Sunday, July 31, 2011
Excluding the one-time revision related to interest expense, EPS for the quarter was $0.47 & above street expectations & management guidance of $0.40-$0.45. Key metrics, including cash flows, operating income, net yields & net cruise costs were not impacted by the accounting error. While management cited that the error was both internal & embarrassing, we do not believe that the issue is material. The internal accounting staff was incorrectly marking the amortization of undisclosed assets & the law firm Bronstein, Gewirtz & Grossman is currently investigating the issue.
Growth in net yields for the quarter, reported to be +3.8%, were lower versus our modeled +7.0% due to the lagging East Mediterranean segment. Excluding Mediterranean sailings, yields were 9.8%, which we believe show’s strength in the company’s underlying business. Demand across all regions (excluding the Mediterranean) remains strong & management stated that their ability to leverage pricing power remains intact. The company decreased net yield guidance for full-year 2011 to 5% from the prior range of 5%-7%, citing continued uncertainty in the Middle East/Europe & the resulting deterioration in demand. We would like to note that itineraries in the troubled regions account for approximately 13% of RCL’s business.
The stock was hit hard after the release, falling over 13% on Thursday. While the accounting error may affect the short-term credibility of management, it was likely the downward revision to year-end guidance that caused the sell-off. The unfortunate events in the Middle East & Europe have turned what was expected to be an above-average year into a mediocre one. Management remains positive & our bullish thesis on both the cruise industry & RCL has not changed. In regards to cost-basis, we will continue to monitor where the stock is trading & evaluate any additional buying opportunities.
Saturday, July 30, 2011
Thursday in its second-quarter earnings statement, Chesapeake announced that Utica wells were “liquids-rich,” indicating that oil and wet gas were being found, along with natural gas. The company also said it is seeking a joint venture partner as it begins drilling more wells in the Utica shale. Chesapeake already has drilled five wells in Carroll County and is working on a sixth. McClendon said the company has five drilling rigs operating in the Utica shale. He expects to have eight rigs by the end of this year and 40 rigs drilling by the end of 2014. McClendon said Chesapeake’s work in the Utica shale will be a “key driver in the future growth” of Ohio’s economy and hopefully this will lead to growth for the company as a whole. “It’s pretty much the most ideal place in America for a new (oil and natural gas) play to develop,” McClendon said.
During the first half of 2011, Chesapeake continued the industry’s most active drilling program drilling 759 gross operated wells (480 net wells with an average working interest of 63%) and participating in another 708 gross non-operated wells (104 net wells with an average working interest of 15%). The company’s drilling success rate was 98% for company-operated wells and 99% for non-operated wells. During the first half of 2011, Chesapeake’s drilling and completion costs of $3.427 billion included the benefit of approximately $1.129 billion of drilling and completion carries from its joint venture partners.
The Company Increased its Full-Year 2011 and 2012 Production and Capital Expenditure Outlook and it largely offsets oilfield service inflation through its wholly owned oilfield service businesses and its 30% Stake in frac Tech. Chesapeake Energy is currently trading at $34.35.
Thursday, July 28, 2011
For the third quarter of 2011, the company expects sales growth, excluding the impact of foreign currency, of 3 to 4 percent (or 6 to 7 percent including the benefit of foreign currency) and earnings per diluted share of $1.07 to $1.09, before any special items. For full-year 2011, Baxter now expects earnings, before special items, of $4.27 to $4.32 per diluted share versus previous guidance of $4.20 to $4.28 per diluted In addition, the company expects to generate cash flows from operations of approximately $2.8 billion.
Baxter also announced today that it has established Baxter Ventures to invest up to $200 million in equity in promising early-stage companies developing therapies that complement Baxter’s existing portfolio.
“Baxter’s mission is to apply innovative science to develop therapies and medical technologies that save and sustain patients’ lives,” said Robert L. Parkinson, Jr., Chairman and Chief Executive Officer of Baxter. “As the company’s internal capabilities have advanced our late-stage pipeline, we have the capacity to further accelerate the early-stage development of essential therapies.”
Baxter was trading at 62.15 earlier this week and nearly hit it’s price target of $62.66 before falling over 3% as the market continued to slip today and closed at $58.70.
