Brian Nelson

Take the Money and Run: Fairfax Bails Out Blackberry

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Late last week, smartphone maker Blackberry (click ticker for report: ) preannounced terrible second quarter results. Revenue likely declined approximately 43% year-over-year to $1.6 billion, which is nowhere in the ballpark of consensus estimates in the $3 billion range. This amounted to 3.7 million phone sales, far less than the number of units Apple (click ticker for report: ) sold during the first weekend of its iPhone 5S/5c release. The firm will post an operating loss of $950 million to $995 million driven primarily by a pre-tax inventory charge of $930 million to $960 million. Cash fell to $2.6 billion, and the firm announced that it would lay off 40% of its global staff, leaving the company with 7,000 total … Read more

Demand Remains Modest at Emerson Electric

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Dividend Growth Newsletter portfolio holding Emerson Electric (click ticker for report: ) posted August order growth that revealed moderate, but growing demand for the firm’s various products. Order Growth Remains Positive Source: EMR 8-K* As one can see from the above chart, business in August was roughly in-line with that of the previous two months, though ‘Industrial Automation’ turned positive while ‘Process Management’ decelerated slightly. Regardless, we think Emerson’s order growth is symptomatic of the broader US economy—investment in capital goods is modest but investment is still growing. Of note, European demand in the firm’s ‘Process Management’ and ‘Climate Technologies’ segments is strong, suggesting the long-awaited bottom in the Eurozone economy may be surfacing. Little else stood out from the … Read more

Will Chipotle Serve Breakfast?

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Amid news about the lack of Fed tapering and the launch of Apple’s iPhone 5S (click ticker for report: ), news broke that fast food chain Chipotle (click ticker for report: ) was testing coffee products at one of its Washington, D.C. locations. Naturally, the question arises: is Chipotle going to serve breakfast? Why We Think It’s a Great Idea There’s little doubt that the consistent comparable same-store sales growth from the likes of Panera (click ticker for report: ), Chipotle, and Noodles & Co. (NDLS) suggests that meals eaten outside of the house continue to rise. At the moment, we’re comfortable saying that McDonald’s (click ticker for report: ) possesses the strongest breakfast offering with a mix of inexpensive … Read more

Niaspan Generic Could Boost Teva

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On Friday, Best Ideas Newsletter portfolio holding Teva Pharma (click ticker for report: ) announced that its generic version of AbbVie’s (click ticker for report: ) Niaspan would hit the US market this week. The news is particularly noteworthy because Teva was the first-to-file, making the product eligible for 180 days of marketing exclusivity (a large windfall for the company). To learn more about the generic industry and the significant benefits of marketing exclusivity, please consult our initiation report on the generics industry here.   Niaspan is a cholesterol drug used to reduce elevated TC, LDL-C (bad cholesterol), Apo B and TG levels, and to raise HDL-C cholesterol (the good variety). Niaspan had annual sales of more than $1.1 billion … Read more

FedEx Ships More Packages as Economy Strengthens

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Wednesday morning, shipping goliath FedEx (click ticker for report: ) announced better-than-anticipated fiscal first quarter results. Revenue rose 2% year-over-year to $11 billion, slightly above consensus expectations. Earnings per share increased 5.5% year-over-year to $1.53 per share, also slightly above consensus estimates. Free cash flow was decent at $357 million, equal to 3.2% of total revenue. FedEx Express Express revenue was roughly flat year-over-year at $6.61 billion, but segment operating income jumped 14% year-over-year to $236 million as the firm benefitted from 50 basis points of operating margin expansion. Management cited lower pension expenses and lower maintenance costs as the main drivers of earnings expansion in the face of flat top-line performance. This ends two consecutive quarters of top-line growth, … Read more

TJ Maxx Goes (Back) Online

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After an 8-year hiatus, TJX Companies (click ticker for report: ) re-launched tjmaxx.com, reestablishing the firm’s e-commerce presence. The firm tried to become an online presence back in 2004, but given the nature of the TJX’s opportunistic and odd purchasing, product allocation was sloppy and too much time and money was spent updating inventory. What do we expect from tjmaxx.com now? Although we do love TJX’s business model of buying lots of designer goods at favorable prices, we admit the model does not really lend itself to online sales. In fact, that’s one of the reasons why we think TJX, fundamentally, is one of the best stories in retail. It is simply extremely hard to replicate the in-store experience online, … Read more

McDonald’s Modest Dividend Growth

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Wednesday afternoon, global fast food giant McDonald’s (click ticker for report: ) announced that it will increase its quarterly cash dividend 5% to $0.81 per share—an annual run-rate of $3.24 per share. This is in-line with our prediction that McDonald’s next dividend increase would be 5% to $3.24 per annum (see dividend report ). Interestingly, this will be the second consecutive year that McDonald’s increased its dividend at a single-digit pace. Why is the dividend growth so depressed? McDonald’s only grew revenue 2% year-over-year during its most recent quarter while earnings per share were 5% higher than the year-ago period. McDonald’s is relatively conservative in terms of capital allocation, so we aren’t surprised the company has opted to increase its … Read more

Oracle Guides Lightly While Ellison Sails

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Enterprise tech giant Oracle (click ticker for report: ) posted modest results for its fiscal year 2014 first quarter Wednesday that were mostly in-line with the company’s prior guidance. Revenue increased 2% year-over-year to $8.4 billion, a touch below consensus estimates. Earnings-per-share on a non-GAAP basis was 12% higher than the year-ago period at $0.59. Free cash flow for the quarter was phenomenal at $6.1 billion, equal to 73% of revenue. CEO Larry Ellison was notably absent from the conference call as he sails in the America’s Cup. Software Drives Revenue Expansion Hardware revenue was weak, with product sales falling 14% year-over-year to $669 million (hardware systems support revenue, however, advanced a modest 3% year-over-year to $592 million). President Mark … Read more

The Fed Won’t Taper

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Wednesday afternoon, Federal Reserve Chairman Ben Bernanke stunned the consensus and announced the continuation of quantitative easing. Nearly every major investment bank expected the Fed to taper bond purchases in September, so Bernanke’s surprise announcement ignited a rally in both the stock market and Treasury bonds. Why not taper? According to the Fed, the economy has not performed up to expectations over the past year, and more importantly, the Fed reduced its growth outlook for 2014. However, in our view, the real reason is that the Fed is concerned about another bout of incompetence from Congress stalling economic progress. The following words came from Bernanke during his post-policy announcement press conference: “A government shutdown, and perhaps even more so a failure … Read more

Packaging Corporation of America Bets Big on Boise

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Monday morning, Packaging Corporation of America (click ticker for report: ) announced that it will pay $12.55 per share in cash to acquire paper company Boise (BZ) for a total deal value of $1.995 billion. The deal increases PCA’s containerboard presence by 42% to 3.7 million tons, while also giving PCA a presence in the Pacific Northwest—an area previously underrepresented. Source: BZ 2012 10-K Though Boise has struggled with large amounts of excess capacity in its newsprint segment, we’ve seen the firm move capacity closer to production over the past two years, leading to stabilized profitability. Nevertheless, the small, Idaho-based player was unable to truly compete with national competitors. Further, Boise had a large net-debt position, leaving the company fairly … Read more