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Trefis Analysis

COMPANY OF THE DAY : RALPH LAUREN

Ralph Lauren is set to report earnings on Wednesday. The company appears poised to continue on its growth trajectory going forward, due to new launches and several other factors. Our pre-earnings note discusses these factors in detail.

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FORECAST OF THE DAY : LINKEDIN'S REGISTERED MEMBERS

LinkedIn continues to see growth in its member base, driven largely by its international expansion and mobile strategy. These factors should continue to drive growth in the company's registered members.

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RECENT ACTIVITY ON TREFIS

GPS Logo
Is Store Consolidation Actually Working Out For Gap Inc?
  • By , 8/4/15
  • tags: GPS AEO ARO
  • Apparel vendor  Gap Inc  (NYSE:GPS) started closing domestic stores for its namesake brand and Old Navy several years ago, after their large store networks began cannibalizing their own sales. Other reasons that triggered and kept the store consolidation going were  an industry-wide decline in foot traffic (thanks to the online shift) and the gradual adoption of the omni-channel model. The company has closed a total of close to 300 domestic stores for  Gap and Old Navy combined   since 2009, realizing that its position in the market had saturated.   For its consolidation, Gap Inc has mainly identified stores whose revenue contribution to the company is much weaker than expense contribution. While the idea behind such closures is almost apparent, has this strategy actually worked out for Gap Inc? An analysis of the company’s revenue and expense metrics shows that while revenue per store has gone up during the last six-year store consolidation period, expenses per store were not allowed to increase comparably. This is exactly what the the strategy was intended to achieve. In fact, since online retailing is expected to become a major contributor to overall sales at a certain point in the future, keeping expenses under control will be a major task for Gap Inc. Online by nature is a low-margin business and its rapid growth relative to the store business will be accompanied by an unwanted margin pressure. Hence, store consolidation is a way of reducing costs, as Gap Inc would have to shed less money on their operating expenses and leases, and it can simultaneously spend more on its online channel to ensure uninterrupted growth.  Our price estimate for Gap Inc is at $47, implying a premium of about 20% to the market price.
    GMCR Logo
    Can Keurig 2.0 Turn The Story For Keurig Green Mountain In Q3 2015?
  • By , 8/4/15
  • tags: KEURIG-GREEN-MOUNTAIN GMCR SBUX KO
  • Keurig Green Mountain  (NASDAQ:GMCR) is scheduled to release its Q3 2015 earnings report on August 5, 2015. With all eyes on the brewer sales for the June-ended quarter, investors are waiting to see if the Vermont-based K-Cups maker can beat its market estimates of $0.79 EPS and $1.04 billion in revenues. Three consecutive quarters of poor brewer volumes, an unimpressive launch of Keurig 2.0, as well as a delay in the launch of Keurig Kold to retail stores nationwide, made investors skeptical about the future growth of the company. As a result, GMCR’s stock plummeted more than 35% over the last 3 months and is currently trading close to $75. Accordingly, Trefis has updated the price estimate for the company’s stock, lowering the brewer volume sales for the year 2015 and 2016. Moreover, the recent updates in the Keurig Kold segment further brought down the price estimate for the company. We have a  $72 price estimate for Keurig Green Mountain, which is roughly 3% below the current market price. See our full analysis of GMCR here In Q2 2015, the company repeated its tragic scenario with a massive 23% year-over-year (y-o-y) decline in the brewer and accessory sales to $106 million, driven by a 22% y-o-y decline in sales volume. This major drop in brewer volume offset the 7% y-o-y increase in sales of portion packs, and consequently, the net sales witnessed a mere 2% y-o-y increase to $1.127 billion in Q2 2015. Can Keurig 2.0 Boost The Brewer Sales? Keurig Green Mountain has been known for its dominance in the single-serve coffee segment, with its innovative technology and high popularity of K-Cups and brewers. Now, when a company’s core product faces decline in demand, it is an alert signal. Among the many reasons leading to lower brewer volume sales, the difficulty in the shift from Keurig’s old brewer to the new version Keurig 2.0 is the primary reason. After the launch of Keurig 2.0 last year, the company faced delays in putting the new packs on the retail shelves. Furthermore, the consumers were unclear about some of the details of the new brewer, and that made some of them not shift to the new version. To add fuel to the fire, certain MINI plus brewers were recalled during the holiday season of 2014. (See: The story repeats in Keurig’s Q2 earnings report, as brewer sales disappoint ) To clear up the misperception, the company prepared a more effective packaging, which will communicate the details and features of the product more clearly to the customers. Furthermore, to increase the brewer sales for the holiday season, the company is planning on bringing the ‘My K-Cup accessory’ back to the market, which will allow the users to brew any coffee of their choice. However, these initiatives will take a couple of quarters to show some impact on the financial performance of the company. Effectively, the brewer sales come down to the performance of Keurig 2.0. Keurig Green Mountain expects a flat to low-single digits growth in the net sales in the third quarter of the fiscal 2015. In the calendar year 2014, Keurig Green Mountain sold 10.3 million brewers. According to Trefis estimates, the  annual brewer volumes might just reach 10.82 million by 2016, with an annual growth rate of 2.5%. Keurig Kold: The Wait Is Killing Everyone Being one of the most awaited products in the market, Keurig Kold might be a game-changer for Keurig Green Mountain. However, the delay in the initial launch of the product is hampering the excitement among the customers and investors. In May 2015, Keurig Green Mountain held a separate investor presentation for its new cold brewer product, where the company mentioned that the Keurig Kold will be launched nationwide in a 4 phase process. In the phase 1, which will be starting in the fall of 2015, the Kold brewers and related products will be launched on online platforms, and the rest of the three phases will be concerned with the expansion of the product in retail stores. The last phase, which is expected to be over by the holiday season of 2016, includes the completion of the Keurig Kold expansion in retail stores nationwide. The extended timeline for the product’s placement on retail shelves is the primary reason for disappointment among investors. The real picture of customers’ initial response to the product will be clear only after the product is available online in the fall of 2015. According to our estimates,  the company might be able to sell roughly 0.4 million Kold brewers in 2016, and  37.5 Kold K-Cup packs per brewer in 2016 . Below is our forecast for Keurig Kold revenues. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
    ARO Logo
    Here's Why No One Wants To Buy Aeropostale — Neither Products Nor The Company
  • By , 8/4/15
  • tags: ARO ANF AEO
  • Fast-fashion retailers have taken the U.S. apparel industry by storm, driving customers away from specialty casual brands with fresh-fashion being launched almost every week. Designers at Zara, Forever 21 and H&M consistently strive for new designs, conceiving new trends frequently, which subsequently become a must-have for fashion-conscious buyers. Casual apparel retailers like  Aeropostale  (NYSE:ARO), who earn a major portion of their revenues from basic-logo merchandise, have suffered terribly at the hands of fast-fashion companies. A lack of comparable innovation and diversity in products has driven Aeropostale’s customers to other retailers in the industry, leaving the company in tatters. Even buyers seeking basic merchandise have shifted their interest from specialty brands to private labels at general merchandise retailers, further adding to Aeropostale’s problems. Due to a significant decline in the number of customers and an increase in traffic driving promotional activities, Aeropostale’s comparable sales have come down substantially over the past four years. Simultaneously, the retailer’s value has diminished by over 95% over the last five years, and is currently worth just over $120 million in the market. On the outside, it seems a paltry investment for a strategic or a financial buyer, who can revamp the company’s business model and revive its growth away from the investors’ eyes. However, despite long standing speculation around a probable buyout, no one has come forward with an offer. It appears that Aeropostale’s lack of cash, high operating lease and uncertain future have driven investors and potential suitors away. Our price estimate for Aeroposatle is at $3.29, implying a premium of over 100% to the current market price.
    DIS Logo
    Here Are The Key Triggers For Disney's Stock – Part 1
  • By , 8/4/15
  • tags: DIS CBS FOX NFLX AMZN TWX VIA
  • While  Disney  (NYSE:DIS) is facing some pressure on revenues due to lower television ratings, ESPN is riding high with the success of its sports programming, boosting the company’s overall top line. We believe the network will maintain its leadership position in sports programming for the foreseeable future as it has renewed most of its key programming deals in the past few years. ESPN has seen an uptick in viewership in the recent past, and this has boosted advertising revenues for Disney. Over the next few years, we expect ESPN’s revenues to grow, primarily on higher advertising sales and subscriber growth. However, EPSN has been spending heavily on acquiring programming rights and it has weighed on the network’s bottom line in the recent past. This suggests that there is room for stock price movement depending on the viewership trends in the upcoming sports events. We believe that growth in ESPN viewership and subscribers can be prime triggers for Disney’s stock. Additionally, Disney’s other cable networks and broadcasting are facing the heat from the rise of digital platforms such as Netflix and Amazon Prime. This has resulted in lower ratings and, if this trend continues, it could drag Disney’s stock price lower. Understand How a Company’s Products Impact its Stock Price at Trefis ESPN Ratings Grow By 5% (+10% Upside To Stock Price) Sports programming across the networks has resulted in higher viewership. From NBC’s Winter Olympics coverage last year to Fox’s recent coverage on Women’s Soccer Worldcup, ratings have grown significantly. The viewership growth in sports programming is great news for ESPN. The network has been the leader in sports programming and will remain so for the foreseeable future, as it has renewed most of its programming deals for long term, including NFL. Looking at 2014 ratings, ESPN was the most watched cable network with a 3% uptick in ratings in 18-49 demographics. The network’s advertising revenues also grew by 5% to over $4.50 billion in calendar year 2014. Higher viewership will not only boost advertising revenues but also subscription revenues. While we acknowledge the network’s subscriber base declined last year, we believe that demand for sports programming will drive ESPN’s subscriber growth in the coming years. A 5% ratings growth annually for ESPN could add incremental revenues of close to $5 billion over the next few years, adding 10% to our price estimate and EPS for 2021. This growth will not only come from higher ad pricing but also from higher subscription fees and EBITDA margins . Broadcasting And Cable Networks Ratings Decline By 5% (-10% Downside) Most of the broadcasting as well as the cable networks have seen a decline in ratings in the recent past amid the rise of alternative video platforms such as Netflix and Hulu. Advertisers are allocating higher budgets towards digital media and the proportion of television in overall advertising spend is declining and is expected to continue this trajectory, according to research by Strategy Analytics. While ABC managed to do well in the 2014-15 television season, the overall trend in broadcasting remains negative. Over the past few years, cable networks have risen in popularity owing to their specific focus. This has helped them create a loyal audience base and, consequently, broadcast networks have suffered in terms of viewership. However, in the recent past, even cable networks have been hammered, owing to the rise of alternative video platforms. For instance, The Disney Channel saw a 21% decline in ratings among kids 2-11 and 6-11 in 2014. Accordingly, we expect broadcasting ad revenues to decline in the coming years as lower volumes will offset higher ad pricing. Similarly, we expect a little growth in the cable networks (except ESPN) such as The Disney Channel owing to the growth of alternative video platforms. Having said this, it is possible that we are underestimating the shift in growth of digital platforms and social media, as the decline in ratings is not limited to Disney’s networks but far more widespread to most of the broadcasting as well as cable networks. Other broadcasting networks had declining viewership as well, including Fox (down 21%) and while NBC (which slipped 7%). Also, advertisers are allocating more of their budgets towards digital media. While the cable networks’ advertising revenues grew only 3% in 2014, the broadcast television declined by 4% (excluding Olympics). This dismal performance can be attributed to competition from digital media formats, which saw 28% growth in video and a 65% jump in social media ad revenues. Accordingly, a 5% viewership decline annually for Disney’s broadcasting and cable networks could lead to a revenue loss of over $3 billion over the next few years, which produces a decrease of around 10% in both our price estimate and EPS for 2021. Here, we still assume ad pricing to grow at a low-single-digit rate. The impact will come not only from lower ad and subscription revenues but also from lower EBITDA margins. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    RL Logo
    Ralph Lauren Earnings Preview: A Bright Future Could Lie Ahead For Ralph Lauren
  • By , 8/4/15
  • tags: RL
