Friday, March 18, 2011

NKE 3Q Results – First Miss Since ‘06

Nike, Inc. reported earnings today for their third quarter ended February 28, 2011. 3Q EPS was $1.08 versus $1.01 last year but less than Street expectations of $1.12. Revenues for the quarter increased 7% year-over-year to $5.08bn as sales in every region besides Japan rose. $5.5mn shares were repurchased during the quarter.

NKE traded down as much as 11% on the EPS miss and gross margin concerns through the back half of 2011. 3Q gross margin contracted 110 basis points compared to 2010, and management expects to see a 300 bps decrease in 4Q. The gross margin pressure is caused by rising sourcing costs which will force higher pricing points. This, however, is an issue facing many companies throughout the sector and we believe NKE will be able to effectively manage gross margins through 2H11.

Despite the aggressive sell-off today, we are still bullish on Nike’s story and fundamentals. Futures orders for branded products scheduled for delivery from March to July totaled $7.9bn, an increase of 9% compared to last year. NKE remains an innovator in the industry and the brand continually shows strength, and we are reticent to sell at this time given the long-term potential upside in the name.


Tuesday, March 8, 2011

WDC Rally

Western Digital has experienced nearly a 20% rally over the last two days. This has been a result of the company’s recent announcement of the definite acquisition of Hitachi Global Storage Technologies (Hitachi GST). Hitachi GST is a wholly-owned subsidiary of Hitachi Ltd. The acquisition will be executed using $3.5 billion cash and 25 million Western Digital common shares resulting in a total value of approximately $4.3 billion. Hitachi will own approximately 10% of WDC shares outstanding and two representative of Hitachi will be added to Western Digital’s board of directors.

The acquisition will result in a customer-focused storage facility that has a large operating scale, excellent talent, and the industry’s broadest product line. WDC has stated the acquisition will be immediately accretive, meaning WDC should enjoy increased EPS in coming quarters.

UASBIG Technology analysts are excited to see this acquisition take place. The sector is confident the company’s acquisition of Hitachi GST will strengthen the company’s competitive advantage and financial position in the industry.


Tuesday, March 1, 2011

Endo Pharma Beats Earnings Expectations

Endo Pharmaceuticals reported strong earnings for 4Q 2010, as well as raising its guidance for full-year 2011. Revenue for fourth quarter increased 31% over the same period during 2009, with net income increasing from just $14.8 million to $93 million. Diluted EPS for the quarter was $0.77, compared with $1.25 for the fourth quarter of 2009, however adjusted EPS was $1.06 for the quarter compared with $0.81reported in 2009. For full-year 2010, Endo’s revenue increased 17.5% over 2009 reporting revenue of $1.76 billion. In addition, net income for FY 2010 fell from 2009, with Endo reporting net income of $259 million. Furthermore, Endo’s management team has raised its FY 2011 guidance to a range of $2.43 to $2.53 for GAAP diluted EPS, with a revenue range of $2.35 billion to $2.45 billion. Results of selected products and segments follow:

Lidoderm – FY 2010 sales for Endo’s headline product increased 2% year over year, reporting revenue of $783 million for 2010, compared with $764 during 2009 for the topical painkiller.

Opana ER & Opana – The branded painkiller franchise reported revenue of $299 million, which represents a 30% increase over 2009.

Generics – Net sales for Endo’s generic portfolio were $147 million in comparison to sales of $125 million recorded in 2009. This total does include sales from Qualitest Pharmaceuticals as of December 1, 2010.

Devices & Services – Revenue from Endo’s newly acquired HealthTronics subsidiary was $102 million for FY 2010.

-Dave Siegel