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COMPANY OF THE DAY : APPLE

Apple reported its fiscal Q3 earnings on Tuesday, with net income up 12% on a year-over-year basis. iPad sales were soft, coming in below consensus, while iPhone sales were around the low end of expectations. However, gross margin expansion and share buybacks allowed the company to boost its quarterly EPS by 20% over Q3 2013. In our earnings note we provide more detail about the earnings and discuss our outlook for Apple going forward.

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

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

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

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

Read more...
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Lear Pre-Earnings: Low Vehicle Production in South America Could Slightly Offset Top Line Growth
  • by , 3 hours ago
  • tags: LEAR LEA JCI UTX GM F DLPH
  • Leading manufacturer and distributor of automotive interiors  Lear Corporation (NYSE:LEA) is scheduled to announce its Q2 results on July 25. The company’s business has been divided into two segments: seating and electrical power management system (EPMS). While the seating division offers complete automotive seating systems including individual component parts, the EPMS division includes wire harness, terminals and connectors, junction boxes and wireless remote control devices installed in a vehicle. Lear’s stock has grown by over 20% in the last six months, reflecting the investor confidence in the company’s business growth. With rising vehicle demand and consequently increasing global production levels, Lear’s business is also expected to grow. The company supplies automotive interiors to companies such as GM, Ford and BMW, which together contributed 54% to the net sales last year, and also Daimler, Fiat, Hyundai, Volkswagen, Jaguar Land Rover, Peugeot and the Renault-Nissan Alliance. After rising 10.4% in Q1, Lear’s top line is expected grow again this quarter on the back of higher production levels in the U.S, China and Europe. Lear’s results could slightly be hurt by the slowdown in vehicle demand in Latin America this quarter. However, despite declining overall volumes in the region, luxury vehicle demand has been on a rise. Higher premium auto demand should boost Lear’s average content per unit, as these vehicles require relatively higher seating and electrical content, as compared to traditional powertrain vehicles. We estimate a $84.47 price for Lear Corporation, which is around 12% below the current market price. See our full analysis for Lear Corporation Vehicle Production and Electric Vehicle Demand Grows in the U.S. Around 19% of net sales for Lear were contributed by the U.S. in 2013. The company gained from the 6% rise in vehicle production in North America in the first quarter, and could continue to derive growth from the region this quarter. As the automotive sector continues to regain momentum in North America following the economic downturn, vehicle production volumes are expected to surpass the previous record of 17.3 million units in 2000 by the next couple of years. Auto demand in the U.S. is expected to rise due to lower interest rates, pickup in economic activity after suffering a negative 2.9% GDP growth in Q1, and replacement of ageing vehicles. The average age of a passenger car in the U.S. reached 11.4 years in 2013, while the average age stood at 8.4 years in Europe and below 5 years in China. According to IHS Automotive, light-vehicle production is expected to rise by 3.8% to 16.8 million units this year in North America, and grow to 17.5 million units by 2016. Higher production in the domestic market should also boost Lear’s automotive interior business in the country. Lear supplies electrical interiors for the electrically-powered Chevy Volt and Cadillac ELR produced by GM, which constituted 22% of Lear’s net sales last year. With rise in demand for plug-in electric vehicles (PEV) and specifically these models, Lear’s sales are also expected to grow. Chevy Volt sold over 5,000 units in the U.S. in Q2, ranking as the third highest selling PEV in the country this year. Demand for electric vehicles is rapidly rising around the world mainly due to a relatively less harmful impact on the environment and lower running costs, as compared to gasoline-powered engines. In addition, governments around the world provide various incentives to boost electric vehicle sales. Moreover, PEVs also have lower battery prices, adding to their appeal. The PEV market is expected to sell over 2.7 million units globally by 2018, a massive rise from around 180,000 unit sales in 2013. PEV sales in the U.S. constitute over 40% of the global PEV sales at present, growing by over 85% year-over-year to 97,507 units in 2013, and further by 42.2% in the second quarter this year. Growth in EV volumes bodes well for Lear, as these vehicles almost double the electrical content required per vehicle, thus boosting the company’s average content per unit. Slowdown in Brazil Vehicle Production to Impact Lear’s Top Line Production has taken a hit in the low-cost South American countries in 2014, particularly Brazil. This slowdown is expected to hamper sales this quarter for automakers such as GM and Ford, consequently lowering Lear’s sales. Brazil’s economy is slowing owing to higher interest rates put in place to control inflation. These measures have impacted consumer spending, which slightly slowed down this year, as compared to the last quarter of 2013. Rising unemployment, higher inventory levels, and lower demand resulted in a 13.3% year-over-year decline in vehicle production in Brazil in the first five months of this year, with production falling 18% in May. Brazil’s automobile industry, the fourth largest in the world, has also suffered due to a fall in exports, primarily because of import restrictions in Argentina. Brazil is the third largest market for GM behind China and the U.S., constituting roughly 7% of the company’s net retail volumes in 2013. Ford also sold around 6% of its overall wholesale volumes in Brazil last year, and together with GM, commanded 26.7% market share in the country’s vehicle industry at the beginning of 2014 (GM-17.3%, Ford-9.4%). However, unit sales for both the automakers have declined in Brazil this year, owing to the slowdown in vehicle demand. GM witnessed a 2% fall in retail volumes in the country through March, while Ford’s South America volumes also fell 8% during this period.  