Brian Nelson

P&G Reduces 2012 Outlook; Expects Dividend Increase This Year

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Proctor & Gamble (PG) reported fiscal second-quarter results Friday that were weighed down by higher commodity costs. The company reduced its 2012 outlook due to non-operating items (currency, taxes), but we think there may be more to the revision than management is leading investors to believe. Nonetheless, we are maintaining our fair value estimate range, which we think adequately captures such risks, and continue to hold the company in the portfolio of our Dividend Growth Newsletter. P&G’s revenue advanced 4% in its fiscal second quarter—all of it organic—thanks to growth in all six of the firm’s business segments. Volume contributed one percentage point to the increase, while broad-based price increases accounted for the balance. The firm’s core operating margin fell 160 … Read more

Starbucks is Firing on All Cylinders But Shares Are Expensive

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Starbucks (SBUX) reported excellent fiscal first-quarter results Thursday but its outlook fell below optimistic consensus forecasts. We don’t expect to make a material change to our $38 per share fair value estimate. Total revenue in the quarter expanded 16% to a record $3.4 billion on the heels of strong global comparable same-store-sales growth of 9% (7% increase in traffic and a 2% increase in the average ticket price). Same-store-sales growth was also 9% in the Americas region during the period, while it was only 2% in EMEA (Europe, Middle East, Russia, and Africa) as a result of softness in Europe. During the quarter, the company opened 241 net new stores globally and has now reached 500 stores in mainline China and Latin … Read more

Under Armour’s Fourth Quarter Hurt by Poor Weather

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Under Armour (UA) posted fiscal fourth-quarter results Thursday that weren’t as impressive as previous quarters. Though revenue grew 34% from the same period a year ago, the growth rate represents a modest slowdown from the previous quarter’s pace of 41.7% and the 35.7% rate recorded in the fiscal fourth quarter of last year. Under Armour cited the unseasonably warm weather as the main culprit in the slowing growth, and while we wouldn’t exactly call this revenue expansion subpar, several of our concerns regarding the firm are starting to come to fruition. For one, gross margins continue to fall. Granted, the 10-basis-point decline isn’t substantial, but profit margins aren’t growing, and we don’t expect them to expand anytime soon. Earnings per share, however, … Read more

Precision Castparts Issues Fiscal Third-Quarter Results

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Metal-bender Precision Castparts (PCP) reported strong fiscal third-quarter results but failed to live up to consensus expectations on the top and bottom line. We continue to believe that Precision Castparts has valuation upside from these levels, but we are more inclined to continue to take profits in the jet-engine castings maker in the portfolio of our Best Ideas Newsletter. Our fair value estimate is unchanged. Revenue jumped 14% in Precision’s fiscal third-quarter thanks to strength across all of its product lines. Sales of its investment cast products jumped 8%, as aerospace demand continued at a nice pace. We’ll be looking for even stronger performance from its Investment Cast Products segment once production for the Boeing 787 ramps up considerably, likely … Read more

3M Issues Fourth-Quarter Results; Reaffirms 2012 Guidance

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3M (MMM) reported modest fourth-quarter earnings expansion Thursday and offered an outlook for 2012 that was consistent with our expectations. We’re sticking with our $88 per share fair value estimate at this time. Total sales advanced 5.7% on the heels of organic local-currency sales growth of 3.3% (1.3 percentage points coming from volume and the balance of the organic expansion from pricing). The company noted that revenue expansion was strongest in its Industrial and Transportation segment (abrasives, aerospace, industrial adhesives and tapes, etc.), which increased 14.3% during the period. Safety, Security, and Protection Services (SSPS), Consumer and Office (stationery products, office supplies, etc.), and Health Care (infection prevention, skin and wound care, etc.) experienced advances in revenue during the period, … Read more

Caterpillar Posts Strong Fourth-Quarter Results; Sees Global Economic Acceleration in 2012

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On Thursday, Caterpillar (CAT) reported strong fourth-quarter results and rounded out a very strong and record-breaking 2011. We’re comfortable with our $110 fair value estimate of Caterpillar, and we don’t expect to make any changes to it at this time. Caterpillar’s fourth-quarter sales achieved an all-time quarterly record, increasing 35% from the same period in 2010. Machinery and Power System sales jumped 36% thanks primarily from demand for new equipment, while Financial Products revenues advanced a modest 3%. The company noted that the improvement in sales volume in the quarter occurred across the world in all geographic regions and in nearly all segments. Excluding its recent acquisition of Bucyrus, revenue jumped an impressive 24%. Caterpillar’s fourth-quarter profit came in at … Read more

United Technologies Releases Fourth-Quarter Results; Reaffirms 2012 Outlook

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United Technologies (UTX) rounded out a solid 2011 with another decent but less-than-impressive quarter. Though we plan to revisit our assumptions on the industrial conglomerate, we don’t expect to make a material change to our fair value estimate at this time.   Organic revenue growth was a mere 2% in the fourth-quarter, but the meager growth was more due to significant strength in the aerospace aftermarket in the prior-year period than any underlying weakness. Order growth, however, was a bit lighter than we had hoped. New equipment orders at Otis advanced only 2%, while commercial HVAC new equipment orders at Carrier expanded 5%. Commercial spares orders at Hamilton Sundstrand were up 17%, but spares orders at Pratt & Whitney’s large … Read more

Xerox’s Fourth-Quarter Disappoints But Cash Flow Generation Remains Strong

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Xerox (XRX) reported fourth-quarter results Wednesday that showed strong earnings growth but flat revenue performance. We continue to believe the shares look undervalued. Revenue growth from the company’s services businesses advanced 6% in the quarter, but such growth was offset by a 5% decline in revenue from its technology businesses. Strength in the firm’s services businesses was driven by an increase in both business process outsourcing and document outsourcing, while its technology business saw weakness in the sale of document systems and supplies. Management blamed the poor economic environment in Europe for its subpar revenue performance. We continue to like Xerox’s services portfolio and believe that it has a competitive advantage in providing its clients cost-efficient ways to more productively … Read more

Boeing’s Backlog Increases in Fourth Quarter

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The Boeing Co. (BA) reported fourth-quarter results Thursday that showed continued cost pressures as it relates to its pension obligations but more importantly a surging commercial aerospace backlog. We’ll be evaluating our long-term assumptions for Boeing, but we don’t expect to make a material change to our fair value estimate at this time. We have little interest in opening up a position in Boeing, given its fairly valued status and the substantial execution risk embedded in achieving its aggressive commercial delivery schedule (and its at-risk defense exposure due to impending budget cuts). That said, we are very constructive on the commercial aerospace supply chain, as parts suppliers benefit from the implicit backing of Boeing and do not need customers to … Read more