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Barclays reported better-than-expected performance figures for the third quarter on Thursday, with the results validating the bank's reorganization plan. Barclays' revenues saw a slight improvement, while thanks to a 30% reduction in loan impairments and an 8% reduction in adjusted operating expenses, the bank's pre-tax income jumped 41%. In our earnings note we discuss these results and the bank's outlook.

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RadioShack's recent debt restructuring deal will give the company more runway for a turnaround. It has been plagued by declining sales and compressed gross margins of late. While we expect the company's gross margins to bounce back slightly, there could be a significant upside to our price estimate if it is able to stabilize sales and cut costs, thereby expanding margins further.

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Volkswagen Earnings Preview: Luxury Divisions To Drive Margin Expansion In Q3
  • By , 10/30/14
  • Volkswagen AG (OTCMKTS:VLKAY) is on its way to cross record volume sales of 10 million this year, and possibly even overthrow  Toyota Motor Corp (NYSE:TM) as the world’s largest automaker this year itself. The numbers so far this year support this estimate. Volkswagen’s deliveries have risen 5.3% year-over-year in the first three quarters, and if this growth rate continues in Q4, overall deliveries for the company will rise to over 10.2 million units in 2014. This figure still excludes volumes for the commercial vehicle brands, MAN and Scania, which could then increase net volumes by around 2%. Toyota, on the other hand, has witnessed only a 2.8% rise in volumes through September, allowing Volkswagen to narrow the sales gap to roughly 215,000 units. Toyota has stressed on its focus on building better cars and improving profits, rather than selling more volumes. While the company’s operating margins for the automotive division stood at 10% last quarter, Volkswagen’s automotive margins were only 6.3%, on the back of poor volumes and operating margins of only 2% for its own branded passenger vehicles. Volkswagen might not have let up on investing aggressively in its own passenger vehicle division this quarter again, and coupled with the fact that deliveries for this division remained flat in Q3, segment margins could remain low and drag down the automaker’s overall profitability. Volkswagen expects margins to range between 5.5-6.5% this year, and with low profitability for its namesake passenger vehicle division, which constitutes just over 10% of the company’s valuation according to us, much of the margin expansion in Q3 will be expected to come from luxury vehicle brands Audi, Porsche and Bentley. In view of the scheduled announcement of Volkswagen’s Q3 results on October 30, we focus on what could drive the company’s margin expansion, if at all, this quarter, apart from a rise in volumes. We have a  $48.14 price estimate for Volkswagen AG, which is roughly 16% above the current market price. Automotive stocks have in general remained weak in the last three months, and Volkswagen’s stock has fallen 12% during this period, amid the news of China fines, and slowing automotive activity in South America and Eastern Europe. See Our Complete Analysis For Volkswagen AG Expect Audi, Porsche And Bentley To Drive Profitability In Q3 Audi, Porsche and Bentley together formed 16% of the vehicle deliveries for Volkswagen last year, but these divisions contributed over 60% to the net operating profits for the automobile division, mainly due to the comparatively higher product prices. Our estimated EBITDA margins for Audi, and Porsche and Bentley in 2013 were 22% and 40% respectively, while the overall margins for the company stood at only 13%. The automaker’s profit growth this quarter again will depend on its premium car segments, amid flat volumes for its own passenger vehicles and anticipated lower volumes for commercial vehicles. Volkswagen’s own commercial vehicles delivered 4% fewer vehicles in the third quarter, and together with MAN and Scania, could lower the top line and reduce profits for the company this quarter. This is mainly as volumes remained low in Europe in Q3 due to the large-scale pre-buys of the Euro 5 trucks at the tail-end of last year, and slowdown in the commercial vehicle industries in South America amid tough economic conditions, especially in Brazil. Audi grew vehicle deliveries by 8% in the third quarter, mainly on the back of higher sales in China and the U.S., the world’s two largest premium automotive markets. Audi enjoys the lead in China’s automotive market over its compatriots BMW and Mercedes-Benz, with over 30% volume share, according to our estimates. In fact, Audi has sold more than double the vehicles sold by Mercedes-Benz in China so far this year. According to China Association of Automobile Manufacturers, the country’s automotive market will grow by 8.3% this year, down from the 13.9% growth seen in 2013. But luxury demand in the country still remains strong and this segment is expected to grow by 13.5% or so in 2014, fueled by increasing disposable incomes and high popularity of entry-level luxury sedans. On the back of its stronghold in the Asian country, Audi is expected to sell higher volumes this year. The luxury brand is already the market leader and has further expanded its share in China, by improving volume sales by 16% through September in the country, outpacing the estimated growth in the overall premium vehicle segment in the country so far this year. On the other hand, Porsche, which sells mostly in North America, witnessed an impressive 25% growth in vehicle deliveries in Q3, buoyed by rebounding Western European markets and high growth in the Asia-Pacific region. Porsche volumes also grew 12% in the U.S., its single largest market, while the country’s overall premium vehicle market grew 4% through September. Although Porsche constituted only around 2% of the net volumes for Volkswagen this quarter, we expect the brand to significantly boost the company’s operating profits. In fact, Porsche earns industry-leading profit per vehicle, almost equal to the revenue per unit for a non-luxury passenger car. Last year as well, while Porsche and Bentley together formed only 2% of the overall unit sales, the two high-end luxury vehicle brands formed 22% of the net operating profits for the automobile divisions, owing to the relatively higher price points. Volkswagen Looks To Expand Margins Through Lower Costs Of Production Audi sells around one-third its volumes in China and Porsche sells around 26% of its volumes in the U.S., and with premium vehicle demand in both these countries remaining high this year, contribution of the luxury vehicle divisions to overall Volkswagen deliveries has increased. This favorable product mix should be one of the main reasons if the automaker manages to expand its profitability this quarter, despite the slowdown in sales for the Volkswagen branded passenger and commercial vehicles, Scania and MAN. Going forward, another reason why Volkswagen’s margins could expand is the increasing implementation of the Modular Transverse Toolkit (MQB) and Modular Production Toolkit (MPB), creating an extremely flexible vehicle architecture capable of bringing down manufacturing costs. This platform allows the German car maker to standardize its production process for small, medium and long cars. So far the system has been used to manufacture the Volkswagen Golf, Audi A3, Seat Leon and Skoda Octavia, and the company plans to use this system for most cars in the Volkswagen, Audi, Seat and Skoda portfolios in the coming years. The platform enables the company to make enormous cost savings by reducing weight and enabling easy installation of luxury technologies in high volume models, which then allows the automaker to lower the average price of its vehicles. As a result, Volkswagen could not only compete better on a pricing front and further improve volume sales, but the large cost reductions could help boost profits and subsequently cash flow for the automaker in the coming years. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Impact Of Project Transform Evident In Barclays' Q3 Results
  • By , 10/30/14
  • tags: BCS RBS DB UBS JPM
  • Barclays (NYSE:BCS) reported better-than-expected performance figures for the third quarter of the year on Thursday, October 30, with the results validating the British banking giant’s large-scale reorganization plan under Project Transform. The results were peppered with a string of one-time charges, including a £500 million ($800 million) increase in legal provisions to cover ongoing settlement talks over forex manipulation, a £364 million ($580 million) loss on the sale of its Spanish business, and another £170 million ($270 million) in reserves for its PPI-related misgivings. But the positive impact of a £461 million ($740 million) gain on U.S. Lehman acquisition assets and an unexpected £160 million ($255 million) release in reserves for interest-rate product redressals mitigated the impact of these charges on the bottom line to a great extent – making it easy to see the improvement in performance for the bank’s personal and corporate banking as well as Barclaycard divisions. Barclays’ total revenues (adjusted for all one-time items) saw a 3% improvement year-on-year. Coupled with a 30% reduction in loan impairments from improving credit conditions and an 8% reduction in adjusted operating expenses thanks to the cost-cutting efforts, the bank’s pre-tax income jumped 41% compared to the year-ago quarter to reach almost £1.6 billion ($2.5 billion). It should be noted that while this is slightly below the adjusted pre-tax income figure of £1.7 billion seen in each of the first two quarters of the year, the investment banking division was the only one to witness a sequential reduction in profitability – speaking volumes about the effectiveness of Barclays’ reorganization effort.
    Accounting Irregularities Knock Down ARCP: Buying Opportunity or Enron Part 2?