  • Premium lifestyle brand, Ralph Lauren  (NYSE:RL), is poised to report fiscal 2016 Q1 results on August 5. In the previous fiscal year, Ralph Lauren managed to deliver earnings surprises in three of the four quarters even against currency headwinds. Q4 2015 proved to be a lucrative quarter for the company, with revenues clocking in with a 7% increase year-on-year on a currency neutral basis. This stellar performance in the quarter can be credited to record sales in North America, solid growth across major categories such as men’s, women’s, and children’s, and new launches. We believe that Ralph Lauren is poised to continue on its growth trajectory even in this quarter and here’s why. What Could Work In Fiscal 2016? Let’s start by looking at the company’s top initiatives and selling points in the last quarter and full-year and what can be expected from these avenues going into Q1. —   Record sales in North America may not be sustained : Luxury spending in the U.S., to a large extent, has been reaping the benefits of a recovering economy. One such recipient of this has been Ralph Lauren, who saw an 8% increase in revenues on a currency-neutral basis in the Q4 2015. This growth came predominantly from wholesale and e-commerce avenues, both of which experienced double-digit growth rates. These channels, coupled with a growing U.S. economy, could work in Ralph Lauren’s favor even in this quarter. Furthermore, the brand could also benefit through new launches such as the Polo line for women, and the Ricky handbag line, in an otherwise mature market. Having said this however, the U.S. is a relatively saturated market where most brands in the luxury space have resorted to innovations and new launches to drive sales. In this situation, intense competition could eat into prospects for Ralph Lauren. Moreover, an appreciating dollar could also choke off demand in the region in the quarter. Against these factors, although the region might experience sales increases, we may not see the kind of growth that was observed in Q4 of fiscal 2015 going into this quarter. — New launches could ensure sales: Ralph Lauren could have much to look forward to based on new launches going into 2016. For instance, the brand introduced the Ricky handbag portfolio last quarter, which has been well received, as evidenced by the success of the Drawstring Ricky, a soft-leather bag crafted in Italy. This line could ensure further sales growth for Ralph Lauren, in major markets like North America going into fiscal 2016. Furthermore, the brand is also bullish on their prospects in the accessories realm, where they have recently introduced a lightweight cashmere scarf collection in an array of colors. Ralph Lauren could see higher frequency in terms of customer traffic in light of their growing accessories portfolio, which could also help draw customer attention to other product categories such as apparel. This quarter could also see the positive impact of Polo Sport, an extension of the company’s trademark Polo brand in active wear. Based on initial data, the brand has received commendable feedback and could go on to garner share gains going forward, in light of its “perfect fit with the athletic spirit and sensibility.” — Company specific strategies could drive efficiency : Ralph Lauren has taken a number of steps to drive efficiency in their business, which could go on to benefit the company’s brand perception among customers. This includes the recent decision to amalgamate the company’s men’s and women’s luxury products into a single label. This move could help Ralph Lauren’s brand image by driving simplicity in their luxury status. According to the company, the merger could help “clarify our luxury message, driving consistent global brand presentation, and marketing synergies.” A Note On Costs And Benefits Apart from this, the company has indicated changes on the management front going forward. The company will now be bifurcated based on six brands – Ralph Lauren; RRL; Polo; Lauren, Champs, and American Living; Ralph Lauren Home; and Club Monaco – with each brand being headed by a unique leadership team. In this reorganization, each team will be responsible for the global performance of the relevant brand. The fact that each brand will now have unique business strategies that are devised by individuals who have an in-depth understanding of the forces at play surrounding that brand, could bring in considerable benefits to the company. Ralph Lauren anticipates close to $100 million in yearly savings from this initiative, a part of which could be realized in this fiscal year itself. Furthermore, the company has indicated further investments, in which they will be opening 40-50 stores in the fiscal year. The company will also be seen investing in their e-commerce platform, which has driven significant sales in the last fiscal year. This includes upgraded information systems to drive multi-channel capabilities and to improve the customer’s shopping experience on Ralph Lauren websites. Clearly these steps could incur costs to the company. According to the management, while the restructuring process is expected to levy a one-time cost of $70 million to $100 million, the investments in the company’s information systems is expected to result in a 60 basis point drag on margins in the full year. While these steps could have an impact on cash flows this quarter and in the full year, Ralph Lauren may move to a more efficient set-up that could bring in considerable sales and cost savings in the ensuing years. Lastly, there is the matter of currency. The U.S. dollar has continued to strengthen against a number of key currencies the past year. Given that Ralph Lauren has operations in areas in Europe and Asia, an appreciating dollar has had a negative impact on the company’s financials. For instance, while revenues in fiscal 2015 grew 4% on a currency-neutral basis, they grew about 2% on a reported basis. The impact of a strengthening dollar could exert an influence even in this quarter. However, currency headwinds could be a temporary phenomenon, which could turn around for the better in the medium term. For now, the company’s strong product portfolio, and efforts at driving efficiency, could be reasons to anticipate growth going forward. Trefis has a  $141 price estimate for Ralph Lauren, which is above the current market price. We will be updating our model in light of the earnings release. Sources: Ralph Lauren Q4 2015 Results – Earnings Call Transcript Polo Ralph Lauren’s (RL) Management on Q3 2015 Results – Earnings Call Transcript Form 10-K, SEC View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    YAHOY Logo
    Yahoo! Japan Earnings: Revenues From Mobile And E-Commerce Grows Yet Again
  • By , 8/4/15
  • tags: YAHOO-JAPAN-BY-COMPANY YAHOY YHOO. GOOG MSFT
  • Yahoo! Japan Corporation (OTC:YAHOY) reported its Q1 FY 2016 results on July 30 th (fiscal year ends in March). In line with our expectation, Yahoo! Japan’s revenues grew 10% year over year to ¥110.57 billion ($890 million) . Operating income was flat at ¥86.420 billion ($696 million). While the company reported 9.5% growth in advertising revenues to ¥63.32 billion ($509 million), the transaction value across shopping, auctions and listing services grew by 11% to ¥311 billion ($2.50 billion). The highlights of the results are below. See our complete analysis of Yahoo! JAPAN here Mobile Boosts Page View, Revenue And Transaction Value According to our estimates, mobile advertising contributes nearly 20% to Yahoo! Japan’s total value. As stated in our pre-earnings note, the increasing penetration of mobile devices aided in growth of mobile ads revenue, which was instrumental in bolstering search ads revenues. Furthermore, mobile page views exceeded desktop pageviews for the first time in May. This translated into ¥24.2 billion ($210 million) in ad revenues or 38.3% of ads revenues for the company during the quarter. Furthermore, e-commerce transaction value through smartphones now amounts to over 30% of total transaction value, and stands at ¥114.2 billion ($920 million). We believe that revenues from this division will account for almost 25% (of total revenues) by 2021, as ad budgets increasingly shift to mobile users. During the quarter, the company reported 36.6% year-over-year growth in smartphone daily unique browsers (DUB) to 49.23 million. This was also one of the main drivers for the increase in mobile page views across Yahoo! Japan.  We believe  that, as the company is increasing content across its properties, it will be able to leverage its dominant position in the Japanese Internet landscape to drive mobile revenue growth in the coming years. Transaction Value Across E-commerce Properties Grows as Listings Rise While the search and listings ads division contributes 16.7% of Yahoo! Japan’s total value, the online shopping and auction division contributes 14.5%, according to our estimates. The company removed listing and tenant fees for its websites in Q2 FY14 (Q3 CY13) to stimulate growth and increase the number of listed sellers. The number of listed sellers is important for Yahoo! Japan’s shopping division because as listings grow, more users are likely to find and buy products on its site, which will increase the transaction value across Yahoo! Japan’s shopping websites. As a result of this strategy, the company added over 185,000 store ids for its shopping portal in the last year, 35,000 of which were added in Q1. With this increase in store ids, the number of products listed across its shopping website increased by 68% year over year to nearly 180 million. The transactions value, across shopping, auction and listing divisions, grew by 11% year over year to ¥311.1 billion ($2.55 billion). We expect that, as product listing gains more traction, Yahoo! Japan’s revenues will increase due to higher transaction value across its sites. Currently, we estimate that by 2021 the transaction value from shopping and auction divisions will grow to ¥400 billion and ¥780 billion, respectively. We are in the process of updating our Yahoo! Japan model. At present, we have a  $8.29 price estimate for Yahoo! Japan, which is inline with the current market price. 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  
    RIO Logo
    Rio Tinto's First Half 2015 Earnings Preview: Strong Production Volumes And Cost Reduction Initiatives To Partially Offset Impact Of Low Commodity Prices
  • By , 8/4/15
  • tags: RIO VALE MT CLF
  • Rio Tinto (NYSE:RIO) will release its earnings results for the first half of 2015 and conduct a conference call with analysts on August 6. We expect a sharp drop in commodity prices over the last twelve months, particularly iron ore prices, to negatively impact the results of Rio Tinto, a diversified mining company and the world’s second largest iron ore producer. However, a sharp increase in iron ore production volumes and the company’s cost reduction efforts will partially offset the negative impact of lower commodity prices on the company’s results. Rio Tinto announces its earnings results semi-annually. In Rio’s previous results announcement for the full year 2014, the company’s EBITDA margin held steady at 39% despite weak commodity prices, with higher production volumes and the company’s cost reduction initiatives offsetting the impact of weak commodity prices on the company’s results. In this article, we will take a look at what to expect from the company’s results for the first half of 2015. Commodity Prices Iron ore is primarily used as a raw material for the production of steel. Thus, demand for iron ore by the steel industry plays a major role in determining its prices. Benchmark international iron ore prices are heavily influenced by Chinese demand, since Chinese steel mills purchase nearly two-thirds of the world’s seaborne iron ore supply. Chinese steel demand growth is expected to decline by 0.5% in 2015, following on from a 3.3% decline in 2014. Weak demand for steel has indirectly resulted in weak demand for iron ore. On the supply side, an expansion in production by major iron ore mining companies such as Vale, Rio Tinto, and BHP Billiton has created an oversupply situation. The worldwide surplus of seaborne iron ore supply is expected to rise to 437 million tons in 2018, from an expected surplus of 184 million tons in 2015. A combination of weak demand and oversupply is likely to result in weak iron ore prices in the near term. The following chart illustrates the trajectory of iron ore prices over the last twelve months. Among other major commodities sold by Rio Tinto, copper is also characterized by weak demand and pricing environments. The weakness in demand for copper is mainly due to subdued demand from China, which accounts for nearly 40% of the global demand for the metal.. A slowing Chinese economy has dampened Chinese demand for the metal. Chinese GDP growth is expected to slow to 6.8% in 2015, from 7.4% in 2014. The following chart illustrates the trajectory of copper prices over the last twelve months. Thus, a weak commodity pricing environment is expected to negatively impact Rio Tinto’s results for the first half of 2015. Production Review Rio Tinto has already released its production data for the first half of 2015. Consolidated iron ore production at Rio’s facilities stood at 154.3 million tons in the first half of 2015, which was 11% higher year-over-year.  The sharp increase in volumes was primarily due to the ramp-up of production to a rate of 290 million tons per year (Mt/a) at Rio’s Pilbara operations in 2014. Located in Western Australia, the Pilbara iron ore mines represent over 90% of Rio’s global iron ore production. Rio Tinto has continued to raise iron ore production despite the prevailing oversupply situation in global iron ore markets. The world’s biggest iron ore producers, including Rio Tinto, have been banking upon the displacement of sufficient quantities of high-cost iron ore supply from other producers by low-cost iron ore production from their own mines, resulting in a more favorable demand-supply equation. However, this scenario has not yet materialized, with oversupplied global markets keeping prices weak. Rio Tinto, with its low-cost iron ore deposits, can continue to operate profitably in the prevailing iron ore pricing environment. The company can, in fact, continue to operate profitably even if iron ore prices fall to $50 per ton. Economies of scale and the company’s cost reduction initiatives have ensured that the company continues to operate profitably even in the current adverse pricing environment. Cost Reduction In addition to expanding iron ore production capacity, cost reduction initiatives are an important component of the company’s strategy to operate in a subdued commodity pricing environment. Rio Tinto achieved $4.8 billion in savings pertaining to operating, exploration, and evaluation costs in 2014, as compared to its 2012 spending. The company also lowered its capital expenditure by nearly $9.4 billion from 2012 levels, to $8.2 billion in 2014. These efforts will further enhance the company’s flexibility to operate in the prevailing commodity pricing environment. Thus, we expect Rio’s first half results to be negatively impacted by the sharp fall in commodity prices. However, the negative impact of low commodity prices will be partially offset by a strong growth in production volumes as well as the company’s cost reduction initiatives. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
    DUK Logo
    Duke Earnings Preview: Declining Per Capita Electricity Consumption, Currency Effects Could Pressure Margins
  • By , 8/4/15
  • tags: DUK CHK KMP
