Brian Nelson – Page 391

PotashCorp’s 2014 Earnings Will Decline Due to Pricing Pressure

February 3, 2014 by Brian Nelson

On January 30, PotashCorp (POT) reported fourth-quarter and full-year 2013 results. The fertilizer giant faced challenging market conditions during much of the year, and PotashCorp CEO Bill Doyle was quick to note that “this past quarter was a difficult one. Pricing headwinds – most notably in potash – weighed on (its) performance, although there were signs as the quarter came to a close that the uncertainty in global markets was beginning to abate. (Its) focus remain(s) on those things (it) can influence, and (it) took important steps to enhance (its) competitive position across all three nutrients and prepare the company to deliver better performance.” Unfortunately, the most important “thing” is something that PotashCorp cannot control: pricing. Competitive pressures and a … Read more

Previewing Yum! Brands’ Fourth Quarter Results

February 3, 2014 by Brian Nelson

Yum! Brands (YUM), the owner of KFC, Pizza Hut, and Taco Bell, will report its fourth-quarter results after the market close Monday. The quick-service restaurant giant is a global powerhouse with solid brands and strong cash-flow generating capacity. Yum! Brands has generated cash flow from operations of $1 billion or more in each of the past 10 years, with the firm pulling in more than $2 billion in each of the past two years. The company’s greatest growth opportunity resides with its KFC brand in China. Per one million people, there are just 3 KFC units in China. In other Asian countries, this ratio is closer to 20 to 1, implying significant long-term expansion in the country. China’s consumer class … Read more

Google Shows Why Patience and Perspective Are Important

January 31, 2014 by Brian Nelson

By Brian Nelson, CFA The equity markets are an interesting beast. In October 2012, we pounded the table on adding Google (GOOG) to the Best Ideas portfolio (see email transaction alert archive here), which followed the September 2012 edition of the Best Ideas Newsletter, where we highlighted the company as the latest example of the power of the Valuentum Buying Index (see edition here), our stock-selection methodology. Part of the reason why I wanted to bring this up is not to pat ourselves on the back, but instead to reiterate the importance of ‘patience’ and ‘perspective’ in investing, regardless of the process you pursue. Let’s look at the following chart of Google from the date of the release of the … Read more

Chevron’s Balance Sheet Slowly Losing Luster

January 31, 2014 by Brian Nelson

Energy giant Chevron (CVX) posted lackluster fourth-quarter results Friday. Though we were largely expecting the results (given the preannouncement earlier this month), we were quite disappointed with the performance of the company’s balance sheet, as the firm has now swung from a net cash position to a net debt position. Part of the reason we hold Chevron in the portfolio of the Dividend Growth Newsletter originates from its pristine balance sheet, which we view as a necessity for us to hold onto a commodity-producing entity through the course of the economic cycle (especially for dividend growth). However, we can’t really say Chevron’s balance sheet is pristine anymore, as its $16.2 billion in cash at the end of 2013 now falls … Read more

Mattel’s Results Fail to Impress; Awaiting Hasbro’s Earnings in February

January 31, 2014 by Brian Nelson

On Friday, toy maker Mattel (MAT) reported disappointing fourth-quarter financial results that sent tremors through much of the physical toy industry. The firm noted that worldwide net sales fell 6% from the prior-year quarter, with North American gross sales down 10% and ‘International’ sales roughly flat with the same quarter a year ago. Weakness across its core brand portfolio was startling: Barbie down 13%, Hot Wheels down 8% and Fisher Price down 13%. The only core brand that advanced was American Girl, which nudged just 3% higher. Adjusted earnings per share came in at $1.07 versus the $1.12 mark in last year’s quarter. Though the bottom-line results missed expectations by $0.13, it didn’t stop the board from raising the dividend … Read more

Visa Boasts One of the Best Business Models on the Market Today

January 31, 2014 by Brian Nelson

Global payments technology company Visa (V) showed us why we continue to like the company when it reported fiscal first-quarter results Thursday. The firm is not a bank and does not issue cards or extend credit or set rates/fees for account holders of Visa-branded cards, but it does operate one of the most advanced processing networks, and we can think of few other business models that generate a stronger competitive advantage. Visa takes on no credit risk–unlike American Express (AXP) and Discover Financial (DFS)–but remains an integral part of the secular trend toward a cashless society and online consumption, where most transactions are not made with cash. Visa is the largest retail electronic payments network in the world based on … Read more

Evaluating the Outlook for Defense Stocks

January 31, 2014 by Brian Nelson

The defense industry is home to a number of large defense contractors—General Dynamics (GD), Lockheed Martin (LMT), Northrop Grumman (NOC) and Raytheon (RTN)—that have significant project/intellectual know-how, long-term customer/government ties, and widespread integration expertise that cannot be easily replicated by many smaller contractors. This gives established, large defense contractors a leg up on bidding for new government contracts and optimizing the margin profile for many through cost cutting and productivity enhancements. Still, competing budget priorities within the overall US budget and within the US defense budget itself will pose both challenges and opportunities for much of the group. However, long-term cybersecurity and national security risks aren’t going away, and this will ensure that the group has a steady share of … Read more

Sign of the Times: Facebook Soars, Yahoo Sours

January 30, 2014 by Brian Nelson

On January 29, Facebook (FB) kept the fundamental momentum going in its operations. The social media giant announced impressive fourth-quarter results, revealing that revenue jumped 63% (see image below) thanks to a 76% increase in revenue from advertising. Facebook indicated that mobile advertising revenue now represents more than half of advertising revenue compared to less than 25% in the same period a year ago. Income from operations nearly doubled in the period, to $1.13 billion, as the firm’s GAAP operating margin leapt 11 percentage points, to 44%. GAAP net income advanced to $523 million, compared to $64 million in the fourth quarter of 2012. Diluted earnings per share came in at $0.20 per share in the quarter, up from $0.03 … Read more

Boeing’s Fourth-Quarter Results Were Disappointing But We’re Not Worried about the Strength of Commercial Aerospace

January 29, 2014 by Brian Nelson

On Wednesday, aerospace and defense bellwether Boeing (BA) reported relatively disappointing fourth-quarter results. Revenue advanced 7% in the period, but core operating earnings were flat versus the prior-year quarter due to a 50 basis-point headwind in its core operating margin. Our experience with Boeing is that the firm tends to face share-price pressure when financing or emerging-market scares become prominent, the latter taking center stage in recent days—the Argentine peso collapsed and the South African rand continues to face pressure due to an unexpected rate hike. News about China—including a slowdown in manufacturing, banking concerns, and a sizzling (but more vulnerable) real estate market—isn’t helping either. Boeing is more exposed to these “news” items than most companies, particularly given the … Read more