Metlife Inc. Q1 2012 Earnings

Metlife Inc. reported Thursday morning on April the 26^th. Net operating earnings were up year over year at $1.46 billion or $1.37 per share compared to $1.32 billion or $1.23 per share one year ago. However Metlife Inc. posted a net loss for the quarter of $174 million due to extraordinary items including $1.3 billion in derivative losses tied to credit spreads and interest rates. The stock declined in after hours on the news but rebounded Friday to recover a majority of the lost ground. International growth was strong, with operating earnings in China posting 33% growth year over year and sales in Japan grew by 28% year over year. Total sales for their entire Asian segment were up 15%, premiums, fees, and other revenues were up 8%. Their EMEA (Europe, Middle East, and South Asia) segment saw operating earnings fall 4% year over year due to unfavorable exchange rates and a difficult economic environment in Europe however despite the environment, premiums, fees, and other revenues grew by 9% in the segment. Latin America saw operating earnings up 33% year over year.

In the conference call management addressed the derivatives loss briefly only to say that “derivative gains and loses related to MetLife’s credit spreads do not have an economic impact on the company.” Management affirmed their direction to free Metlife Inc. of increased regulatory oversight levied though the previously announced sale of Metlife Bank to GE Capital, the spin down of their forward mortgage business, and the newly announced sale of Metlife Inc.’s reversed mortgage to Nationstar Mortgage LLC. While this is good news for the possibility of returning capital to shareholders management dodged questions stating that they could not read the regulators. Management declined to update or affirm 2012 projections. 

Reliance Steel Q1 2012 Earnings

Reliance Steel & Aluminum Co reported earning on Thursday April 26th. They reported net income of $116.2 million, that's up 26% from the 2011 first quarter net income of $92.3 million and up 71% from $67.9 million in the 2011 fourth quarter. Earnings per diluted share were $1.54 in the 2012 first quarter. That's up 25% from the 2011 first quarter earnings per diluted share of $1.23 and up 69% from $0.91 for the 2011 fourth quarter. The industries that continued to provide the most growth for them where energy, oil and gas, aerospace, heavy equipment and auto through our toll processing businesses. The stock slipped as its outlook for the current quarter lagged Wall Street expectations. "There is still some uncertainty regarding the direction of prices for some of the metals we sell, with prices currently moving in different directions for different products," said Chairman and Chief Executive Officer David Hannah. Reliance expects second-quarter earnings in the range of $1.40 to $1.50 per share, he said. Analysts currently expect $1.53 for the quarter. 

-John Astarita

Parker Hannifin Reports 3Q2012 Earnings

Parker-Hannifin reported Tuesday morning reporting their 3Q2012 Earnings. They recorded record sales, Net Income, and EPS for third quarter results. Net Sales grew to $3.39 Billion, against estimates of $3.28 Billion, while Net Income reached $312 Million, and EPS totaled $2.01 per share, beating expected EPS by 19.6%. They achieved these numbers through an 11.6% increase in North American sales and an increase of 7.7% in the Aerospace Segment. With the relatively positive 3Q2012 earnings, Parker was able to raise their EPS range FY2012 from $6.90-$7.30 a share to $7.30-$7.50 a share. The company also raised their dividend to $.41 a quarter, a 5% increase over the previous number. The stock reacted well, going up 6.99% since the earnings announcement and closed Wednesday at $87.08.
-Matthew Buechele

OZRK Q1 2012 Earnings Report

The Bank of the Ozarks held their Q1 2012 earnings report conference call Thursday, April 12. Net income was 18m, up 24.1% from Q1 2011. They saw a 21.5% increase in net interest income over Q1 2011, driven by a net interest margin of 5.98%, up 37bps from Q1 2011. Their average earning assets increased 11.9% with a 5.55% spread between yield on non-covered loans/leases and the cost of interest-bearing deposits as well as an 8.6% yield on covered loans. Management reiterated guidance of a minimum of 240m in new loans for 2012, 360m in 2013 and 500m in 2014. Non-interest income also increased 6.3% over Q1 2011 with a 22.3% increase in service charge income over Q1 2011. Mortgage lending was up 61.7% from Q1 2011. Net charge-off ratio for non-covered loans was 44bps, down from 72 in Q1 2011 and 69bps for all of 2011. In the past quarter, they opened 2 new office with plans of opening 3 more and relocating 3 others to larger and updated offices by the end of the year. OZRK continues to pursue additional FDIC-assisted acquisitions, as well as traditional M&A activity. Management anticipates achieving increased income quarter-over-quarter for the remainder of the year.
Stock initially dropped 3% but has since recovered and closed at 31.43.

McDonalds (MCD) Sale Thesis

McDonalds has thrived in the UASBIG portfolio, returning approximately 40% from its share price alone.  It has blown through its target price multiple times since it was added.  MCD has posted better than expected sales in recent quarters, which is not sustainable.  Since it has been doing well for so long, there is pressure to continue to beat estimates on the street.  At this point, we believe MCD has become overvalued & should be sold from our portfolio.  

