale of two companies. Their wealth management and P&C divisions continued to deliver solid results, while their family of life insurance businesses struggled to generate positive results. For the quarter, GAAP net income was $0M or $(.02) EPS, which included a $516M after tax charge from a negative DAC unlock, $134M in after tax catastrophe losses, and the low yield environment. Management asserted that in a normalized environment the company would have earned $0.73 per share. Third quarter 2010, which was boosted by low catastrophe losses and solid yields, resulted in net income of $666 million, or $1.34 per diluted share.

In the conference call, management projected the life insurance segment to be self-sufficient but unable to contribute to the holding company’s statutory surplus in 2012. They think that by 2013 yields will surpass the assumptions embedded in old business, and the sale of newly introduced products will ramp up towards pre-2008 levels. Lastly, Hartford wants to wait until there is more clarity in Europe before deploying the $500M is has earmarked for buybacks, but has promised to be done by Q2 2012.

While it will still be a number of quarters before the Hartford can prove that they are moving in the right direction, a number of analysts have found the valuation compelling. Morgan Stanley recently joined JP Morgan, Credit Suisse, Sterne Agee and others by upgrading HIG to a buy with a target price in the mid 20s.


Sunday, November 6, 2011

Baxter International Q3 Results: Beat Estimates

For the Q3 Baxter International (BAX) recorded total revenue of $3.4 billion (up 8%). The total revenue was comprised of domestic revenue totaling at $1.4 billion (up 1%) and overseas revenue at $2 Billion (up 13%). BAX’s increase in total revenue for Q3 was driven by oversea sales, resulting in an overall EPS of $1.09 surpassing LY Q3 EPS of $1.01. These results matched BAX’s earlier estimations of Q3 EPS between $1.07-1.09.

BAX also reported net income of $578 million ($1.01 per share) for Q3 versus the $525 million ($.89 per share) in 2010. This continuation of revenue growth can be directly correlated to the success from the performance of their different subdivisions. On a segment basis, Bioscience revenues amounted to $1.5 billion (up 9% from Q3 2010) due to higher demand for Gammagard Liquid. Recombinants were recorded at $552 million (up 5%), Plasma Proteins at $372 million (up 8%), and Antibody Therapy at $380 million (up 13%). Medical Product sales were at $1.9 Billion (up 7%) due to growth in intravenous therapies and injectable drugs, anesthesia products in overseas markets, and peritoneal dialysis therapy while Renal was $646 million (up 2%), IV Therapies $453 million (up 3%), and Global Injectables at $494 million (same). However, even with these growths gross margin was recorded at $1.7 Billion (50.9%), down from 51.5%, displaying a .6% decrease. Decrease to gross margin was largely due to R&D spending accelerated by 15%. In addition, cash flow from operations also fell recorded at $922 million versus the $1 billion totaled during the previous quarter.

Moreover, Baxter had many positive announcements from the Q3. Baxter came to a definitive agreement to acquire Baxa Corporation for $380 million (Baxa is a privately held company that develops automated pharmacy compounding technologies that enhances the efficacy and safety of oral and IV dose preparation and delivery). Furthermore, they received FDA approval for GAMMAGARD LIQUID 10% SubQ and recently launched the therapy in the United States and reached Phase III trials in treatments for multifocal motor neuropathy and Alzheimer's disease. More importantly, Baxter is the only company with approval for the MMN (multifocal motor neuropathy) indication in Europe, and have also been granted Orphan Drug status for the therapy in the US. Furthermore, management repurchased nearly 6 million shares of common stock for $292 million. These are just some of the positive news Baxter released on Thursday.
For the fourth quarter, Baxter expects earnings per diluted share of $1.15 to $1.18 and sales growth, excluding the impact of foreign currency, of 2% to 3%. They expect reported sales to increase in the 1% to 2% range. $60 million related to the U.S. multi-source Generic Injectables business versus approximately $200 million in 2010. Management now forecasts annual earnings at $4.29 to $4.32 per diluted share, which is at the high end of their previous guidance range of $4.27 to $4.32 per diluted share. Annual gross margins for the company are projected to be 51% to 51.5%. Expect the full year average share count of approximately 575 million shares, which assumes approximately $1 billion in net share repurchases. Overall, another solid quarter of earnings for BAX.

