Member Articles

IBM’s Free Cash Flow Generation on the Up and Up

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Image: IBM’s shares have staged a nice recovery since the beginning of 2023. By Brian Nelson, CFA On July 24, IBM (IBM) reported solid second quarter results with both revenue and GAAP earnings per share coming in better than expectations. Total revenue was up 2% on a year-over-year basis (up 4% in constant currency) thanks to strength in its software revenue, which advanced 7.1% (8.4% in constant currency). Consulting revenue and infrastructure revenue were up marginally on a constant currency basis in the quarter. IBM’s margins also fared well in the quarter. Its gross profit margin increased 190 basis points on an operating (non-GAAP) basis, while its pretax income margin expanded 220 basis points on an operating (non-GAAP) basis. Cash … Read more

Republic Services Showcases Pricing Strength, Raises Dividend

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Image: Republic Services’ stock has been consistently strong since the beginning of 2023. By Brian Nelson, CFA On July 24, Republic Services (RSG) reported better than expected second quarter results with both revenue and non-GAAP earnings per share exceeding the consensus forecast. Second quarter total revenue growth was 8.6% consisting of 5.6% organic expansion and 3% growth from acquisitions. Though volumes faced some pressure in the quarter, Republic Services continues to display pricing power, with average yield and total price increasing 5.5% in the three months ended June 30. Republic’s second quarter adjusted EBITDA came in at $1.26 billion, with its adjusted EBITDA margin expanding 110 basis points on a year-over-year basis, to 31.1% of total revenue. On an adjusted … Read more

Chipotle’s Comparable Store Sales Growth Impresses

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Image: Chipotle’s stock has done quite well since the beginning of 2023. By Brian Nelson, CFA On July 24, Chipotle (CMG) reported better-than-expected second quarter results with both revenue and non-GAAP earnings per share coming in above the consensus forecast. Total revenue increased an impressive 18.2%, while comparable store sales leapt 11.1%. Higher transactions of 8.7% and a 2.4% increase in average check drove the comp increase. Digital sales accounted for 35.3% of total food and beverage revenue in the quarter. Chipotle’s operating margin was 19.7%, an increase from 17.2% in last year’s quarter, while its restaurant level operating margin advanced 140 basis points, to 28.9%. Last year’s menu price increases offset inflation of avocados, increased oil usage and higher … Read more

AT&T’s Dividend Coverage with Free Cash Flow Is Solid

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Image Source: AT&T By Brian Nelson, CFA On July 24, AT&T (T) reported mixed second quarter results with revenue coming up short of consensus, but non-GAAP earnings per share coming in line with what the Street was looking for. Revenue for the second quarter declined 0.4% on a year-over-year basis “due to lower Business Wireline service revenues and declines in Mobility equipment revenues driven by lower sales volumes.” Adjusted operating income came in at $6.3 billion versus $6.4 billion in the year-ago quarter. Net income attributable to common stock was $3.5 billion versus $4.4 billion in the same period last year. Adjusted earnings per diluted share was $0.57 versus $0.63 in the same period a year ago. Adjusted EBITDA improved … Read more

Tesla’s Second Quarter Report Wasn’t Great

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Image: Tesla’s trailing twelve-month performance across vehicle deliveries, operating and free cash flow, as well as adjusted EBITDA have faced pressure in recent quarters. By Brian Nelson, CFA On July 23, Tesla (TSLA) reported mixed second quarter results with revenue outpacing the consensus forecast, but non-GAAP earnings per share coming up short. Total automotive revenue fell 7% on a year-over-year basis, while growth in ‘energy generation and storage revenue’ and ‘services and other revenue’ helped to drive total revenue modestly higher on a year-over-year basis. In addition to a decline in vehicle deliveries, reduced average selling prices across its auto line-up hurt performance. During the quarter, Tesla’s gross profit margin contracted 23 basis points, while swelling operating expenses drove income … Read more

