AEO 2Q12 Earnings 8/20/12

     American Eagle Outfitters released earnings for 2Q12 on August 20th, 2012.  They reported net sales of $740mil compared to $669mil in 2Q11, which represents an 11% increase year-over-year, and beats street expectations of $738mil.  Sales were driven by a 9% increase in comparable store sales, and an increase in the average selling price. The company's AE Brand, aerie and AEO Direct segments reported a growth of 7%, 13% and 28%, respectively, in comparable store sales.  An adjusted EPS of 21 cents marks a 62% increase in EPS year-over-year.  Gross margin improved 210 basis points to 37.4%. Increase in margin was driven by strong top-line growth, lower product costs, and a decrease in occupancy/warehousing expenses.  AEO opened 9 new stores (8 of which are outlet stores), in 2Q12, and also closed 8 locations during the same period.

     EPS estimate for the third quarter is between 37 – 38 cents, which is higher than EPS from 2Q11 of 30 cents.  For the year, adjusted EPS is expected to be $1.33 to $1.36 which assumes comp store sales growth in the mid single-digit range. Guidance is adjusted for the 10 cent per share 77kids operating loss due to the closing of that business. The sale of the 77kids business was closed late in the quarter, and is expected to cause an after-tax loss of $35mil, of which $9mil is expected to be incurred in 3Q12.

DVA F2Q12 Earnings 8/01/12 - (Ryan Kennedy)

     For the second quarter of fiscal year 2012, DaVita Inc. (DVA) reported strong revenues and EPS, beating Wall Street estimates on both metrics. Revenues grew 16% over the second quarter of FY 2011 from $1.66bn to $1.93bn, and exceeded analyst expectations of $1.85bn. The revenue growth is largely attributable to increases in patient-treatment volumes, with volumes increasing 14% from 4.8mm to 5.5mm, of which 4.7% was organic.

     Excluding one-time items, operating income was $326mm compared to $271mm, an increase of 20%. DVA continues to make strides in profitability, decreasing patient care costs as a percentage of sales by 200 bps, from 70% to 68%. The company reported EPS of $1.49, slightly above Street expectations of $1.47, and an increase of $0.32 over the same period a year ago.

     Management raised guidance on FY 2012 operating income from $1,310mm to $1325mm. Going forward, we have strong conviction in DaVita. The company continues to improve financially, and has favorable long-term growth prospects. End Stage Renal Disease is expected to continue to grow due to demographic shifts and changes in living standards, and DaVita is poised to capture market share in the fragmented international markets.

NVDA 2QF2013 Earnings

After the markets closed on August 9, NVIDIA posted its Q2 2013 results. The company reported EPS of 19 cents on a GAAP basis and 27 cents on a non-GAAP basis. Revenues came in at $1.04427 billion, and both EPS and revenue beat estimates of 14 cents for EPS and $1.01427 billion for revenues. NVIDIA outlook for the third quarter also topped estimates, with the company expecting revenues of $1.15 to $1.25 billion, ahead of the consensus of $1.09 billion. NVIDIA posted record Tegra sales in the quarter, growing them by 35.5% to $179.7 million. Tegra sales accounted for 17.21% of overall sales in Q2 2013, as opposed to 14.34% in Q1. Gross margin rose by 1.6% sequentially to 52%, while operating expenses dropped by 1.6% sequentially. Spending on R&D rose by over 13% to reach $281.193 million. NVIDIA's outlook for Q3 calls for GAAP operating expenses of $390 million, down sequentially from this quarter's $401.096 million in total GAAP operating expenses. Gross margin in Q3 should be down just slightly, to 51.8%.  The main thesis behind NVDA was that the company will be gaining market share in the mobile space. Our thesis remains intact and the outlook for the company remains positive

-Vlad

August 15, 2012 - TGT Q2

     Pre-market, Target Corporation (TGT) reported Q2 net earnings of $704 million, or $1.06 per diluted share, representing a 3.4% increase over the prior-year period and a $0.05 surprise against a $1.01 consensus estimate. Adjusted EPS, which omits expenses related to investment in the Canadian segment during the quarter, totaled $1.12, representing a 4.6% increase year-over-year.
Management attributes a Q2 U.S. Retail segment comparable-store sales increase of 3.1% to two main initiatives designed to boost sales, customer loyalty, and store traffic: the store remodel program and 5% REDcard Rewards. During Q2, operating margin was flat (7.2%) and SG&A expense as a percentage of sales decreased by 20 bps (21.1%).  

