Under Armour’s Fourth Quarter Hurt by Poor Weather
January 27, 2012
Under Armour (UA) posted fiscal fourth-quarter results Thursday that weren’t as impressive as previous quarters. Though revenue grew 34% from the same period a year ago, the growth rate represents a modest slowdown from the previous quarter’s pace of 41.7% and the 35.7% rate recorded in the fiscal fourth quarter of last year. Under Armour cited the unseasonably warm weather as the main culprit in the slowing growth, and while we wouldn’t exactly call this revenue expansion subpar, several of our concerns regarding the firm are starting to come to fruition. For one, gross margins continue to fall. Granted, the 10-basis-point decline isn’t substantial, but profit margins aren’t growing, and we don’t expect them to expand anytime soon. Earnings per share, however,
Precision Castparts Issues Fiscal Third-Quarter Results
January 27, 2012
Metal-bender Precision Castparts (PCP) reported strong fiscal third-quarter results but failed to live up to consensus expectations on the top and bottom line. We continue to believe that Precision Castparts has valuation upside from these levels, but we are more inclined to continue to take profits in the jet-engine castings maker in the portfolio of our Best Ideas Newsletter. Our fair value estimate is unchanged. Revenue jumped 14% in Precision’s fiscal third-quarter thanks to strength across all of its product lines. Sales of its investment cast products jumped 8%, as aerospace demand continued at a nice pace. We’ll be looking for even stronger performance from its Investment Cast Products segment once production for the Boeing 787 ramps up considerably, likely
3M Issues Fourth-Quarter Results; Reaffirms 2012 Guidance
January 26, 2012
3M (MMM) reported modest fourth-quarter earnings expansion Thursday and offered an outlook for 2012 that was consistent with our expectations. We’re sticking with our $88 per share fair value estimate at this time. Total sales advanced 5.7% on the heels of organic local-currency sales growth of 3.3% (1.3 percentage points coming from volume and the balance of the organic expansion from pricing). The company noted that revenue expansion was strongest in its Industrial and Transportation segment (abrasives, aerospace, industrial adhesives and tapes, etc.), which increased 14.3% during the period. Safety, Security, and Protection Services (SSPS), Consumer and Office (stationery products, office supplies, etc.), and Health Care (infection prevention, skin and wound care, etc.) experienced advances in revenue during the period,
Caterpillar Posts Strong Fourth-Quarter Results; Sees Global Economic Acceleration in 2012
January 26, 2012
On Thursday, Caterpillar (CAT) reported strong fourth-quarter results and rounded out a very strong and record-breaking 2011. We’re comfortable with our $110 fair value estimate of Caterpillar, and we don’t expect to make any changes to it at this time. Caterpillar’s fourth-quarter sales achieved an all-time quarterly record, increasing 35% from the same period in 2010. Machinery and Power System sales jumped 36% thanks primarily from demand for new equipment, while Financial Products revenues advanced a modest 3%. The company noted that the improvement in sales volume in the quarter occurred across the world in all geographic regions and in nearly all segments. Excluding its recent acquisition of Bucyrus, revenue jumped an impressive 24%. Caterpillar’s fourth-quarter profit came in at
United Technologies Releases Fourth-Quarter Results; Reaffirms 2012 Outlook
January 26, 2012
United Technologies (UTX) rounded out a solid 2011 with another decent but less-than-impressive quarter. Though we plan to revisit our assumptions on the industrial conglomerate, we don’t expect to make a material change to our fair value estimate at this time. Organic revenue growth was a mere 2% in the fourth-quarter, but the meager growth was more due to significant strength in the aerospace aftermarket in the prior-year period than any underlying weakness. Order growth, however, was a bit lighter than we had hoped. New equipment orders at Otis advanced only 2%, while commercial HVAC new equipment orders at Carrier expanded 5%. Commercial spares orders at Hamilton Sundstrand were up 17%, but spares orders at Pratt & Whitney’s large
Xerox’s Fourth-Quarter Disappoints But Cash Flow Generation Remains Strong
