Saturday, April 30, 2011

Caterpillar Inc. 1Q11 Earnings

Caterpillar Inc. released their 1Q11 earnings using a new format in which they divided their company into segments to reflect the way the company is managed. The new segments include Construction Industries, Resource Industries, Power Systems, Rail-related businesses, and an All Other Segment.

CAT reported impressive 1Q11 revenues of $12.9 billion, an increase of 57%, as well as a per share profit increase of 400% year over year to $1.84 per share. Construction Industries showed a year over year increase in sales revenue of 71%. Management see’s this increase as a reflection of the purchasing by companies and dealer rental agencies of industrial machinery, not to increase the size or age of their fleet, but to keep their current fleets from degrading. Resource Industry sales were up 84% and Power Systems sales were up 51% year over year. As well as reporting strong increases in their segments, the company realized sales growth in all four major geographical segments. This includes North America up 72%, Latin America up 90%, Europe Africa/Middle East up 67% and Asia/Pacific up 35%.

The company saw record first quarter profits up over $1 billion dollars from the first quarter a year earlier. Higher sales and price realization were the main drivers of this increase in profit, and management is very pleased with their cost control. Incremental margins rates of 28% showed strong cost control and better supplier management.

Although CAT reported strong earnings and surpassed expectations, management stressed that if the numbers seem too high, it is due to depressed levels in 2010. The company believes that construction in the U.S. is still at very depressed levels and expects that as the economy rebounds and construction rebounds, sales will continue to improve. The natural disaster in Japan had not damaged any of CAT’s plants, but hurt many of their suppliers. This has lead to a disruption in supply that has suppressed management’s increase in the 2011 outlook.

Looking forward, CAT has raised their 2011 outlook expecting sales to reach between $52 and $54 billion, compared to the prior outlook of $50 billion. They have also increased EPS outlook to between $6.25 and $6.75, up from $6 per share.

Jeremy Pellizzari, Junior Analyst

Friday, April 29, 2011

ECL 1Q Profit Declines 2% from Restructuring Cost

Ecolab’s 1 Q profit earnings fell 2 %, due to restructuring charges caused a decline, despite an increase in Revenue. Gross Margin was slightly lower from 50% to 49.3%. However, the company raised its forecasted earnings from $2.49 to $2.53 a share. Ecolab reported a diluted EPS of $.40, equal to the prior year. The adjusted EPS of was +10%, which excludes special gains and charges and discrete tax items. This reaches the top end of forecasted range. The Reported sales saw a 6% jump to $1.5 Billion.

The improved sales growth in segment is led by US Cleaning and Sanitizing, Asia Pacific and Latin America, along with efficiency actions, which offsets the higher delivered costs. Douglas M. Baker, Jr. CEO feels their aggressive acquisitions in the previous year are expected to expand their market share and increase efficiency. At the time of issuance of 1Q earnings Ecolab was trading at $51.82.


Thursday, April 28, 2011

Cisco Restructuring

There was an article in the Wall Street Journal recently about Cisco offering early retirement plans to their current employees. This is one of the many measures they are employing to reduce costs. Cisco recently cut the Flip video segment which resulted in a $300 Million loss. CEO John Chambers is starting to realize that Cisco needs to get back to the basics of the company, routers and switches. This is a good time for Cisco to trim down because the cloud market is really starting to take shape. Cisco is at the forefront of this market and cutting certain segments will help eliminate distractions.

The stock has performed lower than expected. Largely due to the recent unstable economic conditions. The events of Libya took a toll on the share price. The announcement of the dividend gave the stock a little boost and the companies recent actions are starting to capture some believers. Third quarter earnings will be released May 11, 2011.


RCL 1Q Review

Royal Caribbean Cruises reported 1Q11 net revenues of $1.67B, a 12.5% increase compared to $1.48B last year and our estimate of $1.68B. Earnings per share for the quarter rose 5% to $0.42 versus $0.40 in 1Q10 (which included a non-recurring gain equating to $0.39) and significantly above our estimate of $0.19. Net yield, which represents the amount of cruise revenues earned net of commission, transportation and onboard expenses, rose 4.0% versus our modeled estimate 3.0%.

