Brian Nelson

Uralkali Backs Out of Belarusian Potash Company; Industry to Change

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Early this morning, Russian fertilizer Uralkali announced it will leave the Belarusian Potash Company in order to grab market share. CEO Vladislav Baumgertner asserted that BPC partner Belaruskali had been making potash exports outside of the pre-arranged agreement, rendering the BPC useless. Until now, the potash industry had been a relatively stable cartel allowing industry participants to generate robust amounts of free cash flow as spot prices rested well above the cost of production. On a conference call following the announcement, Baumgertner mentioned that the price of potash could fall by over $100/tonne as Uralkali will boost production nearly 25% and look to steal market share. Uralkali is the largest single potash producer in the world and likely has the … Read more

American Capital Agency Loses $2.37 Per Share in Second Quarter

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As we have encouraged readers since the peak in September 2012, the mortgage real estate investment trust (REIT) industry has myriad risks, and the marketing pitches indicating that their principal and interest payments are guaranteed by a US government sponsored entity (GSE) should not make investors feel safe. This dynamic has little bearing on the underlying trajectory of fundamentals and a mortgage REIT’s book value, the key valuation driver and the major impetus behind share price movements in the space. During the second quarter (results released Monday), American Capital Agency (AGNC) failed at its principal objective to preserve net asset value, as book value plunged to $25.51 per share from $28.93 per share in the previous sequential quarter (a $3.42 move). … Read more

Colgate-Palmolive’s Second Quarter Impacted By Currency; Core Revenue Expansion Not Bad

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While some consumer staples companies continue to struggle as the consumer trades down, Colgate-Palmolive (click ticker for report: ) posted decent second quarter results late last week. Revenue advanced 2% year-over-year to $4.3 billion, slightly below consensus estimates as a result of the negative impact of currency. But net of the negative impact of currency, revenue rose 5.5% year-over-year. Earnings per share grew 5% year-over-year to $0.70 when adjusted for the one-off impact of restructuring charges. Free cash flow generation was solid, totaling $1.1 billion year-to-date or 12% of revenue. On the cost side, we saw some modest profitability expansion as its gross margin rose 70 basis points year-over-year, to 58.6%. The firm’s focus on expanding its gross margin via productivity … Read more

International Paper Issues a Strong Second Quarter Report; Expects Free Cash Flow to Improve

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International Paper (click ticker for report: ) reported strong second quarter results Thursday that showed impressive core operating-income improvement. Revenue advanced 3.6% during the period thanks to strong performance in its ‘Industrial Packaging’ and ‘Consumer Packaging’ segments, both of which jumped 9.6%. ‘Industrial Packaging’ was bolstered by higher selling prices for boxes and containerboard (and increased containerboard volumes), while the strength in ‘Consumer Packaging’ was primarily a result of higher volumes (namely from Asian coated paperboard). ‘Distribution’ revenues fell, while sales in its ‘Printing Papers’ division edged up 2%. On the whole, revenue performance was solid. International Paper’s segment operating profit surged more than 40%, to $601 million, though a number of large special items in the prior-year period made … Read more

Potash Corp Struggles with Weak Nutrient Prices

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Nutrient fertilizer producer Potash Corp (click ticker for report: ) posted weak second quarter results Thursday morning. Revenue declined 11% year-over-year to $2.1 billion, worse than consensus estimates had anticipated. Earnings per share, adjusted for one-time items, declined 26% year-over-year to $0.73 per share, which was also worse than consensus expectations. Free cash flow remained terrific at $848 million, equal to 40% of revenue. Image Source: POT 2Q 2013 Investor Slides Potash’s issue during the second quarter was the material decline in potash (the mineral) gross margins. Prices declined significantly, falling 18% year-over-year to $356 per tonne as robust North American farmer demand (up 28% year-over-year) was more than offset by lower realized prices shipped via Canpotex. Price is paramount … Read more

