Trefis Helps You Understand How a Company's Products Impact Its Stock Price


Apple is set to publish its fiscal second quarter earnings after the markets close on Monday, reporting on the second full quarter of availability of the iPhone 6. While the quarter is traditionally subdued for the smartphone market, it should be an interesting quarter for Apple. iPhone sales in Greater China should be a big driver of quarterly earnings given the Chinese New Year shopping season as well as China Mobile's rapid 4G user additions. Our earnings preview details our expectations further.

See Complete Analysis for Apple
Screenshot of forecast demo
To use this tool, please upgrade Adobe Flash Player here.
Sign up for the complete Trefis experience.
Your Email Address:

Want to learn more? View a Trefis Webinar.


China Mobile enjoys a dominant, majority share of the Chinese wireless market, and we expect it to remain the dominant player going forward. However, we expect its market share to stagnate over the next few years as competitors China Unicom and China Telecom expand their 4G service, an area in which China Mobile had a significant head start.

Screenshot of forecast demo
To use this tool, please upgrade Adobe Flash Player here.


BP Logo
BP Earnings Preview: Lower Oil Prices To Offset Higher Production
  • By , 4/24/15
  • tags: BP XOM CVX RDSA
  • BP Plc. (NYSE:BP) is scheduled to announce its 2015 first quarter earnings on April 28. We expect lower crude oil prices to weigh significantly on the company’s upstream earnings growth. The average  Brent crude oil spot price declined by more than 50% year-on-year during the first quarter. This is expected to result in thinner operating margins on BP’s spot crude oil sales. However, higher production volume because of the contribution from recently started projects, and increased entitlements as a result of lower oil prices, coupled with the company’s enhanced ability to convert greater amounts of heavier crude oil into refined products, and productivity cost savings, are expected to partly offset the impact of lower commodity prices. During the earnings conference call, we will be looking for an update on BP’s operating strategy under the changed crude oil price environment and ongoing legal issues associated with the 2010 Deepwater Horizon incident. Headquartered in London, BP is one of the world’s leading oil & gas multinationals with operations in more than 80 countries. As a vertically integrated oil and gas major, it has both upstream as well as downstream operations. The upstream division primarily includes exploration and production activities for oil and gas, while the downstream division focuses on producing refined petroleum products such as gasoline. We currently have  a $39/share price estimate for BP, which is around 10% below its current market price. See Our Complete Analysis For BP Higher Upstream Production BP has changed a lot since the 2010 Deepwater Horizon incident, primarily due to divestments made by the company in order to fund charges associated with the oil spill fiasco. By the end of last year, the company had completed divestments of around $41 billion. A majority of these asset sales primarily included upstream installations, pipelines and wells, while the company has managed to retain most of its (~90%) proven reserves. This has led to a sharp decline in BP’s production rate over the last four years. Its average daily hydrocarbon production rate fell by almost 25% since 2010 to 2,143 thousand barrels of oil equivalent per day (MBOED) last year. In order to revive its operational strength, BP started production from as many as eight new projects in 2012 and 2013. Last year, the company brought another seven new upstream projects online. These projects contributed significantly to the 2.2% y-o-y growth in its underlying oil and gas production in 2014. Currently, the company is working on several new projects that are expected to bring online over 900 MBOED of cumulative production – net to BP – by 2020. More than 50% of these new projects have crossed the critical, final investment decision (FID) stage of development, and are currently under construction. This year, BP plans to start production from four of these new projects under construction. Production from these new projects is expected to more than offset the decline in BP’s base production (due to natural field declines) and result in a gradual increase in its upstream production in the long run. In addition to new projects, we expect BP’s first quarter upstream production to also increase as a result of higher entitlements from projects under production-sharing agreements (PSA). A PSA is an arrangement through which an oil company bears the risks and costs of exploration, development, and production. In return, if exploration is successful, the oil company receives entitlement to variable physical volumes of hydrocarbons, representing recovery of the costs incurred and a stipulated share of the production remaining after such cost recovery. Therefore, under such agreements, the production volume entitled to an oil company increases during the period of lower oil prices. BP derives almost one-third of its total net hydrocarbon production from production sharing agreements, and its upstream cash profits are therefore relatively less exposed to the volatility in crude oil prices. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    LUV Logo
    Southwest's Earnings Triple Backed By Strong Domestic Demand and Lower Fuel Costs
  • By , 4/24/15
  • tags: LUV ALK UAL
  • Southwest Airlines (NYSE: LUV), which released its first quarter operating results along with Alaska Air (NYSE: ALK) and United (NYSE: UAL) on Thursday, posted a record earnings of 66 cents per share for the quarter, beating the market estimate of 65 cents per share . The airline earned a net income (excluding special items) of $451 million, almost thrice the net profit posted a year ago. The low-cost carrier continued to expand its capacity at a high rate which contributed to a considerable rise in its passenger traffic. Consequently, the airline recorded total revenue of $4.41 billion, 6% higher on a year-on-year basis, largely in line with the analysts estimate. We currently have a price estimate of $48 per share for Southwest, 10% ahead of its market price. See our complete analysis for Southwest Airlines here Strong Revenues And Fuel Cost Savings Drive Southwest’s Profits With the expiration of the Wright Amendment (a federal law restricting the number and destination of nonstop flights operated to and from Dallas), Southwest launched a number of nonstop flights to and from its home base at Dallas Love Field, increasing its daily departures from 115 to 166. As a result, the Dallas-based airline’s flying capacity increased by 6% on a year-on-year basis, which enhanced its passenger traffic by 7.1% to 25.86 billion revenue passenger miles. The airline’s newly launched flights from Dallas have been received with strong market demand which helped the airline achieve a load factor (percentage of seats occupied by passengers) of over 90% on these flights. This, in turn, improved the airline’s overall load factor from 79.3% in the first quarter of 2014 to 80.1% in the latest quarter. Southwest’s unit revenue also increased 0.3% on a year-on-year basis. The addition of new flights coupled with strong domestic demand helped Southwest to boost its first quarter revenue to $4.41 billion, up by 6% on a year-on-year basis. On the cost side, Southwest benefited from the prevailing weakness in crude oil prices. The airline’s fuel expense averaged $2 per gallon, a significant fall from $3.08 per gallon recorded in the same quarter last year, resulting in cost savings of more than $450 million during the quarter. Further, the use of larger Boeing 737-800 jets, longer flights, and lower maintenance costs reduced the total operating costs by 8% to $3.6 billion. This enabled the low-cost carrier to scale up its operating income to $770 million from $242 million posted a year ago, posting an operating margin of 17.4% during the quarter. Outlook For Second Quarter Despite delivering an impressive performance in the first quarter, Southwest expects its passenger unit revenue to decline by 2% year-on-year in April due to the exceptional performance in the second quarter of 2014, along with the ongoing increase in stage length (length of average flight) and gauge (seats per airplane). For the full year, the airline plans to grow its capacity about 7% on a year-on-year basis. With these capacity expansions, Southwest expects to increase the number of flights from Dallas Love Field to 180 by August this year. These expansions will increase 2016′s capacity by about 5%. Further, the airline aims to grow its fleet by 2% in 2016 above the 700 airplanes that it expects to be flying at the end of 2015. The airline will continue to reduce its units costs further by 1-2% during the next quarter. Southwest’s return on invested capital (before taxes and excluding special items) for the trailing twelve months stood at 25.6%, compared to 14.2% for the same time a year ago. The airline generated free cash flows to the tune of $859 million, of which $381 million were returned to the shareholders through dividends and share repurchases. The airline aims to complete its $1 billion stock buyback program in May with the purchase of the last $80 million in shares authorized. The low-cost carrier also paid down its debt and capital lease obligations by $51 million. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    UAL Logo
    United Beats Market's Earning Estimate, Slightly Misses The Revenue Forecast
  • By , 4/24/15
  • tags: UAL ALK LUV
  • United Continental Holdings (NYSE: UAL) announced its first quarter operating results yesterday, along with low-cost carrier Southwest (NYSE: LUV) and smaller airline Alaska Air (NYSE: ALK). The airline reported total revenue of $8.61 billion, slightly missing the market estimate of $8.62 billion. The 1% decline in revenue was mostly driven by a significant reduction in other operating revenues during the quarter. Despite this, the Chicago-based airline managed to post earnings of $582 million, or $1.52 per share , beating the analyst estimate by more than $0.08 per share on the back of fuel cost savings of greater than $1 billion in the March quarter. Our current price estimate for United stands at $69 per share, 7% ahead of its market price. See our complete analysis for United Continental Holdings here Low Fuel Costs Boost Earnings United continued to follow capacity discipline during the quarter, resulting in a negligible increase in its flying capacity and passenger traffic. The airline’s unit revenue increased by 40 basis points as against the airline’s previous guidance of a 1% decline in unit revenue.  In spite of tough competition from low-cost carriers as well as international airlines, United’s yields grew by 0.4% on a year-on-year basis . While a decline in fuel sales to third party vendors created a drag on the overall revenue, lower crude oil prices significantly lifted the airline’s earnings. United’s aircraft fuel expenses dropped by 36% resulting in cost savings of more than $1 billion compared to the same quarter last year. As a result, the operating expenses declined by 13% during the quarter translating into a $1 billion improvement in the airline’s bottom line over a loss suffered in the first quarter of 2014. Speeding Up The Re-fleeting Plans To counter the rising competition, United, the second largest airline in terms of traffic, has announced its plans to make changes to its current fleet of aircraft. The airline aims to retire more than 130 of its 50-seater planes by the end of the year and continue to retire these planes as and when their leases expire. In return, the airline intends to lease bigger planes to extend the average life of its fleet. The legacy carrier will also extend the life of its Boeing 767 fleet by adding winglets and upgrading its interiors. In addition, United will replace its order for 10 Boeing 787 jets with a same number of Boeing 777-300ER aircraft, which have larger capacity and longer flight range. The delivery of these new planes is expected in 2016. However, this does not imply that United will rapidly add capacity to its current network, as the airline has slightly cut its capacity guidance for the year. The company now expects to grow its capacity by 1-2%, down from its previous guidance of 1.5-2.5% increase. This is in line with the recent cutbacks announced by United’s close competitor, Delta. Outlook for the second quarter United’s management forecasts a strong growth in its earnings even in the second quarter driven by lower fuel costs and the airline’s cost reduction measures. However, the airline anticipates its top line growth to dip by 4-6% due to the currency fluctuations and lower fuel surcharges. The airline estimates its pre-tax margins (excluding special items) to be between 12-14% in the second quarter of the year. For the trailing twelve months, the company’s return on invested capital was 17.1%. During the quarter, United returned about $200 million to shareholders as part of its previously announced $1 billion share buyback program. The airline will likely use its free cash flows during the year to complete this buyback program and add fuel hedge positions for 2016. The management also hinted at potential dividends or further share buybacks after the completion of the current program. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    ABX Logo
    Barrick Gold Earnings Preview: Lower Gold Prices To Weigh On Q1 Results
  • By , 4/24/15