The geopolitical events that took place during 1Q in Northern Africa and Japan resulted in numerous itinerary modifications and are expected to have a negative 1% effect on annual yields. As a result, bookings in the Mediterranean and Asia were unexpectedly low despite showing strength at the beginning of the quarter. Earnings will not be incrementally affected until 2Q; however, management believes they will be primarily offset by over-performing Caribbean, Bermuda and Alaska routes.

Given the recent surge in oil prices to over $120 per barrel, a debate has arisen among analysts as to how much rising fuel expense will impact earnings throughout 2011. RCL’s swap contracts were able to mitigate over $36MM worth of fuel expense during 1Q, and the company remains 56% hedged through the remainder of 2011. Royal also owns WTI options with strike prices ranging from $90 to $150 with various maturities as an additional hedge. During 1Q11, RCL recognized a $24MM gain as a result of the rising value of these options ($0.11 on a per share basis).

Given the negative effects of the climate in North Africa and Libya, as well as the rising price of oil, management decreased their fiscal year EPS guidance to a range of $3.10 to $3.30 from $3.25 to $3.45. RCL stock was up over 5% in pre-market trading, but slowly declined during the earnings call before remaining flat on the day. Although the outlook for 2011 was not great, fundamentals in the cruise industry remain strong and we believe that RCL will continue to gain pricing traction, optimize itineraries and leverage costs in the near-term.


Wednesday, April 27, 2011

LIFE releases 2011 Q1 Earnings

On April 26th, Life Technologies released its earnings for the first quarter of 2011.
The results are summarized as follows:

Revenue for the first quarter was $897 million, an increase of 1 percent over the $887 million reported for the Q1 2010.

Organic growth was flat due to negative impact of Japan Earthquake, otherwise it would’ve been 5%.

Cell systems revenue rose 11% to $238 million, while genetic systems sales, hurt by delayed shipment of its new gene sequencer to Japan, fell 4% to $228 million.

Looking ahead, the company expects net income between $3.80 and $3.95 per share in 2011. Analysts expect net income of $3.87 per share.

Tuesday, April 26, 2011

Ford 1Q11 Earnings

Ford Motor (F) reported its best quarterly profit in 13 years, earning $2.55 billion, or 0.61 cents a share. Excluding some one-time charges, the company earned 0.62 cents a share, easily topping analyst expectations of 0.50 cents a share. Revenues rose 18% to $33.1 billion from $28.1 billion last year.

U.S sales increased 16% showing resilience to rising U.S. gasoline prices. Canada, China, and India sales were all up by 8.6%, 18%, and 115% respectively. Expected shortages of new cars and trucks from Japanese auto makers throughout 2011 positions Ford to grab profitable market share. Ford raised its second quarter production forecast by 12,000 vehicles from 2Q2010, to about 1.5 million new cars and trucks.

Ford showed a pretax operating profit of $293 million in Europe, a vast improvement from the $51 million operating loss reported in the forth quarter, which was blamed for Ford's failure to meet analyst expectations last quarter.

Ford shares pushed as high as $16.18 earlier in the day, but closed up almost 1% at $15.66. The stock is down 4.8% since the beginning of the year

-Mike Biagi

Friday, April 22, 2011

MCD Announces Strong Sales and Earnings Growth for 1Q

McDonald’s Corporation (MCD) announced strong results yesterday for the first quarter ended March 31st, 2011, driven by international comparable sales growth. Global comparable sales were up 4.2%, with U.S. up 2.9%, Europe up 5.7% and Asia/Pacific, Middle East and Africa up 3.2%. Revenues increased 9% to $6.11 billion, just barely above analyst forecast. The Company reported earnings per share of $1.15, up 11% from the previous year.