"Growth outside the U.S. was particularly strong this quarter, including another impressive quarter for trans catheter heart valves," said Michael A. Mussallem, chairman and CEO. "Our core heart valve and critical care product lines continued to perform well globally. And, we were pleased with the FDA advisory panel's recommendation for approval yesterday, which reinforces our confidence in a 2011 U.S. launch for the Edwards SAPIEN trans catheter heart valve."
For the second quarter, the company reported Heart Valve Therapy sales of $263.1 million, representing 22.5 percent growth over last year. Underlying sales grew 14.8 percent. Trans catheter heart valve sales were $85.3 million, a 60.3 percent increase over 2010, or 45.7 percent on an underlying basis. These results were driven by strong procedure growth and continued adoption of the new 29mm Edwards SAPIEN XT valve in Europe.
Edwards Lifesciences Corporation announced that for third quarter 2011, it expects diluted earnings per share, excluding special items, in the range of $0.37 to $0.39. The Company reaffirmed fiscal 2011 guidance and expects for diluted earnings per share, excluding special items, of $2.01 to $2.07.
EW dropped rapidly from $81 a share and fell below the current price target of 75.90. It is closed today at $72.46.
The main drivers of the company's under-performance were lower sales in research lab products, a growth slowdown China, and the recent Japanese earthquake. Throughout the year, academic and private medical research has seen a drop in government funding, which has hurt the sales of their life sciences kits, a significant portion of their revenues. The firm has also seen an expected slowdown in the Chinese markets, as it has switched commercial strategies. Lastly, the earthquake in Japan disrupted the launch of a new genetic sequencer, which hurt profit margins as the firm was forced to sell the less profitable sequencer upgrades.
Going forward, budget cuts in the academic and private research realms will continue to hurt the sales of the company's kit products. Management expects the budget cuts to persist for at least the rest of the year. However, the firm now expects to see higher growth rats in China, as they reap the benefits of the strategy turnaround. In addition, as the effects of the Japanese earthquake fade away, the company will be able to sell the more profitable generic sequencers versions, as opposed to the upgrades at lower margins.
Management was particularly bullish on Q4 2011 and FY 2012 because sales of existing products have been strong, and increasing regulatory clarity in the banking sector might lead to increased capital spending. CEO Jeff Yabuki was excited by the sales trends, "our highly valued and differentiated solutions led us to record the largest quarterly sales attainment in the company's history." He also commented on the regulatory environment, “The big regulatory news in the quarter was the fed's finalization of Durbin. While Durbin will negatively impact debit interchange revenue for larger institutions, albeit at a level better than originally signaled, the fed did confirm the creation of a 2-tier interchange system that will exempt debt issuers with less than $10 billion in assets from the interchange caps. We view this as positive for our business in the near and the mid-term.”
JP Morgan and Goldman Sachs have raised their target price to $67, but remain neutral. Oppenheimer reiterated its outperform call with a target price of $72, which mirrors UASBIG’s target of $72.49. On the day, FISV was flat, while the overall market declined more than 2%. UASBIG’s cost basis is 62.13, or 1% above today’s market price of 61.45.
An updated target price will be posted within 7 days.
Wednesday, July 27, 2011
Ecolab chairmen, President and CEO attributed the company’s success to organic sales, recent acquisitions and pricing plans. The company plans on transforming Europe into a higher growth, more efficient and more profitable region. Despite, anticipated higher raw material costs, they remain on target to noticeable improvement in their operating margin in Europe.
Gross Margin shrank 1.3% to 49.3%, primarily due to increased costs which rose 14.8%. Revenue has risen in the last 4 consecutive quarters. Also, Net Income has dropped in the last two quarter, but has topped expectations with net income over the same two quarters.
The miss in revenue was due to the lackluster growth of BMC's Enterprise Management Service which accounts for 2/3 of sales. However, BMC raised its EPS targets for next year by $.04. BMC looks to profit from businesses shifting towards cloud services and other IT-infustructures. BMC has high expectations for the coming year. The CEO, Bob Beauchamp, looks to leverage technology leadership and capitalize on growing customer demand for more flexible IT-infastructures.
Based on the slow start, BMC reduced its annual forecast for enterprise systems management bookings growth to the mid-teen percentages from the low 20s.
