Cerner 4Q earnings

On February 5^th Cerner reported fourth quarter results. Revenues for the fourth quarter rose 15% year over year to $710.4 million. Gross margin for the quarter dropped slightly to 78.4% from 78.6% a year ago. Operating margin increased marginally to 22.6% from 22.4% in the prior-year quarter. Fourth quarter day’s sales outstanding of 74 days, which is down from 83 days in the year-ago quarter. Full year 2012 revenue was $2.67 billion, up 21 percent compared to 2011 revenue of $2.20 billion.

 

“2012 was great year for Cerner," Neal Patterson, Cerner chairman, CEO, president and co-founder said. "I was also very pleased with our innovation, as we significantly advanced our cloud-based physician solutions and population health capabilities. In 2013, we plan to build on this success and continue to invest heavily in research and development to increase our competitive advantages and position us for strong growth throughout this decade."

 

Cerner is projected to do well over the long term because it serves a sizeable installed hospital base that requires composite clinically-oriented applications complying with "meaningful use" requirements, reimbursement difficulties and complicated coding challenges. The company has long-standing, integrated and seamless solutions for both inpatient and ambulatory settings.

 

For the first quarter of 2013 Cerner forecasts revenue between $690 million and $715 million and for 2013 full year forecasts revenue between $2.95 billion and $3.05 billion.

Kristen Pfaffe - Technology Sector Junior Analyst

Diamond Offshore 4Q Earnings

Diamond Offshore (DO) released earnings today. Revenues of $751 million beat consensus estimates of $738 million compared with revenues of $748 million in the prior year. EPS were fairly in line with consensus coming in at $1.12 which is down from $1.36 a year earlier due to reclassifying four cold-stacked rigs as held for sale and taking an after-tax impairment charge of $40.6 million, or $0.29 per share. These rigs are the Ocean Whittington, the Ocean Epoch, the Ocean New Era, and the Ocean Spartan. these rigs are at the end of their lives and are not worth investing in anymore. 

Diamond Offshore saw its shares tumble 4 percent to $73.77 as the company warned that a number of its rigs are heading into maintenance. The company estimated that its rigs will not be available for 1,382 days, substantially higher than analyst estimates of 1,050 days.

On a positive note the company saw a 7 percent decline in contract drilling expenses. Furthermore, Diamond Offshore scored a $400,500 per-day contract for its Ocean Patriot rig. However, the shipyard work needed to get this vessel ready contributed to a rise in downtime. 

Going forward Diamond Offshore remains and attractive investment. Chief Executive Officer Larry Dickerson expects downtime to be "much" lower in 2014. Most markets are seeing a steady increase in activity, exploration and development budgets are increasing at an annual are of 7 percent, and we're seeing a period of stable commodity prices.

The ultra-deepwater market continues to show steady growth worldwide. Demand is currently fragile and expected to pick up substantially in 2014.

The deep water segment continues to see strong demand  primarily in West Africa, U.S. Gulf and Australia. The Ocean Valiant rig is expected to be operational in 2013 in either West Africa or the Gulf.

The mid-water segment is also seeing strong performance as evidence by the Ocean Patriot Deal. Discussions are beginning on deploying the Ocean Princess in the U.K. Additionally  the company is seeing unexpected demand coming from Southern Asia increasing backlog and potentially pushing up day rates. 

LIFE 4Q FY2012 Earnings

Life Technologies (LIFE) released earnings yesterday after market close, which were in line with analysts’ estimates and the stock has risen about 1.5% in trading today. Fourth quarter revenue came in about  at 999 million, while EPS came in at $1.11 per share, increasing 6% year over year. Life Technologies has now delivered revenues and EPS growth for 13 consecutive years, while still fighting uncertainty in NIH budgeting and a weak Euro. Operating margins expanded to 29.2% in the fourth quarter, and $662 million in free cash flow allowed them to reinvest into the company and return much of that cash to shareholders by repurchases.

LIFE continued to build out their diagnostics business, increase their presence in China and Singapore,  and see a higher than expected demand for the Ion Torrent genome sequencers. They continued to build a platform to become a important provider of tests and information for physicians around the world by putting together a great management team and teaming up with key companies that has allowed them to launch a lab-developed lung cancer test.  We continue to be positive on their diagnostics business, especially with their Ion Torrent bench top sequencer selling so well, which management sees continuing into 2013.