  • By , 10/30/14
  • tags: ARCP VNQ
  • Submitted by Sizemore Insights as part of our contributors program Accounting Irregularities Knock Down ARCP: Buying Opportunity or Enron Part 2? by  Charles Lewis Sizemore, CFA It’s never a good sign when a company’s CFO and top accountant abruptly resign at the same time “accounting irregularities” are announced, but that’s exactly what happened at American Realty Capital Properties ( ARCP ) this morning. An audit committee said, in a nutshell, that every quarterly report put out this year should be discarded and that the number from last year’s annual report shouldn’t be relied upon. This is the sort of thing that makes investors dump a stock first and ask questions later.  At time of writing, ARCP was down about 30% on the day  after being down significantly more. Given the extent of Wednesday’s stock implosion, I would consider this a buying opportunity in ARCP—albeit a risky one.  In the interests of full disclosure, I added to my existing position in ARCP at prices ranging from $8.22 to $8.48, and we’re a little above those levels now.  But I believe that ARCP could easily deliver total returns including dividends of 50% or more in the next six months if the accounting irregularities end up being anything short of catastrophic. Let’s take a look at the numbers.  Based on the preliminary reports, the 2014 Q1 adjusted funds from operations (“AFFO”) of $0.26 would be cut to $0.23, and the Q2 AFFO of $0.24 would be cut to $0.22. The audit committee believes that the 2013 numbers are probably accurate, though they are still investigating. The worst aspect is that there are allegations that management—or at least the CFO—knew about the irregularities and knowingly abetted them. Still, let’s keep this in perspective.  We’re talking about a difference of 5 cents over two calendar quarters.  Still, as Brad Thomas, editor of iREIT Investor, noted in an update to readers this morning, this doesn’t cover the 8.3-cent monthly dividend—which could mean that a dividend cut is a real possibility. I’m not too worried about a dividend cut in the next 6-12 months.  ARCP should have plenty of access to cash to sustain that dividend, though it probably won’t be growing it much. But the biggest reason I am inclined to give ARCP the benefit of the doubt is that company insiders have been steadily accumulating the shares throughout 2014. Ten different insiders—including the company’s general council—have purchased a combined $3 million since January of this year. Stanley William G Director 7/11/2014 Buy 10,000 $12.66 $126,600 Stanley William G Director 6/25/2014 Buy 18,000 $12.39 $223,000 Silfen Richard A EVP and General Council 6/25/2014 Buy 4,850 $12.34 $59,800 Silfen Richard A EVP and General Council 6/11/2014 Buy 7,500 $11.80 $88,500 Stanley William G Director 5/23/2014 Buy 24,000 $12.35 $296,400 Bowman Scott J. Director 5/21/2014 Buy 10,000 $12.27 $122,700 Bowman Scott J. Director 5/16/2014 Buy 10,000 $13.08 $130,800 Weil Edward M Jr. Director 4/21/2014 Buy 7,500 $13.28 $99,600 Beeson Lisa COO 3/28/2014 Buy 3,500 $13.88 $48,600 Weil Edward M Jr. Director 3/28/2014 Buy 10,000 $13.80 $138,000 Schorsch Nicholas S Chairman of the BoD and CEO 3/27/2014 Buy 50,000 $13.78 $689,000 Block Brian S EVP, Treas, Secy and CFO 3/27/2014 Buy 20,000 $13.8 $276,000 Kahane William M Director 3/27/2014 Buy 25,000 $13.78 $344,500 Kay David S President 3/27/2014 Buy 15,000 $13.78 $206,700 Michelson Leslie D Director 1/28/2014 Buy 700 $13.94 $9,800 Michelson Leslie D Director 1/17/2014 Buy 6,900 $13.53 $93,400 Is it possible that they’ve all been bamboozled by a crooked CFO who had been cooking the books?  Sure.  Stranger things have happened.  But I’m not betting on it. The most likely scenario here is that, due to incompetence and not mal intent, ARCP’s now departed CFO and Chief Accounting Officer botched their reporting by a few cents.  That’s bad—really bad.  But not quite bad enough to justify lopping off a third of the company’s market cap. My advice: Use this selloff as an opportunity. I should reiterate that this is a risky investment.  The auditors could come back and find that the accounting irregularities go deeper than originally reported, in which case ARCP would potentially see a lot more downside.  But given the extent of the selloff and the steady insider buying, it’s a risk I’m comfortable taking. Disclosures: Long ARCP Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. Click here to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today’s best global value plays. This article first appeared on Sizemore Insights as Accounting Irregularities Knock Down ARCP: Buying Opportunity or Enron Part 2?
    Tractor Supply’s 20% Rebound Is Only the Start
  • By , 10/30/14
  • tags: TSCO HD LOW
  • Submitted by Wall St. Daily as part of our contributors program Tractor Supply’s 20% Rebound Is Only the Star t By Richard Robinson, Ph.D., Financial Analyst   Last week, shares of Tractor Supply ( TSCO ) closed at $61.30. As of yesterday’s close, the price sits at $73.61 – a rapid 20% gain. The jump is a welcome boost for investors, who’ve watched the stock slump by more than 25% year to date. And it’s rattled America’s home improvement giants, Home Depot ( HD ) and Lowe’s ( LOW ). So what’s caused such a sudden rally? And, more importantly, is this a real turnaround story in the making, or simply a fluke? Let’s find out . . . Improving the American Outdoors for 76 Years Founded in 1938, Tractor Supply boasts a long history in the farming industry and outdoor home improvement area. The company operates around 1,300 farm and ranch stores across the United States, offering a large range of products. For example, it sells outdoor power tools like mowers, chainsaws, trimmers, tillers, power washers, and snow blowers, as well as common gardening, lawn, and patio equipment. Tractor Supply also sells hardware for trucks, tractors, and towing, plus heavy-duty clothing and footwear, as well as a variety of animal healthcare products for household pets, livestock, and horses. But as the chart shows, the company’s shares have struggled mightily in 2014… Strong Earnings Fire Stock Back Above $70 When it comes to igniting share price momentum, there are few better catalysts than strong earnings reports – especially ones that beat Wall Street estimates. That’s exactly what happened with Tractor Supply, which reported third-quarter revenue of $1.36 billion – up 12.6% over Q3 2013. That resulted in a net profit of $76.6 million – up 18.3% over the same period in 2013. The EPS of $0.55 was up 19.6%. And gross profit increased by 11.6% to $464.1 million – up 11.6% over the same period a year ago. The strong quarterly results came amid favorable weather, which boosted foot traffic to higher-than-expected levels. Transaction volumes were up 3.3%, while the average ticket price also rose by 2.2%. The company also opened 30 new stores during the quarter. Based on these results, Tractor Supply now expects fiscal 2014 revenue and earnings to roll in at the higher end of its forecast of $5.62 billion to $5.7 billion, and EPS of $2.54 to $2.62. Encouraged by that performance, Raymond James upgraded its rating on Tractor Supply shares from “market perform” to “strong buy.” The analysts also set a $78 price target on the stock. Will it happen? Tractor Momentum to Continue With its market share expanding and average ticket price rising, Tractor Supply is beginning to emerge from a difficult period this year. These factors should enable the company to notch consistent 12% revenue gains for the foreseeable future. In turn, this should translate to a higher share price. And despite price deflation in livestock feed, fencing, and lubricants, the other strong areas of the business should mean that Tractor Supply shares outperform its competitors. Given its outstanding quarterly performance, consider accumulating shares before the price catches up to the company’s real value. Richard Robinson The post Tractor Supply’s 20% Rebound Is Only the Start appeared first on Wall Street Daily . By Richard Robinson
    Orbital Sciences Shares Tank After Rocket Crash
  • By , 10/30/14
  • tags: ORB ATK
  • Submitted by Wall St. Daily as part of our contributors program Orbital Sciences Shares Tank After Rocket Crash By Tech Research Team   You probably saw the picture on the front page of every newspaper in the country this morning, or at least caught the video on YouTube… An Antares rocket, bound for the International Space Station (ISS), exploded shortly after leaving the launch pad on Tuesday evening. Luckily, it was an unmanned rocket, and no one was hurt on the ground. Additionally, the ISS is well supplied to withstand a cargo delivery delay. So while the astronauts may not get the Halloween treats that were on board the supply ship, they’re not in any danger. The same can’t be said of Orbital Sciences ( ORB ), though. The company made the Antares rocket – and predictably, the stock is getting crushed today, as the media savages the firm, as well as the entire philosophy of private space launches. Is the panic justified? Don’t Believe the Hype Clearly, the right time to sell an airline or spaceship company stock is the day before a crash, not after. But obviously, it’s impossible to predict such events . . . and investors are dumping shares now because they believe Antares is a flawed vehicle. This is harsh. Antares has had four successful launches. Plus, no one definitively knows what caused yesterday’s launch failure . . . and selling on partial information is rarely a good idea. That said, investors are also concerned about Orbital’s upcoming merger with Alliant Techsystems’ ( ATK ) launch business. You see, Alliant and Orbital plan to combine their aerospace businesses into a new company. The merger was supposed to close by the end of the year, but executives recently said the deal may not conclude until January because of regulatory delays. But in light of yesterday’s rocket failure, could the merger be called off altogether? Possibly . . .  