Unfavorable currency translations and low vehicle demand could hamper GM and Ford and in turn Lear’s South America sales again this quarter. However, despite the fall in overall vehicle demand in Brazil, luxury automakers saw large volumes rises in the country in Q2. Growth in premium car volumes is mainly because of low current penetration levels in the country, and lower impact of interest rate hikes and removal of tax breaks on the affluent customers, the target consumer base for luxury vehicle companies. Rise in volumes for premium automakers such as BMW, which constituted 10% of Lear’s net sales last year, Daimler, Jaguar Land Rover, and Volkswagen could not only boost Lear’s top line, but also the average content per vehicle this quarter. Margins to Rise on the Back of Higher Revenues and Content per Vehicle Lear’s seating division saw a decline in operating margins last year, with the figure falling to 4.8% from 6% in the previous two years. This was mainly due to manufacturing and launch inefficiencies in the Americas. However, adjusted segment operating margins for the seating segment stood at 5.5% in Q1, after adding back one-time restructuring expenses, boosted by the sales backlog from last year and higher car volumes. Seating margins this quarter are expected to remain in line with the company guidance of 5.5-6% for 2014, partly offset by currency headwinds, particularly in South America. On the other hand, operating margins for the EPMS segment, which stood at 12.3% in the last quarter, are also expected to remain strong due to the anticipated rise in divisional sales, increased electrical content per vehicle, and a competitive low-cost structure. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Altria Earnings Review: Better Margins Offset Lower Volumes
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  • tags: MO PM RAI
  • Altria’s (NYSE:MO) second quarter earnings rose higher on thicker margins due to better pricing. The company’s adjusted diluted earnings per share (EPS) grew by 4.8% y-o-y to $0.65. Altria also extended its market share in both cigarettes as well as smokeless categories, riding on the strong performance of its key brands, namely  Marlboro and Copenhagen . This bolsters our faith in the company’s ability to drive future earnings growth on pricing gains, as cigarette consumption in the U.S. continues to decline. Altria revised its 2014 full-year adjusted diluted EPS guidance to be in a range of $2.54 to $2.59. The company also announced a new $1 billion share repurchase program to be completed by the end of next year. Based on the second quarter earnings announcement, we have revised our price estimate for Altria to $42.5/share, which is 16.5x our 2014 full-year adjusted diluted EPS estimate of $2.57 for the company. See Our Complete Analysis For Altria Lower Cigarette Sales Volume The market for traditional cigarettes in the U.S. already faces a very challenging business environment marked by declining consumption, highly restrictive marketing rules and ever-increasing indirect taxes. According to the Centers for Disease Control and Prevention (C.D.C.), just about 42 million people, which is nearly 18% of the adult population, smoke cigarettes today in the U.S. This compares to 21% of the adult population nearly a decade ago and 43% of the adult population in 1965. On top of that, the growing use of smokeless tobacco products and electronic cigarettes due to increasing health consciousness among consumers is further aggravating the operating conditions of cigarette manufacturers. Despite an impressive market share performance, Altria’s cigarette sales volume dropped by 4% y-o-y during the second quarter, primarily due to a 4.5% decline in the overall market. Since 2009, the consumption of traditional cigarettes in the U.S. has dropped by more than 14%, and we expect it to drop by another 4.5% y-o-y this year on the growing adoption of e-cigarettes, which tripled to more than $1.5 billion in sales last year. Higher Pricing, Thicker Margins Pricing continues to remain the key growth driver for cigarette manufacturers. Low sensitivity of consumption demand to price increases, which is primarily due to the inherently addictive nature of cigarettes, has allowed cigarette manufacturers to drive meaningful earnings growth through regular price hikes over the past several years. The trend manifested itself during Altria’s second quarter earnings as well. The company’s revenue (net of excise taxes) from the sale of cigarettes and cigars increased 0.8% y-o-y, despite a 4% decline in sales volume. Moreover, adjusted operating income from the segment increased by 3.6% y-o-y, as margins improved by 120 basis points on relatively stable per unit costs. Apart from the addictive nature of cigarettes, Altria’s consistent earnings growth performance can also be attributed to its leading