Brian Nelson

Surveying the Cola Companies’ Third-Quarter Results

by

Coca-Cola (KO) On Tuesday, Coca-Cola (click ticker for report: ) announced decent third-quarter results that showed global volume expansion and share gains in North America for both the sparkling and still-beverage categories. Though reported revenue declined 3% in the period, revenue – adjusted for structural changes and currency – advanced 4% in the quarter. Likewise, comparable currency-neutral operating income jumped 8%, driving comparable earnings per share growth of 4%. Free cash flow generation of $6.1 billion year-to-date represents 17% of sales. Coca-Cola Americas grew volume 1% in both the quarter and year to date, with North America volume up 2% and Latin America volume even in the quarter. Coca-Cola International grew volume 3% in both the quarter and year to … Read more

Abbott’s Expansion Slowed By Supplier Recall; Raises Dividend

by

On Wednesday, Abbott reported mixed third-quarter results as a supplier recall in August in its ‘International Nutrition’ business forced revenue to come up just a bit short of expectations. The firm’s top-line still advanced 4.3% on an operational basis led by strength in its ‘Diagnostic’ segment, where revenue jumped more than 10% on an operational basis (shown below). Image Source: Abbott Its ‘International Nutrition’ business revealed sales expansion of 3.4% on an operational basis – not a terrible showing, but a marked slowdown from the 7% growth rate recorded during the first nine months of the year (third quarter inclusive) and the 8.4% pace registered in the second quarter. Though we’re not too worried about this hiccup, we note the market disruption … Read more

Intel Delays Broadwell; Stay Focused on Tremendous Dividend Strength

by

On Tuesday, Intel (click ticker for report: ) reported solid third-quarter results that were overshadowed by a minor one-quarter delay in the release of its next-generation Broadwell chip. We’re not reading too much into the modest setback and continue to be happy with the firm’s excellent cash-flow generation and significant financial flexibility. During the period, Intel generated $5.7 billion in cash from operations (42% of sales) and about $2.8 billion in free cash flow (nearly 21% of revenue). These are staggeringly positive numbers for a firm dealing with a PC market that is in secular decline. Intel is also sitting on $19 billion in total cash investments (cash, short-term investments and trading assets) relative to $13.2 billion in long-term debt, … Read more

The Power of a Valuentum Buying Index Score of 1: J.C. Penney and Domino’s Pizza Nosedive

by

J.C. Penney (JCP) We believe J.C. Penney (click ticker for report: ) is one of the most overpriced – if not, the most overpriced – stock on the market today. Based on our cash-burn analysis, we think the firm has sufficient liquidity to remain a going concern only through mid-2014, where the threat of bankruptcy will become severe (absent a significant change in the trajectory of cash flows). The firm’s shares register the worst score of a 1 on the Valuentum Buying Index and are suffering greatly today. We expect downside to the low-single-digits per share and perhaps worse. Our fair value estimate at the time of this writing is $3 per share. Shares are down nearly 8% today at … Read more

Johnson & Johnson Remains One of Our Favorite Dividend Growth Gems

by

On Tuesday, Dividend Growth Newsletter portfolio holding Johnson & Johnson (click ticker for report: ) issued solid third-quarter results and raised its full-year earnings guidance. The firm’s domestic sales jumped 1.7% while international sales leapt more than 4% from last year’s period (consolidated sales were 3.1% higher—4.7% adjusted for negative currency impacts). We were particularly pleased with performance from J&J’s pharmaceutical division, which experienced operational revenue growth of 10%+ thanks to strength from antipsychotic INVEGA SUSTENNA, REMICADE, SIMPONI, and STELARA. Diluted earnings per share advanced nearly 9% on a year-over-year basis, to $1.04. Looking ahead, we were also quite pleased with the company’s outlook for the remainder of 2013. Johnson & Johnson upped its earnings guidance for the year to … Read more