but the United States (and other governments) needs Orbital around to maintain robust competition for launch vehicles and spacecraft. Meanwhile, the Financial Times seems to suggest that the government will reconsider privately contracting space launches. No chance. The fact is, launch vehicles and spacecraft have always been built by private contractors. Alan Shepherd even joked to reporters that his rocket was built by the lowest bidder way back in 1961. So even if the government retakes control of flight management – which is unlikely – companies like Orbital will still make the machines. Therefore, even after the crash, the merger makes sense for Alliant, Orbital, and the government. But does that mean Orbital is a good investment? Invest If You Dare . . . Ultimately, it’s hard to recommend this company for long-term investors. With revenue flat for five years, Orbital has had trouble creating momentum. Plus, it faces fierce new competitors like Elon Musk’s SpaceX. Yesterday’s crash certainly won’t help its prospects, either. Therefore, long-term investors should wait until the merger occurs to see what the combined Alliant-Orbital partnership can do. On the other hand, traders with strong stomachs could make some money by jumping into a contrarian trade and buy shares amid today’s panic selling. Soon, this failure to launch will be in the past, and investors will again focus on whatever they liked about Orbital before the crash. The Tech Research Team The post Orbital Sciences Shares Tank After Rocket Crash appeared first on Wall Street Daily . By Tech Research Team
    The End of QE and the Price of Gold
  • By , 10/30/14
  • tags: HUI NUGT
  • Submitted by SK Options Trading as part of our contributors program . The End of QE and the Price of Gold Background The programme known as Quantitative Easing is due to be halted at the end of October, coinciding with the next meeting of the Federal Open Market Committee, which is scheduled for 28/29 October 2014. Monetary policy plays a big role in gold’s fortunes and so the strategies put in place by the central banks around the world need to be watched very carefully. The Federal Reserve St Louis Fed President James Bullard has suggested that tapering could be put on pause as inflation is not running as high as expected. However, he is only one member of the committee and we would expect the Fed to stay the course and end QE, it could then re-evaluate the situation with the data coming through towards the end of the year. The Fed has often said that their strategy is data driven and so far the jobs numbers, for instance, have achieved an acceptable level in their eyes. However inflation has not achieved the Feds target and the fear of deflation casts a dark shadow over the economy in the United States and across the world. The Fed has also stated that it will raise interest rates and it’s a question of when and not if; mid 2015 has been touted by some for the first increase. The problem arises when the economy falters, unemployment rises and inflation turns into deflation. In the absence of a major event we would anticipate that the Fed will go ahead and end QE and will also talk in hushed words about the timing of an interest rate increase. Gold The end of QE and the talk of an interest rate rise will be supportive of the  US dollar and inversely will put downward pressure on gold prices. This is just one factor that deserves consideration when trying to assess gold’s future movements. There are also a lot of other factors that go into this melting pot, such as the slowing of the economies in Europe and what action Mario Draghi may take, the effect of the trade sanctions with Russia, the unrest in the Ukraine, the growing strength of ISIS, supply and demand, governmental restrictions on gold imports, etc. The price of oil must also be kept in focus as it has fallen 20% in the last three months; which usually helps to curtail inflation and thus gold tends to trade lower. Conclusion Those of us who lived through the inflationary times of the late 70s and early 80s will remember just how high interest rates had to go before inflation was curbed. The base rate back then was around the 19% level prior to putting an end to gold’s historic rally. So the point is that if and when the Fed decides to take action on interest rates then gold, silver and the associated mining stocks will take a tumble. The Fed constantly reminds us that they are data driven and should the data turn soft then we could see the re-introduction of QE. This would indeed be the turning point that we have been waiting for and the catalyst, that just isn’t there at the moment, to ignite gold prices. Once we are sure that this sort of action is on the cards then we will hit the acquisition trail with some gusto. Until then we will continue to hold cash and trade to the short side. It is important in these times not to be a “perma” anything but to remain flexible and be able to trade in either direction at any given time. In terms of timing; the summer doldrums have not been followed by a “fall” boom for precious metals which in turn has caused more suffering for the mining sector. The Gold Bugs Index; the HUI has been a horror show losing 2/3rds of its value in the last 3 years as the chart below shows: The HUI currently stands at 182 which is only 32 points above the low of 2008. Is it conceivable that the HUI could lose another 17% of its value? Absolutely and for those who have the cash this move down will present fantastic buying opportunities. There are times to be fully invested and times to exercise a little caution. Right now we are not prepared to adopt a cavalier approach to investment in the precious metals or their associated producers as they have produced numerous of false dawns over the last few years and so we remain wary of them. The next few days may give us an insight what the Fed have in store for us by way of monetary policy, which is in our view is the single most important element for gold bugs to watch. Got a comment, fire it in, especially if you disagree, the more opinions that we have, the more we share, the more enlightened we become and hopefully the more profitable our trades will be. Go gently. Disclaimer: makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents our views and replicates trades that we are making but nothing more than that. Always consult your registered adviser to assist you with your investments. We accept no liability for any loss arising from the use of the data contained on this letter. Options contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. Past performance is neither a guide nor guarantee of future
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    Time Warner's HBO To Offer A Standalone Service From 2015
  • By , 10/29/14
  • Time Warner ‘s (NYSE:TWX) HBO network has announced that it will offer a standalone service starting 2015. The company will try to reach 80 million homes, which haven’t subscribed to the network. HBO is a very popular network and offers recently released movies and original TV programming. HBO’s U.S. operations account for more than 25% of Time Warner’s value, according to our estimates. The network derives its revenue primarily from subscription fees, which have grown steadily over the past few years. While the company has not given any guidance on pricing for the standalone service, it could be anywhere around $18, according to some speculation. However, if the company does decide on this pricing, it will be very expensive and much higher than the $8.99 per month  Netflix (NASDAQ:NFLX) charges for its wide content base. On the other hand, it cannot afford to sell the standalone service at a lower price to what it charges for pay-TV, as it would trim the existing subscriber base. It will be interesting to see how HBO works on the pricing and if it can gain a solid subscriber base for its standalone service in 2015. HBO currently has 43 million subscribers in the U.S. and charges an estimated $7 monthly subscription fee, translating into revenues of over $3 billion. The estimated EBITDA margin of 39% for HBO translates into EBITDA of over $1.3 billion, representing 16% of Time Warner’s overall EBITDA for 2013.
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    Why Gap Inc's Shares Tumbled When Its CEO Announced Retirement
  • By , 10/29/14
  • tags: GPS ARO AEO
  • Shares of apparel major  Gap Inc (NYSE:GPS) stumbled by more than 10% recently after it reported weak September sales results and announced that its CEO Glenn Murphy will retire from his position. The company recorded a year over year decline of 1% in its September revenues, while its comparable sales dropped 3% as compared to the year ago period. Over the past couple of years, Gap Inc has been resilient in the otherwise edgy retail environment in the U.S., but its September results suggest that its performance is faltering. The company even said that its Q3 margins will remain under pressure due to its heavy traffic driving promotional activities. If this wasn’t enough to trouble investors, Gap Inc announced that its current CEO Glenn Murphy has decided to retire from the company at the end of the fiscal year. The market reacted somewhat negatively to this news as Mr. Murphy had played a pivotal role in reviving the retailer’s sales during his seven year tenure. The timing of Glenn Murphy’s retirement announcement wasn’t ideal as he did it just when the company was beginning to lose its growth momentum. The simultaneous reports of Mr. Murphy’s retirement announcement and Gap Inc’s disappointing September results had a negative impact on investors’ confidence in the company. Our price estimate for Gap Inc is at $51.86, implying a premium of more than 40% to the market price.