ITW also barely missed the revenue expectations. It reported second quarter revenues at $4.81 billion; missing the expectations by $0.07 billion. Even though the revenues grew by 17.5%(100 basis points less than expected) compared to 2Q2010, it did not help the sell off in ITW stock today. The stock fell $4.67 or 8.2% on Tuesday.
The company had a very successful first quarter, and the analysts expected the same demand in the second quarter. Managements notes that the reason for a lower revenue growth in the second quarter was the "modest slowing in industrial markets." The organic revenues were 120 basis points lower than expected due to lower demand in Europe and Japan, but ITW's CEO says that he believes the markets are "in a long-term recovery mode."
Finally ITW reviewed their forecast for adjusted full year earnings to be $3.80; excluding the $0.33 tax gain received in Q1. The street was expecting full year earnings to be $3.92. ITW is still a strong player in the industrial sector, and they will recover from today's price drop.
Tuesday, July 26, 2011
Revenues were up 13% to $35.5bn as strong transaction prices, especially in North America, boosted revenue by $1.1bn. However CFO Lewis Booth said prices will be under increased pressure and won’t be “at quite the same level as the first half”. Other Automakers are likely to spend more on incentives in the second half as they boost inventories that were depleted by the March tsunami in Japan. The weaker earnings, despite improved revenues, are a result of higher structural, commodity and vehicle launch costs.
The company’s commitment to return to investment grade “sooner rather than later” as Booth said was further solidified in the second quarter. Gross debt shrank by $2.6bn billion to $14bn and cash reserves sit at $22bn, $700 million more than last quarter. Resumption of dividend payments relies heavily on an investment-grade rating, and now after 8 consecutive quarters of operating profits and consistent balance sheet improvements, F is not far from achieving just that.
Looking forward F has maintained its overall U.S sales forecast of between 13 million to 13.5 million and in the 19 European markets F tracks, they expect full-year sales to be between 14.8 million and 15.3 million, compared with its previous forecast of between 14.5 million and 15.5 million. It’s going to be a rocky second half, but we remain bullish on F in the long-term. They have shown an ability to remain profitable while strengthening their balance sheet and investing in their future.
Sunday, July 24, 2011
McDonalds Inc. reported 2Q earnings per share of $1.35, nearly 20% higher year-over-year and $0.07 greater then street expectation of $1.28. The earnings beat came on top of 16% revenue growth and the leveraging of fixed costs. Operating margin improved to 31.7% versus our forecast of 31.0% - showing that the company was able to offset rising inflationary costs through strategic pricing increases.
Top-line results were driving by larger than expected sales in the McCafe line-up, classic core offerings (Big Mac/McNuggets), and breakfast (Fruit & Maple Oatmeal). The strong comp numbers across every region suggest that the increase in pricing points is not affecting consumer demand. Consolidated same store sales were 4.5% for the quarter, led by the Asia/Pacific, Middle East and Africa segment.
The stock rose 2% on news of the beat and analysts across the street have begun to increase year-end estimates. CEO Jim Skinner said, "McDonald's ongoing momentum reflects our commitment to the customer. By providing relevant food and beverage choices in convenient, modern restaurants, we're giving customers more reasons to visit us more often.” Due to this momentum and unique global positioning, we remain bullish on shares of MCD. We are currently working to revise estimates and update price target in our model.
Friday, July 22, 2011
Verizon also announced that they have appointed a new CEO, Lowell McAdam. McAdam is the former chief of Verizon Wireless, a business line which has become the biggest U.S. mobile phone carrier and the most profitable business unit for Verzion. McAdam hopes to bring an Entrepreneurial focus by expanding the Verizon FiOS fiber-optic TV and internet service division. Moving forward, AT&T and Verizon will be the titans in the industry. I expect Verizon's FiOS to take off and have a high penetration rate in households. Shares are down over 2% for the day.
Wednesday, July 20, 2011
HAL reported record-breaking revenue, for the second quarter of 2011 of $5.9 billion, representing an increase from $5.3 billion in the first quarter of 2011 and $4.4 billion in the second quarter of 2010.
Management attributes their strong quarter to improved pricing and equipment utilization in United States land. Nearly all product lines have benefitted from the increased activity in the unconventional oil and liquids-rich basins. Demand for energy remains strong around the globe. Increased interest in the shale environment should also benefit HAL. United States rig activity grew by 6% during the quarter. Rig count is a leading indicator of demand for oil services.