  • Duke Energy (NYSE:DUK), one of North America’s largest utility holding companies, is expected to publish its Q2 2015 earnings on August 6th. The company operates three business divisions — regulated utilities, commercial power generation and international power generation. The first of those three contributes around 90% of the company’s revenue but has been experiencing sluggish growth in recent quarters. Duke expects most of its growth to come from the international power business, which contributes around 5% of the revenues despite accounting for only 4% of the company’s total assets.  This is in comparison to the commercial power business, which contributes just 1% revenue but accounts for 5% of the company’s asset base. Additionally, the company has been focused on expanding its renewable energy asset base and selling off its unregulated holdings in recent quarters. We will be watching out for information on the status of various transactions that the company is in the process of pursuing currently.
    CHK Logo
    Chesapeake Energy 2Q Preview: Lower Prices, Production To Weigh On Results
  • By , 8/4/15
  • tags: CHK COP EOG APC
  • Chesapeake Energy (NYSE:CHK) is scheduled to announce its 2015 second-quarter earnings on August 5. We expect lower price realizations to weigh significantly on the company’s financial results. Chesapeake’s net hydrocarbon production is comprised of 73% natural gas and 27% liquids (crude oil and natural gas liquids). Benchmark crude oil prices have fallen sharply over the past 12 months on rising supplies amid slower demand growth. The average  WTI crude oil spot price declined by more than $45 per barrel or 44% year-on-year during the second quarter. In addition, the average Henry Hub natural gas spot price also declined by $1.86 or 40.4% y-o-y during the quarter. Apart from lower price realizations, we expect Chesapeake’s second-quarter earnings to also fall as a result of lower net production, primarily driven by recent divestitures, curtailments, and higher project downtime. However, hedging gains and productivity improvements are expected to partially offset the impact of lower benchmark prices and net production on the company’s overall performance. Chesapeake is the 2nd-largest producer of natural gas and the 11th-largest producer of liquids (crude oil and natural gas liquids) in the United States. The company’s operations are focused on discovering and developing unconventional natural gas and crude oil fields onshore in the U.S. It owns positions in the Barnett, Fayetteville, Haynesville, Marcellus, and Bossier natural gas shale plays, and in the Eagle Ford, Granite Wash, Niobrara, and various other conventional and unconventional liquid-rich plays across the U.S. The firm has interests in over 45,100 natural gas and crude oil wells that produce approximately 729 thousand barrels of oil equivalent per day (MBOED), net to Chesapeake. At the end of 2014, Chesapeake’s proved hydrocarbon reserves stood at almost 2.47 billion barrels of oil equivalent, with 75.5% of these reserves categorized as proved developed. We currently have a $14 per share price estimate for Chesapeake, which is around 70% above its current market price. See Our Complete Analysis For Chesapeake Energy Lower Net Production Chesapeake’s net hydrocarbon production is expected to decline year-on-year during the second quarter. This is primarily because of the impact of recent divestitures completed by the company to enhance its liquidity and reduce the debt burden. Last year, Chesapeake sold certain assets in the southern Marcellus Shale, and a portion of the eastern Utica Shale, to a subsidiary of Southwestern Energy Company for aggregate net proceeds of approximately $4.975 billion. The company sold approximately 413,000 net acres of property and approximately 1,500 wells in northern West Virginia and southern Pennsylvania, of which 435 wells were in the Marcellus or Utica formations, along with related gathering assets and property, plant, and equipment. This is expected to reduce the company’s net oil and gas production by about 50 MBOED y-o-y. In addition, Chesapeake also began the curtailment of its net operated production in the Marcellus shale during the fourth quarter last year, primarily because of low in-basin field prices. This lowered its net hydrocarbon production by around 15 MBOED in 4Q 2014 and continued to weigh on the company’s net production during the first quarter as well. During the most recent earnings conference call, Chesapeake’s management mentioned that they doubled the curtailment level to 500 million cubic feet of gas per day, gross, which could pull down the company’s 2Q net production by about 30 MBOED, by our estimates. However, for the full year, Chesapeake currently expects its net production, adjusted for the impact of recent divestitures, to grow by around 1-3% despite the sharp cut in drilling activity, primarily because of drilling efficiency improvements implemented over the last couple of years and the expected deflation in service costs during the second half of the year. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    CBS Logo
    Cable Networks Likely Drove CBS' Q2 Earnings
  • By , 8/4/15
  • tags: CBS DIS FOX CMCSA VIA TWX NFLX
  • CBS Corporation  (NYSE:CBS) will report its Q2 2015 earnings on August 5th. CBS broadcasting network saw a ratings growth in key demographics for 2014-15 television season, led by some of its popular shows such as Mom, Two And A Half Men and the new series Scorpion. We believe that higher ratings likely boosted CBS’ advertising income. Looking at CBS’ cable networks, we expect a strong uptick in both the top and bottom line, primarily due to Showtime’s pay-per-view (PPV) event of Mayweather-Pacquiao fight. We’ll also be looking for any comments from the company’s management on Showtime’s new over-the-top streaming service. The service was launched recently and we expect its subscriber base to grow to around 3.5 million in the coming years. We currently estimate revenues of about $14 billion for CBS Corporation in 2015 with EPS of $3.60, which is in line with the market consensus of  $3.60 compiled by Thomson Reuters. We currently have a  $58 price estimate for CBS Corporation, which we will soon update after the June quarter earnings release. See our complete analysis for CBS Expect Stable Advertising Revenues And Higher Retransmission Consent CBS has seen ratings pick up for some of its shows in the current television season, including   Mom  and  Two and a Half Men .  Overall, the network saw a viewership growth of 5% for the season. CBS continues to be the most watched network, averaging 11.25 million viewers nightly. The network likely saw a drop in volume for upfront ad commitments for the 2015-16 television season. However, the company managed to increase its rates by 3% to 4%, according to a media report. We expect to learn of a slight uptick in advertising income for CBS in the June quarter. However, the company should see continued growth in retransmission consent, which its expects to be north of $2 billion by 2020. We currently estimate $8.37 billion revenue for the entertainment division in 2015 and expect that  an estimated EBITDA margin of 23% will translate into EBITDA of close to $1.85 billion, representing around 45% of the company wide EBITDA. Cable Networks Will Drive Earnings Growth CBS’ cable networks include Showtime, which has seen massive success from its programming including, Homeland, Masters of Sex and Ray Donovan. Showtime is a premium network with no advertisements and thus charges a high subscription fees. Showtime has around 23 million subscribers. This compares with 23 million for Starz and over 31 million subscribers for HBO. Showtime recently launched its over-the-top streaming service, following the footsteps of HBO. It was a smart move by CBS given that there is a significant audience on digital platforms such as Netflix and Hulu. The streaming service primarily targets the 10 million broadband-only homes in the U.S .  (see – Three Scenarios That Could Have A Meaningful Impact On CBS’ Stock Price ). Looking at the current quarter, the company will surely benefit from Showtime’s coverage of the Mayweather and Pacquiao match. The event saw a stellar success and generated 4.4 million PPV buys and $400 million in revenues for Showtime and HBO. It must be noted that Showtime will air Mayweather’s last fight in September. Showtime had an exclusive contract with Mayweather for 6 fights. The network has sold stellar 10 million pay-per-view access for previous five fights. If Mayweather does decide to continue to fight and extends a deal with Showtime, it will surely be a big positive for CBS. We currently estimate cable networks’ revenues to be around $2.35 billion in 2015 and expect that  an estimated EBITDA margin of 48% will translate into EBITDA of $1.15 billion, representing more than 25% of the company wide EBITDA. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    XOM Logo
    Exxon Maintained At $81 Per Share After 2Q Earnings
  • By , 8/4/15
  • tags: XOM RDSA BP PBR
  • Exxon Mobil (NYSE:XOM) recently announced its 2015 second-quarter results. The company’s earnings fell sharply because of lower price realizations, as the average Brent spot price for the quarter declined by almost 44% year-on-year due to oversupply. Exxon’s total second-quarter earnings declined 52% year-on-year, led by a significant fall in upstream earnings, partly offset by higher downstream and chemicals segment earnings due to thicker margins. Based on the recent earnings release, we are maintaining  our price estimate for Exxon at $81 per share, which values it around 18.8x our 2015 full-year diluted earnings per share (EPS) estimate of $4.31 for the company. Below, we discuss the key fundamental trends driving our valuation estimate for Exxon. See Our Complete Analysis For Exxon Mobil Lower Oil Prices Lower oil prices have a significant impact on Exxon’s upstream earnings. According to the company’s latest annual SEC filing, a $1 per barrel decline in the full-year weighted-average realized price of crude oil results in approximately a $350 million negative impact on its upstream net earnings. This means that depending upon the overall lag (between fluctuations in spot prices and their impact on Exxon’s earnings because of the average tenure of pricing contracts), if oil prices (Brent) average around $59 per barrel for the full year, Exxon’s upstream earnings could decline by as much as $14 billion or 50%, compared to last year. We currently expect crude oil prices (Brent) to average around $63 per barrel this year and increase at a decreasing rate to around $97 per barrel by 2022. Our current forecasts for Exxon’s average price realizations and profitability are driven by this crude oil price forecast. Higher Production Exxon’s net upstream (oil and gas) production has been relatively flat over the past decade. It actually declined slightly from over 4.21 million barrels of oil equivalent per day (MMBOED) in 2004, to 3.97 MMBOED in 2014. This has also been the case with most of the other large integrated oil and gas players, as they have been unable to add enough new production to more than offset natural field declines. However, going forward, Exxon expects to ramp up its net upstream production to approximately 4.3 MMBOED by 2017 as it progresses on its plan to add roughly 0.8 MMBOED (assuming an average 4% natural decline in production every year) of new production between 2014 and 2017. The company is banking on a number of new project start-ups to achieve this target. Most of these projects, including the liquefied natural gas (LNG) project in Papua New Guinea, the Kearl oil sands and the Cold Lake Nabiye expansion projects in Canada, and the development of Sakhalin-1′s Arkutun-Dagi field in the Arctic, have either come online recently, and are currently in the ramp-up stage, or are scheduled to start-up in the near future. These new projects boosted Exxon’s net liquids production by 0.132 MMBOED during the second quarter and are expected to fuel production growth for the rest of the year as well. Improving Sales Volume-Mix Exxon’s total hydrocarbon production can be broadly split into two categories – liquids, which include crude oil, natural gas liquids, bitumen, and synthetic oil, and natural gas. Liquids are generally more profitable to produce than natural gas because of higher price realizations.  Last year, Exxon sold liquids at an average price of around $85.40 per barrel, compared to just around $39.80 realized per barrel of oil equivalent (BOE) of natural gas. This is the reason why the company has been trying to improve the proportion of liquids in its production mix over the past couple of years. Last year, Exxon’s total liquids production increased by over 44,000 barrels per day, or almost 2% y-o-y, excluding the impact of the Abu Dhabi onshore concession expiry. On the other hand, its natural gas production declined by around 690 million cubic feet per day, or almost 5.8% y-o-y. For the first half of this year, the company’s total liquids production increased by almost 9% y-o-y, while its natural gas production declined by 3.6% over the same period. As a result, the percentage contribution of liquids to Exxon’s total hydrocarbon production has increased from 51.2% in 2012, to 55.5% currently. We expect the company’s volume-mix to improve further this year, as it expects to grow liquids production by around 7%, while natural gas production is expected to decline 2% year-on-year. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    MSI Logo
    Motorola Solutions Earnings Preview: Order Backlog, Cost Cuts Can Drive Growth
  • By , 8/4/15
  • tags: MSI
  • Following a few quarters of under-performance due to lower product sales in North America,  Motorola Solutions  (NYSE:MSI) has started to turn things around. For the second quarter of 2015, we expect the company to continue to benefit from its high order backlog in North America. However, the company has guided for a decline of 0-2% (constant currency) in overall revenues for the quarter, citing a $20 million headwind related to the delay in LA-RICS (Los Angeles Regional Interoperable Communications System) public safety LTE deployment as one of the reasons. The company reports its Q2 2015 results on Wednesday, August 5, and we will be particularly interested in the top line, excluding the LA-RICS delay, as well as the efficacy of the company’s cost-cutting initiatives. Motorola expects to save a total of $150-175 million this year, largely through cost-cutting initiatives and staff reductions, as well as some FX impacts. The company has guided its Q2 2015 Non-GAAP EPS at $0.51-$0.56, which reflects a y-o-y improvement of close to 13%. We also expect the company to improve its operating margins, albeit at a slower pace than last quarter as deployment challenges in some ongoing projects may provide headwinds. Our  $62 price estimate for Motorola is slightly ahead of the current market price.
    United Technologies Logo
  • commented 8/4/15
  • tags: UTX
  • Forecast On Protective Packaging Market: Global Industry Analysis and Trends till 2025 by Future Market Insights