Shawn Laljit- Junior Analyst
Deven Gould- Healthcare Sector Head

Saturday, November 5, 2011

Chesapeake Energy 3Q Results

Chesapeake Energy reported Thursday better than expected quarterly profit and, as a result, shares traded up nearly 7% in after-hours trading. The company reported revenues of $496 million and $0.72 on a per share basis. These results were up from 3rd quarter revenue last year of $478 million and an EPS of $0.70. Net income also increased substantially, up from $515 million to $879 million this year. (From $0.75 to $1.23 per share.)The $0.72 per share earnings beat analyst estimates of $0.66 per share and the street's estimate of $3.14 billion in revenues was toppled by a revenue of $3.98 billion, up from $2.58 billion last year. Chesapeake also reported an operating cash flow of $1.409 billion, with an EBITDA of $2.013 billion. The company told analysts that its daily natural gas production for the quarter averaged 3.329 bcfe(billions of cubic feet equivalent), which is an increase of about 9% from the same time last year. About 75% of this production was natural gas, while the remainder was oil and natural gas liquids. Average prices for natural gas were down this quarter, compared to the same time last year, and the company's natural gas and liquid hedging revenues were down as well.

Chesapeake has also announced a joint venture with an undisclosed energy company, which will generate an expected revenue to Chesapeake of approximately $3.4 billion. The joint venture partner will acquire an undivided 25% interest of a 650,000 acre area of the wet natural gas area of the Utica Shale play. The company has also just completed the sale of $500 million of perpetual preferred shares of its CHK Utica, LLC entity to EIG Global Energy Partners and expects to sell an additional $750 million to the energy corporation. These revenues help to cover the entire leasehold cost that Chesapeake pays for the Utica Shale Play and the company is well funded and prepared now going forward into the future. I feel that Chesapeake is strongly positioned within the industry and will continue to capitalize off of their enormous resource plays, keeping the company in an upward trend.


Wednesday, November 2, 2011

Fiserv Third Quarter 2011 Results (FISV)

Fiserv’s Q3 adjusted EPS was up 12% to $1.16, modestly beating consensus estimates of $1.14. GAAP revenue matched expectations of 1.06B, a 4% increase. The disparity between top and bottom line growth can be attributed to a diluted share count that was 5.5% smaller than a year ago. Management raised full year guidance to $4.54 – $4.60, surpassing current estimates of $4.53, on the belief that growth will accelerate into Q4 and the first half of 2012.

Of Fiserv’s two segments, Financial Institution Services’ operating income was exactly flat for the quarter and is up 1% on the year. Payments and Industry Products’ operating income was up 2% over the previous Q3, and 5% on the year. This trend is expected to continue, as banks and credit unions are more willing to spend on client facing technology (Payments) than internal account management (Services). In Q3 alone, Fiserv signed 114 new electronic bill pay and 48 debit clients, including Zions, a top 35 bank, which recently selected Fiserv to support its multichannel digital payment strategy for both retail and business customers.

While the trailing quarters have been difficult for businesses that depend on capital expenditures by financial institutions, Fiserv has used that time to develop or acquire leading solutions in online, mobile, and person-to-person platforms. As a result, management has become increasingly optimistic as they gain visibility into 2012. CEO Jeffery Yabuki commented, “Based on our sales results, which have been stellar, based on our pipeline, which is in fact up across all measures that are meaningful, we feel like we are in very good shape.”


Devon Energy's Q3-2011 Earnings Report

Although net earnings fell significantly, Devon Energy reported positive revenues for its third-quarter performance. Third-quarter 2011 net earnings of $1.0 billion, or $2.50 per diluted share represented a 50% decline to the company's bottom line from year-ago net earnings and per diluted shares result of $2.1 billion and $4.7 respectively.Devon’s third-quarter 2010 net earnings represented a one-time $1.5 billion gain in divestiture from sale of assets in Azerbaijan.

Revenues jumped 45% to 3.5 billion and operating margins expanded to 43.9% from 29.7%.
Overall, higher production and rising prices in oil and natural gas liquids reflected positively on sales. Total production of oil, natural gas and natural gas liquids averaged 661,000 oil-equivalent barrels per day (Boe), an 8% increase over year-ago quarter.

Respective to the balance sheet, Devon continued its share buy-back operations by repurchasing $697 million of common stocks. The company has purchased $3.2 billion of stocks till date since its announcement of a $3.5 billion repurchasing initiative.
Operating expenses, particularly lease operating expense (LOE) increased by 6% compared to lease operating expense from the third quarter of 2010.