  • Barrick Gold Corporation (NYSE:ABX) will release its first quarter results on April 27 and conduct a conference call with analysts the next day. We expect lower gold prices in Q1 2015, as compared to the corresponding period last year, to negatively impact Barrick’s results. The company has divested a number of high-cost, non-core assets since the middle of 2013. The sale of non-core assets will help lower the company’s cost structure and put it in a better position to operate in a subdued gold pricing environment. However, these asset sales could lower the company’s year-over-year gold shipments for the first quarter. Barrick’s adjusted net earnings, which exclude the impact of non-recurring items such as impairments, fell sharply from $406 million in Q4 2013, to $174 million in Q4 2014, primarily due to a fall in gold prices. In this article, we will take a look at what to expect from Barrick’s Q1 results. Gold Prices Gold prices have fallen over the course of the last year, reacting to cues regarding the tapering of the Federal Reserve’s Quantitative Easing (QE) program. The tapering of QE implied strengthening U.S. economic growth. Gold as an investment is often viewed as a hedge against inflation and economic weakness. The strengthening of the U.S. economy reduced the investment demand for gold and led to a fall in prices of the metal. London PM Fix gold spot prices, which averaged close to $1,300 per ounce in Q1 2014, have averaged close to levels of $1,200 per ounce in Q1 2015. Revenues from gold mining accounted for around 88% of Barrick’s total mining revenues in 2014. Lower gold prices are expected to negatively impact the company’s revenues and profitability in Q1 2015, as compared to the corresponding period a year ago. Going forward, the Fed’s outlook on the U.S. economy is important as far as gold prices are concerned. With the economy strengthening, the Fed is expected to raise interest rates sometime in 2015. However, the exact timing of an interest rate hike is contingent upon the pace of economic and jobs growth in the U.S. An interest rate hike is likely to lead to a decline in the price of gold, as investors shift towards higher yielding assets. Portfolio Optimization With gold prices expected to remain subdued in the near-term, Barrick has divested non-core assets in order to lower its average production costs. Since mid-2013, the company has reduced its portfolio of mines from 27 to 19. These include the sales of the Darlot, Granny Smith, Lawlers, Plutonic, and Kanowna mines in Australia, the Tulawaka mine in Tanzania, the Marigold mine in Nevada, and the closure of the Pierina mine in Peru. Further, the company also sold a 10% equity stake in its subsidiary, African Barrick Gold. Lastly, the company also sold off its oil and gas business, namely Barrick Energy, in 2013. The combined proceeds of these asset sales total approximately $1 billion. As a result of these asset sales, the company’s gold production in the first quarter of 2015 could to be lower than in the corresponding period of 2015. However, higher production from the Goldstrike and the Bulyanhulu mines, post technological upgrades to the processing facilities at these operation in 2014, would partially offset the decrease in production volumes as a result of the previously mentioned asset sales. The focus of the company’s portfolio optimization efforts has been getting rid of high-cost mines. This is reflected in the All-in Sustaining Cost (AISC) metric for these mines. The AISC metric includes the total cash cost, sustaining capital expenditures, general and administrative costs, minesite exploration and evaluation costs, mine development expenditures, and environmental rehabilitation costs. It provides a comprehensive view of costs related to a company’s current mining operations. In 2013, the AISC figures for the Australia Pacific mines segment, African Barrick Gold, and the Pierina mine, stood at $994 per ounce, $1,362 per ounce, and $1,349 per ounce, respectively. The reportable segment of North American mines, which includes the Marigold mine, reported an AISC of $1,235 per ounce. All of these figures are higher than the company-wide AISC of $915 per ounce for Barrick’s gold mining operations. Asset sales helped lower Barrick’s AISC for its gold mining operations from $915 per ounce in 2013, to $864 per ounce in 2014. Other Developments Barrick’s Lumwana copper mining operations in Zambia have been affected by an adverse change in the country’s tax regime. Starting in 2015, corporate income taxes on mines have been replaced by increased royalties. The new regulations will result in an increase in the royalty rate from 6% to 20% for Barrick’s Lumwana open-pit copper mining operations. The royalties are applicable on revenues generated by the mine and as per the company management, this increase in royalty rates threatens the viability of the Lumwana copper mine. In an earlier conference call, the company management had stated that it was engaged in negotiations with the Zambian government pertaining to the new tax regulations, and if no compromise were reached, it would start the process of suspending its Zambian mining operations in March. We would be looking for an update from the company management in its Q1 earnings conference call about the state of its negotiations with the Zambian government and the fate of the Lumwana mine. More clarity on this front would throw some light on the road ahead for Barrick Gold. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
    ATVI Logo
    Weekly Notes On Gaming Industry: Electronic Arts & Activision Blizzard
  • By , 4/24/15
  • tags: EA
  • The gaming industry is showing some signs of improvement in terms of software title sales in 2015. Top video game developers such as Electronic Arts (NASDAQ:EA), Activision Blizzard (NASDAQ: ATVI), and Take-Two Interactive released several popular game titles just before the holiday season of 2014. These titles, coupled with new releases of 2015, attracted many gamers in January and February, leading to an increase in software sales in these two months. According to a NPD report, gamers spent nearly $950 million on new game software and hardware in February, up 8% year-over-year (y-o-y). However, March turned out to be a dull period in terms of software and hardware sales in the U.S. According to NPD, gamers spent $963 million on all game accessories, including hardware consoles and software titles, down 6% year-over-year (y-o-y). However, the majority of the drop in sales was contributed by a 21% y-o-y fall in hardware sales. On the other hand, software sales were down 3% y-o-y to $394 million in March, whereas physical software sales were down 6% y-o-y. Here’s a quick round-up of some news related to the gaming industry covered by Trefis. Electronic Arts In March 2015, Electronic Arts (NASDAQ:EA) launched its much awaited  Battlefield Hardline in all the geographical segments.  Battlefield Hardline topped the charts as the highest selling game in the U.S. in March. However, it couldn’t match the last year’s release of Titanfall . On March 31, the company announced the release of the first expansion pack for The Sims 4 (The Sims 4 Get To Work), on PC and Mac in North America. Moreover, On April 7, EA, Illumination Entertainment, and Universal Partnerships & Licensing announced a new multi-tile deal to bring Minions and other characters from Illumination films upcoming movie to life in all-new mobile games. The company is slated to announce its fourth fiscal quarter report on May 5, 2015. EA’s stock traded higher from $56 and $60 during this week.  Our price estimate for the company’s stock is $54, implying a market cap of $17 billion, which is nearly 10% below the current market price. See our complete analysis of Electronic Arts stock here Activision Blizzard Activision Blizzard ’s (NASDAQ: ATVI)  Call of Duty: Advanced Warfare slipped down to #5 in the charts of the highest selling titles for March . On March 31, the company released the second expansion pack for Call of Duty: Advanced Warfare named ‘Ascendance’ for Xbox Live Online entertainment network. It includes 4 new multiplayer maps, new weapons, and other new exciting features. Moreover, on April 20, the company announced that Heroes of The Storm will be officially launched on June 2, with its open beta testing period starting from May 19. Activision’s stock rose from $22.76 to $23.75 during this week.  Our price estimate for Activision is $20.68, which is more than 10% below the current market price. See our complete analysis of Activision’s stock here View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    CMG Logo
    Weekly Notes On Restaurant Industry: McDonald's, Dunkin' Brands, & Chipotle Mexican Grill
  • By , 4/24/15
  • tags: MCD DNKN
  • The U.S. restaurant industry is facing tough competition among the fast food chains for the breakfast segment market share. However, fast casual restaurants still hold the upper hand in terms of customer traffic. On top of that, unfavorable weather conditions in some parts of the U.S. is one of the major factors of concerns for many fast food brands. Despite the operational headwinds, 60% of restaurant operators reported an increase in same-store sales in the twelve month period ended February 2015, according to the National Restaurants Association. Sales at the fast casual restaurants are strongest at lunch hours, and the traffic at that time is comparable to that in casual dining restaurants. According to Euromonitor, Americans spent more than $21 billion at fast casual restaurants last year. Below is the chart for the monthly change in restaurant traffic in the U.S. Source: In addition to that, commodity inflation might also impact the businesses, as prices of beef and other meat products are expected to remain high in 2015. This might force the companies to raise their menu prices. Here’s a quick round up of the restaurant companies covered by Trefis. McDonald’s On April 22,  McDonald’s Corporation (NYSE:MCD) released its first quarter earnings report for the fiscal 2015. The company’s global comparable sales declined 2.3% due to negative customer traffic in all the major operating segments. McDonald’s consolidated revenues declined 11% year-over-year (y-o-y) to $5.9 billion whereas operating income declined 28% y-o-y to $1.38 billion. In the first quarter, the company faced strategic charges worth $195 million in operating income, resulting in a negative impact of $0.17 to EPS. As a result, net income dropped 33% y-o-y to $811 million. This is the first earnings report under the new CEO, Stephen Easterbrook, who took over the position on March 1. On March 4, McDonald’s announced new menu sourcing initiatives in the U.S., including sourcing of chicken raised without antibiotics. The company has announced its intention to release its turnaround plan on May 4. McDonald’s stock traded between $95 and $96, and soon after the earnings report release, the stock jumped 4% to $99, before dropping back to $97. Our price estimate for the company’s stock is $97 (market cap of $94 billion) which is roughly the same as the current market price. See Our Complete Analysis For McDonald’s Corporation Dunkin’ Brands Dunkin’ Brands (NASDAQ:DNKN) released its first quarter earnings report for fiscal 2015 on April 23. Dunkin’ Donuts U.S. reported comparable store sales growth of 2.7%, whereas Baskin-Robbins U.S. reported 8% growth in comparable store sales. The company’s net revenues grew 8.1% year-over-year (y-o-y), whereas adjusted operating income increased 15.8% y-o-y. On the other hand, Baskin-Robbins International continued to show slower comparable store sales growth, as the segment’s total revenues for the quarter decreased 21.5% y-o-y. In the U.S., the company’s DD Perks loyalty Program and online cake ordering provided a boost to the revenue growth. Moreover, Dunkin’ Brands, along with J.M Smucker Company (NYSE: SJM), expanded its partnership with Keurig Green Mountain (NASDAQ:GMCR) by signing agreements for the manufacturing, marketing, distribution, and sale of Dunkin’ K-Cup packs in the U.S. and Canada. Dunkin’ Brands’ stock rose from $47 to $53 soon after the release of the earnings report.  Our price estimate for the company’s stock is $48 (market cap of $4.7 billion), which is roughly 10% below the current market price. See full analysis for Dunkin’ Brands Chipotle Mexican Grill Chipotle Mexican Grill (NYSE:CMG) reported impressive numbers in its Q1 2015 earnings report, released on April 21, as the company delivered 20.4% year-over-year (y-o-y) growth in net revenues to $1.09 billion. The company’s comparable store sales grew 10.4%, compared to 13.4% in the same period last year, and as a result, despite the strong financial result, Chipotle’s stock (CMG) slipped more than 7% in the first trading hour on April 22. The company’s net income rose 47% y-o-y to $122.6 million, resulting in an increase of 160 basis points in restaurant level margins to 27.5%. As a result, Chipotle managed to report diluted EPS of $3.88, up 47% y-o-y. The company mentions that it suspended one of its pork suppliers in the U.S. after a recent audit, on claims of below standard animal welfare protocols, affecting the supply of Carnitas to about one-third of the company’s outlets. Chipotle expects the comparable store sales in the second quarter to be in the low-to-mid single digits, with as much as 200 basis points negative impact due to the pork shortage. Chipotle’s stock fell from $695 to $635 soon after the release of the earnings report.  Our price estimate for the company’s stock is $669 (market cap of $20.8 billion), which is roughly 5% above the current market price. See Our Complete Analysis For Chipotle Mexican Grill View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    X Logo
    U.S. Steel Earnings Preview: Improved Market Conditions In U.S. And Cost Savings To Boost Q1 Results
  • By , 4/24/15
  • tags: X MT CLF
  • U.S. Steel (NYSE:X) will release its first quarter results on April 28 and conduct a conference call with analysts the next day. Improving market conditions for steel in North America are likely to boost the results of the company’s U.S. Flat-rolled steel operations, which account for around 60% of the company’s consolidated revenues. However, the company’s European operations, U.S. Steel Europe (USSE), will be negatively impacted by the depreciation of the Euro versus the U.S. Dollar, with pricing likely to be under pressure in Q1, like much of 2014. The company’s U.S. Tubular Steel operations will be negatively impacted by weak demand as a result of the ongoing weakness in oil prices. Given the mixed prospects for U.S. Steel as a whole, the company’s ongoing cost reduction initiatives will play an important role in boosting its results.  