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AT&T reported a mixed set of Q3 results on Wednesday which highlighted the wireless major's transition towards shared data plans and the no-subsidy model. The carrier added about 785,000 postpaid subscribers and 1.28 million connected devices during the quarter, almost double the figure from a year ago. In our earnings note we discuss the results as well as our outlook for the company.

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

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Facebook Pre-Earnings: Expect Growth Momentum To Continue
  • By , 10/24/14
  • tags: FB TWTR
  • With  Facebook’s (NASDAQ:FB)  stock rising by 30% over the last six months due to impressive results, many investors will be on their heels on October 28, to see if the company can keep its growth momentum intact with Q3 2014 earnings. The company posted 61% revenue growth in the second quarter, along with a 17 percentage point improvement in the GAAP operating margin. We expect the company to show solid results in the third quarter as well, fueled by its strategy to focus on mobile devices, improve ad products and grow the number of marketers on the platform. However, the growth rate could slow somewhat in sequential terms in the third quarter due to tougher comps. While we expect profitability to improve in the third quarter as well, we’d like to remind investors that various factors such as incremental operating costs due to closing of WhatsApp and Oculus acquisitions, along with rise in core operating expenses will weigh on the company’s profitability post Q3. In terms of revenue growth, we believe there is huge long-term potential for the company to expand its advertising revenue from the U.S. and abroad. Building out the eco-system (which comprises of several entities such as WhatsApp and Instagram) and enhancing online video advertising will further propel top-line growth for the company in the long-term. Our price estimate for Facebook stands at $65.50, implying a discount of about 20% to the market. We forecast Facebook’s revenue and EBITDA to grow meaningfully from $7.9 billion and $4.9 billion in 2013 to over $42 billion and $30 billion by the end of our forecast horizon (i.e 2021) in our model.
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    Microsoft Earnings: Hardware Sales And Cloud Services Boosts Revenues
  • By , 10/24/14
  • tags: MSFT IBM ACN
  • Microsoft (NASDAQ:MSFT) announced its earnings for Q1 FY15 on October 23. (Fiscal years end with June.)  The company posted a 25% year-over-year growth in revenues to $23.20 billion, which also includes $2.60 billion revenues from Nokia’s phone division. In  our pre-earnings note, we noted that hardware sales and cloud services would boost revenues. While the devices and hardware revenue increased by 47% to $10.96 billion, Microsoft reported 128% growth in commercial cloud services, which includes Office 365, the Microsoft Azure platform, and Dynamics CRM. We also anticipated that Windows OS license sales would grow during the quarter despite little growth in worldwide PC shipment. Microsoft was able to buck the trend in PC sales as its Windows original equipment manufacturing (OEM) revenues grew by 10% year over year. Below, we review Microsoft’s Q1 FY 15 results by segment. See our complete analysis of Microsoft here Hardware Sales Bolster Revenues In  our earnings note published earlier, we stated that the device sales will drive revenue growth for Microsoft in Q1. Microsoft’s hardware revenues were buoyed by growth in Surface Pro 3 sales and Xbox-One shipments. While Surface revenues grew by 127% year over year to $908 million, the company sold 2.4 million Xbox console units compared to 1.2 million units in Q1 FY14.  As a result, revenue for hardware devices was up $1.04 billion or 74% to $2.45 billion. Phone Division Boosts Revenues Nokia acquired Nokia Devices and services (NDS) unit in the fourth quarter of fiscal year 2014. During the quarter, Microsoft sold 9.3 million Lumia phones and 42.9 million non-Lumia phones, which translated into $2.6 billion sales and $478 million in gross profits. Going ahead, we expect this division to do well, and Microsoft to report higher revenue. However, restructuring the company and integration NDS impacted margins, and the company incurred costs in tunes of $1.1 billion. Windows OS Licensing – A mixed bag While Microsoft reported that its consumer Windows licensing revenues declined by 2%, Windows Commercial volume licensing revenue grew $80 million or 10%, partly due to end of support for Windows XP. During the quarter, the company took important steps to grow Windows usage and improve the health of the ecosystem. Both its existing and new OEM partners are bringing to market an expanded set of device offerings at more competitive price points. Transition To Office 365 Reflects On Revenue Growth Consumer Office revenue declined 5%, reflecting the transition of customers to Office 365, which grew by $87 million and has over 7.1 million subscribers at present. However, commercial Office and Commercial Office 365 boosted commercial cloud revenues by 128% to $952 million. As the subscription model sets in, revenues for this division is expected to grow, and become more recurring and predictable going forward. Server & Cloud Witness Another Quarter Of Strong Adoption Microsoft’s Windows Server division is one of the fastest growing divisions of Microsoft. During Q1 FY15, server products revenue grew $406 million or 11%, driven primarily by higher premium mix of Microsoft SQL Server. Furthermore, adoption of the cloud based Azure platform also increased Azure revenues by 121%. We’re encouraged by the continual growth that this division posted, and it is becoming an important driver for Microsoft’s value. Online Service Division (OSD) The online services division did report some encouraging signs as online advertising revenue grew 14% or $129 million due to a 23% increase in search revenues as Bing’s US search market share rose 19.4% during the quarter. Furthermore, search advertising revenue improved due to increased revenue per search resulting from ongoing improvements in ad products and higher search volume. This increase was offset in part by a 9% reduction in display advertising revenue, due to continued portal traffic and monetization declines. We forecast Bing’s global market share to increase steadily throughout our forecast period but any surprises to the upside are not expected to increase the company’s value substantially. We are in the process of updating our Microsoft model. At present, we have  $41 price estimate for Microsoft, which is approximately 3% below the current market price. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Yelp Earnings: Local Business Grows, Albeit At A Lower Pace
  • By , 10/24/14
  • Yelp ‘s (NYSE:YELP) announced its earnings for Q3 FY14 on October 22 nd . The company once again reported growth as revenues increased by 67% year over year to $102 million. However, Yelp reported a substantial improvement in net income, which grew to $3.63 million. Yelp’s Adjusted EBITDA also improved significantly to $20.1 million in Q3 FY14 compared to adjusted EBITDA of $8.1 million in prior-year quarter. In sum, the company continued to report good growth across all its performance metrics. The company reported 41% growth in cumulative reviews to 67 million, and a 19% increase in average unique monthly visitors to 139 million. Additionally, the company reported high engagement on mobile devices as unique visitor from mobile increased to 73 million from 50 million. While active local business accounts increased by 55% year over year to 86,000, claimed local businesses increased to 1.9 million. Overall, we are encouraged by Yelp’s results and think that the business seems to be on the growth path. Below, we review Yelp’s Q3 FY 14 results by segment. Check out our complete analysis of Yelp Outlook for Q3 and 2014 For Q4 FY14, the company expects revenues to be in $107 – $108 million range, representing growth of approximately 52% compared to the fourth quarter of 2013. Adjusted EBITDA is expected to be in the range of $24 million to $25 million. For the full year, Yelp has announced an improvement in guidance, and projects net revenue to be in $375 – $376 million range, while adjusted EBITDA should be in $69.5 – $70.5 million range. International Expansion Boosts Revenues and Costs The local ads division makes up 80% of Yelp’s estimated value. One of the primary drivers for local ads division is the number of active business accounts on Yelp. During Q3 FY14, active local business accounts