    The protective packaging comprises of packaging solutions that offer protection and also helps in preserving the industrial and consumer products, machineries and equipment from the damaging effects during shipping and storage. The key competitors in the global protective packaging market are providing advanced protective packaging solutions to a diverse range of businesses such as consumer electronics, pharmaceuticals, appliances, automotive and retail to transport the goods safely to its destination. The major trend upcoming in the global protective packaging market is increasing investment by the key competitors in research & development to develop packaging materials that are sustainable and environment friendly. The global demand for the protective packaging market is expected to grow at a CAGR of over 6.0% to reach a value of approximately US$ 29.0 Bn, by 2020.

    Protective Packaging Market: Drivers & Restraints

    The key driver contributing to the growth of the global protective packaging market is its increasing usage in the E-commerce industry. The growing acceptance of the online shopping in both the developing and developed regions of the world is likely to propel the demand for global protective packing industry. Moreover, acceleration in the global industrial output, along with upsurge in the consumer expenditure on packaged goods across the globe, and demographic drifts such as increase in the number of urban population are further going to drive the market for protective packaging. The opportunities that can be further explored in the global protective packaging market is innovation in technology to develop packaging materials that are sustainable and can be reused and recycled. The availability and high cost of the raw materials is a major restrain in the global protective packaging market.

    Browse Full Report@ http://www.futuremarketinsights.com/reports/details/protective-packaging-market

    Protective Packaging Market: Segmentation

    On the basis of product type, the global protective packaging market is segmented into:
    • Foam protective
    • Flexible protective
    • Rigid protective

    The foam protective packaging segment is expected to account for a major share of the global protective packaging market. The development in this segment will be aided by foam plastic cushioning and light weight features along with their flexibility in conforming to nearly any shape to enrich the protection. However, the demand for foamed protective packaging will be negatively impacted by the increasing significance of sustainability, which in turn will lead to increased concern of alternatives with more promising ecological profiles.
    On the basis of market, the global protective packaging market is segmented into:
    • Manufacturing
    • Retail

    One of the key factor contributing to the growth of the global protective packaging market is the acceleration in the global manufacturing output. This segment is expected to dominate the market throughout the forecast period.
    On the basis of material, the global protective packaging market is segmented into:
    • Foamed plastic
    • Paper & paperboard
    • Plastic films & other plastics

    The foamed plastic segment is anticipated to be the fastest growing segment in the global protective packaging market and is expected to account for the largest share throughout the forecast period.

    Request Report TOC@ http://www.futuremarketinsights.com/toc/rep-gb-626

    Protective Packaging Market: Region-wise Outlook

    On the basis of region, Asia Pacific is anticipated to grow at a comparatively higher CAGR, as the online retail market in this region is expected to grow swiftly from a minor base and boost the entire retail sector, while manufacturing will continue to dominate the protective packaging market throughout the forecast period. Apart from Asia Pacific, the world's developing regions are expected to exhibit the fastest advances in the global protective packaging market mainly due to greater urbanization, population growth, industrial trends and increasing international trade in such regions. The highest growth rates are expected in China, India and Indonesia along with regions such as Brazil, Mexico, South Africa and Russia are expected to exhibit healthy growth in the near future. The advances in the North America and Western Europe are expected to be below average, due to the mature nature of the markets.