In this article, we will take a look at what to expect from the company’s Q1 results. See our complete analysis for U.S. Steel Steel Demand and Prices The principal consumers of steel products are the automotive, construction, appliance, machinery, equipment, infrastructure, and transportation industries. The nature of business of these sectors is cyclical, with demand generally correlated with macroeconomic conditions. Thus, demand for steel products is generally correlated with macroeconomic fluctuations in the global economy. Steel prices have fallen over the last few years, driven primarily by weak demand due to adverse macroeconomic conditions in the developed economies and an oversupply situation. This is indicated by trends in the London Metal Exchange (LME) Steel Billet Prices. Over the course of the last year or so, demand has recovered somewhat, driven by an economic recovery in the developed economies, particularly in the manufacturing sector. The Manufacturing Purchasing Managers Index (PMI) measures business conditions in the manufacturing sector of the concerned economy. When the PMI is above 50, it indicates growth in business activity, whereas a value below 50 indicates a contraction. This metric has consistently registered values of over 50 for the U.S. so far in 2015 This indicates strong manufacturing activity in the U.S., which was reflected in U.S. Steel’s fourth quarter results. The average realized price for the division rose 2.4% year-over-year to $775 per ton in Q4 2014, indicating rising demand. As per estimates by the World Steel Association, steel demand in the North American Free Trade Agreement (NAFTA) region, which consists of the U.S., Canada, and Mexico, is expected to gr0w by 3.4% in 2015, following on from a robust 3.8% in 2014 and significantly higher than the 2.4% fall in demand in 2013. A strong steel demand and pricing environment in North America will positively impact the results of the Flat-rolled Products segment in the first quarter. The Manufacturing PMI for the Eurozone has also registered values over 50 so far in 2015. Though manufacturing activity in Europe is not as robust as the U.S., demand for steel is expected to grow at 3% in the EU in 2015. This would boost volumes for the European operations in Q1. However, pricing and margins for the European operations in Dollar terms are likely to remain under pressure, due to the strengthening of the U.S. Dollar. USSE’s revenues are denominated in Euros, but costs are denominated  in both Dollars and Euros. The average realized price for the division fell 13% year-over-year to $600 per ton in Q4 2014, primarily due to the weakening of the Euro. Thus, pricing pressures on U.S. Steel’s European operations are likely to weigh on the company’s Q1 results. Mixed Business Conditions for Tubular Steel The Tubular Products segment of U.S. Steel is primarily involved in the production and sale of Oil Country Tubular Goods (OCTGs). These goods serve customers in the oil, gas, and petrochemicals markets. Energy related tubular products imported into the U.S. accounted for approximately 52% of the U.S. domestic market in 2014. These imported OCTGs are priced significantly lower than U.S. Steel’s tubular products. U.S. Steel and other domestic steel producers had sought the imposition of anti-dumping duties and countervailing duties against these imports, claiming that these products were priced unfairly low. Cheap OCTG imports have negatively impacted the fortunes of U.S. Steel’s Tubular Products division over the past couple of years. This was primarily because of a fall in the average realized price for this division. Realized prices for the Tubular Products division fell due to competition from cheap OCTG imports. The average realized price per ton fell from $1,687  in 2012 to $1,530 in 2013, and further to $1,508 in the first nine months of 2014. Gross margins for the division have correspondingly fallen from 15% in 2012 to 11% in both 2013 and the first nine months of 2014. The company had announced the idling of two facilities producing tubular steel earlier in 2014, citing difficult business conditions created primarily by the imports of tubular goods. The results for the Tubular Steel segment will be boosted by the U.S. International Trade Commission’s (ITC) ruling in the Oil Country Tubular Goods (OCTG) trade case, announced in Q3 2014. The ITC ruled that anti-dumping duties will be levied against OCTG imports from South Korea, India, Taiwan, Turkey, Ukraine, and Vietnam.  OCTG imports from these countries account for the bulk of the imported energy-related tubular steel goods in the U.S., which were affecting the sales and realized prices of the Tubular Steel division. The ITC ruling, along with an improved product mix as a result of a reduction in the company’s exposure to welded line pipe, will result in an improvement in realized prices for the segment in Q4. This is expected to benefit pricing in Q1 as well. However, weakening drilling activity in the U.S. due to weak oil prices has negatively impacted the demand for the company’s tubular steel products. As a result of weak demand, the company announced plans to idle two plants producing tubular steel earlier on in January. The two plants combined produce around 800,000 tons of tubular steel. To put this into context, U.S Steel’s tubular steel shipments stood at 1.74 million tons in 2014. This will negatively impact the division’s shipments in 2015. The Carnegie Way With a subdued steel pricing environment prevailing in 2013, the company had launched an initiative known as ‘The Carnegie Way,’ which is focused on cost reductions and improvements in operational efficiency. The company is expected to realized $575 million in margin improvements through this initiative in 2014.  Cost savings under The Carnegie Way initiative are an integral part of the company’s strategy to remain competitive and will boost the company’s profitability. Projects under the Carnegie Way initiative will boost the company’s margins by $150 million in 2015. Given the mixed business prospects for the company as a whole, the Carnegie Way initiative will play an important role in boosting margins in Q1 and the rest of 2015. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
    GM Logo
    Earnings Review: GM Had A Tough Q1
  • By , 4/24/15
  • tags: GM F TM VLKAY
  • General Motors (NYSE:GM) announced its results for the first quarter of fiscal year 2015 on April 23. The company reported earnings of $0.86 per share, a big improvement over last year’s $0.36., and revenue and EBITDA of $35.7 billion and $2.1 billion, respectively. Rising sales of full-size pickups and SUVs drove margins in North America, while higher unit sales drove revenues in China. Europe and South America continued to disappoint due to  weakness in both markets. Also, as promised, the company began its program of returning cash to shareholders through increased dividends and a stock buyback program. We take a look at the figures in more detail in our note below. We have a  $40 price estimate for General Motors, which is about 10% more than the current market price . GM Holds Firm On Its Strong North America Base GM has been working on improving the profitability of its North America operations. In the first quarter, those efforts showed results as the company made $2.18 billion in North America due to rising sales of full-size pickups and SUVs. This quarter marked a seventh consecutive quarter of year-over-year growth in operating margin in this region, with the company reporting a margin of 8.8% for the quarter. However, unit sales were down overall as certain models are nearing the end of their run. The introduction of the new version of the Chevrolet Malibu later this year should help reverse that trend. In the coming period, the auto maker is looking to launch the Chevrolet Spark and the Cadillac CT6 in addition to the Malibu. These new vehicle launches should lead to higher unit sales in the coming two years. Europe Still Weak GM is trying to restructure its operations in Europe and hoping to return to profitability next year. In the quarter, the company’s losses in the region narrowed to $239 million compared to $284 million in the same quarter last year. Overall, unit sales fell primarily due to the rapid decline in vehicle sales in Russia, where the auto maker is winding down much of its business, slightly mitigated by rising sales in Western Europe. The company recorded a one-time charge of $428 million due to the closure of operations in Russia. However, it is also easy to see signs of improvement in European operations as the company reported sales growth of 3.1% for the quarter, which outpaced the industry-wide growth rate of 2.8% and resulted in an improved market share in 11 European markets. China Changeover Leads To Declining Income GM’s China unit earned $371 million for the quarter compared to last year’s $252 million and its share in the world’s biggest auto market stood at 15.1%. However, GM’s equity income from the unit fell due to an increase in costs related to product change over and product launches. The auto maker is due to launch the Buick Excelle, the Buick Envision and the Chevrolet Sail 3 in the region. The Buick Excelle will be manufactured at GM’s recently opened 240,000 plant in Wuling as well. Having achieved higher market shares in the region over the last few years, the company’s focus has now shifted towards higher profits. To this end, the company is trying to grow the sales of crossovers, SUVs, and Cadillacs in the region. Last year, global Cadillac sales increased 5% on a 47% increase in China, bringing the cumulative sales growth of the brand to 35% since 2012. Chevrolet also achieved a record sales figure as volumes of the new Trax crossover gathered steam. Crossover and SUV demand in China is expected to grow at about a 10% annual rate and reach about 7 million units by 2020. GM is now looking at the luxury car segment in China since it already has a significant presence in the mainstream car segment. Last year, GM got the government’s approval to build a $1.3 billion plant with a capacity to produce 150,000 units of Cadillac cars locally. With more competitive pricing, GM is targeting a 10% share in the Chinese luxury market by the end of the decade. As the proportion of higher-priced vehicles increases, average income earned per vehicle could rise even further. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    CLF Logo
    Cliffs Natural Resources Earnings Preview: Lower Iron Ore And Coal Prices To Weigh On Q1 Results
  • By , 4/24/15
  • tags: CLF RIO MT VALE
  • Cliffs Natural Resources (NYSE:CLF) will announce its first quarter results on April 28 and conduct a conference call with analysts the next day. We expect lower iron ore and metallurgical coal prices to negatively impact Cliffs’ quarterly results year-over-year. Cliffs has been battling a subdued iron ore and coal pricing environment over the past year or so. The company’s loss-making Bloom Lake mining operations filed for bankruptcy in January. In addition, the company also announced the termination of its policy of quarterly dividend payments earlier on in the quarter. These are the latest steps taken by the company as it grapples with poor market conditions for both iron ore and coal. See our complete analysis for Cliffs Natural Resources Iron Ore and Coal Prices Iron ore and metallurgical coal are important raw materials for the steel industry. Thus, demand for these raw materials by the steel industry plays a major role in determining their prices. Though a majority of Cliffs’ iron ore sales are to the North American steel industry, sales agreements are benchmarked to international iron ore prices. International iron ore prices are largely determined by Chinese demand, since China is the largest consumer of iron ore in the world. It accounts for more than 60% of the seaborne iron ore trade. Chinese steel demand growth is expected to slow to 2.7% in 2015, from 6.1% and 3% in 2013 and 2014, respectively. 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. A combination of weak demand and oversupply is likely to result in weak iron ore prices in the near term. Iron ore prices stood at $58 per dry metric ton (dmt) at the end of March, around 48% lower as compared to prices at the end of March 2014. The worldwide surplus of seaborne iron ore supply is expected to rise to 300 million tons in 2017, from an expected surplus of 175 million tons in 2015, and a surplus of 72 million tons and 14 million tons in 2014 and 2013, respectively. In view of the persisting oversupply situation, iron ore prices will remain subdued in the near term. This will negatively impact the company’s first quarter results. China is also the largest consumer of metallurgical coal in the world. Demand for the commodity by the Chinese steelmaking industry has been weak, adding to subdued demand from other major consumers such as Japan and the EU. Weak demand coupled with an oversupply situation due to expansion in production by major mining companies, has resulted in plummeting coal prices. This will have a negative impact on Cliffs’ North American coal business, which primarily sells metallurgical coal, whose prices are linked to prices of Australian metallurgical coal. The benchmark Australian metallurgical coal price stands at around $119 per ton, around a third of its 2011 peak level of $330 per ton. In view of the oversupply situation, metallurgical coal pricing is expected to remain subdued in the near term. This will negatively impact the company’s first quarter results. Recent Developments In order to remain competitive in a subdued iron ore and coal pricing environment, Cliffs’ management favors focusing on the company’s profitable U.S. Iron Ore operations and the sale of its other high-cost assets. Earlier on in the quarter, the company completed the sale of Logan County Coal, a fully-owned Cliffs subsidiary which represents the company’s coal assets in southern West Virginia, for $175 million in cash. In January, Cliffs idled its loss-making Bloom Lake iron ore mining operations in Canada. The Bloom Lake mining operations recently filed for bankruptcy protection and has been deconsolidated from Cliffs’ financial statements. Cliffs also recently announced the sale of its Chromite project in Northern Ontario, in an effort to divest non-core assets and focus on its core businesses. In addition, the company has announced the termination of its quarterly dividend payment policy with effect from Q1 2015. Cliffs has prioritized the reduction of its debt over quarterly dividend payments. We feel that the company’s decision to prioritize debt reduction over dividend payments is a smart move. It will help boost the company’s cash flows and give it greater financial flexibility to operate effectively in a subdued commodity pricing environment. Expectations from Conference Call With the subdued iron ore and coal pricing environment set to continue in the near term, we would like to know whether the company has identified any other opportunities for reductions in operating costs or capital expenditure. We would also like to know if any asset sales, as per its strategy, are on the horizon. More clarity on this front will shed some light on the road ahead for Cliffs. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
    FCX Logo
    Freeport-McMoRan Earnings Review: Lower Copper And Oil Prices Weigh On Q1 Results
  • By , 4/24/15
