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Yahoo reported disappointing earnings on Tuesday, with display ads declining by over 5% and non-GAAP operating income declining by 80% to $32.15 million. More noteworthy, however, the company announced that it is spinning off its 384 million shares of Alibaba into an independently registered investment company. Our earnings note discusses the results as well as the Alibaba plans.

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NASDAQ is set to report its Q4 earnings on Thursday. We currently forecast the revenues generated by NASDAQ's U.S. equity trading to be 10% higher than 2013 at about $1.2 billion due to a nearly 11% rise in trade volumes for the full year.

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Shell Earnings Preview: Lower Upstream Earnings, Thicker Downstream Margins Expected
  • By , 1/28/15
  • tags: RDSA rdsa XOM CVX BP PBR
  • Royal Dutch Shell Plc. (NYSE:RDSA) is scheduled to announce its 2014 fourth quarter earnings on January 29. We expect lower crude oil prices to weigh significantly on the company’s upstream earnings growth. Benchmark crude oil prices have declined sharply over the past few months on rising supplies and falling demand growth estimates. The average  Brent crude oil spot price declined by more than 30% year-on-year during the fourth quarter. This is expected to result in thinner operating margins on Shell’s spot crude oil sales. However, lower exploration expense and thicker refining margins are expected to partially offset the impact of lower oil prices. During the earnings conference call, we will be looking for an update on Shell’s ongoing divestment program and its operating strategy under the changed crude oil price environment. Shell is an integrated oil and gas company that is registered in England and Wales and headquartered in The Hague, the Netherlands. It has a strong global presence. The company is involved in the principal aspects of the oil and gas industry (exploration and production of hydrocarbons, refining and marketing of petroleum products, and chemicals manufacturing) in more than 70 countries worldwide. This geographical diversity of Shell partially insulates it from operational and financial risks arising from regional regulatory and geopolitical uncertainties. We currently have a  $71/share price estimate for Shell, which is almost 12.2x our 2015 full-year adjusted diluted EPS estimate for the company. See Our Complete Analysis for Royal Dutch Shell Plc. Lower Exploration Expense Lower oil prices are expected to have a significant impact on Shell’s upstream earnings. According to the company’s 2014 third quarter earnings call transcript, 65% of its upstream revenues are directly linked to crude oil prices and a $10 per barrel decline in Brent crude oil prices translates into a $3.2 billion earnings impact on an annual basis. This means that depending upon the overall lag (between fluctuations in spot prices and their impact on Shell’s earnings because of the average tenure of pricing contracts), the recent decline in oil prices could cause its fourth quarter upstream earnings to be as much as $2.4 billion lower, compared to the previous year’s quarter. However, we believe that lower exploration expense and improvement in sales volume-mix will partially offset the impact of lower oil prices on Shell’s upstream earnings. The key reason behind the steep decline in Shell’s adjusted E&P margins in 2013 was the sharp increase in exploration expense. The company’s exploration expense increased by 70% over 2012 and was more than 136% higher than the average annual exploration expense between 2008 and 2012. This was primarily because the company had to write down costs related to a large number of dry holes in the Americas. However, during the first nine months of 2014, the company’s exploration expense stood at just $2.9 billion, which is almost 17.5% lower than the same period the previous year. Going forward, we expect Shell’s exploration expense to be more normalized as the company has significantly trimmed down its exposure towards more risky acreage as a part of its ongoing divestment program. Thicker Refining Margins We expect Shell’s downstream margins to receive a significant boost from thicker refining margins during the fourth quarter, primarily driven by an improved global refining environment and reduced exposure to less profitable downstream assets as a result of the divestment program. Shell has been actively pursuing the divestment of its not-so-profitable downstream assets over the past few years and it plans to continue doing so in the near future in order to increase the profitability of its overall portfolio. Since 2010, the company has generated around $10 billion in proceeds from such transactions. Recent downstream divestments completed by Shell include refinery sales in the U.K., France, Germany, Norway, and Czech Republic. Most recently, the company announced the sale of its Norwegian marketing assets to Finland’s ST1. As a part of the deal, ST1 will take over Shell’s retail, commercial fuels, and supply and distribution businesses in Norway. In addition, Shell’s aviation business in Norway will become a 50-50 joint venture with ST1. Improvement in refining margins and operating rates boosted Shell’s downstream earnings by $500 million during the third quarter last year, compared to the previous year’s quarter. We expect a similar performance during the fourth quarter as well. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Our Take On Windows 10: What It Could Mean For Microsoft
  • By , 1/28/15
  • tags: MSFT GOOG IBM
  • Recently, at a launch event, Microsoft (NASDAQ:MSFT) shared more information about Window 10, which was launched for beta testers in September last year. While the operating system is expected to be launched later this year, it will be a free update for users running Windows 7 or Windows 8.1 on PCs or notebooks for the first year. According to the latest data, Windows 10 attracted close to 1.7 million beta testers (initial users that test the software for bugs). This indicates that Windows 10 might surpass the earlier versions of Windows, especially Windows 8, in term of subscribers. In this note, we explore how the Windows 10 might boost Microsoft’s revenues. See our complete analysis of Microsoft here Installed Base to Help As Weak PC Sales Continue Windows Operating System is Microsoft’s third largest division and makes up 9.7% of its stock value by our estimates. However, it contributes 25% to Microsoft’s top line. One of the primary drivers for Microsoft’s Windows division is global PC sales. Approximately 65% of total Windows Division revenue comes from Windows operating systems purchased by original equipment manufacturers (“OEMs”) and pre-installed on their devices. According to IDC, the global PC sales continue to decline and global shipments were down by 2.4% in Q4, and 2.1% in 2014. Although, IDC expects that PC sales will pick up in 2015, we think that global PC sales will remain tepid. Currently, we forecast that the global desktop sales will decline by 5% to 130 million and global notebook market to remain flat at 180 million units shipped in 2015. However, as the company has offered the free Windows 10 update to the existing users of Windows 7, Windows 8 and Windows 8.1, we believe that Windows 10 will have widespread adoption amongt users. To ensure that Windows 10 finds traction with early adopters, Microsoft has gone beyond purely visual changes like reworked desktop icons. Windows 10’s start menu will now expand to a full-screen view that looks like Windows 8.1’s home screen so that users are familiar with the new OS. Focus On Mobiles Through Cross Device User Experience And New Features One of the primary reasons for decline in PC shipments is the growing popularity of tablets. According to Gartner, tablets shipments to exceed those of PCs in 2105. While iOS and Android based smartphones and tablets continue to rule the market, Microsoft’s Windows based Surface tablets and phones have not fared as well.  According to IDC, Windows based tablet’s market share was 2.5% in Q4 2014. Despite offering discount on its tablets, and selling smartphones at lower price points, Windows mobile sales continue to lag the tablet market. While Windows 8/8.1 was targeting tablets and PCs, Windows 10 can be used with devices less than 8 inches in size. Through this cross compatibility, Windows will be able to sell more windows based smartphones, and this will grow the Windows architecture user base. Moreover, Microsoft is focusing on rectifying a major flaw in Windows 8 by introducing universal apps that would help the phone to work with other major apps like Instagram or Gmail. Microsoft’s own applications – from Xbox to Office can further supplement app development program, which would be a meaningful step up for Windows 10 Phone store. A stronger Windows Phone OS, with better apps and developer support, could make Windows ecosystem the third platform behind Google’s Android OS and Apple’s iOS. This may help convince customers to persist with Windows PCs and tablets. This can incentivize app development and create a sustainable and profitable ecosystem for developers and users to thrive in, thus improving user experience. We currently have a  $44.46 price estimate for Microsoft, 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
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    Aeropostale's Revised Q4 Guidance Isn't Promising As Its Old Story Continues
  • By , 1/28/15
  • tags: ARO AEO ANF
  • Teen apparel retailer,  Aeropostale (NYSE:ARO), reported its holiday sales results earlier this month, and raised its Q4 guidance slightly on account of better-than-expected margins. The company now expects to report a loss per share of $0.25-$0.31 for the fourth quarter of fiscal 2014, as opposed to its previous guidance of $0.37-$0.44. Aeropostale stated in a recent press release that the retailer achieved better margins during the holiday season than it originally expected and managed its inventory properly. The company believes that it will end the fourth quarter with a clean inventory position, that should have a slight negative impact on markdowns going forward. While Aeropostale’s bottomline performance during the holiday season was slightly better than expected, it continues to report significant decline in revenues. The company’s revenues for the two month period of November and December 2014 declined 11% to $508 million. Its comparable store sales including e-commerce fell 9%, on top of 15% decline witnessed during the same period last year. Reporting revenue declines in double digits is something that Aeropostale has persistently done over the past several quarters. Our price estimate for Aeroposatle is at $6.38, implying a premium of less than 115% to the current market price.