market share in the cigarettes space. Marlboro, the company’s flagship cigarette brand, now holds 44% share of the retail market in the U.S. and has been leading the market for more than 30 years now. Such brand loyalty allows Altria to lead in pricing measures and increase its value share in the shrinking tobacco industry while maintaining decent volume share growth. During the second quarter, Marlboro’s net pack price stood at $5.93, up $0.15 or almost 2.6% from the same period last year. At the same time, its retail market share also improved by 30 basis points over last year. Diversification Bolsters Growth Under the given circumstances, we believe that Altria’s diverse portfolio, which apart from  Marlboro and other cigarette brands also includes leading smokeless tobacco brands,  Chateau Ste. Michelle and  Columbia Crest wine brands, as well as a 26.9% stake in the world’s second largest brewer, SABMiller, is one of its biggest assets. The company’s leading position in the smokeless tobacco category has somewhat insulated it from consumers opting for chewing tobacco and snuff instead of cigarettes, as its  Copenhagen and  Skoal brands hold more than 50% share of the U.S. smokeless tobacco market. Altria would like to get into a similar position in the burgeoning e-cigarettes market in the U.S., which is estimated to have tripled in size from around $500 million in 2012 to $1.5 billion last year. The company has made some quick moves over the past few months in order to achieve this target. It started selling its  MarkTen e-cigarettes in the test markets of Indiana and Arizona in the second half of last year. Encouraged by positive results, the company started rolling out the product nationally last month. During the second quarter earnings call, the company officials announced that MarkTen has already achieved strong distribution in over 60,000 stores in the Western U.S. According to the company, these stores account for more than 70% of cigarette industry volume in the Western U.S. where MarkTen is distributed. Additionally, Altria also completed the acquisition of Green Smoke Inc.’s e-cigarettes business during the first quarter in order to diversify its product offering in the category. Being one of the premium e-cigarette brands in the U.S.,  Green Smoke also fits well with Altria’s overall marketing strategy focused on premium brands. Apart from this, Altria also entered into an exclusive agreement with  Philip Morris International (NYSE:PM) to commercialize its e-cigarette brands internationally. (See:  Altria Set To Pose A Stiff Challenge To Existing E-Cigarette Leaders ) See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    DuPont Earnings Review: Lower Corn Seeds Demand, Chemical Prices Weigh On Earnings
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  • tags: DD DOW MON
  • DuPont’s (NYSE:DD) second quarter earnings declined due to lower agricultural sales volume and continuing pricing pressures in the chemicals segment. The company’s adjusted diluted earnings per share (EPS) of $1.17 for the quarter fell by around 8.6% y-o-y. Expecting continued earnings pressure in the agricultural products segment in the short term, DuPont lowered its full-year earnings guidance. The company now expects its 2014 full-year adjusted diluted EPS to fall in the range of $4 to $4.1. DuPont generates annual sales revenue of around $36 billion by supplying high-performance materials and chemicals, electronic materials, high-performance coatings and agricultural products to industries and consumers worldwide. Most products manufactured by DuPont are used as raw materials by other industries, making it a predominantly B2B (business-to-business) based company with the exception of the agriculture and nutrition divisions. Its consolidated adjusted EBITDA margin stood at around 20% last year. Based on the recent earnings announcement, we have revised our price estimate for DuPont to $72/share, which is 17.9x our 2014 full-year adjusted diluted EPS estimate for $4.02 for the company. See Our Complete Analysis For DuPont Lower Agricultural Products Earnings Although DuPont is a well-diversified company, it generates more than 37% of its sales revenue from the agricultural products division, which according to our estimates contributes around 35% its total value. Therefore, a slight decline in agricultural segment earnings weighs heavily on the company’s consolidated results. During the second quarter, DuPont’s agricultural segment earnings declined by more than 11% y-o-y, primarily due to lower demand for corn seeds. Farmers in North America have increasingly shifted away from corn this year due to better economies offered by the soybean crop under the current pricing and yield scenario. However, DuPont was not able to tap the increase in soybean seeds demand to offset the decline in its corn seeds sales because its soybean line-up is undergoing a transition towards newer seed varieties. Furthermore, on the crop protection side, lower herbicide demand, primarily due to a wet spring this year, and de-stocking of inventories by its distributors also weighed on its operating results. Going forward, the company expects the demand for corn seeds to remain weak during the Latin America planting season as well, which is why it expects agricultural segment earnings to remain under pressure during the third quarter. Lower Performance Chemicals Prices Apart from lower corn seeds and herbicide sales, DuPont’s second quarter earnings also came under pressure from lower chemical prices. According to our estimates, the Performance Chemicals division, which primarily deals in titanium dioxide (TiO2) and fluorochemicals, contributes around 15% to its