  • Freeport-McMoRan Inc. (NYSE:FCX) released its first quarter results and conducted a conference call with analysts on Thursday, April 23. As expected, the company’s results were negatively impacted by weak copper and oil prices. Excluding the impact of one-time charges, the company reported an adjusted net loss of $60 million in Q1 2015, as compared to a net income of $510 million in the corresponding period last year. Freeport reported revenues of $4.15 billion in Q1 2015, as compared to $4.99 billion in the corresponding period a year ago, with lower oil and gas production contributing to the decline in revenues, apart from weak pricing. In addition, given the subdued pricing environment for oil, the company management talked about the potential sale of a minority interest in Freeport-McMoRan Oil & Gas through an IPO, in order to partially fund capital expenditure for the oil and gas business. See our complete analysis for Freeport-McMoRan Mining Operations Freeport’s mining revenues fell marginally from $3.72 billion in Q1 2014 to $3.65 billion in Q1 2015. Higher shipment volumes partially offset the impact of a fall in copper prices upon the company’s mining revenues. Operating income for mining operations fell from $878 million in Q1 2014, to $574 million in Q1 2015, primarily due to a fall in realized prices. The company’s copper production fell from 948 million pounds in Q1 2014 to 915 million pounds in Q1 2015. This was primarily due to the sale of the Candelaria and Ojos del Salado mines by the company in Q4 2014, offset by higher production at the company’s other operations, particularly at the company’s North American mining operations. The ramp-up of milling activities to full rates from the expanded mill at the Morenci mine drove a 17% year-over-year increase in output from North American mines to 452 million pounds in Q1 2015. In addition, copper production at the Indonesian operations rose 10% year-over-year to 154 million pounds, as operations returned to normal after the resolution of the standoff between the company and the Indonesian government over a tax dispute. Production rose 6% year-over-year to 116 million pounds in Q1 2015 at the African mines due to the mining of higher grade ores. Despite the fall in production, the company’s copper shipments rose 10% year-over-year to 960 million pounds in Q1 2015, due to the favorable timing of shipments of stockpiled ore. Freeport’s average realized copper price for Q1 2015 stood at $2.72 per pound, as compared to $3.14 per pound in the corresponding period in 2014. Copper has diverse applications in industry, particularly in the manufacturing, power, and infrastructure sectors. The decline in copper prices this year was mainly due to concerns over copper demand from China, due to recent signs of economic sluggishness. China is the world’s largest consumer of copper, accounting for nearly 40% of the world’s demand for copper. The weak Chinese economic prospects are captured by the Manufacturing Purchasing Managers’ Index (PMI). The Manufacturing Purchasing Managers Index (PMI) measures business conditions in the manufacturing sector of the concerned economy. When the PMI is above 50, it indicates growth in business activity, whereas a value below 50 indicates a contraction. Chinese Manufacturing PMI, reported by China’s National Bureau of Statistics, stood at 50.1 in March and below 50 for the remaining months of the quarter. The weak PMI numbers are indicative of sluggishness in the Chinese economy. China’s GDP growth is expected to slow to 6.8% in 2015, from 7.4% and 7.8% in 2014 and 2013, respectively. The company’s unit costs of production rose year-over-year, mainly reflecting higher costs and lower sales volumes at the company’s South American mining operations. Consolidated average unit cash costs for Freeport’s copper mines rose to $1.64 per pound of copper in Q1 2015, as compared to $1.54 per pound in Q1 2014. Oil and Gas Operations Freeport’s oil and gas revenues fell from $1.26 billion in Q1 2014 to $500 million in Q1 2015. This was due to a combination of lower realized prices and shipment volumes. Shipment volumes for the oil and gas division stood at 12.5 million barrels of oil equivalent (MMBOE) in Q1 2015, as compared to 16.1 MMBOE in Q1 2014, primarily due to the sale of the company’s Eagle Ford shale assets in Q2 2014. In addition, the sale of the low-cost Eagle Ford shale assets resulted in an increase in the oil and gas division’s unit cash production costs from $18.51 per BOE in Q1 2014 to $20.86 per BOE in Q1 2015. The realized revenues for Freeport’s oil and gas division’s fell from $77.22 per barrel of oil equivalent (BOE) in Q1 2014 to $43.71 per BOE in Q1 2015.  Oil prices have declined recently due to an oversupply situation. Oil supply has been boosted by rising oil and gas output from the U.S., where hydraulic fracturing techniques have helped boost output. In addition, major oil producers of the Organization of the Petroleum Exporting Countries (OPEC) have not lowered output in response to falling prices, in order to preserve their market shares. Demand for oil remains weak in the midst of economic weakness in Europe and slowing Chinese growth. As a result of a decline in realized prices and a rise in cash production costs, the division’s cash operating margin fell from $58.71 per BOE in Q1 2014 to $23.45 per BOE in Q1 2015. Given the subdued oil pricing environment, the company management is considering ways to raise additional capital in order to fund the oil and gas division’s capital expenditures. The company management currently favors the sale of a minority interest in Freeport-McMoRan Oil & Gas through a separate IPO for the oil and gas division. Freeport would retain management control after the IPO. Though the exact details, including the quantum of the potential minority stake sale have not been finalized, this step fits in well with the company’s efforts to reduce it’s debt. Earlier steps taken for the same purpose included the divestment of Freeport’s Eagle Ford Shale assets in Q2 2014. Given the subdued market conditions for both copper and oil, stake sales are one of the options for Freeport to expand its operations without taking on additional debt. However, given the prevailing subdued market conditions in the oil and gas space, it remains to be seen whether the company is able to get favorable valuations for its oil and gas division. Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research    
    P Logo
    Pandora Falls On Wider Losses; Future Remains Grim
  • By , 4/24/15
  • tags: P SIRI
  • Pandora Media (NYSE:P) was down 5% in after hours trading despite its revenues and earnings beat in the first quarter of 2015. The company reported 19% year over year growth in its revenues to $230.8 million, driven by growth in active users, listener hours and ad RPMs. This topline performance was better than Pandora’s initial guidance of $220-$225 million. The Internet radio provider recorded a net loss of $48.3 million or 23 cents a share, which was marginally better than analysts expectations of 27 cents a share loss. While Pandora’s bottomline performance was better than expected, its losses widened by over 67% year over year and that appears to be the reason behind investor skepticism. It must be noted that in 2014, Pandora had reported a 25% decrease in its losses, which indicated that it was gradually heading in the right direction. Now, with a substantial increase in losses and rise in royalty rates just around the corner, the Internet radio provider’s long term sustainability has come into question yet again. The fact remains that Pandora is burning its cash reserves and generating profits with the existing business model seems a little far-fetched. This is why the company’s future still looks dull, despite the slight positive revision in 2015 revenues and earnings guidance. Our current price estimate for Pandora stands at $20.22, implying a premium of more than 15% to the current market price. However, we are in the process of updating our model in light of the recent earnings release. See our complete analysis for Pandora Media Pandora reported significant increase in losses even when its content acquisition cost as percentage of revenues declined year over year in Q1 2015. It stood at around 55.7% in the first quarter of 2014, and came down slightly to 54.6% in the same quarter this year. The company would be pleased with this efforts, but content acquisition cost isn’t the only concern here. Sales and marketing expenses in Q1 2015 were 36.5% of net revenues while they were 31.8% in the year ago period. Pandora has been ramping up its sales and marketing teams to aggressively improve its local ad revenues, which although is propelling revenue growth, is weighing heavily on profits. During the quarter, advertisement revenues increased 27%, with a staggering 67% growth in local ad revenues, and sales and marketing expense increased 36% year over year. As of now, Pandora is losing more due to a rise in its sales and marketing expenses, than it is gaining from incremental ad revenues. However, the Internet radio provider will most likely continue to invest in this area, because after a certain point, an increase in sales and marketing expenses will be countered by rise in local ad revenues. Until then, it may not see any notable decline in its losses. Pandora said that it currently has 138 sales representatives in local geographies and 430 quota-bearing sales representatives overall. It would look to grow this team to at least 600 in the next five years. Hence, the company’s expenses will continue to grow in the future. Although its bottomline performance wasn’t good, Pandora did very well in terms of increasing its listener hours and market share, as well as monetization. Total listener hours increased 11% year over year to 5.3 billion and active listener count was up 5% year over year to 79.2 million, but down slightly from 81.2 million in Q4 2014. Pandora’s share in the U.S. radio market in terms of listener hours reached 10% for the first time and its ad RPMs across mobile and desktop continued to improve. Advertising RPM increased to $38.30 from $33.40 in Q1 2014, and total RPM ticked up a little from $40.51 to $43.53. These gains were not has sizable as what Pandora has seen in the past, but they were positive nonetheless.  And they were consistent with the company’s strategy of expanding its sales and marketing teams to earn better ad revenues. However, even in the best case scenario, Pandora will struggle to be profitable given that its content acquisition cost and sales and marketing expenses are just too high, compared to its ad revenues. Eventually, it needs a much higher share from subscriptions, if it wants to move towards a profitable business model. In Q1 2015, subscription revenue growth at 32% (non-GAAP) did outpace overall revenue growth at 28%, but not by much. This implies that Pandora is having a tough time converting its free users to paid users. This is only going to get tougher with the rise in royalty rates next year, that will narrow down the Internet radio company’s content, as it might look to favor the music of artists and labels that have a direct deal with the company. Regarding the ongoing ‘Webcasting IV’ proceedings for royalty-rate setting, there wasn’t any significant update in the earnings call. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap |  More Trefis Research
    PG Logo
    P&G Reports Moderate Q3 Results, Lays Out Future Growth Strategy
  • By , 4/24/15
  • tags: PG UL KMB CL EL
  • Global consumer processed goods behemoth Procter & Gamble (NYSE: PG) reported moderate third quarter results on April 23rd. (P&G follows July-June fiscal year.). The company continued to take a beating from currency headwinds, which dragged down its revenues to $18.1 billion in the third quarter, a decline of 8% year on year. Excluding the impact of currency movements, acquisitions, and divestitures, organic (non-GAAP) sales growth was a moderate 2% year on year. Operating margins fared slightly better, as cost savings from productivity improvements propelled the third quarter’s operating margin by 50 basis points to 17.3%. Core (non-GAAP) EPS contracted by 8% year on year due to the lower revenues base, and fell to $0.92 in the third quarter. Moderate financial performance aside, the highlight of the quarter was the detailed growth strategy mapped out by CFO Jon Moeller in the earnings call. Moeller emphasized that Procter & Gamble’s future revenue growth will be derived from its largest brands in its core business segments. The company will also trim its product lines and bring its SKU’s (stock keeping unit) down to a manageable level. Further, Moeller also detailed P&G’s three-pronged cost savings program, which includes 18 new manufacturing sites in developing markets, supply chain transformation in the US, lower marketing expenses. We are currently revising our price estimate of $83 for Procter & Gamble, which is nearly the same as its current market price. See our complete analysis for Procter & Gamble here Billion-Dollar Brands to Drive Future Growth As expected, CFO Jon Moeller utilized the third quarter earnings call to provide a roadmap of P&G’s growth over the medium term. He reinforced the company’s belief that P&G’s future lies in its biggest brands, rather than the assortment of hundreds of smaller brands that it has accumulated over the past decade. According to P&G, the company’s category-leading billion-dollar brands have grown at a faster pace than its smaller brands. This fact stands true over a 10-year, 5-year, 1-year and even on a quarterly basis. Therefore, P&G would be well served by focusing on these brands alone rather than trying to improve the performance of its smaller brands. Focus on category-leading brands forms the core of P&G’s brand consolidation program. Following the completion of the brand divestments, P&G will have a far more focused portfolio and its remaining brands will dominate their respective categories and geographical markets. The company will also reduce its product lines by 15% to 20% to create a more efficient product line that will be easier to manage. P&G also indicated that it may focus more on the premium category, which it believes is the key driver for growth in a product category. We believe that this may be a risky move in the near term, given the current volatile macroeconomic scenario and sluggish consumption growth across developing as well as developed markets. Over the long term, as the macroeconomic scenario improves and consumption picks up, consumers will be likely to switch upwards to premium category brands, which could benefit P&G. Price Hikes Fail to Protect Top-Line from Currency Headwinds Procter & Gamble’s revenues declined in all its business units compared to the previous year, owing to an 8% drag from adverse foreign exchange movements. In an attempt to counter sluggish consumption and currency devaluation in emerging markets, P&G hiked prices across all divisions except Fabric and Home Care. This provided a modicum of relief to the company as increased pricing contributed 2 percentage points to top-line expansion. Additionally, a greater proportion of higher-priced products in P&G’s product mix delivered another percentage point towards revenue growth. However, as we previously postulated, higher prices may have set back volume growth even further as consumers switched to lower priced products offered by P&G’s rivals. The volume expansion may also have been restricted due to sluggish growth in consumption in emerging markets. Consequently, volumes contracted in all divisions other than Grooming during the third quarter. Margins Expand on Robust Cost Savings Following in the footsteps of its rival Unilever (NYSE:UL), P&G seems to trained its sights on bottom-line expansion. Given the limited potential for revenue growth in the present hostile macroeconomic scenario, cost savings are the most efficient way to protect short-term shareholder value. P&G utilized productivity improvements to expand its gross margin as well as operating margin in the third quarter, both of which were higher sequentially. However, compared to the same period previous year, the gross margin of 48.6% was lower by 30 basis points, while operating margin of 17.3% was higher by 30 basis points. It should be noted that these metrics are after including the impact of adverse currency movements, which exerted significant downward pressure on the gross margin as well as operating margin. Cost savings were driven primarily by savings in SG&A expenses in the third quarter. SG&A as a percentage of sales declined by 80 basis points year on year due to lower overhead and marketing expenses. P&G is aggressively moving towards achieving higher efficiency in its marketing expenses by shifting to digital to social media. These efforts have clearly already started yielding returns in the form of significant cost savings. P&G believes that these are not just one-off improvements but are sustainable measures that are likely to deliver additional cost savings over the next few quarters. Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