The company’s decision on its recent divestiture gains is what many investors are anticipating going forward. Shares were up 3.59% on the news as of 1:00 PM today.

-Kelechi Nwokocha

Sunday, October 30, 2011

Endo Pharamceuticals (ENDP) Q3 Results

Endo Pharmaceuticals reported earnings for the third quarter, and beat analyst expectations for both top-line revenues and EPS. ENDP revenues increased 71% to $759 million, driven by organic growth in the branded drugs division and growth in the generics division. Opana ER, Voltaren Gel, and Lidoderm grew 66%, 35%, and 3% respectively, for a total growth in the branded division of 17%. The company continues to effectively integrate acquired companies such as Qualitest, which provided a boon to the generic division and helped grow generic revenues by 17%. The combination of organic growth in the branded division and integration of the generic division has led to impressive sales growth and top-line revenues which exceeded analyst expectations by $9 million.

Operating expenses grew to $271 million from $162 million after acquisitions, but expenses as a percentage of sales remained flat. The company saw $48 million in net income, and EPS of $1.25, representing EPS growth of 45%. Additionally, the firm continues to generate strong operating cash flows, which it will use to pay off debt. The firm continues to perform strongly, as had reaffirmed guidance of $2.8 billion in sales and $4.65 in EPS for the fiscal year. The firm also sees a smooth integration of AMS and Qualitest, and believes the firm will be able to capitalize on more synergies than initially thought.

Friday, October 28, 2011

Ford 3Q11 Earnings

Ford reported third quarter earnings Wednesday that beat the mean street estimate, but fell short of its year over year figure. Revenues beat expectations by a wide margin, coming in at 33.1 billion, an increase of about $4 billion or 14%.Vehicle wholesales were 1.3 million units, up 93,000 or 7% from 2010. Pretax operating profit was $1.9 billion or $0.46 per share – down $111 million from 2010. The Pretax operating profit includes a one-time charge of $350 million for un-realized market-to-market adjustments on commodity hedging for future periods. Third quarter net income was $1.6 billion, or 41 cents per share, a $38 million decrease from third quarter 2010. Ford generated positive automotive operating-related cash flow of $400 million in the third quarter.

In the quarter Ford took a one-time-charge of $350 million to write down valuations of commodity hedging contracts (market-to-market), caused by the swift decline in commodity prices. However CEO Alan Mulally stated that this charge “could be reversed” if commodity prices rise in the future or the company recognizes the benefits from lower input costs. If the one-time charge is taken out, considering it could be reversed at some point in the future, earnings would actually be near $2.3 billion, beating the year-over-year figure.

Also, Ford paid down $1.3 billion in debt over the quarter, positioning the company closer to their target of $10 billion in debt by mid-decade. Ford’s Automotive gross cash exceeded debt by $8.1 billion, an improvement of $10.7 billion from the third quarter a year ago.

Share of Ford traded down ~6% on Wednesday. The negative impact on the stock was a result of management failing to declare a dividend or comment on when dividends will be resumed, despite recently having their credit rating upgraded to one-notch below investment grade. Additionally, management issued end of year guidance that indicated overall sales would be toward the lowering end of the 13 million units the company had previously estimated.

Shares of Ford closed Friday up 0.25% to $12.00

Thursday, October 27, 2011

EW Reports Q3 Earning, SAPIEN valve close to approval

Edwards Lifesciences reported third quarter sales growth of 18.4% ($1.25 billion) from Q3 of last year. Sales were driven by an increased demand for their transcatheter heart valves, along with “sustained strength in clinical care.” Transcatheter heart valve sales for the quarter were reported at $82.6 Million, a 69.1% increase over 2010, making up the largest segment of YTD sales growth. Heart valve therapy sales amounted to $246.1 million, representing 22.7% growth over last year. Diluted EPS came in at .38 a share (compared with 0.43 in the prior year quarter), a penny short of analyst consensus, but in line with management guidance.

EW is currently awaiting FDA approval for SAPIEN, a new, non-invasive transcatheter heart valve implant that would give them a significant lead over their competitors. Management expects SAPIEN sales of $20-$25 Million within the first three months of launch, and $150 to $250 Million in it’s first year. Because of this heavy dependence on SAPIEN sales, EW stock has proven to be highly sensitive to speculation as evidenced by a 5% drop in price on 10/18/11 following rumor that FDA approval would be delayed by 9 months. Following release, EW’s stock rose 6.21% to $72.00 per share. Since then, the stock has climbed an additional 4% and is currently trading at $75.15.