total value. TiO2 is primarily used as a whitening pigment and is a key raw material of the paint manufacturing industry. On the other hand, fluorochemicals are widely used as refrigerants among other applications. Last year, the performance chemicals division’s performance was severely impacted by lower TiO2 prices. However, this year weak refrigerant prices are weighing on the company’s results. DuPont sells  HCFC 22 and  Isceon refrigerants, which have been under a significant pricing pressure recently due to oversupply in the U.S. market. During the second quarter, DuPont’s chemical prices declined by around 4% y-o-y, which led to a 6% decline in the segment’s adjusted operating income. In order to reduce the impact of cyclical volatility in chemical prices on its portfolio, DuPont decided to spin-off the performance chemicals division into a separate company in October last year. During the second quarter earnings call, the company officials announced that the spin-off process is on-track and is expected to complete by mid-next year. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Boston Scientific Earnings Preview: IC And CRM Divisions In Focus
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  • tags: BSX MDT
  • Boston Scientific (NYSE:BSX) is expected to announce its Q2 2014 earnings on Thursday, July 24. After several years of dismal sales, the global medical device maker returned to positive sales growth in 2013 and continued the momentum in the first quarter this year. Overall operational sales, excluding the divested Vascular business, increased 4% year-over-year (y-o-y) to $1.77 billion in Q1 on the back of strong performances by each of the company’s divisions except Cardiac Rhythm Management (CRM). The company’s largest division- Interventional Cardiology (IC) – reported low-single-digit growth in the quarter, reflecting a significant improvement over its mid-single-digit decline in the preceding quarters. Operational sales in the Neuromodulation business continued to grow in double digits, while other divisions such as Endoscopy, Peripheral Interventions and Urology also reported consistent mid-single-digit growth. As Boston Scientific comes out with its second quarter earnings, we expect its global sales to grow in low single digits driven by increasing acceptance of its new products such as S-ICD (Subcutaneous-Implantable Cardioverter Defibrillators), Promus PREMIER stent, the Lotus Transcatheter Aortic Valve (TAVR) device and the anti-stroke Watchman device. We also expect the company’s bronchial thermoplasty system- Alair – to continue with its double-digit sales growth in established as well as emerging markets. Accordingly, the company should be able to meet its operational sales guidance of $1.84 billion – $1.89 billion for the quarter. On the cost side, we expect margins to continue improving on account of the company’s effective implementation of its ”Plant Network Optimization” strategy. The company expects gross margins to be in the range of 70-71% for the quarter. We have a  price estimate of $13 for Boston Scientific, which is roughly in line with the current market price.
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    Coca-Cola Earnings Review: Sparkling Volumes Rise in North America and Internationally
  • by , 3 hours ago
  • tags: KO PEP DPS
  • Beverage giant  The Coca-Cola Company (NYSE:KO) reported 3% year-over-year growth in worldwide volumes in Q2, with sparkling volumes rising 2%, on July 22. Net revenues fell 1% year-over-year to $12.57 billion, marred by structural changes and unfavorable currency translations. Structural changes comprised deconsolidation of bottling operations in Brazil and the Philippines last year, contracting sales for Coca-Cola’s bottling investments this quarter. Excluding the impact of restructuring, Q2 sales grew 3% on a comparable currency neutral basis. Operating income also declined 2% for the three months and year-to-date. Sparkling growth was fueled by 1% rises in the brand Coca-Cola’s volumes in both North America and international markets, reflecting strong performance of the company’s flagship soda drink amid headwinds in the carbonated soft drink (CSD) category, particularly in developed markets. With the launch of Coca-Cola Life, a low-calorie stevia-sweetened drink, in the U.S. and U.K., Coca-Cola will aim for further growth in its sparkling portfolio this year. In addition to sparkling growth, Coca-Cola’s still beverage portfolio comprising sports drinks, bottled water and ready-to-drink (RTD) teas also saw 5% global volume rise this quarter. Non-sparkling segments, especially RTD tea and coffee and sports drinks, have low current penetration levels and a healthier perception that drove volume growth this quarter and could continue to strengthen Coca-Cola’s net volumes going forward. However unit sales for Coca-Cola’s juice and juice drink portfolio fell 1% during this period as consumers looked to avoid high-sugar and calorie fueled juices. In addition, juice volumes also declined as the company increased net prices in North America following the rise in commodity costs, which in turn somewhat hindered consumer demand. Going forward, the company expects structural changes, including a new provision in Venezuela imposing a maximum threshold for profit margins, to negatively impact the net sales and operating margins by 1-2% and 3% respectively in the latter half of the year.  