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    L'Oreal's Top Acquisitions And The Underlying Strategies
  • By , 1/28/15
  • tags: LRLCY EL REV AVP
  • L’Oreal (OTC:LRLCY) is the international leader in cosmetics and beauty care and competes with other notable pure-play cosmetics manufacturers like Estee Lauder (NYSE:EL), Shiseido, Avon Products (NYSE:AVP) and Revlon (NYSE:REV). The company also competes with cosmetics products from global consumer product companies such as Unilever (NYSE:UL), Procter & Gamble (NYSE:PG) and Beiersdorf. In results posted thus far for 2014, L’Oreal witnessed a moderate 2014, as judged by its financial performance. For the first nine months of 2014, L’Oreal reported a sales contraction of 0.4% to €16 billion. Like-for-like sales, which exclude currency headwinds and other inorganic growth impacts, increased 3.5% during the nine months in FY14. In this article we discuss the major acquisitions undertaken by L’Oreal in 2014 and the strategic significance of each deal. In 2013, the top three markets accounting for around 50% of the world’s beauty market growth were China, Brazil, and the U.S. Hence, it comes as no surprise that L’Oreal’s major acquisitions in 2014 focused in those regions. We have a  $37 price estimate for L’Oreal, which is at a slight premium to the current market price. See Our Complete Analysis for L’Oreal Here China’s Magic Holdings: L’Oreal Battles To Gain A Larger Share Of The Chinese Beauty Market With The Aid Of An ‘Ins ide Player’ In April 2014, L’Oreal completed the acquisition of Magic Holdings in China. The Chinese beauty and cosmetics market is the third largest market globally, after North America and Japan, and had a market sales of approximately $23 billion in 2013. Within this huge market, L’Oreal reported sales of over $2 billion in 2013. This translates into a 9% market share for L’Oreal in the overall Chinese beauty market. However, the company has faced intense pressure from domestic players within the mass-market cosmetics space and has bowed out of the Chinese hair care market by shutting down its Garnier brand. L’Oreal still commands market leadership positions in beauty and make-up cosmetics in China, with L’Oreal Paris and Maybelline New York being the number one brands in their respective segments. However, domestic players, like Shangai Jahwa United, have displayed a better understanding of the Chinese consumer tastes. The company’s brand ‘Herborist’ uses traditional Chinese medicinal and herbal practices in developing its beauty products and has shown strong resonance with Chinese consumers. Adapting such practices  has given domestic Chinese beauty players a decent lead over large, international players. To counter this strengthening competition from domestic players and retain their market share, global beauty companies have been on an ‘acquire-to-grow’ strategy in the Chinese market. L’Oreal announced its acquisition of Magic Holdings International Limited for $850 million in 2013, which is the company’s largest acquisition in the Chinese market. Magic Holdings is the leader in the Chinese facial care market, with annual revenues that grew 14% on a constant currency basis to reach $220 million in 2013. The acquisition of Magic Holdings indicates L’Oreal’s stance against domestic competition. (For more on L’Oreal’s previous acquisitions, see L’Oréal Vies For Top Spot In Growth Markets With Rapid Acquisitions ) NYX Cosmetics: L’Oreal Aims To Win North American Hearts And Wallet Share With A Broader Make Up Portfolio L’Oreal’s acquisition, NYX Cosmetics, is a high-growth mass market makeup cosmetics brand with presence in more than 70 countries globally. The company is a direct competitor to Estee Lauder’s M-A-C brand of makeup cosmetics and has seen explosive growth in sales over the last two fiscal years. Sales for NYX Cosmetics increased by 46% and 57% in the years ending May 2013 and May 2014, to reach $93 million. L’Oreal wants to replicate the success it had with brands such as Maybelline and Kiehl’s in the makeup space. Prior to  the acquisitions in 1996 and 2000, Maybelline and Kiehl’s had revenues of $300 million and $30 million, respectively. Now, Maybelline and Kiehl are L’Oreal’s most popular brands in the low-end and prestige makeup space, with annual revenues of approximately $2.7 billion and $810 million, respectively. The long term acquisition strategy has payed off very well for L’Oreal until now, and NYX should contribute to its success going forward. The acquisition of NYX Cosmetics should add support to a recovery in the weak North American market. Impacted by adverse weather conditions and a slowdown in the North American beauty market has resulted in weak consumer offtake for cosmetics. L’Oreal’s growth in the North American cosmetics market slowed down from 4.4% in 2012 to 2.6% in 2013, while other developed markets showed signs of expansion. Going forward, the company expects the North American market to rebound to higher growth driven by an expansion in trendy mass market color cosmetics such as NYX Cosmetics, M-A-C, and UrbanDecay. Decléor and Carita: L’Oreal Expands Its Presence In The Professional Beauty Division In April 2014, L’Oreal completed the acquisition of Decléor and Carita from the Japanese group Shiseido. The turnover for Decléor / Carita was around 100 million euros in 2012. Decléor and Carita hold a second position worldwide, in the global Professional Spa and Beauty Institute market. The brands have been integrated into L’Oreal’s Professional Products Division, a category where L’Oreal has been a major player for more than 100 years. The acquisition would ensure L’Oreal’s entry into new distribution channels in the professional beauty segment, such as day spas, resorts, and destination spas which specialize in skin care. Niely Cosmeticos: L’Oreal Penetrates Further Into Brazil, One Of The Fastest Growing Beauty Markets In September 2014, L’Oreal signed an agreement to acquire Brazil based Niely Cosmeticos, the largest independent hair care and hair coloration company in the country. The company earned 405 million Brazilian Reals (140 million euros) in 2013. Aimed at the middle class mass market, Niely products have a large penetration in Brazil, with a wide distribution network including retailers and wholesalers, supermarkets, pharmacies and perfumery chains. L’Oreal gained 9% of its sales from the Latin American region in 2013, and sales in Brazil grew by 13% year-on-year. Brazil is currently the fourth largest beauty market in the world, with a number 1 position in hair care, hair colorants, and deodorants. L’Oreal Brazil is the sixth largest subsidiary for the L’Oreal Group. L’Oreal aims to improve its largest division, the consumer products, through this acquisition. As we had mentioned in our earlier article that lately, the consumer products division has shown a lack of robust growth for L’Oreal.  Brazil being the largest hair color and hair care market and Niely being one of the most prominent players in this segment, we expect Niely to boost L’Oreal’s sales in Brazil and later on, internationally. Coloright: L’Oreal Strives To Maintain Its Leadership In Hair Research In December 2014, L’Oreal announced the acquisition of Israel-based hair research start-up, Coloright. Coloright develops hair-fibre optical reader technology and it will be a part of L’Oreal’s international Research and Innovation network. According to L’Oreal’s estimates, the top two contributors for the global beauty market are skin care (34%) and hair care (24% ). L’Oreal has always been a pioneer in hair research, and this acquisition will further aid the company in being one of the forerunners in hair care related innovations. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    Volkswagen's Push For Electric Vehicles Gains Further Momentum
  • By , 1/28/15
  • Volkswagen AG (OTCMKTS:VLKAY) crossed record sales of 10 million units in 2014, narrowing its gap with the global sales leader Toyota, and extending its lead over the third-placed General Motors, in terms of volumes. The German automaker makes large investments in new technologies, construction of manufacturing facilities, and assembly lines, in order to increase supply closer to the end customer and ensure strong volume growth. Volkswagen incurred $11.13 billion in research and development costs through the first three quarters, 14% more than its 2013 levels. The group has accelerated investment in cleaner and low emission technologies, in a bid to launch more environmentally viable cars in the future. In China, Volkswagen’s single largest market, the company is looking to launch over twenty electric and plug-in hybrid electric vehicles over the next few years, ranging from small-sized cars to large SUVs. The luxury vehicle division, Audi, which forms a fifth of the automaker’s valuation by our estimates, plans to step-up investment by 2 billion euros ($2.44 billion) to a record 24 billion euros over the next five years, of which approximately 70% will be in new cleaner technologies such as plug-in hybrid vehicles. Volkswagen, which boasts a diverse portfolio of brands, including passenger vehicle divisions Skoda, Audi, Porsche, Bentley, Bugatti, Lamborghini, commercial vehicle brands Scania and MAN, and its own branded cars and trucks, has lost out to the likes of GM, Ford, Nissan, BMW, and Tesla in the fast growing electric vehicle (EV) segment. By accelerating investments, the German car company hopes to gain momentum in the plug-in electric vehicle (PEV) space, which is estimated to grow at a CAGR of almost 25% through 2023, outpacing the expected 2.6% annual growth for the overall light-duty vehicle market. Apart from China, which is the most important market for Volkswagen volume-wise, the automaker’s push for PEV growth is evident in the U.S., the world’s largest PEV market, and which grew by 22.8% last year to almost 120,000 units. We have a  $44 price estimate for Volkswagen AG, which is roughly 3% lower than the current market price. See Our Complete Analysis For Volkswagen AG Volkswagen Teams Up With BMW Demand for electrically powered vehicles is rapidly rising around the world mainly due to a relatively less harmful impact on the environment, rising concerns over global warming, 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, electric vehicles also have lower battery prices, adding to their appeal. However, the absence of a well established battery-charging infrastructure and weak efforts to expedite building of charging networks has hurt EV sales, dissuading customers from buying such vehicles, especially the ones with a low electric range. The Volkswagen e-Golf, an all-electric car launched in the U.S. at the tail-end of October, has only around 70-90 miles of electric range. In contrast, the Tesla Model S can go 265-300 miles on a single charge. In a bid to compete better with the likes of Tesla, Volkswagen is now teaming up with BMW to build 100 direct current (DC) fast charging ports across the U.S. this year. The two companies are working with ChargePoint, a startup that already operates a network of card-operated chargers. The new charging stations will add to ChargePoint’s present network of 20,000 stations in North America. Tesla is also in the middle of expanding its Supercharger network across the continent, but the stations only support a Tesla model. On the other hand, the new charging stations being built by the German automakers will support any vehicles with DC fast charging capabilities and those that use the SAE Combo connector, which is used in both Volkswagen and BMW EVs, among others. The new Volkswagen-BMW collaboration will augment battery-charging facilities in the U.S., and as the new stations won’t be placed more than 50 miles apart, concerns regarding low electric ranges of EVs will also be addressed. Volkswagen isn’t a big player in the PEV space in the U.S. as of now, but the company could extend its partnership with BMW, and maybe other electric vehicle manufacturers, to add more charging stations in the country in the future.  EV sales as a whole could rise at a fast pace if big-time automakers decide to collaborate and build infrastructure that supports these vehicles, as opposed to each individual company building its own exclusive charging stations. New Technology Could Shake-Up The EV Market Apart from building more charging stations in the U.S., Volkswagen is also investing in a completely new technology that could potentially shake-up the PEV market.  Last month, Volkswagen Group of America bought a 5% stake in QuantumScape Corporation, a battery start-up, aiming to develop a new energy-storage technology that could more than triple the range of an electric car. QuantumScape is working on solid-state batteries as a substitute for the lithium-ion technology, which is used in many electric vehicles today. By doing so, the company believes the range of an electric car could be extended to nearly 430 miles (more than the electric range for Tesla). Another advantage of the solid-state batteries is that these are burn resistant, boosting the safety aspects of electric vehicles using such battery packs. The new battery technology is only in the initial testing stage as of now, and the tests to show if the system is viable for cars are expected to be completed not before the end of 2015. But Volkswagen’s aim is clear — to solve the low-electric-range problem by building a closely-packed network of battery-charging stations and/or developing new technology to improve ranges on its vehicles, thereby boosting the company’s prospects in the electric vehicle market. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Electronic Arts Q3 Earnings: Record Digital Revenue Drives Revenues Growth
  • By , 1/28/15
