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COMPANY OF THE DAY : TWITTER

Twitter reported strong Q2 earnings that were well ahead of expectations. Revenue was up 124% year-over-year, while the company reported EPS of $0.02, compared to a loss of $0.12 per share in the same quarter last year. Monthly average users increased by around 24% year-over-year, and the company raised its full-year revenue guidance.

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FORECAST OF THE DAY : ACTIVISION'S NUMBER OF WORLD OF WARCRAFT & OTHER MMORPG SUBSCRIBERS

The World of Warcraft was once the world's largest massively multiplayer online role-playing game (MMORPG) franchise.

However, the online gaming landscape has changed considerably as new free-to-play online MMORPGs have entered the fray.

Activision's Call of Duty, Skylanders, Diablo III and other franchises have filled the void.

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Update on U.S. Petrochemicals Renaissance
  • by , 1 hours ago
  • tags: SSL PSX CVX XOM DOW
  • Submitted by Wall St. Daily as part of our contributors program Update on U.S. Petrochemicals Renaissance In early April, I wrote that cheap shale gas in the United States was leading to a renaissance in the U.S. petrochemicals industry. A sector that had been on its knees a few short years ago had completely turned around, from bust to boom. Since then, conditions have gotten even better. Demand from Asia and Latin America for petrochemical products (i.e., plastics, etc.) continues to march ever higher, thanks to their emerging middle class. It’s to the point now that even Saudi Arabia has become interested in investing in U.S. petrochemicals. Saudi Basic Industries Corporation, better known as SABIC, is the world’s largest petrochemicals company when measured by market capitalization. Last autumn, the company said, “Our strategy is to expand production by utilizing the most feasible feedstock we have at the moment, and that is U.S. gas.” Quite a statement coming from the “king” of Middle Eastern energy and petrochemicals! The Saudis were the first to use ethane from natural gas to create petrochemicals. That put them ahead of the pack in petrochemicals exports, and they have stayed there since. Petrochemicals Investment Boom Based on their statement alone, it’s not surprising that investment into the sector is on the upswing in a big way. In total, the U.S. petrochemicals industry has announced nearly $72 billion in new chemical-related investments. Although not all of these plans will be implemented, the industry has come a long way, considering that no ethane cracker plant was built in the United States in more than a decade. (An ethane cracker plant takes natural gas and creates ethylene, a compound used in the manufacture of all sorts of plastics.) The list of major companies with plans to build a new ethane cracker plant in the United States is like a “Who’s Who” list of the industry. The list includes: Dow Chemical ( DOW ), Sasol ( SSL ), Royal Dutch Shell PLC ( RDS-A ), and Chevron Phillips Chemical. The joint venture of Chevron ( CVX ) and Phillips 66 ( PSX ) broke ground on two polyethylene units capable of producing 500,000 tons a year of plastic resin. ExxonMobil Chemical Investment Perhaps the most impressive of investments being made is the one by the chemicals subsidiary of ExxonMobil ( XOM ), ExxonMobil Chemicals. Exxon announced in June that it had begun construction of an ethane cracker and two polyethylene plants in Baytown, Texas. The company plans to build a massive cracker, which will have the capacity to provide 1.5 million tons of ethylene annually as feedstock for its two new polyethylene processing units. Each unit will be capable of producing 650,000 tons a year of product. Mind you, Exxon produces a premium polyethylene that can make lighter and stronger plastics than its competitors. Exxon expects the entire project to be completed in late 2017, ahead of some of its competitors’ plans. The construction was delayed by about a year, though . . . thanks to Exxon’s long navigation through the Environmental Protection Agency’s regulatory morass before finally winning approval. With Exxon having an inherent advantage – it’s the largest producer of natural gas in the United States – the multi-billion-dollar project is sure to be a big plus for the company as it battles its competitors in the petrochemicals space. And “the chase” continues, Tim Marverick The post Update on U.S. Petrochemicals Renaissance appeared first on Wall Street Daily .
