Ralph Lauren Q1 2015

Ralph Lauren reported first quarter earnings on August 4th beating estimates at $1.80 a share but still came in 7% lower y-o-y. Revenue was consistent with expectations and grew 3.4% to $1.7 billion due to strong retail segment performance. Operating margin came in better than expected at 14.3% largely due to excellent operational discipline throughout the company. Net income was $162 million, 10% below last year’s first quarter. Diluted share count declined 3 million shares y-o-y due to RL’s aggressive share repurchase program leaving $400 million for future buyback.

For fiscal year 2015 RL maintained their financial outlook. They expect consolidated revenues to increase by 6% to 8% organically for the full year fiscal 2015 led by retail segment growth. For the second quarter they are expecting revenue to increase by 4-6%. The second quarter operating margin is expected to be approximately 200 to 250 basis points below y-o-y due to higher operating expenses related to the timing of investments to support the company’s strategic growth objectives.

 As for their international market expansion, RL reported double-digit growth in Europe and Asia. The growth in was led by continued strength in their retail operations and increased hotel shipments for the spring/summer season. Revenue in Americas was below the prior year for growth due to retail operations, which was offset by lower wholesale revenues.

One of RL’s three areas of strategic focus, product innovation, is introducing a Women’s Polo line which will bring all-American style up-to-date with and eclectic downtown edge. RL also has a new fragrance, Polo Red, which has achieved the distinction of becoming their most successful men’s fragrance launch to date. As for their second area of focus, retail development, they opened 12 stores during the first quarter and are on track to open another 40 to 45 directly operated stores over the rest fiscal year. Also a new 20,000 square-foot luxury flagship Ralph Lauren has opened in Greater China along with the first Polo flagship store in New York City on Fifth Avenue.

 RL still demonstrates tremendous opportunities for growth and their clear strategies and performance has place them on the right track to maximize their sales and profit growth in the long-term. RL’s Q1 performance is pleasing to me and should improve over the second half of FY 15. Even though their quarterly revenue and net income came in lower y-o-y, they showed that they can deliver better-than-expected profits despite a challenging retail environment all while making significant progress globally.

Spirit Airlines (SAVE) Q2 2014 Earnings

Spirit Airlines (SAVE) reported earnings, beating on earnings by reporting $.91 versus $.89 from consensus and beating on revenue by reporting $499.3 million versus estimates of $499.3 million. Driving revenue was the passenger ticket growth and non-ticket growth increasing by 25.5% and 18.4% year over year, respectively.

Non-ticket revenue saw major growth due to passengers choosing to purchase seat assignments at kiosks and a closer management of seat inventory being distributed. Spirit saw expansion into Kansas City last quarter, with more expansion being made to connect Houston to San Diego, Fort Lauderdale, New Orleans, and Atlanta. SAVE ended the quarter with $567 in unrestricted cash, after adding one new A320 aircraft to their fleet, with seven additional aircrafts scheduled to arrive by the year end. SAVE has been in talk to secure debt financing for four of their 2014 deliveries and the first eleven deliveries of 2015, with a preliminary agreement for this financing in place. For the rest of 2014, Spirit estimates that their price per gallon of fuel should be around $3.09. Capacity for the full year is expected to be up 17.8%. Year long CASM guidance has been increased by 50 basis points, which should provide a better cost structure and provide confidence in reliability of Spirit.

Spirit’s stock price has remained relatively flat since earnings reported, with the stock slightly down in the hours after. Our investment thesis remains strongly intact, as Spirit is still the leader in low cost airfare. With the free cash that Spirit has, expanding its fleet should not be a problem for them and expansion can be done. The valuation on Spirit will need to be reevaluated, as we are sitting near our price target, and we can establish our position from there.

IART Q2 Earnings

Integra LifeSciences Holdings Corporation (IART) reported second quarter earnings today, August 5, 2014.  Last closing at $50.01, Integra’s price went up 3.93% today after releasing their positive results.  Integra beat our estimates across all lines.  Total revenues increased 12.6% YOY, totaling at $25.8 MM.  Integra’s revenue drivers included the neurosurgery business which represented 40% of total revenue, and DuraSeal.  GAAP diluted EPS tripled compared to the same quarter last year and is $0.15 for 2Q2014. 