    BSX Logo
    Boston Scientific Earnings Preview: New Products To Drive Growth
  • By , 4/24/15
  • tags: BSX
  • Boston Scientific (NYSE:BSX) is expected to announce its Q1 2015 earnings on Tuesday, April 28. In the last quarter, the company reported a 7% year-over-year (y-o-y) growth in operational revenue, as the company’s two largest divisions, Interventional Cardiology (IC) and Cardiac Rhythm Management (CRM), continued to maintain growth momentum from previous quarters. IC, accounting for around 28% of the company’s total revenue, grew by 10% y-o-y, while CRM, representing 26% of total revenue, grew by 3% y-o-y on a constant currency basis. Other divisions, such as Endoscopy, Urology and Women’s Health, reported consistent mid to high single-digit growth. The company also reported robust sales growth of 23% y-o-y in Electrophysiology (EP) following the FDA’s approval of its Rhythmia mapping and navigation system in 2013.. In Boston Scientific’s upcoming earnings, we expect the company to meet its operational sales growth target of 3-6%, backed by growth in key businesses, growing acceptance of new products such as improved S-ICDs (Subcutaneous-Implantable Cardioverter Defibrillators), SYNERGY and Promus PREMIER stents, and the addition of new products including the Watchman device to its portfolio. Boston Scientific also reported 17% year-over-year growth from emerging markets in the last quarter. Revenue from emerging markets accounted for 10% of total company sales in 2014, compared to 9% in 2013 on a constant currency basis.
    GOOG Logo
    Google Q1 Earnings: Ad Revenues Post Growth Once Again
  • By , 4/24/15
  • Google (NASDAQ:GOOG) posted its first quarter 2015 results on April 23rd, reporting 12% year-on-year growth in revenues to $17.7 billion, in line with our expectations . Google’s operating income from continuing operations increased marginally by 3% to $4.40 billion. Operating profit was impacted by increases in R&D and SG&A spending. The markets reacted positively to the results as the stock was up by 3% in the aftermarket trading hours. Pricing pressure on online ads resulted in a 7% year-over-year decline in aggregate cost-per-click (CPC). However, aggregate paid clicks, which represent the number of ads served across Google properties and its member website, grew by 13% year over year. In this note, we will discuss Google’s results. Click here to see our complete analysis of Google Cost-Per-Click Continues To Decline As Number of Clicks Grow Due to Programmatic Buying We currently estimate that PC search ads and mobile search ads contribute approximately 67% to the firm’s value. Online ad spending is expected to increase in general and reach $135 billion in 2015. Cost per click (CPC), a metric that measures the price paid for the number of times a visitor clicks on a search ad, has been on a steady decline for the past few years. While the recent trend is indicative of geographical mix, device mix, and property mix, the company has stated that it will continue to monetize mobile devices effectively and the decline has been due to TrueView ads that monetize at lower rates than ad clicks on As a result, the aggregate CPC (CPC for both mobile and PC from search and display) declined by 7% year over year during the quarter. However, Google is looking to monetize its properties through its programmatic platform, which matches relevant ads with content, as well as through an increase in user-generated online content.  However, this is negatively impacting Google’s CPC as the programmatic platform does away with inefficiencies of improper ad matching. As a result, the company’s top line growth from search ads has failed to match the growth in search volume. Furthermore, data indicates that over 50% of the web traffic is coming from mobile devices. According to the Interactive Advertising Bureau (IAB), mobile advertising revenues surged by 76% during the first half of 2014, which far outpaced the 15.1% increase in the overall online advertising industry. To cash on this trend, Google is focusing on its programmatic businesses including AdMob, AdExchange, DoubleClick Bid Manager, and these continue to grow at a strong rate. Going forward, as Google improves its programmatic platform, we expect that the growth in online advertising will grow but continue to weigh on CPC. Google Play Store for Content The Google phone division makes up 10% of its estimated value. Considering the growth of Google’s Android platform and the growth in smartphone adoption globally, Google’s Play store is fast becoming a vital cog for Google’s growth in the coming years. Google Play is also connecting developers and content providers with more than 1 billion people on Android devices around the world. Developers are building thriving businesses in this platform, and in February, Google announced that over the past 12 months (FY 2014), it paid more than $7 billion to developers. We expect this figure to grow and  forecast digital content revenue to grow to $8.51 billion (post revenue share of developers) by the end of our forecast period. YouTube Boosts Ad Volumes In our pre-earnings note, we mentioned that we would be closely watching YouTube because it caters to the rapidly growing online video ad market. During the earnings call we got some encouraging metrics from management, which makes us confident about YouTube as an essential driver of revenue growth, going forward. Management stated that the skippable TrueView ads that are played before YouTube videos are fast gaining traction among advertisers  and grew by 45% in 2014. The company continues to invest in YouTube Partners and Partner revenue has increased by more than 50% year over year. Google’s dominance in the video ad  industry is clear, with nearly 150 million unique viewers as of March 2015, Going forward, YouTube is important for Google even though, according to our estimates, this division constitutes just under 3.4% of its value. Capital Expenditure Continues to Soar Google continues to invest heavily in Internet infrastructure and reported $2.9 billion in capital expenditures in the first quarter of 2015. The majority of capital investments are for IT infrastructure, including data center construction, servers and networking equipment. Google has been steadily ramping up its spending for the past couple of years, in an effort to improve its computing capacity and quality of service. Both these are important as it gives the company a competitive advantage. We are in the process of updating our model. We currently have a  $546 price estimate for Google, which is 5% below 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
    BKW Logo
    Restaurant Brands International Earnings Preview: International Expansion Remains Priority
  • By , 4/24/15
  • Restaurant Brands International Inc (TSX/NYSE:QSR), the parent company of the Canadian multinational fast-casual restaurant chain Tim Hortons and the American burger giant,  Burger King (NYSE:BKW), is slated to release its first quarter earnings report for the fiscal 2015 on April 27. This will be the first ever quarterly report with the two brands reporting financial earnings for the entire three months period together. Last year, Burger King and Tim Hortons entered into an agreement under which the two recognized companies joined hands to create the World’s third largest quick service restaurant company. 3G capital, the majority stake holder of Burger King, continues to own majority shares (51%) of the new company. In the fourth quarter of the fiscal 2014, Tim Hortons and Burger King managed to report strong comparable store sales growth of 4.1% and 3%, respectively. Both the brands had a successful quarter in terms of system-wide sales as well, with 7.4% year-over-year (y-o-y), growth for Tim Hortons and 7.7% y-o-y growth for Burger King. The company’s net revenues for the quarter rose 56% y-o-y to $416 million, including the Tim Hortons’ contribution to the revenue stream from the transaction date of December 12, 2014. However, Burger King’s revenues for the quarter alone were $274 million, up merely 3.3% y-o-y. Stock of the new company has traded within the range $38 and $44 since January 2015, and is currently trading at $41. We are currently in the process of incorporating Tim Hortons operations and revamping the structure for the company. See full analysis for Burger King Tim Hortons To Provide Strength In Breakfast Battle Known for its coffee and doughnuts, Tim Hortons is a well-known fast food service in Canada with 4,546 system-wide restaurants spread mainly across Canada and the U.S. Tim Hortons reported a 3.1% increase in the comparable store sales in the fiscal year 2014, with a net restaurant growth of 186 stores. On the other hand, Tim Horton’s system-wide sales grew 6.6% in constant currency. However, Restaurant Brands International started accounting for Tim Horton’s contribution from December 12, 2014. Nonetheless, tremendous improvement in the top-line performance of the fast-food brand indicates the growth potential in the coming years. Quick service restaurants are facing a stiff competition in the breakfast category, with coffee being the major driver. Tim Horton’s versatile food offerings for the breakfast segment might help Burger King compete against the likes of  McDonald’s (NYSE:MCD),  Dunkin’ Brands (NASDAQ: DNKN), and  Starbucks (NASDAQ: SBUX). Tim Hortons has quite a significant brand appeal in the U.S. and Canada, and Burger King’s merger with Tim Hortons might further improve the customer base. According to the company’s data, Tim Hortons has 80% market share in the coffee industry in Canada, serving around 2 billion cups of coffee annually. Tim Hortons might not provide additional boost to the revenue growth for the entire company, but might also help them in penetrating the Canadian market. Burger King was lagging in the coffee sector in its competition for breakfast market share. However, with the addition of Tim Hortons, the company might be able to attract the early morning coffee lovers. Apart from coffee, Tim Horton’s innovative food offerings might provide additional boost to the net revenue growth. Focus On International Expansion Burger King added 412 net new restaurants in the fourth quarter, taking the total Burger King store count to 14, 372. In 2014, the company opened 705 net new restaurants, making it the highest growth period for the company. Burger King opened 352 net new restaurants in Europe, Middle East and Africa (EMEA), 148 net new stores in Latin America, and 235 net new stores in Asian markets. With Burger King stores spread across 100 countries, the brand is trying to target high growth markets, such as India,  South Africa, and France. Burger King announced that it will open 350-400 restaurants throughout that burger loving country. On the other hand, Restaurant Brands International aims at expanding and building Tim Hortons strength outside its home market. Tim Hortons has more than 3,700 stores in Canada but only close to 900 in the U.S. As a result, the brand is planning to expand its base in the core and priority markets of the U.S. and to improve the profitability by focusing on growing unit economics.  In the fourth quarter, 15 new Tim Hortons stores were added in the U.S.  Furthermore, the brand has 58 units in the Middle-Eastern countries, too. The brand is missing out on several major markets around the globe and hence, Tim Hortons also plans to accelerate its expansion into new high growth markets. The company expects 2015 to be a successful year in terms of net restaurant growth and revenue growth, with new menu innovations and other additional features. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    RAD Logo
    Can Rite Aid's Stock Go Higher? Here Are Three Factors That Can Do It
  • By , 4/24/15
  • tags: RAD
  • Just about three months into 2015, the healthcare industry has already seen a lot of action this year. Be it mergers between leading healthcare enterprises, such as Walgreens’ acquisition of Alliance Boots (NASDAQ: WBA ) and UnitedHealth’s acquisition of Catamaran (NYSE: UNH ), or a billion dollar acquisition for entry into adjacent markets ( Rite Aid’s acquisition of EnvisionRx (NYSE: RAD )), it’s all been happening. While the industry continues to offer growth opportunities (driving top lines higher), it also brings along with it a set of risks which hold the potential to drag down bottom lines, which is what really matters at the end of the day. This fear is reshaping the industry on a wide scale and could therefore be a turning point, throwing weaklings out of the race. Now, there couldn’t be a more important time for investors to take a close look at how these changes could affect companies of their interest. So, we decided to handpick three key factors that could have a significant impact on Rite Aid’s stock price. Note that the potential upside/ downside is indicated in parentheses beside each factor. View our detailed analysis for Rite Aid Generics drugs have traditionally been good for pharmacy retailers’ profits as they provide higher margins than branded drugs do. However, as their prices increased in the recent past and reimbursement rates stayed flat, they’ve led to losses for most drug retailers. To help tackle this issue, Rite Aid entered into a distribution agreement with McKesson (the largest distributor of pharmaceutical and medical supplies in the U.S.) providing purchasing efficiencies and direct-to-store delivery for all its pharmacy products. This somewhat helped the company offset margin pressure arising from low reimbursement rates. If Payers Design New Formulary Tiers (+20%) But, more help is on its way to further ease some pressure off margins (for retailers, in general). The amount that retailers get reimbursed from payers varies with the type of drug. Branded drugs, specialty therapies and generics are usually separated into different tiers, each of them having different reimbursement rates. However, with generic price inflation, the disparity between prices within the generics category has increased. According to a study conducted by the Drug Channels Institute, 50% of the drugs, in their survey sample, increased in cost and 50% declined between July 2013 and July 2014 (though the magnitude of increases is significantly higher than that of decreases). In such a situation, it is necessary to treat each generic drug differently when it comes to reimbursement rates, as one solution for all doesn’t work. Therefore, payers are working on creating a tiered pricing system for generic drugs that would require members to pick up more of the cost. While this pricing system is still in its formative stages, when put into effect, it could reduce drug acquisition costs for pharmacy retailers. Per the current scenario, we expect the comapny’s EBITDA margin to marginally increase from its current level of 8.6% to 8.9% till the end of our forecast period. However, if the proposed new pricing system is brought into effect, it has the potential to push margins up. Even if we consider a 1% increase in the company’s EBITDA margin in the next two fiscal years (FY’16 and FY’17), it translates to a 20% upside to our current