Tuesday, February 17, 2015

Wolverine World Wide Q4 2014 Earnings Release

This morning, Wolverine World Wide (WWW) reported its fourth quarter earnings and fiscal year ended January 3rd, 2015. The company’s fourth quarter net income rose as sales revenue spiked in regions overseas (excluding North America). Wolverine World Wide’s adjusted diluted EPS increased 36.4% leaving it in line with analyst’s estimates at 30 cents per share. Full year earnings per share climbed 13.3% to $1.62, compared to the prior year’s EPS of $1.43. Revenue was a company record-breaking number at $808.9 million, but just about met consensus estimates listed at $808.11 million. The rise in revenue represented a 9.2% increase y/y leaving the company with its fifth consecutive year of record-breaking revenue. During the quarter, 9 of Wolverine World Wide’s 16 brands generated double-digit revenue growth, as well as their too largest brands, Merrell and Sperry, delivering mid single-digit and high single-digit revenue growth. The company also reported a record $189.4 million in operating free cash flow, enabling Wolverine World Wide to reduce interest-bearing debt by $195.7 million.

Last month the company announced plans to significantly increase brand-building investments in fiscal 2015, in order to capitalize on growth opportunities around the globe. These brand-building investments focus on consumer-demand creation, omnichannel initiatives and international expansion. Wolverine World Wide plans to incrementally invest approximately $30 million into these brand-building initiatives for FY 2015. As for 2015 earnings, the company now expects reported revenue between $2.82 and $2.87 billion representing a 2%-4% growth y/y. They expect adjusted operating margin to decline 80 basis points, driven primarily by the incremental brand-building investments listed above. A lower interest expense of $40 million, but a modestly higher effective tax rate of approximately 27.5% is also expected. Adjusted diluted EPS is expected to drop into the range of $1.53 to $1.60. This reduction in EPS is reflected by the incremental brand-building investments, higher pension expense, and the negative impact on foreign exchange.

Wolverine World Wide reported solid earnings, the only downside being the reduction in 2015 projections that can be explained through the investments towards future expansion. The company appears to be making smart moves for sustained long-term growth and in my opinion, should be a company to hold on to. Today at market close Wolverine World Wide  (WWW) had a drop in price leaving it at $28.25 (-2.25%).

Calpine Realzies a Q4 Profit on Higher Than Expected Revenues

Calpine managed to swing a net income in Q4 because of increased operating revenues and unrealized gains on power hedges. Operating revenues for the quarter rose to $1.9 billion from last year's $1.4 billion, which came in slightly above consensus. Net Income attributable to shareholders was $210 million, or $0.54 per diluted share, compared to a net loss of $97 million, or $0.23 per diluted share, in the year ago period. Overall, 2014 was a rather successful year for Calpine as they reported adjusted EBITDA of $1.95 billion, adjusted FCF of $830 million, resulting in an adjusted FCF per share of $2.03. All three metrics hit record highs for Calpine even after the company effectively raised guidance twice during the year. Last week CPN successfully completed a $650 million nine-year unsecured debt offering of 5.5% used in part to payout some higher priced debt and in part fund growth. Also, Calpine continues to return money to its shareholders by completing $277 million of buybacks since the last quarterly call in November. CPN's stock price has been falling due to the recent fall in commodity pricing but instead of getting "stepped on", Calpine is taking advantage of decreasing commodity prices by vamping up their share repurchase program. Since the beginning of the program in 2011, CPN has show strong confidence in their own company by repurchasing approximately 25% of their outstanding shares for $2.4 billion. Calpine still continues to reap benefits in Q4 from the purchase of the Fore River Energy Center. As crude oil and natural gas prices continue to rise through 2015, this energy center's productivity has nowhere to go but up. Thad Hill says, "I hope it is evident from this report, we continue to execute operationally, commercially, financially, and strategically." For 2015 Calpine is targeting GAAP net income in the range of $295-$495 million. Adjusted EBITDA is estimated at $1.9-$2.1 billion and earnings are projected in a range of $2.10-$2.60 per share. During the earnings call last Friday Thad Hill, Calpine's President and CEO, reitterated these financial assumptions for the upcoming year, showcasing confidence in their ability to deliver value to the shareholders. He also reported that his company continues to make progress managing both their balance sheet as well as their portfolio. To conclude, I believe that Calpine is still a strong company with a lot of potential upside. Although their stock has not been performing as of late, the company posted solid results in the fourth quarter and reaffirmed guidance for 2015. Based on their guidance, this stock is undervalued at its current price. After reading what upper management said in the earnings transcript it is clear how much this company is devoted to keeping its promises. I beleive that Calpine will stay in line, if not beat guidance for 2015 which is why I still think CPN is a buy at this point.