Mortgage Originations Decline at Major Banks

by

Two of the US’ most important financial institutions reported third-quarter results Friday morning. The stories were slightly different, but equally fascinating. Let’s take a look at how these banks performed after passing their self-administered stress tests. JP Morgan JP Morgan’s (click ticker for report: ) third quarter results were relatively solid in spite of a laundry list of legal problems. Book value declined slightly sequentially to $52.01 per share, though that number is an increase of 4% year-over-year. Earnings per share, adjusted for litigation expenses and reserve releases, were roughly flat year-over-year at $1.40 per share. Year-to-date, the firm has achieved a return on equity of 11% — above our estimate of its cost of capital. Capital Ratios The Basel … Read more

Valuentum’s October Edition of Its Best Ideas Newsletter!

by

How We’re Prepared for the Debt Ceiling Deadline, by Brian Nelson, CFA The debt-ceiling debate of 2011, the resulting 11th-hour agreement of that episode, and the massive stock rally that followed has created a sense of reassurance in the investment community that everything will somehow be alright. Such a stance, in our view, is unfounded. With stock valuations now significantly stretched (see: Keeping Some Dry Powder), there’s no longer underlying valuation support for the broader equity markets to move higher as they did since 2011 — when all of our significant outperformance in the Best Ideas portfolio was generated. We’ll be watching events closely during the next few days (the deadline is October 17), but one thing is clear — … Read more

How We’re Prepared for the Debt Ceiling Deadline

by

Dr. Peter Venkman: This city is headed for a disaster of biblical proportions.Mayor: What do you mean, “biblical”? Dr Ray Stantz: What he means is Old Testament, Mr. Mayor, real wrath of God type stuff. Dr. Peter Venkman: Exactly.Dr Ray Stantz: Fire and brimstone coming down from the skies! Rivers and seas boiling!Dr. Egon Spengler: Forty years of darkness! Earthquakes, volcanoes… Winston Zeddemore: The dead rising from the grave! Dr. Peter Venkman: Human sacrifice, dogs and cats living together… mass hysteria!Mayor: All right, all right! I get the point!– Ghostbusters (1984) If you turned on the business channel today, you might have seen a certain network compare the potential repercussions of the ongoing debt-ceiling debate in Washington to a scene from … Read more

Safeway Misses But Will Sell Unprofitable Chicago Business

by

Thursday afternoon, grocery retailer Safeway (click ticker for report: ) posted lackluster third quarter results that were overshadowed by the firm’s decision to sell its unprofitable Chicago-area Dominick’s stores. Revenue increased just 1.1% year-over-year to $8.6 billion during the period, a touch better than consensus estimates. Operating earnings per share, net of Dominick’s, were $0.10, down 38% year-over-year and well short of consensus expectations. Still, free cash flow has nearly doubled year-to-date to $382 million, equal to 1.5% of total revenue. Goodbye Chicago Perhaps the most encouraging news from the third quarter came from the announcement that Safeway will exit its Chicagoland Dominick’s business by early 2014. The firm bought Dominick’s for $1.2 billion in 1998, but the acquisition hasn’t … Read more

PLG Brands Continues to Drive Wolverine Worldwide

by

Shoe seller Wolverine Worldwide (click ticker for report: ) posted strong third-quarter results driven largely by former Best Ideas Newsletter portfolio holding Collective Brands’ PLG brands. Revenue surged 9% year-over-year on a pro forma basis and more than doubled on a year-over-year reported basis, to $717 million (modestly exceeding consensus estimates). Earnings per share were even stronger, rising 61% year-over-year to $1.16 (excluding acquisition costs) and coming in handily above consensus expectations. Year-to-date, the company has generated $96.2 million in free cash flow, equal to 5% of total revenue. Image Source: Wolverine Worldwide Wolverine’s ‘Lifestyle’ and ‘Performance’ groups were the drivers behind revenue expansion during the quarter as the company continues to capitalize on the success of recently-acquired Sperry Top-Sider … Read more