     In regard to our thesis, Target's store remodel program and REDcard Rewards have proven to be effective sales- and profit drivers, as the Company has experienced 11 consecutive quarters of comparable-store sales increases in its U.S. Retail segment. Target opened 5 net stores with an expanded food assortment in Q2, and management expects to have updated over 1,100 of its general merchandise stores by year-end. During July, three CityTarget stores were opened in Seattle, Los Angeles, and Chicago, and the initial reaction from customers in these cities has been positive. In regards to TGT's expansion into Canada, the Company has already begun converting 7 former Zellers stores, and expects to begin renovating 38 additional locations in Q3. At this rate, management believes the Company is on schedule to begin opening Target stores in Canada in spring of 2013.

     For Q3, management expects GAAP EPS of $0.69 - $0.79 and adjusted EPS of $0.83 - $0.93. Guidance for FY2012 guidance was raised to $4.20 - $4.40 for unadjusted EPS and $4.65 - 4.85 for adjusted EPS.The market reacted favorably to TGT's Q2 results, as shares were +1.9% following the earnings announcement.

Parker-Hannifin 4Q2012

     Parker-Hannifin reported 4Q2012 earnings on August 2, 2012. (The company has a fiscal year that begins and ends on June 30) For the quarter, the company reported EPS of $1.96, against the consensus of $1.91, while sales amassed $3.4 billion, which were flat year over year, despite 4% headwind occurring due to foreign exchange. The company was able to accomplish a major goal of achieving 15.5% segment operation margins, which beat management’s previously stated goal of 15% for 2012. These projected margin increases were a major part of the UASBIG thesis and will continue to play a major role in the appreciation of the security. The company was able to report stronger results, specifically in relation to Aerospace and Climate & Industrial Controls, historically the worst segment, as they improved more than 2% and 3 % year over year respectively.

     The company introduced fiscal 2013 EPS guidance of $7.10-$7.90, while street consensus has come in at $7.89. This parker estimate has a midpoint of $7.50, which includes a $.35 pension headwind. The street remains positive in relation to management’s guidance due to Parker’s historical trend of being conservative in relation to giving guidance (Initial FY2012 guidance was $6.70-$7.50, while the true value was $7.50).

     New orders for 4Q were down 1% year over year due to particularly weak results out of the Industrial International Segment, which fell 9% due to very strong downward pressure in Europe, where the company does have some level of exposure. This fall was partially offset by Industrial North America, which increased by 4%, Climate & Industrial Controls which increased by 1% and Aerospace which saw orders increase by 7%. 

Honeywell 2Q2012

     On July 18, 2012 Honeywell reported earnings of $1.14 a share, beating the street estimate of $1.12 set out by the 20 analysts covering the company. The company’s second quarter profit rose 11% as the company’s revenues were $9.44 billion, an increase of 4%, just under the projection of $9.56 billion. The company then proceeded to adjust expected revenues FY2012 by decreasing the range of 37.8 billion-38.4 billion from $38 billion- 38.6 billion. Despite this decrease in projected earnings, we see the company raising its FY2012 outlook to $4.40-$4.55. This represents a trend that we have been seeing across the street this earnings season. Many companies have been able to beat projected EPS, while underperforming in regards to revenue. This trend suggests a move towards greater efficiency and could mean the loss of jobs across America. CEO Dave Cote had this to say of the changes in projections, “Given the increasingly uncertain global economic environment, we’ll remain flexible, but also continue to invest in sustainable growth through seed planting in new products and technologies, geographic expansion and our key initiatives.”