Thursday, February 12, 2015

Ralph Lauren as a sell

Our investment thesis was that “Ralph Lauren is expected to continue to gain global market share.” This investment thesis has changed from a positive to a negative within the last quarter. The increase of the U.S. dollar when compared to other currencies is terrible for companies that rely on their exporting for revenue. Ralph Lauren has built up their global image so high that 1/3 of their revenues are from their exports. Ralph Lauren said in their earnings report on February 4th, “We gained share early in the holiday shopping period, which positioned us well, as the environment became more competitive in the three weeks before Christmas.” This statement demonstrates that without Ralph Laurens jump-start before the change in currencies that their already lower than expected revenues would have been even lower. They also stated in their earnings call, “We continued to see the best trends in Northern Europe, recovery in the southern part of the continent and more steady expansion in central Europe.” I believe that once the lagged effect of both the larger difference in the currency rates and the bad economic state of Europe are felt by Ralph Lauren it will result in larger loses.

We bought Ralph Lauren at 155.45 with a stop loss at 138. The stock is currently at 138.70, I believe that Ralph Lauren will only get worse in the near future. With this logic I think that we should sell Ralph Lauren.

Sorry for the delay, I thought it was already posted.

Wednesday, February 11, 2015

TWX beats EPS, missed Revenue

Time Warner Inc. released 4th quarter 2014 earnings before market open on Wednesday. Adjusted earnings beat consensus by four cents due to continued strength in their Turner Broadcasting and HBO segments.

The Warner Bro. segment fell 5% weighing down total revenue which decreased 1% YoY.  This segment fall is predominantly due to decrease in revenue, but there were also some one-time restructuring  charges in addition to currency exchange rate losses.

The Warner Bros. segment makes up just less than half of total revenues. However, the company seems to be well diversified in its other major segment of Network stations that have seen enough increase in revenue to offset the declining Warner Bros. segment.

Despite the company beating EPS expectations, they missed on revenue expectations. Time Warner Inc. posted revenue of $7.53 billion in the fourth quarter of 2014, while analysts expected revenue of $7.54 billion.

EPS guidance was changed to 4.60 - 4.70 dollars per share for fiscal year 2015, currently consensus is around 4.66 dollars per share. Additionally the company raised their quarterly dividend by 10 cents to 35 cents.

Shares closed up 0.25% Wednesday.

Monday, February 2, 2015

LRCX shares down sharply in the days following earnings beat

Lam Research Corporation reported earnings for Q2 fiscal year 2015 on January 28th. The stock was down slightly in afterhours trading after reporting revenues that fell in line with expectations and an EPS beat of around five cents per share. Revenue guidance for next quarter was disclosed in a range between 1.32 and 1.42 Billion USD. This guidance is higher than the 1.34 Billion USD street average for revenues next quarter. The firm increased its backlog by 20% during December, foreshadowing relatively strong sales during the coming quarters. We are very happy with the firm’s execution in their market-share growth initiatives and are very surprised by the sharp sell-off that ensued on Friday. We really see the sell-off as an opportunity for market participants to take a position in the stock. The firm is recording all time high revenue and earnings numbers, and trading in ranges notably lower than historical averages on a Price to Earnings and EV to EBITDA basis.

Company management is anticipating a very strong 2H CY 2015 due to sharp spending increases in the memory sector, the number one contributor to company revenues. The firm has also estimated that its addressable market will grow from 25% in FY2014 to 28.5% of all Wafer Fabrication Equipment (WFE) spending by the end of FY2015 due to new product launches. Non-GAAP gross margins are slated to be slightly down by around .5%-1% for the next quarter but operating margins are estimated at 19% give or take 1% compared to an operating margin of 18.7% during the December quarter.

To reiterate the quarterly results and guidance were very strong in our opinion and the recent weakness in the shares is viewed as a buying opportunity.