grew by 51% year over year to approximately 86,200. The primary reasons for growth in this driver are the international expansion under way and the increase in cumulative reviews on the Yelp site, which increases its appeal to advertisers and users alike. Recently, the company added Chile and Hong Kong to its addressed markets. As a result, international traffic grew over 40% year over year to approximately 30 million unique visitors on a monthly average basis. Furthermore, the company said that revenue from international markets is expected to gain traction in the coming quarters as it monetizes regions such as cohorts in Italy which were setup three years ago. We expect this expansion spree to bolster the number of active business accounts on Yelp to over 412,000 by 2021. However, we believe that as the company expands to new territories, its selling, general and administration (SG&A) and marketing costs will increase and lower company’s profitability and cash-flow as a percent of sales. Mobile To Bolster Revenues The unique visitor is one of the primary drivers for Yelp as it affect both its local ads business and Brand ads divsion, and during the quarter monthly unique visitors grew to 139 million. However, 50% of these unique visitors (~73 million monthly users) used mobile devices for accessing Yelp’s services. During the quarter, 45% of new reviews, which were close to 5 million, came from mobile devices. Considering the rampant growth in the usage of mobile devices, we expect the mobile platform to become a major revenue driver for Yelp in the futre. The growing number of consumers searching for local businesses online constitutes Yelp’s existing market, and in addition to company’s global expansion plans, we believe adoption of Yelp’s mobile platform will drive this growth in unique visitors on the Yelp site. We are currently in the process of updating our Yelp model. At present we have a  $60.44 price estimate on Yelp, which is inline with the 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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    NBCUniversal Boosts Comcast's Q3 Earnings
  • By , 10/24/14
  • Comcast (NASDAQ:CMCSA) recently posted its earnings for the third quarter with strong gains in its broadband operations. NBCUniversal benefited from solid growth in its theme parks business, driven by the higher attendance at The Wizarding World of Harry Potter. The broadcasting revenues grew 8% driven by higher advertising income and content licensing fees. The cable company lost 81,000 video subscribers as compared to 127,000 it lost in the prior year period, marking best third quarter in the past seven years. The company continued to benefit from triple play bundling and posted 5% growth in cable communication revenues. Earnings per share rose  52% to $0.99 including favorable tax adjustments. Normalized earnings grew 12% to $0.73 a share. The cable giant once again posted good results with balanced growth in its cable communication as well as NBCUniversal segment.
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    Sirius XM Earnings Preview: Subscriber Additions Can Pick Up
  • By , 10/24/14
  • tags: SIRI P
  • Satellite radio provider  Sirius XM (NASDAQ:SIRI) is scheduled to release its Q3 2014 earnings on October 28th. While the company didn’t perform too well in the first quarter, due to only moderate growth in new car sales, its subscriber growth picked up in the second quarter, driven by a 7% rise in new vehicle sales. We expect this trend to continue in the third quarter, as new vehicle sales in Q3 have grown at a faster pace than the second quarter. However, we do not expect significant improvement in Sirius XM’s new vehicle penetration rate, since it is already on the higher side (70%). Also, we expect the monthly churn rate to remain roughly stable, as it has not changed much over the past several quarters. In addition, the impact of the price increase that the company implemented in the beginning of the year is likely to be minimal, due to different billing cycles for customers. Some customers prefer an annual billing cycle over the monthly billing cycle, because they can save up to $28.89 by paying in one increment up front instead of twelve. On the profitability side, we expect Sirius XM’s margins to continue to improve, due to the operating leverage that results from topline growth. In the first two quarters of 2014, the company’s EBITDA (earnings before interest tax depreciation and amortization) margins improved by 400 basis points and 570 basis points, respectively. Our current price estimate for the company stands at $3.49, which is about 10% above the current market price.
    X Logo
    U.S. Steel Earnings Preview: Higher Steel Prices And Cost Savings To Boost Results
  • By , 10/24/14
  • tags: X MT AA
  • U.S. Steel (NYSE:X) will release its third quarter results on October 28 and conduct a conference call with analysts the next day. A better pricing environment for steel in North America in the third quarter of this year, as compared to the corresponding period a year ago, will boost the results of the company’s Flat-rolled Products segment, which accounted for two-thirds of the company’s revenues in 2013. Planned maintenace activity in the third quarter will affect production volumes and raise repair and maintence costs for the U.S. Steel Europe (USSE) segment. Results for the Tubular Products segment will suffer in the third quarter, as competition from imported oil country tubular goods (OCTGs) has diminished realized prices and margins for this segment. However, a favorable ruling from the U.S. International Trade Commission (ITC), which levied anti-dumping duties on most of these imported OCTGs, will boost the prospects of the Tubular Products segment going forward. In addition, U.S. Steel’s quarterly results will be favorably impacted by The Carnegie Way, its company-wide initiative to reduce costs and boost efficiency. See our complete analysis for U.S. Steel Steel Demand and Prices The principal consumers of steel products are the automotive, construction, appliance, machinery, equipment, infrastructure and transportation industries. The nature of business of these sectors is cyclical, with demand generally correlated with macroeconomic conditions. Thus, demand for steel products is generally correlated with macroeconomic fluctuations in the global economy. Steel prices have fallen over the last few years, driven primarily by weak demand due to adverse macroeconomic conditions in the developed economies and an oversupply situation. This is indicated by trends in the London Metal Exchange (LME) Steel Billet Prices. Over the course of last year or so, steel prices have recovered somewhat, driven by an economic recovery in the developed economies, particularly in the manufacturing sector. The Manufacturing Purchasing Managers Index (PMI) measures business conditions in the manufacturing sector of the concerned economy. When the PMI is above 50, it indicates growth in business activity, whereas a value below 50 indicates a contraction. This metric has consistently registered values of over 50 for all months in 2014 for the U.S. This indicates strong manufacturing activity in the U.S., which was reflected in U.S. Steel’s second quarter results. Average realized steel prices for the Flat-rolled Products segment, which primarily serves customers in North America, rose 7% year-over-year from $725 per ton in Q2 2013 to $774 per ton in Q2 2014. Steel demand in the North American Free Trade Agreement (NAFTA) region, which consists of the U.S., Canada and Mexico, is expected to grow by 3.8% in 2014, as compared to a 2.4% fall in demand in 2013. A strong steel demand and pricing environemnt in North America will positively impact the results of the Flat-rolled Products segment in the third quarter. The Manufacturing PMI for the Eurozone has faltered somewhat lately, indicating slowing manufacturing activity. The Manufacturing PMI for the Eurozone, which stood at 54 for January 2014, has declined to 50.3 for September. Sluggish manufacturing activity in the Eurozone was reflected in U.S. Steel’s second quarter results. Average realized steel prices for the USSE segment fell around 1.6% year-over-year from $702 per ton in Q2 2013 to $691 per ton in Q2 2014. With faltering economic growth and manufacturing activity, as indicated by the manufacturing PMI figures, steel demand and pricing is expected to remain weak in Europe. This will negatively impact USSE’s third quarter results. In addition, planned maintenance activity will reduce production volumes and increase repair and maintenance costs for the division in the