Brian Nelson

Nike’s Second Quarter Results Were a Mixed Bag; Valuation Unchanged

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Nike (NKE) posted fiscal second-quarter results, which, by most measures, was in line with our expectations. Top line revenue grew 18%, thanks to both slightly higher prices and impressive unit growth. North America, easily Nike’s biggest market, saw footwear soar 22% and apparel rise by 23%, both positive upside surprises, in our view. We also saw strength in China (up 35%) and Emerging Markets (up 27%). Though sales in Europe have languished over the past several quarters, Western Europe didn’t experience a large downturn. However, management stated its business isn’t a great gauge of the European consumer due to Euro 2012 and the London Olympics scheduled for the next year. We are maintaining our fair value estimate for Nike at … Read more

General Mills Posts Poor Fiscal Second-Quarter Results; Input Costs Represent Major Headwind

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General Mills posted fiscal second-quarter results Tuesday that showed solid sales expansion thanks primarily to its acquisition of Yoplait but modest segment operating profit growth due to higher input costs and marketing expenses. Diluted EPS, excluding non-recurring items, came in at $0.76, reflecting no growth from the same period a year ago. We are maintaining our $38 per share fair value estimate. The firm’s net sales jumped 14% thanks to higher pricing and significant volume growth from its recent acquisition of Yoplait. Revenue in General Mills’ US retail operations during the period grew a meager 3% as demand for flour, dessert mixes, canned and frozen vegetables, and yogurt waned, though higher pricing more than offset the volume declines. International sales grew … Read more

Under Armour Performing Well But Still Significantly Overvalued

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Over the last several weeks, we’ve seen stronger than expected sales in athletic apparel at Dick’s Sportin Goods (DKS), Footlocker (FL), and The Sports Authority. Additionally, we’ve noticed strength at Under Armour (UA) in both indirect and direct retailing channels. Furthermore, we think some of the footwear, particularly the bright colored running and training is resonating slightly better than expected with consumers.  As a result, we are raising our fair value of Under Armour to just under $50 per share. This price implies a 2011 price to earnings ratio of 26 times our forecast and remains significantly below where it is currently trading.  Footwear isn’t good, but it’s getting better Some of the recent footwear releases in Under Armour’s running have … Read more

Red Hat Reports Fiscal Third-Quarter Results; Best Billings Growth in Years

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Linux software maker Red Hat (RHT) reported strong fiscal third-quarter results that showed excellent growth across the board, but the company’s deferred revenue growth and revenue outlook failed to impress some of the most bullish investors. Sales advanced 23% from last year’s quarter led by subscription revenue, while non-GAAP operating income and non-GAAP EPS increased 36% and 40%, respectively, from the same period a year ago. Non-GAAP EPS came in at $0.28 per share in the quarter (topping consensus estimates of $0.26), thanks to non-GAAP operating margin improvement of 260 basis points. Third-quarter operating cash flow also had a nice showing in the period, up an impressive 36%. Deferred revenue, however, advanced 20% from last year’s quarter, signaling the potential … Read more

Honeywell, United Tech See Strength in Emerging Markets; No Global Recession in 2012

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This week we received some encouraging comments out of two bellwethers on the global industrial economy. As we outlined in our Best Ideas Newsletter, we continue to believe that the US will avoid a double-dip recession, and the results from FedEx (FDX) coupled with recently-issued 2012 outlooks from Honeywell (HON) and United Tech (UTX) reinforce this thesis. Honeywell issued its 2012 financial outlook this week indicating that sales will expand 4% to 7% (4% to 6% organic) despite some weakness in Europe and China and overall defense spending. Earnings-per-share from continuing operations is expected to jump as much as 19% over the prior year on margin expansion of 40 to 70 basis points. This is on the back of expectations … Read more

Adobe Posts Excellent Fourth-Quarter Results; Focus Remains on Cloud

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Software-maker Adobe (ADBE) reported fiscal fourth-quarter results after the close Thursday that showed strong revenue and earnings expansion driven by its digital media and marketing businesses. We are maintaining our above-market fair value estimate for Adobe. Revenue jumped 14% in the period, to $1.152 billion, exceeding the high end of the company’s guided range. The company generated some nice growth (record volume licensing with enterprise customers) in its flagship desktop product, CS5.5, and received some traction from new applications like Edge and Muse, which are levered to advances in HTML5. Management noted that recurring revenue now represents roughly 20% of total revenue and that it experienced strong demand in all major geographies, including Europe. Non-GAAP operating income increased nearly 16%, while … Read more

FedEx Reports Strong Fiscal Second-Quarter Results; Reaffirms Fiscal 2012 Earnings Outlook

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FedEx (FDX) reported strong fiscal second-quarter results Thursday and reconfirmed its fiscal 2012 earnings outlook. The report came as welcome news following a number of weak chipmaker earnings and warnings from DuPont (DD) and Joy Global (JOY) in past weeks. We are maintaining our $82 fair value estimate for FedEx. FedEx’s revenue advanced 10% from the same period a year ago, while operating income surged 66%. The firm’s operating margin expanded 3.5 percentage points, and net income advanced 76% from last year’s quarter. FedEx noted that it experienced particular strength from FedEx Ground, where revenue advanced 13%, and FedEx Freight and Express, where revenue increased 9% and 10%, respectively. The company’s FedEx SmartPost average daily volume increased a whopping 17% thanks … Read more

First Solar Falls Again

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First Solar (FSLR), a company we have been bearish on, came out with downwardly revised fourth quarter and 2012 guidance this week, sending shares down nearly 20%. Things have been a mess at First Solar. Solar overcapacity is still tremendous, and thanks to government subsidies, it’s nearly impossible for any US company to be the low-cost provider. Our previous fair value on the stock was $31 per share, assuming inflation-like growth in 2012 and earnings of $4.76 per share, far lower than $7.42 Street consensus. It’s been very clear to us that the solar industry is going through an almost textbook economic cycle, and not the part that’s good for generating excess returns on invested capital. At first, a few big … Read more