Its recent growth is attributed to market share gains in the U.S. & Europe, which were driven by the McCafe line, longer hours, & an expanding breakfast menu (among other things).  But, its growth prospects should be limited in the eurozone in the coming years.  Compared to the fast-food prices in the U.S., MCD's pricing in the eurozone is more expensive compared to casual restaurants in each country.  If countries in the eurozone grow at a slow rate, MCD's sales should suffer.  Also, in its most recent conference call, CEO Jim Skinner predicted that higher commodity costs & exchange rates should hurt margins in 2012. 

Brands like KFC (YUM! Brands) should take away market share from MCD in emerging markets, especially in China.  So far, YUM! Brands has been much more successful in China than the U.S.  The ratio of KFC's to MCD in China is 10 to 1.  On Wednesday, McDonalds announced that CEO Jim Skinner will be retiring on June 30th of this year.  Donald Thompson, head of global strategy, will be replacing Jim as CEO.

From an industry-wide perspective, quick-service restaurants have been outperforming casual restaurants since the third quarter of 2009 (by comparing average same store sales).  We believe that an improving macroeconomic environment in the U.S. will cause MCD to lose some of its market share, as consumers return to less price-sensitive options for breakfast & dinner. 

We will continue to monitor MCD in the future to reassess its catalysts & potential growth.

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As of April 9th, 2012

Alexion Pharmaceuticals (ALXN) 1Q Earnings Call

Tuesday, April 24^th, ALXN announced financial results for the three months ended March 31, 2012. ALXN continues to beat Street expectations, beating revenue estimates by roughly $3 million and $0.08 in earnings. ALXN reported net sales from their revolutionary drug, Soliris, of $244.7 million, representing a 47% increase year-over-year. Revenue performance is a reflection of added PNH patients in the U.S., Western Europe, Japan and in other countries, augmented by a steady increase in new patients from the aHUS indication. GAAP net income also increased 69% to $45.4 million or simply $0.23 per share, compared to $26.8 million and $0.29 year-over-year. Furthermore, ALXN recognized $359 million in cash compared to $541 million at year end 2011. This change reflects positive cash flow from operations during the quarter and acquisition-related debt, offset by the outflows from the Enobia purchase. In addition, GAAP operating expenses increased to $146.4 million, compared to $106.7 million year-over-year, primarily due to an increase in R&D, SG&A, and acquisition-related expenses. Management also gave optimistic forecasting by increasing and narrowing 2012 revenue guidance, previously in the range of $1.04-1.07 billion to $1.065-1.085 billion. With this increased forecast, combined with the control of expenses within previously guided ranges, ALXN is also raising non-GAAP earnings from the range of $1.60-1.70 to a higher range of $1.65-1.75.  However, despite positive earnings, the stock dipped due to the lack of expected quantitative results and forecasts on the developing pipeline. That being said, ALXN’s annual shareholder meeting is set for May, 7^th, where additional insight is anticipated to be visible.

BSX F1Q12 Earnings 04/19/12 - (Ryan Kennedy)

Boston Scientific reported Q1 earnings for the period ending March 31st on April 19th. Throughout the day, shares of BSX traded up 5.8% on EPS results that exceeded management guidance and analyst expectations. BSX reported GAAP EPS of $0.08 and adjusted EPS of $0.15, which exceeded analyst expectations of $0.10. Earnings doubled from the previous period from continued cost cutting and a decrease in restructuring charges. Despite strong earnings, the company reported $1.87 billion in revenues, down $60 million from the previous period, and under performed analyst expectations of $1.90 billion.

Although BSX missed revenue estimates, the company saw positive developments in the cardiac rhythm management (CRM) business, which accounts for 27% of the firm's revenues. The CRM market had been slowing, with Q4 CRM sales dropping 15%. This quarter CRM sales dropped 5%, which was better than expected, and management believes this may be the end of the fall in CRM sales. Additionally, Boston Scientific saw positive developments with the PROMUS Element Platinum stent system, which is key to UASBIG's investment thesis. Clinical trials showed the Element's superior efficacy to both the previous PROMUS offering and Abbott Laboratories' Xience V stent system. The Element stent system has been approved in both Europe and U.S. markets, and should begin to boost the interventional cardiology business this fiscal year. The firm also saw developments in the CRM unit with the release of the INGENIO pacemaker system in Europe.

Going forward, we expect to see an increase in top line revenues driven by the PROMUS Element stent system and a rebound in the CRM division. Additionally, gross margins are expected to increase as the company shifts from marketing the original PROMUS system to the Element system, which commands twice the margins of the previous offering. For the next fiscal quarter, management expects sales of $1.95 billion and adjusted EPS of $0.17.

-Ryan M. Kennedy