third quarter. Challenges in Tubular Steel The Tubular Products segment of U.S. Steel is primarily involved in the production and sale of OCTGs. These goods serve customers in the oil, gas and petrochemicals markets. Energy related tubular products imported into the U.S. accounted for approximately 49% of the U.S. domestic market in 2013. These imported OCTGs are priced significantly lower than U.S. Steel’s tubular products. U.S. Steel and other domestic steel producers had sought the imposition of anti-dumping duties and countervailing duties against these imports, claiming that these products were priced unfairly low. Cheap OCTG imports have negatively impacted the fortunes of U.S. Steel’s Tubular Products division. Segment income from operations for the Tubular Products division fell nearly 48% from $366 million in 2012 to $190 million in 2013. This was primarily because of a fall in the average realized price for this division. Realized prices for the Tubular Products division have fallen due to competition from cheap OCTG imports. The average realized price per ton fell from $1,687  in 2012 to $1,530 in 2013, and further to $1,479 in the first half of 2014.Gross margins for the division have correspondingly fallen from 15% in 2012 to 11% and 10% in 2013 and the first half of 2014, respectively.The company had announced the idling of two facilities producing tubular steel earlier on in the year, citing difficult business conditions created primarily by the imports of tubular goods. The U.S. International Trade Commission (ITC) recently ruled that anti-dumping duties would be levied against OCTG imports from South Korea, India, Taiwan, Turkey, Ukraine and Vietnam, with imports from the Philippines and Thailand exempted from additional duties.  Imports from the Philippines and Thailand were a part of the U.S. Department of Commerce (DOC) ruling on additional duties on OCTG imports. Imports from Saudi Arabia, which were a part of the original complaint made by domestic steelmakers, were exempted from additional duties as a part of an amended final determination by the DOC. The ruling has boosted the prospects of the Tubular Products segment going forward. However, competition from OCTG imports is expected to adversely impact the division’s third quarter results year-over-year. The Carnegie Way With a subdued steel pricing environment prevailing in 2013, the company had launched an initiative known as ‘The Carnegie Way’, which is focused on cost reductions and improvements in operational efficiency. The company is expected to realize $435 million in margin improvements through this initiative in 2014. Cost savings under The Carnegie Way initiative are an integral part of the company’s strategy to remain competitive and will boost the company’s profitability. Expectations from Conference Call The company management is expected to give its outlook on shipments and price realizations for the next quarter. We would be looking at the management’s expectations for its USSE segment, in order to better understand the extent of the impact of the prevailing economic weakness in Europe upon the company’s operations. We would also like to hear from the management how the favorable ITC ruling will impact the Tubular Products segment in terms of sales and price realizations going forward. Further, details regarding initiatives to be undertaken under The Carnegie Way initiative will be of interest to us. This will throw some light on the road ahead for U.S. Steel. 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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    Daimler Earnings Review: Mercedes' Margins Expand On Favorable Mix And Strong Volume Growth
  • By , 10/24/14
  • Fueled by the strong sales-growth for the luxury vehicle division Mercedes-Benz,  Daimler AG reported a solid 10% year-over-year top line growth in Q3, and through the first nine months of the year. Mercedes, which formed 56% of the net sales, witnessed a 13% rise in sales to push the overall revenues for the quarter to 33.12 billion euros ($42 billion). This is mainly as luxury vehicle demand remained strong in the two most crucial markets for the automaker – U.S. and China. In addition, while economic concerns still cloud growth in Europe, premium vehicle volumes rose in this region as well to boost the overall results for Mercedes. But what underscored Daimler’s strong financial performance this quarter was a 47% increase in net profits to 2.8 billion euros, bolstered by the strong margin expansion at the Mercedes unit. Operating margins for Mercedes stood at 8.5%, up from 7.3% in Q3 2013, the highest figure in over two years. On the other hand, the trucks division, which forms one-fourth of the net volume sales, grew unit sales by only 1% this quarter despite a 25% volume rise in North America. This is because truck sales remain tepid this year in Europe, South America and parts of Asia. Europe sales this year are expected to remain low due to the large scale pre-buys of the Euro 5 trucks at the tail-end of last year. On the other hand, macro volatility in some of the emerging markets in South America such as Brazil and in Asia will drag down truck sales in Q4 as well, as the commercial vehicle market is impacted by economic conditions and the general business environment. This declining trend is expected to hamper full-year results for the Daimler International trucks and buses division, constituting almost 20% of the company’s net value, with over 90% of the volumes formed by trucks. We have an  $87 price estimate for Daimler AG, which is roughly 14% above the current market price. However, we are currently in the process of revising our estimates. See Our Complete Analysis For Daimler AG U.S. And China Crucial In The Race To Topple BMW And Audi Mercedes-Benz lost the global luxury vehicle sales lead to BMW in 2005, and presently sells fewer vehicles than both BMW and Audi worldwide. But the automaker looks to overtake the lead by the end of the decade through new launches and aggressive expansion into newer markets. Although the added start-up and developmental costs saw Mercedes’ operating margins fall to low-single digit percentages in 2012 and early 2013, the automaker’s product offensive strategy seems to be paying off. U.S. and China are the two most important markets for Mercedes, and the German manufacturer has expanded its production line in both these countries, particularly for compact models, gauging the high demand. Mercedes-Benz still lagged BMW and Audi in terms of global premium vehicle volumes through September, but has outpaced both its compatriots in terms of volume-growth, and could soon catch-up through accelerated sales of its compact models. Compact Saloons Drive Growth For Mercedes Compact vehicles A-, B-, CLA-, GLA- and C-Class together formed half the net volumes for Mercedes this quarter. Small-sized luxury cars and SUVs are not only volume models for the company, but also present large growth opportunities. Compared to the 9% volume growth for Mercedes in Q3, compact model volumes rose by 19%. Smaller-sized luxury vehicles are highly popular as they attract a wider consumer base, comprising people who intend to buy premium vehicles but have limited resources. In the U.S., the biggest market for Mercedes, customers could look to trade-in their non-luxury large sedans for entry-level luxury sedans. Large sedan sales fell 5% in the country in the first three quarters, while luxury car sales rose 3%. Mercedes looks to grab a considerable portion of the compact saloon demand, and for this purpose, extended production in its U.S. plant to include the new model year of the C-Class. The C-Class is the first sedan to be produced in the company’s U.S. plant in Tuscaloosa, Alabama, which manufactured only the SUVs M-, R-, and GL-Class before this. For this purpose, the automaker spent over $2 billion on the Alabama plant to expand capacity for the C-Class along with other models. Local production of this model allows Mercedes to save added costs such as import taxes and transportation expenses, and mark down the model prices due the absence of these additional costs, making the car relatively more affordable. By manufacturing closer to the end customer, Mercedes could expand margins by sourcing materials locally and evading aforementioned incremental costs. Apart being a cost-effective measure, the launch of the C-Class can now help Mercedes regain its luxury lead in the U.S. this year, after losing out to BMW in the first nine months. Following the introduction of the new C-Class at the end of August, Mercedes outsold BMW in the U.S. in September, growing unit sales by 