We estimate a $42 price for Coca-Cola, which is roughly 2% above the current market price. However, we are currently in the process of incorporating the latest quarterly results into our forecasts. See our full analysis for  Coca-Cola Brand Coca-Cola Grows in the Domestic Market The flagship brand Coca-Cola generated almost $11 billion revenues in 2013, and continued to grow sequentially in the second quarter, with volumes rising 1% year-over-year in North America. This growth defies the industry-wide trend of declining CSD volumes as consumers look to shift from sugary sodas to healthier beverage alternatives. Along with Coca-Cola, other flavored CSDs Fanta and Sprite also rose 4% and 2% respectively to boost Coca-Cola’s volume and value share in the domestic CSD market. Apart from the increase in unit cases, net pricing for Coca-Cola’s North America sparkling unit also rose 3%, while overall net pricing in the region grew 1%. However, as expected, Diet Coke volumes slid in the domestic market amid widespread safety concerns regarding usage of the artificial sweetener aspartame. Sales of the drink Coca-Cola in the U.S. alone constituted around 10% of the net revenues last year. With the launch of Coca-Cola Life in the country this year, the company will aim to spur sales of its ailing diet portfolio. Coca-Cola had launched its low calorie stevia-sweetened Coca-Cola Life in Argentina in June last year, and followed it with the launch of the drink in Chile in November. Sold in green colored cans, Coca-Cola Life caused a 7% rise in beverage volumes in Argentina last year, despite weak economic conditions in the country. After months of testing, the company is set to launch the product in the domestic market, which could bolster growth in the diet sparkling category this year. RTD Tea Volumes Continue to Grow Due to Healthier Perception Coca-Cola’s RTD tea volumes rose 4% globally in the quarter, and by 6% in North America. Growth in North America was led by double-digit percent increases in Gold peak and Honest Tea volumes. As consumers look to shift away from sugar and calorie-fueled beverages, RTD tea has become one of the fastest growing segments of the U.S. liquid refreshment beverage (LRB) market. Apart from acting as an alternative for sodas, tea is a convenient and healthier hydrant containing antioxidants that boost metabolism. Due to the growing demand for iced tea as a healthier refreshment drink, coupled with low current penetration levels, the U.S. RTD tea segment is expected to generate sales of $5.3 billion in 2014, up from $5.1 billion last year, and grow at a CAGR of over 6% till 2018. Sales for Gold Peak reached $135 million last year, representing a small 2.6% of the RTD tea market that is currently dominated by Lipton, Arizona and Snapple, with a combined value share of 43%. On the other hand, Honest Tea marked its one billionth beverage sale in June, with 888 million sales since Coca-Cola became a partner in 2008. Although representing a small portion of the U.S. RTD tea segment presently, both Gold Peak and Honest Tea could continue to grow in the following quarters due to the rising demand for tea drinks. Latin America Sales Decline Due to Brazil and Mexico Slowdown Coca-Cola’s Latin America volumes remained even in the quarter, with sparkling volumes declining 1% in the region. This decrease in soda volumes was primarily affected by the soda tax imposed by Mexico at the start of 2014. The Mexican government passed a one-peso-per-liter (~8 cents) tax on sugary drinks, in the wake of growing obesity, diabetes and other health concerns. In fact, Mexico has the world’s highest obesity rate at 32.8%. The soda tax was passed onto consumers, thus raising prices of soft drinks. With more than half of the country’s population living below the national poverty line, a price rise dissuaded some price-sensitive customers from soft drink consumption, causing a 3% decline in Coca-Cola’s net Mexico volumes this quarter.. According to our estimates, Mexico accounted for around 13% of Coca-Cola’s overall volumes last year, only second to the 19% volume contribution by the U.S. As Mexico is the largest consumer of Coca-Cola’s beverage offerings, per capita wise, contracting volumes in the country due to price rises could further hinder growth for the company’s CSD portfolio going forward. On the other hand, Brazil volumes remained flat in Q2, despite the increase in demand due to large-scale investment and marketing activities centered on the recently completed FIFA World Cup held in the country. This was mainly due to weak consumer spending in Brazil amid continued macroeconomic instability in the country this year. Brazil’s economy is slowing owing to higher interest rates put in place to control inflation. These measures have impacted consumer spending, which slightly slowed down this year, as compared to the last quarter of 2013, consequently impacting soft drink sales. Along with Mexico, Brazil is also one of the largest markets for Coca-Cola, accounting for around 7% of the beverage giant’s worldwide volumes in 2013. Lower sales in both these markets resulted in a 9% decline in the company’s Latin America sales this quarter. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Visa Earnings Preview: Uncertain U.S. Consumer Spending In Focus
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  • tags: V
  • Visa (NYSE:V) is scheduled to report earnings for the third fiscal quarter of 2014 on Thursday, July 24. Consumer spending trends in the U.S. and Visa’s association with the FIFA World Cup 2014 should drive the financial performance for the quarter. In the previous quarter earnings Visa reported a 26% increase in net income, whereas revenue growth slowed down to just 7%. This was a result of slowdown in the U.S. economy as well as the currency fluctuations affecting growth in the Asia-Pacific region. Our price estimate of $198 for the Visa stock is slightly below the current market price.