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    Broadcom's Infrastructure Business To Be Lumpy Near-Term; Long-Term Growth Remains Intact
  • By , 10/29/14
  • Broadcom (NASDAQ:BRCM) reported a strong Q3 2014 on October 21, primarily driven by strength in set-top box, broadband access and connectivity products, which came in ahead of its expectation and grew 16% sequentially. Strength in connectivity products was driven by the company’s continued leadership in high-end smartphones, tablets and access points as well as the increasing penetration of  802.11AC and 2×2 solutions. The broadband business continues to witness steady growth driven by leadership in set-top box and broadband modems. Broadcom’s infrastructure business on the other hand was roughly flat (in line with expectation), due to a pause in data center and service provider spending. (Read: Broadcom’s Q3’14 Growth Driven By Strength In Connectivity & Broadband ) In Q3 2014, Broadcom retained its growth momentum in the enterprise and home market due to increasing traction from its processor SoCs and wireless LAN routers and enterprise access points driven by increasing adoption of 802.11AC. However, growth in the enterprise and home market was offset by a sequential decline in revenue from data center and service provider sub-segments. Broadcom expects its infrastructure and networking business to be down sequentially in the current quarter as well. Nevertheless, the company believes that 2014 will mark its third consecutive year of double-digit growth for its infrastructure business. Though Broadcom admits that the infrastructure business remains lumpy in the short-term, the company believes it will benefit from new product launches and capabilities rolling out in the near future. Our price estimate of $41 for Broadcom is in line with the current market price. See Our Complete Analysis for Broadcom Here Pending New Product Launches & Capabilities To Lift Data Center & Service Provider Business  In The Near Future Broadcom claims that the decline in its datacenter business was not unexpected following the strong growth the business has seen over the past year and half. Since the beginning of 2013, the combined data center and service provider revenue has grown almost 50%, and the segment reported its sixth consecutive quarter of growth in Q2 2014. The company believes that the longer term growth drivers, including new build out and expansion of datacenters, increasing data traffic and faster speeds and the continued ASIC conversions to merchant solutions, remain intact and will continue to drive future growth. Broadcom continues to deliver innovative solutions that set the stage for an industry transition to more virtualized scalable data center architectures. The company recently launched a new family of switch products called Tomahawk, which deliver 32 ports of 100 gigabit Ethernet connectivity and is specifically designed for 25 and 100 gig applications in the datacenter. Aiming to fulfill the consumer need for higher data rates, Tomahawk is currently sampling with key cloud service provider and communication equipment OEMs. Broadcom believes that Tomahawk will not cannibalize its Trident business (which is now in volume production). On the contrary, Broadcom is of the view that Tomahawk will broaden its footprint into a wider range and applicability for the very large scale data centers that are going to be built. In its latest earnings call, Broadcom mentioned that its service provider businesses has done better then peers, many of whom reported double-digit declines. The company believes that its wide product portfolio and customer base enabled it to restrict the sequential decline to 2.5% in Q3 2014. Broadcom’s service provide business has seen double digit growth in the last few years and the company is confident the trend will continue for the next few years. We expect Broadcom to benefit from the ongoing transition to 4G LTE in China, where it has secured wins for switches, processors, the back haul and other technologies. Currently, only China Mobile is aggressively building out its TD-LTE network, but we expect the other carriers to join soon as FDD-LTE licenses are rolled out in the coming years. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research  
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    Sirius XM Meets Profit Estimates And Beats On Revenues
  • By , 10/29/14
  • tags: SIRI P
  • Satellite radio provider,  Sirius XM (NASDAQ:SIRI), sustained a steady rise in its subscriber base in the third quarter of 2014, on the back of healthy growth in new vehicle sales in the U.S. The company’s overall subscriber base increased 5% year over year to 26.7 million, and the self-pay subscriber base went up nearly 7% to 22 million. During the quarter, the company added a total of 432,817 subscribers, including 379,598 self-pay subscribers. The increase in Sirius XM’s total and self-pay subscribers in the third quarter is almost similar to its second quarter figures. Fueled by robust growth in number of subscribers and a marginal increase in average revenue per user (ARPU), Sirius XM’s revenues jumped 10% to $1.06 billion, which was slightly ahead of the market consensus of $1.04 billion. In line with the street estimates, the company’s net income more than doubled to $136 million or $0.02 per share, from $63 million or $0.01 per share in the same quarter last year. Following its Q3 results, the company raised its full year revenue guidance to $4.15 billion from its last quarter guidance of $4.1 billion. It is worth noting that this is the second occasion this year, when Sirius XM has raised its full year revenue guidance. Our current price estimate for the company stands at $3.58, which is about 10% above the current market price.
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    Pfizer Earnings Were Not Impressive
  • By , 10/29/14
  • tags: PFE MRK RHHBY
  • Pfizer’s (NYSE:PFE) sales declined by 2% in Q3 2014, which was not surprising considering the lack of catalysts and a large number of drugs losing out to competition. The termination of certain co-promotion agreements has further worsened the situation and has overshadowed the impressive growth in oncology and vaccine segments. The issue is that these businesses are still small and despite their strong growth, their incremental revenue contribution is still not sufficient to offset the sales decline in legacy products. Considering lack of breakthrough products on the horizon and recently failed bid to acquire AstraZeneca, we expect Pfizer’s growth to remain subdued. This may encourage the company to look for other smaller acquisitions or further streamlining its business. Our price estimate for Pfizer stands at $35, implying a premium of about 20% to the market price.
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    Currency Headwinds Shrink Organic Sales Growth For Colgate-Palmolive In Q3FY14
  • By , 10/29/14
  • tags: CL UL PG
  • Oral care player  Colgate-Palmolive (NYSE:CL) missed sales and GAAP-based earnings in its third quarter of fiscal year 2014. Quarterly sales stood at $4.38 billion compared to consensus average of $4.44 billion, weighed down by slowing volume growth in Europe. In reported terms, sales were marginally lower from the third quarter of 2013. Excluding currency headwinds and other inorganic growth contributors, Colgate posted an organic sales growth rate of 3.5% on a year on year basis for Q3FY14, with a 2% growth in volumes and a 1.5% growth in selling prices. Year to date, Colgate posted sales marginally over $13 billion. Its oral, personal and home care business generated about $11.38 billion in 2014 compared to $11.43 billion in the nine months in 2013. The decline in sales in this segment was primarily resulted by depreciating currencies in emerging markets, where Colgate has a lot of exposure. Comparatively, its Hill’s pet nutrition business posted sales of $1.68 billion compared to $1.63 billion during comparable periods, partly shielded from currency headwinds due to its larger presence in North America. Operating profit margins in the nine months in FY14 expanded by 20 basis points to 26.6%, driven by margin expansions in Asia, Europe  South Pacific and its Hill’s pet nutrition business. Margins for Colgate’s oral, personal and home care business in Asia expanded 1.1 percentage points on a year on year basis to 29.1%, on the back of margin share gains from new product launches. In Europe and South Pacific, operating margins expanded 2.2% in 9MFY14 to 26%, benefiting from streamlined operations and the formation of hubs. Within Hill’s pet nutrition, margins expanded 100 basis points to 26.1% due to lower SG&A expenses. Colgate’s quarterly bottom line fell short of estimates on a GAAP basis, at $0.59 in Q3FY14 compared to $0.71 in Q3FY13, impacted by charges relating to the 2012 Restructuring Program and the remeasurement of the Venezuelan Bolivar. Adjusting for these line items, non-GAAP earnings for Q3FY14 was in-line with analyst estimates, at $0.76. See our full analysis for Colgate-Palmolive Currency Headwinds Shrink Organic Sales Growth in Q3FY14 For the nine months into FY14, Colgate has managed to grow its organic sales by 4.5%, with product volumes increasing by 3% and selling prices expanding by 1.5%. However, currency headwinds equaled this organic growth rate, resulting in flat reported sales in 9MFY14. Divisionally, its Oral, Personal and Home Care divisions reported an organic growth rate of 4.5%, driven by 3% volume growth and 1.5% pricing expansion. However, reported sales declined by 0.5% in 9MFY14 on a year on year basis due to a 5% currency headwinds. Colgate continued to have high demand for its manual toothbrush products, with its newest Optic White Toothbrush and Built-In Whitening Pen contributing to sales acceleration and market share growth in North America. Similarly, the company has witnessed some market share gains in other segments such as Toothpastes and Mouthwashes. U.S. market share in Toothpastes stood at 35.8%, up from 35% in January 2014. This gain in market share in a competitive toothpaste market in the U.S. was driven by new product launches such as Enamel Health Toothpaste and Enamel Health Toothbrush. Outside the U.S., its products such as Total Advanced Whitening Toothpaste, Maximum Cavity Protection and Total Breath Health have contributed to share gains and organic sales growth. Going forward, we expect currency headwinds to slowly temper down while volumes and prices are likely to remain stable. This should aide an expansion in reported sales for Colgate-Palmolive going forward. Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    Merck Falls On Slightly Weak Results
  • By , 10/29/14
  • tags: MRK JNJ BMY
  • Merck ‘s (NYSE:MRK) shares slid slightly as the company reported another quarter plagued by revenue decline. While its diabetes and immunology drugs continued to be the face savers, weakness in the Hepatitis C franchise, a decline in vaccine revenues and the continued fall of legacy products resulted in 4% decline in pharmaceutical revenues. Merck needs to make efforts to ensure that its HPV (human papillomavirus) vaccine Gardasil continues its top line growth. The Japanese government’s decision to suspend proactive recommendation of HPV vaccine has impacted the drug’s sales since its enactment in Q4 2013. Additionally, Merck is all the more counting on its newly launched drugs Keytruda and Belsomra to pay off. The next quarter isn’t going be to be rosy either, unless these drugs can mitigate the impact of weakness in other categories. Our price estimate for Merck stands at $55.75, implying a slight discount to the market.
