Member Articles

McDonald’s Falling Prey to Competition

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Fast-food giant McDonald’s (click ticker for report: ) reported weak October same-store sales numbers Thursday. CEO Don Thompson continues to invite criticism as sales and profits have begun to fall since taking the reins from legendary CEO Jim Skinner. Global same-store sales fell 1.8% year-over-year, while global sales fell 0.8% (+0.6% ex-currency). Weakness was broad-based, with US same-store sales falling 2.2% year-over-year, Europe falling 2.2%, and Asia-Pacific, Middle East and Africa falling 2.4%. While we think Europe can be explained by overwhelmingly negative macroeconomic sentiment and lower price-points, we think the US is more of a company-specific issue. Competition in the US market was fairly dormant for the past several years, with Wendy’s (click ticker for report: ) and Burger … Read more

Health Concerns, Sales Weakness Hit Monster

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Amid the recent hubbub regarding the safety of its energy drinks, Monster Beverage (click ticker for report: ) reported mixed third quarter results Wednesday afternoon. The firm generated $542 million in revenue, 14% higher than the same period a year ago and slightly below consensus expectations. Earnings growth was disappointing, increasing just 7% year-over-year to $0.47 per share, considerably trailing consensus estimates. Gross margins at Monster Beverage tumbled during the quarter, falling 220 basis points year-over-year to 50.5%. The firm blamed heavy promotional spending, as well as increased shipping costs due to higher international sales. With aggregate international sales increasing 24%, and according to management, a very fickle Japanese customer that rejected several hundred cases, we find this excuse believable. … Read more

Macy’s Posts Strong Earnings; Provides Bold Fourth Quarter Sales Outlook

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Department store retailer Macy’s (click ticker for report: ) reported solid third quarter results Wednesday morning. Sales increased 3.8% year-over-year during the quarter to $6.1 billion, roughly in-line with consensus expectations. Earnings rose 12.5% year-over-year to $0.36 per share, exceeding consensus estimates. As we discovered earlier this week, revenue was driven higher by a 3.7% increase in same-store sales, as well as continued strong performance from macys.com and bloomingdales.com, which grew a combined 40% year-over-year. Men’s tailored clothing, men’s shoes, women’s suits, handbags, furniture, and watches were all cited as strong performers, with juniors, tabletops, and housewares lagging. Most areas were consistent with broader trends we’ve seen across retail as of late; men continue to return to a more formal, … Read more

Astronics Stuck in Neutral After Profitability Stalls

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Tuesday morning, aerospace supplier Astronics (click ticker for report: ) reported mixed third quarter results. Revenue surged 22% year-over-year to $68.9 million, roughly in-line with consensus estimates. However, earnings were a bit weaker than expected, falling 27% year-over-year to $0.33 per share. Unfortunately, all cost metrics for Astronics ticked up, leading to a 100 basis point year-over-year decline in gross margins to 24.3%, and a 190 basis point increase in SG&A expenses to 13.2% of revenue. Management cited a one-time issue—an increase in warranty reserves—as the main reason for the year-over-year decline. When we back out the number, gross margins were roughly flat. Assuming CEO Peter Gundermann was correct, we don’t view the issue as much of a problem. SG&A, … Read more

Wireless Industry Consolidation Continues

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According to The Wall Street Journal, Sprint (click ticker for report: ) will acquire spectrum and wireless operations from Midwest-provider US Cellular (USM) for approximately $480 million. Sprint will acquire key markets, including Chicago and St. Louis, and the deal includes approximately 585,000 customers. We don’t see any material impact on our fair value estimate for Sprint. The deal isn’t incredibly material for Sprint, but we think it certainly acquired these assets on the cheap. US Cellular has struggled to maintain market share in large markets due to the competition from larger providers with stronger smartphone offerings. We believe giving existing US Cellular customers the option of the iPhone, as well as other high-end Android phones, will help reduce churn. … Read more

Toyota’s North American Success Translates to a Strong Second Quarter

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Global automaker Toyota (click ticker for report: ) reported strong second quarter results Monday morning. Revenues surged 18% year-over-year to ¥5.4 trillion, relatively strong given the considerable weakness in sales to China during September and October. Operating income increased over three-fold to a better-than-expected ¥257.9 billion. The company lapped smaller numbers in the second quarter due to weakness in the supply chain during the first half of fiscal year 2012. Still, Toyota continues to sell more products and outpace competitors, particularly in North America. Operating income in the region jumped 350% year-over-year. Europe remains a smaller portion of the overall business mix than Japan and North America, but we think the company is well positioned to gain market share as … Read more

Berkshire Hathaway’s Headline Looks Great But Operating Earnings Down

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Legendary investor Warren Buffett’s insurance and investment giant Berkshire Hathaway (BRK.A) reported a strong headline number Friday afternoon. Revenue jumped 22% year-over-year to $41 billion, greater than the consensus estimate. Reported earnings surged 72% year-over-year to $3.9 billion, which also exceeded consensus estimates. Buffett’s favorite metric, book value, is up 11.9% year-to-date to $111,718 per Class A share. Operating earnings weren’t quite as strong, dragged down 9% year-over-year to $5.5 billion when excluding non-cash items. Insurance underwriting gains significantly swayed profitability, as Berkshire Reinsurance swung to a $100 million loss from a $1.375 billion profit during the same quarter last year. Geico’s underwriting income nearly tripled, but its $435 million profit was not nearly enough to overcome the weakness from … Read more

Emerson Beats Estimates But the Firm Issues Cautious Guidance

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Dividend growth gem Emerson Electric (click ticker for report: ) reported better than expected earnings for its fiscal fourth quarter Tuesday morning. Adjusted earnings per share jumped 7% year-over-year to $1.11 per share, which was much higher than consensus estimates. Revenue growth remained subdued, ticking up just 2% year-over-year to $6.7 billion. We don’t expect to make a change to our fair value estimate. The firm’s process management segment continues to be a standout component, with sales growing 18% year-over-year on a reported basis (21% ex-currency) to $2.4 billion. Every geographic region performed well, with the US growing 16%, Asia up 24%, and Europe up 11%. Improvements in the supply chain, as well as cost control initiatives, helped operating margins … Read more