    Protective Packaging Market: Key Players

    Some of the key participants identified in the global protective packaging market are ACH Foam Technologies, LLC, BASF SE, Bayer AG, Cascades Inc., 3M, Pregis North America, Ranpak Corp., NEFAB GROUP, DS Smith and Sonoco Products Company.
    [ less... ]
    Forecast On Protective Packaging Market: Global Industry Analysis and Trends till 2025 by Future Market Insights The protective packaging comprises of packaging solutions that offer protection and also helps in preserving the industrial and consumer products, machineries and equipment from the damaging effects during shipping and storage. The key competitors in the global protective packaging market are providing advanced protective packaging solutions to a diverse range of businesses such as consumer electronics, pharmaceuticals, appliances, automotive and retail to transport the goods safely to its destination. The major trend upcoming in the global protective packaging market is increasing investment by the key competitors in research & development to develop packaging materials that are sustainable and environment friendly. The global demand for the protective packaging market is expected to grow at a CAGR of over 6.0% to reach a value of approximately US$ 29.0 Bn, by 2020. Protective Packaging Market: Drivers & Restraints The key driver contributing to the growth of the global protective packaging market is its increasing usage in the E-commerce industry. The growing acceptance of the online shopping in both the developing and developed regions of the world is likely to propel the demand for global protective packing industry. Moreover, acceleration in the global industrial output, along with upsurge in the consumer expenditure on packaged goods across the globe, and demographic drifts such as increase in the number of urban population are further going to drive the market for protective packaging. The opportunities that can be further explored in the global protective packaging market is innovation in technology to develop packaging materials that are sustainable and can be reused and recycled. The availability and high cost of the raw materials is a major restrain in the global protective packaging market. Browse Full Report@ http://www.futuremarketinsights.com/reports/details/protective-packaging-market Protective Packaging Market: Segmentation On the basis of product type, the global protective packaging market is segmented into: • Foam protective • Flexible protective • Rigid protective The foam protective packaging segment is expected to account for a major share of the global protective packaging market. The development in this segment will be aided by foam plastic cushioning and light weight features along with their flexibility in conforming to nearly any shape to enrich the protection. However, the demand for foamed protective packaging will be negatively impacted by the increasing significance of sustainability, which in turn will lead to increased concern of alternatives with more promising ecological profiles. On the basis of market, the global protective packaging market is segmented into: • Manufacturing • Retail One of the key factor contributing to the growth of the global protective packaging market is the acceleration in the global manufacturing output. This segment is expected to dominate the market throughout the forecast period. On the basis of material, the global protective packaging market is segmented into: • Foamed plastic • Paper & paperboard • Plastic films & other plastics The foamed plastic segment is anticipated to be the fastest growing segment in the global protective packaging market and is expected to account for the largest share throughout the forecast period. Request Report TOC@ http://www.futuremarketinsights.com/toc/rep-gb-626 Protective Packaging Market: Region-wise Outlook On the basis of region, Asia Pacific is anticipated to grow at a comparatively higher CAGR, as the online retail market in this region is expected to grow swiftly from a minor base and boost the entire retail sector, while manufacturing will continue to dominate the protective packaging market throughout the forecast period. Apart from Asia Pacific, the world's developing regions are expected to exhibit the fastest advances in the global protective packaging market mainly due to greater urbanization, population growth, industrial trends and increasing international trade in such regions. The highest growth rates are expected in China, India and Indonesia along with regions such as Brazil, Mexico, South Africa and Russia are expected to exhibit healthy growth in the near future. The advances in the North America and Western Europe are expected to be below average, due to the mature nature of the markets. Protective Packaging Market: Key Players Some of the key participants identified in the global protective packaging market are ACH Foam Technologies, LLC, BASF SE, Bayer AG, Cascades Inc., 3M, Pregis North America, Ranpak Corp., NEFAB GROUP, DS Smith and Sonoco Products Company.
    Enhance Your Utility Sector Returns
  • By , 8/4/15
  • tags: GAS PNW
  • Submitted by Wall St. Daily as part of our contributors program Enhance Your Utility Sector Returns By Alan Gula, Chief Income Analyst Imagine you’re a pilot who is preparing to land an airplane. You’ve just eased up on the throttle, thereby slowing your airspeed. To compensate, you gently pull back on the yoke to increase the plane’s angle of attack. A buzzer suddenly goes off . . . it’s the stall warning. Your approach is too slow! The aircraft is at risk of rapidly losing altitude and the consequences could be dire. The concept of a stall speed can apply to economics, as well. That is, economic output tends to transition to a slow-growth phase (stall) at the end of an expansion before the economy falls into a recession. Right now, a buzzer should be sounding at the Federal Reserve because the U.S. economy has officially slowed below stall speed. Excluding the impact of inventories, real economic growth in the first half of 2015 was just 0.54%. Lackluster wage growth also indicates continued labor market slack. In the second quarter, the Employment Cost Index, a broad measure of labor costs, posted the smallest gain since records began in 1982. Indeed, recent data further support my view that the risk of a meaningful rise in interest rates is low. And because we’re in a subdued economic growth and inflation environment, I believe that the utilities – electricity, gas, and water companies – continue to be viable investments. However, we must be wary of valuations, especially for relatively high-yielding securities. Investors starved for yield have bid up prices across the utility sector, pushing average valuations to historically high levels. We also want to avoid utilities that are excessively levered. Luckily, we can help alleviate both of these concerns with the trusty enterprise value-to-EBITDA (EV/EBITDA) ratio. Remember, the EV/EBITDA ratio compares the total stakeholder value net of cash with the total cash flows available to all stakeholders. Firms with high equity valuations and/or high debt levels have higher (less attractive) EV/EBITDA ratios. To illustrate the power of this valuation metric, I ran a backtest starting in June 1995. Here, my universe of stocks is U.S.-listed utilities with market caps above $1 billion. The stocks are ranked based on EV/EBITDA, and the top two deciles (cheapest 20%) are included in the Cheap Utilities Composite. The bottom two deciles (most expensive 20%) are included in the Expensive Utilities Composite. The screen is rerun each month and the composites change as the companies’ valuations change. The constituents are allocated to on an equal-weight basis and the cumulative total return (dividends reinvested) for each composite is tallied. The results of this backtest are shown below: As you can see, the Expensive Utilities Composite produces a cumulative return of 363% over 20 years. Meanwhile, the Cheap Utilities Composite gained an incredible 680%, which actually trounces the 451% total return posted by the mighty S&P 500 over this same time frame. Clearly, there’s an edge to buying cheap utilities based on the EV/EBITDA ratio. Furthermore, the cheap utilities also experienced smaller declines. The largest drawdown (peak to trough decline) that you would’ve experienced in the Expensive Utilities Composite was 40%, compared with just 35% for the Cheap Utilities Composite. Higher returns with lower volatility – the best of both worlds. Currently, the median EV/EBITDA for all U.S.-listed utilities with market caps greater than $1 billion is 9.9, which is relatively high. The current constituents of the Cheap Utilities Composite, which includes companies such as AES ( AES ), Ameren ( AEE ), AGL Resources ( GAS ), and Pinnacle West ( PNW ), have a median EV/EBITDA of 7.8. To make sure that the utilities you own are trading at reasonable valuations, the Key Statistics page on Yahoo! Finance has EV/EBITDA along with a host of other data. In the midst of persistently low interest rates and with an economy below stall speed, utilities are attractive investments that can help protect your portfolio from broader stock market declines. Just make sure your utilities are cheap with a low degree of leverage. Safe (and high-yield) investing, Alan Gula, CFA The post Enhance Your Utility Sector Returns appeared first on Wall Street Daily . By Alan Gula
    Steel Company Uses Rabbits to Reduce Pollution
  • By , 8/4/15
  • tags: SPY MT
  • Submitted by Wall St. Daily as part of our contributors program Steel Company Uses Rabbits to Reduce Pollution By Tim Maverick, Senior Correspondent Industry is a large contributor to our modern carbon footprint, and steelmaking is a significant part of that, as steelmaking produces carbon monoxide. In fact, about 50% of the carbon used in steelmaking is turned into carbon monoxide. The gas is often burned off in a process that releases lots of carbon dioxide into the atmosphere, which contributes to the degradation of the atmosphere and global warming. Many industries are now struggling to figure out a way to turn carbon gases into something useful, instead of just releasing it into the atmosphere. Well, one company in the steel industry just made a breakthrough, and it’s all thanks to rabbits. The Belly of the Beast Yes, those cute little furry creatures that ruin your vegetable garden are holding the key. You see, a New Zealand company (now headquartered in Chicago) called LanzaTech is using microbes that were initially discovered in the intestinal tracts of rabbits to convert carbon-rich waste gases, such as carbon monoxide, into useful everyday liquid products. LanzaTech’s process uses a proprietary form of clostridium microbes that it patented and wholly owns. The clostridium microbe belongs to the acetogen family of organisms. Acetogens are an ancient form of life, often found around hydrothermal vents. What’s special about these microbes is that they grow on gases, not sugars. In other words, the process is a gas fermentation as opposed to a traditional fermentation. Using the microbes and the fermentation process, the company transforms carbon-rich waste gases into liquids. Steelmakers Hopping On Some factories have already successfully used LanzaTech’s novel technology. One of those plants is run by China’s steel giant, Baosteel. The Chinese projects were extremely important because they showed that the process worked as advertised. Now, ArcelorMittal ( MT ), the world’s largest steelmaker, is going to install a system at one of its plants later this year. The company is very familiar with the technology and has been planning for this integration for years – it’s been working with LanzaTech since 2011. The plan is for ArcelorMittal to invest 87 million euros in its facility in Ghent, Belgium to install a system that will convert waste carbon monoxide into bioethanol. This system will be much bigger than the system the Chinese use. In fact, it will be 30 times larger and capable of producing 47,000 tons of ethanol every year. If the system is successful at Ghent, ArcelorMittal plans to install it across all of its vast operations. The company has operations in 19 countries, and last year it produced 93.1 million metric tons of steel. Eventually, the company may be producing 10% of Europe’s bioethanol annually. A Warm and Fuzzy Future The initial tests in China were quite promising, which bodes well for this new technology. And LanzaTech has some prominent backers, including Silicon Valley venture capitalist Vinod Khosla. Plus, it’s refreshing to see such a big global firm in a historically dirty industry looking for ways to reduce the release of carbon dioxide. Or as LanzaTech’s CEO Jennifer Holmgren put it, “turning an environmental liability into a financial opportunity.” And the chase continues, Tim Maverick The post Steel Company Uses Rabbits to Reduce Pollution appeared first on Wall Street Daily . By Tim Maverick
    Hartford Financial Logo
  • commented 8/3/15
  • tags: HIG
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    Macau Slowdown Weighs On Wynn’s Q2 Earnings But Outlook Positive
  • By , 8/3/15
  • tags: WYNN
