International Paper Making Good on Cost Savings Promises
October 26, 2012
Paper and containerboard producer International Paper (click ticker for report: ) reported solid third quarter results Thursday morning. Sales increased 6% year-over-year to $7 billion, a tad short of consensus estimates. Earnings, adjusted for one-time impacts, fell 7% year-over-year to $0.75 per share. Industrial packaging performed well, falling just 7% year-over-year after divesting three containerboard mills. The segment benefited from lower input costs and decreased maintenance outages, though these were partially offset by lower sales volumes. Industrial packaging is also benefiting from better than expected synergies from the firm’s Temple Island acquisition, which could be $100 million greater than initially predicted. Image Source: International Paper Earnings Presentation Printing Papers performance was also strong, with earnings growing 90% year-over-year to $206
Apple Reports a Strong Fourth Quarter and Sandbags Guidance
October 26, 2012
Best Ideas Newsletter holding Apple (click ticker for report: ) reported another fantastic quarter Thursday afternoon. The tech giant saw revenues surge 27% year-over-year to $35.9 billion, a touch higher than consensus estimates. Earnings increased 23% year-over-year to $8.67 per share, a few cents weaker than consensus expectations, but negatively impacted by a $50 million loss from other income versus a forecasted gain of $150 million. Apple generated $50 billion in operating cash flow during the fiscal year. Guidance, not surprisingly, was lackluster. The firm establishes notoriously low expectations and is assuming earnings of $11.75 per share on $52 billion in revenue during its first quarter in fiscal 2013. Margins are expected to be lower thanks to the introduction of
Procter & Gamble Posts a Strong First Quarter
October 26, 2012
Consumer staples stalwart Procter & Gamble (click ticker for report: ) reported stronger than expected first quarter results Thursday morning. Sales declined 4% year-over-year to $20.7 billion, slightly worse than expected and negatively impacted by 6% due to currency headwinds. Earnings, adjusted for one-time items, increased 5% year-over-year to $1.06 per share, a few cents better than consensus estimates. We see no material impact on our fair value estimate at this time. After feeling the pressure from activist shareholder Bill Ackman, the company has refocused on the cost side of the equation, which has helped boost margins. Manufacturing savings and higher price-points boosted gross margins 80 basis points year-over-year to 50.6%. SG&A remained flat at 30% of sales on a
Under Armour’s Third Quarter Lacked Usual Guidance Upside
October 25, 2012
Athletic apparel retailer Under Armour (click ticker for report: ) reported solid-third quarter performance Thursday morning. Revenue grew 24% year-over-year to $575 million, in-line with consensus estimates. Earnings increased 23% year-over-year to $0.54 per share, a few cents better than consensus expectations. Gross-margin pressured eased, as margins increased 30 basis points year-over-year to 48.7%. Inventory builds finally alleviated, falling 2% year-over-year to $312 million. Though CEO Kevin Plank cited sourcing issues and “outgrowing” suppliers, we think the company is cleaning up its balance sheet and realized it had far too much inventory on the books. The firm knows how reliant it is upon weather for winter quarter sales, so we like its cautious stance going into winter this year to
Altria Posts a Strong Third Quarter
October 25, 2012
US tobacco giant Altria (click ticker for report: ) reported strong third quarter results Thursday morning. Revenue grew 2.2% year-over-year to $6.2 billion, which was considerably stronger than consensus expectations. When adjusted for one-time items, earnings increased 3.2% to $0.58 per share, roughly in-line with consensus estimates. The firm took a hefty charge of $874 million to account for early debt extinguishment, and it subsequently took advantage of cheap interest rates, issuing $1.9 billion worth of 2.85% unsecured notes due in 2022 and $900 million in 4.25% unsecured notes due in 2042. We think the new capital can be used to repurchase shares, as the company authorized an additional $500 million in its share repurchase program. Even though we believe