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    Dunkin' Brands Earning Preview: Increased Competition From Fast-Casual Segment To Hinder Growth
  • by , 4 hours ago
  • tags: DNKN CMG MCD SBUX BKW
  • Dunkin’ Brands (NASDAQ: DNKN) is scheduled to announce its Q2 earnings on July 24. The company runs both the Dunkin’ Donuts and Baskin-Robbins chains. The company reported mixed results in its previous quarter, as comparable store sales growth for Dunkin’ Donuts U.S. declined to 1.2 % compared to the 1.7% achieved during the same period last year, primarily due to adverse weather conditions in North America. On the other hand, the company witnessed a 6.2% increase in total revenues, due to the increased sales of ice cream products as well as increased royalty income. At the beginning of second quarter, the company launched its initiative of online cake ordering for Baskin Robbins U.S., which delivered impressive results in its first month. Dunkin’ Brands is planning to take this to a global scale in the coming years. The American global doughnut and coffee chain is also facing increased competition in the breakfast category. As a result, the company is focusing on revamping its breakfast menu along with other innovative additions to the regular menu. Moreover, the QSR industry faces threat from fast-casual restaurants in terms of customer traffic. Eventually, Dunkin’ Donuts U.S. decided to expand its presence in the western markets, where the brand has enough scope for expansion. We have a $48.31 estimate for Dunkin’ Brands, which is approximately 10.5% above the current market price. See full analysis for Dunkin’ Brands After mediocre results in the first quarter, the company reaffirmed its targets for the fiscal year (FY) 2014. Dunkin’ is targeting a comparable sales growth of 3%-4% for Dunkin’ Donuts U.S. and 1%-3% for Baskin-Robbins U.S., with a 6%-8% growth in revenues for FY 2014. The company plans to open 380 to 410 net new Dunkin’ Donuts U.S. stores and 5 to 10 Baskin Robbins U.S. stores by the end of this fiscal year, whereas it plans to open 300 to 400 new restaurants internationally across the two brands. Rising Commodity Prices To Affect Top-line Growth Over the last 6 months, rising coffee bean prices has created trouble for top Quick Service Restaurants (QSR) and other brands dependent on coffee for revenue growth.  The price of Arabica coffee beans has surged almost 100% from a level of 106 cents per pound to around 220 cents in mid April, due to tight supply as a result of prolonged drought in Brazil, followed by recent floods. Moreover, prices of other commodities such as dairy products and sugar are showing an uptrend too. Dunkin’ Brands, with only 36 company-owned points of distribution in the U.S. (as of March 29, 2014), are less affected by fluctuation in commodity costs than many other QSR operators. However, at the start of June, CEO of Dunkin’ Brands, Nigel Travis announced that the company is raising the coffee prices in its stores, though not by much. This move was primarily the result of the company’s competitors increasing their coffee prices. J.M Smucker, which has licensing agreement with Dunkin’ Brands and Folgers, announced to raise the prices of the packaged coffee by 9%. Moreover, Nigel Travis also mentioned that franchise locations of Dunkin’ Donuts might raise the prices of the non-coffee products such as donuts and sandwiches. The price hike might contribute slightly to the revenue growth as the move was completed in the last month of this quarter. However, this might help in maintaining the margins for the Dunkin’ Donuts U.S. segment. Increased Competitive Activity Breakfast Category: Low Ticket Could Attract Customers Dunkin’ Brands is one of the major restaurant brands in the QSR industry fighting for the breakfast market share. Other top competitors such as McDonald’s Corporation (NYSE: MCD), Starbucks (NASDAQ: SBUX) and Burger King (NYSE: BKW) are already far ahead in this category, with innovative beverage and food items on their menu. The company has around 9% share in the breakfast market, much behind McDonald’s. Although over the last couple of years, Dunkin’ Brands has gained reputation, due to its operational quality and consistent effort towards customer satisfaction. The company’s breakfast menu performed below par in the first quarter due to less customer traffic in the breakfast hours driven by harsh weather. The company is optimistic that its breakfast sandwiches and differentiated beverages will help them gain the breakfast market share in the second quarter. With the weather playing no role in second quarter and low ticket of its breakfast menu, an increase in customer traffic as compared to first quarter can be expected. This might help the company in steady sales growth. Fast Casual Restaurants Stealing Customer Traffic From QSRs Fast casual restaurants such as Chipotle Mexican Grill (NYSE:CMG) and Panera Bread have started eating into the market share of these leading QSR chains for the last couple of years. According to  Technomic’s 2014 Top 500 chain restaurant report, sales for fast casual chains  grew by 11% and store count by 8% in 2013. The revenue growth has been consistently at around 20% for Chipotle for 5 years now. According to the NPD group, the fast casual segment saw an 8% rise in the guest count in the 12 month period ended in November last year, whereas traffic count was flat for quick service restaurants. This consumer shift is primarily due to the fact that people with higher disposable income are inclined more towards quality and hygienic food. A decreasing customer count might hinder the company’s sales growth. The next few quarters would be very crucial for QSRs such as McDonald’s, Dunkin’ Donuts and Subway, where the industry would be reacting to increasing commodity prices on one hand and changing consumer preferences on the other. Expansion Into Western Markets: Scope For Potential Growth The company has plans to expand in the western markets, as most of the stores are concentrated in the eastern part of the U.S and don’t have a big presence in western U.S. According to Nigel Travis, company’s Chairman and CEO, Dunkin’ Donuts is slated to open 4-5 restaurants in California by the end of fourth fiscal quarter, much earlier than its original expected date. The company announced the locations of its stores in California on June 10 and also mentioned its plans to open 54 more stores in Southern California in the coming years.With nearly 11,000 Dunkin’ Donuts stores in 33 countries around the world, the company is keen to expand, owing to the fact that new store openings delivered 25% unlevered cash and cash returns to its franchises, and this is the fourth year in a row new stores achieved this target. The company’s competitors such as  Starbucks (NASDAQ: SBUX) and  McDonald’s Corporation (NYSE: MCD), leading brands in terms of coffee sales, are dominant forces in the western markets. This might hinder the company’s growth rate in the initial period but with a strong brand appeal and even stronger marketing strength, the company expects an exponential growth once it picks up pace. See more at Trefis |  View interactive institutional research (Powered by Trefis) Get Trefis Technology
    DTV Logo
    DirecTV Expands its NFL Package by Offering Streaming Services
  • by , 4 hours ago
  • tags: DTV DISH CMCSA TWC
  • DirecTV (NASDAQ:DTV) has introduced a new service to stream the National Football League (NFL), which will allow subscribers to stream live, out-of-market games without requiring a satellite dish. The content can be streamed over laptops, tablets, smartphones or a gaming console. The satellite company spends about $1 billion a year on NFL programming and charges up to $300 annually for the exclusive package subscribed by more than 2 million people, translating into $600 million in annual revenues. The new streaming service is priced at $199.99 for laptop, computer and phone services, and $329.99 for the full package compatible on all devices and gaming consoles. If DirecTV manages to attract 2 million subscribers for its streaming services, it will generate another $400 to $600 million and make up for the cost incurred to get the event rights. However, it must be noted that the company’s agreement with NFL will expire after the 2014 season and it is safe to assume that the new agreement if renewed will be at a higher price.