  • The Gaming giant, Electronic Arts (NASDAQ:EA),  delivered impressive financial results in its third quarter earnings report released on January 27. For the quarter, the company reported non-GAAP net revenue of $1.43 billion, which was 12% above the guidance, but down 9% year-over-year (y-o-y). However, last year’s third quarter witnessed the launch of Battlefield 4, giving it an advantage over this year’s holiday quarter, which was without the launch of new Battlefield title. On a trailing twelve month basis, EA’s non-GAAP net revenue reached $4.337 billion, and digital receipts accounted for more than half of the revenues ($2.178 billion) for the first time ever, up 17% y-o-y. The company’s core sports titles: FIFA 15, Madden NFL 15, and Hockey Ultimate Team services recorded a massive 82% y-o-y growth. 2014 proved to be a huge success for EA, as it was the #1 publisher on all the major platforms in the world. The company’s successful quarter is credited to its 3 major titles: FIFA 15, Madden NFL 15, and Dragon Age: Inquisition. Their success, coupled with effective cost controls, led to a 250 basis points improvement in the operating margins to 36.3%.  EA’s non-GAAP digital revenues for the quarter rose 34% y-o-y to $693 million. Moreover, EA’s mobile games had an average of more than 160 million monthly active users in Q3. Our $39 price estimate for  Electronic Arts’ stock is 20% below the current market price. See our complete analysis of Electronic Arts stock here EA’s Major Title Releases Spurred Revenue Growth Dragon Age: Inquisition Developed by Bioware, this third edition of the major action role-playing franchise Dragon Age was released in November worldwide. The game widely became popular just after the release, making it the most successful launch in the Bioware history. Till date, nearly 113 million hours have been spent on this game by the gamers, with the count increasing day by day. It was named the game of the year by several media outlets. According to VGChartz, as of January 3,  nearly 1.3 million units of this game was sold on Sony’s PlayStation 4, whereas approximately 0.60 million units were sold on Microsoft’s Xbox One. Taking all the gaming platforms into account, the game sold over 3 million units till that date, with even more demand on new generation consoles. FIFA and Madden NFL Over the last decade, EA’s dependence on its sports franchises,  Madden NFL and FIFA, has increased manifold. Both titles are the most popular and most widely played sports games in their respective regions. According to VGChartz, FIFA 15 sold over 15.65 million units till January 3, with Sony’s PlayStation 4 & 3 leading the FIFA sales with 5.79 million and 4.30 million units, respectively. On the other hand, FIFA 15 sales on Xbox One was nearly 1.8 million units. Europe accounted for almost 60% of the FIFA 15 unit sales on PlayStation 4. The games weekly unit sales increased by nearly 40% and 70% in the last two weeks of November respectively. The increase in demand for the sports titles just before the holiday quarter was anticipated by the company. FIFA 15 was the #1 title in Europe and #10 title in the U.S. in 2014. According to the company, there were 50% more gamers logging in each week y-o-y. On the other hand, America’s favorite sports title, Madden NFL, was the #2 selling title in North America. Gameplay hours for the title rose 30% y-o-y. The game has sold over 5.4 million units till date, with North America accounting for 87% of the total sales. Both the sports tiles might still account for more than two-thirds of the total sports titles sold in 2014, and might continue to be the money minting franchises for the company. Other Titles EA’s other popular titles, such as The Sims 4, Titanfall, and Battlefield 4, provided a huge boost to the company’s quarterly revenues. The company released three major updates to The Sims 4 during the third quarter, as the title went to sell nearly 1.5 million units by the end of 2014. Moreover, the company also released a new expansion pack for Star Wars: The Old Republic, in December, that attracted many new gamers. On the other hand, EA’s first-person shooter (FPS) titles: Titanfall and Battlefield 4, are still contributing to the revenue growth. Digital Growth: The Next Big Segment For EA For the third quarter, EA reported 34% y-o-y growth in its non-GAAP digital revenues, and 32% y-o-y growth in GAAP digital revenues. The Ultimate Team services for FIFA 15, Madden NFL 15, and NHL 15, contributed tremendously to the digital growth. In Q3, the total number of gamers signing in for the Ultimate Teams for these three games grew by nearly 45% y-o-y. This indicates the increasing interest of gamers in the digital online format of gaming. On the other hand, the recently launched SimCity BuildIt recorded more than 22 million downloads in the first month of its launch, grabbing a spot in the Top 5 iOS game downloads in more than 100 countries. Among the digital revenues, Extra content and “freemium” contributed $314 million, up 47% y-o-y, primarily due to the Ultimate team services. This segment continues to see great potential, as more gamers are drawn towards the Ultimate Team concept, and might remain the largest contributor in the digital domain. FIFA Online 3 continues to show progressive growth in Korea, whereas in China  FIFA Online is becoming popular. Full game downloads contributed $140 million to the net revenues in Q3, up 22% y-o-y, whereas mobile revenues were up 13% y-o-y. Mobile platform had an impressive holiday quarter, due to the success of FIFA 15 Ultimate Team Mobile, Madden NFL Mobile, and SimCity BuildIt. As a result, due to the increase in demand of Digital content, which has low costs, the company’s non-GAAP gross margin for the quarter was 72.8%, up from 68.1% in Q3 last year. Moreover, the strong demand for current generation consoles also helped the company improve its profitability. With the sustained demand for these consoles, and the release of new Battlefield titles, we might see another strong quarter. Keeping these factors in mind, the company expects the non-GAAP net revenues to be approximately $830 million in the Q4, and non-GAAP diluted EPS to be approximately $0.22. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Lower Seed Prices, Currency Headwinds, Weigh On DuPont's Earnings Growth And Outlook
  • By , 1/28/15
  • tags: DD DOW MON
  • DuPont’s (NYSE:DD) fourth quarter earnings rose  on better margins in Agricultural Products and the Performance Materials divisions. Margin expansion was primarily driven by productivity measures and gains on asset sales.  However, lower seed prices and currency headwinds weighed on the company’s earnings growth. DuPont’s 2014 full-year adjusted diluted earnings per share (EPS) came out at $4.01, 3.4% higher compared to the previous year, but fell short of our estimates by around $0.03. The company guided for relatively flat net revenue this year, primarily on account of the offsetting impact of the strengthening U.S. dollar, while EPS adjusted for non-recurring, non-operating items is expected to fall in the range of $4.00 to $4.20. DuPont generates annual sales revenue of around $35 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 21% last year. Based on the recent earnings announcement, we have revised  our price estimate for DuPont to $70/share, which is 17.2x our 2015 full-year adjusted diluted EPS estimate of $4.06 for the company. See Our Complete Analysis For DuPont Lower Seed Prices According to our estimates, DuPont’s Agricultural Products division contributes the most, around one-third, to its total value.  In 2013, the division posted the highest revenue growth (13% y-o-y) within the company’s diversified portfolio, on robust demand for its  AQUAmax and  AcreMax seed products and  Rynaxypyr insecticide. However, 2014 was not a great year for the division. During the year, DuPont’s agricultural products sales revenue declined by 4% y-o-y due to lower corn and soybean seed prices and market share loss in the Americas. The prices of corn and soybean seeds, which make up a large chunk of DuPont’s agricultural products sales, plummeted last year due to record harvest projections in the U.S., primarily led by favorable weather conditions and yield improvements. This had a significant impact on DuPont’s earnings growth during the period because agricultural products contribute almost 33% to the company’s total consolidated sales revenue. In addition to lower seed prices, DuPont’s Agricultural Products division was also negatively impacted by lower demand for corn seeds.  Farmers increasingly shifted away from planting corn last year due to better economies offered by the soybean crop under the prevailing 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. With little or no improvement expected in seed prices in the short to medium term due to growing distributor inventories, we see the demand for corn seeds to remain weak in 2015 as well, which is why we expect DuPont’s agricultural segment to post lower revenues and thinner margins this year. Currency Headwinds DuPont has operations in more than 90 countries worldwide and about 60% of its consolidated net sales revenue comes from international markets. Since the company operates primarily in local currency in these markets, a strengthening U.S. Dollar negatively impacts its financial results. The U.S. Dollar has strengthened significantly against many international currencies, especially the emerging market currencies, since the second half of 2013 when the U.S. Federal Reserve started scaling back its bond-buying program. According to historical currency charts provided by, the U.S. Dollar has strengthened by around 20%, 9%, and 105% since the beginning of 2014 against the  Euro (EUR),  Brazilian Real (BRL), and the  Russian Ruble (RUB), respectively. Based on the average basket of exchange rates for its business, DuPont currently expects the strengthening U.S. dollar to drag down its 2015 full-year earnings by $0.60 per share. Although, we believe that the actual impact on earnings could be higher since the depreciation of a local currency against the U.S. dollar might lead to higher relative prices of DuPont’s products in the local market, thereby weakening its competitive positioning as well. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Falling Volumes Compound P&G’s Problems as Currency Headwinds Dampen Q2 Results
  • By , 1/28/15
  • tags: PG UL KMB CL EL
  • Global consumer products powerhouse Procter & Gamble (NYSE: PG) reported disappointing second quarter results on January 27th (fiscal year ends in June). The company’s scale played against it in the second quarter as its outsized presence in emerging markets exposed it to severe currency headwinds. Consequently, increased pricing was not sufficient to prevent revenue from falling 4% year on year due to a negative foreign exchange impact of 5 percentage points. Likewise, cost savings could not preclude a year on year decline of 40 basis points in gross margin, which faced the brunt of unfavorable geographic and product mix also. Additionally, heavy impairment and restructuring charges dragged down net income as well as diluted EPS by 31%. Second quarter revenue stood at $20.1 billion, while net income was $2.4 billion and diluted EPS was $0.82. P&G’s performance was not much better in non-GAAP terms either, which excludes the impact of foreign currency movements. Organic sales expanded by 2% year on year during the quarter, which was at the lower end of the company’s guidance of low to mid-single digit organic sales growth. Core EPS, which excludes discontinued operations and restructuring charges, declined by 2% year on year to $1.06. This puts P&G in a difficult position to achieve its full year guidance of low to mid-single digit growth. However, on a constant currency basis, core EPS grew by 6% in the second quarter, which keeps the company in the run for achieving the full year guidance of double digit growth in constant currency core EPS. We are currently updating our price estimate of $87 for Procter & Gamble to reflect the second quarter results. See our complete analysis of Procter & Gamble here Currency Headwinds Eat Into Revenue Growth Adverse foreign currency movements dealt a severe blow to Procter & Gamble’s second quarter top line and depressed revenue growth by 5 percentage points. Foreign exchange impact on the company’s business units ranged from 4 to 7 percentage points. The total foreign exchange impact on the bottom line was to the tune of $450 million in the second quarter alone; and the cumulative effect in the current fiscal year is estimated to be at $1.4 billion. Over $1 billion of this headwind is expected to originate from just six countries, namely Russia, Ukraine, Venezuela, Argentina, Japan and Switzerland. This marks the most significant currency impact that P&G has ever faced in any fiscal year. The strengthening of the US dollar has impacted Procter & Gamble worse than most of its competitors because of the sheer scale of its presence in emerging markets. The company derives over $8.8 billion sales from the aforementioned markets, which is 2 to 3 times its next biggest competitor. This has resulted in disproportionate effect of foreign exchange fluctuation on P&G’s performance. Higher Prices Impede Volume Growth In the second quarter, P&G achieved positive volume growth in only one of its business units, Fabric Care and Home Care. Volumes in the Baby, Feminine and Family Care segment were flat compared to the same period previous year, while volumes of Beauty, Hair and Personal Care, Health Care, and Grooming segments fell by 2% each. In contrast, P&G achieved pricing growth in each of its segments with the exception of Health Care, which remained flat. Pricing growth was the highest in the Grooming unit, in which higher prices contributed 4 percentage points to revenue growth. Interestingly, the Grooming business was also the worst hit by currency headwinds, which pulled down the unit’s revenues by 7 percentage points. The company resorted to higher prices to counter currency