    Why It’s Time to Cull Your Stocks
  • by , 1 hours ago
  • tags: SPY JCI DD
  • Submitted by Profit Confidential as part of our   contributors program Why It’s Time to Cull Your Stocks Good numbers are one thing, but stocks did go up in advance of what’s turning out to be a fairly decent earnings season. It’s not unreasonable at all to expect the market to take a solid break, perhaps for the next two to three months. Of course, predicting corrections and/or consolidations among stocks is a difficult endeavor in an era of extreme monetary stimulus. The Federal Reserve is slowly chipping it away, but it remains very committed to helping capital markets, especially as the economic data continues to be pretty soft. Stocks are still looking stretched and this market is tired. A 10% to 20% correction would be a healthy development for the longer-run trend. Stocks need a catalyst for this to happen. It could come out of nowhere, and I’m reluctant to be a buyer with so many positions trading at record-highs. Johnson Controls, Inc. (JCI), a large U.S. auto parts manufacturer, had a modestly positive third fiscal quarter with sales growing three percent to $10.8 billion due to more sales in China. The company had some one-time restructuring charges during the quarter. Earnings per share from continuing operations (excluding restructuring and one-time items) grew a hefty 17% to $0.84. Management confirmed its full-year guidance, which pleased the Street, but the position is breaking down a bit. E. I. du Pont de Nemours and Company’s (DD) numbers were uninspiring and the company tried to keep investors interested with a four-percent increase to its quarterly dividend. The position’s starting to roll over and with agriculture being such an important part of the company’s business, changing preferences among farmers hurt its most recent quarter. Given current information, a major correction would be a buying opportunity. It would take a lot of froth out of richly priced stocks, which include a lot of blue chips now. Generally speaking, I would not be buying this market. I would be waiting for a more opportune time to consider buying. It might even be time to take some money from winning positions off the table; investment risk goes up commensurately with rising share prices. Corporate balance sheets remain in excellent shape, and so are the prospects for share repurchases and increasing dividends. (See “ Why This Company’s a Solid Pick for Any Long-Term Portfolio .”) The fundamental backdrop for corporate earnings growth remains intact. The one key indicator to watch is the Dow Jones Transportation Average, which led stocks higher since the beginning of 2013. Practically, the broader market isn’t likely to break down without participation from transportation stocks. If this index breaks below 8,000, then the likelihood of a correction significantly increases. This market has come so far in a short period of time and the Federal Reserve has been it’s strongest supporter. But while second-quarter earnings are fairly good, everything looks tired now and it won’t take much for institutional investors to hit the “sell” button. All stocks are risky securities and that even applies to dividend-paying blue chips. It’s time to re-evaluate portfolios and all positions for exposure to risk. An increased weighting towards cash wouldn’t be unreasonable.   The post Why It’s Time to Cull Your Stocks appeared first on Stock Market Advice | Investment Newsletters – Profit Confidential .
    Will Aluminum’s Latest Price Spike Last?
  • by , 1 hours ago
  • Submitted by Wall St. Daily as part of our contributors program Will Aluminum’s Latest Price Spike Last? After a nine-month period of inactivity, the aluminum market is catching fire . . . Aluminum on the London Metal Exchange (LME) rose above $2,000 per metric ton (mt) last week, reaching a 16-month high. The catalyst? The Chinese government granted a one-trillion-yuan ($161-billion) loan to China Development Bank to help fund subsidized housing. This stimulus is expected to create a rebound in the Chinese housing market, which should send aluminum demand skyrocketing. That, along with the fact that LME inventories have dropped by 10% so far this year, has set aluminum prices on a steady upward trajectory. But that doesn’t tell the whole story . . . The Truth About Falling Aluminum Inventories Aluminum’s forward curve was in a healthy contango for the past five years. In the simplest terms, this means that the metal will fetch a higher price in the future than it does today. The cash-to-three-month contango remained fairly steady in a $40 to $50 range for about nine months, up to April this year. This allowed select market participants, namely banks, to buy and store massive quantities of aluminum stocks in global warehouses. These banks have seen their aluminum inventories accrue in value, while they sell the metal forward at a profit. So while LME stocks have dropped (as I mentioned above), the market is still awash in inventories. In fact, aluminum stocks have now reached a staggering 4.94 million mt. To put that in perspective, that’s roughly the amount of aluminum that would go into manufacturing 2,400 Boeing 747s! Simply put, these financing deals (like the one-trillion-yuan loan from above) tend to distort the real supply-and-demand picture. That’s because much of this material is being stored outside of LME-registered warehouses, where storage costs are lower. In July last year, the LME announced an overhaul of its warehousing network aimed at placating consumers who blamed the LME’s policy for logjams. But this has made little impact on the growing mountain of supply. Furthermore, the Chinese have been holding sizable aluminum inventories for use as collateral that hasn’t been accounted for in the LME statistics. In the United States, physical premiums paid on top of the LME benchmark for delivery have soared to all-time highs. Some will argue that it signifies smelter cutbacks due to earlier weakness in LME prices, thus constraining readily available supplies for end users. Yet at current prices, cutbacks aren’t the norm. Furthermore, the stocks held in inventory aren’t readily accessible, as there’s a long waiting time to get access to it. Thus, buyers who need the metal in the short term are forced to pay a hefty premium to get it. Meanwhile, according to the commitment estimates that track the market’s longs and shorts, CTAs are 95% long, pointing to an inevitable correction. Bottom line: These price spikes just aren’t sustainable. And here are a few potential ways to play the situation . . . Several Opportunities to Cash In Renewed strength in the aluminum markets has carried over into aluminum producer equities, as well, where it’s advisable to sell or take profits. One choice would be Aluminum Corporation of China ( ACH ), which has spiked to its highest price in a year. On the other hand, one could consider owning or holding Reliance Steel & Aluminum ( RS ). While trading at record levels, it’s the largest distributor of metals to manufacturers around the United States. And while the dividend yield is modest (1.32% annualized), the stock has seen a dramatic a 230% jump since 2008. For a more advanced approach, one can take advantage of aluminum’s current strength via the futures and options markets. It is advisable to short aluminum futures during these price spikes, or to sell hedged options when volatility spikes and trade the futures for additional returns. Additionally, even while spreads have narrowed, it’s unlikely that there will be any prolonged backwardation. You could take advantage of any temporary flat or backwardated forward curve by selling the nearby and buying the longer-dated futures in expectation of a more typical contango term structure. Good investing, Shelley Goldberg The post Will Aluminum’s Latest Price Spike Last? appeared first on Wall Street Daily .