    CMG Logo
    Chipotle's Q2 Earnings: Price Hike Drives Sales Growth As Expected
  • by , 4 hours ago
  • tags: CMG MCD BKW
  • Chipotle Mexican Grill (NYSE:CMG) delivered excellent second quarter figures on July 21, continuing the momentum witnessed in the first quarter. The company’s revenue for the quarter rose to $1.05 billion, up 28.6% year-over-year, primarily driven by an increase of 17.3% in the comparable restaurant sales. Same store sales, or comparable restaurant sales saw tremendous improvement due to the increased traffic and increased average spend per visit. Comparable restaurant sales is an important measure to gauge a restaurant’s performance since it only includes the restaurants open for more than a year and excludes the effect of currency fluctuation. In line with its guidance of opening up 180-195 new restaurants in 2014, Chipotle opened 45 new outlets this quarter, taking its total outlet count to 1,681. The company expects opening sales volume of these new stores in the $1.7 million to $1.8 million, up from previous range of $1.6 million to 1.7 million. Diluted EPS for this quarter rose to $3.50, up 24% from same period last year. We have a $574 price estimate for Chipotle, which is about 2% lower than the current market price. See Our Complete Analysis For Chipotle Mexican Grill Price Hike Drives Revenue Growth The restaurant industry has been struggling with the rising food costs for the last couple of quarters. With no sign of relief, major fast-food brands such as McDonald’s (NYSE: MCD), Subway and  Burger King (NYSE: BKW) and fast-casual brands such as Chipotle were forced to pass on the rising input costs to the customers. The prices of beef, avocados and cheese have increased significantly over the last few months. For Chipotle, food costs were nearly 34.6% of the total revenues, an increase of 150 basis points. The increased food cost was primarily a result of increased prices of beef, avocados and dairy products. In comparison to this, overall inflation is reported to be around 2% for a wide range of food products. Two years of drought conditions in some parts of the U.S. were the main reasons for this significant increase in prices. To counter the inflation, Chipotle raised the prices of its steak burritos by 4%-6%, or 32-48 cents, whereas the overall menu prices went up by 6.5% on average and all this without hurting the customer traffic. According to the Bureau of Labor Statistics, U.S. consumers paid 2.6% more at eateries (food away from home) in 2013 over the last year, while food prices were 6.2% higher at supermarkets or retail stores. Therefore, consumers got a wide idea of price inflation for the core items and they reacted less against price hikes at restaurants. As a result, average spend per customer visit rose 5% and as the guest count was unharmed, this led to a significant increase of 15.5% in comparable restaurant sales. Chipotle has been seeing increasing sales even during times when its competitors are struggling with flat or marginally rising sales. Effectively, strong same store sales led to excellent revenue figures. To meet high standards and maintain customer confidence, the company started sourcing grass fed beef from Australia, where beef cattle is raised entirely on grass feed without the use of antibiotics. However, Chipotle still maintains loyalty to the domestic ranchers and considers this move as a necessary step in its food with integrity program. Higher Marketing Costs Hurt Operating Margins The company’s restaurant level operating margins dropped 30 basis points to reach 27.3% as compared to margins in Q2 of 2013 fiscal. The decrease in the margins was due to higher food and marketing costs, partially offset by lower labor and occupancy costs. Marketing costs rose to 2% of sales in Q2, compared to about 1.5% last year, where promotions and fund raiser costs contributed nearly 20 basis points. Chipotle expects the marketing cost to be high in the third quarter too, as the company continues its ‘better ingredients’ advertising campaign in over 30 markets and over 1,000 restaurants. Catering Services: An Added Boon Chipotle’s excellent performance in the second quarter also partially benefited from the catering sales, which were 1.6% of revenue, an increase of 130 basis points year-over-year.  