Visa Continues to Expect Low Teens Earnings Per Share Growth for the Full-Year 2024

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Image: Visa’s asset light business model throws off a lot of free cash flow, while the firm returns cash to shareholders via buybacks and dividends. By Brian Nelson, CFA On July 23, Visa (V) reported mixed fiscal third quarter results with the company missing expectations on the top line and the firm’s non-GAAP earnings per share coming in-line with the consensus forecast. We’re not reading too much into the company’s mixed fiscal third quarter results and remain fans of the company’s competitive positioning and asset light business model. During the quarter, net revenue advanced 10%, while GAAP net income increased 17% and GAAP earnings per share increased 20% on a year-over-year basis. On a non-GAAP basis net income increased 9%, … Read more

Alphabet’s Free Cash Flow Faces Pressure in Second Quarter

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Image: Alphabet’s shares have performed well so far in 2024. By Brian Nelson, CFA Alphabet (GOOG) (GOOGL) reported solid second quarter results July 23 that showed a beat on both the top and bottom lines. Revenue increased 15% in constant currency on a year-over-year basis, while the company’s operating margin advanced approximately 3 percentage points. Operating income surged to $27.4 billion, up 25.5% on a year-over-year basis. Diluted earnings per share increased 31.3%, to $1.89. Management commentary in the press release was upbeat: Our strong performance this quarter highlights ongoing strength in Search and momentum in Cloud. We are innovating at every layer of the AI stack. Our longstanding infrastructure leadership and in-house research teams position us well as technology … Read more

Coca-Cola’s Organic Growth Surprises to the Upside

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Image: Coca-Cola’s shares are trading near all-time highs. By Brian Nelson, CFA Coca-Cola (KO) reported solid second quarter results on July 23, with net revenues up 3% and organic non-GAAP revenues advancing an impressive and better-than-expected 15% thanks to a 9% increase in price/mix and 6% growth in concentrate sales. Reported operating income grew 10%, and comparable currency-neutral operating income jumped 18%. The company’s operating margin expanded to 21.3% versus 20.1% in the prior-year period. Its comparable operating margin (non-GAAP) was 32.8% versus 31.6% in the same period a year ago. Comparable non-GAAP earnings per share advanced 7%, to $0.84. During the quarter, organic growth was particularly strong in its Europe, Middle East, and Africa region as well as its … Read more

Lockheed Martin Issues Strong Second Quarter Results, Raises Outlook

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Image: Lockheed Martin’s shares have recovered nicely since their October 2023 bottom. By Brian Nelson, CFA Lockheed Martin reported better-than-expected second quarter results on July 23 and raised its 2024 outlook for sales, segment operating profit and earnings per share. Net sales increased to $18.1 billion in the second quarter from $16.7 billion in the year-ago period, while business segment operating profit came in at $2.04 billion, up from $1.86 billion in last year’s quarter. Diluted earnings per share expanded to $6.85 from $6.63 in the second quarter of 2023. Management’s commentary in the quarterly press release was quite positive: …demand for our defense technology solutions remains robust, with a backlog of nearly $160 billion, greater than two times annual … Read more

Philip Morris Puts Up Excellent Second Quarter Results, Raises 2024 Guidance

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Image: Philip Morris’ stock has done quite well over the past few months. By Brian Nelson, CFA On July 23, Philip Morris (PM) reported excellent second quarter results with both revenue and non-GAAP earnings per share coming in better than expectations. Net revenue advanced 5.6% on a reported basis and 9.6% organically. Adjusted operating income increased 3.5% on a reported basis or 12.5% excluding currency and acquisitions. Its adjusted operating income margin increased 1.1 percentage points excluding currency and acquisitions, while adjusted diluted earnings per share increased 10.6%, excluding currency. Management’s commentary was upbeat: The excellent momentum of our smoke-free business continued with an outstanding second-quarter and first-half performance. The powerful combination of excellent underlying performance and proactive measures across … Read more