price estimate. If EnvisionRx Acquisition Helps Reduce Drug Acquisition Costs (+10%) Similar benefits (i.e. increase in the company’s EBITDA margins) could also arise from the company’s  recent acquisition of EnvisionRx, a national pharmacy benefit management (PBM) company. As Rite Aid gains access to the 13 million individual accounts that EnvisionRx manages, it will benefit from increased negotiating power with drug manufacturers. Moreover, EnvisionRx is a growing business that has seen its sales climb from less than $2 billion in 2011 to an estimated $5 billion in 2015. Future growth in the PBM business will likely translate into even more negotiating power and margin benefits (than the assumed 0.5%). However, increasing competition in the PBM market (as consolidation resulted in formation of large enterprises with more power) has led us to tone down our expectations. Note that the expected synergies will likely be realized in the long term. As mentioned above, we expect Rite Aid’s EBITDA margin to marginally increase from its current level of 8.6% to 8.9% till the end of our forecast period. Based on the assumption of a 0.5% increase in EBITDA margin in FY17 and FY18 combined, benefits from integration of the PBM business translate to a 10% upside to our current price estimate. If EnvisionRx Acquisition Leads To Gain In Pharmacy Market Share (+18%) The PBM business (EnvisionRx) is also likely to boost Rite Aid’s pharmacy retail business. A portion of the company’s PBM accounts, i.e. the individuals whose insurance plans it manages would now be drawn towards Rite Aid stores to get their prescriptions filled (~40% of CVS’ PBM prescriptions go through its own channels). As margins in the pharmacy retail business are much higher than those in the PBM business, an increase in the share of prescription revenues (out of total revenues) will translate to increase in the overall margin as well. For example, CVS’ makes an EBITDA margin of about 16% in its retail business, compared to a little over 5% in PBM (based on FY 2014 results). According to our current forecast, Rite Aid’s share of the total prescriptions filled in the U.S. is expected to marginally increase from the current level of 7.2% to 7.5% by the end of Trefis forecast period. We believe that the above mentioned benefits could lead to an additional gain of about 1% in the company’s prescription share, taking it to 8.5% by the end of our forecast period. Under the assumption that the share gain will be achieved (uniformly spread) over a period of 3 years from FY 2016 to FY 2018 (again, delayed due to integration), it translates to an upside of about 18% to our current price estimate. Conclusion While we have tried to quantify how each of these factors could individually impact Rite Aid’s stock price, they could also act in combinations and result in much higher upside. For example, a combination of factors two and three discussed above (i.e. gain in prescription share and reduction in drug acquisition costs) presents a total upside of about 27%. Our interactive model allows users to input their own assumptions (for example, a 0.5% share gain or 0.5% margin gain or changes in various other drivers) and arrive at different price estimates. Here is our home page for Rite Aid where all this could be done. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
    AMZN Logo
    Amazon's Stock Shoots Up On Solid Earnings
  • By , 4/24/15
  • tags: AMZN BABA EBAY
  • With net sales growth at 15%, Amazon (NASDAQ:AMZN) delivered a beat during the first quarter of 2015. The earnings were driven by solid growth across the North American and electronics and general merchandise businesses. Additionally, the cloud services business saw acceleration in growth and recorded over $5 billion in annual sales (trailing twelve months). The company’s profitability came in ahead of our expectations as the increase in gross profit more than offset the rise in fulfillment, marketing, technology and content, and general and administrative expenses during the quarter. We are encouraged by this development, as this indicates productivity improvements in the North American region. Notwithstanding these positives, international sales fell owing to currency headwinds. Moreover, Amazon continues to face profitability challenges in the international region due to heavy investments in emerging markets. Together with heightened expenses on the Prime platform, we expect these factors to continue to weigh on Amazon’s earnings in the coming future. Hence, we will  have to wait for a few more quarters to see if this recent profitability expansion is sustainable in the long-run.
    PEP Logo
    Negative Currency Translations Overshadow PepsiCo's Strong Organic Growth In Q1
  • By , 4/24/15
  • tags: PEP DPS KO
  • As expected,  PepsiCo ‘s (NYSE:PEP) strong organic growth was countered by negative currency translations in Q1. The company announced its quarterly results on April 23, and since, the stock is down approximately 1.6%. PepsiCo’s strong organic growth of 4.4% came on the back of a continued strong showing by the snacks division, which forms slightly more than half the revenues for the company, and 64% of the company’s valuation, according to our estimates. The key takeaway from PepsiCo’s Q1 results is that while organic volume for beverages declined 1%, volume for snacks grew 2%. Snacks continue to outperform beverages in almost all markets for the food and beverage giant, and this, again, could prompt activist investors to pursue a split of the company into separate food and beverage businesses, in order to allow the snacks division to unlock its true potential. We estimate a $102 price for PepsiCo, which is 7% above the current market price. However, we are currently in the process of incorporating the recent quarterly results into our forecasts, and revising our price estimate. See Our Complete Analysis For PepsiCo PepsiCo’s revenue is almost evenly split between the U.S. and countries outside the U.S., and as the dollar has surged about 8.5% against a basket of major currencies this year, the impact of negative currency translations had a major bearing on the company’s Q1 results. Net revenues declined 3% this quarter, hurt by an 8-percentage-point unfavorable impact of foreign currency depreciation. PepsiCo now expects a 10 to 11 percentage point negative effect of currency translations on its full-year net sales and core earnings per share, which could cast a shadow over future growth, and considerably drag down return to shareholders. However, the company remains committed to deriving productivity savings of $1 billion this year and through 2019, and return approximately $8.5-$9 billion to shareholders this year, including a 7% dividend per share rise, which will commence with the June payment. The strengthening U.S. dollar against foreign currencies marred an otherwise impressive start to the year by PepsiCo. The snacks business continues to deliver strong results, and despite continual headwinds in the carbonated soft drinks (CSD) category, effective net pricing increased net revenues for the company’s beverage division. Frito-Lay North America Delivers Yet Again Following a 3% top line growth in 2014, PepsiCo’s Frito-Lay North America reported 3% revenue growth in Q1 as well, on 3% growth in organic volume. This division alone constitutes 36.4% of PepsiCo’s valuation by our estimates, compared to only 15.3% constituted by the entire CSD portfolio, which forms roughly 25% of the company’s top line. This is because of continual sales growth for Frito-Lay North America, which is also PepsiCo’s most profitable division, with 27.7% operating margins this quarter, compared to 16.6% for the overall company. While CSDs continue to bear the brunt of widespread health and wellness concerns, the snack food market has managed to grow at a steady pace. The U.S. snack food market worth $35 billion grew at a CAGR of 4.2% between 2009-2014, and continues to grow. PepsiCo, which holds around 25.4% volume share in the U.S. liquid refreshment beverage market, second behind Coca-Cola’s 33.6% share, dominates the savory snacks market in the country with a 36.4% market share. The next biggest manufacturers in this sector are Kellogg’s and Mondelez with much smaller 6.8% and 5.3% shares, respectively. According to research by Nielsen, 63% of North Americans said that they ate chips/crisps as a snack in the last 30 days, a segment which is dominated by PepsiCo’s brands such as Lays, Doritos, and Cheetos. Americans have a large snacking habit, which is expected to continue to bolster growth in the salty snacks market for PepsiCo going forward. Although PepsiCo achieved 3 points of effective net pricing in global beverages, organic revenues were up only 1.5% for this division, due to a decline in volume sales, compared to a larger 7% increase in organic revenues for snacks. Strategic pricing strategies such as an increase in retail prices of beverages, aided by the improving economic environment in the U.S., and more emphasis on the higher-price-per-unit smaller packs, have bolstered growth in sales for the beverage division. However, as the company looked to cover losses due to negative currency translations through raising product prices in international markets, volume sales suffered. Beverage volumes in the Americas and Europe declined 1% and 5% respectively in Q1, and grew only 1% in the Asia, Middle East and Africa (AMEA) region. Little to no organic volume growth in beverages across all operating units yet again represents how the drinks division might be pulling down the snacks division. FX Translations Hurt PepsiCo’s Overseas Business Markets outside the U.S. formed 49% of PepsiCo’s revenues in 2014, with over 22% of the net revenues coming from Russia, Mexico, Canada, the U.K., and Brazil. Despite macroeconomic and political volatility in some of the key emerging markets, organic sales in emerging countries grew 10% year-over-year this quarter. However, this strong growth didn’t translate into top line growth for PepsiCo, as net revenues from developing markets fell 12% over 2014 levels on massive negative currency translations. In particular, depreciation of the Russian ruble, Brazilian real, Canadian dollar, Mexican peso, and Venezuelan bolivar were detrimental to the company’s realized sales growth. PepsiCo has tried to minimize the negative impact of depreciation of foreign currencies against the U.S. dollar through local sourcing of materials, negotiating contracts in local currencies with overseas suppliers, and by using derivatives, primarily forward contracts. PepsiCo’s foreign currency derivatives had a total notional value of$2.7 billion at the end of last year, but based on current spot rates and the company’s existing hedge positions, negative currency translations are still expected to be a massive 10 to 11 percentage points headwind on the net sales in 2015, as aforementioned. There is scope to grow in emerging economies for the food and beverage giant, but as these economies continue to battle weak economic conditions, lower volume sales due to inflation and negative customer sentiment, and depreciation of local currencies against the U.S. dollar– all these are expected to have a significant bearing on PepsiCo’s financials going forward. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    DPS Logo
    Dr Pepper Earnings Review: Solid Growth Across Carbonated And Non-Carbonated Segments
  • By , 4/24/15
  • tags: DPS KO PEP
  • Dr Pepper Snapple (NYSE:DPS) reported better than expected Q1 results on April 23, with net sales up 4% year-over-year to $1.45 billion, and 4% growth in earnings per share. A solid start to 2015 sets the tone for the rest of the year for Dr Pepper, which derives slightly less than 90% of its net sales from the U.S. alone, and has benefited from the improving economic environment in the country. The rest of the sales for the Texas-based company come from Canada, Mexico, and the Caribbean, and the strengthening U.S. dollar against the Canadian dollar and Mexican peso dragged down the top line by 1% this quarter. However, the impact of negative currency translations on Dr Pepper’s financials was much less than that for its chief competitors, The Coca-Cola Company (NYSE:KO) and  PepsiCo (NYSE:PEP), that are more exposed to the risk of foreign currency depreciation. We have a price estimate of $78 for Dr Pepper Snapple, which is roughly in line with the current market price. However, we are currently in the process of incorporating the recent quarterly results into our forecasts, and revising our price estimate. See Our Complete Analysis For Dr Pepper Snapple Apart from strong growth in the domestic market, Dr Pepper’s Latin America business also continued to grow in Q1, on strong performances by the carbonated water brand Penafiel, and other carbonated soft drinks (CSD). Ongoing productivity improvements and a planned reduction in marketing investments resulted in a 7% increase in segment operating profit, and the company’s rapid continuous improvement (RCI) program also continued to drive both top line and bottom line growth. In addition, Dr Pepper’s focus on direct store delivery, which allows the beverage manufacturer to bypass third-party and retailers’ distribution centers, could further boost margins. By bringing distribution in-house, Dr Pepper could leverage its integrated model to capture downstream margin opportunities. As around 59% of volumes of the drink Dr Pepper are distributed by bottlers affiliated with Coca-Cola and PepsiCo, Dr Pepper doesn’t possess as much control over shipments to ensure optimum store placement, somewhat hampering its reach and availability. Dr Pepper’s direct store delivery (DSD) system could provide shelf inventory management and reduce costs of re-ordering and merchandising for the retailer, aiming to improve sales and margins for the retailer, as well. This could protect the company’s shelf space in retail stores. Strong Growth In CSDs In North America CSD volumes grew 3% for Dr Pepper in Q1, and net volumes rose 2% in the U.S., outperforming both Coca-Cola and PepsiCo’s volume growths. Dr Pepper is hugely dependent on its domestic market, and a strengthening economic environment in the country, with improving customer purchasing power due to low oil prices and a jobless rate under 6%, have resulted in higher sales for the company this quarter. In 2014 as well, when the U.S. CSD market declined for the tenth consecutive year, Dr Pepper was able to increase its market share on flat year-over-year volume growth, while both Coca-Cola and PepsiCo’s CSD volumes and market shares fell. In fact, the staple Dr Pepper drink grew volumes by 0.5%, outperforming both Coke and Pepsi-Cola, and consolidating its position as the fifth-highest-selling soft drink in the U.S. As approximately 80% of Dr Pepper’s net volume is CSDs and most of the sales are from the domestic market, a rise in U.S. soft drink sales lifted the overall results for the company. Apart from being able to achieve volume growth in an otherwise mature U.S. CSD market, Dr Pepper was able to further boost its top line through positive mix. The consumer-price index for nonalcoholic beverages grew in each of the months through December-February. A