Chipotle’s total online catering and fax orders reached 6% of sales in the quarter. Catering sales benefited 50 basis points in the second quarter due to special events like graduation parties which is seasonal and hence, the company expects the sales to taper slightly in the next few quarters. Sofritas-the Vegan Dish: An Outperformer Chipotle has always focused on introducing new organic and hygienic food items. In the second quarter, the company introduced a new vegan menu items- Sofritas, which proved to be a success among the vegetarians, as well as non-vegetarians. In all the 1000 outlets, where the Sofritas are available, it accounts for nearly 3.5% of the entrees in the restaurants. Chipotle expects to introduce Sofritas in all the restaurants by the end of this year. The company has always been successful in providing its customers with an extraordinary dining experience and periodic expansion of its menu with new and innovative dishes. Decent Pace In Expansion & Focus On Diversification Chipotle added 45 new restaurants in the second quarter, bringing the total restaurant count to 1,681. The company’s pace is in line with its guidance to open 180-195 restaurants by the end of 2014 fiscal. Although most of the company’s restaurants are located in the U.S., there’s still a lot of scope for domestic expansion. Chipotle expects around 70% of the restaurants to be in established markets, 15% in the developing areas and the rest 15% in the new untested U.S. markets. Chipotle ended the Q2 with $1.1 billion in cash and cash equivalents and believes to use most of the cash to invest in well performing and high returning restaurants. On the other hand, it continues to introduce diversification through ShopHouse and Pizzeria Locale and is optimistic with the growth potential of these brands. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology  
    YHOO Logo
    Yahoo Eyes Mobile Ad Dollars With Flurry Acquisition
  • by , 4 hours ago
  • tags: YHOO GOOG AOL
  • Yahoo! (NASDAQ:YHOO) announced on Monday, July 21, that it is acquiring mobile ad exchange Flurry. While the company has not disclosed the amount spent, it did state that this acquisition will help monetize its rapidly expanding mobile user base, which stood at over 450 million mobile monthly active users in Q2. Flurry is the industry leader in optimizing the mobile user experience by serving more personal ads. It extensively uses its analytics to provide over 170,000 developers with data to better understand their audience. Furthermore, it also has an RTB platform called the Flurry marketplace that enables automated sales of ads across different ad properties. This acquisition is important for Yahoo as it can significantly boost its mobile ad revenue and resurrect its faltering online ads business. In this note, we will look at how Yahoo’s revenues can increase in the future. See our complete analysis of Yahoo! here Yahoo’s Foray In Mobile RTB Over the past few years, content providers have been increasingly adopting ad-exchange mechanisms that use real-time bidding (RTB) platforms. An RTB or programmatic platform is a method of selling and buying online display ads in real time. RTB aggregates impression slots offered across multiple ad networks and matches them (based on advertisers’ target, budget and placement requirements) with the most appropriate ads. Additionally, an RTB employs a dynamic pricing auction method that allows the publisher to supply his impression to the highest bidder at any given time. This results in better cost efficiency, higher performance and greater granularity in targeting and measuring an ad’s effectiveness. eMarketer expects advertisers to spend $4.86 billion on RTB this year and RTB to increase to $12 billion by 2018. Furthermore, the biggest jump in RTB spending has been in mobile. Growth in mobile RTB is set to soar even higher in 2014. According to an Adexchanger report, mobile display RTB ads saw a 47% jump in Q1 2014 on a quarterly basis.  With this acquisition, Yahoo hopes to capture a sizeable share in the increasing mobile RTB business and thereby boost its ad revenues. Acquisition Can Boost User Engagement And Mobile Revenues Content is the driving force behind display ad revenue and affects both users and advertisers on Yahoo. Users care about the quality of content and personalized information, which together lead to better engagement. Yahoo is offering customized content to individuals based on their search history and sharing patterns on social media. It now plans to combine its customized content with bespoke ads to improve user experience. This can not only improve user engagement but also boost its mobile unique users. The number of unique visitors is vital for Yahoo’s ad revenues as more people visiting the website generally translate into more pages viewed across Yahoo’s websites. Currently, Yahoo’s mobile monthly active user base stands at 450 million. If Yahoo’s mobile monthly active user base were to increase by 50% by 2020, its revenues could be meaningfully higher. Better content and user engagement can also increase the time spent on the website and advertisers are willing to pay higher revenue per impression for these sites. Yahoo is ranked third in terms of time spent by a user on the website. We expect revenue per page view (RPM) for Yahoo to improve due to these efforts. Currently, we project RPM for Yahoo to increase to $1.10 per 1000 impressions by 2020. However, if it were to increase to $1.50, our stock price would increase by 5%. At present, we have a  $34.38 price estimate for Yahoo!, which is in line with the current market price. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis)  Get Trefis Technology
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