In the U.S., 1Q comparable sales and customer traffic reflected menu changes such as the McCafe line, Oatmeal and featured products such as the 20-piece Chicken McNuggets and the Chipotle BBQ Bacon Angus Burger. MCD has maintained a long-term emphasis on everyday affordability, classic core menu favorites, signature food events and ongoing restaurant reimaging which contributed to performance across many markets.

The Company expects 2Q2011 results to be in line with or better than the first quarter’s, despite the current challenges of rising commodity costs in the U.S. and Europe. McDonald’s revised its expectations for full-year commodity inflation, now projected to be up 4-4.5% I the U.S. and in Europe, previously expected to be up 2.0%-2.5% in the U.S. and 3.5-4.5% in Europe. The stock closed at $76.91, down 1.90%.


Wednesday, April 20, 2011

Edwards Lifesciences Beats Estimates

Edwards Lifescience’s first-quarter earnings jumped 34%, driven by European growth in the transcatheter valve (TCV) market. Edwards saw its sales surge to $404.5 million, which surpassed the street’s estimate of $384 million. The company’s heart valve therapy segment, which includes TCV revenue, rose 25% to $244.9 million. The end result was reported earnings of $63.9 million, or $0.53 a share. Furthermore, management has raised its full-year earnings forecast, now expecting earnings between a range of $2.01 to $2.07 a share on $1.66 to $1.74 billion in revenue.


Monday, April 18, 2011

Bank of America 1Q2011 Disappoints Again

On Friday, Bank of America (BAC) released another disappointing earnings report. Although BAC reported net income of $2.05B, that is a sizable decrease from the $3.18B a year ago. Earnings per share dropped to $0.17 from $0.28 a year ago. While comparing 1Q2011 with 1Q2010, it is important to note that the impressive trading revenues earned in 2010 will be difficult to repeat in today's economic climate; with that said, until BAC can successfully get a handle on its mortgage-related issues, it will continue to look less attractive than comparable large cap banks. Year-to-date, BAC is down 6.9% and has been the worst performer amongst its peers Citi (-6.54%), Wells Fargo (-4.74%), and JP Morgan (+3.62%).

On top of its lackluster earnings, BAC announced they would pay $1.1B to Assured Guaranty to resolve claims that they misrepresented $11B worth of mortgage-backed securities. After adding the cost of the loss-sharing reinsurance pact in the deal, the true cost is nearer to $1.6B. The securities in question were based off of mortgages issued by Countrywide - yet another setback in the seemingly endless Countrywide saga.

As negative as the environment surrounding Bank of America seems, I feel selling out at this point would be inappropriate. The $1.6B payout to Assured is a one-time hit and will go a long way in reducing the uncertainty surrounding mortgage-based liabilities. As mergers and acquisitions rapidly picks up there will be an excellent opportunity to replace some of the revenue which has disappeared from trading. Although short-term performance may be mediocre, on a longer-term basis I feel Bank of America continues to be worthy of remaining in the portfolio.

Tuesday, April 12, 2011

Endo Pharmaceuticals Continues Buying Spree

Endo has reached an agreement to acquire American Medical Systems (AMS) for $30 per share, or $2.9 billion in cash, in another step to further diversity and strengthen Endo’s product portfolio. The acquisition strengthens Endo’s market position for medical devices and therapies used for male and female pelvic health, which aligns under Endo’s urology business which the company has been aggressive in building up. In addition, the acquisition also steers the company away from a reliance on branded pharmaceuticals, which are costly and time-consuming to develop. The company has committed financing from both Morgan Stanley and Bank of America which will help cover the cost of the acquisition, along with cash from Endo’s balance sheet. David Holveck has stated that this will end Endo’s buying spree, with the company now focused on realizing synergies, expected to reach $50mm in 2013, and on paying down its debt which has accumulated over the last several years. The deal is expected to close by the third quarter of this year and add an estimated $.60 to adjusted EPS next year, then contributing $.80 to EPS in 2013.