Waste Management and Republic Services Post Poor Third-Quarter Results
November 2, 2012
Waste Management (click ticker for report: ) and Republic Services (click ticker for report: ) posted weak third-quarter results this week. We’re taking a closer look at our valuation models for both garbage haulers. Waste Management continues to restructure its operations to address its cost structure, while Republic Services just announced a restructuring plan of its own during the third quarter. Both continue to revise down their respective earnings outlooks as a result of weak recycling commodity pricing, which is overwhelming their modest core pricing strength. Volume trends have also been lackluster, though the impact of Hurricane Sandy may provide a moderate boost in coming quarters. Specifically, Waste Management cut its 2012 earnings guidance to the range of $2.08-$2.13 per
October Auto Sales Were a Tad Light; We’re Not Worried
November 1, 2012
After Ford (click ticker for report: ) and General Motors (click ticker for report: ) posted fantastic third quarter results, industry-wide auto sales came in slightly lighter than expected in October, as many cite Hurricane Sandy as hurting industry-wide unit sales by as many as 300,000 units. Let’s take a look at a few companies. Ford Best Ideas Newsletter holding Ford announced an excellent quarter on Tuesday, and shares have rallied since trading resumed Wednesday. The firm’s October results were decent, with sales growing 0.4% year-over-year (retail up 2%), but they came in below consensus estimates of 3.5% expansion. More pressing, Alan Mulally confirmed that he will remain CEO until “at least” 2014, but President Mark Fields was promoted to
Valuentum’s November Edition of Its Dividend Growth Newsletter!
November 1, 2012
Since the previous edition of our Dividend Growth Newsletter, we received some welcome news from a couple constituents in our portfolio (please see page 5). Oil and gas pipeline operator Kinder Morgan Partners (KMP) raised its distribution 9% from the year-ago period, marking the 45th increase since current management took over in 1997. Phillips 66 (PSX), which we received after ConocoPhillips spun off its refining operations earlier this year, upped its dividend by an impressive 25%. Our Valuentum Dividend Cushion™ process continues to identify firms that are poised to raise their payouts significantly, while warning investors in advance of dividend cuts (as in SuperValu’s case). We remain on track to achieve our goal of generating a high-single-digit return for the
October Retail Roundup
November 1, 2012
During October, the US consumer remained resilient while much of corporate America stagnated in anticipation of the presidential election and the looming fiscal cliff. Let’s take a look at retail sales results for the month. Nordstrom Nordstrom (click ticker for report: ) continues to be a standout performer in the luxury retail space, with October same-store sales surging 9.8% year-over-year. Nordstrom Rack continued to outperform the traditional stores, growing 10.5% year-over-year compared to 10.2% for traditional stores. We remain huge supporters of the firm’s expansion plans, and we believe its execution is unbeatable in the retailer industry. Nevertheless, we believe shares are fairly valued. Gap Gap’s (click ticker for report: ) October results weren’t quite as strong as September results,
Visa Continues to Deliver Top Notch Results
November 1, 2012
Wednesday afternoon, payment processing giant Visa (click ticker for report: ) reported strong fourth quarter earnings and provided a bullish outlook for fiscal year 2013. Excluding the impact of one-time litigation charges, the firm earned a better-than-expected $1.54 per share, growth of 21% year-over-year. Total revenue surged 15% during the quarter to $2.7 billion, which also exceeded consensus expectations. New CEO Charlie Scharf takes the helm today while Joseph Saunders transitions to chairman and then eventually to retirement. Saunders leaves Scharf, the former head of retail financial services at JP Morgan Chase (click ticker for report: ), with lofty forward expectations. The firm’s guidance calls for low double digits revenue growth, 60% operating margins, high-teens earnings per share growth, and
Best Idea EDAC Posts Excellent Third Quarter
November 1, 2012
On Wednesday, Best Idea Newsletter portfolio holding EDAC Tech (click ticker for report: ) posted excellent third quarter results that showed impressive sales growth and net income expansion. We continue to believe that shares are worth over $20 each, offering investors substantial upside potential. EDAC’s third-quarter revenue reached $27.5 million, up 26% from the third quarter of last year. Aerospace sales advanced 30%, while industrial segment sales increased 17%. Operating income jumped nearly 70% thanks to roughly 270 basis points of operating margin expansion, to 10.8% of sales. Both of the company’s divisions had strong profit performance. We continue to believe the market is underestimating the tremendous operating leverage inherent to EDAC’s business model and the pace of earnings expansion
Total Reports Strong Third Quarter
October 31, 2012
On Wednesday, Total (click ticker for report: ) reported strong third-quarter results. Revenue advanced 8%, while adjusted net income surged 20% from the prior-year period, to 3.3 billion euros, thanks to strong performance across all segments. We don’t expect to make a material change to our fair value estimate. In its upstream operations, where adjusted net operating income jumped 21% in the quarter, Total expects the ramp up of recent start-ups (Angola LNG, Sulige in China, and Kashagan in Kazakhstan) and progress of major projects to continue to propel profitable growth. During the third quarter, Total launched the development of the Tempa Rossa field in Italy, and we’re also excited about exploration endeavors in the Gulf of Mexico, Italy, Ivory
General Motors Reports A Fantastic Third Quarter
October 31, 2012
American automaker General Motors (click ticker for report: ) reported fantastic third quarter results Wednesday morning. The firm shrugged off European weakness to grow revenue 2.5% year-over-year to $37.6 billion, nearly $2 billion better than consensus estimates, even though it was negatively impacted by $1 billion of currency fluctuations. Earnings were also much better than expected, falling 9% year-over-year to $0.93—about $0.28 higher than consensus expectations. EBIT (earnings before interest and taxes) actually ticked up $100 million to $2.3 billion, so if it wasn’t for higher tax rates, earnings would have been comparable to last year. Though revenue in North America grew 7% year-over-year to $23.3 billion, EBIT in the region tumbled 17% to $1.7 billion. Operating margins fell substantially,
Disney Steals Lucasfilms
October 31, 2012
Tuesday afternoon, entertainment giant Disney (click ticker for report: ) purchased Lucasfilms and all associated assets from legendary film maker George Lucas for $4.05 billion—half in cash, half in 40 million newly minted shares of Disney stock. We can’t imagine the deal was anything but a steal for Disney, which now owns Lucas’ catalog of films, which includes six Star Wars movies, as well as the Indiana Jones franchise. Disney also acquires all licensing revenue, which amounts to over $200 million in 2012 alone. This doesn’t even account for successful businesses Skywalker Sound, LucasArts (video games), and Industrial Light & Magic. Though video games might not look very strong give the failure of EA’s (click ticker for report: ) Knights
TRW Rides Auto Recovery to Solid Results
October 31, 2012
Auto safety systems manufacturer TRW Automotive (click ticker for report: ) reported solid third quarter earnings Tuesday morning, echoing what we’ve heard from Ford (click ticker for report: ). Revenue increased 1% (9% ex-currency/divestitures) to $4 billion, a bit stronger than consensus estimates. Net earnings decreased 9% year-over-year to $1.24 per share, which was still slightly better than consensus expectations. Gross margins increased about 70 basis points year-over-year to 10.4% as OEMs continue increased investment in safety devices. SG&A also declined about 20 basis points year-over-year to 3.7%, though the figure was roughly flat on an absolute basis. As a result, operating margins increased 50 basis points to 6.6%. Free cash flow remained solid, as the firm generated $31 million
