Brian Nelson

Deere’s Third Quarter Highlights Inherent Operating Leverage

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On Wednesday morning, agricultural equipment giant Deere (click ticker for report: ) posted fantastic third quarter results. Revenue jumped 4% year-over-year to $10 billion, topping consensus expectations by a comfortable margin. Consequently, earnings per share surged 29% year-over-year to $2.56, crushing consensus estimates. Because of its financing business Deere’s cash flows aren’t that easy to follow, but management noted that operating cash flow from equipment operations should total $3.8 billion during fiscal year 2013—a solid figure, in our view. Deere’s third quarter results really demonstrate the tremendous operating leverage inherent in the firm’s business model. Sales in the Agricultural & Turf segment grew 8% year-over-year to $7.8 billion, but operating profit surged 32% year-over-year to $1.3 billion. Incremental margins for … Read more

Wal-Mart’s Weakness Persists in the Second Quarter

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Global retailing powerhouse Wal-Mart (click ticker for report: ) reported soft results for its fiscal year 2014 second quarter Thursday morning. Total sales increased 2.4% year-over-year to $116 billion, slightly below consensus expectations. Earnings-per-share was in-line with consensus estimates, increasing 5.1% year-over-year to $1.24. Year-to-date, Wal-Mart has generated $5.2 billion in free cash flow, equal to 2% of total revenue. Though headline results could have been worse, we were disappointed to see performance in the US remain negative, as same-store sales declined 0.3% year-over-year. Management noted on its second-quarter prepared remarks that traffic improved sequentially and that some softness was due to the firm’s investment in price. Operating margins actually increased 20 basis points year-over-year to 8% of sales, suggesting … Read more

Was Cisco’s Fiscal Year 2014 Guidance a Red Flag?

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Technology heavyweight Cisco (click ticker for report: ) reported solid results for its fiscal year 2013 fourth quarter Wednesday afternoon. Revenue increased 6.2% year-over-year to $12.4 billion, a touch above consensus estimates. Earnings-per-share was also strong, increasing 11% year-over-year to $0.52, also a few cents above consensus expectations. Free cash flow for the fourth quarter tallied $3.7 billion, equal to an impressive 30% of total revenue. For the full-year, free cash flow was $11.7 billion, or 24% of revenue. Cisco has been one of our better calls in the land of technology. Below, please find our rating track record of the firm (listed most recent to least recent). Our rating history for each firm in our coverage universe can always be found … Read more

What’s Going on in the Time Warner-CBS Battle?

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A few weeks ago, CBS (click ticker for report: ) and Time Warner Cable (click ticker for report: ) took their disagreement over carriage fees to another level, as both firms’ existing carriage fee agreement expired, effectively blacking out Time Warner subscribers from viewing the network. Since then, we’ve seen really no signs of the companies coming to any sort of agreement. The Federal Communications Commission (FCC) warned on August 9 that, if the two firms didn’t reach an agreement, the government could get involved and force a resolution. Such an event would be an incremental negative to CBS because we doubt the FCC would see a reason why consumers should be forced to pay more for a network they … Read more

Eli Lilly Might Have a Blockbuster Cancer Drug

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Pharmaceutical giant Eli Lilly (click ticker for report: ) saw its shares pop during Tuesday’s trading session after revealing positive data about one of the lung cancer drugs in its oncological pipeline. The company issued a press release on the treatment (necitumumab), saying: “SQUIRE, a recently completed Phase III study, met its primary endpoint, finding that patients with stage IV metastatic squamous non-small cell lung cancer (NSCLC) experienced increased overall survival (OS) when administered necitumumab (IMC-11F8) in combination with gemcitabine and cisplatin as a first-line treatment, as compared to chemotherapy alone.” While some have brushed off the news, this is very positive data for Eli Lilly. For one, the treatment met its primary endpoint, implying the efficacy of the drug … Read more

National Oilwell Varco Posts Record Second Quarter Results

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National Oilwell Varco (Click ticker for report: ) posted phenomenal second quarter results July 30. Revenue surged 18% year-over-year to $5.6 billion, smashing consensus estimates. Earnings-per-share was also strong, growing 14% year-over-year to $1.33 (excluding one-time events), in-line with consensus expectations. The firm generated $212 million in free cash flow during the quarter, equal to 6% of revenue. The ‘Rig Technology’ segment performed exceptionally well during the quarter with revenue up 18% year-over-year to $2.8 billion, with an operating margin of 20.7%. Although drilling can take several forms (deepwater, shale, etc.), the company continues to have nice exposure to the major trends in the oil drilling space. CEO Clay Williams reinforced this idea on the conference call, noting: “…4 big macro … Read more

Baidu Might Buy China’s Groupon

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Reports are circulating that Best Ideas Newsletter portfolio holding Baidu (click ticker for report: ) is interested in taking a controlling stake in Renren’s (RENN) daily deal site Nuomi.com, as well as Ding Ding Maps (a map service). Both potential deals could make Baidu look a little more like another Best Ideas portfolio holding, Google (click ticker for report: ). Numoi.com is a daily deals site similar to Groupon (click ticker for report: ) and Amazon’s Living Social (click ticker for report: ), as well as Google’s own Daily Offers. Deals change on geographic location, and the service seems to cover most major cities in China. Without question Baidu could probably start its own daily deals service, but that strategy … Read more

Ackman Leaves the JC Penney Board

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Tuesday morning, activist shareholder and hedge fund manager Bill Ackman resigned from the JC Penney (click ticker for report: ) board of directors. In a press release issued by the company, Ackman noted that during his entire board tenure, he’s always done what is best for the company, and he believes the best move at the moment is for him to step away from the board. Image Source: Valuentum, Company Filings Based on the stock’s initial reaction, we’re not sure if the market knows how to digest Ackman’s departure. On one hand, CEO Mike Ullman and Chairman Thomas Engibous no longer have to battle with Ackman over saving their jobs, but rather they can focus on engineering what continues to … Read more

China Still Plagues Yum! Brands

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In an 8-K filed Monday afternoon, fast food giant Yum! Brands (click ticker for report: ) announced terrible July results in its Chinese division. Same-store sales declined 13% compared to the prior year, with same-store sales down 16% year-over-year at KFC, partially offset by 3% same-store sales growth at Pizza Hut. This implies that sales declines accelerated through the course of July, reversing the improving trend management mentioned on the second quarter conference call. Same-store sales declines had moderated in June to 10%, and it appears the firm’s sales in China could be decelerating even more dramatically (heading into August). Image Source: Valuentum, Company Filings As we can see in the above chart, same-store sales declines in the first half of 2013 … Read more

Blackberry: Strategic Alternatives Signal Failure

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After the launch of its new phone and operating system came and went without much fanfare, smartphone maker Blackberry (click ticker for report: ) announced that it is exploring strategic alternatives for the company. Although most tend to associate strategic alternatives with selling the company, Blackberry is also open to partnerships and joint-ventures. Let’s start with the obvious inference out of this news: Blackberry 10 didn’t save the company. If this wasn’t clear enough when Blackberry reported weak results for its fiscal year 2014 first quarter, we think the situation is obvious now. Consumers, particularly of the high-end smartphone variety, simply do not want Blackberry products. The app world is far inferior to competitors Apple (click ticker for report: ) … Read more