Soon after Integra’s optimistic conference call, they announced positive results of the clinical trials for INTEGRA Dermal Regeneration Template for the Treatment of Diabetic Foot Ulcers.  Integra expects to submit their data from these trials to the FDA by the end of 2014 and to commercialize the product in 2016.

Going forward, Integra estimates FY2014 revenues to be between $920 and $940M, and FY EPS to be between $1.06 and $1.24.  Our investment thesis for Integra remains bright.  Since our buy-in price of $40.41, UASBIG has realized an upside of over 23.75%. 

ROSE Q2 Earnings

Rosetta Resources announced earnings for the second quarter of 2014 today after the close. the company reported adjusted diluted earnings of $0.82 which is down $0.02 from last year and considerably below our estimates of $0.93. Revenue was reported at $220.9MM, down 7% compared to $236.5MM last year, also below our estimates of $267MM. I have to say, disregarding the numbers, the company did have a strong record performance this quarter. They were hit hard by unrealized derivatives during Q2, ( I will find more information on an explanation for this during tomorrows conference call) if you exclude this unrealized derivative, revenues came in at a record $264.6MM compared to $193.8MM last year, which is much more inline with our initial estimates. Some highlights in the quarter include the six horizontal wells completed in the Delaware Basin, well costs in the Eagle Ford region were reduced by 10%, increased total daily oil production by 56& to 19.0 MBbls/d over last year and 18% sequentially. I think the most important bit of information from the release is the fact that they saw a 14% sequential growth in Permian daily oil production. Due to the strong performance this quarter, the company updated its guidance for FY2014 production by 3 MBoe/d to a range of 63-66 MBoe/d, representing a 30% production growth year-over-year. I will post a follow up blog tomorrow with more information on the unrealized derivatives that hurt both the company's top and bottom lines.

Halliburton

Last week HAL experienced a decline of 6% largely as a result of industry wide discomfort with current geopolitical risks. Industry competitors Schlumberger and Baker Hughes share price declined 3.5% and 7%, respectively over the same period for comparison. After Q2 earnings were released multiple Wall Street analysts raised their price targets for HAL significantly (>10%) above our own. HAL has experiencing increased volatility more recently but with the Middle East / Asia segment contributing less than 20% of annual revenues and with expectations of better numbers from Latin America (compared to 2014 Q2) in Q3 along with continued growth in North America we also agree that an increased price target is warranted.  Our new price target for HAL has been raised to $79, on the mid-lower end of analyst estimates, along with a new stop loss of $63. We have already experienced strong returns YTD and expect HAL to continue to remain a strong position in the portfolio.

Invesco Q2 Earnings

The second quarterly report was released by Invesco on 7/31/14. The 2014 Q2 earnings beat our last estimate. With the most updated information, our model generated a target price of 43.65, 15.43% higher than the previously implied value. The adjusted operating income came in as $377 million, indicating an increase of 21.4% compared with the same quarter last year. The company attributes most of its business growth to the market gains in the U.S and continental Europe.

The AUM rose significantly, from $787 billion in the prior quarter to $802 billion, indicating an aggressive upward scaling. Consequently, the operating income increased to $377 billion, or 65 cents per share, from $363 million, or 60 cents, a quarter earlier. The company, during the last quarter, bought back common shares totaled $50 million, substantially sending out the signals that shares were undervalued. The market reacted to this earnings release only by bringing up the share price by 5 basis point.

Regardless of the client withdrawals issue in U.K, the growth potential of this company remains optimistic to industrial practitioners as the equity market is expected to follow an upward trend under momentum effects. According to a broad global stock benchmark, the world’s total market capitalization increased by more than 4% in the last quarter. At the meantime, Invesco has her natural competitive advantages, such as multiple distribution channels and decent asset allocation. As a result, Invesco successfully took in about $6.2 billion long-term deposits exclusive of the U.K.  This achievement largely improved the confidence of creditors as well, given the fact that senior unsecured debt rise for a subsidiary of Invesco was upgraded from A- to A.