International activity remains flat. Activity has picked up in Latin America, Asia and Russia. However, the shutdown in Lybia, project delays in Iraq and sluggish activity in the United Kingdom and Algeria has not helped HAL.
As Halliburton continues to grow and demand for their services rise I believe that their stock price will surpass our target of $56.00. We currently own 50 shares of HAL purchased at $48.48 a share. HAL recently reached a new 52-week high of $55.95. I expect the next two quarters and 2012 to be very positive for the company.
Douglas M. Baker, Ecolab’s Chairman, President and CEO, stated, “Nalco's water and oil and gas services end markets in particular represent excellent long term growth potential as the world deals with the quality, cost and availability of those key natural resources.”
Nalco shareholders will have the option of receiving either 0.7005 shares of ECL common stock or $38.80 per Nalco share in cash, without interest. Subject to proration, Nalco shareholders will be approximately 70% in ECL shares and 30 % in cash. The transaction is expected to be completed in the 4th quarter.
On the day: ECL’s dropped $4.08(-7.37%) in reaction to the merger.
Shares are down over 2% after hours due to the decrease in forecast for cell phone chip shipments. Investors are worried about an economic slowdown which would put a halt to consumer spending. However, I am still bullish for a couple of reasons. The issue with the debt ceiling will be resolved which will send investors rushing back to equities. Specific to Qualcomm, smart phones have been a hot item in emerging markets. In addition, the new iphone, which Qualcomm will make chips for, is expected to make an arrival this fall.
Friday, July 15, 2011
The two remaining items require a little more color before their impact on investors confidence can be fully assessed. First, it is important to understand which management regime started the failed policy administration software project that was discontinued and written off for $73m. Second, the negative DAC unlock, resulting in a $76 million impact to net income implies that either a mistake was made in a recent period, or that they have changed their assumptions about their life insurance or variable annuity products.
There were two positive developments. Hartford’s investment portfolio contained a net unrealized gain of approximately $800 million at the end of June, and Japan did not have a major impact.
The totals reported do allow UASBIG to make a quick backward calculation: a sum of the after tax items, assuming half the catastrophe losses and adding in the projected net income of $24m, yields $518m* after preferred dividends. or $1.03 in quarterly earnings. $1.03 would have been 8.4% above the highest Q2 consensus estimate of $.95. That number suggests that the positive pricing and renewal trends from the first quarter are being sustained. Margins and management’s guidance have the potential to drive a significant up or down move on august 3rd and 4th. UASBIG will be ready.
*This post has been corrected to include preferred dividends.
Tuesday, July 12, 2011
AA was especially pleased with their performance in the Alumina segment, which reported ATOI of $186M, 31% higher than 1Q11. This is mainly due to a 7% improvement in realized alumina price increases. AA is a world leader in the production and sale of alumina, which is becoming a more relevant commodity.
On Monday, AA was trading down 2.87% prior to the release of the earnings and continued to decline in after-hours trading. As seen in the past, Alcoa tends to be a short favorite around earnings time. In 15 of the last 29 quarters, AA has traded down after hours and continued to decline the following day 73% of the time. In this situation, AA followed suit and finished down 1.26% on Tuesday.
CEO Klaus Kleinfeld was pleased with the company’s results and despite sporadic economic recovery, he remains bullish on the outlook for Alcoa and the aluminum industry as a whole. In the earnings release, he reiterated his belief that global demand for aluminum will increase 12% by 2012 and will more than double by 2020. The feeling was mixed around analysts, with many decreasing their outlook for AA in the next two years. The general feeling being that the rising costs of input are going to be hard to overcome throughout the rest of 2011 and in 2012, despite growing demand.
Thursday, July 7, 2011
Wednesday, July 6, 2011
This moves fits with Fiserv’s history of making smaller strategic acquisitions. Management believes the transaction will be neutral to 2011 EPS, and positive in 2012. It will be interesting to see how this move impacts the rate of share repurchases. The board authorized an additional 7.5 million shares in May, and UASBIG’s model assumes that total will be spread evenly over the next eight quarters. At this time there is not enough evidence to update the target price, which stands at $72.49 or 12% above today’s close of 64.75.