positive segment mix, i.e. higher proportionate sales of finished goods cases compared to concentrate cases, rose net sales by 1.5% in Q1, while product mix increased net sales by over 1%. Improved economic conditions in the U.S. have allowed Dr Pepper to raise its retail prices, and combined price and mix could grow by about 2% this year for the company. There is even more opportunity for Dr Pepper to boost its revenue growth, as the company’s pricing is still lower than its peers. A positive mix is what fueled top line growth for the company more than positive pricing. Dr Pepper is not completely in the smaller packages segment, which has been a growth driver for both Coca-Cola and PepsiCo in terms of higher price per unit in the recent quarters. This means that Dr Pepper has further growth opportunities when it comes to CSDs, and could emphasize more on smaller packages and further raise its product prices to spur revenues. Non-Carbonated Beverages Grow By 5% In Q1 While both Coca-Cola and PepsiCo have looked to derive growth from their non-carbonated drinks portfolio in the absence of strong CSD growth, Dr Pepper had somewhat struggled to do so in the past, because of the absence of strong Dr Pepper brands in some of the fastest growing segments of the non-sparkling beverage category such as energy drinks, sports drinks, and bottled water. NCB volume declined 1% for the company in 2014. However, the non-carbonated segment grew by an impressive 5% this quarter, on the back of strong sales for the ready-to-drink tea brand Snapple, and Hawaiian Punch, which returned to growth in Q1 (~7% volume rise), following consecutive quarters of decline. As consumers look to avoid  sugar and calorie-fueled carbonated drinks, volumes for healthier non-carbonated beverage segments such as sports drinks, bottled water, natural juices, and RTD tea have been rising. Dr Pepper’s overall still beverage volume sales declined last year as Snapple volumes fell in the early part of the year, as the company de-prioritized the value line, which typically formed around 10% of the brand’s net unit sales. However, Snapple’s volumes rose to fuel growth in the overall category in Q3 and Q4 last year, and continued its growth momentum in Q1 this year, rising by 5% year-over-year. This bodes well for the company as despite de-emphasizing focus on its value line, Snapple volumes have increased. The Snapple premium business grew by a high-single-digit in Q1, boosting the top line. Just like flavored bottled water, RTD tea is also a segment of the U.S. beverage industry that is growing at a fast pace, due to a healthier, more natural, perception. But unlike in bottled water, where margins are thinner, RTD tea, and in particular the premium products, are more profitable. Higher proportionate sales of bottled water this quarter, which grew by 9%, dragged down gross margins. By leveraging the high demand for tea and Snapple’s strong brand recognition, Dr Pepper could continue to increase volumes. The company also launched a new line of unsweetened and slightly sweetened teas called Snapple Straight Up Tea, further penetrating the RTD tea segment this year. Dr Pepper could continue to earn higher net revenues from the tea segment on favorable product mix, due to the company’s focus on the more profitable premium brands. Effective product pricing, aided by the strong economic environment in the U.S., is expected to drive top line growth in the next few quarters. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    AAPL Logo
    Smartphone Weekly Notes: Apple, BlackBerry, Samsung
  • By , 4/24/15
  • tags: BBRY
  • The smartphone industry had a news-filled week, with Apple’s (NASDAQ:AAPL) much-anticipated smartwatch finally hitting stores and BlackBerry (NASDAQ:BBRY) making another strategic acquisition to bolster its security software portfolio. Here’s a quick look at the news that mattered for the mobile technology companies that we cover.
    CMCSA Logo
    Weekly Pay-TV Notes: Comcast-TWC Merger Called Off, Dish Signs Deal With The Weather Channel
  • By , 4/24/15
  • tags: CMCSA DISH
  • The pay-TV industry saw significant activity this week, with Comcast announcing that its merger agreement with Time Warner Cable has been terminated. Additionally, Dish Network signed a major content deal with The Weather Channel. On that note, we discuss below these developments related to the pay-TV companies over the past few days.
    MO Logo
    Altria Q1 2015 Earnings Report: Growth In Core Areas, But Vapor Falters
  • By , 4/24/15
  • tags: MO
  • The Altria Group (NYSE:MO) came out with its Q1 2015 earnings on April 23. The company’s revenues grew by 5% year-on-year due to price increases and moderation in the decline in shipping volumes. Expenses related to financing activities, however, led to earnings coming in lower by 13% on a year on year basis. Market share gains continued in the smokables and the smokeless segments, but the vapor product market share gains remain elusive for Altria.
    BA Logo
    Earnings Release: Higher Commercial Deliveries Boost Revenues At Boeing
  • By , 4/24/15
  • tags: BA
  • Boeing (NYSE:BA) announced its first quarter earnings for 2015 on Wednesday, April 22nd. Revenues in Q1 2015 rose to $22.1 billion which translates to an 8% year-over-year growth. The rise in revenues was primarily driven by higher commercial delivery volumes. Boeing delivered 184 commercial airplanes in Q1 2015, an impressive 14% rise in deliveries on a year-over-year basis. Commercial aviation constitutes nearly 65% of Boeing’s top line. The company also reported an impressive 12% rise in core (non-GAAP) earnings per share, which moved to $1.97 in Q1 2015 from $1.86 in Q1 2014. GAAP earnings per share at $1.87 beat analysts expectations average by 4 cents. With the strong results posted in Q1 2015, Boeing remains on track with the guidance it set for fiscal 2015 at the beginning of the year. The company anticipates revenue to range between $94.5-$96.5 billion, while core earnings per share will range between $8.20-$8.40. We currently have  a price estimate of $156 for Boeing, approximately 3% above its current market price, which will be revised shortly in light of the recent earnings release. See our complete analysis of Boeing here Higher Commercial Airplane Deliveries Accelerated Revenue Growth Boeing’s commercial airplanes revenues in Q1 2015 grew at a whopping 21% over the first quarter of 2015. Backlog also continued to remain strong at $495 billion, with over 5,700 commercial airplane orders. The revenue growth was driven by higher delivery volumes as the global commercial aviation market continues to show robust growth. The revenue growth from the commercial segment was partially offset by slower revenues derived from Boeing’s defense business due to weak U.S. military spending environment. Revenues for the defense segment in Q1 2015 witnessed a drop of approximately 12% on a year-over-year basis, moving from $7.6 billion in Q1 2014 to $6.7 billion Q1 2015. Military spending is expected to continue remaining weak through the remainder of this year. However, the proposed defense budget for fiscal 2016 in the U.S. is the light at the end of the tunnel for Boeing’s defense segment. The proposed budget gives strong indications of substantial recovery in overall military spending. Since Boeing derives majority of its defense-related revenues from the U.S. government, we can expect that defense-related sales will remain slow through the rest of this year but pick up pace in 2016. Given the challenging military spending environment, Boeing’s defense segment still managed to report an increase in operating margin. The operating margin for this segment moved from 10.2% in Q1 2014 to 11.1% in Q1 2015. his was driven by proactive cost-cutting measures and improved efficiency. On the flip side, the commercial segment witnessed a small decrease in operating margins which moved from 11.8% in Q1 2014 to 10.5% in Q1 2015. However, this decrease in margins should not bother investors as it is driven by larger deliveries of the 787 in the total delivery mix, which also contributed to the higher revenues. Boeing has been taking steps in making production more efficient, and hence the negative impact of the 787s on margins will gradually decline over the next few years. All in all, Boeing started 2015 with strong first quarter results, and the commercial aviation up-cycle will likely continue to lift the company’s results through 2015. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research    
    MSFT Logo
    Microsoft Earnings: Focus On Hardware Boosts Revenues, Lowers Profitability
  • By , 4/24/15
  • Microsoft (NASDAQ:MSFT) announced its earnings for Q3 FY15 on April 23rd. (Fiscal years end with June)  The company posted a 6.5% year-over-year growth in revenues to $21.73 billion, which also includes $1.4 billion revenues from Nokia’s phone division. In  our pre-earnings note, we noted that hardware sales and cloud services would boost revenues. While the devices and consumer revenue increased by 8% to $8.95 billion due to phone sales, Microsoft reported 106% growth (111% in constant currency)  in commercial cloud services, which includes Office 365, the Microsoft Azure platform, and Dynamics CRM. The annualized revenue run rate of commercial cloud stands at $6.3 billion. However, the shift to hardware impacted overall margins of the company as operating profit declined by 5% yesr over year to $6.6 billion. Below, we review Microsoft’s Q1 FY 15 results by segment. See our complete analysis of Microsoft here Hardware Sales Decline In  our earnings note published earlier, we stated that the device sales will drive revenue growth for Microsoft in Q3. Microsoft’s hardware revenues were declined by 4%, primarily due to an expect decrease  of Xbox-One sales as it approaches the anniversary of its launch. Nearly offsetting the decrease were sales of tablets; Surface revenues grew by 44% (53% in constant currency) over the prior year to $713 million. Phone Division Boosts Revenues Microsoft acquired the Nokia Devices and services (NDS) unit in the fourth quarter of fiscal 2014. During the quarter, Microsoft sold 8.6 million Lumia phones and over 24.7 million non-Lumia phones, which translated into $1.4 billion sales.  Going ahead, we expect this division to do well  and Microsoft to report higher sales. However, since the company is focusing on selling Lumia at lower price points, and in emerging markets, the profitability declined and the company reported a slight loss of $4 million. Windows OS Licensing – A mixed bag While Microsoft reported that its consumer Windows licensing revenues declined by 22%  and its OEM-Pro declined by 19%, while Windows Commercial volume licensing revenue grew by 2%. The declines are the result of the wind down of the transition from Windows XP.  As the one-time benefit of the Windows XP end-of-life PC refresh cycle tailed off, revenues from Windows consumer licensing declined to pre-Windows XP end of support levels. Furthermore, as both its existing and new OEM partners are bringing to market an expanded set of device offerings at lower price points, Windows OEM non-Pro revenue declined 26%. Going forward, as the company gears to launch Windows 10 later this year, we expect sales to pick up. Shift To Office 365 Impacts Licensed Office Revenue While Office 365 subscriber base grew to 12.4 million, Office consumer products and services revenue declined 41% due to the ongoing transition to Office 365. Additionally, commercial Office declined by 16% as transactional revenue was impacted by the continued transition to Office 365 and decline in business PC following the XP refresh cycle. As the subscription model sets in, revenues for this division are expected to grow, and become more recurring and predictable going forward. Server & Cloud Witness Another Quarter Of Strong Adoption Microsoft’s Windows Server division is one of the fastest growing divisions of Microsoft. During Q3 FY15, server products and services revenue grew by 10%, driven primarily by 25% growth in Microsoft SQL Server. Furthermore, adoption of the cloud-based Azure platform also increased, and Dynamic CRM is a business in excess of $2 billion. As a result of these products, its cloud revenue run rate exceeded $6.3 billion. We’re encouraged by the continual growth that this division posted, and it is becoming an important driver for Microsoft’s value. Online Service Division (OSD) The online services division did report some encouraging signs as online search advertising revenue grew 22% as Bing’s US search market share rose to 20% during the quarter. Furthermore, search advertising revenue improved due to increased revenue per search resulting from ongoing improvements in ad products and higher search volumes. We forecast Bing’s global market share to increase steadily throughout our forecast period but any surprises to the upside are not expected to increase the company’s value substantially. We are in the process of restructuring and updating our Microsoft model. At present, we have  $44.46 price estimate for Microsoft, which is inline with the current market price. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
    CREE Logo
    CREE’s Q3 ’15 Earnings Growth Driven By Lighting Revenue and New Products
  • By , 4/24/15
  • Leading LED manufacturer,  Cree (NASDAQ:CREE) reported another quarter of strong growth with its Q3 2015, earnings beating analysts’ consensus estimates. (Fiscal years end with June.) At $410 million, revenues were at the upper end of company guidance, as the worse than expected weather seasonality was offset by strong growth in LED lighting.  Non-GAAP income was $25 million and diluted EPS stood at $0.22, as a lower tax rate offset reduced gross profit due to lower factory utilization, driven by inventory reductions and an unfavorable product mix. GAAP earnings per share were below Cree’s targeted range, primarily due to the $2.2 million decline in fair value of its Lextar investment which was caused by a reduction in Lextar’s share price during the quarter. Lower LED demand and margin pressure are two keys trends which have impacted Cree’s growth prospects in the last few quarters. However, the company continues to see strong growth in its lighting segment. Cree expects LED volumes to stabilize in Q4 2015 and improve in fiscal 2016, driven by new design wins for SC5 LED products and growth in Cree’s lighting business. In fiscal 2015 (ends with June), Cree plans to focus on the following  key priorities:  1) leverage its technology to lower up-front customer cost and further improve payback; 2) continue to drive LED lighting growth and build the Cree brand in both the consumer and commercial markets; 3) expand  its work with manufacturing partners to enable growth in LEDs and lighting; 4) allow its factories to focus on the newest technologies that are not otherwise available in the market: and,  5) generate incremental operating margin increasing revenue growth and incremental operating leverage across the business. Our price estimate of $37 for Cree is at a slight premium (~5%) to the current market price. We are in the process of updating our model for the Q3 2015 earnings release.
    Find us on Facebook