headwinds and commodity cost inflation. Further, it has stated that price upticks in the near term will be centered in the developing markets, while no such increase in prices is planned for the developed markets. However, declining volumes indicate that consumers may be shunning P&G’s products in favor of lower priced products of its competitors. This is especially true for developing markets, where the premium category products have not seen the same kind of adoption rates as in developed markets. When seen in conjunction with the sluggish economic growth in major markets like China, it is quite possible that P&G’s higher prices may result in loss of market share as consumers switch to cheaper alternatives. Cost Savings Fail to Protect Margins P&G’s gross margin fell by 40 basis points in the second quarter, while operating profit margin 80 basis points compared to the same period previous year. The decline in gross margin was led by an unfavorable geographic and product mix, followed by currency headwinds and commodity cost inflation. Selling, general and administrative (SG&A) costs as a percentage of sales also increased by 40 basis points year on year. This, along with the lower gross margin, contributed to the decline in operating profit margin. On the flip side, the company achieved substantial manufacturing cost savings during the quarter, as part of the ongoing restructuring program. SG&A costs also declined on an absolute basis, thanks to savings from efficiency and productivity efforts in marketing spending and overhead. However, P&G failed to convert these cost savings into improvement in bottom lines, due to the combination of high commodity cost inflation and currency headwinds. The company has the practice of importing its products into diverse geographic markets rather than manufacturing products locally, which inherently results in higher commodity costs. This practice includes imports into countries like Venezuela, Argentina, Russia and Japan, currencies of each of which have significantly weakened against the US dollar. This resulted in substantial currency headwinds on costs also, which puts additional pressure on the bottom line in the second quarter. To address this issue, P&G has plans to localize its manufacturing supply chain over time so that its foreign exchange exposure can be curtailed. It is currently building about 20 new manufacturing facilities in those developing markets that have caused the most significant currency headwinds. The company is also attempting to source materials locally in order to further reduce the impact of foreign exchange fluctuations. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Lexmark Earnings:Growth In Laser Hardware And Perceptive Fillip Revenues
  • By , 1/28/15
  • tags: LXK HPQ
  • Lexmark International (NYSE:LXK) released its Q4 earnings on January 27 th, and the company posted yet another quarter of solid results as its managed printer services (MPS) and Perceptive software businesses delivered growth. The company reported 2% year-over-year growth in revenues to $1.032 billion, even as the exit from inkjet division tempered results. The revenues and earnings per share exceeded the guidance range. It’s imaging solutions and services (ISS) revenues, excluding the inkjet business, grew by 4%, buoyed by 4% growth in sales of laser hardware. Within the ISS division, managed print services (MPS) revenue grew by 16% year over year to $242 million; non-MPS revenue was flat at $633 million and inkjet revenue declined by 42% to $58 million. Additionally, Lexmark’s Perceptive software division continued to post growth as revenues grew by 37% to $99 million. See our full analysis on Lexmark Outlook For Q1 And 2015 For Q1 FY15, the company expects revenues to decline by 3% to 5% year over year and non-GAAP earnings per share to be in the $0.70 to $0.80 range. Lexmark expects revenue to decline by 3% to 5% in 2015 and Non-GAAP EPS to be in $3.60 to $3.80 range. MPS Revenues Boost Laser Printer Revenues Laser printer and cartridge division is its biggest business unit and makes up 88% of Lexmark’s estimated value. According to IDC, the worldwide hardcopy peripherals market declined in Q3. To some extent, resilience in laser hardware sales has offset the decline in total sales. This trend seems to have prevailed in Q4 as well, and Lexmark’s result indicates that it gained the most in laser printer related sales. While laser hardware revenues grew by 4% year over year to $236 million, supplies revenue grew 2% to $589 million. According to research firms such as Gartner and IDC, Lexmark is a leader in the MPS business. MPS contracts for the company have increased over the past 24 months and offset the decline in non-MPS revenues in the previous quarters. In our pre-earnings note published earlier, we had stated that we expect MPS to propel revenues. MPS was the key contributor to laser revenue growth as these revenues grew by 16% to $242 million during the quarter. Going forward, we believe that MPS integrated with Perceptive’s solutions will deliver value to Lexmark’s growing client base. Service contracts tend to be sticky, and MPS is a high margin business compared to selling hardware.  We expect it to become the biggest driver for Lexmark going forward. Perceptive Business Revenues Grow The Perceptive software division is the second biggest business unit and makes up nearly 11% of Lexmark’s estimated value. As Lexmark plans to become an end-to-end solution provider, Perceptive Software is becoming an increasingly important division for Lexmark. During Q3, revenues from this division grew by 37% to $99 million. During the quarter, clients chose to sign up for Perceptive’s evolution subscription service rather than the perpetual license, deferring recognition of the revenue from the third quarter. As a result, the company did witness excellent growth across subscription, maintenance and professional services. While the annual subscription contract value for Perceptive increased by 104% from $5 million in 2013 to $11 million in Q4 2014, licenses and maintenance revenues grew by 12% to $26 million and 55% to $38 million respectively. The annualized subscription contract value at the end of Q4 stands at $46 million, which translates into 114% year-on-year growth. The company expects the electronic content management (ECM) and business process management (BPM) segments, which serve a $10 billion dollar industry, to grow about 10% year over year. The company is targeting this segment through Perceptive software, and it continues to build Perceptive’s product portfolio through organic and inorganic means. We also expect the seamless integration of Perceptive’s array of solutions with MPS to bolster revenue for the company. We are in the process of updating our Lexmark model. At present we have a  $44.77 Trefis price estimate for Lexmark, which is 8% above its 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
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    Pfizer Revenues Suffer Due To Patent Losses And Currency Headwinds
  • By , 1/28/15
  • tags: PFE MRK JNJ BMY
  • Pfizer (NYSE:PFE) reported its 2014 fourth quarter results recently. The company’s sales revenue declined 3% for the quarter and 4% for the full year. This was not surprising considering the lack of growth catalysts and a large number of drugs now exposed to generic competition. The termination of certain co-promotion agreements and unfavorable exchange rates due to a stronger U.S. dollar further weighed on the company’s results. These negative factors overshadowed the impressive growth in Pfizer’s oncology and vaccine segments, which are relatively smaller in size and hence their incremental revenue contribution is still not sufficient to offset the decline in legacy product sales. Pfizer’s current year guidance indicates that the company expects operating conditions to remain challenging in the short to medium term. It expects full-year sales revenue to be between $44.5 billion and $46.5 billion, which is 6-10% below the $49.6 billion it earned last year.
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    Yahoo Earnings: Revenues Continue To Lag As Yahoo Firms Up Plans To Spin Off Alibaba
  • By , 1/28/15
  • Yahoo! (NASDAQ:YHOO) reported its fourth quarter earnings Tuesday, January 27th. The company’s core advertising revenues continued to disappoint as the revenues (excluding Traffic Acquisition Cost or TAC) decreased marginally by 1% year on year to $1.253 billion. Furthermore, the non-GAAP operating income declined by 80% to $32.15 million. For the full year 2014, revenues declined by 1.33% from $4.68 billion in 2013 to $4.61 billion. While Yahoo’s core search ad revenues (excluding TAC) were flat for the quarter, its display ad revenues declined by 5.34%. The primary reason for growth in search ads revenue was the growth in all search metrics such as the price per click, click driven revenue and number of paid clicks. The highlight of the earnings release was not the questions concerning growth in its core business, but news pertaining to spinning off the 384 million shares of Alibaba into an independently registered investment company to be named SpinCo. In this note, we will discuss the highlights of Yahoo’s earnings announcement. See our complete analysis of Yahoo! here Outlook For First Quarter 2015 For the first quarter, Yahoo expects revenues (ex-TAC) to be in $1.11-$1.15 billion range. Additionally, it expects adjusted EBITDA to be between $200 million and $240 million, and non-GAAP operating income to be between $50 million and $90 million. The guidance indicates that the much-needed improvement in core business continues to elude Yahoo management despite numerous product refreshes and acquisitions. Spinoff To Be Tax Tax-Free Yahoo! owns a total of 384 million ADRs of Alibaba, which comprises 15.4% of Alibaba and is worth nearly $40 billion based on Monday’s closing Alibaba share price. With the Alibaba ADR listing in Q3 last year, these shares became subject to a one-year lock-up agreement that runs until September 21, 2015. If these shares were to be sold or transferred through ordinary means, the proceeds will be subject to a tax of approximately 40%. This will translate into a tax liability of approximately $16 billion or roughly $16 per share of Yahoo!.  In a landmark decision, Yahoo! board has authorized a plan to pursue a tax-free spin-off of 100% of the company’s remaining holdings in Alibaba. The company expects to effectuate the spin-off in Q4 of 2015. This will result in two independent publicly traded companies. The spin-off company, which has been christened SpinCo, will be a newly formed independently registered investment company that will hold 384 million shares of Alibaba. Mobile Ads Revenues Gain Traction In our pre-earnings note, we argued that Yahoo’s mobile platform will drive its revenue growth going forward. In Q4, Yahoo’s mobile revenue was $254 million, up from $207 million in Q3, an increase of 23% quarter over quarter.  Gross revenue for the year was $1.260 billion and GAAP mobile revenue was $768 million, exceeding Yahoo’s estimates by 5% and 10% respectively. Furthermore, Yahoo continued to report growth in its total mobile unique visitors, which grew to over 575 million in the quarter. In the coming quarters, we expect the mobile user base to increase further as the company implements its strategy to deliver personalized content. The growth in its unique visitor count is important for Yahoo, as a bigger user base will consume more content across Yahoo’s websites. This, in turn, will translate into higher page views and searches across all Yahoo platforms, and thus improve revenue across both display and search ads divisions. Display Ads Revenue Disappoints Yet Again The display ads division makes up 9.3% of Yahoo’s estimated value. In Q4, the display ad revenues (ex-TAC) declined by 5.34% year over year to $464 million (excluding traffic acquisition cost). While the number of display ads sold across Yahoo properties rose by 17%, the price per ad declined by 24% due to the unfavorable shift in mix of premium ads to low cost ads. Even though the company continues to roll out premium display content, it has yet to be fancied by advertisers who continue to spend less across Yahoo properties. Furthermore, we expect the international mix of total display ads to increase, which can drag ad prices down. However, Yahoo has stated that Mobile, Video,Native and Social ads, which grew 95% to 100% year-over-year in Q4, are expected to help stem decline in display revenue in the future. As a result, we expect revenue per impression to remain flat in the future. Improvement In Ad Volume And Price Per Click Boost Search Revenues Search ads make up 9% of Yahoo’s estimated value. During the quarter, search ad revenues (ex-TAC) were flat at $462 million. While the company reported 10% growth in the number of paid clicks, price per click improved by 17%, indicating the relevancy and improvement in Yahoo’s content as advertisers increased their search ad spending across Yahoo sites. Despite the overall improvement in search revenue metrics, the revenue growth eluded company as the product mix indicated more ads sales on mobile that has a lower cost per click compared to PC ads. During Q4, Yahoo struck five-year partnership with Mozilla to make Yahoo! the preferred search tool on Firefox browsers across mobile and desktop. This is a significant opportunity for Yahoo as Firefox has 11% share in global browser market. We expect this will help Yahoo to increase revenue in the coming quarters. Going forward, we estimate RPS will decline from $11 to $10. Update On Tumblr Yahoo acquired Tumblr in May last year for $1.1 billion. The company stated that Tumblr overtook Instagram as the fastest growing social network over the preceding six months, and that growth continued in Q4. The company also witnessed Tumblr audience rise from 420 million in Q3 to 460 million in Q4, up approximately 9% quarter-over-quarter.  During Q3 earnings call, Marissa Mayer said that Tumblr is expected to generate more than $100 million in revenue in 2015, primarily due to a successful introduction of sponsored advertising. Additionally, she said that Tumblr will achieve positive earnings before interest, tax and depreciation (EBITDA) in 2015. Going forward, if Yahoo can successfully pitch Tumblr platform to advertisers, its advertising revenues and valuation can increase significantly. We are in the process of updating our model. At present, we have a  $47.29 price estimate for Yahoo!, which is in line with the current market price. Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    TI Closes 2014 On A Strong Note: Earnings Review
