NCR 4th Quarter Earnings

NCR reported 4th quarter earnings which were better than expected. Revenue was up 17% to $1.64 billion. EPS was $.65 compared to the estimated $.56. Order growth was up 18% for the year. NCR saw improving margins for 2011 and expects the same for 2012. The approach to bring software and services to businesses is paying off. Revenue for 2012 is expected to increase between 7 to 9%. EPS is expected to increase 23 to 27%. Shares were up over 11% during trading.

Sell of Harris

It is our recommendation to exit our position in Harris and realize a gain of 15%. Although the company did come out with EPS that beat estimates they missed on margins and top-line revenue. Going forward we see top-line revenue and margins under continued pressure. The cut back in U.S defense spending, will likely lead to the Department of Defense looking for more 'bang for their buck' squeezing margins further. Some risks associated with the company that had not materialized when it was purchased, have since materialized. Weak new orders in the 2QFY12 drove a poor book-to-bill, specifically in the RF segment, and management again revising top-line revenue forecasts down. These material issue have led us to believe that at current levels HRS possesses more downside risk than upside potential.

QCOM Q1 2012

Qualcomm recently reported earnings for the first quarter of 2012. Revenue was $4.68 Billion, up 40%, and net income was up 20% to $1.4 Billion. EPS was $0.81. The amount of smartphones sold in 2011 is estimated at 477 million. The Snapdragon processor, which is used in smart phone devices, is up 120% and currently is used in more than 340 devices. Guidance estimated for 3G and 4G devices has been raised by 10 million to the range of 875 million to 945 million devices for 2012. Qualcomm experienced some pressure on gross margins but the volume of sales offsets this. EPS estimates for 2012 have been raised by $0.13 to range of $3.55 to $3.75.

-Simeon

Harris Reports Mixed 2QFY12 Results

HRS reported 2QFY12 EPS slightly ahead of consensus, as better-than-expect margins offset revenue miss. HRS full-year FY2012 EPS guidance was reiterated, but top-line outlook was reduced. This marks the third time in the past four quarters that the revenue outlook has been reduced as RF segment struggles to find significant contracts given the winding-down of the United States’ involvement in foreign wars and considerable cuts in US defense spending.

2QFY12 EPS was $1.22 compared to consensus of $1.18. Revenue of 1.4bn was below consensus of $1.51bn. Net income for HRS fell to $133.1mn or $1.16 per share versus $151.1mn or $1.18 per share. This is a decline of 11.9% yoy. New orders in the quarter of $1.2bn were down 15% yoy and 26% sequentially, driving a book-to-bill of 0.83x. RF order declined 50% sequentially to $268mn from $514mn for a book-to-bill of 0.50x. Management reiterate HRS full-year adjusted EPS guidance of $5.10-$5.30(which compares to consensus of $5.12), but lowered its revenue guidance to $6.0bn from a previous range of $6.15bn to $6.3bn.

We still hold the same favorable view on the company’s competitive positioning and superior technology, as well as the belief that the new CEO will be able to leverage underperforming businesses and drive profits. However, we are concerned with declining top-line numbers and weak new orders, specifically in the RF segment.

Shares of HRS reacted favorable to the earnings beat trading up ~5% Wednesday. Analyst at UASBIG will continue to monitor HRS closely and are currently in the process of re-evaluating our position in the company. Harris has returned ~13% since its inception into the portfolio.

Honeywell 4Q Earnings

Honeywell reported positive fourth quarter earnings this past Friday. Some of the quarter highlights include $9.5B in sales (+8%), and $1.05 EPS (+21%). Segment margins also expanded 90 bps to 15.1%. Also, the company posted FCF of $1.4B FCF representing a 169% Conversion. HON reports an increase in annual sales of 13% and a 35% increase in EPS. The company attributes these numbers to growth in the following segments: Turbocharger, Commercial Aerospace AM and UOP sales.

From a Macro perspective Honeywell remains positive on the growth in the emerging markets of China, the Middle East, and India, after an increase in sales of 20%. Going forward the company predicts a 12-15% increase in the Specialty Material segment. This is driven by expected growth in demand for Para-xylene in the emerging markets.

-Jim

MCD 4Q Review

McDonalds posted strong earnings on Tuesday and record-breaking revenue for fiscal 2011. In the fourth-quarter, revenue rose 10% to $6.82 billion from $6.21 billion. Fourth-quarter earnings were $1.33 per share, up from $1.16 per share a year earlier. Sales were driven by new menu items, longer operating hours, and effective marketing strategies.

The results failed to quell fears that 2012 margins could be negatively affected by exchange rates. In 2011, foreign exchange raised McDonalds earnings by 19 cents a share. Analysts predict that this will snap back in the coming year, as exchange rates work against the company. Also, higher taxes and increased spending on restaurant renovations will hurt margins in 2012.

McDonalds is hoping to steal some market share away from KFC (owned by YUM! Brands). On Tuesday, McDonalds unveiled Chicken McBites, almost identical to KFC’s Popcorn Chicken:

http://www.mcdonalds.com/us/en/food/product_nutrition.chicken.802.chicken-mcbites-snack-size.html

In Tuesday’s conference call, CEO Jim Skinner commented that a 5.5% rise in commodity prices are expected to hurt earnings as well. On Tuesday, the stock traded down 2% to $99. UASBIG estimates are currently under review.

Joe Esposito

Ford Posts Weaker-than-expected 4Q1 Earnings on Product Costs and Europe

Ford’s fourth-quarter net income jumped to $13.62bn or $3.40 per share from $190mn or $0.05 per share a year earlier. The financial services arm Ford Motor Credit Co. LLC or FMCC’s net income rose to $611mn from $367mn last year. Ford’s result for the quarter include a one-time, non-cash special item of $12.4bn for the elimination of a tax reserve, known as a valuation allowance, and $401mn related to the sale of Ford’s Russian operations to the newly created FordSollers joint venture.

Ford created the valuation allowance in 2006, reflecting large cumulative losses incurred and on the premise that the company may not return to profitability within a certain period of time. However, Ford has been profitable for three straight years now and no longer needed the reserve.

Excluding special items operating EPS fell to $797mn or $0.20 per share from $120bn or $0.30 per share last year. Operating EPS missed by $0.05 per share, consensus was looking for $0.25 per share.

F introduced 2012 guidance projecting higher yoy operating profit and margins - offset by a comparable yoy decline in pre-tax profit from FMCC. F generated strong operating cash flow of $700mn for the quarter. F also introduced 2012 Capex guidance of $5.5bn to $6bn, ahead of the mean analyst forecast of $5.3bn, not entirely surprising given the amount by which they under spent their original plan in 2011.

The largest shortfall to estimates came from North America which report 4Q11 pre-tax profit of $889mn vs. consensus of $1.2bn. While volume mix and price were ahead of estimates, and fixed costs increases in line, the segment saw yoy headwind of -$800mn from variable costs, higher than the -$400mn they anticipated. F lost $190mn in Europe, bringing F to a small loss of $27mn for the year, short of management’s guidance of “breakeven.” Asia-Pacific and South America results of -$83mn and $108mn also came in below expectations.

Looking forward, this was a weaker-than-expected result with steeper product cost inflation than expected in North America and a faster deteriorating European market. While this does not undo the strong product momentum that is a key part to the Ford story we expect to see shares under some pressure in the near term. We remain bullish on Ford and believe that given a better macro picture, Ford is well positioned to capture market share and drive profits.

Shares of Ford reacted negatively to the EPS miss, closing Friday’s trading session down $0.53 or 4.16%.