  • Wynn Resorts  (NASDAQ:WYNN) recently reported its Q2 2015 earnings, which came in 72% lower compared to the prior year period. This was very much on expected lines given the massive decline the Macau market has seen during the quarter. Wynn has been aggressively targeting the mass-market and continued to allocate more gaming tables towards this segment amid lower volumes on VIP front. This is good as mass-market does not involve junket operators, thereby offering higher margins. We maintain our bullish stand on Macau and Wynn and expect mass-market gaming to drive growth in the medium to long run, led by buoyant growth in China’s middle class, which will boost visitation from Mainland China to Macau. We currently estimate the 2015 EPS to be around $4.59 and have a  $117 price estimate for Wynn Resorts. A decline in Macau gaming led to 36% lower revenues and 44% drop in EBITDA for Wynn Macau during the quarter. Wynn posted a massive 41% decline in VIP gaming turnover with a stable win percentage of 2.92%. This is in line with a 42% drop in VIP Baccarat across Macau. Looking at mass-market, table win was down 33% as compared to a 30% decline in the overall market. Wynn shifted more tables from VIP to mass-market and it now accounts for 51% of room inventory. The quarterly earnings were well received by investors and Wynn’s stock price surged 8% in Thursday’s trading session. Looking at the overall Macau market, it has been on a decline for 14 straight months led by the government’s anti-graft measures. However, of late, there have been few positive developments, such as relaxation of visa regulations, which could bring in a recovery in the market. An uptick in gaming has been long anticipated and yet we wonder when the casinos will see gaming growth return in Macau. Having said that, we believe that the casinos will do well in the medium to long run, primarily led by growing middle class of China, which will fuel the Mainland China visitation to Macau. China’s GDP per capita is expected to grow to over $12,000 by 2020 as compared to $7,575 in 2014. The Mainland China visitors to Macau are also on the rise and have grown from around 13 million in 2010 to over 21 million in 2014. These factors will primarily boost the mass-market gaming in the region. Wynn has long been dependent on VIP gaming and it has established a premium casino image. While it is shifting its focus towards mass-market, it still aims for the premium mass. Nevertheless, mass-market is an important segment for any casino player in Macau as it does not involve junket operators and thus margins are higher. With the growth in income levels and visitation to Macau, Wynn will see a solid growth in mass gaming in the coming years. Also, it will open its Cotai resort, Wynn Palace, by end of March 2016, thereby enhancing its capacity in the region. We currently estimate Wynn Resorts’ gross gaming revenues of over $8 billion and EBITDA of $3 billion by end of the decade.
    PG Logo
    P&G’s Near-Term Outlook Darkens as Volumes Drop in Q4
  • By , 8/3/15
  • tags: PG UL EL CL KMB
  • Global consumer processed goods behemoth Procter & Gamble (NYSE:PG) appears to have put top-line growth on hold while it focuses on the ongoing organizational restructuring and productivity improvements. As per fiscal 2015 fourth quarter and full year earnings reported on July 30th, volumes plunged across the board in fiscal 2015 as the company raised prices to battle raging currency headwinds. (P&G follows July-June fiscal year) We believe that P&G’s near term outlook remains weak since it continues to prioritize productivity improvements ahead of revenue expansion. As in the case of fiscal 2015, volatile currency movements are likely to wipe out future productivity savings, thereby dragging down overall performance in the near term. In fiscal 2015, P&G raised prices in all its five divisions, leading to contraction in volumes across the board. The situation was worsened by heavy currency headwinds, which dragged revenue growth down by 6 percentage points. This brought P&G’s 2015 full year revenue down to $76.3 billion, which is a decline of 5% compared to the previous year. The performance was no better on the margins front as the benefit of 130 basis points derived from productivity enhancements was fully wiped out by adverse currency movements. Coupled with a one-time charge of $2.1 billion for an accounting change in the Venezuela subsidiary, diluted GAAP EPS plunged by 39% year on year to $2.44. P&G’s performance is not expected to improve in the near term as the company has openly stated that it intends to continue focusing on organizational restructuring and productivity improvements, while putting revenue growth on the backburner. Sustained currency headwinds are likely to exacerbate an already difficult situation for the company. It is possible that P&G’s strategy may pay off in the long term and growth may revive once the ongoing structural changes are in place. Until such time, we believe that P&G is likely to underperform its peers like Unilever (NYSE:UL) and Kimberly-Clark (NYSE:KMB). Our price estimate of $78 for Procter & Gamble is nearly the same as its current market price. See our complete analysis for Procter & Gamble here P&G Giving Preference to “Value Creation” over “Volume Growth” We have previously stated that P&G’s  price hikes may be holding back its volume growth. In the fourth quarter conference call, CEO A.G. Lafley defended the strategy by advocating long term value creation over short term volume and market share growth. Indeed, CFO Jon Mueller went as far as to state outright that in a scenario where P&G has to pick between volume growth and protecting the margins, the company is opting for the latter. (( Procter & Gamble Fiscal 2015 Fourth Quarter Earnings Call Transcript, Seeking Alpha, July 30, 2015) This is because P&G is currently moving around a number of structural pieces – changes which are meant to put it in an optimal position once the pieces are in place and the global economy picks up. Until such structural changes are fully executed, the company is likely to put volume and market share growth lower on its list of priorities. Further, unusually strong currency headwinds forced P&G to raise prices in all four quarters of fiscal 2015, with the heaviest price hikes implemented in the fourth quarter. We believe that the sustained increase in prices over an extended duration may be resulting in a snowballing effect, which dragged down the company’s volumes heavily. This is evident in the fourth quarter in which P&G’s overall volumes slumped by 3% year on year. Volumes of the Fabric and Home Care division expanded by 1% in the fourth quarter, but fell in the other four divisions by 3% to 7% year on year. We believe that sacrificing short term growth for potential long term gains is a bold but risky move, which may or may not pay off. Instead, an ideal strategy would be to give equal preference to both these components. By giving equal importance to short term revenue expansion, P&G could hedge itself against a scenario where the long term strategic changes fail to yield expected results. On the other hand, the current strategy hinges on the long term plan playing off as expected and the investors’ patience in the meantime. No Intention to Scale Back Investments While P&G propounds heavy emphasis on productivity improvements even at the cost of top-line growth, it does not intend to scale back on investments and reallocation of resources. For instance, the 130 basis points of benefit derived from productivity savings in the fourth quarter were reinvested back into sales coverage and the innovation pipeline. Consequently, fourth quarter non-GAAP operating margin improved by just 90 basis points despite a total benefit of 350 basis points from cost savings. (( Procter & Gamble Fiscal 2015 Fourth Quarter Earnings Call Transcript, Seeking Alpha, July 30, 2015) P&G’s current strategy is to channel most of the savings from productivity improvements back into other focus areas like supply chain and innovation. The combination of declining revenues, minimal margin expansion, and rising investments imply that P&G’s net profit margin is likely to fall in the near term. In summary, we believe that precarious times lie ahead for Procter & Gamble. The company has stuck to its guns on putting margin protection over volume and market share growth, even amidst spiraling competition from Unilever and Kimberly-Clark. While P&G’s focus on long term reorganization is appreciable, we believe that ignoring the short term revenue growth and margin expansion could erode shareholder value during the transitional period. This makes the success of P&G’s long term plans all the more crucial for the company as well as its investors. Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    L'Oreal Delivers One Of Its Strongest Quarters, Driven By Organic And Inorganic Growth, Coupled By Currency Tailwinds
  • By , 8/3/15
  • tags: LRLCY EL REV AVP
  • Riding on currency tailwinds, L’Oreal (OTC:LRLCY) registered a 15.3% year-on-year growth for Q2 2015, one of its strongest in the last couple of decades. Like-for-like sales, which exclude currency effects and other inorganic growth effects, increased 3.8% during the second quarter. L’Oreal’s Western Europe and North American regions witnessed significant improvements, while Brazil is still reeling under economic problems. L’Oreal’s digital sales have been impressive and L’Oreal’s initiatives in China are paying off. As we predicted in its earnings preview, L’Oreal’s Luxe segment continued to demonstrate strong growth in the second quarter, as well. We are in the process of updating our  $33 price estimate for L’Oreal . See Our Complete Analysis for L’Oreal Here L’Oreal Demonstrated Broad Based Growth Across All Divisions For Q2 2015, on a like-for-like basis, L’Oreal’s Luxe division continued soaring high (5.8% growth to €1.7 billion)  primarily due to the double digit growth of its brands like Giorgio Armani, Yves Saint Laurent, and Kiehl’s. Lancome, the premier feminine Luxe beauty brand, is showing strong growth momentum with the success of its fragrance brand, La vie est elle, which reached the fourth position, worldwide. L’Oreal’s Consumer segment (2% growth to €3.1 billion in Q2) and Professional care segment (3.5% growth to €888 million in Q2) witnessed improvement so far, in 2015. L’Oreal’s consumer division was fueled by the revival of its Maybelline brand. The L’Oreal Paris and Garnier brands will undergo a complete relaunch for the skincare range in the upcoming quarters. L’Oreal’s Professional segment showed signs of revival in 2015, and it is the market leader, currently. Some of the successful products under this segment were L’Oreal Professionnel and Redken.  L’Oreal’s 2014 acquisitions, Decleor and Carita, are now gearing up to be the worldwide leaders in the professional beauty market. L’Oreal’s Active Cosmetics showed the highest like-for-like growth rate of 6.5% in Q2 2015, however, it contributes less than 10% to L’Oreal’s total sales. The Active Cosmetics division’s growth was driven by the double digit growth of La Rochay-Poasay. L’Oreal’s Strategies For Recovering The American Market Seem To Be Working After a sluggish 2014, L’Oreal’s North America market had started showing signs of recovery in 2015. All the divisions projected growth, with the consumer division having significantly rebounded after negative growth in 2014. However, the biggest successes in North America were L’Oreal’s make-up brands such as Maybelline, L’Oreal Paris, and NYX. L’Oreal’s 2014 acquisition, NYX Cosmetics is a high-growth mass market makeup cosmetics, which is in direct competition with its chief rival Estee Lauder’s M-A-C brand. L’Oreal acquired NYX with the aim of recovering the slow growth in the North American market and it seems to have been successful in this strategy. NYX displayed almost 70% growth in sales in the first half of 2015. Brazil Under Pressure, Russia’s Impressive Growth, China’s Recovery Brazil’s weak economic condition has stunted growth in that region. L’Oreal’s consumer segment’s growth was dampened to a great extent due to the poor performance in Brazil. In Latin America, L’Oreal observed double digit growth in Hispanic America. L’Oreal witnessed around 16% growth from Russia in the first half of 2015. L’Oreal’s China market had been performing well in all the divisions except for the Consumer segment. L’Oreal is taking initiatives to revive the Consumer division in China through the relaunch of Maybelline, new initiatives in L’Oréal skincare, and the launch of a new line called L’Oréal Men Expert haircare. Western Europe’s performance improved significantly in the first half of 2015, predominantly due to the growth of the Luxe division-given the strong demand for luxury fragrance in the region. L’Oreal’s Expansion Of Digital Presence In the first half of 2015, around 20% of L’Oreal’s total media comprised of the digital format, and L’Oreal e-commerce sales rose by over 40%, and constituted around 4% of the total group sales. L’Oreal’s e-commerce sales are expected to cross €1 billion in 2015. Digital sales have always been one of the major focuses for the company. In 2014, L’Oreal experienced a 30% year-on-year growth in its online sales and it contributed to around 6% of its total revenues. Around 10% of L’Oreal’s China revenue in 2014 came from the online channels. L’Oreal wishes to follow the China model across the world. Towards this end, it appointed Lubomira Rochet as the Chief Digital Officer, a newly created position in 2014. In March 2015, L’Oreal USA, L’Oreal’s largest subsidiary, announced a partnership with Powa Technologies, a popular mobile platform. As a result of this partnership, L’Oreal can tag any of its advertising, promotions, or in-store products, and allow their instant e-commerce purchase. PowaTag’s technology is capable of converting a consumer touch point, such as print and television advertising, e-commerce, retail stores, and social media, into a platform through which mobile transaction can be completed. PowaTag’s 2-D barcodes can be scanned with an application to complete online purchases. Along with ease of purchase for the user, L’Oreal’s visibility also increased manifold as a result of this collaboration, as advertisements through smart phones will create a deeper penetration for L’Oreal’s products. 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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    Avon's Sales Decline Persists In Q2 On the Back Of Currency Headwinds, Brazil's Economic Problems, And Representative Base Erosion
