Pfizer and Merck Show Revenue Declines; Pipelines Remain Strong
August 1, 2013
Pfizer’s (click ticker for report: ) and Merck’s (click ticker for report: ) second-quarter performances revealed ongoing revenue weakness due to key patent expirations, but we like the progress they are making in their respective drug pipelines. In Pfizer’s second quarter (results released Tuesday), revenue fell 4% from the same period a year ago, after adjusting for currency. Strength in ‘Oncology’ (up 28%) from Inlyta and Xalkori and a couple key products (namely Lyrica and Celebrex) did little to offset the slide in operational revenues at its ‘Primary Care’ and ‘Established Products’ segments, where revenue dropped 15% and 7%, respectively. We point to the loss of exclusivity of Lipitor and heightened generic competition for the difficult revenue performance. In Merck’s
Newmont Suffers from Weak Gold Prices; Underscores Industry Troubles
August 1, 2013
Last Friday morning, gold miner Newmont Mining (click ticker for report: ) reported mediocre second quarter results. Revenue declined 11% year-over-year to $2 billion, slightly below consensus estimates. Earnings per share, adjusted for an impairment charge related to lower gold prices, swung to a loss of $0.10 compared to a profit of $0.59 during the same period a year ago. The company generated negative free cash flow of $317 million as capital expenditures remained too high relative to operating cash flow. Newmont also cut its dividend to $0.25 per share, down 29% sequentially. Newmont’s second quarter highlighted the challenges we continue to witness in the gold-mining industry, especially with respect to the weak price of gold. Over the past several
Amgen’s Second Quarter Doesn’t Disappoint
July 31, 2013
Pharmaceutical firm Amgen (click ticker for report: ) announced strong second quarter results Tuesday afternoon. Revenue increased 5% year-over-year to $4.7 billion, modestly exceeding consensus estimates. Adjusted for certain items, earnings-per-share climbed 3% year-over-year to $1.89, a figure well above consensus expectations. Free cash flow was terrific at $1.4 billion, equal to 30% of total revenue. Amgen’s white-blood-cell-growth drugs designed to prevent infections during chemotherapy, Neulasta and Neupogen, saw combined sales growth of 7% year-over-year to $1.4 billion as Neulasta becomes the drug of choice. Amgen’s other billion-dollar treatment Enbrel, a rheumatoid arthritis and plaque psoriasis drug similar to AbbVie’s Humira (click ticker for report: ) and Johnson & Johnson’s Remicade (click ticker for report: ), posted 9% revenue growth.
Utilization Drives Record Profit at TAL International
July 31, 2013
Intermodal container lessor TAL International (click ticker for report: ) posted strong second quarter results last week thanks to high utilization rates and favorable container scrapping revenues. Revenue jumped 15% year-over-year to $172 million, easily exceeding consensus estimates. Earnings per share increased 7% year-over-year to $1.07 per share, roughly in-line with consensus expectations. TAL International greatly benefitted from strong utilization rates in the second quarter, which averaged 97.5%. Though this figure was down slightly compared to the first quarter figure of 97.7%, TAL’s long-term leasing strategy has minimized downside risk in the currently difficult intermodal environment. CEO Brian Sondey detailed the strategy on the second quarter conference call, saying: “…we’ve always had a leasing strategy of really seeking long duration
Buffalo Wild Wings’ Second Quarter Was Fantastic
July 31, 2013
Best Ideas Newsletter portfolio holding Buffalo Wild Wings (click ticker for report: ) announced solid second quarter results Tuesday afternoon. Revenue jumped 28% year-over-year to $305 million, a touch better than consensus estimates. Earnings per share surged 42% year-over-year to $0.88, far better than consensus expectations. Free cash flow year-to-date totals $13 million, equal to just 2% of total revenue. Free cash flow is temporarily depressed as the firm continues to expand its domestic and global footprints. Eleven franchise-owned restaurants were opened during the quarter, as well as 10 owned by Buffalo Wild Wings. Same-store sales during the quarter grew 3.8% year-over-year at company-owned restaurants and 4.1% year-over-year at franchise-owned restaurant. Relative to most of the restaurant space, these numbers
With North America Saturated, Coach Needs International Growth
July 31, 2013
As has become the norm for Coach (click ticker for report: ), shares of the handbag and fashion accessory maker experienced heightened volatility after it reported lackluster results for its fiscal year 2013 fourth quarter Tuesday. Revenue increased 6% year-over-year to $1.2 billion, slightly below consensus estimates. Earnings per share advanced just 3% compared to the same period last year, coming in at $0.89 (after adjusting for one-off items). Free cash flow for the fiscal year was strong at $1.2 billion, an increase of 20% compared to the prior year and equal to 24% of total revenue. One thing is certain at Coach—the core North American business likely won’t be the same growth driver it has been in years past.