    A Closer Look At Some Of The Leading Commercial Drone Technologies
  • by , 1 hours ago
  • tags: AVAV LMT DRNE
  • Submitted by Samuel Rae as part of our contributors program . A Closer Look At Some Of The Leading Commercial Drone Technologies In February this year, a Business Insider Intelligence report suggested that the global drone industry could be worth just shy of $12 billion annually by 2023, and that over the next 10 years, global spending on aerial drones will amount to a cumulative $98 billion. The report also points out that 12% of this $98 billion, or approximately $11.5 billion, will come from the commercial arm of the drone industry. Companies of all sizes recognize this potential and are rushing to stake a claim in the space. This focus has drawn the attention of the retail investment community, and large numbers of investors are trying to decide to which company they should allocate the capital and gain exposure. An important factor in this decision — and one that many are overlooking — is the product itself. All unmanned aerial vehicles (“UAVs”) are different, so here’s a look at four of the players looking to seek market share and the leading offering in the small commercial UAV category. Lockheed Martin Corporation ( LMT ) First is Lockheed Martin. A company that is better known for its activity in the military space, Lockheed announced in May this year that it was preparing to unveil three new small UAV systems. The first two of these systems are to be Indago vertical takeoff and landing (“VTOL”) quad rotor UAVs, controlled through a handheld control system. The technology uses the Kestrel autopilot system — a system well known in the military drone space currently used on more than 60 aircraft. Weighing in at a little over 5 pounds, and spanning 32 inches front to back and side to side, Lockheed’s offering is relatively compact, man-packable and can be folded to a size around one third of its flight size. One of the downsides of the Indago technology however, is its endurance and range. This is a common problem across the drone space at present (and one that the company addressed further into this piece looks to have overcome), and is something that many investors and industry analysts are overlooking when forming their opinions as to the near term future of the sector. The Indago system is capable of travelling approximately 5 km over a 40 to 50 minute period assuming a 180 g payload, with the payload — in most cases — some form of camera or other surveillance technology. As this piece highlights, these endurance statistics are common across the space, and until they improve, the commercial application of small UAVs is relatively limited. The well-documented Jeff Bezos promotion earlier this year suggesting that Amazon will soon be using drones to deliver small parcels remains unrealistic for example, limited by the 5 km range of the vehicles. Having said this, some applications such as disaster relief or search and rescue missions are realistic at current specifications, and are spaces in which Lockheed is likely to focus as the nascent industry starts to mature. AeroVironment, Inc. ( AVAV ) Unlike Lockheed, AeroVironment is a company that focuses solely on the design development production and operation of UAVs. The company hit the headlines recently as it became the manufacturer of the first ever drone to receive overland certification by the FAA. BP ( BP ) uses the technology over its Alaskan oilfields to monitor environmental factors and map the landscape. The technology in question — Puma AE — is not the one addressed in this article,  However, it is its size and specifications do not compare to the Lockheed offering above. Instead, this article will look at AeroVironment’s Micro UAV — the WASP AE . The WASP is an all environment UAV specifically designed for the commercial market. It differs from the Indago in that it has wings (as opposed to the quad copter design) and can be hand launched and land on water. It can be operated manually programmed for autonomous operation, just as can the Indago. At 2.85 pounds it is much lighter than the Indago, but it has a larger wingspan of 40 inches and is approximately 30 inches in length. Projected commercial applications similar to those mentioned earlier, and are yet again limited by the endurance specifications. The WASP can operate at 500 feet — slightly higher than the Indago — but its range is just 5 km and endurance 50 minutes. Drone Aviation Holding Corp. ( DRNE ) The final addition to this list is Drone Aviation. As mentioned earlier, this company’s approach could be the solution to the range and endurance specifications troubles that limit the commercial potential of the offerings of both Lockheed and AeroVironment at present. Drone Aviation’s offering in the space is the BOLT UAV. Just as is the Indago, the BOLT technology is a quad rotor UAV, launched vertically and controlled via a handheld platform. The BOLT differs from its peers, however, in that it is tethered to a ground-based console. There are two primary benefits of this tethering. The first is that it allows the technology to bypass FAA regulations surrounding UAVs. It is currently illegal for commercial entities without a special license (such as that held by BP) in US airspace. The FAA have been instructed to draft regulations by September next year, but analysts expect considerable delays and it could realistically be two to three years before commercial drones can legally and regularly takeoff and land in the US. Drone Aviation’s small UAV therefore is likely to be a popular option over the coming two years. The second advantage, and the one that fits more with the theme of this article, is the specification benefits that the tethering affords the drone. The BOLT technology as an operational altitude of up to 1000 feet — more than double that of the other two options — and can stay in the air for up to 18 hours. For applications such as crowd monitoring or data relay, the ability to remain airborne for nearly 20 times the of its competitors, should give the BOLT UAV and Drone Aviation a considerable advantage in the space. Conclusion These are just three of the current offerings and there are a large number of companies developing their own UAVs for commercial use. They illustrate however, the range of technologies and capabilities currently being developed and sold in this nascent industry. In turn, they illustrate the advantages and disadvantages associated with each type of technology, and the problems faced by manufacturers and drone users at present.