AT&T Continues to Be a Cash Machine But Dividend Cushion Still Not Robust
October 25, 2012
Telecommunications provider AT&T (click ticker for report: ) reported decent third quarter results Wednesday morning. Revenue was flat year-over-year at $31.5 billion, slightly shy of consensus estimates. Adjusted earnings per share grew 5% year-over-year to $0.62, which was a few pennies better than consensus expectations. Highlights of the quarter included free cash flow, a record $6.5 billion, and share repurchases, which totaled $3.8 billion. Wireless revenues grew 6.5%, driven by ARPU growth of 2.4% as consumers flock to smartphones, particularly the iPhone (click ticker for report: ) which accounted for 77% of smartphone activations (4.7 million units). Though smartphone activations were strong, net postpaid subscriber adds totaled just 151 thousand—well short of the consensus estimate calling for upward of 350
Buffalo Wild Wings Suffers as Inflation Hurts the Bottom Line
October 24, 2012
Fast growing restaurant chain Buffalo Wild Wings (click ticker for report: ) announced weak third quarter results Tuesday afternoon. Revenue grew 25% year-over-year to $247 million, but that figure was a bit lower than consensus estimates. Earnings fell 7% to $0.57 per share, a few cents lower than consensus expectations. The big drag on profitability has been wing prices, which are 70% higher than a year ago at $1.97 per pound. As a result, cost of sales jumped 270 basis points to 31.2%. Management noted that wing prices have remained high throughout the beginning of the fourth quarter, and profitability is expected to increase 15% year-over-year in 2013. CEO Sally Smith noted that non-alcoholic beverage sales are down—something we heard
Dow Chemical and DuPont Slash Jobs
October 24, 2012
Chemical products firms Dow Chemical (click ticker for report: ) and DuPont (click ticker for report: ) announced significant job cuts after both reported terrible third-quarter results this week. Dow plans to cut roughly 2,400 positions, or about 5% of its workforce, and shut down about 20 manufacturing plants, while DuPont’s restructuring will eliminate 1,500 jobs globally in the next 12 to 18 months. The headline performance of both firms’ quarterly reports was appalling. Dow’s net profit tumbled 35% as pricing declines overwhelmed a modest increase in volume, while DuPont’s net income tumbled to just $10 million from $452 million in the prior-year period. Though DuPont boasts a higher Valuentum Dividend Cushion score than that of Dow Chemical, we’re not anxious to
3M Lowers 2012 Revenue and Earnings Outlook
October 24, 2012
On Tuesday, 3M (click ticker for report: ) reported mixed third-quarter results and lowered its revenue and earnings per share outlook for 2012. Though we plan to make a few slight changes to our valuation model, we don’t expect a material change to our fair value estimate. 3M’s revenue dropped 0.4% from the same period a year ago, though organic local-currency revenue advanced 2.2%. On an organic local-currency basis, revenue increased 4.3% in its health care business, 3.3% in its industrial/transportation segment, 1.4% in its consumer/office segment, 1.3% in its display/graphics segment, 0.7% in its safety/securities segment, and 0.1% in its electro/communications segment. However, with the exception of its display/graphics segment and electro/communications segment, performance decelerated from the pace of expansion
Netflix Subscriber Growth Slows While Profitability Shrinks
October 24, 2012
Maligned DVD rental and video content streaming service Netflix (click ticker for report: ) reported third quarter results that were a little better than expected, but overall, not incredibly strong. Revenue grew 10% year-over-year to $905 million, roughly in-line with consensus estimates. Earnings tumbled, falling 89% year-over-year to $0.13 per share—significantly higher than consensus estimates but still not a great number, in our view. While we enjoyed CEO Reed Hastings candid letter to shareholders with regards to the business outlook, he pointed out several weaknesses. Domestic streaming subscriber additions are estimated to be 4.7 million-5.4 million, much lighter than the firm’s previous guidance of 7 million. Hastings pointed to several metrics, including 30%+ growth in per-member viewing that suggests consumers