It should be noted that since inclusion in the portfolio, LIFE has returned about 30%, partly based on recent rumors that buyout firms such as Blackstone, Bain Capital, and KKR are in talks to acquire them. Furthermore, recently it was rumored that Thermofisher is in talks to buy them. This sent their stock up to around $65 per share, where many investors see the potential for a buyout. With earnings that came in around expectations, there is little reason to think that the stock will drop off to past levels in the next few months, unless of course nothing comes to fruition in terms of finding a buyer, which seems unlikely given the rumored demand.

Going forward, management expects revenue growth to be in the range of 3% to 5% for 2013 driven by a continued strength in Ion Torrent sales and their diagnostics business. They have continued to decrease their exposure to government and academia, while their low end of revenue accounts for possible sequestration in NIH budgeting. They expect EPS in 2013 to range from $4.30 to $4.45, and expect a very strong year going forward. Management has always provided great guidance on the company and has continually met expectations despite headwinds from core businesses in Europe and amid uncertain academic and government budgets. They seemed very positive during the conference call and we expect a positive first quarter for them given a slightly more positive macroeconomic background. We continue to watch their performance and any news about their current buyout situation very carefully.

YUM 4QFY'12 Earnings

On Monday February 4^th, 2013 we purchased a half position (55 shares) in YUM! Brands, Inc. ahead of earnings expecting better than anticipated results. Although the company beat on revenue and EPS, the stock gapped down due to negative guidance for FY’13 EPS. Although the company has posted five years in a row of double digit EPS growth, the company expects EPS to decline in the mid-single digits in 2013 y/y. This will be driven by lower sales in China in 1H’13.

China saw a sharp decline in sales in the last two weeks of December. On December 18^th, an investigative report similar to “60 Minutes” on CCTV (a state owned enterprise) aired related to higher than allowed antibiotic levels for chickens in some of YUM!’s suppliers. Further investigation into January and negative social media lower consumer confidence on KFC in the region. After six weeks of media coverage Shanghai asked supervisory recommendations to YUM China to improve. Going forward, management is trying to restore confidence in their customers. YUM will be starting a quality assurance program and marketing campaign starting after the Chinese New Year (February 10^th).

In the conference call, management noted the previous adverse PR incidents that the company has survived through including SARS, avian flu, and ecoli at U.S. Taco Bell restaurants. For example, in 2005 YUM’s China business was adversely affected by the avian flu, leading to a SSS decline of 40% and operating profit decline of 5%. In 2006, SSS rebounded 26% and profit grew of 40%. Similar to their strategy in 2005, management has elected to move forward with LT growth projections. They are not changing new unit growth for any brands in the China region. But, there is no question they will fall short of 10% EPS growth in 2013. Management expects a mid-single digit EPS decline in 2013. Double digit EPS growth targets in 2014 and 2015.

Management has strong FY’13 expectations for YRI (YUM! International), due to strong development momentum, higher economies of scale in certain markets and a leading share of global emerging market restaurant exposure. SSS growth in 2013 should be similar to the 12% growth in 2012 for YRI. Russia is a prime example of strong growth in FY’12. Russia has had highest SSS growth of any other area, benefiting from some company owned restaurants with good returns. YUM has begun to reach scale in France and Germany (150 and 100 total units at the end of 2012).

Results from 4QFY’12: 10% EPS growth excluding items. SSS of YRI of 3% excluding Japan and continental Europe. Russia, Africa, Thailand, and Korea (Pizza Hut) were standouts during the quarter. Operating profit grew 15%, excluding the effects from foreign currency and extra week. U.S. operating profit grew 5% y/y. U.S. restaurants are firmly positioned for more profit growth going forward. China operating profit declined 5% prior to FX driven by 6% decline in SSS. KFC was negative in October and November, which management affirms was due to hard y/y comps. KFC was sharply negative in December due to the last two weeks of the month. During the quarter, KFC opened 3 new restaurants per day (370).