  • By , 1/28/15
  • Texas Instruments (NASDAQ:TXN) closed 2014 on a positive note, reporting yet another quarter of strong growth in Q4 2014. At $3.27 billion, revenue grew 8.0% year over year and 6.6% sequentially, in line with company guidance as well as Wall Street consensus estimates. Earning per share ($0.76) beat both company guidance and analysts’ expectations, on account of the benefit accrued from the reinstatement of the federal R&D tax credit and gains on sales of assets. For 2014, TI’s revenue and net income grew 7% and 30% respectively. Free cash flow for the year was $3.5 billion, up 18% from a year ago. TI’s strong performance in 2014 was driven by an improved product portfolio and the efficiencies of its manufacturing strategy, which includes growing 300 mm output and the opportunistic purchase of assets ahead of demand. After its planned exit from the smartphone and tablet market in September 2012, TI has transitioned its operations to become a pure analog and embedded processing company, which now form the company’s core business. The combined revenue from the two division grew 13% in Q4 2014,  compared to a year ago. TI’s strategy is centered around analog ICs and embedded processing and is bolstered by an efficient manufacturing operation and a broad sales channel. The company is growing its 300 millimeter output and continues to follow the strategy of purchasing assets ahead of demand at the stressed prices. It estimates its sales force team to be three to four times larger than its nearest competitors. Possessing scale others lack, it is beginning to get a lot more revenue per sales person which gives it the ability to grow revenue without having to grow operating expenses as fast as revenues. We are in the process of updating  our price estimate of $45 for TI for the 2014 earnings. See our complete analysis of Texas Instruments here TI Gained Additional Market Share In Analog & Embedded In 2014 TI’s reported the sixth consecutive quarter of  year-over-year growth for its analog business. Revenue from the segment grew 14% year over year in Q4 2014, led by strong growth in power management. The high volume analog and logic, high performance analog and Silicon Valley analog divisions also grew in the quarter. The operating margin came in at 38.7%. The company increased its share in the analog market to 18.3% in 2014, compared to 16.8% in 2013. TI has increased its R&D investments in the sector by more than 75% since 2006, which has resulted in steady increases in market share over the years. Revenue increased for the 9th consecutive quarter for the embedded processing segment, growing 11% year over year in Q4 2014, driven by growth in processors, microcontrollers and connectivity. The connectivity business grew at the fastest rate as rising number of devices become connected. Operating margin for embedded processing products more than doubled (to 17%) in the quarter, as TI benefited from its investments for growth and strong execution of its restructuring plan to better align resources with the opportunities that they are pursuing. In late 2010-early 2011, TI significantly stepped up its investments in the embedded market in order to accelerate its product introductions. The company expects the operating margin for the division to continue to increase, as top line increases and R&D and SG&A expenses remain relatively flat. TI continues to invest at a healthy level, though at a lower level compared to the past. The high level of investment and an expanding product portfolio from heavier levels of investment in the prior few years, will continue to drive growth in the future as well. Gross Profit Hit New Record In 2014 Having seen its gross margin decline from 53.6% in 2010 to 49.7% in 2012, on account of lower revenue, increased capacity, under-utilization charges and the acquisition of its large analog competitor, National Semiconductor, TI has marked a continuous improvement in gross margin since 2013. TI’s overall gross margin increased by 3.8 percentage points, from 54.2% in Q4 2013 to 58% in Q4 2014, reflecting higher revenue, increased factory load-ins, and an improved product portfolio focused on analog and embedded processing that benefits from an efficient manufacturing strategy. The analog and embedded processing products are more profitable and less capital intensive compared to wireless products. Thus, the company benefits by deriving a larger portion of its revenue from these two divisions. In addition to a favorable revenue mix and improved manufacturing efficiency, the gross margin will also benefit from lower depreciation in the future. At present, depreciation is ahead of TI’s capital expenditures. The company expects its capital expenditure to remain at low levels (4% of revenue) for the next few years. As depreciation starts to work itself down over the next couple of years, it will boost gross margins. Q2 2015 Outlook - Revenue in the range of $3.07 billion to $3.33 billion, a 7% annual increase at the middle of the range. - Earnings per share in the range of $0.57 to $0.67. - Restructuring charges to be essentially nil. Acquisition (non-cash amortization) charges to remain about even and hold at about $80 million to $85 million per quarter for the next five years. - Effective tax rate of 30%, higher than 2014 because of an expected increase in profits and does not assume the reinstatement of the R&D tax credit. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
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    Lower Copper And Oil Prices Negatively Impact Freeport-McMoRan's Q4 Results
  • By , 1/28/15
  • Freeport-McMoRan Inc. (NYSE:FCX) released its fourth quarter results and conducted a conference call with analysts on Tuesday, January 27. The company’s results were negatively impacted by weak copper and oil prices as well as lower copper mining volumes. The company reported revenues of $5.24 billion in Q4 2014, as compared to $5.89 billion in the corresponding period a year ago. Operating income for Q4 2014, excluding the impact of one-time items, stood at $1.18 billion, as compared to $1.65 billion in the corresponding period a year ago. In addition, the company announced a significant reduction to its planned capital expenditure for 2015 as it battles a combination of low oil and copper prices. See our complete analysis for Freeport-McMoRan Mining Operations Freeport’s mining revenues fell from $4.78 billion in Q4 2013 to $4.01 billion in Q4 2014. Operating income for mining operations, excluding one-time items, fell from $1.64 billion in Q4 2013, to $936 million in Q4 2014. This was primarily due to a fall in average realized copper prices, and a fall in shipment volumes to a lesser extent. The company’s copper shipments fell roughly 15% from 1.14 billion pounds in Q4 2013 to 972 million pounds in Q4 2014. This was due to lower shipments from Freeport’s Indonesian and South American copper mining operations, partially offset by higher volumes from the North American copper mining operations. Production at the Grasberg mine in Indonesia fell 44% year-over-year to 171 million pounds, due to unplanned production stoppages as a result of a strike by workers during a part of the quarter. Shipments from the South American copper mining operations fell 38% year-over-year to 247 million pounds due to the divestment of the Candelaria mine in November. These declines were offset by higher production at the Morenci mine in Arizona, due to the ramp up of milling rates at the expanded Morenci mill. As a result, shipments from Freeport’s North American copper mining operations rose 30% year-over-year to 434 million pounds in Q4 2014. Freeport’s average realized copper price for Q4 2014 stood at $2.95 per pound, as compared to $3.31 per pound in the corresponding period in 2013. 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 December, and has ranged between 50.1 and 51.7 for the whole year. The weak PMI numbers are indicative of sluggishness in the Chinese economy. China’s GDP growth is expected to slow to 7.1% in 2015, from 7.3% and 7.7% in 2014 and 2013 respectively. The company’s unit costs of production rose year-over-year due to a fall in production volumes, particularly at the company’s Indonesian mines. Consolidated average unit cash costs for Freeport’s copper mines rose to $1.47 per pound of copper in Q4 2014, as compared to $1.16 per pound in Q4 2013, primarily because of the dilution of fixed costs over lower production volumes. Oil and Gas Operations Freeport’s oil and gas revenues fell from $1.22 billion in Q4 2013 to $725 million in Q4 2014.  This was due to a combination of lower realized prices and shipment volumes. Shipment volumes for the oil and gas division stood at 12.1 million barrels of oil equivalent (MMBOE) in Q4 2014, as compared to 16.6 MMBOE in Q4 2013, due to the sale of the company’s Eagle Ford shale assets in Q2. 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 $17.63 per BOE in Q4 2013 to $21.93 per BOE in Q4 2014. The Oil and Gas division’s average realized price for crude oil fell from $92.68 per barrel in Q4 2013 to $78.02 per barrel in Q4 2014.  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 $55.95 per BOE in Q4 2013 to $38.02 per BOE in Q4 2014. Capex and Debt Reduction View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
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    Lear Pre-Earnings: Strong Automotive Demand In Key Markets To Fuel Top-Line Growth
  • By , 1/28/15
  • Riding on a strong increase in global vehicle volumes, led by the U.S. and China, expect  Lear Corporation (NYSE:LEA) to report robust sales growth in Q4 on January 30. Lear provides seating and electrical interiors to some of the largest automakers in the world, and therefore depends on the global automotive demand to propel business-growth. The last three months, especially December, saw a large number of vehicle sales in key markets, which should boost Lear’s full-year results. In particular, GM, Ford, and BMW, which together formed 54% of the net revenues for the company in 2013, along with the supplier’s other clients such as Volkswagen, witnessed strong growth in the U.S. and China, which should offset the decline in automotive demand in markets such as Russia and Brazil this quarter. Notably, growth in the luxury vehicle segment has outpaced growth in the automotive industry in many crucial markets. This is expected to boost Lear’s top line, as premium seating contributes higher revenue per unit and these vehicles also typically require more electrical content. Lear’s stock has jumped 28% in the last 52 weeks, with the company reporting 10% revenue growth through Q3, outpacing the 4% rise in global vehicle production during this period. Lear has not only been able to increase penetration in high growth markets such as China, where automotive production rose by 7.2% last year, but has also looked to supply more to its luxury automaker clients, bolstering growth in the company’s average content per vehicle, and subsequently revenues. We expect high premium vehicle sales in Q4 to have boosted Lear’s content per vehicle, as well as the bottom line, as premium seating typically carries fatter margins. With more than 100 manufacturing and engineering facilities (out of 203 in total) located in low-cost countries, and a surge in automotive production, Lear’s seating and electrical divisions could end 2014 with 6% and 12% operating margins respectively. 