10.6% year-over-year, with the C-Class constituting 23% of the net volumes. On the other hand, China volumes formed 18% of the net volumes, and continued to outpace volume growth in any other market for Mercedes. With just over 200,000 units sold in the country so far in the year, Mercedes still sold less than half the vehicles sold by Audi in the country. However, further expansion in China, especially through local production of highly popular smaller luxury sedans could help Mercedes encroach upon competitor market share in the country. Daimler recently announced plans to extend partnership with the Chinese BAIC Motor, investing around $1.27 billion for localization of additional compact sedans other than the GLA in China. Both the companies will jointly invest around $5 billion through 2015 to increase automotive production in China. In addition, the new C-Class, locally produced in Beijing, also started selling late in August in China, and its first full quarter of availability in the country in Q4 could boost Mercedes’ overall results. Mercedes’ Margins Expand, As Expected Apart from the strong volume growth for Mercedes, what bodes well for the brand is that operating profit margins expanded to 8.5% this quarter, up sequentially from 7.9% in Q2. Although this figure is still below the 10.5-11.5% operating margins expected for BMW and Audi this quarter, Mercedes could reach its near to mid term target of 9-10% operating margins in the coming quarters. Margin growth stalled for Mercedes previously as the brand’s product offensive strategy, including the launch of 30 models between 2014 to 2020, called for large start-up costs and research and development expenses. As the company looks to reap the benefits of local manufacturing and extends volume sales on the back of the new model launches, margins could expand further. A favorable product mix is also one of the reasons why Mercedes’ margins could reach above 8.5% in the fourth quarter. Sales of the relatively more expensive S-Class sedan, which carries fatter margins, almost tripled this quarter to 28,200 units. The company also launched the S-Class Coupé and the S 500 plug-in hybrid at the end of last month in Europe, and stronger sales of these models could push Mercedes’ average revenue per unit higher in the last quarter. 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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    Freeport Earnings Preview: Higher Volumes To Boost Copper Mining Results
  • By , 10/24/14
  • tags: FCX ABX NEM RIO
  • Freeport McMoran Inc. (NYSE:FCX) will report its third quarter results and conduct a conference call with analysts on October 28. We expect higher volumes from the company’s Morenci copper mine in Arizona to positively impact the results of its copper mining operations on a year-over-year basis. However, lower oil prices will weigh on the results of the company’s oil and gas division. Freeport announced the resumption of its mineral exports from Indonesia in August, ending a near seven month suspension of its exports from the country. The company had been negotiating with the Indonesian government over new regulations governing mineral exports from the country that came into effect in January. The resumption of exports, albeit under new regulations, will positively impact the company’s flagging copper shipment volumes from its Indonesian mining operations. See our complete analysis for Freeport McMoran Copper Mining Operations Freeport will report higher copper shipments in the third quarter as compared to the corresponding period a year ago. The company’s copper shipments will be boosted by the ramp up of milling rates at the expanded Morenci Mill, located in Arizona. Higher volumes from Freeport’s North American copper mining operations will more than make up for the loss in volumes from Indonesia as a result of suspended exports in July. The North American copper mining operations are expecetd to report copper shipments of around 900 million tons of copper in the second half of 2014, as compared to around 700 million tons in the corresponding period last year. Restrictions on the company’s exports from Indonesia resulted in a fall in copper shipments from its Indonesian operations from 158 million pounds in Q2 2013 to 117 million pounds  in Q2 2014. The export restrictions in Indonesia  resulted in the deferral of 150 million pounds of copper and 240,000 ounces of gold shipments in Q2 2014. With the resumption of the company’s exports from Indonesia, shipment volumes will rise significantly. Copper prices in the third quarter this year are at similar levels as in the corresponding period a year ago. London Metal Exchange (LME) spot copper prices averaged roughly $7,000 per ton in Q3 this year, as well as in the corresponding period last year. With Freeport expected to report higher copper shipments in the third quarter on a year-over-year basis, we expect the company’s copper mining revenues, which constitute the bulk of its revenues, to rise. Oil and Gas Operations Freeport’s Oil and Gas division is expected to report lower year-over-year quarterly revenues and profits, as a result of lower volumes as well as realized prices in the third quarter, as compared to the corresponding period last year. The company sold off its Eagle Ford shale assets in the second quarter. The Eagle Ford shale assets accounted for 4 million barrels of oil equivalents, or 25% of the company’s second quarter oil and gas sales of 16 MMBOE. Price realizations for its Oil  and Gas divsion will fall on a year-over-year basis due to a fall in oil prices. Brent Crude spot prices averaged roughly $110 per barrel in the third quarter of 2013, as compared to around $100 per barrel in the third quarter of this year. 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. China, the world’s largest importer of oil, is expected to witness a slowdown in GDP growth to 7.3% and 7.1% in 2014 and 2015 respectively, from 7.7% in 2013.. Lower oil prices will negatively impact the procpects of Freeport’s Oil and Gas division. Other Developments Earlier on in the month, the company had announced the sale of its Candelaria and Ojos del Salado copper mines in Chile to Lundin Mining Corporation for $1.8 billion and a contingent consideration of up to $0.2 billion. These mines accounted for around 10% of the company’s consolidated copper production of approximately 4.13 billion pounds of copper in 2013. As on December 31, 2013, the mining complex accounted for 3.4 billion pounds in proven and probable reserves, which translates into roughly 3% of the company’s consolidated proven and probable reserves. The company estimates that it would realize after-tax net proceeds of approximately $1.5 billion from the transaction, excluding the contingent consideration. The focus of this transaction is to use the proceeds to pare down the company’s heavy debt burden. At the end of the second quarter, the company’s total debt stood at $20.3 billion, with around $1.5 billion in cash and cash equivalents. The company is targeting a reduction in its total debt to $12 billion by the end of 2016. Thus, there is still a long way to go for Freeport in its debt reduction efforts. 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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    Twitter Pre-Earnings: Strong Growth In Monetization And Active User Base Is Expected
  • By , 10/24/14
  • tags: TWTR FB LNKD
  • Twitter (NYSE:TWTR) is scheduled to report its Q3 2014 earnings on Monday, October 27th. The company’s stock has run up in the past few months as the last quarter’s results showed acceleration in revenue growth and active user base growth, coupled with significant improvement in the adjusted EBITDA margin. Though impressive, the second quarter results were partially driven by the FIFA World Cup, as higher engagement propelled user growth and international ad pricing. We believe that, in the third quarter earnings release,  the company will continue to report strong growth across most metrics, along with improvement in non-GAAP profitability margins. However, in the long-run, we believe Twitter will have to show massive growth in its active user base and bring its monetization rates to levels comparable to its industry peers to justify the current market valuation. Our price estimate for Twitter stands at $32, implying a discount of about 35% to the market price. We currently forecast total revenue and the EBITDA margin to increase to $6 billion and 51% by the end of our forecast period (2022). However, were these figures to reach $8 billion and 55% by 2022, our valuation of the company’s stock would increase by about 35%.
