Thursday, March 19, 2015

FedEx Corporation Q3 2015 Earnings

            On March 18th, FedEx Corporation (FDX) reported their 3rd Quarter earnings. They reported an EPS of $2.01 up from $1.23 last year. This managed to beat consensus estimates of $1.87. Furthermore they missed analysts' expectations for revenue by $90 million as they reported revenues of $11.7 billion up 4% from 11.3 billion last year.  Operating income increased 50% to $962 million from $641 million last year and as a result operating margin increased to 8% from 6% last year. Finally net income increased 53% to $580 million from $378 million last year. Overall, FedEx benefited from increased volume during the past peak season, decrease in fuel costs, and their profit improvement program.
            The FedEx Express segment posted revenues of $6.66 billion compared to $6.67 billion last year. US domestic package volume grew 4% however revenue per package decreased 2%. Furthermore, international export revenue per package decreased 4%. These mixed results were as a result of lower fuel surcharges and unfavorable currency rates that offset possible revenue growth. The FedEx Ground segment posted revenues of $3.39 billion up 12% from $3.03 billion last year. Also, they had an operating income of $558 million up 14% from $490 million last year. Average daily volume for this segment grew 7%, revenue per package increased 3%, and SmartPost revenue per package increased 8%. This was mainly caused by increased rates and postage costs. The FedEx Freight segment posted revenues of $1.43 billion up 6% from $1.35 billion last year. Operating income increased 94% which led to an operating margin of 4.8% up from 2.6% last year. This was as a result of an increase of 3% in Less-than-Truckload (LTL) average daily shipments and 3% growth in LTL revenue per shipment
            Finally, FedEx projected a diluted EPS of $8.80 - $8.95 for 2015 assuming continuous moderate global economic growth. These results failed to meet analysts' expectations of $8.97 diluted EPS. Also, they maintained that capital expenditure will be $4.2 billion for 2015. As a result of their earnings report, FedEx stock price fell 1.41% to $173.30 by the time the market closed on Wednesday. Overall, although outlook for 2015 did not meet expectations, our investment thesis remains strong. FedEx Corporation is still a great company to hold on to and will continue to cut costs and expand in the future. 

Thursday, March 12, 2015

Stress Test 2015 Results; Capital Levels Strongest Since 2008 but Big Banks Still Struggle

The 2015 Federal Reserve’s Comprehensive Capital Analysis and Review had largely positive effects on the Street. For this first time ever, all 31 banks tested were found to have adequate capital and would be able to continue lending in a severe economic downturn. While banks have continued to strengthen their capital positions, four of the six largest U.S. struggled to pass the tests.

Citigroup, which had failed the test two times in the last three years, earned approval for its capital plan- a major goal of CEO Michael Corbat. Citigroup was given the green light to raise its quarterly dividend (which has been around one cent since 2008) to $0.05. The bank was also given approval for the buy back of up to $7.8 billion of its own shares, up from $1.2 billion in the previous year. Citigroup traded up 3.34% on the day, closing at around $54.08

Bank of America (BAC) has problems with their internal controls. The bank needs to resubmit its capital plan before winning approval for boosted shareholder returns. Bank of America has until September to submit a new capital plan.  The weakness in their capital plan comes from their loss and revenue modeling practices in their internal controls. Investors expected a complete rejection of Bank of America, however regulators only rejected some of their plan. Bank of America is planning on a $4 billion dollar stock buyback. As of midday Thursday (3/12/15), BAC is trading lower at -1.12%. (Paragraph Contributed by Mike Lorka)

Deutsche Bank and Santander Bank were the only 2 banks to pass the first round capital tests but fail the Fed’s qualitative analysis. The main reason these banks failed was for their inability to model losses and identify risks.

Overall, the 2015 CCAR had positive effects on the financial sector. Heading further into 2015, I believe this is just another positive event that reiterates my view of strong expected performance for the financial sector. We will continue to monitor BAC closely as the process of resubmitting its capital plan unravels. 

Thursday, March 5, 2015

US Ecology 2014 Q4 Earnings Release

On Friday February 27th, US Ecology reported their Q4 and fiscal year earnings. During Q4, US Ecology reported strong earnings as they delivered a quarterly revenue of $157.2 million up 164% from last year and operating income of $19.1 million up 24% from last year. This boost in revenue was primarily caused by the progress made in the integration process of The Environmental Quality Company (EQ) which US Ecology acquired last June. So far they are on schedule and predict that they have 14 months left in the integration process since it is scheduled to take two years. Overall, for their fiscal year earnings, US Ecology posted a revenue of $447.4 million, up 122% from last year and a net income of $38.2 million, up 37% from last year. Although yearly EPS missed consensus by $0.02, there is positive outlook going into 2015 for US Ecology.
Major changes are occurring within US Ecology that are poised to ignite growth in the future. Recently, US Ecology has restructured its operational segments. Now, US Ecology operates in two segments: Environmental Services (ES) Segment and Field and Industrial Services (FIS) Segment. The ES segment consists of all the US Ecology operations and Legacy EQ treatment and disposal facilities and currently accounts for 70% of US Ecology’s revenue. It primarily provides hazardous and non-hazardous materials management services including waste disposal, treatment, recycling, and transportation at company-owned treatment and disposal facilities. The Field and Industrial Services  segment consist of all Legacy EQ field and industrial services business and currently accounts for 30% of US Ecology’s revenue. Services include waste packaging, collection and total waste management solutions. Together these segments form the new US Ecology.
Management seems to be quite optimistic going into 2015. They project the revenue is going to reach $585 - $620 million next year up % from 2014. Furthermore, they expect their ES segment to account for 60% of that ($345 - $370 million) and their FIS segment may account for 40% ($240 - $250 million). Also, management believes that EPS will be around $1.76 - $1.92 in 2015. A major change will occur in US Ecology’s interest expense as their interest hedge program has begun on December 31st, 2014. This program is designed to make 63% of their debt be paid off at 5.2% interest. In addition, US Ecology expects tax rates to increase to around 39% up from 37.4% in 2014 because of increased profits in the US and higher state income taxes. Finally, capital expenditure is set to increase to $40 - $45 million in 2015 as US Ecology did not spend as much as they expected in 2014. In 2015, US Ecology plans on using this capital on land-fill development, infrastructure upgrades and equipment replacement of their operational facilities.

                Overall, US Ecology posted better than expected results during 2014. The key initiative they have for next year is to continue the integration of EQ into the company. Already 8 months into the 2 year process and the company has been right on schedule. Going into 2015, US Ecology will definitely have solid growth as it continues to provide effective waste management services.