    Every month, Trefis analysts create a model for the most requested company. Cast your vote today!


    You can also view our Full Coverage List.


    How much of EMC's value comes from VMware?
    1. 32%
    2. 38%
    3. 44%
    4. 51%




    "Aims right at individual investors,
    giving them sophisticated models"

    "an easy tool for understanding what
    makes a company tick"

    "change the underlying assumptions by
    simply dragging lines on charts"

    "a very cool, very intelligently
    designed financial analytics tool"


    Rigorous & Quantitative

    Led by MIT engineers and former Wall Street professionals, the Trefis team builds a model for each company's stock price.

    Fun & Easy-to-Understand

    In a single snapshot we show you the relative importance of products that comprise a company's stock price.

    Play with Assumptions

    You can personalize any forecast using your local knowledge or expertise to build conviction in your own stock price estimate.

    Consult with Experts

    You can ask questions and vet your opinions on specific forecasts with experts and friends.

    Interact with other experts

    Stay abreast with opinions and predictions from peers.

    Predict Trends

    Share your own opinions, identify and predict trends.

    Monetize Your Expertise (coming soon!)

    Get paid for sharing your opinion.

    Attract the best investors, employees, and business partners.

    Want Trefis to provide coverage of your company? Contact us at with email subject - "Interest in coverage"

    Sign Up for Trefis for FREE

    Get free access to core companies and features.

    Sign Up for Trefis Pro!

    Get access to additional companies and features.

    Already a Member?

    Log in to your Trefis account.


    By using the Site, you agree to be bound by our Terms of Use. Financial market data powered by Consensus EPS estimates are from QuoteMedia and are updated every weekday. All rights reserved.

    Terms of Use

    NYSE/AMEX data delayed 20 minutes. NASDAQ and other data delayed 15 minutes unless indicated.