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    Avon Pre-Earnings: Improving Latin America And EMEA Markets Could Offset Weakness In North America And Asia
  • By , 10/29/14
  • tags: AVP REV EL LRLCY
  • Avon Products (NYSE:AVP) is scheduled to report Q3FY14 results on October 30th. Year to date, sales for the struggling cosmetics manufacturer declined nearly 12.5% compared to H1FY13 to $4.37 billion. Additionally, margins have spiraled down as the company failed to contain costs in a declining sales environment. Gross margins in H1FY14 decreased nearly 3% year on year to 59.6%. Operating margins witnessed a sharper decline, falling from 7.5% in H1FY13 to 1% in H1FY14, as investments into advertising and marketing campaigns failed to deliver on sales. For the upcoming quarter, sales are likely to continue declining on a year on year basis. Q3FY13 sales for Avon were $2.32 billion, and consensus revenue estimates for Q3FY14 stand 7% lower on a year on year basis. Additionally, the departure of its CFO Kimberly Ross could have substantial impact on margins from any disruption in strategy or financial planning, particularly in the domestic North American market. See Our Full Analysis for Avon Products LatAm and EMEA In Focus Last quarter, Avon failed to capitalize on the huge inflow of passengers for the FIFA World Cup in Brazil. The company underestimated product demand during the World Cup and stocked lower inventory levels and had less on-field representatives to cater to the demand. In H1FY14, sales from Latin America (LatAm) declined 12% on a year-on-year basis, with the region accounting for about 48.5% of total first half sales. Constant currency sales, which excludes the impact of currency fluctuations, increased 4% on a similar basis and highlight the strength of the Latin American market for Avon. Similarly, the Europe, Middle East and Africa (EMEA) market showed signs of recovery last quarter. The EMEA region accounts for nearly 30% of total Avon sales, and regional sales declined 7% year on year in H1FY14. However, sales last quarter posted a growth rate of 2% over Q2FY13, driven by a strong recovery in the U.K., which posted a 11% growth in reported revenues. Avon’s change in strategy and representative training programs have helped aid a strong recovery in the U.K last quarter, and the company intends to roll-out similar programs across its geographic portfolio. North America, Asia To Drag Down Sales While LatAm and EMEA have shown encouraging signs of a recovery for Avon, its North America and Asia markets continue to trim any gains from the former markets. The domestic North American market witnessed a 21% decline in sales due to increasing representative attrition. Sales in the Asia-Pacific market contracted 15%, impacted by depreciating local currencies and weak product consumption. For the upcoming quarter, we expect this trend of double-digit declines in North America and Asia to weigh on overall sales and margins. Additionally, the departure of its CFO and the transition of responsibilities to Mr. Robert Loughran could multiply Avon’s problems with the North American market. Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    Factors Responsible For The 20% Decline In Our Valuation For Cree
  • By , 10/29/14
  • We recently downgraded our valuation for Cree (NASDAQ:CREE) by more than 20%, from $51.96 to $40.96. The LED manufacturer reported disappointing earnings for the first quarter of fiscal 2015. (Fiscal years end with June.)  While Cree’s lighting business continues to grow at a strong pace, the lower LED demand and declining gross margins are impacting the company’s near-term growth prospects. (Read: Cree’s Q1’15 Results Hit By Weak LED Demand Though Lighting Continues To Grow Strongly ) Our updated price estimate of $41 for Cree is still at a significant premium (~25%) to the current market price. Despite short-term weakness, we continue to believe in Cree’s long-term growth potential. The continued growth momentum, combined with a strong balance sheet, gives Cree the flexibility to respond to new market opportunities. LED penetration is expected to increase in the future, and being one of the leading global LED manufacturers, Cree will benefit from the trend, in our view. Listed below are key factors that led to a more than 20% decline in our valuation for Cree.
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    NYT Earnings Preview: Digital Subscription To Grow, Print Subscription Revenue To Stabilize
  • By , 10/29/14
  • tags: NYT AOL YHOO
  • The New York Times Company (NYSE:NYT), one of the leading newspapers in the U.S., is set to report its third quarter earnings Thursday, October 30th. As the secular decline in print advertising and publishing continues, NYT is offering a comprehensive suite of digital content which includes both a video and digital print offering. In this earnings announcement the focus will be on the growth in New York Times’ digital subscriber base, which is expected to drive revenue growth in the future. Furthermore, since the company continues to expand to newer regions to boost its flagging revenues, we expect this result will give us a fair indication how it is faring in its expansion endeavors. We will closely monitor both factors in this earnings announcement. Click here to see our complete analysis of New York Times Digital Subscription Expected To Grow According to our estimates, the NYT’s print circulation and digital subscription division contributes over 46% to its stock value. While the NYT’s daily print circulation continues to decline, its digital subscriber base is gaining traction. The company continues to add content, especially video content, to its properties in an effort to attract more users. Additionally, the NYT continues to leverage its brand popularity to rope in new digital subscribers. We expect the NYT to show further improvement in online subscriptions in the quarter, and we will continue to watch this metric closely during this earnings announcement. Print Subscription To Stabilize Over the past few quarters, NYT has been able to leverage its brand name and popularity to raise print subscription prices, which has helped the company to stabilize its print subscription revenues and boost margins. We expect this trend to continue in Q3, and print subscription revenue to stabilize. Currently, we forecast NYT Times weekly price to increase to $15.40 by 2020. Expansion Plans In Focus One of the key strategies for the company has been expansion to new geographies, especially south east Asian countries that have a large population of English speakers. The company continues to roll out local content in these regions to attract users for its services. We believe that local content together with world class international content syndicated through its web portal should enable the company to make some headway in regions where it has expanded recently. In this earnings announcement, we are closely monitoring the growth in NYT’s revenue from international markets. Print Advertising Revenues To Decline Print ads are the second largest division of NYT and makes up for nearly 28% of its value by our estimates. With the advent of the Internet, the print ads business has been on a decline since most advertisers have increased spending on online ads. This division has not been able to buck the trend and continues to report a decline in revenue. We expect the trend to persist this quarter too. Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research    
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    Facebook Posts Solid Growth But Guidance Sends Stock Down
  • By , 10/29/14
  • tags: FB TWTR
  • Facebook (NASDAQ:FB)  continued to ride on its growth momentum during the third quarter, with revenue growing 59% to $3.2 billion. Bottom-line results were also encouraging, with GAAP operating margin increasing to 44% as compared to 37% in the same period a year ago. However, the guidance was disappointing on both revenue and profitability fronts and this led to a drop in the company’s stock price in after-hours trading. Facebook’s management expects revenue to rise by 40% to 47% annually in the fourth quarter, owing to difficult year-over-year comparisons. This represents a slowdown against near-60% levels seen during the previous two quarters. The management also expects costs to accelerate sharply during the remainder of 2014 and beyond. Though this outlook may seem discouraging on the face of it, we believe by making these heavy investments, Facebook is sowing seeds through which it will derive high growth over the next 5-10 years. The company has a long-term strategy in play and investors should not look down at the business just because of this guidance. We are bullish on Facebook’s growth prospects – investments on diverse platforms (such as Messenger, Instagram, WhatsApp, Search and Oculus) could reap multi-billion dollar businesses for the company in the long-run and management hasn’t even begun scratching the surface of this potential. Facebook is still prioritizing on user experience and wants to expand the audience on these platforms before monetizing them. In addition, increasing the relevance of advertising on core platform with better and more targeted ad products will continue fuel Facebook’s top-line both in the U.S. and international markets, where it’s still under-penetrated. We are in the process of revising our $65.56 price estimate for Facebook’ stock.
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    LinkedIn Pre-Earnings: What Factors You Should Be Looking Out For?
  • By , 10/29/14
  • tags: LNKD MWW FB
  • Investors will be closely tracking  LinkedIn (NASDAQ:LNKD)  on Thursday, October 30th, when the company posts its third quarter results, especially since it delivered stellar performance in Q2 which had led to over 10% increase in its stock price. Taking into account the recent investor reaction to earnings announcements by Twitter and Amazon – any slippage against market expectations either on earnings or member metrics side could send LinkedIn’s stock tumbling. During the third quarter, we expect the company to post around 40% revenue growth with a slight improvement in the adjusted EBITDA margin on a year-over-year basis. Increased user engagement, coupled with new targeted ad products, will push up monetization on the platform. LinkedIn has undertaken various measures to boost member addition, such as redesigning profile pages, growing the mobile ecosystem and publisher network, strengthening jobs listings and foraying into newer geographies. Though we expect these initiatives to fuel member additions, we will closely track member additions and engagement levels during the third quarter, to check how the numbers stack up against these measures. We expect there was strong and broad-based growth during the third quarter across the different segments, namely, Talent Solutions, Marketing Solutions and Premium subscribers. Our current price estimate for LinkedIn stands at $154, implying a discount of around 25% to the market price.
