Surveying a Few Consumer Staples: Hershey, Colgate-Palmolive, and Unilever
October 25, 2013
<< Definition of ‘Consumer Staples’ Hershey (HSY) “We (Hershey) expect 2014 net sales growth to be within our 5 to 7 percent long-term target, including the impact of foreign currency exchange rates. As has been the case for many years, Hershey is a gross margin focused company. We have solid productivity and cost savings initiatives in place and, while early in the planning cycle, we expect adjusted gross margin expansion next year that will drive 2014 growth in adjusted earnings per share-diluted in the 9 to 11 percent range, in line with our revised long-term target.” 3Q13 press release Colgate-Palmolive (CL) “As we (Colgate-Palmolive) look ahead to 2014, while our global budget process is in its initial stages, based on
The Tale of Three Valuentum Buying Index Ratings of 9
October 25, 2013
Just like a sell-side analyst isn’t required to reiterate his or her buy/sell/hold recommendations every day (despite immaterial week-to-week pricing changes), we don’t reiterate our Valuentum Buying Index ratings every day either. However, as with sell-side recommendations, our Valuentum Buying Index ratings still represent our current opinion. It should be assumed that, if a firm’s report (one that’s dated September 2013, for example) states that the firm’s VBI rating is a 9, the company’s current VBI rating is a 9. Just like in the case of when a sell-side analyst issues a ‘Buy’ recommendation in September 2013, the sell-side analyst would still have a ‘Buy’ recommendation on the stock today (until the recommendation is changed). This dynamic is the only way that our system is
Green Letter Day for Industrial Best Ideas Portfolio Holdings; Record Results for Ford and Precision Castparts
October 24, 2013
I guess you can say a ‘Red Letter Day’ for our Best Ideas portfolio can be more appropriately called a ‘Green Letter Day,’ as stock-market advances are typically colored in green. Today is such a day for two holdings in our Best Ideas portfolio: Ford (F) and Precision Castparts (PCP). These are two companies that we have pounded the table on repeatedly during the past couple years. Ford Posts Record 3Q Pre-Tax Profit On Thursday, Ford (F) posted excellent third-quarter results that showed fantastic top and bottom-line performance. Total company revenue advanced an impressive 12% thanks to wholesale volume expansion of 16% and year-over-year share gains in all regions. The auto maker also posted record third-quarter pre-tax profit of $2.59
Caterpillar Misses on Both Top and Bottom Lines
October 23, 2013
Caterpillar (CAT) has yet to breach the low end of our fair value estimate range, despite releasing a dismal third-quarter report Wednesday. Revenue dropped 18% on a year-over-year basis, while earnings per share tumbled more than 40% (both below consensus expectations). The firm also issued a revised 2013 outlook and now expects sales to be about $55 billion (was $56-$58 billion) with profit per share of $5.50 (was $6.50 per share in the middle of the range). As we outlined after the firm’s second-quarter report, released July 25: It appears that neither Cat nor its dealer network, which plans to reduce inventories even further, expects a robust recovery in demand anytime soon. Though cleaning out channel inventories by under-selling end-user
Surveying 3Q Performance from the Large Defense Contractors
October 23, 2013
Northrop Grumman Executes Nicely in 3Q But Reveals Declining Backlog On Wednesday, Northrop Grumman (NOC) reported strong third-quarter results considering the competing budget priorities in Washington and the subsequent difficult revenue environment. The defense contractor’s revenue dropped 2.6%, as expected, but its segment operating income increased 4.5% thanks to roughly 90 basis points of segment operating margin improvement. Third-quarter diluted earnings per share leapt 17.6%, and free cash flow swelled to $860 million (14.1% of sales), up from $748 million (11.9% of sales). We very much liked the profitability improvements and its increased free-cash-flow conversion during the period, but the firm’s backlog performance in the quarter wasn’t stellar: As of September 30, 2013, total backlog was $37.5 billion compared with
Evaluating 3Q Results at Panera and Chipotle
