Coach’s Momentum Is Slowing
January 29, 2013
Aspirational luxury brand Coach (click ticker for report: ) announced lackluster results for its fiscal year 2013 second quarter and the holiday season. Revenue increased just 4% year-over-year to $1.5 billion, short of consensus expectations. Earnings missed the mark by several cents, growing just 4% year-over-year to $1.23 per share. Our fair value estimate remains unchanged. Gross margins remained basically unchanged year-over-year at 72.1%, suggesting the company did not take markdowns during the quarter. Unfortunately, the firm’s 4% sales expansion trailed the 15% increase in inventories, which could indicate that markdowns may come eventually. We could see a gross margin figure meaningfully lower than the current low-70’s run-rate in the coming periods. Inventory growth was among the primary reasons why
The Significance of Changes in Our Valuentum Buying Index (VBI) Ratings
January 29, 2013
Astronics (ATRO) has been a darling of a stock for our Best Ideas portfolio, despite hitting a very rough patch recently. Our Valuentum Buying Index (VBI) ratings have helped us maximize profits in the company, informing us to add the firm in June 2011 to our Best Ideas portfolio in the low-mid $20s (VBI rating of 10) and then to potentially take some profits when the firm registered a VBI rating of 6 in late 2011/early 2012 in the mid-$30s, which we did (selling 30% and then another 50% of our position). We view VBI ratings of 9 and 10 as actionable for us on the long side and VBI ratings of 1 or 2 as actionable for us on the short (put-option) side. However, we
Jos. A. Bank’s Friday Night Update Reveals Huge Profit Shortfall
January 29, 2013
Late Friday night, suit retailer Jos. A. Bank (click ticker for report: ) used a common tactic to report bad news, revealing in an 8-K that net income for 2012 will be approximately 20% lower than it was in 2011. Some simple mathematical calculations reveal that the figure will lead to lower EPS in not only 2011, but also below what the firm reported in 2010. Although we’re sure SG&A has increased as a percentage of sales, we think the terrible results are the product of compressing gross margins. The firm is famous for its “Buy 1, Get 2 Free” marketing, though it sometimes extends to buying one suit for a free shirt, tie, socks, and other accessories. While Jos.
The Most Important Tactic in Money Management: Don’t Overreact – The Path of Republic Services
January 28, 2013
Let’s dig into the path of Republic Services (RSG), a holding in both the portfolio of our Best Ideas Newsletter and Dividend Growth Newsletter. The trash taker’s past several months have been quite volatile due to some negative newsflow, but the company has now fully recovered and is breaking out to a new 52-week high today! Though we had plans to trim our position in both of our actively-managed portfolios following its weak performance in early November of last year, we didn’t move an inch as we awaited for a tactical exit. In fact, in our Dividend Growth portfolio (cost basis: $27.55 per share), we still hold a full position, and we’re now sitting on profits in our Best Ideas portfolio — even before considering
Halliburton Sets New Revenue Record
January 28, 2013
Late last week, oil services firm Halliburton (click ticker for report: ) reported fantastic fourth-quarter results. Revenue jumped 3% year-over-year to $7.3 billion, easily exceeding consensus estimates and the best quarterly result in the company’s history. Adjusted income from continuing operations was $0.63 per share, a few pennies higher than expected, but down significantly from a year ago. Margins in the Completion & Production (C&P) segment improved sequentially, but declined well over 1,000 basis points year-over-year to 13.9%. International results were excellent, with operating income growing 43% sequentially in Latin America, 22% in Europe/Africa, and 55% in Middle East/Asia. However, operating income in North America, Halliburton’s largest segment, fell 26% sequentially due to seasonal factors, as well as pricing and
Weak Holiday Sales from Hasbro Are a Surprise
January 28, 2013
After NPD reported solid toy sales during December, we thought the holiday season might be relatively strong for the major toymakers—including Lego, Hasbro (click ticker for report: ), and Mattel (click ticker for report: ). However, Hasbro announced last week that its fourth quarter revenue will be approximately $1.3 billion, below the consensus expectation of $1.4 billion. Earnings, net of restructuring charges, will be $2.73-$2.75 per share, well below the consensus estimate of $2.85 per share. We won’t know until the firm announces its results in February what caused the weakness, but we like the firm’s decision to reduce annual operating expenses by $100 million over the next three years. Since December seemed like a relatively strong month for the
Menu Innovation Helps Drive Strong Growth at Starbucks
January 28, 2013
Coffee retailer Starbucks (click ticker for report: ) reported solid results for the first quarter of its 2013 fiscal year. Sales surged 11% year-over-year to $3.8 billion, roughly in-line with consensus estimates. Earnings were also solid, growing 14% year-over-year to $0.57 per share, also equal to the consensus expectations. Although most food and beverage retailers are looking to grow internationally, Starbucks posted great results in its Americas segment, where revenue jumped 10% on same-store sales growth of 7%. At the firm’s annual meeting, it explained the need to open more locations in the US, and strong results suggest management is correct. The firm’s operating margin declined 50 basis points year-over-year to 20.8% due to litigation and Hurricane Sandy, though we
3M Delivers Fantastic Fourth Quarter; Feels Optimistic About China
January 27, 2013
On Thursday, 3M (click ticker for report: ) reported fantastic fourth-quarter results that showed significant improvement from relatively disappointing third-quarter performance, released in October. The firm’s sales during the quarter expanded 4.2% (its best in 2012), to $7.4 billion, an all-time fourth-quarter record. Organic sales increased at a slightly faster pace thanks to solid performance in its consumer/office, display/graphics, and healthcare segments, where organic local-currency sales growth came in at 8.7%, 8.3% and 5.9%, respectively. Only its safety, security, and protection services segment declined organically. Revenue in the US jumped more than 5%, while sales generated from Europe, Middle East, and Africa (EMEA) fell a modest 1%–not bad considering the negative news flow from the Eurozone. And most importantly, China
Making Another Call on Precision Castparts; Raising Our Fair Value Estimate Materially
January 26, 2013
Best Ideas Newsletter portfolio holding Precision Castparts (click ticker for report: ) reported solid fiscal third-quarter results Thursday that showed strong top-line and operating-income expansion and left us feeling quite optimistic about its recently-announced acquisition of Titanium Metals (TIE). We’re raising our fair value estimate for Precision Castparts to $246 per share (was $200) on the basis of better future margin forecasts associated with the deal. The metal-bender’s sales advanced 13% from the year-ago period, while consolidated segment operating income jumped at the same pace. Though the firm’s 25.5% operating margin was flat from the year-ago quarter, the most recently-reported period included $18 million in higher corporate and financing expense from its acquisitive activity. For investors in micro-cap peer (and
AT&T Sells Just a Couple of iPhones…8.6 Million!
January 26, 2013
Wireless carrier and cable provider AT&T (click ticker for report: ) announced satisfactory fourth-quarter results Thursday afternoon. Revenue grew just 0.2% year-over-year to $32.6 billion, which was stronger than the consensus had anticipated. Earnings, adjusted for significant expenses, jumped 10% year-over-year to $0.44 per share, slightly below consensus expectations. Perhaps the most significant read-through from the quarter came from AT&T’s iPhone (click ticker for report: ) activations. The company activated approximately 10.2 million smartphones during the fourth quarter. Out of those 10.2 million phones, 8.6 million were iPhones, or 84.3% of total smartphones. The activations might suggest the iPhone is gaining popularity in the US. Contrary to the mainstream spin, Apple is doing quite well in the smartphone space. Solid