Uralkali Backs Out of Belarusian Potash Company; Industry to Change
July 30, 2013
Early this morning, Russian fertilizer Uralkali announced it will leave the Belarusian Potash Company in order to grab market share. CEO Vladislav Baumgertner asserted that BPC partner Belaruskali had been making potash exports outside of the pre-arranged agreement, rendering the BPC useless. Until now, the potash industry had been a relatively stable cartel allowing industry participants to generate robust amounts of free cash flow as spot prices rested well above the cost of production. On a conference call following the announcement, Baumgertner mentioned that the price of potash could fall by over $100/tonne as Uralkali will boost production nearly 25% and look to steal market share. Uralkali is the largest single potash producer in the world and likely has the
American Capital Agency Loses $2.37 Per Share in Second Quarter
July 30, 2013
As we have encouraged readers since the peak in September 2012, the mortgage real estate investment trust (REIT) industry has myriad risks, and the marketing pitches indicating that their principal and interest payments are guaranteed by a US government sponsored entity (GSE) should not make investors feel safe. This dynamic has little bearing on the underlying trajectory of fundamentals and a mortgage REIT’s book value, the key valuation driver and the major impetus behind share price movements in the space. During the second quarter (results released Monday), American Capital Agency (AGNC) failed at its principal objective to preserve net asset value, as book value plunged to $25.51 per share from $28.93 per share in the previous sequential quarter (a $3.42 move).
Colgate-Palmolive’s Second Quarter Impacted By Currency; Core Revenue Expansion Not Bad
July 30, 2013
While some consumer staples companies continue to struggle as the consumer trades down, Colgate-Palmolive (click ticker for report: ) posted decent second quarter results late last week. Revenue advanced 2% year-over-year to $4.3 billion, slightly below consensus estimates as a result of the negative impact of currency. But net of the negative impact of currency, revenue rose 5.5% year-over-year. Earnings per share grew 5% year-over-year to $0.70 when adjusted for the one-off impact of restructuring charges. Free cash flow generation was solid, totaling $1.1 billion year-to-date or 12% of revenue. On the cost side, we saw some modest profitability expansion as its gross margin rose 70 basis points year-over-year, to 58.6%. The firm’s focus on expanding its gross margin via productivity
International Paper Issues a Strong Second Quarter Report; Expects Free Cash Flow to Improve
July 30, 2013
International Paper (click ticker for report: ) reported strong second quarter results Thursday that showed impressive core operating-income improvement. Revenue advanced 3.6% during the period thanks to strong performance in its ‘Industrial Packaging’ and ‘Consumer Packaging’ segments, both of which jumped 9.6%. ‘Industrial Packaging’ was bolstered by higher selling prices for boxes and containerboard (and increased containerboard volumes), while the strength in ‘Consumer Packaging’ was primarily a result of higher volumes (namely from Asian coated paperboard). ‘Distribution’ revenues fell, while sales in its ‘Printing Papers’ division edged up 2%. On the whole, revenue performance was solid. International Paper’s segment operating profit surged more than 40%, to $601 million, though a number of large special items in the prior-year period made