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    Starbucks' Earnings Preview: Entry Into New Beverage Segments & Full Ownership Of Japan Unit To Drive Future Revenue Growth
  • By , 10/29/14
  • Starbucks Corporation (NASDAQ: SBUX) is scheduled to release its annual earnings report for the fiscal 2014 on October 30. The coffee specialist has been an outperformer this year inspite of the bullish coffee run. The coffee futures are at 2.5 year high, as December Arabica-coffee prices rose nearly 80% over the last twelve months. Moreover, the March coffee contracts touched $2.29 per pound on speculations of further dry conditions in Brazilian coffee producing regions. From the start of this year, the drought conditions in the South American region has been ruining crops, pushing their prices up. Apart from the rising coffee prices, the quick service restaurants (QSRs), such as McDonald’s (NYSE:MCD),  Dunkin’ Brands (NASDAQ: DNKN) and  Burger King Worldwide (NYSE:BKW) are facing declining traffic and tough competition from fast casual restaurants. In the third quarter, the company’s global comparable store sales rose 6% yet again, marking its 18th consecutive quarter with above 5% comparable sales growth. The highlight of the company’s impressive performance in this quarter was its U.S. comparable sales growth of 7%, despite increasing competition in the breakfast segment and rising commodity prices. Each of the company’s reporting segments delivered excellent performance in Q3, leading to an 11% increase in revenues to $4.2 billion. We have  $82 price estimate for Starbucks, which is 8.5% above the current market price. See our full analysis for Starbucks Corportion Price Hike To Drive Sales Growth In response to the soaring coffee prices, Starbucks raised the prices of its coffee menu in the third quarter. The company raised prices on some of its drinks by 5 to 20 cents, whereas it raised prices of its packaged coffee sold in supermarkets and other retail stores by $1 (8%) to $9.99 per bag. Starbucks’ coffee prices are already high as compared to its peers, but the company targets a more affluent demographic of coffee drinkers that typically exhibit strong brand loyalty, making demand for its coffee more inelastic with respect to price fluctuations. Starbucks’ competitors, such as  Dunkin’ Brands (NASDAQ: DNKN), Peet’s Coffee and J.M. Smucker decided to raise their coffee prices in June. After ensuring that majority of the customers were aware of the reasons for the hike and the possibility of losing customer traffic was minimal, the company did not hesitate to raise its coffee prices. Beverages account for the majority of the company’s total retail sales and accounted for 74% of Starbucks’ total retail sales in 2013. Full Control Of Japan Unit To Boost Starbucks’ Revenue Growth In Asia On September 23, the Seattle-based coffee giant announced to acquire the remaining 60.5% of Starbucks Japan through a two-step tender offer process for about $914 million. Before this announcement, Starbucks had a 39.5% ownership interest in Starbucks Japan. Japan, which is Starbucks’ second largest market with over 1,000 restaurants, is a lucrative market for coffee companies, as it is the third highest coffee consuming nation in the world after the Unites States and Germany, as of 2013. The consumption of canned coffee in Japan has been constant with a significant increase in the consumption of roasted and ground coffee.  (See Starbucks’ Full Ownership Of Japan Unit To Boost International Revenue Growth ) In its 2013 annual report guidance, the company mentioned that it is increasing its operational activity in China and Asia-Pacific (CAP) for revenue growth. With the full ownership of a Japan unit, the company might accelerate its new store openings in the country to increase its customer base. According to our estimates, if the company doubles its pace of new store growth, the store count in Japan might reach 1,120-1,130 by the end of fiscal 2015. Increased number of outlets might translate to increased number of customers, and might boost the company’s revenue stream. The company also looks at this deal as an opportunity to expand its product sales through food service channels, to accelerate its retail sales and to provide a boost to its small share of RTD products that are popular in Japan. Expansion In New Beverage Segments Starbucks is already one of the dominant forces in the coffee industry, with 13% of the single-serve coffee market, behind only  Keurig Green Mountain (NASDAQ:GMCR). Apart from its renowned coffee stores, the company also owns and operates other brands such as Tazo, Seattle’s Best Coffee, Teavana, Evolution Fresh and La Boulange. Moreover, Starbucks introduced three new carbonated drinks under its Fizzio brand- Spiced Root Beer, Golden Ginger Ale and Lemon Ale.  Unlike existing at-home carbonation products where the machine carbonates the water and flavours are added afterwards, Fizzio carbonated drinks are finished beverages, with every ingredient receiving the same amount of carbonation. With its tea segment and recently introduced cold carbonated beverage segment, the company is entering into lucrative markets with completely different target customers. Both the new brands provide excellent platforms for the company to expand into bigger markets, apart from its coffee business. (See Starbucks To Enter Into New Beverage Segments With Teavana & Fizzio Brands ) Starbucks would have a hard time establishing its brand at a large scale in this market. However, it is still a big market and will provide incremental revenues for the company with a steady growth. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Delay In Industry Consolidation Expected To Keep Altria Earnings Stable
  • By , 10/29/14
  • tags: MO
  • When Altria Group (NYSE: MO) held its Q2 2014 earnings conference call, it was asked multiple times about the impact on it financials of the buy-out deal between competitors, Reynolds American and Lorillard. As it turns out, that deal has been delayed due to issues raised by the SEC. These two companies now hope to conclude the deal only by early 2015 now. This could lift much of the uncertainty from the Altria Group’s earnings in the third quarter of this year. Issues that can have a major impact on the earnings now are the deteriorating market for cigarettes in the U.S. and the preserving of margins. We analyze the trends that can influence the Q3 2014 earnings of Altria in this article. We have a $42.5 estimate for the value of the Altria Group share, whereas the market prices it at ~$47.5. Bloomberg Businessweek has an analysts consensus estimate of $4.7 billion for revenues and $0.68 for EPS for Altria Group in Q3 2014. See Our Complete Analysis For Altria Market Size Decline One of the alarming trends for those invested in tobacco stocks has been the pickup in speed of the degrowth of the cigarette market in the U.S. While the market size was decreasing at a rate of only 3.5% for the last three years, the first half of this year has seen the market fall at 4.5%. While the company’s management had expressed faith that this rate will revert to its medium term average, a continuation of this trend would have reduced the number of cigarettes sold by the industry this quarter. As per the management comments during competitor Reynolds American’s Q2 earnings call, the industry volume declined only 2.7% in the quarter. This seems to validate the Altria management’s beliefs and may bode well for their results. (All degrowth rates are annualized) Evolution Of The Market Share The scenario on market share also seems favorable to Altria. Rival, Reynolds American reported a marginal reduction in its market share over the previous quarter. As per the Reynolds American management, the industry has managed to reduce its inventory this quarter by 800 million units year on year. Reynolds American itself has contributed to only 200 million units of these. A good part of the remainder is likely to be due to Altria. This could have helped Altria defend its market share. We expect the category wise market shares of the company’s products to maintain the trajectory of stable and modest growth seen in the past. The company’s flagship brand, Marlboro had increased market share by 0.1 share points in the first half of this year. This is in line with the stated objective of the management to maintain margins in the smokables category while aiming for modest market share increases. The smokeless category provided better growth, rising 0.3 share points in the first half of the year. It may do so this quarter as well. Pricing And Costs Reynolds American also reported improvements in pricing, that helped it increase its revenues in Q3 over Q2 2014. In fact, one analyst described the pricing as having been  almost too high . Given the oligopolistic nature of competition in the industry, it is likely that Altria too benefited from better than expected price increases. Higher pricing had been the major factor that helped Altria grow operating companies income in Q2 2014 as well. On the cost side, SG&A (Selling, General and Administrative) expenses remain a concern. In Q2, it had come in at 14% of sales, a rise of 21% year on year. The major contributor to this was the rollout of MarkTen brand of e-cigarettes across 60,000 retail stores in western U.S. However, the competitor, Vuze from Reynolds American, has also achieved a similar rollout in Q3, gaining presence in 70,000 stores. This could mean that Altria may have to spend more in promotions on this product going ahead as well, adding to SG&A expenses. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap |  More Trefis Research
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    Earnings Preview: MGM's Casino Results Will Reflect Headwinds From A Decline In Gaming
  • By , 10/29/14
  • tags: MGM WYNN LVS
  • MGM Resorts (NYSE:MGM) will report its Q3 2014 earnings on October 30th. We believe the company continues to face headwinds from a decline in gambling, both in Macau and the Las Vegas Strip. While Macau witnessed a decline of 7% in gaming, Nevada gaming declined 3% for the quarter. However, we expect continued growth in the company’s non-gaming operations. The company expects 5% growth in hotel RevPAR (revenue per available room) for the third quarter. We estimate gross revenues of about $11 billion for MGM Resorts in 2014, with EPS of $0.54, which is in line with the market consensus of $0.47-$0.82, compiled by Thomson Reuters. We currently have a  $26 price estimate for MGM Resorts, which is approximately 15% ahead of the current market price. It must be noted that the stock price has corrected by more than 10% since the company last reported its earnings. Casino stocks have corrected as investors realized the decline in Macau gaming would persist in the coming months.