  • By , 8/3/15
  • tags: AVP EL LRLCY REV
  • Avon Products (NYSE:AVP) announced its Q2 2015 earnings on July 30th. The company suffered yet another weak quarter due to currency headwinds, economic problems in Brazil – its top revenue contributor (~20% as of 2014), and a declining representative base in North America. However, Avon’s management claims that the company had taken these economic factors into consideration and it is on the track to recovery. In the fourth quarter of 2015, Avon’s management will try to encourage more of its representatives to sell through its digital domain, Avon.com, as it sees significant fan followings (around 20 million) on the social media and aims to capitalize on the sales opportunity. In Q2 2015, the company’s sales declined by 17% to $1.8 billion. However, in constant dollar terms, Avon’s revenues was relatively unchanged due to the growth in Europe, the Middle East, and Africa (EMEA). The company’s active representative base declined by 2% on a year-over-year basis, primarily due to the continued decline of the representative base in North America. As of December 2014, Avon had around 6 million active representatives.. We will shortly update  our current price estimate of $6.55 for Avon Products . See Our Complete Analysis for Avon Products Here  Avon’s Performance Showed Improvement In Latin America and EMEA, While Representative Erosion In North America Continued Avon experienced healthy growth on a constant currency basis in the EMEA, driven by its strong growth in Russia due to initiatives by the representatives. Within Latin America – its most important sales region contributing around 50% of its revenues – Mexico showed recovering trends, while Brazil continued its lackluster performance. However, as mentioned in the earlier earnings report, Brazil’s IPI taxes and persisting economic weakness continued to dampen Avon’s growth in the country. North America performed as expected and delivered a moderate quarter. In Asia Pacific, Philippines (its largest market in the region) demonstrated a sturdy performance. However, Asia performed poorly on an overall basis. In Q2 2015, Avon’s active representative base declined by 2% on a year-over-year basis, which was primarily due to the erosion in base in North America. This was partially offset by relatively better performance in EMEA, with a significant improvement in Russia. There was a sequential quarter over quarter improvement in Avon’s representative base. The company claimed to have witnessed growing trends in representative base in almost two-thirds of its top regions of operation. The management stated that a positive trend in the representative retention has been observed, on a rolling 12-month basis.   Avon’s Travails In Brazil And The Remedial Measures  Avon’s largest market, Brazil, had erstwhile been a catalyst in the company’s growth. The most important reason for this was that direct selling is a very important model in the Brazil beauty market which contributed to around 70% of the market transactions. Hence, Avon’s direct selling market was a huge success in Brazil. Currently, Brazil is being adversely impacted by three economic factors : The Brazilian Real is facing severe depreciation in recent times. Brazil’s IPI tax (one of the basic sales taxes in Brazil) that came into effect post May 1, dampened Avon’s sales in the color and skin care segments. Avon is the leading player in Brazil in these two segments. Brazil’s weak economic conditions led to declines in consumers spending on ‘luxury items’ such as cosmetics. Recovery Initiatives Brazil’s economic weakness, coupled with other factors such as competition from retail channels and an improper product pricing strategy by Avon, had caused a dent in  Avon’s Brazil sales figures since 2014. To recover the Latin American market and Brazil in particular, towards the end of 2014, Avon struck an alliance with KORRES (a Greek skincare brand) and Coty (a French beauty and personal care company). Avon’s initiatives did bear some improvements in Avon’s Latin American sales in Q1 2015. Avon is still testing the right product pricing strategy to boost consumer confidence. Currently, Avon is trying to maintain its stability in the region by actively recruiting representatives and spending on retention programs. The company has planned for a new set of innovative product launches in the region, which are in the pipeline for the second half of 2015. Some Highlights Of The Second Quarter Avon divested Liz Earle, its wholly-owned, UK-based natural skincare brand, in the second quarter. Liz Earle contributed around 1% to Avon’s consolidated revenues and adjusted operating profit in 2014. Liz Earle was acquired by  Walgreens  (NASDAQ:WBA) for £140 million. Avon plans to use the proceeds from the sale to redeem its $250 million worth 2.375% notes, due in March 2016. (See  Press Release ). Avon will also use some of the resources from the sale to revive its declining capital structure. Avon closed on a $400 million, 5-year senior secured revolving credit facility. This will replace the previous $1 billion unsecured revolving credit facility. For the full year 2015, Avon had guided to slight improvements over 2014 on a constant dollar basis and around 17 point negative impact on revenues due to foreign currency translation. Trying To Shift More Representatives To Sell Through The Digital Medium Avon’s online portal, avon.com, is showing double digit growth; however, it is still less than 10% of the total business. The company is trying to shift more representatives to sell through the online channels, and it will take more initiatives towards this end towards the fourth quarter. Avon’s direct selling model is dependent on a sturdy representative base and the sales initiatives taken by those representatives. Avon’s representative base erosion had been a serious problem in the recent past and had been an important factor for its sales decline. Avon had a representative count of around 6 million in 2014, after witnessing a 4% year-on-year decline. Avon’s competitors in the beauty domain have multiple channels for sales including retail outlets, standalone shops, as well as digital media. In 2014, Avon’s major sales regions witnessed representative base erosion. The representative pool in North America, Asia Pacific, and Latin America, declined by 18%, 7%, and 4%,  respectively. We believe that in the long run, other modes of sales (such as through the digital medium) will cannibalize sales from the direct-selling channels for Avon. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    HMC Logo
    Earnings Review: Renewed Quality Focus Boosts Honda's Profits
  • By , 8/3/15
  • tags: HMC TM GM F
  • Earlier this year, Honda Motors (NYSE:HMC) decided to move in a different direction. The company removed Takanobu Ito from the CEO position and decided to replace him with Takahiro Hachigo. Under Ito, the company had undergone significant change in identity. While previously only known as a Japanese manufacturer of high-quality and high-performing cars, Honda decided to make each of its geographic divisions autonomous and accountable. This was with the view of allowing each division to localize production, development and purchasing in order to pursue an individual approach to each market. Unfortunately, the North America division faultered under the weight of this increased burden. 2014 was a disappointing year and sales in the U.S. had fallen by 5% over the first two months of the year as Honda’s cars began to be reported from quality. Two separate incidents — one related to Takata Corporation’s flawed air bags, the other related to the faulty redesigned Fit — hurt profits badly and Honda decided to rethink its position in the market. The new direction that the company decided to take under Hachigo was a return to Honda’s original identity. The Japanese auto maker decided to go back to its roots as a Japanese car maker known for its quality rather than its ubiquity and cut the total model count by 20%, with an increased expenditure on ensuring that the slim model line-up had superior quality to ensure higher sales. This strategy to starting pay off and, as the results of the first quarter of fiscal 2016 show, may be beginning to sow unexpected rewards. We have a $34 price estimate for Honda Motors, which is about 10% above the current market price. Renewed Quality Focus Propels Sales Global car sales rose by 4.9% for Honda in the first quarter of fiscal 2016. This happened despite a 27% decline in Japan and a 16% decline in Europe. An increase of 11% in North America and 19% in Asia more than cancelled the decline in the former pair. Interestingly, the North America and Asia sales both rose on the back of higher margin vehicles — the HR-V compact SUV sales in North America and the refreshed Vezel SUV in China. This meant that Honda’s net profit jumped by 20% in the first quarter. Given the weakness of the yen, the higher profits meant even more in translated terms in Yen and boosted the numbers. The currency effect would have been even more pronounced if Honda did not have to also take in the additional expenses related to the recall of cars equipped with faulty Takata airbags. Although Honda does not break out numbers for specific expenses, it had earlier this year restated its earnings to reflect additional costs for the expanded recalls earlier this year. What Next For Honda The 19 percent increase in Asian sales was mostly caused by a 30% increase in deliveries in China. The car maker introduced new and crossover models in China and, as China’s stock market increased by more than 100% in the first half of the year, sales for Honda also grew. But now the Chinese economy has experienced a major setback. Growth was already slowing but the stock market crash has started a reverse capital flight from China and this could impact the market in the months to come. Given this backdrop, we should not expect Honda sales to continue increasing in the coming quarters. However, Honda’s performance in North America should continue to be as strong. Earlier this year, the 2016 ILX, Acura’s entry level sedan, went on the market in the first half of 2015 and has been doing well. Entry level luxury cars are some of the hottest selling cars in the segment and new car launches are known to be sales drivers. In 2015, the U.S. luxury car market is expected to grow by around 10%. Gas prices are low, interest rates are low, and consumer confidence is at a seven year high. All these factors should contribute to increasing sales of luxury vehicles and Acura is in a good position to cash in on these trends. Additionally, the Acura NSX super-sportscar is set to enter the market later this year. Honda’s 2016 Accord also became the first car on the market featuring both Android Auto and Apple CarPlay functionality. This will allow Honda to target a larger market as in car entertainment features are a major influencing factor in car purchases. Now people with both iOS and Android phones will be able to consider the Accord as a potential purchase and Honda’s superior quality could result in even higher sales numbers in the rest of the year. 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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    Activision Blizzard's Q2 2015 Earnings Preview: Improving Software Sales Raise Hopes
  • By , 8/3/15
  • tags: ATVI EA GME MSFT