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    Lockheed Boosts Stock Repurchase As Weak U.S. Military Spending Pressures Its Top Line
  • By , 10/24/14
  • tags: LMT
  • Lockheed Martin (NYSE:LMT) has said that it will reduce its outstanding share count to below 300 million over the next 3 years from roughly 315 million currently. The company outlined this buyback strategy while announcing its third quarter results in which its top line continued to fall due to weak U.S. military spending. At an average share repurchase price of $175, this stock buyback program will return approximately $2.6 billion to Lockheed’s shareholders over the next 3 years. Additionally, last month, Lockheed raised its fourth quarter dividend by 13% to $1.50 per share. We figure this solid return of cash to Lockheed shareholders through stock buyback and dividends is helping address investor concerns arising from the flat-to-declining U.S. military spending, which accounts for a majority of Lockheed’s business. At the same time, share buyback by reducing outstanding share count is enabling the company to grow its per share profit despite declining top line. In the third quarter, on gains from past cost cutbacks and a reduced share count, Lockheed was able to raise its earnings by 7% annually to $2.76 per share. But, due to lower overall contract volumes resulting from weak U.S. military spending, Lockheed’s third quarter top line fell by 2% annually to $11.1 billion. Lockheed is highly dependent on U.S. spending as it generates about 80% of its revenue from U.S. government contracts including about 60% from Department of Defense (DoD) contracts. In the first nine months of 2014, Lockheed’s revenue has declined by a little over 2% annually, and for full year 2014, the company anticipates its revenue to be around $45 billion, down from $45.4 billion in 2014 and $47.2 in 2012. Looking ahead, Lockheed anticipates its revenue to continue to decline through 2015, falling by low single-digits rate. In our opinion, this indicates that U.S. military spending hasn’t bottomed out and it could further decline in 2015. Another cause for concern is that Lockheed’s backlog is falling. The company’s backlog has steadily declined from a record $82.6 billion at the start of 2014, to $76.5 billion at the end of the third quarter. Though this decline is not very steep, the trend is a cause for concern as backlog is a crucial indicator of future revenue. In our opinion, this decline in Lockheed’s backlog again reflects the negative impact from flat-to-declining U.S. military spending. We currently have a stock price estimate of $165 for Lockheed, around 8% below its current market price. We are in the process of incorporating Lockheed’s third quarter results and shall update our analysis shortly. See our complete analysis of Lockheed here Lockheed Boosts Stock Buyback In September, Lockheed increased its share buyback authorization by $2 billion, bringing the company’s total buyback authorization to $3.9 billion at the end of September. So, we figure the company has enough capital authorized for share buyback to undertake the entire planned reduction in its share count over the next 3 years. Through the first nine months of this year, Lockheed has bought back shares worth approximately $1.6 billion, and we figure this has played a key role in growing the company’s per share earnings in the third quarter. Lockheed Is Focusing On Growing International Sales Separately, to temper the impact from weak U.S. military spending Lockheed is reducing its costs. At the start of this year, the company said that it plans to reduce its facility footprint by 2.5 million square feet through 2015. In addition, Lockheed has increased its focus on international markets to reduce its dependence on U.S. spending. We figure strong international demand for F-35 fighter jets and missile defense systems will likely help the company grow its international sales. In the third quarter earnings announcement, Lockheed said that it anticipates to generate 20% of its 2014 revenue from international sales – a target that the company had set a few years back. The company also said that it could generate nearly a quarter of its total revenue from international sales over the next few years driven by growing international sales of the F-35 jet. The F-35 program, which is the single-largest military program for Lockheed, currently constitutes about 18% of the company’s total revenue. In the third quarter, higher production volume of F-35 partially offset the negative impact from lower U.S. military spending. We figure as production of F-35 ramps up in coming years, this program will play a key role in growing the company’s results. Lockheed anticipates to produce roughly 3,000 F-35s over the next 2-3 decades. Of these, about 2,400 will likely be procured by U.S. military forces and the remaining by international partner countries, which include the U.K., Italy, Australia, Canada, Norway, Denmark, Netherlands, Turkey, Japan and South Korea. 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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    Higher Production, Lower Oil Prices To Drive Anadarko's Third Quarter Earnings
  • By , 10/24/14
  • tags: APC COP EOG
  • One of the largest independent oil and gas exploration and production companies in the U.S.,  Anadarko Corp. (NYSE:APC), is set to announce its 2014 third quarter earnings after markets close on October 28. We expect lower crude oil prices to weigh on the company’s year-on-year earnings growth. The average  West Texas Intermediate (WTI) crude oil spot price declined by almost 8% year-on-year during the third quarter on rising supplies and falling global demand growth estimates. However, spot Henry Hub natural gas prices were up more than 11% y-o-y during the last three months, which should partially offset the impact of lower crude oil prices. In addition to higher natural gas prices in the U.S., we expect Anadarko to also benefit from better sales volume mix compared to last year. This is because we expect the ongoing development of the company’s liquids-rich U.S. onshore assets to drive most of the growth in its hydrocarbon production during the quarter. Anadarko primarily operates in three segments: oil & gas exploration and production, midstream and marketing. Its asset portfolio includes positions in onshore resource plays in the Rocky Mountains region, the southern United States and the Appalachian basin. The company is also an independent producer in the Deepwater Gulf of Mexico, and has production and exploration activities globally, including positions in high potential basins located in East and West Africa, Algeria, Alaska and New Zealand. At the end of 2013, Anadarko had proven reserves of almost 2.8 billion barrels of oil equivalent. We currently have a  $111 price estimate for Anadarko, which is more than 20% above its current market price. See Our Complete Analysis For Anadarko U.S. Onshore Assets To Drive Production Growth Currently, most of Anadarko’s total hydrocarbon production (~75%) comes from its onshore assets in the U.S. The company’s net hydrocarbon production from its U.S. onshore assets has grown at more than 13.3% CAGR between 2009 and 2013. This compares to the company’s overall production growth rate of 7% CAGR over the same period. Most of the growth has come from increased horizontal drilling in the Wattenberg, Eagle Ford, East Texas/North Louisiana and the Marcellus shale plays. More importantly, the production of liquids (crude oil and natural gas liquids) from Anadarko’s U.S. onshore assets has increased at a much faster rate. In 2013, liquids made up ~32% of the company’s total hydrocarbon production from the U.S. onshore assets, compared to just around 23% in 2009. Liquids generally sell at much higher prices compared to the equivalent amount of natural gas. To give some perspective, Anadarko realized around $21 per BOE of natural gas sold last year, compared to ~$85 per barrel of liquids sold. Moreover, since development costs have remained relatively flat at around $13/BOE since 2009, the company’s upstream margins have improved significantly over the last four years. This year, Anadarko plans to grow its U.S. onshore production by around 8% over last year, while increasing the proportion of liquids to more than 37%. The company plans to spend around $5.5 billion, which is ~65% of its total capital budget for the year, in order to achieve this target. A large chuck of this capital would be pumped into the Wattenberg field, which forms the centerpiece of Anadarko’s U.S. onshore development plan. The Wattenberg field is a liquids-rich area where Anadarko operates over 5,200 wells. Recently, the company’s drilling program in the field has been entirely focused on horizontal development. It drilled 335 horizontal wells last year, which led to a 21% y-o-y jump in sales volume from the field. Anadarko has identified around 4,000 potential drilling locations in the Niobrara and Codell formations of the Wattenberg field that are expected to provide substantial opportunity for continued activity. This year, the