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    Newmont Earnings Preview: Lower Gold Prices To Weigh On Results
  • By , 10/29/14
  • tags: NEM ABX FCX SLW
  • Newmont Mining (NYSE:NEM) will announce its third quarter results on Thursday, October 30 and conduct a conference call with analysts the next day. We expect lower gold prices in the third quarter, as compared to the corresponding period last year, to negatively affect Newmont’s results. Newmont announced the resumption of its mineral exports from Indonesia towards the end of September, ending a near eight month suspension of its exports from the country. The company had halted exports pending negotiations with the Indonesian government over new regulations governing mineral exports from the country that came into effect in January. The resumption of exports, albeit under new regulations, will positively impact the company’s flagging copper shipment volumes from its Indonesian mining operations starting from the fourth quarter. However, the company will once again report lower year-over-year copper shipments in Q3 as a result of the export restrictions. The company has divested a number of high-cost, non-core assets since the middle of last year. This will help lower the company’s cost structure and better position it to operate in subdued gold pricing environments. Newmont continued with its startegy of divestment of non-core assets with the announcement of the sale of its interest in the Penmont joint venture in Q3. See our complete analysis for Newmont Mining Gold Prices Gold prices have fallen over the course of the last year, reacting to cues regarding tapering of the Federal Reserve’s Quantitative Easing (QE) program. Going forward, the Fed’s outlook on the U.S. economy is important as far as gold prices are concerned. With the economy strengthening, the Fed is expected to raise interest rates some time in 2015. However, the timing of an interest rate hike is contingent upon the pace of economic and jobs growth in the U.S. An interest rate hike is likely to lead to a decline in the price of gold, as investors shift towards higher yielding assets. London PM Fix gold spot prices averaged roughly $1,330 per ounce in Q3 2013. Prices have averaged roughly $1,280 per ounce in the third quarter this year.  Gold accounted for 92% of Newmont’s revenues in 2013. Lower gold prices are expected to negatively impact the company’s results in the third quarter, as compared to the corresponding period a year ago. Copper Production and Shipments The company is expected to report a sharp decline in copper production in the third quarter. The company’s copper mining operations at Batu Hijau in Indonesia were expected to account for around 70% of Newmont’s estimated consolidated copper production of 160,000-175,000 tons for 2014, at the time when the company declared it’s Q4 2013 results. Due to the export restrictions and the ultimate suspension of operations in Indonesia after its storage facilities were filled to capacity in June, Newmont’s consolidated copper sales stood at $101 million in the first half of the year, significantly lower than the figure of $169 million for the corresponding period last year. The suspension of operations at Batu Hijau through most of the third quarter will result in a substantial drop in copper production in Q3. However, the fall in shipments will be lower ethan the fall in production as the company will sell its stocks of concentrate from its storage facilities. Portfolio Optimization Newmont completed the sale of its interest in the Penmont joint venture in October. The sale of Newmont’s interest in the the Penmont joint venture is consistent with the company’s disciplined approach to capital allocation. Newmont has made efforts to optimize its portfolio through the sale of non-core assets. The company has raised nearly $1.3 billion through non-core asset sales since last year. The company intends to redeploy capital into projects that offer better returns. Asset sales and operational improvements have helped lower the company’s all in sustaining costs (AISC) metric, which stood at $1,063 per ton in Q2 2014, around 17% lower as compared to the corresponding period a year ago. However, only 10% reduction in AISC is attributable to operational improvements, with the remaining 7% due to absence of significant inventory write-downs. The AISC metric captures all of the expenditures incurred to discover, develop and sustain production. AISC includes costs applicable to sales, remediation costs, general and administrative costs, advanced projects and exploration expenses, treatment and refining costs, sustaining capital expenditure and other miscellaneous expenses. This metric helps investors gauge the company’s performance better. Focusing on its low-cost, core gold mines will lower the company’s average costs of production, as well as give it the flexibility to operate in a possible scenario of lower gold prices. Thus, just like in Q2, the company is expected to report lower year-over-year AISC figures in Q3. Expectations from Conference Call With the resumption of normal operations in Indonesia, the company management is expected to provide a revised guidance for production and shipments from its Indonesian operations. We would also like to know from the management if there are any additional asset sales on the horizon, considering the subdued  prevailing gold pricing environment. This should shed some light on the road ahead for Newmont. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    Vale Earnings Preview: Higher Iron Ore Volumes To Partially Offset Effect Of Lower Prices On Results
  • By , 10/29/14
  • tags: VALE CLF RIO MT
  • Vale (NYSE:VALE), the world’s largest iron ore mining company, will announce its third quarter earnings results and conduct a conference call with analysts on Thursday, October 30. We expect lower iron ore prices in the third quarter, as compared to the corresponding period last year, to negatively impact the company’s quarterly results. The company has released its production report ahead of its earnings announcement. Higher iron ore shipment volumes in the third quarter, supported by the ramp-ups of Plant 2 in Carajás and the new Conceição Itabiritos plant, will partially offset the negative impact of lower prices on results. See our complete analysis for Vale Iron Ore Prices Iron ore is an important raw material for the steel industry. Thus, demand for iron ore by the steel industry plays a major role in determining its prices. International iron ore prices are largely determined by Chinese demand since China is the largest consumer of iron ore in the world. It accounts for more than 60% of the seaborne iron ore trade. Weak demand for steel in China has translated into weak demand for iron ore. Chinese steel demand growth is expected to slow to 3% and 2.7% in 2014 and 2015 respectively, from 6.1% in 2013. A slowdown in economic growth has tempered the demand for steel. China’s GDP growth is expected to slow to 7.3% and 7.1% in 2014 and 2015 respectively, from 7.7% in 2013. Further, a Chinese government crackdown on polluting steel plants has forced many of them to shut down. In addition, the tightening of credit by Chinese banks to steel mills that are not performing well, will negatively impact these mills’ prospects. Furthermore, the Chinese leadership has proposed structural reforms of the economy, shifting the emphasis from investment and export driven growth to services and consumption led growth. Such a transformation of the Chinese economy may negatively impact Chinese demand for steel in the long term. The weak Chinese economic prospects are captured by the Manufacturing Purchasing Managers’ Index (PMI). The Manufacturing PMI measures business conditions in the manufacturing sector of the concerned economy. When the PMI is above 50, it indicates growth in business activity, whereas a value below 50 indicates a contraction. Chinese Manufacturing PMI, reported by China’s National Bureau of Statistics, stood at 51.1 for September, and has ranged between 50.2 and 51.7 for the whole year. With weak Chinese manufacturing growth, demand for steel is expected to remain subdued in China. On the supply side for iron ore, expansion in production by majors such as Rio Tinto and BHP Billiton despite weak Chinese demand, has created an oversupply situation. A combination of weak demand and oversupply is likely to result in lower iron ore prices in the near term. Iron ore prices stood at $82.38 per dry metric ton (dmt) at the end of September, around 38% lower than at the corresponding point of time last year. As per Goldman Sachs, the worldwide surplus of seaborne iron ore supply will rise to 175 million tons in 2015, from an expected 72 million tons for 2014 and 14 million tons for 2013. Iron ore and iron ore pellets collectively accounted for around 73% of Vale’s net operating revenues in 2013. Weak iron ore prices will certainly have a major impact upon the company’s results. Production Review Iron ore production in Q3 2014 rose to 85.7 million tons, which is Vale’s highest ever quarterly production figure. Iron ore production in the third quarter was 3.1% higher than in the corresponding period last year. The increase in iron ore production in the second quarter was due to the ramp-ups of Plant 2 in Carajás and the Conceição Itabiritos plant. The increase in iron ore output is consistent with Vale’s long term plans to boost volumes, capitalizing on its low-cost iron ore deposits. Various projects are expected to result in growth in Vale’s iron ore production from 321 millions tons in 2014 to 453 million tons in 2018. Nickel production stood at 72,100 tons in Q3 2014, 16.4% higher than in the corresponding period a year ago. This was primarily due to the ramp-ups of production at the Sudbury mining complex in Canada and the Onca Puma mining complex in Brazil, offset by lower production from the company’s operations in Indonesia and New Caledonia. Copper production stood at 104,800 tons, up 10.8% from the corresponding period a year ago, primarily due to ramp-ups of production at the Sudbury and Salobo mining complexes. Coal production stood at 2.3 million tons in Q3 2014, up 5.9% sequentially, due to higher output from the Carborough Downs, Moatize and Isaac Plains operations. Other Developments In view of the weak iron ore pricing environment, Vale has adopted a strategy of cost reduction, disciplined capital allocation and divestment of non-core assets in order to remain competitive. Vale has embarked upon a mission to optimize its portfolio, divesting non-core assets in order to free up capital and invest it in projects that will give better returns. The company sold non-core assets and investments worth $6 billion in 2013. In addition, the company has also significantly reduced its capital expenditure. Going forward, it is focusing on a smaller project pipeline that would generate greater value for shareholders. Vale’s capital expenditure reduced from $16.2 billion in 2012 to $14.2 billion in 2013. The company’s capital expenditure budget for 2014 is even lower at $13.8 billion.  The decision to idle the Isaac Plains coal mine, announced in September, is consistent with its strategy to allocate capital to projects that will generate better returns. As a part of its efforts to enhance efficiency and cut costs, Vale generated savings of $2.8 billion in 2013. The company continued to achieve results in its cost reduction efforts with savings of $250 million in the first half of 2014, as compared to the corresponding period last year. Expectations from Conference Call With iron ore prices likely to remain subdued in the near term, we would like to know what the company’s strategy is in response to the prevailing pricing environment. Specifically, we would like to know if the company management has identified any further opportunities for portfolio optimization or cost reduction. This will throw some light on the road ahead for Vale. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