    KRFT Logo
    Commodity Cost Pressures Weigh On Kraft's Second Quarter Earnings
  • by , 18 hours ago
  • tags: KFT KRFT HSH
  • Kraft Foods Group’s (NASDAQ:KRFT) second quarter earnings growth was muted by increased commodity costs that more than offset the impact of price increases. The company’s reported earnings per share (EPS) for the quarter declined by over 42% y-o-y to just $0.80. However, EPS adjusted for the one-time benefit realized by the company from market-based adjustments to the post-employment benefit plan last year came out almost flat year-on-year. Kraft’s second quarter organic net revenues increased by around 1.5% y-o-y, primarily due to the shift in the timing of Easter-related shipments, compared to last year when Easter fell during the first quarter. However, if we look at the company’s top-line performance during the first six months of the year, which evens out the impact of Easter timing, organic net revenues were down by around 0.4%, compared to last year, as volume declines more than offset the impact of pricing actions. Kraft has taken pricing actions on a large chunk of its portfolio this year in order to sustain its margins amid rising input costs. However, the company’s second quarter gross margin was down significantly compared to last year as higher dairy, meat and coffee prices more than offset the impact of these pricing actions. On the brighter side, Kraft’s sharp focus on improving its productivity and reducing the overhead costs has helped it largely mitigated the impact of steep commodity inflation on its cash operating margins so far this year. While the company’s gross margin declined by more than 300 basis points during the first six months of this year, its adjusted EBITDA margin has remained almost flat over the same period, by our estimates. Going forward, we expect Kraft’s top-line performance during the next six months of the year to be almost similar to what we have seen in the first half. However, the decline in its gross margin is expected to moderate as the year progresses, primarily due to the impact of pricing actions, which were mostly announced and implemented during the second quarter. Based on the recent earnings announcement, we have revised our price estimate for Kraft Foods Group to $66/share, which is almost 14.7x our 2014 full-year GAAP diluted EPS estimate for the company. Most of the increase in our price estimate for Kraft can be attributed to the fact that we have extended our forecast period for the company and are now discounting its cash flows to the mid of next year. This basically implies that we have adjusted our price estimate for Kraft to reflect what its intrinsic value should be about a year from now. See Our Complete Analysis For Kraft Foods Group Pricing Actions, Cost Savings To Reduce Margin Pressures Food commodity prices in the U.S., mainly dairy products, coffee beans, and meat products have been on fire this year. Raw milk prices have risen sharply over the past few months due to increasing export demand from the fast-growing Asian markets, especially China. On the other hand, coffee prices have also been steep, as one of the worst droughts in the history of Brazil has hit the country’s coffee plantations this year, leading to a downward revision in production forecasts. Furthermore, the prices of meat commodity products such as pork and beef have also been on an uptrend recently due to supply shortages. (See: Higher Commodity Costs To Weigh On Kraft’s Margins This Year ) This does not bode well for Kraft since it uses large quantities of these commodities as raw materials. Therefore, in order to tone down the impact of higher input costs on its gross margins, the company has either announced or implemented price increases across more than 50% of its product portfolio. During the second quarter earnings call, Kraft’s EVP and CFO, Teri List-Stoll mentioned that the company had increased prices of its cheese products by 5-12% in March this year. The company also implemented a 10% price hike across 50% of its Oscar Mayer cold cuts portfolio on May 25. Early last month, Kraft also raised prices for its Maxwell House and Yuban roast and ground coffee brands by around 10% on an average. Since most of these pricing actions were taken by the company during the second quarter, we expect the decline in Kraft’s gross margins to moderate in the coming quarters. We also expect the company’s operating margins to improve over the next few quarter on continued productivity improvements and reduction in overhead costs. Kraft’s productivity drive has enabled it to mitigate the impact of commodity price inflation on its profitability over the last couple of years. The company has been effective in reducing its per unit costs by increasing production capacity through Lean Six Sigma based enhancements of its manufacturing processes. During the recent CAGNY presentation, Kraft CEO, Anthony Vernon, said that 28% of the company’s