company plans to drill over 360 horizontal wells in the field, employing as many as 13 horizontal operated rigs on an average. During the second quarter, Anadarko’s oil equivalent sales volume from the Wattenberg field grew by 39 MBOED*, compared to the previous quarter. This made up ~75% of the total quarter-on-quarter hydrocarbon sales volume growth from its U.S. onshore assets. Anadarko expects to grow its hydrocarbon sales volume from the Wattenberg field at 20% CAGR in the long run. We believe that the target is achievable due to a combination of favorable factors. These include rising drilling efficiencies, increased number of operated rigs, and improving midstream infrastructure. The company is working on more than doubling its oil takeaway capacity from the Wattenberg field to almost 90,000 barrels of oil per day by 2015. It also plans to expand the gas processing capacity from around 400 million cubic feet per day (mmcfd) to over 1,000 mmcfd by 2016. Furthermore, the asset swap deal signed by Anadarko in the Wattenberg field will also allow it to leverage this midstream infrastructure even better over the coming years as its development efforts in the region will be more concentrated around the supporting infrastructure. In October 2013, Anadarko exchanged certain oil and gas properties in the Wattenberg field with a third party. Under the terms of the transaction, each party exchanged approximately 50,000 net acres. The transaction increased Anadarko’s production by 8,000 barrels of oil equivalent per day (BOE/d) since October 2013 and is expected to drive more than $500 million in cost savings for the company through reduced trucking and water sourcing requirements. *MBOED: Thousand barrels of oil equivalent per day 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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    Dr. Pepper's Non-Carbonated Volumes Rebound To Boost Q3 Results
  • By , 10/24/14
  • tags: DPS KO PEP BUD
  • Dr Pepper Snapple (NYSE:DPS) reported third quarter results on October 23, reflecting strength in its beverage business, despite headwinds in some of the core categories. Consumers continue to shift away from sugar-fueled beverages such as carbonated drinks and juices, and as a result, volumes for Dr. Pepper’s offerings in these categories also fell. However, Dr. Pepper’s top line expanded nearly 3% this quarter and 2% year-to-date, prompting the company to raise its full-year sales outlook to 1% growth, up from the previously estimated flat to negligibly small increase. A deviation from previous quarters was growth in still beverage volumes, after declines of 2% and 4% in the first and second quarters respectively. This was buoyed by strong growths in the water portfolio and ready-to-drink (RTD) teas. As expected, Dr. Pepper’s Latin America volumes, which typically form just under 10% of the net volumes, seem to be unaffected by the soda tax enacted in January in Mexico. After increasing 2% and 6% in the first two quarters respectively, Latin America volumes rose by an impressive 10% in Q3 for the company. With volumes remaining flat in both the U.S. and Canada, high volume growth in Mexico and the Caribbean along with higher net pricing boosted the top line in Q3, and could again drive top line growth next quarter. We have a price estimate of $64.92 for Dr Pepper Snapple, which is around 3% lower than the current market price. See Our Complete Analysis For Dr Pepper Snapple Non-Carbonated Volumes Rise To Fuel Growth In North America As consumers look to avoid the sugar and calorie-fueled carbonated drinks, volumes for healthier non-carbonated beverage segments such as sports drinks, bottled water, natural juices and RTD tea have been rising. Growth in still beverages has bolstered overall volume growth for companies, amid declines in carbonates. However, while still beverage volumes for rival companies Coca-Cola and PepsiCo remained strong, Dr. Pepper’s still beverages declined in both Q1 and Q2. This decline in non-sparkling sales was mainly as volumes for the company’s juice brand, Hawaiian Punch fell 8% and 12% in the first and second quarters, as consumers continued to shift from high-calorie juices to organic all-natural and healthier beverages, and also due to lower promotional activities centered on the juice brand. However, Hawaiian Punch volumes fell by only 2% this quarter, limiting the overall decline in juices and subsequently in non-carbonated beverages for the company. One of the main growth drivers for Dr. Pepper’s non-carbonated beverage unit, which forms 27% of the company’s valuation by our estimates, has been the RTD tea brand Snapple. Overall still beverage volume sales declined last quarter as Snapple volumes fell, but this quarter, the brand’s volumes rose to fuel growth in the overall category. This bodes well for the company as despite de-emphasising focus on its value line, Snapple volumes have increased. The Snapple premium business grew mid-single-digits in Q3, boosting the top line. Just like flavored bottled water, RTD tea is also a segment of the U.S. beverage industry that is growing at a fast pace, due to a healthier more natural perception. But unlike in bottled water, where margins are thinner, RTD tea, and in particular the premium products, are more profitable. Snapple and Diet Snapple are established products in the RTD tea segment, and together hold a market share of 8% in this segment in the U.S., with sales of over $400 million last year. By leveraging the high demand for tea and Snapple’s strong brand recognition, Dr. Pepper could continue to increase volumes. Snapple volumes rose 2% in Q3 despite deprioritizing the value line, which typically formed around 10% of the brand’s net unit sales. If volumes remain strong again in the next quarter, Dr. Pepper could earn higher net revenues from the tea segment on favorable product mix, due to the company’s focus on the more profitable premium brands. Mexico Volumes Register Double-Digit Growth Despite The Soda Tax The impact of the soda tax imposed in Mexico at the start of the year seems to be milder on Dr. Pepper than its competitors. While Coca-Cola’s volumes fell in Mexico in the first half of the year and rose by only 1% in Q3, Dr. Pepper’s Latin America volumes, which mainly constitute Mexico, rose 6% in the first nine months. According to our estimates, Dr. Pepper sells roughly one-tenth the volumes sold by Coca-Cola in Mexico. By outpacing the volume growth of its chief competitor, the Texas-based manufacturer is set to improve its market share in the country this year. Mexico had imposed a one-peso-per-liter (~8 cents) tax on sugary sodas, effective as of January 1, as the country battles widespread obesity, diabetes, and other health issues. Approximately 32.8% of Mexico’s population is obese, the highest figure for any country. Around three-fourths of Dr. Pepper’s beverage portfolio in the country is subject to the soda tax. The tax has on an average made soda more expensive by around 8%. As over half of Mexico’s population lives below the national poverty line, some price-sensitive customers were dissuaded from soft drink consumption, which saw volumes of soda brands such as Squirt and Crush fall through September. However, an increase in volume sales so far this year reflects high demand for Dr. Pepper’s products, especially the carbonated water brand Penafiel, which grew by an impressive 25% in Q3 and 23% through September. Mexico’s drive for healthier beverages could see more and more consumers shift to segments such as sparkling water, which even in the U.S. is touted as a possible threat to carbonated soft drink sales. Now Dr. Pepper is expanding its Penafiel line in the U.S., gauging the possible demand for the product within the Hispanic population. The Hispanic population in the U.S. is expected to grow by 12% between 2015-2020 to form nearly 20% of the country’s net population, which is estimated to grow by only 4% during this period. Penafiel and consequently Dr. Pepper could expand into the fast growing U.S. carbonated bottled water market, which is worth around $1.25 billion at present but has grown by double-digit percentages in the last couple of years, and gather additional volume 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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    Merck Earnings Preview: Expect Continued Pressure On Topline Growth
  • By , 10/24/14
  • tags: MRK
  • Merck (NYSE:MRK) will release its Q3 2014 earnings on October 27th. While we expect a continued decline in legacy products, revenues from its diabetes, drugs as well as anti-infective medicines and Remicade, will continue to grow. The story for Merck is simple. The company, like many other big pharmaceutical firms, is battling revenue growth due to the loss of patent exclusivity for its key drugs. As a result, it is pegging its future hopes on developing therapeutic agents for cancer- and hepatitis C-related markets. Meanwhile, its drugs catering to immunology, diabetes and infectious diseases continue to carry it along. Here is what investors can expect from Merck’s upcoming earnings announcement.