October 23, 2013
High-flying restaurant peers, Panera (PNRA) and Chipotle (CMG), reported divergent performance in their respective third-quarter results. Though one is a bakery and the other a high-end burrito maker, their comparable growth trajectories make them relevant peers for discussion. Panera’s third-quarter report, released Tuesday, showed relatively strong top-line and bottom-line expansion of 8% and 17%, respectively, but the real issue was with the firm’s fourth-quarter outlook. For starters, the bakery-café cut its fourth-quarter comparable sales growth expectations for company-owned restaurants to the range of flat-to-up-2% versus 3-5% previously. Panera also cut its fourth-quarter earnings-per-share guidance to $1.91-$1.97 per share from $2.05-$2.11 previously on expected margin contraction of more than 100 basis points on a year-over-year basis. Though the new bottom-line outlook
One of Our Top Housing-Related Ideas Surges
October 22, 2013
When we outlined Whirlpool (WHR) as one of our favorite housing-related plays in late May of this year, we thought shares would do well. From the May 29 write-up: “Whirlpool possesses tremendous operating leverage, so a small increase in sales will have a large impact on the bottom line. This aspect of its business model coupled with improving operational performance makes us confident that the appliance pure-play has room to the upside (the high end of our fair value range for Whirlpool is $175 per share).” Recent equity price performance hasn’t disappointed – the firm’s stock has more than doubled the market return since that article was released (14.4% versus 6.2%), as shown below, and Whirlpool’s third-quarter earnings, issued Tuesday, didn’t
Don’t Take Our Word For It; Ask CEO Reed Hastings; Netflix’s Shares Are Overpriced
October 22, 2013
We give Netflix (NFLX) CEO Reed Hastings a lot of credit. Not too many CEOs will go on record saying that its firm’s share price is being supported by “momentum-investor-fueled euphoria,” but he did. Netflix remains one of the most overpriced stocks on the market, in our view. Click here for that list — it’s near the top. Pasted below, please find the most important part of Netflix’s third-quarter shareholder letter (red circle added by us). If you understand anything about Netflix’s stock, it should be this: “In calendar year 2003 we were the highest performing stock on Nasdaq. We had solid results compounded by momentum-investor-fueled euphoria. Some of the euphoria today feels like 2003.” Image Source: Netflix Share Price Performance Today Valuentum’s Take
Evaluating Third-Quarter Performance of a Few Bellwethers
October 22, 2013
DuPont’s 3Q Free Cash Flow Leaves Much to Be Desired DuPont (DD) reported third-quarter results Tuesday that showed revenue advancing 5% (thanks primarily to higher volume growth) and operating earnings of $0.45 per share, a modest bump from the same period a year ago. The standout on the top line was ‘Agriculture’ sales, which jumped 15% thanks to higher insecticide volumes and higher seed prices in Latin America. Excluding its ‘Performance Chemicals’ division, which suffered from price declines for titanium dioxide, refrigerants, and fluropolymers, all operating segments posted increased operating earnings versus last year. DuPont noted that it expects fourth-quarter operating earnings to be up substantially from that of the year-ago period, but it still reiterated its full-year operating earnings
McDonald’s Underwhelms in 3Q; Outlook Not Mighty
October 22, 2013
On Monday, McDonald’s (MCD) posted third-quarter results that left much to be desired. Global comparable sales barely moved higher at 0.9%, while consolidated operating income advanced a modest 6%. Diluted earnings per share increased at a similar pace to $1.52 per share, but the disappointment was certainly from the top line. Comparable stores in the US increased just 0.7% in the third quarter thanks to the popular Monopoly promotion and the new Mighty Wings. We thought the latter would have had a greater impact given the significant recent marketing promotions. Comparable sales in Europe jumped 0.2% thanks to strong performance in the UK and Russia, partially offset by weakness in Germany. Same-store sales in the Asia/Pacific, Middle East and Africa