     A global leader in the making of aerospace, building-control and safety products, Honeywell has received a total of 4 Strong Buys, 10 Buys, and 6 Holds according to CNBC. They have benefited from a steady increase in demand across all major segments. Their extensive work with Boeing generated an increase in their aerospace unit of 8%. We saw Honeywell sign a deal with satellite-operator Immarsat to manufacture equipment for airborne broadband connections, which will last 20 years, and could create up to $2.8 billion in revenues. 

BSX F2Q12 Earnings 6/27/12 - (Ryan Kennedy)

     Boston Scientific (BSX) released second quarter earnings on July 26th for the period ended June 30th. The company reported sales of $1.82bn and adjusted EPS of $0.17. Revenues fell 4% from Q2 2011 on a constant currency basis, driven by eroding sales in the Interventional Cardiology and Cardiac Rhythm Management segments, but somewhat tempered by growth in the Neuromodulation, Endoscopy, and Peripheral Intervention business units. Despite adjusted EPS at the high-end of management’s guidance, the stock traded down throughout the day on weakening sales in the business’ two core segments.
   
     Excluding divested businesses, the firm reported revenues of $1.8bn compared to $1.9bn a year ago. Revenues from Interventional Cardiology, the firm’s stent business, saw the largest drop of 13%, from $652mm to $549mm. The Cardiac Rhythm Management unit, the firm’s ICD and pacemaker unit and also the firm’s second largest division, also fell 8%, from $544mm to $488mm. The CRM division has slowed on decreased procedural volumes, driven by a study in the Journal of the American Medical Association and subsequent Department of Justice investigations into non-evidence based ICD implants. Despite disappointing performance from the business’ two largest segments, BSX continues to have positive growth in its smaller units, which are continually becoming more significant parts of the business. The Neuromodulation unit, which produces implantable electronic devices used to control chronic pain, continued its strong performance, growing from $84mm to $91mm, or 10% on a constant currency basis. The Endoscopy and Peripheral Interventions units also saw moderate growth of 7%, from $298mm to $311mm and $189mm to $196mm, respectively.

     BSX continues to make strides in profitability. The firm increased gross margin by 322 bps, from 65% to 68%, as the firm continues its transition from the lower-margin Promus stent to the higher-margin Promus Element. After removing one-time items, EBITDA margin increased 22 bps despite increases in SG&A and R&D as percentages of sales, primarily driven by the increase in gross margin. On an absolute basis, SG&A grew by $6mm, while R&D fell by $10mm and EBITDA dropped $23mm. Boston Scientific continues to pay down debt and reduce interest expense, which has historically weighed on earnings since the firm took on $6.5bn in debt to acquire Guidant in 2006. The firm reported interest expense of $64mm compared to $73mm a year ago. After removing a $3.4bn non-cash goodwill impairment charge associated with the EMEA unit, BSX reported net income of $242mm or $0.17 a share. On a GAAP basis, the company reported a net loss of $3.4bn or $2.39 per share.
   
     Going forward, we are bullish on Boston Scientific. The company has been trading based on revenue growth in the CRM and Interventional Cardiology units, but there is more than meets the eye. Despite contractions in the two main business segments, the company continues to have significant growth in the Neuromodulation and Endoscopy units, which are now becoming sizable portions of the company, and should begin to have a larger effect on the stock price. The company continues to make strides in profitability and unload the debt levels that have suppressed the stock over the past six years. Overall the company is stronger and more financially sound, but needs a catalyst in the IC or CRM units to reawaken the stock and allow investors to focus on improved financials. The PROMUS Element, which has been brought to market but is still in its infancy, may be the catalyst needed to bolster Interventional Cardiology revenues. Aside from the Element, there are very positive new developments in the Cardiac Rhythm Management unit, with the $150mm acquisition of Cameron Health and its subcutaneous S-ICD device. The S-ICD device has the potential to be a $750mm market, and BSX is the only company that has such a device. Considering the firm’s improved health, its strong operating cash flow generation of $407mm, and catalysts in the Element and S-ICD, we are bullish on BSX and believe 2013 will be particularly strong for the firm.