2014 will be another year where the electrical division witnesses strong margin growth; operating margins for this division rose from 7.2% in 2012 to 9.8% in 2013. We estimate a $100 price for Lear Corporation, which is roughly 2% above the current market price. See our full analysis for Lear Corporation High Automotive Demand In The U.S. To Fuel Growth The U.S. automotive market crossed 16.5 million in volume sales last year, up 6% from 2013 levels, and on account of lower energy prices and increasing disposable incomes, automotive demand is expected to remain strong in 2015. North America formed 38% of Lear’s net revenues last quarter, and the performance of its clients in this region will play a major role in molding the overall results for the seating and electrical supplier this quarter. GM and Ford formed a third of overall unit sales in the U.S. light-duty vehicle market in 2014, with the former’s North America sales rising 5.5% year-over-year last year. As the country witnessed its highest vehicle demand since 2006, this should have translated into more business for Lear, boosting its Q4 and year-end results. Revenue growth in North America is also expected to be supported by high sales of luxury vehicles. In particular, BMW, the third largest client for Lear, overtook Mercedes to become the highest-selling premium carmaker in the country, selling 9.8% more vehicle units as compared to the previous year. Seating Sales To Rise On Higher Proportion Of Premium Offerings Premium autos require higher seating and electrical content, and as demand for these high-end vehicles remains robust, Lear has also looked to strengthen its luxury offerings to achieve higher sales per unit vehicle. Apart from the U.S. and China, supporting our estimate for high premium sales this quarter is a rise in vehicle volume sales in Europe. Following the double-dip recession, automotive production in Europe returned to positive growth last year. Although the recovery has been patchy and slower than expected, vehicle volumes in the region rose 5% last year to over 13 million units, with more than a little help from falling fuel prices, tax breaks, and incentives. Each of the leading German luxury automakers BMW, Audi, and Mercedes-Benz has achieved growth in Europe through the last year, growing sales by 5%, 5%, and 6% respectively. Apart from strengthening domestic sales, high export demand for luxury vehicles such as the Audi A4 and A6 and BMW 3-series is also expected to augment European sales for Lear, which generates around 40% of its net revenues from Europe and Africa. Luxury vehicles require higher seating content and a relatively more complex electrical structure, which is why higher proportionate sales of these vehicles expanded Europe and Africa unit’s content per vehicle by 9.5% in Q3, and could do the same again this quarter. Going forward, Lear will look to further penetrate the luxury interiors space to boost its average content per vehicle. One step in this direction is the acquisition of Eagle Ottawa, the world’s largest supplier of premium automotive leather. The deal, expected to close in Q1 this year, will cost Lear around $850 million. Eagle Ottawa generates around $1 billion in revenue, and is the leather supplier for over 50% of all cars in the U.S., including many for GM and Ford. Lear has come a long way since filing for bankruptcy in 2009, in the thick of the recession. Net sales for the automotive interiors supplier rose 67% between 2009-2013, and with key European markets returning to growth last year, net revenues in 2014 could have risen by another 8.5-10%. Flush with cash, Lear is now looking to acquire companies that could strengthen its portfolio, and help the company compete better with other automotive suppliers. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Harley-Davidson Pre-Earnings: Expect A Strong Finish To The Year
  • By , 1/28/15
  • tags: HOG TM HMC
  • Harley-Davidson (NYSE:HOG) is scheduled to announce its Q4 and full-year results on January 29. Following the second quarter results announcement, Harley lowered its full-year outlook on motorcycle shipments, from the previously estimated 279,000-284,000 units to 270,000-275,000 units, up 3.5-5.5% from 2013 levels. This was mainly as growth in Europe and some emerging markets was offset by lower volume sales in Japan, Canada, Latin America, and most importantly, the U.S.  The Milwaukee-based motorcycle manufacturer looked to protect its premium brand image by keeping supply in line with demand in the latter part of 2014, as retail sales in the U.S. remained flat in Q2, while shipments to dealers rose 10%. The domestic market forms approximately two-third of the net bike shipments for the company, which is why fluctuations in demand in the country play a major role in shaping Harley’s overall results. As expected, through the middle of 2014, Harley’s stock took a hit, with Q3 shipments falling 6.2% year-over-year.  However, after bottoming-out at approximately $55 in October, the company’s stock price has since rallied to reach $65, where the stock was trading this time last year. The company has looked to increase shareholder return in the last year through share repurchases and a higher dividend per share, which is up 30% year-over-year through Q3. Another important point in discussing Harley’s cash flows and possible shareholder return, is the company’s improving profitability. As a large motorcycle manufacturer, Harley has large fixed costs, and consequently uses a high degree of operating leverage.  Despite a significant fall in shipments in Q3, the motorcycle division’s margins rose to 21.3% through September, up from 19.2% in 2013, on a high number of shipments in the first two quarters, benefits of the restructuring that was completed in 2013, and positive product mix.  Revenues for the motorcycle division rose 7.34% through September, and with an expected rise in retail sales in the U.S. in Q4, and continual strength in Europe sales, which have recovered well this year, we expect a strong finish to the year for Harley-Davidson. Our current price estimate for  Harley-Davidson stands at $65, which is roughly in line with the current market price. See our full analysis for Harley-Davidson Domestic Motorcycle Sales To Bounce Back What underscores our estimate of positive Q4 shipment results for Harley is an expected rise in retail sales in the U.S.  After retail sales in the country remained essentially flat to slightly positive in the first half of the year, volumes rebounded to a 3.4% growth in Q3 on the back of pent-up demand and new model launches. Wholesale shipments are what go down in Harley’s books as revenues earned, and the company held off shipping motorcycles to dealers in Q3 in order to sell-off inventory from the previous quarter, which is why the third quarter’s income statement appeared weak.  The 3.4% retail sales growth was in fact a milder reflection of the strong volumes in the last quarter, as the company was cycling the strong 20% retail sales growth in the country in Q3 2013, following the launch of the iconic Project Rushmore bikes in August that year.  Retail sales are expected to remain strong again this quarter owing to the strengthening U.S. economic environment and higher consumer purchasing power, as oil prices have fallen approximately 60% since June of last year. Harley expects to ship 46,500-51,500 motorcycles in the last quarter, flat to 10% above the last year’s fourth quarter shipments of 46,618 motorcycles. We expect the motorcycle manufacturer’s volume sales in Q4 to rise by a high single-digit percentage, boosted by higher availability of the Street motorcycles and the revamped Road Glide. The two main reasons why volumes were weak in Q2 were the absence of the touring motorcycle Road Glide from the 2014 model year and low availability of the much anticipated lighter weight Street motorcycles. Potential Sportster buyers also decided to wait for the Street launch to compare the varying features and make an informed buying decision. Harley managed to overcome these obstacles in Q3, with the launch of the new Road Glide along with other 2015 model year launches in August. In fact, the Road Glide was the highest selling bike from the new model year, but only constituted 4% of the net retail sales in the quarter, down from 8% in Q3 2013. This was because the model was only available since the latter part of the quarter. Full availability of the Road Glide is now expected to spur domestic sales in Q4. Harley also removed the bottlenecks that limited availability of the Street bikes in the U.S. in Q2, thereby witnessing strong growth in Street and Sportster sales in the country through the third quarter. The company could sell an incremental 7,000-10,000 Street units for the full year, across the U.S., India, Italy, Spain, and Portugal, moving it closer to the higher net shipment estimate of 275,000 units in 2014. Europe Sales Return To Growth In 2014 Harley’s retail sales in Europe picked up by 6.3% over the previous year in the first nine months of  2014, reversing the declining trends seen in the last two years. This trend could continue into the fourth quarter, especially on the back of high sales for the Street 500 and 750, which were launched in parts of Southern Europe last year and reported encouraging initial volume sales. The Street bikes are cheaper and lighter, more suited to the tastes and preferences of the moped and scooter-riding general European customer, and with increased shipments of the model in Q4, we expects Europe sales to rise.  Harley could leverage its strong brand appeal, cheaper prices of the Street, and higher customer purchasing power to boost sales in the region. However, the Euro Zone economy has not recovered as expected in the last year, and with crude prices reaching historical lows, there is the fear of deflation looming, which could slow economic growth in the future.  2014 should see a positive turnaround in volume sales in Europe for Harley, but with the caveat of possible deflation and slow economic growth in place, volumes could return to the declining trends seen in 2012-2013 in the mid term. The U.S. forms almost two-thirds of Harley’s annual shipments, and Europe is another 15-20%, highlighting the company’s dependence on these markets. We expect a strong increase in Harley’s wholesale shipments in Q4, owing to the expected high demand for heavyweight motorcycles and the Street bikes, particularly in the U.S., which should pull-up retail sales. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Constant Contact Q4 '14 Earnings Preview: Toolkit And SinglePlatform Will Continue Driving Revenues
  • By , 1/28/15
  • tags: CTCT SFLY VRSN
  • Constant Contact (NASDAQ: CTCT), the digital marketing service provider for SMEs (Small and Medium Enterprises), is set to release its fourth quarter earnings on January 29th. The company displayed a 16% year-on-year growth in its revenue to $243 million for the first nine months of 2014.  The introduction of Toolkit as an “integrated online marketing suite” in the first quarter of 2014, coupled with SinglePlatform’s (Constant Contact’s digital listing service) display of 100% year-on-year top line growth, are the primary reasons for Constant Contact’s revenue growth. The healthy top line growth trickled down to the bottom line too, with Constant Contact registering a  whopping 200% year on year growth of net income to $8 million. Gross margins showed a 150 basis point improvement while net margins displayed a 200 basis point growth for 9M FY14, versus the prior year. The three revenue drivers for Constant Contact are: new customer additions, Average Revenue Per User (ARPU), and customer retention. For the first nine months of 2014, Constant Contact performed well in terms of all three drivers. The company experienced 50,000 gross new unique customer additions for each of the first three quarters of 2014. The customer base stood at 625,000 at the end of the third quarter of 2014 (7% year-on-year growth). The ARPU for Q3 2014 increased to $44.89 displaying an 8% year-on-year growth. Customer retention stood at approximately 98%. Based on September and October results, Constant Contact’s management expects the ARPU in the fourth quarter to reach the $46 to $47 range. The management believes that the main reasons for ARPU acceleration would be: 1) continued gains from Toolkit, 2) a seasonally strong quarter, 3) refinement in pricing, 4) migration of existing customers to Toolkit, and 5) SinglePlatform’s continued growth. The company’s full year revenue guidance lies between $331 million to $331.4 million, with a 16% year-on-year growth. Adjusted EBITDA margin is expected to be at 18.2%, representing a 200 basis point increase year to year. For 2015, Constant Contact expects revenues and EBITDA margins to grow year on year by 17% and 150 basis points, respectively. Our price estimate of Constant Contact at $30.45 is at around 20% discount to the current market price. See our complete coverage of Constant Contact In Line With Its Previous Performance, Toolkit Is Expected To Positively Impact The Q4 Earnings Too Toolkit helps small businesses and non-profit organizations to launch multiple campaign types across high-return marketing channels, such as email, social media, mobile access and the Web. This bundled offering has three different packages: Basic, Essential and Ultimate. The base versions of these packages are priced at $20 a month, $45 a month and $195 a month respectively, and have limited contact list sizes. In addition to the differential pricing on these base packages, the company also has a contact list-based pricing structure across all three packages that is priced upon the underlying base package. So far, the developments and impacts related to Toolkit are as follows: Improved customer engagement, higher ARPU,  increased retention rates, and increased lifetime customer revenue has been observed from Toolkit’s customers. The company is on a path of rapid transition where it is refining the positioning, selling, onboarding, and product experience to expand the customer base and improve the lifetime customer value. The product ‘Toolkit’ is still in the Growth stage of its life cycle and Constant Contact is undertaking constant iterations till the most optimum solution is reached. (Source: Product Life Cycle Stages) Constant Contact is planning on renaming the basic package as the E-mail package, in order to clarify the popular misconception that Constant Contact only provides E-mail marketing related services, and hence improve customer conversions. With Toolkit’s introduction, Constant Contact has broadened its scope of service offering beyond email marketing, and consequently attracted more customers and driven up the ARPU. There are also plans to add advanced automation and market savvy features into different packages. We believe, the Toolkit introduction has been a growth driver for Constant Contact and the company will reap its benefit in the fourth quarter, and in the future as well. SinglePlatform Should Boost The Q4 Earnings, As Well Constant Contact’s digital listing service, SinglePlatform, retained its growth momentum by registering an above 100% top line growth year-on-year, with significant growth for all the revenue drivers. For the first nine months of 2014, its enterprise channel has accumulated over 4,000 customers. It has expanded its client base beyond the restaurant vertical to spas and salons, yoga studios, florists, pet care etc. SinglePlatform was chosen by Facebook in Q2 2014 as the platform to display menus, specials and other information for restaurants in the US and Canada. Hence, millions of Facebook users in the US and Canada will access SinglePlatform in seeking the pages of restaurants in which they have an interest. Also, SinglePlatform gained 11 enterprise deals, each with above 100 locations, in the second quarter. Constant Contact’s Affordable Marketing Tools And Constant Upgrades Will Keep Drawing In New Customers Email marketing’s popularity was evident for Constant Contact recently, as it recorded its  largest email send day on Cyber Monday 2014, when it sent more than 365,000,000 emails. Constant Contact’s typical customers are small businesses, which lack dedicated budgets marked for marketing initiatives. As opposed to traditional offline marketing solutions, online marketing tools provide businesses with immediate impact on a large scale at low prices. The prospects of gaining a wide reach with relatively low spending is driving growth for digital marketing among small enterprises. The growth of digital marketing in turn will continue boosting Constant Contact’s growth in sales and profitability. The improving economic scenario in the domestic U.S. market could help small and medium enterprises build scale. Constant Contact caters primarily to the SME business space, and should be able to leverage upon the growth of the U.S. small and medium enterprise market, to dynamically grow its own ARPU levels going forward. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    Market Share Gains May Not Save Colgate-Palmolive’s Q4 Results from Currency Headwinds