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    Boston Scientific Reports Robust Q3 Results On Solid Sales, Margin Expansion
  • By , 10/24/14
  • tags: BSX JNJ MDT
  • Global medical device maker  Boston Scientific (NYSE:BSX) reported robust third quarter results, with solid growth across divisions. The company’s largest division – Interventional Cardiology (IC) – reported an impressive 8% year-over-year (y-o-y) growth in sales in the quarter, continuing the growth momentum it picked up in Q1 after consistent sales declines last year. The Cardiac Rhythm Management (CRM) division, contributing over 26% of the company’s top line, also continued its growth momentum with 4% sales growth y-o-y on a constant currency basis. Neuromodulation sales were flat y-o-y owing to a difficult comparable period. Other divisions such as Endoscopy, Peripheral Interventions and Urology reported consistent mid to high single-digit growth. The company also reported robust sales growth of 57% y-o-y in Electrophysiology (EP), primarily driven by the acquisition of C.R. Bard’s EP business in November of last year. Overall operational sales, excluding the divested Vascular business, increased 7% y-o-y to $1.85 billion. This was higher than the company’s own revenue guidance of $1.79 to $1.84 billion, marking the sixth consecutive quarter of improving sales for Boston Scientific. Net income improved from a loss of $5 million in Q3 2013 to a $43 million profit in Q3 2014 owing to higher sales and lower interest expense. Excluding one-time charges such as restructuring charges, litigation and amortization expenses, net income (non-GAAP) increased about 19% to $273 million in the quarter over the same period last year. Adjusted gross margins expanded by 40 basis points y-o-y and 80 basis points sequentially to 71.1% in Q3 2014, primarily on account of the company’s value improvement programs. Boston Scientific expects to maintain this figure in the 70-71% range for full year 2014. Going forward, the company expects its operational sales to grow in the 4-6% range, driven by robust growth in key businesses and growing acceptance of new products such as S-ICDs (Subcutaneous-Implantable Cardioverter Defibrillators), SYNERGY and Promus PREMIER stents, the anti-stroke Watchman device and the bronchial thermoplasty system Alair. We have a  price estimate of $13 for Boston Scientific, which is slightly ahead of the current market price.
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    How Facebook Has Evolved Since The IPO And Where Is It Headed?
  • By , 10/24/14
  • tags: FB LNKD TWTR
  • Facebook (NASDAQ:FB) has made a remarkable journey since its inception, and more so since its IPO in early 2012. The biggest achievement of the company so far, besides connecting over 1.2 billion users, has been cracking the code of monetizing a mobile platform. This is something that drove its stock price from $18 to where it is today at nearly $80 per share. A clear inference that can be drawn from Facebook’s success is that if you have a sufficiently large user base and the right model of engagement, you can achieve the exceptional and make seemingly improbable advancements. Surely this is the impetus that drives startups to focus on gaining users over profitability. Facebook’s average revenue per user has risen significantly in recent quarters and we expect the trend to continue. But the question that remains is:  how will the revenue growth rate trend going forward? In this article, we analyze the drivers that have been responsible for Facebook’s success over the past two years, and how the company may fare going forward. One of the observations that we make is that Facebook’s average ad pricing growth may be nearing its peak and the growth in overall ad revenues could dip below 40% in 2015. Facebook reports growth in its average ad pricing and the number of ad impressions, but not their actual values. However, we estimate that the company’s average ad pricing stood at roughly $1 per 1000 impressions in Q2 2014 and the total number of ad impressions was somewhere around 2,266 billion during the same period.  (See the  appendix below to understand how we make these estimations.) An increase of 10% in average ad pricing can result in ad revenues going up by 10%, assuming that the number of ad impressions doesn’t change. Considering that ad revenues account for slightly over 90% of Facebook’s revenues, the overall impact on revenues would be close to 9.1%. This translates into EPS increase of roughly 9.3% and 9.2% for 2014 and 2015 respectively. Therefore, if the average ad pricing for 2014 were to jump 10% over what we currently expect, it would result in our estimates for non-GAAP diluted EPS for 2014 and 2015 going up to $1.89 and $2.62 respectively. Our current estimates stand at $1.73 and $2.40 for 2014 and 2015, respectively (versus consensus estimates of $1.69 and 2.04).
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    AT&T Misses Q3 Revenue Guidance, Lowers Full-Year Growth Forecast
  • By , 10/24/14
  • tags: T S VZ
  • AT&T (NYSE:T) reported a mixed set of Q3 2014 results on Wednesday, October 22, which highlighted the wireless major’s transition towards shared data plans and the no-subsidy model, in line with its peers in the U.S. The country’s second largest wireless carrier added about 785,000 postpaid subscribers and 1.28 million connected devices during the quarter, almost 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 50% of its postpaid smartphone gross adds and upgrades in Q3, similar to its take rate in the previous quarter. However, its overall revenues grew by only 2.5% year-on-year (y-o-y) to about $33 billion, which was below the Thomson Reuters-compiled analyst consensus of $33.22 billion. The slow revenue growth was 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. Looking at these factors and the impact of rationalization of its business portfolio, AT&T lowered its revenue growth forecast for full year 2014 from 5% to 3-4%. On the cost side, the carrier’s wireless EBITDA margin declined from 37.2% in Q3 2013 to 35.3% in Q3 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 110 basis points y-o-y to 43.1% in the third quarter. Pricing pressures due to rising competition and higher interest expenses impacted net income, which declined over 21% to just over $3 billion. We have a  $38 price estimate for AT&T, which is about 10% ahead of the current market price.
