Microsoft Posts Strong Fourth-Quarter Results, Online Business Still Drag
July 24, 2011
Microsoft (MSFT) reported decent fiscal fourth-quarter results Thursday that showed strong sales of its Server and Tools products, Microsoft Office 2010, and its Xbox 360 entertainment platform. Revenue advanced 8% from the same period a year ago, while net income jumped 30% thanks in part to a lower tax rate. Overall, we were pleased with the quarter, despite the ongoing earnings weakness at its online business and declining growth at Windows, and we are maintaining our $35 fair value estimate of Microsoft’s shares. The firm’s Business Division had a strong showing, with quarterly revenue up 7% during the period, and the firm indicated that Office 2010 continues to be the fastest selling version of Office in history. The firm’s Server &
Coke Reports Strong Second-Quarter Results
July 23, 2011
Coca-Cola (KO) reported second-quarter results Tuesday that showed strong worldwide volume growth of 6% led by expansion outside of the US, namely Eurasia and Africa (up 7%), the Pacific, which includes China (up 7%), and Latin America (up 6%). Demand for the firm’s brand Coca-Cola was particularly impressive in China (up 24%) and Russia (up 17%). Total revenue increased 47% (due primarily to its acquisition of Coca Cola Enterprises’ North American operations), though concentrate sales and currency contributed 6 percentage points of growth, respectively. During the period, Coke Zero delivered double-digit volume growth in North America, while Fanta showed high-single-digit expansion. POWERADE delivered 9% growth and gained share in the sports drink category, while the firm’s NOS Energy brand was
Yahoo Reports Dismal Second-Quarter Revenue
July 23, 2011
Yahoo (YHOO) reported mixed second-quarter results Tuesday. Revenue, excluding traffic acquisition costs, fell 5%, while GAAP revenue dropped 23%, as softness in display revenue and turnover at the sales level impacted results toward the second half of the quarter. The attractiveness of competing sites like Facebook and Google (GOOG) is becoming increasingly more difficult for Yahoo to overcome, in our opinion. Income from operations, however, still advanced 9%, while net earnings per share jumped 18% from the prior-year period. Cash flow from operations fell 5% from the same period a year ago, while free cash flow shrunk 25% to $96 million during the quarter. We don’t expect a material about-face in Yahoo’s core U.S. operations, with the likes of Facebook and
Harley’s Second-Quarter Results Speak to Recovery in Bike Sales
July 23, 2011
Harley-Davison (HOG) reported solid second-quarter results Tuesday that showed strong retail motorcycle sales and solid earnings improvement. Sales of motorcycles and related products advanced 18% as US dealers sold 7.5% more new Harley-Davidson motorcycles in the period compared to last year’s quarter, marking the first year-over-year jump in the metric since the fourth quarter of 2006. Harley leveraged this sales growth into strong operating performance, with income from continuing operations increasing nearly 37% in the quarter. Its financial services segment also posted nice results thanks to ongoing improvement in credit performance and showed operating income expansion of nearly 35% from last year’s period. Harley also upped its shipment forecast for 2011 and now expects to ship as many as 228,000
GE Posts Strong Second-Quarter Results, Industrial Orders Surge
July 23, 2011
General Electric (GE) posted strong second-quarter results Friday. Adjusted revenue advanced 7% in the period, while operating profit burgeoned 18% from last year’s quarter. The conglomerate experienced particular earnings strength from recovering GE Capital and its transportation segment, while its energy infrastructure and home and business solutions segments lagged behind considerably. Importantly, the company noted that infrastructure orders were up 24%, with equipment and services orders increasing 33% and 16%, respectively — backlog reached a new all-time high of $189 billion at the end of the quarter (it had been $177 billion in the first quarter). GE indicated that industrial earnings should improve in the second half of this year, with expectations for the cycle to accelerate in 2012. We
Caterpillar Posts Decent Second-Quarter Results, Makes Cautionary Statements on China
July 23, 2011
Caterpillar (CAT) reported decent results Friday that showed strong growth in revenue and earnings, but also revealed cost pressures inherent in its business. During the quarter, sales jumped roughly 37% thanks primarily to recent acquisitions, while profits expanded 44% from the same period a year-ago. Though we are pleased with Caterpillar’s top line performance, management noted that cost pressures continue to intensify, specifically freight and material costs (steel, etc.) as well as investments in R&D and capacity. Further, the firm noted that its recent acquisition of Bucyrus will negatively impact full year profit by $0.50 per share as a result of upfront dealer-related integration costs, a stiff headwind. We’re also somewhat puzzled by management’s comments regarding China in its press
IBM Puts up Fantastic Second-Quarter Results
July 23, 2011
International Business Machines (IBM) posted strong second-quarter results Monday. The firm’s top-line increased 12% (5% adjusting for currency), while net income advanced 8% from the same period a year ago. The firm indicated that hardware, software and services revenue grew at a double-digit pace, and the company raised its full year 2011 operating earnings per share guidance to at least $13.25 from at least $13.15 previously. Revenue from markets IBM categorizes as growth now represent about 22% of its top line, with particular strength from the BRIC countries – Brazil, Russia, India, and China – which advanced over 20% in the period. The firm’s services revenue continued at a nice pace of expansion, with backlog jumping $15 billion from the
J&J Posts Second-Quarter Results, Holds the Line with Guidance
July 23, 2011
In our latest article on Johnson & Johnson (JNJ), we indicated we’d like to see continued growth in international sales as well as some recovery in the OTC/nutritionals business (Tylenol, Motrin) in the U.S. Let’s see how J&J measured up in its second quarter. The firm’s results were in line with our estimates, and the firm kept its full-year earnings guidance at $4.90-$5.00 per share. Net earnings, excluding special items, were $3.5 billion, or $1.28 a share (the street was expecting $1.24 per share), which excludes one-time expenses related to restructuring Cordis, a company that makes drug-coated stents, and litigation surrounding the DePuy hip recalls. This reflects bottom-line growth of about 5% from the same period a year ago. Sales
Quarter Too Good to Ignore, Raising Our Estimated Fair Value of McDonald’s
July 23, 2011
Quarter too good to ignore…we’re raising our fair value of McDonald’s. At Valuentum, we focus on the long-term intrinsic value of a company via a discounted cash-flow valuation process. That means building an extensive model for each company, and updating it when material events occur that may change our opinion. McDonald’s second quarter results were very impressive, outpacing consensus as well as our estimates. As such, we have revisited our valuation and are raising our fair value estimate. We now forecast stronger top-line growth and better operating margins, the combination of which results in our current $87 per share fair value estimate. Top-line and bottom-line surprised us. We originally thought forecasting top-line growth in the double-digits might be a little bullish, given lackluster same-store-sales numbers earlier in the quarter. However, in its second quarter, McDonald’s posted revenue
Our Take on United Techologies’ Second Quarter
July 23, 2011
United Technologies (UTX) posted excellent second-quarter results Wednesday, with sales advancing 9% (6% organic) and net income jumping nearly 20% from the prior-year period. The firm’s operating margin for the quarter was 15.9%, 120 basis points higher than last year. Impressively, the firm noted that for the first time since mid-2008, all six of its business segments showed organic growth in the period. Further, order rates at Otis were up 23% thanks to strong demand from Asia and China, while order rates for commercial HVAC new equipment at Carrier jumped 13%. The firm’s aerospace segments continue to perform well, and we expect such strength to continue as Boeing (BA) and Airbus (EADSY.PK) continue to ramp up commercial aircraft deliveries in