manufacturing facilities were now operating on four-sigma, which yields 40% increase in productivity. This implies an improvement of over 10% in the company’s production capacity since it launched this program. As a result, Kraft delivered net productivity of around 3.3% of cost of goods sold (COGS) last year, which was ~80 basis points higher than the company’s long term target of 2.5%. Apart from Lean Six Sigma based enhancements, Kraft has also been focusing on a lot of other measures to reduce total operating costs. For example, in the procurement of cashews used for manufacturing  Planters, the company has formed a strategic partnership to create a seamless supply chain from the producer to its plants, which would reduce the breakage of cashews by around 80% and increase the yield of whole cashews. Kraft is working on a number of such cost cutting opportunities to reduce total operating costs. Although the impact of these measures might not reflect in its operating margins this year, due to sharply higher input costs, we believe that these would eventually pay off in the long run as commodity prices cool down. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    GM Logo
    GM's Turn to Aluminum Bodies For Its Pickups Might Come Too Late
  • by , 18 hours ago
  • tags: GM F
  • Earlier this year Ford Motors (NYSE:F) closed down some of its U.S. based factories to allow for the reconfiguration of the manufacturing process of its F-series trucks. The best selling series of trucks were previously made of steel bodies but the new process will allow them to be made with aluminum bodies. The advantages of aluminum bodies are obvious: aluminum is lighter than steel and a lighter vehicle has better acceleration, fuel-economy, handling and towing capacity compared to a heavier vehicle, keeping other things like engineering and design the same. The company is so confident about these new trucks that it sent prototypes to prospective clients, like mining company Barrick Gold, in order to let them test them out in harsh conditions. The trial run with these prospective clients served two purposes: it generated intrigue among the customers thereby functioning as effective advertizing, while also allowing Ford to gather knowledge about potential faults which it could then go back and correct in the production process. All this activity at Ford has caught the eye of competitor General Motors (NYSE:GM), which has now responded by pushing forward the timeline on the launch of its next-generation Chevrolet Silverado and GMC Sierra by about nine months, to the fall of 2018. We have a  $40 price estimate for General Motors, which is about 18% more than the current market price. See full analysis for General Motors Worried by Ford Last year, General Motors released new versions of its full-size pickup trucks Chevy Silverado and GMC Sierra. While none of these new versions was revolutionary, in either engineering or design, they were considerable improvements on the outgoing models. Both these trucks have sold well. For the month of April 2014, Chevrolet Silverado sales were up 9 percent and GMC Sierra sales were up 21 percent compared to the numbers in the previous year. Retail deliveries were up 13 percent and 22 percent, respectively. However, these trucks were supposed to put GM on an equal footing with rival Ford but nothing of the sort happened. In the absence of heavy discounts, buyers were reluctant to purchase the Silverado, instead opting for alternatives like Chrysler’s Dodge Ram, which was being sold at discount rates as high as 24%. Ford’s F-Series pickups have been the best-selling trucks in the U.S. for nearly 40 years now, but GM led the overall market in terms of unit sales not too long ago. Before the recession, the company sold ~827,000 pickups, well ahead of Ford’s F-Series sales of around 691,000. Then GM lost a lot of market share relative to Ford because of the Great Recession and GM’s ensuing bankruptcy. By 2011, Ford F-Series sales had rebounded to ~585,000, while combined Silverado and Sierra sales totaled just ~564,000. Ford widened its lead in 2012 with a 10% sales growth, while GM’s pickup trucks posted low single-digit growth. With the launch of new versions of Silverado and Sierra, GM wanted to achieve two things: 1)increase average transaction prices in order to match Ford’s profit per truck sold, and 2) increase its market share. It was successful on the first front. By cutting down on incentives, the company managed to raise its average transaction prices. GM was making more profit on each truck it sells than a year ago.On the sales front, however, as GM cleared out old 2013 models to introduce new 2014 models, sales growth tapered off. Through the first 8 months of 2013, the combined sales of Silverado and Sierra grew by an impressive 25%. But in the final four months of the year, GM’s sales started dropping, even as Ford continued to post gains. The trend has continued into 2014.