January SSS decline of 41% KFC and 15% Pizza Hut. The timing of Chinese New Year had a negative mid-teen impact on SSS. Management expects this trend to reverse in February after the New Year. But, they estimate China SSS decline of 25% by first quarter. After a rebound post-new year, Pizza Hut SSS should be flat. China’s quarter only includes January and February to account for the irregular sales around the Chinese New Year. In the first quarter of 2013, EPS will decline by 25% before special items. YRI and U.S. businesses will remain a steady source of cash flow to the company. Excluding China, in 2013 management expects 7-8% EPS growth driven by these regions.

Still Bullish on VFC

VFC will release 4th quarter earnings on February 13, 2013. The company was able to overcome a mild winter in 4Q11 growing earnings by 37%, which seems to be the concern of many outerwear brands for 4Q12, specifically Columbia (COLM). VF should see less pressure on margins as well, as it continues to realize and finalize supply chain and distribution synergies. If VF beats street expectations during a time when its competitors may be failing, I expect that the stock will jump to at least $160, where it was trading in November after a strong earnings release. This would also show investors that VF is poised to outperform, even in a tough economic climate. The current 12-month price target is $172.45 and the stock is currently undervalued, trading at ~$147. If the company misses earnings, I don't believe there will be a big sell-off because of the promising long-term potential of the company including the possible acquisition of the Billabong surf brand to their portfolio. We currently hold a half position in the stock and will consider bolstering the position in the coming week.

QCOM beats estimates

On January 30th, 2013 Qualcomm released it's first quarter earning release stating  record quarterly revenues. Qualcomm beat analysts predictions of  $5.9 billion in revenue and earnings of $1.13 per share. Their revenues were $6.02 billion up 29% year over year and 24% from last quarter. Earnings were reported at $1.91 billion or $1.09 per share. Operation income was up 69% at $2.09 billion and net income was up $1.91 billion up 50%. Qualcomm posted a record 182 million chip shipments in the quarter, ahead of analysts forecast of about 175 million shipments. “We are off to an excellent start in 2013, and I’m pleased to report a record quarter driven by strong year-over-year growth in both our Qualcomm CDMA Technologies and Qualcomm Technology Licensing businesses.Long forward, we believe our long-term growth drivers remain intact. Smart phone adoption remains strong,” said Chief Executive Paul Jacobs in the conference call. Qualcomm also raised their yearly forecasts sales from $23.4 billion to $24.4 billion and their earning between $4.25 and $4.45. Qualcomm's has a technical lead over competitors in high-speed 4G technology that is gaining them more market share in smart phones and tablets that I feel will continue to grow as the year progresses.

Kristen Pfaffe - Technology Sector Junior Analyst

AAPL 1QFY2013 Earnings

Apple reported earnings after the bell on January 23^rd. Apple reported $54.5B in revenue compared to $46.3B in the year ago quarter and record quarterly net profit of $13.1B. Gross margins fell to 38.6 percent compared to 44.7 percent a year ago. Apple sold a record 47.8M iPhones in the quarter compared to 37M in the year-ago quarter and 23 million ipads. iPad sales were constrained due to supply falling short of demand for their new hand size tablet--the ipad mini. EPS came in at $13.81 compared to estimates of $13.47 down from $13.87 a year ago. 

While profits and earnings were flat from a year ago, one thing we feel the market isn’t taking into consideration is that last year Q4 had 7 more days then this year’s quarter. Taking that into account Apples revenues rose 25% while EPS rose 13.5% from the same quarter a year ago.  Apple sold 4.1 macs compared to 5.2 Mac in the year ago quarter. Mac sales were down reflecting IDC’s prediction of a 6% contraction in the personal computer market during the December quarter. 

A dividend of $2.65 was declared compared to no dividend a year ago. In addition, Apple is changing their approach of how they provide guidance to promote more transparency into their business. Previously guidance reflected a single point conservative estimate the company had reasonable confidence in achieving. Going forward they are providing a range of guidance that they believe they are likely to report within. The stock reacted negatively diving almost 13% to $450 from $514. For 2Q13’ revenue guidance is projected at 41- 43B and gross margin guidance estimated at 37.5% -38.5%. Apple has increased their product ecosystem and we remain excited for their product pipeline.

-Technology Analyst Ryan Stern