Tuesday, August 11, 2015

Google Restructuring

Google's stock has picked up nearly 5% following news of the creation of Alphabet, a holdings company that Google will become Google's parent company. The creation of Alphabet allows Google to focus on its bread and butter business while allowing Alphabet to pursue outside ventures that were typically burdensome on Google's share price. The business will not be directly related to Google central products in the sense that assets like YouTube will not carry the "Alphabet" brand name. The purpose of the company is to alleviate the expenses that come with the pursuit of innovative ventures that Google so often partakes in - which historically has made investors uneasy. The stock has appreciated to reach a high for today of $674 but closed at $660 which reflects a daily increase of 4.27%. The move is highly received since one of the bigger drags on the stock has been Google's outside core-business ventures, with the weight of those businesses being funneled into a related holdings company, Google can put all hands on deck on building profits while still allowing tech executives the autonomy to chase projects that has stifled Google's stock's growth. The transition leads me to believe that Google is serious about enhancing shareholder wealth and is a welcomed sight in my opinion.

Monday, August 10, 2015

Inter Parfums Q2 Earnings Stock Drops 6%

Inter Parfums (IPAR) reported Q2 2015 earnings Friday, August 7th after market close. The company missed Q2 EPS expectations of $0.17, reporting $0.14 diluted earnings per share. The company met analyst revenue expectations of $102 million, but was down from $118.2 million the prior year. Foreign currency exchange rates as well as poor market conditions in Eastern Europe and China can be to blame for the decline in sales. European sales were down to $77.1 million compared to last year’s $94.7 million, representing an 18.5% drop. Better market conditions allowed for increased consumer spending in the US reflecting a 6% rise in sales for the company Y/Y. The positive results from the US portion of the company were unfortunately offset by just about every other geographical segment of IPAR. Overall for the first half of 2015 the company has seen a 4% decrease in sales compared to the first six months of last year. IPAR’s second quarter net income decreased from last years $6.1 million to $4.4 million or on a per diluted share basis last year’s $0.20 to $0.14 EPS.
 Inter Parfums saw a 12% drop in price this morning before the company’s earnings call took place. I believe this was a delayed reaction to a disappointing earnings release after market close on Friday. The stock was brought back to life after the earnings call at 11 am this morning, climbing back to $28.18 but still a net drop of approximately 6% since the previous market close. Although we are slightly below our stop loss, I don’t believe we should sell this stock. After updating the financial model for Inter Parfums I believe the market overreacted to the company’s lackluster earnings guidance which is why IPAR saw a comeback in the latter part of the day. Negative market conditions and foreign exchange headwinds (which are affecting every one) are expected to continue throughout the remainder of 2015 but I believe this news is already priced into the stock and it will not fall any further than it already has. Company CEO Jean Madar has admitted to light launch activity in 2015 and promises higher activity in 2016. In my opinion, this shows the company is in a transitioning phase. They are focusing their attention on mitigating headwinds that are out of their control, while planning new brand building investments and acquisitions for 2016. In my opinion, this company has a tough six months ahead of it but will be in a great position to grow going into 2016.  

As of Monday, August 10, 2015 after market close the stock is priced at $28.18 per share. 


On July 21, Regions Financial (RF) posted its Q2 earning results. Total revenue (net of interest expense) was $1.41B, an increase of 8.6% YoY. Net interest income was $820M, .04% down YoY. Loans totaled $80B, 4% up YoY. On the deposits side, average deposit balances totaled $97B, $1.3B from the last quarter. Net interest income on a fully taxable basis was $839M, 1% up from last quarter. The outstanding performance that the firm has experienced is due in part from higher loan balances, and a decrease in the cost of wholesale borrowing.

On the expense side, total reported expenses were $934M, up 13.9% YoY. The increase is due to elevated professional, legal and regulatory expenses. The company has a favorable funding mix along with firm future strategies. On August 3rd, RF announced the acquisition of The A.I. Group, Inc. A.I. Group provides employee benefits consulting and insurance brokerage services focused on mid-sized and large employers throughout the US. This acquisition builds on RF expansion on the insurance field. As of August 8th, the stock is trading ~2% up YTD. In my opinion the stock has room for modest growth taking into consideration the interest rate increase in the near future. The company is still a valuable possession and requires continues monitoring as it reaches its price target. 