    GME Logo
    Strong Console Sales To Drive Revenues For GameStop & Electronic Arts
  • by , 19 hours ago
  • tags: ERTS GME EA ATVI MSFT
  • According to the research group  NPD, the next generation twin console- the  Microsoft (NASDAQ:MSFT) Xbox One and the Sony PlayStation 4 are still in huge demand, which might benefit video game retailers such as GameStop (NYSE:GME). In its latest June report, NPD reported that gamers spent $736.4 million on new physical video game products at U.S. video game retail shops, up 24% from $593.5 million in June 2013. In the month of May, gamers spent $586 million on new physical gaming products- hardware and software. Considering that consumers spent $ 292.7 million on new hardware alone, gaming industry believes that the twin consoles still have a lot of demand among the core gamers. This might be due to the upcoming new titles to be released in the markets by core game developers such as Electronic Arts (NASDAQ:EA), Activision Blizzard (NASDAQ:ATVI) and Nintendo. With most of the games released on only the new platforms, gamers were forced to buy the next generation consoles. Although the new software sales have picked up the pace, they are still lagging the hardware sales and are much below the last year sales. Gamers spent only $286.8 million on new game titles in the month of June, down 3% year-over-year. After six months of dullness in title sales, the industry finally witnessed acceleration in the software demand in the month of May, but it still lacks luster. GameStop is positive on its outlook for the upcoming quarters, as it expects strong hardware sales in the previous quarters to translate into better software sales. Top game developers such as  Electronic Arts (NASDAQ:EA) and  Activision Blizzard (NASDAQ:ATVI) unveiled their most awaited games of the year at the E3, revealing trailers and prototypes of newer editions of their famous title franchises. With a turnout of around 49,000, E3 also witnessed other video game developers such as  Microsoft (NASDAQ:MSFT), Sony Corporation, Ubisoft and Nintendo disclosing concept visuals and early designs of their title releases. With a significant number of software titles and hardware accessories to be launched over the next 12 months, GameStop expects its pre-owned products segment to benefit from increased sales. Increase in console sales might translate to excellent initial sales for the core game titles such as EA’s FIFA 15, Titanfall, Battlefield Hardline & Madden NFL, Activision’s Call of Duty: Advanced Warfare and Ubisoft’s Watchdog. Our price estimate for GameStop’s stock is $47, implying a premium of 17% to the current market price, whereas that for for  Electronic Arts’ stock is $27, which is 40% below the current market price. See our complete analysis of GameStop and Electronic Arts GameStop New Hardware & Software Sales Might Boost Overall Sales After a positive report from NPD in terms of hardware sales for the month of June, GameStop is optimistic of its sales growth for the hardware segment. New video game hardware sales rose 27% in 2013, contributing around 19% to the company’s overall revenue growth. However, in the first fiscal quarter of 2014, company’s hardware sales increased 81%, stronger than U.S. market’s average of 61% growth. PlayStation 4 retained the #1 spot for the top selling console for the 6 th month in a row, outpacing Microsoft’s Xbox One. Combined total sales of these two consoles are near about 80% higher than the combined sales of Xbox 360 and PlayStation 3. This might boost the segment’s revenue, but since this a low margin segment (gross profit margins were 10.2% for this segment in 2013), this might possibly have no major impact on company’s valuation. Now, since increase in hardware sales might translate to better software sales in the coming months, we might also witness a growth in new video game software segment, which is a high margin segment for the company. New software sales accounted for 39% of the overall company sales and 30% of the total gross profits in 2013. Moreover, with the release of new core game titles in the coming months, company is quite positive with the segment’s revival. Increased software sales coupled with better hardware sales might boost the company’s valuation. Electronic Arts & Activision Blizzard Initial Title Sales To Benefit From Increased Hardware Sales Increased sales of the next generation consoles have raised the expectations of the game developers such as Electronics Arts and Activision. The two gaming giants usually release the annual edition of their franchises in the latter half of the calendar year. With the hardware console sales still strong in the market and outperforming last year’s performance, both the companies might be looking forward to the release of titles such as FIFA 15, Madden NFL and Call of Duty, which would be available initially on PS4 and Xbox One. Currently, EA’s Titanfall is available only on Xbox One & Xbox 360 and FIFA World Cup Brazil is available on PlayStation 3 and Xbox 360. The company might unveil its edition for Xbox One and PlayStation 4, since most of the gamers own the new consoles. Moreover, Activision’s Call of Duty: Advanced Warfare is set to be released in November on all major platforms . FIFA 15 and Madden NFL will be released on all major platforms as well. Both the companies expect the initial sales of these titles to rise, considering hardware sales would translate to better software sales. As these titles are the core profitable franchises, a boost to their sales would drive the overall revenues of the companies. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology  
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    Key Trends Explaining Our $628 Price Valuation For Chipotle
  • by , 19 hours ago
  • tags: CMG MCD SBUX BKW