3M Posts Poor Second Quarter Results; Operating Income Declines

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On July 25, industrial conglomerate 3M (click ticker for report: ) reported relatively lackluster second quarter results. Organic local-currency sales grew 2.3% and earnings per share of $1.71 advanced 3% versus the same period a year ago, but operating income slipped due to material cost pressures. We also note the earnings-per-share growth was enhanced by a lower tax rate and share buybacks, revealing lower quality expansion (we prefer operating income growth—not just earnings-per-share growth). Still, free cash flow of $1.28 billion generated during the period exceeded net income and accounted for roughly 16.6% of sales. 3M’s ‘Health Care’ division led the charge, with organic local-currency revenue advancing 5.7% in the period. The firm’s ‘Industrial’, ‘Consumer’, and ‘Safety & Graphics’ segments … Read more

AbbVie’s Humira Continues to Drive Strong Performance; Pipeline Advances

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On Friday, AbbVie (click ticker for report: ) reported better-than-expected second quarter results and revealed a number of advancements to its strong and growing pipeline. During the period, revenue advanced 4.4% (5.1% excluding currency) as the firm benefited from Humira’s global sales growth of 12% (16% growth in the US) and double-digit expansion from several other products including Synthroid, Creon, Zemplar and Duodopa. Excluding the decline in TriCor/Trilipix sales due to loss of exclusivity, sales would have jumped 10.3% in the period. Second-quarter adjusted earnings per share of $0.82 beat the consensus estimate by a couple pennies. The global biopharmaceutical firm noted significant advancements in its pipeline. AbbVie has received Breakthrough Therapy designation from the FDA for its genotype 1 … Read more

GM Rides North America to Success

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US automaker General Motors (click ticker for report: ) announced solid second quarter results Thursday morning, echoing the strength we saw from competitor and Best Idea portfolio holding Ford (click ticker for report: ). Revenue increased 4% year-over-year to $39.1 billion, modestly exceeding consensus estimates. Earnings-per-share was also strong, though down 7% year-over-year to $0.84 on an adjusted basis. Automotive free cash flow was $2.6 billion, approximately 7% of total revenue. Image Source: GM 2Q 2013 Charts As with Ford, North America drove profitability as revenue increased 9% year-over-year to $23.5 billion, and segment EBIT increased 5% year-over-year to $2 billion. Even as the broader auto market recovery has advanced, we can see from the above chart that GM hasn’t … Read more

Precision Castparts Reports Record Fiscal First Quarter Results

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On Thursday, Best Ideas Newsletter portfolio holding Precision Castparts (click ticker for report: ) issued decent first quarter fiscal 2014 results. Though performance fell below consensus estimates, the aerospace engine casting provider achieved record diluted earnings per share, record consolidated segment operating margins (27.2%), and strong cash generation in the period. We’re expecting significant earnings expansion in coming years as a result of its recent acquisition of Titanium Metals (TIMET) coupled with the current high-level of commercial aircraft deliveries. Revenue expanded 20% in the period thanks to elevated aircraft build rates and acquisitive activity, while consolidated segment operating income jumped 25%. The operating margin in its ‘Investment Cast Products’ segment advanced 140 basis points, to 34.6%, despite relatively flat segment … Read more

Productivity on the Rise at Starbucks

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Global coffee shop powerhouse Starbucks (click ticker for report: ) posted strong third quarter results Thursday afternoon. Total revenue increased 13% year-over-year to $3.7 billion, roughly in-line with consensus estimates. Earnings per share jumped 28% year-over-year to $0.55, a few pennies above consensus expectations. Increased store productivity continues to be the major driver behind Starbucks’ fantastic revenue growth. Global same-store sales advanced 8% year-over-year on traffic that was 7% higher than that in the year-ago period. Same-store sales increased across all geographies, but the US was particularly strong, with comp growth of 9% year-over-year. Only a few years ago did the market wonder if Starbucks’ premium coffee products were simply too expensive to keep consumers coming back. We think that … Read more