  • By , 1/28/15
  • tags: CL PG UL KMB EL
  • Oral care leader  Colgate-Palmolive (NYSE: CL) is slated to report its fourth quarter and full year earnings on January 29th. The company’s performance in the third quarter was battered by currency headwinds, which wiped out volume growth derived from market share gains. Given that approximately 80% of its revenues originate from outside the U.S., including more than half from emerging markets, the trend is expected to carry into the fourth quarter also. Consensus estimates for Colgate-Palmolive’s full year revenues stand at $17.3 billion, marginally lower than 2013 revenues of $17.4 billion. The impact of adverse currency movements tricked down to the bottom line also, although the company has been able to offset it by curtailing advertising investments. Non-GAAP operating profit, which excludes restructuring costs, was $3.1 billion in the first nine months of 2014, which is an expansion of 2% compared to the same period previous year. However, additional restructuring costs of approximately $25 million are expected in the fourth quarter, which will further drag down GAAP operating profit and therefore, GAAP EPS. See our complete analysis of Colgate-Palmolive here Market Share Gains May Not Be Enough to Offset Currency Headwinds Colgate-Palmolive has been steadily gaining market share in nearly all its major segments. It achieved volume growth of 3% in the first nine months of 2014, led by strong volume growth in its primary oral care business. The company increased its market share in the toothpaste, manual toothbrush and mouthwash categories in nearly all major regions, which helped it weather currency headwinds of 450 basis points on revenue. It is worth noting that Colgate-Palmolive achieved the aforementioned volume growth despite slowing consumption in key emerging markets like China and Brazil. This is because, unlike competitors like Procter & Gamble (NYSE: PG), whose products are targeted at the premium segment, most of Colgate-Palmolive’s products are targeted at the mass category. Consequently, the lower prices drive demand even during a sluggish economic environment. However, the company has admitted that the ongoing adverse foreign exchange movements are likely to take a toll on its fourth quarter revenues. The likelihood of Colgate-Palmolive’s bleak short term prospect is underscored by the poor fourth quarter performance of its key competitor in emerging markets, Unilever (NYSE: UL). Like Colgate-Palmolive, Unilever derives more than half of its revenues from emerging markets, most of which are currently facing weakened home currencies against the US dollar. In Unilever’s case, currency headwinds depressed revenue growth by as much as 4.6 percentage points (Read: Unilever’s Revenues Decline in 2014 on Emerging Markets Slowdown, Profits Jump on Cost Savings ). Colgate-Palmolive is expected to face a similar level of headwinds in the fourth quarter. Price Growth and Cost Savings May Stabilize Margins The impact of adverse foreign currency movements was also felt on margins during the first nine months of 2014. The strengthened dollar resulted in higher raw material and packaging material prices outside of the U.S., which accounts for 80% of the company’s revenues. Colgate-Palmolive was able to partially offset such commodity cost inflation by higher selling prices and cost savings, as a result of which non-GAAP gross margin remained flat at 59% during the nine months compared to the same period previous year. Non-GAAP operating margin, after adjusting for Venezuela and the 2012 restructuring costs, appreciated by over 50 basis points year-on-year. The stable non-GAAP gross margin and improvement in non-GAAP operating margin were primarily a result of sustained pricing growth and cost savings resulting from the Funding the Growth program. The company achieved pricing growth was 1.5% in each of the three quarters, which boosted gross margin by 60 basis points. Funding the Growth initiatives improved gross margin by 180 basis points, while savings from the 2012 Restructuring program provided another 20 basis points improvement. Continued successful implementation of the above measures may allow Colgate-Palmolive to protect its bottom line from currency headwinds. The company has also stated that over it plans to further reinvigorate margins by prioritizing investments in higher margin businesses, specifically the Oral Care, Personal Care and Pet Nutrition divisions. Acquisitions and Divestitures: Conspicuously Absent So far, Colgate-Palmolive seems to have chosen to not follow the ongoing trend of shedding non-core businesses in the personal care industry (Read: Personal Care Companies Shed Weight in 2014 ). P&G leads this trend with its strategy of shedding as many as 100 of its non-core brands, including its pet nutrition business. Similarly, Unilever is gradually stepping away from its foods business, while Kimberly-Clark (NYSE: KMB) has spun off its healthcare business into a separate company. Unlike its competitors, Colgate-Palmolive has not indicated any intention of divesting its non-core pet nutrition business. To the contrary, when revenue growth from this segment fell to 2% in 2012 and 2013, the company enforced measures to revive the business. The measures seem to have paid off and the company was able to turn around the segment in the second quarter of 2014, achieving a year-on-year growth of 5.5%. However, it is worth noting that each of its key competitors is following similar tactics to boost top line growth in the face of consumption slowdown. In contrast, Colgate-Palmolive has so far not provided any broad strategy for dealing with the faltering growth. Thus, investors will look to the fourth quarter earnings reports to gain an idea of the company’s strategy for countering slowing growth and increasing competition. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Time Warner Cable Q4 Preview: Broadband Growth Will Compensate For Loss Of Pay-TV Revenue
  • By , 1/28/15
  • Time Warner Cable (NYSE:TWC) will report its fourth quarter earnings on January 29th. The company had earlier lowered the revenue guidance for the year primarily due to its Los Angeles Dodgers regional sports network failing to gain carriage with major Pay-TV operators. We expect the company’s Pay-TV subscriber base to continue to shrink in this quarter and beyond. In contrast, we expect steady growth in the broadband operations driven by rising residential and business demand for high-speed data services. In the recent past, the company has seen rapid growth in its business services segment with revenue growth of approximately 23% for the first nine months of 2014. We expect this uptrend to continue in the near term, driven by higher demand of bundled packages especially for small and medium sized enterprises.
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    American Announces $2 Billion Share Buyback As Lower Oil Prices Lift Profit
  • By , 1/28/15
  • tags: AMR
  • American Airlines (NASDAQ:AAL) will buy back shares worth $2 billion through 2016 as lower oil prices lifted its fourth quarter profit to a record $1.1 billion. During the fourth quarter, global crude oil prices fell sharply – from over $95 per barrel (Brent) in early October to under $60 per barrel by the end of December. As American does not hedge fuel prices, it was able to fully realize the benefit from this steep fall in crude oil prices. Many other airlines were forced to buy jet fuel at higher than market rates in the fourth quarter due to their hedging positions, which prevented them from getting the entire benefit from the fall in crude oil prices. American’s fuel expense fell by about 20% or $534 million annually in the fourth quarter, lifting its profit. This strong fourth quarter performance enabled American to complete a very successful first year of its merger with US Airways. For full year 2014, American reported a profit, excluding special items, of $4.2 billion, leading other airlines in a strengthening U.S. airline industry. Looking ahead, with crude oil prices (Brent) persisting around $50 per barrel, American expects to spend about $1.71-1.76 per gallon on jet fuel in the first quarter of 2015, down from $2.52 per gallon that it spent in the fourth quarter of 2014. So, American’s fuel expense will likely continue to fall in the first quarter if crude oil prices do not sharply rise in February and March (which is unlikely in our opinion). Additionally, with oil production rising from the U.S. and OPEC not resorting to production cuts, the supply glut in the oil market is likely to persist for the foreseeable future, maintaining pressure on crude oil prices. So, 2015 is shaping up to be an even better year for American.
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    Corning Earnings: Large Screen TVs, FTTH And Gorilla Glass Drive Corning’s Top Line
  • By , 1/28/15
  • tags: GLW SSNLF
  • Corning (NYSE:GLW) announced its fourth quarter and annual results on Tuesday, January 27. The company reported 23% year-on-year growth in GAAP revenues, to cross $2.4 billion, driven by its Display Technologies, Optical Communications and Specialty Materials segments. Its Life Sciences and Environmental Technologies segments grew in low and mid-single digits, respectively. Corning’s net profits increased a staggering 135% primarily due to the integration of Corning Precision Materials, an increase in income from foreign currency transactions and hedging gains. Looking at Corning’s core results, which excludes the impact of foreign currency and other special items, its revenues grew 30% year-on-year, crossing $2.6 billion and beating market estimates by $100 million. Corning beat earnings per share estimates as well, by $0.07, to reach $0.47. The market reacted positively to the earnings and revenue beat, pushing the stock up by 3.43% by the end of the day.
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    Juniper Earnings: Profit Beats On Cost Cuts, Sales Still A Concern
  • By , 1/28/15
  • tags: JNPR CSCO VZ T
  • Juniper (NYSE:JNPR) reported mixed Q4 and full year 2014 earnings on Tuesday, January 27. Although net revenue for the fourth quarter declined 13.5%  year-over-year (y-o-y) to $1.10 billion on account of sluggish demand from service providers in the U.S., it was better than market expectations of $1.01 billion (consensus analyst estimates compiled by Thomson Reuters) and the company’s own guidance of $1.025-$1.075 billion. The company’s stringent cost cutting measures in the last few quarters helped cut down operating costs by about 10% in Q4, which helped post better-then-expected profits. After adjusting for non-GAAP items such as impaired goodwill and restructuring costs, Juniper reported Q4 net income of 41 cents a share in the fourth quarter, marginally lower than that reported in Q4 2013 (43 cents) and easily beating consensus estimates of 31 cents. In terms of businesses, all three divisions – Routing, Switching and Security – registered double-digit declines across geographies in Q4 2014 over the same period last year. For full year 2014, Switching was the only division registering growth (13%), while Routing and Security reported a decline of 4% and 18% y-o-y, respectively. To counter declining Security sales, the company stated that it was moving away from point-based solutions towards integrated solutions covering a gamut of problems across switching, routing and security domains. In terms of geographies, the company recorded growth only in the Americas, with Asia-Pacific sales declining by 8% y-o-y. On the cost side, the company stated that its adjusted operating expenses in the quarter were $465 million, down $74 million from the prior year quarter and reflecting the successful ongoing implementation of its ”Integrated Operating Plan (IOP)” that it launched in February 2014. In terms of guidance,  the company said that it was expecting overall revenues of $1.2-$1.6 billion for the first quarter of 2015. It cited sluggish service provider demand in the U.S. for its cautious stance on revenue guidance and expects it to improve only towards the latter half of the year. Juniper’s clients in the U.S. include wireless majors Verizon (NYSE: VZ) and AT&T (NYSE: T). Our  $28 price estimate for Juniper is about 15% ahead of the current market price. We are in the process of updating our model in light of these earnings.
