Brian Nelson

Strong Second Quarter For Roper, Even Stronger Outlook

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Roper Industries (ROP) reported solid second-quarter results Monday that showed significant revenue and earnings expansion. Sales jumped 23% (16% organic) in the period to an all-time high, while net earnings expanded over 40%, despite a higher tax rate. The firm’s adjusted EBITDA margin expanded over 280 basis points to 28.5% in the period, a strong showing. Free cash flow jumped 41% from the same period a year ago to $145 million, which represented 21% of the firm’s sales in the quarter. This is the strongest free-cash-flow conversion rate the firm has seen in years (at least since 2006), and we expect Roper to continue to achieve free-cash-flow levels in the high-teens and low twenties as a percentage of revenue, on … Read more

Eaton Posts Solid Quarter, Ups Guidance on Margin Outlook

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Eaton Corp. (ETN), a diversified industrial manufacturer, reported excellent second-quarter results Monday that showed strong revenue growth and solid earnings expansion. The firm’s top line expanded 21% during the period (14% core), while the company’s segment margins at the operating level reached all-time highs of 13.9%. This led to net income expansion of almost 50% from last year’s quarter, a fantastic showing. Eaten also bumped up its end-market growth expectations for 2011 by a percentage point to 11%, while it raised the midpoint of its full-year earnings per share guidance by $0.15 to $4.06 per share at the high end. Eaton’s results are consistent with the strength we’ve seen at other industrial companies, including United Technologies (UTX), Honeywell (HON), and … Read more

CNH Posts Fantastic Quarter, Outlook for Equipment Strong

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CNH Global (CNH), the second-largest maker of farm equipment after Deere (DE), posted fantastic second-quarter results Monday, with net sales increasing 24% and net income more than doubling. The firm experienced substantial strength in agricultural equipment and construction equipment revenue, up 22% and 30%, respectively, and translated this performance into solid profitability improvement. CNH’s operating margin increased to 10.7% during the quarter from 8.4% in the same period a year ago. We were quite pleased with CNH’s performance and have added it to our watch list, a component of our Best Ideas Newsletter. CNH expects demand for agricultural and construction equipment to remain firm through the remainder of 2011, noting strengthened conditions for commodity prices and, by extension, improving farming … Read more

Kimberly-Clark Posts Mixed Second-Quarter Results, Input Costs Pose Key Threat

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Kimberly-Clark (KMB) reported mixed second-quarter results that showed decent revenue growth but bottom-line pressure due to cost inflation. Sales jumped to an all-time high during the period, up 8% (3% organic) driven by modest volume and price increases, though operating profit fell 12.1% from last year’s quarter as cost inflation more than offset its efficiency initiatives. The firm’s operating margin plummeted from the year-ago period to 11.9% in the quarter, off 270 basis points, and well below our expectations. Despite the poor outlook regarding commodity-cost  inflation, we are maintaining our $63 fair value estimate. Kimberly-Clark raised its full-year sales outlook for 2011 to growth of 5% to 7% from 4% to 6% (organic growth 2% to 4%)–sales are up 6% so … Read more

Microsoft Posts Strong Fourth-Quarter Results, Online Business Still Drag

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Microsoft (MSFT) reported decent fiscal fourth-quarter results Thursday that showed strong sales of its Server and Tools products, Microsoft Office 2010, and its Xbox 360 entertainment platform. Revenue advanced 8% from the same period a year ago, while net income jumped 30% thanks in part to a lower tax rate. Overall, we were pleased with the quarter, despite the ongoing earnings weakness at its online business and declining growth at Windows, and we are maintaining our $35 fair value estimate of Microsoft’s shares. The firm’s Business Division had a strong showing, with quarterly revenue up 7% during the period, and the firm indicated that Office 2010 continues to be the fastest selling version of Office in history. The firm’s Server & … Read more

Coke Reports Strong Second-Quarter Results

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Coca-Cola (KO) reported second-quarter results Tuesday that showed strong worldwide volume growth of 6% led by expansion outside of the US, namely Eurasia and Africa (up 7%), the Pacific, which includes China (up 7%), and Latin America (up 6%). Demand for the firm’s brand Coca-Cola was particularly impressive in China (up 24%) and Russia (up 17%). Total revenue increased 47% (due primarily to its acquisition of Coca Cola Enterprises’ North American operations), though concentrate sales and currency contributed 6 percentage points of growth, respectively. During the period, Coke Zero delivered double-digit volume growth in North America, while Fanta showed high-single-digit expansion. POWERADE delivered 9% growth and gained share in the sports drink category, while the firm’s NOS Energy brand was … Read more

Yahoo Reports Dismal Second-Quarter Revenue

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Yahoo (YHOO) reported mixed second-quarter results Tuesday. Revenue, excluding traffic acquisition costs, fell 5%, while GAAP revenue dropped 23%, as softness in display revenue and turnover at the sales level impacted results toward the second half of the quarter. The attractiveness of competing sites like Facebook and Google (GOOG) is becoming increasingly more difficult for Yahoo to overcome, in our opinion. Income from operations, however, still advanced 9%, while net earnings per share jumped 18% from the prior-year period. Cash flow from operations fell 5% from the same period a year ago, while free cash flow shrunk 25% to $96 million during the quarter. We don’t expect a material about-face in Yahoo’s core U.S. operations, with the likes of Facebook and … Read more

Harley’s Second-Quarter Results Speak to Recovery in Bike Sales

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Harley-Davison (HOG) reported solid second-quarter results Tuesday that showed strong retail motorcycle sales and solid earnings improvement. Sales of motorcycles and related products advanced 18% as US dealers sold 7.5% more new Harley-Davidson motorcycles in the period compared to last year’s quarter, marking the first year-over-year jump in the metric since the fourth quarter of 2006. Harley leveraged this sales growth into strong operating performance, with income from continuing operations increasing nearly 37% in the quarter. Its financial services segment also posted nice results thanks to ongoing improvement in credit performance and showed operating income expansion of nearly 35% from last year’s period. Harley also upped its shipment forecast for 2011 and now expects to ship as many as 228,000 … Read more

GE Posts Strong Second-Quarter Results, Industrial Orders Surge

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General Electric (GE) posted strong second-quarter results Friday. Adjusted revenue advanced 7% in the period, while operating profit burgeoned 18% from last year’s quarter. The conglomerate experienced particular earnings strength from recovering GE Capital and its transportation segment, while its energy infrastructure and home and business solutions segments lagged behind considerably. Importantly, the company noted that infrastructure orders were up 24%, with equipment and services orders increasing 33% and 16%, respectively — backlog reached a new all-time high of $189 billion at the end of the quarter (it had been $177 billion in the first quarter). GE indicated that industrial earnings should improve in the second half of this year, with expectations for the cycle to accelerate in 2012. We … Read more

Caterpillar Posts Decent Second-Quarter Results, Makes Cautionary Statements on China

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Caterpillar (CAT) reported decent results Friday that showed strong growth in revenue and earnings, but also revealed cost pressures inherent in its business. During the quarter, sales jumped roughly 37% thanks primarily to recent acquisitions, while profits expanded 44% from the same period a year-ago. Though we are pleased with Caterpillar’s top line performance, management noted that cost pressures continue to intensify, specifically freight and material costs (steel, etc.) as well as investments in R&D and capacity. Further, the firm noted that its recent acquisition of Bucyrus will negatively impact full year profit by $0.50 per share as a result of upfront dealer-related integration costs, a stiff headwind. We’re also somewhat puzzled by management’s comments regarding China in its press … Read more