- Chris Garcia, Junior Analyst
- Deven Gould, Healthcare Sector Head

Monday, October 24, 2011

MCD 3Q Review .. 100 Consecutive Months of Positive Global Comps

McDonalds reported stellar third quarter earnings on Friday before the open. Revenue rose 13.7% to $7.1bn from $6.3bn in the year-ago period. Earnings rose to $1.45 per diluted share, a 12% increase from $1.29 last year. Sales were driven by growth across all areas of the world, and comparable same store sales of 5.0% versus 3.9% consensus.

MCD has increased prices two times this year to offset rising commodity prices (particularly beef), but management commented that prices at supermarkets are rising faster than restaurant prices which provides the company with some cushion. An increasingly diverse menu, with a focus on keeping prices competitive versus peers, has allowed McDonalds to thrive in the current environment – driving in-store traffic and allowing MCD to gain market share.

Jim Skinner, CEO, made some interesting comments regarding the economy and consumer. "We are officially out of the recession, but it hardly feels that way," he said. "Consumers everywhere continue to be cost conscious and hesitant to spend." Estimates are under review but results this quarter support our bullish thesis on shares of MCD. The stock traded up ~3% on the day and has increased ~20% so far this year.


Sunday, October 23, 2011

UASBIG invests in the Albany Community

On Sunday October 23rd UASBIG participated in the Pine Hills community clean up along with deans leadership council and the Pine Hills Neighborhood Association. About 130 University at Albany students were involved with the event that lasted from 9am to 12pm. UASBIG analysts played an important part in the cleanup and Hudson avenue saw great improvement as a result. Thanks to all who participated!


Saturday, October 22, 2011

Verizon Communications 3Q11 Earnings

Verision reported 3Q 2011 earnings of 49 cents per share, missing the mean street estimate of 56 cents per share. Factors contributing to the miss in earnings were as follows; 7 cents per share for a non-operational charge relating to remeasurement, based on an actuarial valuation of pension plans and a $250 million or 5 cents per share negative impact due to storm-related repair costs and a two week strike affecting the wireline segment.

Revenue in the quarter rose 5.4 percent to $27.9 billion from $26.5 billion a year ago. Total operating expenses were $23.3 billion, an increase of 0.7 percent. Consolidated EBITDA was $8.8 billion, up 19.2 percent year over year. VZ has generated $21.5 billion in cash from cash operating activities through the first 9 months of 2011. Cap-ex totaled $12.5 billion on pace to meet managements full year guidance of 16.5 billion.

The company added an additional 882,000 customers this quarter amounting to a total of 107.7 million connections, an increase of 6.5 percent year over year. VZ also saw 138,000 additional FiOS internet subscribers and 131,000 FiOS TV subscribers. The negative impact of storm-related repair costs and the two week strike affected the wireline segment.

UASBIG tech analysts believe that VZ is positioned to perform well in 4Q11 as well as into fiscal year 2011. VZ was able to deliver impressive 3Q results despite both internal and external turbulence. VZ’s fresh line-up of new smartphones, tablets and data devices as well as a pent-up demand their wireline TV and internet businesses position VZ to deliver strong growth in the fourth quarter.

Shares of Verizon, rose 32 cents Friday, to close at $37.42.

Friday, October 21, 2011

Alcoa Sold on 10/21/2011

We made the decision to sell out of our position in Alcoa Inc. Based on the fact that Alcoa missed 3Q11 earnings and the sentiment around the market for aluminum is depressed, we found that the thesis behind our purchase of Alcoa no longer held true. Alcoa now seems to be a 2-3 year long-term hold situation with very short term volatility, and we felt that is was not in our best interest to maintain our holding.

-Jeremy Pellizzari

Tuesday, October 18, 2011

Hartford Rises with Sector and Industry

Hartford Financial Services (HIG) closed up 5.63% today. A move that was in line with other large life insurance providers, including Met Life (5.16%), Prudential (5.35%), and Lincoln National (6.44%). These moves outpaced the domestic Financial Select Sector SPDR (XLF) return of 4.75%. As recently as last week, analysts feared that the poor yield environment would constrain the profitability of the whole life insurance industry because companies would not be able to sufficiently surpass the rates embedded in their products. The recent strength of equities and increases in the 10-year yield have assuaged some of that fear. It is possible that today’s move was the start of a sector rotation. It’s also possible that some shorts were squeezed because today’s performance was inversely proportional to their relative standing in the industry.