  • The leader in the fast-casual segment,  Chipotle Mexican Grill (NYSE:CMG) recently released its second quarter earnings report for the fiscal year 2014. Continuing the momentum of the first quarter, the company delivered impressive results, with net revenue rising to $1.05 billion, up 28.6% year-over-year, primarily driven by an increase of 17.3% in the comparable restaurant sales. Same store sales or comparable restaurant sales saw tremendous improvement due to the increased traffic and increased average spend per visit. Moreover, the net income rose 25.5% to $110.3 million, whereas restaurant level operating margins declined 30 basis points to 27.3% in the second quarter, primarily due to higher food and marketing costs, partially offset comparatively lower labor and occupancy costs. Diluted EPS for this quarter rose to $3.50, up 24% from same period last year. We have a $628 price estimate for Chipotle, which is about 8% lower than the current market price. See Our Complete Analysis For Chipotle Mexican Grill The fast-casual segment is a fresh and rapidly growing concept, positioned somewhere between fast food restaurants and casual dining restaurants. They provide counter service and offer more customized, freshly prepared and high quality food than traditional Quick Service Restaurants (QSR), all in an up-scaled and inviting ambiance with meals ranging from $8 to $15. Brands such as  Chipotle Mexican Grill (NYSE:CMG), Panera Bread, Qdoba Mexican Grill and Baja Fresh are considered as the top restaurants in this category. Increasing Customer Traffic Big QSR brands such as McDonald’s, Subway and Starbucks have been facing a huge threat by the leading fast casual restaurants, as the traffic growth in the latter segment surpassed that of every other segment for the fifth consecutive year. According to the NPD group, the fast casual segment saw an 8% rise in the guest count in the 12 month period ended in November last year, whereas traffic count was flat for quick service restaurants. This consumer shift is primarily due to the fact that people with higher disposable income are inclined more towards quality and hygienic food. The average customer count per company-operated restaurant annually at McDonald’s, the leading brand in QSR segment, has been diminishing by 1.3% for two consecutive years, whereas for a successful fast casual restaurant such as Chipotle, the average guest count has been rising by 5% and 2.3% in the last two years. source: NPD Group Survey Trefis Estimate Trefis estimates the average number of annual visits per restaurant to rise by 4.5% in 2014. Recently, Chipotle introduced new innovative menu items including Sofritas-the new vegan tofu, which gained popularity among vegetarians, as well as non-vegetarians. Moreover, highly efficient service and different discounts & promotions might help in maintaining the customer base. However, after a point, it is really difficult to increase the customer visits as the customers avoid going to a restaurant which has long lines or no seating space. Thus, the only way to increase the footfall is by opening more restaurants. Taking into account that new store openings might slow down in pace in the coming years due to saturation, we have estimated the figure to decline gradually after 2015 and to reach 231,000 by the end of our forecast period. Now, with more competitors entering the market every year and top fast food brands adapting to healthier food options, customers might shift to cheaper options. Moreover, further price hike in the menu might slow down the traffic growth. If the average annual visit per restaurant reaches only 212,000 by the end of our forecast period, we might see a 10% downside to our price estimate. On the other hand, if the company accelerates its store expansion by venturing into international markets and if the customers continue to be unaffected by the price hike, we might see a little more growth in the average visits. If the average annual visit per restaurant reaches 250,000 by the end of our forecast period, we might see a 4% upside to our price estimate. Revenue Growth To Accelerate According to Technomic’s 2014 Top 500 chain restaurant report, sales for fast casual chains  grew by 11% and store count by 8% in 2013. Although Chipotle generated $3.2 billion in revenues in 2013, which in comparison to McDonald’s seems to be a much smaller figure, the revenue growth has been consistently at around 20% for Chipotle for 5 years now. Chipotle’s net revenue has increased by 75% over the last 3 years, with the average spend per customer visit rising 5.5% over the same period. On the other hand, fast food giants such as McDonald’s are finding it difficult to accelerate the revenue growth. McDonald’s revenue rose 17% over the last 3 years and average spend per visit increased 9% over the same period. Even though McDonald’s revenue are 9 times that of the Chipotle, the revenue growth for the fast-casual leader continues at a much faster pace, primarily driven by changing consumer preferences. Changing Dining Preferences Chipotle believes that its extraordinary service and exceptional dining experience in addition to unique food culture hold the key for its improved comparable store sales. Additionally, the rising health concern among the people of the U.S. is one of the major reasons that fast casual restaurants are witnessing more traffic every quarter. The company policy of ‘food with integrity’, where it focuses on serving naturally raised meat and  fresh ingredients, have struck a chord with consumers and is forcing other restaurant chains to remodel their strategy and supply chain in order to respond to this newly created demand. As a result, people with higher disposable income are inclined more towards quality and hygienic food. Menu Price Hike in 2014 Chipotle initially decided to raise its menu prices in 2013, but refrained from doing so and deferred the move to 2014. In the second quarter, the company was forced to raise the prices of its steak burritos by 4%-6%, or 32-48 cents, whereas the overall menu prices went up by 6.5% on average and all this without hurting the customer traffic. Many feared that the price hike would affect the company’s customer traffic, but it had minimal impact on them. People are willing to pay 4-5% extra for hygienic and better quality food. This led to an increase in the average spend per customer visit. Trefis Estimates Trefis has already accounted for the incremental revenue to be generated by the price hike in 2014 and thus estimates the average spend per visit to increase by 3% by the end of 2014, considering customer traffic is unaffected. We also believe that this growth might witness a gradual decline in the following years as the increasing competition would put a pressure on the pricing power of the company and customer traffic might witness a decline as more competitors come into the picture. Chipotle’s prices are already among the highest in the segment. Further price hikes might result in a decline in customer count, which might slow down the revenue growth. In that case, average spend per visit might witness a slower growth of only 2% in 2014 and a gradual decline thereafter. As a result, we might see a 7.5% decline in Trefis’ price estimates. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Sumitomo 3M Acquisition Will Add To 3M's Earnings And Increase Presence In Japan
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  • tags: MMM