January 26, 2012
Xerox (XRX) reported fourth-quarter results Wednesday that showed strong earnings growth but flat revenue performance. We continue to believe the shares look undervalued. Revenue growth from the company’s services businesses advanced 6% in the quarter, but such growth was offset by a 5% decline in revenue from its technology businesses. Strength in the firm’s services businesses was driven by an increase in both business process outsourcing and document outsourcing, while its technology business saw weakness in the sale of document systems and supplies. Management blamed the poor economic environment in Europe for its subpar revenue performance. We continue to like Xerox’s services portfolio and believe that it has a competitive advantage in providing its clients cost-efficient ways to more productively
Boeing’s Backlog Increases in Fourth Quarter
January 25, 2012
The Boeing Co. (BA) reported fourth-quarter results Thursday that showed continued cost pressures as it relates to its pension obligations but more importantly a surging commercial aerospace backlog. We’ll be evaluating our long-term assumptions for Boeing, but we don’t expect to make a material change to our fair value estimate at this time. We have little interest in opening up a position in Boeing, given its fairly valued status and the substantial execution risk embedded in achieving its aggressive commercial delivery schedule (and its at-risk defense exposure due to impending budget cuts). That said, we are very constructive on the commercial aerospace supply chain, as parts suppliers benefit from the implicit backing of Boeing and do not need customers to
And…It’s Another Great Year for McDonald’s But the Shares Look Fairly Valued
January 25, 2012
Earlier this week, McDonald’s (MCD) reported an excellent fourth quarter and very strong year. With earnings and revenue in-line with our estimates, we’re sticking with our $88 per share fair value estimate. Earnings for the year grew 15% to $5.27 a share, while same store sales accelerated to a 5.6% pace compared to last year. However, we were most surprised by the performance in Europe—same store sales grew by 7.3% in the fourth quarter, even as the Eurozone deals with a fiscal crisis and a possible recession. We think this highlights the outstanding value proposition McDonald’s offers customers in spite of challenging economic conditions. Margins did fall slightly in the quarter, and though we do not see much room for improvement in the mid-term, operating
Coach Reports Strong Fiscal Second-Quarter Results, Highlights Opportunities in China
January 25, 2012
In contrast to the profit warning from Tiffany (TIF) a couple weeks ago, Coach (COH), best known for its luxurious handbags, posted solid second-quarter results Wednesday and provided a very optimistic tone about its brand’s potential in China. We’ll be re-evaluating our long-term expectations for Coach, but we don’t expect to make a material change to our fair value estimate at this time. Coach’s sales expanded 15% in the quarter, while earnings per diluted share advanced 18%, to $1.18 per share (versus consensus expectations of $1.15 per share). Direct-to-consumer sales increased 17%, as North American comparable store sales rose 8.8% (above our mid-single-digit estimate). The firm remains optimistic about its Men’s business, which it expects to double during fiscal year
Johnson & Johnson Posts Fourth-Quarter Results; We Like JNJ’s Dividend Growth Profile
January 25, 2012
Johnson & Johnson (JNJ) reported mixed fourth-quarter results Tuesday. Though we weren’t exactly enthralled by the firm’s performance, we believe JNJ to be a key holding in the portfolio of our Dividend Growth Newsletter. Our fair value estimate for JNJ is unchanged at this time. The company’s fourth-quarter and full-year 2011 sales increased 3.9% and 5.6%, respectively, from the same period last year. Revenue increased in all three segments–consumer, pharmaceuticals, and medical devices/diagnostics–led by strong international growth. Drugs such as Stelara and Remicade continue to garner high demand, while new applications for Xarelto may contribute to expansion in coming quarters. Though the top-line expansion was decent, recalls and related charges–including litigation and product liability–continued to plague JNJ’s bottom line, amounting