Wednesday, October 12, 2011

MSG Update

MSG fell 4.64% today following the announcement that the first two weeks of the NBA season has been cancelled. With that being said the talks are expected to continue as both sides are feeling increasing pressure as they all stand to loose a substantial amount of money. The two-week cancellation will cause around 6 game cancellations per team. UASBIG analysts will continue to monitor the situation carefully.


Alcoa Inc. 3Q11 Earnings - 10/11/11

After the close on October 11, Alcoa Inc. released 3Q11 earnings that disappointed investors. AA reported net income of $172M, or $.15/share, missing consensus estimates of $.22/share and representing a significant sequential decline. Revenue of $6.42B topped street estimates of $6.24B, but was again a sequential decline as compared to 2Q11. CEO Klaus Kleinfeld attributed the significant miss to lower aluminum prices, seasonal factors and weakness in Europe. Shares of AA are currently trading down more than 5% in after-hours trading.

Within the Alumina segment, ATOI of $154M represents an increase of 120% Y/Y but a 17% decrease sequentially. Lower prices of Alumina on the LME significantly impacted this segments top-line, over powering the Company’s efforts to offset increased energy and raw material costs with greater productivity, higher volume, and positive currency impact. The Primary Metals segment reported ATOI of $110M, a sequential decline of 45%, mainly attributed to a decline in LME cash prices. AA’s Flat-Rolled products saw both a Y/Y and sequential decline in ATOI, reporting just $60M. The significant driver behind this decline was deterioration in European markets, risings costs and seasonal plant closings. AA’s Engineered Products and Solutions segment continues to be on the cutting edge and proved so with both Y/Y and sequential increases in revenues, although they saw a sequential decline in ATOI due to unfavorable price mix and flooding at a PA. factory.

AA continued to work towards their financial targets in the quarter expanding their FCF to $250M YTD on $1.1B in cash from operations. They also improved their liquidity by raising cash on hand 6%. Continued capital spending and investment in the Company’s joint venture in Saudi Arabia, as well as a 200 basis point decline in their debt-to-capital ratio are some other highlights from the earnings call.

Alcoa had a tough quarter that was driven by a rapid decline in aluminum prices as well as a slowdown in the demand from many of their target end markets. Although global recovery and demand has slowed, CEO Klaus Kleinfeld maintains his forecast of 12% growth in demand for 2012 and is quoted as saying: “Alcoa is a confident company in a very nervous world. We are well prepared for whatever lies ahead, with more cash on hand, lower debt, and continued focus on profitable growth.” Although much of this may be true, we currently believe that AA is going to continue to have a tough time finding earnings growth as the prices of aluminum continue to drop, demand remains depressed, and input costs continue to apply pressure to margins. Over the quarter, spot prices of aluminum declined roughly 20%, leading to nearly a 40% loss in the share price of AA. A continued drop could continue to be detrimental to AA’s earnings and share price.

-Jeremy Pellizzari

Thursday, October 6, 2011

Shares of Ford Rally on UAW Deal

Prior to the United Auto Workers deal on Tuesday shares of Ford were trading at $9.37. Since, shares of Ford have rallied 17.07% to $10.97, significantly out-performing the bench mark’s 5.96% gain. The stock’s recent performance is primarily a result of the deal Ford reached with the UAW. According to the initial assessment conducted by the rating agency Moody’s, “the proposed UAW contract should enable Ford to maintain its operating flexibility, fixed cost position, break-even point, and liquidity position near current levels,". Additionally, Moody’s said if the contract was ratified and if initial assessments were maintained, Ford can get an even higher rating than what is currently being considered, returning them to investment grade. An investment grade rating for Ford would substantially lower borrowing costs which has been an encumbrance on their profitability, as well as allow them to reinstate a dividend which shows they are trying to return value to shareholders.

On another note, Ford announced that September sales were up 9% from a year ago. Brand sales were up 14%, led by utilities and pickups, with sales gains of 35% and 15% respectively. Positive trends may be a sign of a broader improvement in the automotive industry and as the economy seems to be stabilizing a little bit, there are a lot of people who had been postponing buying new vehicles who are now finally coming to replace their vehicle. Ford has positioned itself well to attract these consumers and their sales reflect it.

UASBIG analyst will closely monitor both the final negotiations of the UAW contract and Moody’s review to return Ford to investment grade in the coming weeks.