Brian Nelson

Phillips 66’s 3Q Reveals Difficult Refining Environment

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Phillips 66’s third-quarter results, issued last Wednesday, revealed significantly weaker worldwide refining margins, as expected. The company’s third quarter earnings fell to $535 million, down from adjusted earnings of $1.9 billion in the third-quarter of 2012. Results in the company’s ‘Refining’ segment remain highly volatile. Phillips 66’s ‘Midstream’ segment generated earnings of $148 million compared with adjusted earnings of $88 million in last year’s period. Third-quarter earnings in Phillips 66’s ‘Chemicals’ segment came in at $262 million, down modestly from adjusted earnings of $275 million in the year-ago period. The company’s quarterly earnings for its ‘Marketing and Specialties’ segment totaled $240 million, up from $98 million in the same quarter last year. Corporate and other expenses were roughly flat during the … Read more

Kraft and Kellogg Struggle for Sales Expansion

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Kraft (KRFT), best-known for its Macaroni & Cheese, Cool Whip, Planters peanuts, and Oscar Mayer brand, has struggled to grow the top line since spinning off Mondelez (MDLZ). Its third-quarter results, released Wednesday, showed further revenue weakness. Though management went to great lengths to explain how most of the organic net revenue decline was a result of the spin-off, the fact remains that organic net revenue growth was still poor (practically nil) after excluding the Mondelez impact. Earnings-per-share was lower than that of the prior-year period, after excluding a $0.18 per share benefit from market-based impacts to post-employment benefit plans; free cash flow is $745 million year-to-date (5.5% of sales), including the negative impact of more than $600 million in … Read more

Looking at the Video Game Makers’ Recent Results

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In its second quarter, results released October 29, Take-Two (TTWO) exceeded non-GAAP revenue estimates, generating $1.3 billion in sales, $400 million more than expected and a sizable increase from $280 million in the comparable quarter. Non-GAAP earnings per share also exceeded consensus expectations by $0.84 per share, with the company earning $2.49 during the second quarter. Year-to-date, free cash flow totaled $120 million, but that figure simply does not tell the story. Because non-GAAP results include only sell-in numbers, the company hasn’t received cash just yet. However, accounts receivable now exceeds $1 billion, equal to over 60% of the current market cap. The vast majority of that figure will be converted to cash that Take-Two can allocate going forward. CEO … Read more

Clorox Faces Cash Flow Headwinds in Fiscal 1Q

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Our general takeaway after surveying calendar third-quarter results from peers Hershey (HSY), Colgate-Palmolive (CL), and Unilever (UN) was that performance in the consumer staples space was mostly positive during the third quarter and that emerging-market performance remains robust (even though Unilever toned down expectations a bit). Clorox’s (CLX) better-than-expected fiscal first-quarter results, released Thursday, did not deviate from the mostly positive newsflow. Sales expanded 2% (3.5% excluding the negative impact from currency), and the company recorded pretax profit growth of 7%. Volume for the fiscal first quarter advanced 1% thanks to gains from Professional Products, Charcoal, Laundry and Burt’s Bees offset by declines in Home Care. Gross margins were flat as cost savings and price increases mitigated higher manufacturing and logistics … Read more

Realty Income Is Our Favorite REIT Idea; It Reminds Us Why Every Month

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They say ‘a picture is worth a thousand words,’ and the following snapshot may be worth a million. We like Realty Income (O) for the steady dividend increases and flexibility it provides income investors with a monthly (not quarterly or semi-annual) dividend payout. Image Source: Realty Income Third-quarter performance from the ‘Monthly Dividend Company,’ released Thursday, only reinforces the reasons why we hold the company in the portfolio of our Dividend Growth Newsletter. Internals during the period were fantastic — same store rents advanced 1.3% and portfolio occupancy jumped to 98.1% from 97%. The company posted adjusted funds from operations (AFFO) of $0.60 per diluted share in the quarter, comfortably above the cash dividends of $0.545 issued during the period. We also … Read more

Surveying 3Q Results at the Energy Majors

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Performance was far from rosy across the majors during the calendar third quarter. BP’s (BP) performance showed a 26% fall in underlying replacement cost profit, Exxon Mobil’s (XOM) third-quarter results revealed an 18% decline in earnings, Chevron’s (CVX) quarterly earnings dropped nearly 6% during the period, and Shell’s (RDS.A; RDS.B) third-quarter profit (on a current cost of supplies basis) slid 31% from the same period a year ago. Only ConocoPhillips’ third-quarter results (COP) showed adjusted earnings expansion during the quarter (about 7%). Source: Valuentum The investment landscape in the ‘Major – Oil & Gas’ space remains mixed, in our view. We liked ConocoPhillips third-quarter results, but its hefty capital investment plan and net debt position certainly don’t speak of equity … Read more

Repeat Business Energizes Starbucks

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Starbucks (SBUX) posted wonderful fourth-quarter results Thursday morning, driven largely by robust same-store sales growth. Revenue jumped 13% year-over-year to $3.8 billion, roughly in-line with consensus estimates. Earnings per share increased a whopping 37% to $0.63, easily exceeding consensus expectations. Free cash flow for the firm’s 2013 fiscal year was terrific at $1.8 billion, equal to 12% of revenue. That figure is up from $894 million in free cash flow generated in its 2012 fiscal year. Comps Drive Success Image Source: Company Filings, Valuentum As we can see from the above chart, Starbucks continues to experience wonderful same-store sales growth. Fourth quarter and full-year comp-store sales jumped 7% year-over-year. Financial analysts love using comp-store sales (or same-store sales—they have the … Read more

Visa and MasterCard Gushing with Cash

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Best Ideas Newsletter portfolio holding Visa (V) and its rival MasterCard (MA) reported results for their respective calendar third quarters. Visa’s top-line continues to expand, growing 8.8% year-over-year during its fiscal year 2013 fourth quarter to $2.9 billion, a tad shy of consensus estimates on nearly $1.1 trillion in gross dollar volume. The combination of the firm inking more major deals than usual (which increased incentives) and foreign exchange effects lowered reported revenue growth by 1.5 percentage points. Visa’s net income per share jumped 20% year-over-year to $1.85, in-line with consensus estimates. For the fiscal year, earnings per share soared 23% year-over-year to $7.59. Free cash flow, adjusted for some timing issues related to the merchants opting out of the … Read more

The Curious Cases of Intuitive Surgical and Teva Pharma: What We Have Learned

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Within every portfolio, there will be a couple companies that do not live up to immediate expectations. Two such companies in our Best Ideas portfolio that haven’t yet delivered on our theses are Intuitive Surgical (ISRG) and Teva Pharma (TEVA). We hold the Healthcare Select SPDR ETF (XLV) in the Best Ideas portfolio as well (it has been a top performer) and our healthcare picks—Johnson & Johnson (JNJ) and Medtronic (MDT)—have performed wonderfully in our Dividend Growth portfolio, but we’re still waiting for our theses to be confirmed with respect to Intuitive Surgical and Teva Pharma. Before we go any further, however, we think it is important to reiterate that the size of the weighting of a position in our … Read more