Saturday, August 8, 2015

Spectrum Brands Holdings - Q3 2015 Earnings Results

Spectrum Brands Holdings
Q3 2015 Earnings Results

On Wednesday August 5, 2015, Spectrum Brands Holdings closed at $103.27, which is $9.29 higher than when we bought it on March 3, 2015.

Spectrum Brands Holdings reported great earnings during their third quarter as they completed their acquisition of Armored AutoGroup Parent Inc. SPB also strengthened their balance sheet and improved their liquidity. During their third quarter they announced net sales of $1.25 billion, which increased 10.5 percent compared to $1.13 billion last year. Organic sales increased 3.7 percent, from the prior year, after the negative impact of $63.6 million in foreign exchange and acquisition sales of $140.4 million were excluded. Their adjusted EBITDA margin (non-GAAP measure) increased 18.9 percent from 17.9 percent last year. This was primarily due to improved mix, operating expense leverage and acquisitions.

“Our third quarter was highlighted by record Home and Garden performance, strong personal care and small appliances results, and strong European volume growth,” said Andreas RouvĂ©, CEO. While some products were successful others were unprofitable. SPB has maintained strong cost improvement savings and leverage expenses by exiting unsuccessful products in the Hardware and Home Improvement division and by reducing promotional program participation in the Global Batteries & Appliances division. This has also allowed them to overcome the negative foreign exchange impacts that they have been facing.

To off set the exiting of product groups, SPB has continued to enter new product groups at a steady rate, which benefited them this quarter. “We continued our focus on our ‘more, more, more’ organic growth strategy to enter more countries, serve more channels, and launch more categories by leveraging our strong retailer relationships.” “We want to fully leverage the capabilities of each of our global divisions by taking advantage of our strong regional sales presence to ensure Spectrum Brands is the preferred partner of our retail customers,” “We are off to a smooth and fast start on the integration of our new Global Auto Care division, and are building plans to accelerate its international revenue growth.” The three above statements made by the CEO, Andreas RouvĂ©, demonstrate that Spectrum Brands Holdings is always looking towards the future and expansion.

Spectrum Brands Holdings reaffirms their expectations for fiscal year 2015 to be the sixth consecutive year of record results. SPB still fits our thesis and looks to be a strong company with a promising future.

Wednesday, August 5, 2015

VMWare down 5%

This week, VMWare has been rising steadily following news that they might be acquired fully by parent company EMC which already owns roughly 80% of VMW. VMWare's stock had sharply risen following the news reaching prices in the $92 range. However, following reports that the opposite might actually occur, VMWare's stock fell 5% during the day. It is rumored that VMWare might actually acquire EMC which would be a downstream acquisition, and in doing so would issue new shares in exchange for EMC's shares. EMC's stock slightly rose in response to the news in contrast to VMW's stock.

The move comes after VMWare reported earnings where they beat estimates by $0.02 which was followed by positive investor sentiment. It is clear that investors are not excited with the pursuit of an EMC acquisition and the situation will be followed accordingly.

Monday, August 3, 2015

LRCX Q4 2015 Earnings

Lam Research Corporation (LRCX)

This past week on July 29th LRCX released their Q4 2015 earnings report. LRCX reported fourth-quarter fiscal 2015 non-GAAP earnings of $1.50 per share, which beat consensus by about 3 cents.  Revenues of $1.48 billion increased 18.6% year over year. Revenues also beat the consensus estimates of $1.44 billion. This was the eighth successive quarter in which the company generated revenues in excess of a billion. The stock price initially responded positively, but has since lost all of the post announcement gains. The current stock price is $76.22 which is below our purchase price. In light of the positive earnings release I decreased some of the assumption percentages in the model, due to the great uncertainty surrounding the semiconductor industry. For example, there has been great consolidation through mergers and acquisitions in this industry, which increased the harshness of competition and the need to stay profitable and lean. Also, the future in general of the semiconductor industry is in question as no one knows what type of technology will be used next. Since LRCX manufactures and services semiconductor equipment, if they choose the wrong equipment, they could lose their market share in the industry. The price target before the Q4 update was $96.55, now the current price target is $87.66. 

Jeff Sherman