    JCI Logo
    Non-residential Construction Spending and Automotive Production Will Likely Lift Johnson Controls’s Earnings
  • By , 10/29/14
  • tags: JCI HON
  • Johnson Controls (NYSE:JCI) is set to release its fourth quarter fiscal year 2014 results on Thursday, October 30, 2014. The maker of auto batteries, auto seats, and building cooling and heating systems witnessed a good first half, in which its revenues and earnings rose strongly on higher global automotive production and gains from cost cutbacks, partially offset by weakness from the commercial heating, ventilation and air-conditioning (HVAC) markets of North America and Europe. The trend continued to drive revenue in the third quarter, but earnings were dampened by one-time costs primarily related to changes in the company’s business portfolio. In the fourth quarter, we expect to see the company post healthy growth in sales of its automotive seating and batteries. Johnson Controls’ Building Efficiency segment may benefit from the slight uptick in non-residential spending. Revisiting the third quarter 2014 Johnson Controls’ earnings fell by 68% annually to 26 cents per share in the third quarter as restructuring and other one-time costs more than offset the moderate increase in the company’s top line. The company also sold its headliner and sun visor product lines during the quarter. Transaction related costs and losses from these divested businesses imposed $140 million in one-time costs on the company in the third quarter. Johnson Controls also spun-off its auto interior business during the quarter through a joint venture with a Chinese company. Restructuring related to this development imposed another $162 million in one-time costs on the company in the third quarter. As a result, Johnson Controls’ third quarter earnings sank. However, excluding these one-time items, the company’s earnings rose by 17% annually to 84 cents per share on higher global automotive industry production. See our complete analysis of Johnson Controls here Weak Commercial HVAC Markets may turnaround A large part of Johnson Controls’ Building Efficiency segment is exposed to healthcare and educational construction spending, and government spending in the non-residential construction sector in the U.S. Spending in these sectors continued to decline in 2014, affecting Johnson Controls Building Efficiency segment. In the nine months ended June 30, Johnson Controls’ Building Efficiency revenues declined 4.4%. However, there have been some signs of improvement in the U.S. non-residential spending which may have a positive impact on Johnson Controls’ fourth quarter Building Efficiency revenues. In July and August 2014, seasonally adjusted government non-residential construction spending grew 2.1% and 2.3% year-on-year in July and August respectively. Also, declines in healthcare and educational construction spending have moderated from what was seen in the beginning of the year. However, construction spending in these sectors has declined quarter-on-quarter in August, which does raise some concern. Johnson Controls’ acquisition of Air Distribution Technologies (ADT), one of the largest providers of air distribution and ventilation products for buildings in North America, should add to its Building Efficiency revenues in the fourth quarter. Johnson Controls’ recently announced that it is looking to sell off its facilities management business unit, Global Workplace Solutions, which is a part of its Building Efficiency segment. In the fourth quarter results, we will look for any new information related to the company’s ongoing review of its Global Workplace Solutions. Growth from the Global Auto Sector Will Lift Johnson Controls’s revenue In its outlook for fiscal 2014, Johnson Controls forecast automotive industry production to rise across all major markets including North America, China and Europe. In the first nine months of the fiscal year 2014, this turned out to be the case, and in the fourth quarter, we anticipate the trend to continue. The company through its auto batteries and auto seat segments generates more than half of its revenues from the global automotive sector. The rising production in the global automotive industry will likely play a key role in driving top line growth in Johnson Controls’s fourth quarter results. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    COP Logo
    ConocoPhillips' Earnings To Receive A Boost From Higher Production, Thicker Margins
  • By , 10/29/14
  • tags: COP APC EOG
  • ConocoPhillips (NYSE:COP) is scheduled to announce its 2014 third quarter earnings on October 30. We expect lower crude oil prices to weigh on the company’s year-on-year earnings growth. Benchmark crude oil prices have declined sharply over the past few weeks on rising supplies and falling demand growth estimates. The average  Brent crude oil spot price declined by almost 8% year-on-year during the third quarter. However,  spot Henry Hub natural gas prices were up more than 11% y-o-y during the last three months, which should partially offset the impact of lower crude oil prices. In addition to higher natural gas prices in the U.S., we expect ConocoPhillips to also benefit from better sales volume mix compared to last year. This is primarily because we expect the ongoing development of liquids-rich assets in the Lower 48 states to boost its hydrocarbon production the most. During the earnings conference call, we will be looking for an update on ConocoPhillips’ new project development, which is aimed at growing its average daily hydrocarbon production in the long run. ConocoPhillips is the world’s largest independent exploration and production company by proved reserves and annual production. Its daily hydrocarbon production averaged at around 1,556 thousand barrels of oil equivalent (MBOED) during the second quarter of this year, and it had proved reserves of around 8.9 billion barrels of oil equivalent (BOE) at the end of last year. Headquartered in Houston, Texas, the company has operations in 27 countries, generating annual sales revenue of more than $60 billion. We currently have an  $85/share price estimate for ConocoPhillips, which is around 12.8x our 2014 full-year adjusted diluted EPS estimate for the company. See Our Complete Analysis For ConocoPhillips Increased Lower 48 Development To Boost Hydrocarbon Production ConocoPhillips expects to boost its net hydrocarbon production rate from around 1.5 million BOE per day (MMBOED) in 2013 to 1.9 MMBOED by 2017. Since the company’s 2013 base production is expected to decline to around 1.1 MMBOED by 2017 due to normal field declines, it effectively plans to add new production of almost 0.8 MMBOED in a period of 4 years. A large majority of this new production (~50%) is expected to come from the ongoing development of its onshore assets in the Lower 48 states. We expect the ongoing development of the company’s acreage in the Eagle Ford and the Bakken shale plays to account for most of the hydrocarbon production growth during the third quarter. The Eagle Ford shale is now the largest tight oil play in the U.S. by EIA estimates. Its proved crude oil reserves of 3.4 billion barrels are greater than those of the Bakken Formation of North Dakota. ConocoPhillips plans to invest $3 billion annually in the development of its acreage in the Eagle Ford play and expects to more than double the rate of production from around 119 MBOED in 2013 to over 250 MBOED by 2017. In the previous quarter, the company’s average production rate from the Eagle Ford jumped over 30% y-o-y to 157 MBOED. The Bakken Shale Play is located in Eastern Montana and Western North Dakota, as well as parts of Saskatchewan and Manitoba in the Williston Basin. According to latest EIA estimates, the Bakken tight oil play holds 3.2 billion barrels of technically and economically recoverable crude oil. ConocoPhillips plans to invest roughly $1 billion annually in the development of its acreage in the Bakken play and expects to ramp up production rate from around 33 MBOED in 2013 to over 68 MBOED by 2017. During the second quarter, the company’s average production rate from the Bakken stood at 51 MBOED, which was almost 70% higher than the previous year’s quarter. Efficiency Improvements and Better Mix To Drive Margin Expansion The growth in ConocoPhillips’ Lower 48 production is also expected to boost its third quarter operating margins because of continuous improvements in drilling and completion cost efficiencies and better volume-mix. Over the past 4 years, the company has been able to achieve drilling and completion cost efficiency improvements of 37% and 41%, respectively in the development of its acreage in the Eagle Ford tight oil play. Most of this efficiency improvement can be attributed to the increased use of multi-pad well drilling. ConocoPhillips plans to further reduce its average total cost per well by using multi-well pad drilling technique in 75% of all the wells drilled in the Eagle Ford play this year. In addition to cost efficiency improvements, ConocoPhillips’ operating margins are also expected to expand because of the improvement in its sales volume-mix. During the first half of this year, ConocoPhillips’ hydrocarbon production from continuing operations (excluding Libya) grew by 60 MBOED, net of field declines. More importantly, most of this growth came from the right areas, which boosted its operating margins. In North America, where natural gas prices are still depressed by international standards, the company’s natural gas production declined by 14 MBOED or approximately 3.5% y-o-y, while liquids (crude oil and natural gas liquids) production from the Lower 48 states increased by 40 MBOED or 17% y-o-y. This boosted ConocoPhillips’ price-adjusted cash margins by almost $2.1 to $29.63 per BOE. We expect ConocoPhillips’ cash margins to continue to expand in the short to medium term on the continued ramp up of its liquids-rich onshore assets in the U.S. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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