  • The American gaming giant,  Activision Blizzard  (NASDAQ: ATVI), is all set to release the second quarter fiscal 2015 earnings report on August 4, 2015. The market is expecting the company to deliver EPS of $0.08. Riding on high title sales in the First-Person Shooter (FPS) category, primarily driven by Call of Duty franchise, the company’s stock rose more than 25% since the onset of this year. Call of Duty is the highest selling FPS title, with a huge gamer base. Moreover, the company’s other releases, such as Destiny and Heroes of The Storm, as well as new expansion packs for World of Warcraft, are providing a further boost to the company’s revenue growth. Everyone will be looking out for the performance figures of Activision’s FPS titles, Skylanders franchise, and the new multiplayer online battle arena, Heroes of The Storm. Activision Blizzard started the year with a 15% year-over-year (y-o-y) growth in GAAP net revenues to $1.28 billion in the first quarter of fiscal 2015, driven by strong growth in the digital segment and console full-game downloads. GAAP digital revenues were $581 million in the quarter, accounting for 45% of the total revenues. Since the digital segment is a high margin category, the company’s margins in the first quarter rose to 43%, up from 37% in Q1 2014. Our $26 price estimate for Activision Blizzard’s stock is roughly the same as the current market price. See our complete analysis of Activision’s stock here Improving Software Sales To Boost Revenue Growth According to NPD’s report, software sales growth seems to be picking up pace compared to last year’s performance. In June 2015, the video-game industry saw an 18% y-o-y rise to $869.4 million in total game sales (hardware, software, and accessories). The highlight in this report is that the software sales were up 21% y-o-y to $ 345.5 million, despite the lack of major releases. As a result, the software sales in the first half of 2015 were up 3% y-o-y, indicating a reversal sign to last year’s trend. Moreover, with some of the major titles being released in the latter half of the year, we might see further improvement in the segment’s growth. Most of the Activision major titles are released during the last quarter of the calendar year. At the 2015 Electronic Entertainment Expo (E3), Activision showcased the trailers and in-game details of its upcoming releases. Among the fan favorites were the return of the most played title in the Call of Duty series —  Call of Duty: Black Ops III . Other games presented by the company were Guitar Hero Live, Skylanders Superchargers, as well as the next major expansion pack for  Destiny, The Taken King . Call of Duty: Dominance To Sustain Call of Duty has been one of the most successful franchises for the company over the last 5 years. Every year it has been dominating the FPS genre, with high worldwide sales and one of the largest online gamer bases. Last year’s Call of Duty: Advanced Warfare has sold roughly 19.5 million units through June 2015, with Sony’s PlayStation 4 leading the race with more than one-third of the total sales. According to Trefis estimates, Call of Duty: Advanced Warfare has sold roughly a million units over the last 3 months ending July 2015, indicating the strong demand for the title. Activision recently announced the fourth and final DLC (downloadable content) pack for the title that will have four new multiplayer maps and some additional features, to be released on August 4. The robust demand for the title is surely going to have a major impact on next-generation console sales in the company’s Q2 earnings. Moreover, the release of Call of Duty: Black Ops III is surely going to further boost the segment’s growth in the holiday season. (See: Activision might continue FPS domination with new Black Ops Title ) Destiny: 10 Million Wonder Last year, Activision released another FPS title – Destiny, which turned around to be a promising franchise for the company, with over 10 million unit sales and was the third highest title sold in 2014. With over 16 million registered users as of May 2015 and an average 3 hours of game-play per day, the title is gradually turning out to be a huge success for the company, and it will contribute significantly to Activision’s top-line growth in Q2 2015, providing a boost to next-generation consoles revenues. Heroes Of The Storm: Was It Big Enough? In June 2015, Blizzard amazed its game lovers with yet another title: Heroes of The Storm, but this time it was different. Apart from the usual FPS games, this game is a multiplayer online battle arena, or as the company likes to call it, “A Hero Brawler,” available only for Microsoft Windows and OS X in both free-to-play and freemium modes. The game includes battle among the heroes from the company’s other franchises, such as World of Warcraft, Diablo, and StarCraft. The game is different from other usual titles released by the company, and has received great ratings from critics and positive responses from gamers. However, the question everyone is asking is if it is a big enough move by the company? If yes, then is it impactful enough to offset the declining revenues from the World of Warcraft franchise? Activision reported a decline in the number of subscribers, as the subscriber base was down to 7.1 million at the end of Q1. Dominant performance by FPS titles, additional revenues from other franchises, such as Skylanders, as well as a positive response to Heroes of The Storm, are the major key points on which the company is relying to maintain its market share in the industry. 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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    Scenarios That Can Significantly Impact Hewlett-Packard’s Stock Price – Part 2
  • By , 8/3/15
  • tags: HPQ IBM ACN MSFT
  • In the previous note, we explored the base case scenario for Hewlett-Packard  (NASDAQ:HPQ). Tepid business environment, price competition and secular downtrend in some of the industries have forced the company to rethink its strategies for various divisions. For the bull case scenario, Trefis considers that new product and service launch in various industries can help HP to gain market share and improve topline in the coming months. In this note we explore the bull case scenario for the company in detail. See our full analysis on HP Bull Case Scenario: Upside of 18% In the bull case scenario, Trefis estimates that there is 18% upside to its stock price estimate. The expected change to drivers is as below: Imaging And Printing Division: – Over the past few years, the secular decline in printer industry has affected the participants in the market. However, pent-up demand for new printers remain due to legacy hardware. In the bull case scenario, Trefis projects that the worldwide printer market will increase to 120 million units by 2021 due to pent up demand for printers and increases in printing demand across most regions and industries. Furthermore, due to HP’s brand image, it can increase its market share to 45% by 2021 as smaller competitors (like Lexmark) exit from unprofitable ventures. In addition to leading the printer hardware market, HP leads the ink and supplies industry through continuous innovation in ink technology. It is manufacturing cartridges that last longer and, therefore, are pricier. Trefis believes that as the company continues to innovate in the ink and supplies vertical, the average sales price (ASP) for supplies can be higher. In the bull case scenario, Trefis estimates that the printer ink and toner supplies ASP could increase to $55.40 by 2021. Enterprise Server, Storage And Networking Division: – Within this division, servers contribute 70% to the top-line and bottom-line. As a result, the drivers associated with server unit have most impact on the valuation of HP. In the bull case scenario, Trefis estimates that HP’s server shipments could increase to 3.7 million as it continues to launch servers with high computing abilities. Furthermore, as HP adds more functionality to its servers (especially for Data-center centric capabilities), Trefis estimates that prices for its server would decline at a slower pace to $3,790 For the storage unit, HP’s revenues have flat-lined over the past couple of years after peaking at $4.2 billion in 2012. However, as investment in data center is rampant, Trefis believes that storage requirements from IaaS and Cloud can push HP’s storage revenues to $4 billion by 2021. HP Services: – HP’s services division, which includes Infrastructure outsourcing, Technology services and Application and business outsourcing, has witnessed a decline in revenues due to key account runoff, tepid business signings and intense competition from other players. While we have discussed our projections for the base case scenario earlier, in bull case we have considered that improving business condition would improve new signings and thus the revenues. Trefis estimates that Infrastructure outsourcing revenues would increase to $12.9 billion, while tech services, and application and business outsourcing revenues would increase to $9 billion each. This expected increase in revenue contributes 3% to the 18% upside in stock price. Personal Systems Group: – Personal Systems group contributes 30% to the total revenues and 15% to HP’s estimated stock value. The disparity between revenue contribution and value can be explained due to low profit margins for the segment. HP manufactures laptops and desktops that compete in the highly commoditized computer industry. As a result, margins for the company and industry in general are low. In the bull case, Trefis estimates that worldwide demand for laptops would improve to 222 million. Furthermore, HP’s market share in the notebook and laptop market would improve to 22% by 2021 as it undercuts competitors in capabilities. A functionally superior laptop would also help the company to cut its prices at a slower rate, and Trefis estimates that price will decline at a slower rate to $500 by 2021. Desktop industry has been in a secular decline over the past three years. Most of the demand in desktop market is driven by enterprise clients. While the demand for desktop will continue to decline over the project time frame, Trefis estimates that desktop markets can stabilize at 112 million by 2021. Since HP has ongoing client relations with most of its enterprise clients, it can increase its market share in the shrinking desktop industry to 22.7% by 2021. Furthermore, by adding more features (such as Gesture recognition) to its desktop, it can charge a premium for its desktop. This would help the company to stem the decline in its desktop price to $400 by 2021. HP Software Division: – HP offers IT management software solutions, including support and professional services allowing clients to manage their IT infrastructure and applications. Other offerings include Information management and open call solutions that allow clients to develop and deploy voice and data network services. The revenues for this division have been stable at $4 billion. In bull case, Trefis estimates that License revenues would decline to $1 billion due to decrease in demand for HP’s other services such as Infrastructure outsourcing and Application and process outsourcing. This would also impact the renewal rate negatively, which reflects the repeat business from existing clients, to 88% by 2021. See The Bull Case Scenario For HP 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
    COP Logo
    ConocoPhillips Sharpens Focus On Lowering Costs As Oil Prices Eat Into Profits
  • By , 8/3/15
  • tags: COP EOG APC CHK
  • ConocoPhillips (NYSE:COP) recently announced its 2015 second-quarter earnings. As expected, the company’s profits dropped sharply because of lower price realizations. The company’s earnings per share (EPS), adjusted for non-operating items, declined to just $0.07, compared to $1.61 in the year-ago quarter. Because of the steep decline in benchmark crude oil prices and lower natural gas prices in the U.S., ConocoPhillips’ average price realization for the quarter declined by more than 44% year-on-year to just $39.09 per barrel of oil equivalent (BOE), which is approximately 29% or $15.80 per BOE below its all-inclusive cost of sales for last year, by our estimates. However, during the earnings conference call, the company’s management assured investors that the dividend is safe, as it expects the combined effect of lower costs and a gradual recovery in oil prices to help it achieve cash flow neutrality by 2017. ConocoPhillips is the world’s largest independent exploration and production company by proved reserves and annual production. Its daily net hydrocarbon production from continuing operations, excluding Libya, averaged 1,532 thousand barrels of oil equivalent (MBOED) last year, and it had proved oil and gas reserves of around 8.91 billion barrels of oil equivalent (BOE) at the end of 2014. Headquartered in Houston, Texas, the company has operations in 27 countries, generating annual sales revenue of more than $52 billion. Based on the second-quarter earnings announcement, we have revised our  price estimate for ConocoPhillips to $56/share, which is around 10% above its current market price. See Our Complete Analysis For ConocoPhillips Increased Focus On Lowering Costs Based on the current demand-supply situation, it is reasonable to believe that the oil price rout is not expected to reverse any time soon. We currently forecast a slow, stretched-out recovery to a $100 per barrel levels by 2022. This is expected to have huge implications for the whole oil and gas industry and even more so for the independent upstream players, like ConocoPhillips, that do not have downstream refining, marketing, and petrochemical businesses. In a commodity down cycle, such as this one, these companies see a sharp decline in their operating cash flows, which lowers their capacity to invest in future production growth. Therefore, capital expenditure (which is the biggest single cash expense item in this business and the primary driver for future production and earnings growth) plans of independent exploration and production companies are significantly dependent on the short to medium term outlook for global crude oil prices. This is one of the key reasons behind ConocoPhillips’ capital expenditures guidance revision. ConocoPhillips first announced its 2015 capital expenditure plan in December last year. The company revealed its plan to cut capital spending by around 20% y-o-y to $13.5 billion, primarily because of the steep fall in oil prices. However, with the 2014 fourth quarter earnings announcement, it further cut its 2015 capital spending budget to just $11.5 billion. Having spent just around $5.7 billion in capital expenditure during the first half of the year, with the second quarter earnings announcement, ConocoPhillips again cut its full-year capital spending guidance for 2015 to just about $11 billion. The company attributed the decline in cost target to efficiency improvements, service cost deflation, and the deferral of some not-so-lucrative projects. In addition, ConocoPhillips also lowered its operating cost guidance for the year from $9.2 to $8.9 billion, and the net corporate segment expense from $1 billion to about $900 million. We believe that the increased focus on lowering costs will greatly benefit ConocoPhillips’ pace of achieving cash flow neutrality, but will also weigh on its production growth in the long run. Our current price estimate for the company includes the impact of lower capital expenditures, slower production growth, and thicker operating margins in the long run. 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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