  • 3M (NYSE:MMM) recently announced that it will acquire Sumitomo Electric Industries’ 25% stake in the joint venture, Sumitomo 3M Ltd. The acquisition, which will cost 3M approximately $885 million, is expected to close by September 1 2014. Sumitomo 3M will be renamed to 3M Japan once the acquisition is complete. The acquisition will have an accretive impact on 3M’s earnings post the third quarter 2014 and will help increase its presence in Japan. Sumitomo Electric will gain around ¥41 billion in net profit due to the impact of the sale to 3M. Sumitomo 3M, based in Japan, was established in 1961 as a joint venture between 3M, Sumitomo Electric and NEC Corp, with 3M owning 50% stake and the remainder equally divided between the other two venture partners. 3M acquired NEC’s 25% stake in 2003 to bring up its stake to 75%. Sumitomo 3M operates in similar businesses as 3M’s Industrial and Electronics & Energy segments. It manufactures adhesives, abrasives, electric and electrical products, reflective materials, tapes and film products. See our complete analysis of 3M here 3M’s benefits from the acquisition Sumitomo 3M, which is largely managed by 3M, is one of 3M’s most successful subsidiaries. Therefore it makes sense for 3M to gain full ownership of the subsidiary, which operates in an industry that 3M knows well. Post acquisition 3M will own 100% stake in Sumitomo 3M, which will enable 3M to gain full control of Sumitomo’s assets and deploy them to generate attractive returns. 3M will benefit from an $0.08 per share addition to its earnings in the 12 months following the completion of Sumitomo 3M’s acquisition. The strategic acquisition will allow 3M to strengthen its presence in Japan, where it generates more than $2 billion in revenues. After China, Japan is the most important market for 3M in the Asia Pacific region. 3M believes that its addressable opportunity in Japan is worth $800 million. Sumitomo 3M offers products that could cater to around 50% of this addressable market and will therefore play a major role in 3M’s growth in Japan. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) |  Get Trefis Technology
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    NYT Earnings: Revenues Fail To Grow And Costs Drag On Profitability
  • by , 19 hours ago
  • tags: NYT AOL YHOO GOOG
  • The New York Times Company (NYSE:NYT), one of the leading newspapers in the U.S., posted its Q2 results on July 30. Even though the company continues to rollout new digital products (e.g., NYT Now, NYT Opinion and Times Premier) to bolster its content and digital ads  revenues, its print ads revenue continues to decline reflecting the secular downturn in print ads industry. During the quarter, NYT’s revenues declined by 0.6% year over year to $388.7 million from $391.0 million. Circulation revenues increased 1.4% and other revenues increased 7.7%, while advertising revenues declined 4.1%. Furthermore, its operating profit declined to $16.49 million on higher compensation and benefits expense, and marketing costs associated with the strategic growth initiatives, as well as higher retirement costs. Click here to see our complete analysis of New York Times Outlook for Q3 2014 The company expects circulation revenues to be flat in the third quarter of 2014 compared with the third quarter of 2013, as benefits from its digital subscription initiatives and the increase in print subscription prices bear fruit. Total advertising sales in the Q3 FY14 are expected to decrease at a mid-single digits rate compared with the Q3 FY13, primarily due to a challenging business environment in the print ads business. The company also expects Q3 2014 operating costs to increase at a low- to mid-single digits rate on a year-on-year basis as investments related to its strategic growth initiatives accelerate. Furthermore, the company expects to incur  a charge of $9 million in non-operating retirement expense in the third and fourth quarter. In addition, the Company expects the following on a pre-tax basis in 2014: Results from joint ventures: loss of $1 to $3 million, Depreciation and amortization: $75 to $80 million, Interest expense, net: $53 to $57 million, and Capital expenditures: $40 to $50 million. Revised upwards from $35 to $45 million. Advertising Revenue Decline With the advent of the Internet, the print ads business has been on a decline as advertisers are increasingly earmarking more funds for online ads. NYT’s print ads division, which makes up 28% of its estimated value, has not been able to buck the trend and continues to report declines in revenue. NYT reported a 7% year-over-year decline in print ad revenues to $114 million. We currently project NYT’s print ads revenues to continue to decline, in line with U.S. national print ad spending. However, the online advertising division, which is the third largest division of NYT and makes up 25% of its estimated value, posted a 3.5% year-over-year increase  in revenues to $41.5 million in Q2. NYT continues to add content, especially video content, to its websites to increase user engagement and bolster online ads revenues. It now expects video advertising to nearly double in 2014, although it still represents a relatively modest portion of our total digital advertising revenue. Additionally, the company continues to experiment with custom advertising and has increased its product offering on mobile devices. We estimate these initiatives will boost the number of unique visitors to NYT’s website and expect the unique visitor count to grow to 60 million by the end of our forecast period. Digital Subscription Boosts Circulation Revenues According to our estimates, NYT’s print circulation and digital subscription division contribute over 45% to its stock value. During the quarter, circulation revenues were flat at $209.85 million. While NYT’s daily print circulation continues to decline, its digital subscriber base has continued to expand at a fast pace. In Q2, NYT’s paid digital subscriber base grew to 831,000. Digital subscription now accounts for nearly 20% of NYT’s circulation revenues as opposed to 13% in Q2 2012. During the quarter, the company has announced a host of new steps such as mobile apps to bolster its mobile platform and boost its digital subscriber base. We currently estimate that the number of NYT’s online subscribers will increase to around 1.4 million by the end of our forecast period. We are in the process of updating our valuation to incorporate the Q2 2014 earnings. At present, we have a  $8.33 price estimate for New York Times, which is 35% below the current market price. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis)  Get Trefis Technology
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