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    Apple Has Stellar Quarter, But Should Increasing Reliance On iPhone Be A Concern?
  • By , 1/28/15
  • Apple (NASDAQ:AAPL) posted a solid set of Q1 2015 results on January 27, handily beating market expectations on revenues and earnings. As expected, the company’s new flagship iPhones were the key driver of results, owing to robust shipments to both developed and emerging markets and higher average selling prices. However, the performance of the other major product lines was mixed. The iPad continued to be impacted by a slowing tablet market and cannibalization from the new iPhones, although the Mac saw reasonably strong growth, defying the shrinking PC market. Apple’s quarterly revenues grew by around 30% year-over-year to $74.6 billion, while net income grew by 37% to about $18 billion. EPS growth came in at around 47% aided by the company’s stock repurchase program. The results could have been still stronger, if not for the appreciation of the U.S. dollar. The company’s CFO noted that revenue growth during Q1 would have been 4% higher on a constant currency basis. Below are some of the key takeaways from the company’s earnings.
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    Aggressive Capacity Expansion, Lower Oil Prices Will Lift JetBlue's Results
  • By , 1/28/15
  • tags: JBLU
  • JetBlue (NASDAQ:JBLU) will announce its fourth quarter and full year 2014 results on Thursday, January 29. The low-cost airline is coming off good growth in the first three quarters of 2014 in which its profit rose to $313 million, from $121 million in the same period last year. We figure JetBlue will continue to report growth in its results in the fourth quarter on gains from aggressive capacity expansion and lower crude oil prices. Other airlines – including Delta (NYSE:DAL), United (NYSE:UAL), American (NASDAQ:AAL), Southwest (NYSE:LUV) and Alaska (NYSE:ALK) – have already reported fourth quarter results, posting strong growth.
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    AT&T Beats Estimates On Strong Subscriber Growth, Next Adoption
  • By , 1/28/15
  • tags: T VZ S
  • AT&T (NYSE:T) reported a strong set of Q4 and full year 2014 results on Tuesday, January 27, which highlighted the wireless major’s competent handling of the ongoing price war in the U.S. wireless industry.  The country’s second largest wireless carrier added 854,000 postpaid subscribers and about 1.3 million connected devices during the fourth quarter, more than double the figure from a year ago. The carrier’s strategy to combat the innovative initiatives of rivals with equipment financing plans of its own worked well, as Next accounted for about 58% of its postpaid smartphone gross adds and upgrades in Q4, compared to a 50% take rate in the previous quarter. AT&T’s overall revenues grew by about 4% year-on-year (y-o-y) to about $34.4 billion, which was above the Thomson Reuters-compiled analyst consensus of $34.27 billion. The moderate revenue growth can be attributed to the transition to no-subsidy plans, which shift revenue recognition from service to equipment (handsets), and a higher proportion of bring-your-own-device (BYOD) gross adds. On the cost side, the carrier’s wireless EBITDA margin declined from 31.8% in Q4 2013 to 26.4% in Q4 2014 on increasing adoption of mobile share value plans, subscriber shifts towards the no-subsidy model, rising promotional activities and the Leap acquisition. However, after adjusting for Leap and Alltel integration costs, the wireless EBITDA margin improved 115 basis points y-o-y to 27.9% in the fourth quarter. Pricing pressures due to rising competition impacted wireless net income, which declined about 19% to $3.2 billion. Overall, the company reported a net loss of about $4 billion in Q4 2014 compared to a profit of $6.9 billion in the prior year quarter on account of certain actuarial losses related to the company’s benefit plans, write-offs related to certain network assets, DirecTV transaction costs and loss on the sale of some properties in Connecticut. Adjusting for such items, AT&T reported earnings per share of 55 cents in the quarter, compared to 53 cents in Q4 2013. We have a  $36 price estimate for AT&T, which is about 10% ahead of the current market price.
    5 Senior Housing REITs Raising Their Dividends
  • By , 1/28/15
  • tags: SPY TLT
  • Submitted by Sizemore Insights as part of our contributors program 5 Senior Housing REITs Raising Their Dividends by  Charles Lewis Sizemore, CFA Want to invest on the right side of one of the biggest demographic shifts in history? Try senior housing REITs. 10,000 Baby Boomers turn 65 every day, and over the next 15 years, the number of Americans over the age of 50 will  swell to 132 million .  This means unprecedented demand for everything from active retirement communities with golf and tennis lessons to assisted living with full-time nurses. This is fantastic news if you happen to be a senior housing landlord—and with the plethora of publically-traded senior-themed REITs, you can, indeed, be a landlord.  Today, we’re going to look at the senior housing REITs best positioned to profit from the graying of America. I should be clear on one point: Investing based on demographic trends is a long-term strategy.  But your patience is likely to be rewarded.  In their  groundbreaking 2005 paper on demographics and industry returns, professors Stefano DellaVigna and Joshua Pollet found that, over time horizons of five to ten years, each additional point of annual demand growth due to demographic factors led to a 5%-10% jump in annual abnormal industry stock returns.  But over periods of five years or less, demographics had little impact on stock returns.  With demographic trends, patience is key. With that said, let’s jump into some of the best potential long-term senior REIT buys. LTC Properties LTC Properties, Inc. ( LTC ) invests primarily in the long-term care sector of the health care industry, including long-term care provider properties, skilled nursing properties, assisted living properties, independent living properties and memory care properties.  LTC also invests in first-lien mortgages secured by long-term care properties. A little over 80% of LTC’s portfolio is invested in properties with the remainder in mortgages.  And among properties, skilled nursing is the biggest single segment, at 55%.  Assisted living comes in second at 37%. With any health-related stock, you have to address the issue of Medicare.  It’s no secret that the U.S. government is short of funds these days, and Medicare cutbacks have been an unfortunate outcome. But that is what makes LTC such an attractive way to play the trend of Boomer aging.  LTC is a  landlord, not a care provider, so Medicare cutbacks will have little impact on revenues.  And even better, most of LTC’s properties are leased under triple-net leases, meaning the tenant covers taxes, insurance and maintenance. LTC’s monthly dividend works out to a current yield of 4.3%, making it competitive with other medical REITs.  And importantly, LTC is a serial dividend raiser. Over the past five years, LTC has grown its dividend at a 9.3% annual clip. Had you bought LTC five years ago and held until today, you’d be enjoying a yield on cost of 6.9%. Not bad! Ventas Next up is one of the bluest of blue-chip REITs, Ventas, Inc. ( VTR ) —one of the few REITs included in the S&P 500. With a market cap of $23 billion, Ventas is one of the largest holdings in most REIT index funds. Due to its sheer size, Ventas cannot grow at the rate that some of its smaller rivals can. But with its size comes stability and financial strength. 56% of Ventas property portfolio is invested in senior housing, split between 26% in “triple net” properties, 26% in domestic operating properties, and 4% in international operating properties. Another 19% of the portfolio is invested in post-acute care facilities, 15% is invested in medical office buildings and the rest is spread among hospitals, loans and other properties. So, in Ventas, you get a nice, diversified sampling of the facilities that aging Boomers will be using in the decades ahead. Ventas sports a lower current dividend yield of 4.1%. And like LTC, Ventas is also a serial dividend raiser. Ventas has grown its dividend at a 7.5% annual clip over the past five years. Had you bought Ventas five years ago and held until today, you’d be enjoying a yield on cost of a very respectable 5.5%. Health Care REIT Another option would be  Health Care REIT ( HCN ) .  Like Ventas, HCN is big, with a market cap of $28 billion. It’s also one of the view REITs in the S&P 500. From its name, you might assume that HCN was primarily a play on hospitals and doctor’s offices, but it’s not. Only about  36% of the property portfolio by value is invested in health-related properties. About 64% of the portfolio is in senior housing, split between properties that HCN operates (38%) and those that are leased on a triple-net basis (26%). Looking at the health-related properties, medical office buildings and skilled nursing facilities make up another 16% and 14% of the portfolio, respectively, and the rest is split between hospitals and research facilities. Impressively, apart from the skilled nursing facilities and hospitals, which depend heavily on Medicare and Medicaid, HCN’s tenants have very little dependence on the government. Across its portfolio,  87% of its revenues are from private pay clients. That’s a  major positive in an era of slashed reimbursements and Obamacare restrictions. HCN sports a dividend yield of 3.7% and has been a steady dividend grower for years. Over the past five years, HCN has grown its dividend at a 3.2% clip. Had you bought HCN five years ago, you’d be enjoying a yield on cost of 4.5% today. HCP, Inc. Next up is HCP, Inc. ( HCP ), a blue-chip REIT included in both the S&P 500 Index and the Dividend Aristocrats Index following its 259 consecutive years of dividend hikes. With a $22 billion market cap, HCP is just a hair smaller than Ventas. At 37%, senior housing makes up the largest segment of HCP’s portfolio, followed by post-acute facilities at 31%. Life sciences, medical offices, and hospitals fill out the rest of the portfolio at 14%, 13% and 5%, respectively. Given its size and quality. HCP pays a very respectable dividend at 4.5%. And HCP has managed to grow that dividend at a 3.4% over the past five years. An investment five years ago would be generating a yield on cost of 5.3% today. Sabra Health Care REIT And finally, we get to Sabra Health Care REIT ( SBRA ), a smaller competitor with a market cap of $1.8 billion. Sabra owns 154 real estate properties in 34 states including 102 skilled nursing facilities, 50 senior housing facilities, and two acute care hospitals. Sabra’s properties are rented under triple-net leases, meaning that the tenants are responsible for all maintenance, taxes and insurance. 54% of Sabra’s revenues come from skilled nursing properties with 31% coming from senior living facilities. The remainder comes from acute care hospitals. Importantly, Sabra has been shifting its portfolio away from tenants that depend on reimbursement from the government. In 2013, 68% of rent revenues depended on non-private (i.e. government) payers. Last year, it was reduced to just 46%. Sabra’s history as a dividend-paying REIT is fairly short, as the company was formerly part of Sun Healthcare Group . But since 2011, Sabra has raised its dividend by 22%. The shares sport a current dividend yield of 4.7%. Disclosures: Long LTC Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the  Sizem ore Insights blog. This article first appeared on Sizemore Insights as 5 Senior Housing REITs Raising Their Dividends
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