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    Abbott Reports Solid Q3 Results On Nutritionals Recovery, Emerging Markets
  • By , 10/24/14
  • tags: ABT MDT JNJ
  • Healthcare major  Abbott Laboratories (NYSE:ABT) reported a strong set of third quarter 2014 results on Wednesday, October 22. The company’s sales from continuing operations increased 6.7% over the prior year quarter to $5.1 billion. Abbott’s branded generic drug business in developed markets is in the process of being acquired by Mylan (NASDAQ:MYL) and therefore has been reported as discontinued operations in the financial report. Discontinued operations registered $519 million of sales in the quarter. Net earnings, including discontinued operations, increased by over 8% to $945 million or $0.62 per share, which was higher than the company’s own guidance of $0.59-$0.61 for the quarter. These earnings exclude charges for certain items such as amortization, cost-cutting measures and repatriation of ex-U.S. earnings, amounting to $380 million or $0.25 per share. Based on its performance in the quarter, Abbott raised the mid-point of its full year 2014 EPS (earnings per share) guidance from $2.19-$2.29 to $2.25-$2.27. Nutritionals, the company’s largest segment, seems to have finally recovered from the supplier recall that was initiated in international markets in August of last year. It reported an increase of more than 10% in operational sales, excluding a 0.8% negative impact of foreign exchange. Established Pharmaceuticals, excluding the developed market business to be sold to Mylan, reported an increase of about 13% in operational sales, driven by robust performance in key emerging markets such as India, China and Brazil. The Diagnostics division maintained its consistent performance, as operational sales increased 6.2% year-over-year (y-o-y) to about $1.2 billion driven by robust growth in Core Laboratory and Point of Care sales in international markets. Medical Optics reported operational sales growth of 9%, while Vascular and Diabetes Care sales declined by over 2% and 5%, respectively. On the cost side, Abbott’s adjusted gross margin improved 70 basis points over the prior year quarter to 55.4%, driven by better product margins as well as distribution margins. The company expects operational sales to grow in double digits in the fourth quarter, with gross margins remaining steady around 55.5%. Its EPS forecast for the next quarter stands at $0.68 to $0.70, excluding a negative impact of certain specified items amounting to about $0.36 per share. We have a  price estimate of $42 for Abbott Labs, which is roughly in line with the current market price. We are in the process of updating our model in light of the recent earnings release.
    Corporate Bonds Make Good Portfolio Staples
  • By , 10/24/14
  • tags: BTZ VWESX
  • Submitted by Wall St. Daily as part of our contributors program Corporate Bonds Make Good Portfolio Staples By Martin Hutchinson, World Banking Analyst   What if I told you that it’s possible to achieve decent yields while also preserving your investment capital? I bet you’d jump on such an opportunity in an instant, wouldn’t you? Unfortunately, that outcome is very difficult to achieve right now. Stocks don’t provide a worthwhile yield, with the S&P 500 yielding just 2.1%. Meanwhile, specialized “income stocks” contain a number of snares and traps that can destroy our wealth. What’s more, stocks always have the potential to take a nosedive like they did in 2008 to 2009. If they do, they become unsellable . . . because by selling, we’ll inevitably miss the rebound. It’s quite a conundrum for income investors. Luckily, Corporate America is happy to provide us with a constant revenue stream for doing next to nothing… Bond Benefits Good, quality corporate bonds are a reasonable compromise for at least part of our money. In fact, there are two reasons why corporate bonds make sense as part of an income portfolio. First, their yields are considerably higher than those of Treasury bonds. In fact, your income could be upwards of 50% greater, compared to 10-year Treasuries. Second, while stocks are always vulnerable to a nosedive, corporate bonds are much less risky (provided they’re of a high quality). Hence, if you need to liquidate part of your portfolio at the bottom of the market, your corporate bonds will be available to sell at prices not too far below those that were obtained at the top. Yet bonds aren’t entirely without risk, as investors must deal with duration and credit risk. After all, funds typically increase their yield to investors by increasing one of those two factors. At present, long-term bonds yield substantially more than short-term bonds, so a portfolio of long-dated bonds gives you a much better yield than shorter-term bonds. The danger is that long-dated bonds decline much more in price when interest rates rise, giving investors a capital loss. However, one collateral benefit of long-dated bonds is that a major stock price decline would probably cause the Fed to enter into a money-printing spree, lowering long-term bond yields and raising prices. Thus duration risk, unlike credit risk, isn’t highly correlated with stock price risk. You should, of course, be cautious about taking on too much credit or duration risk. But of the two, I’ll take duration risk, and I’ll look for funds with a long average maturity/duration . . .  but a low percentage of the fund invested in bonds rated BB or less. Finding a Fund There are two ways to buy bonds: directly or through a bond fund. Buying corporate bonds directly has two distinct advantages. First, it avoids the management fees of a bond fund. Second, if you have a particular cash flow need in the future, you can buy a bond to match it, which isn’t possible through a fund. However, for individual investors, these advantages are outweighed by illiquidity and lack of price transparency. Unlike stock prices, bond prices aren’t readily available to individual investors. Consequently, there’s always a risk of buying too high and selling too low, losing much of the bond’s return. Instead, investors can look to buy bonds through a bond fund. There are two principal types of corporate bond funds: closed-end and open-end. Some closed-end funds buy a fixed portfolio of bonds, so you know what you’re getting when you buy them. Others trade bonds seeking higher returns, just like open-end funds. The disadvantage of closed-end bond funds is that they tend to trade at a discount to their net asset value. This gives you an advantage when you’re buying, but increases the liquidity risk when you sell – if closed-end funds are out of favor at that time, the discount will widen. A broadly spread, closed-end fund such as BlackRock Credit Allocation Fund ( BTZ ) has its attractions. This fund invests beyond the corporate bond market, with positions in mortgage bonds and preferred debt, with about one-third of its assets in securities rated below BBB. With a net asset value of $1.4 billion and a discount to net asset value around 12%, it represents good value right now, although the expense ratio of 1.15% is on the high side. The fund currently pays monthly dividends of $0.0805, giving it a running yield of about 7%. I’d regard it as a sound but relatively high-risk investment. But given my preference for duration risk over credit risk, my recommendation among open-end bond funds would be the Vanguard Long-Term Investment-Grade Fund ( VWESX ), which offers a yield of 4.5% and, like most Vanguard funds, has low annual expenses of only 0.22%. Since the fund has net assets of $15.8 billion, its liquidity is ample, and it has less than 2% of its investments in bonds rated below BBB. Its only disadvantage is a relatively long average duration of 12.8 years, making it vulnerable to a rise in interest rates. Good investing, Martin Hutchinson The post Corporate Bonds Make Good Portfolio Staples appeared first on Wall Street Daily . By Martin Hutchinson
    About That QE4 . . .
  • By , 10/24/14
  • tags: SPY TLT
  • Submitted by Profit Confidential as part of our   contributors program About That QE4 . . . It’s widely expected that at the end of this month, the Federal Reserve will end its third round of quantitative easing (that began in September of 2012). This is QE3, where the Federal Reserve was printing $85.0 billion of new money every month and using it to buy U.S. Treasuries and mortgage-backed securities (MBS). In the beginning of 2014, the Fed started reducing the amount of money it was printing each month. Is there another round of quantitative easing (more commonly known as QE) coming? Here’s why I ask . . . First, U.S. long-term bond yields are collapsing. Back in 2013, when the Federal Reserve hinted that it might move away from quantitative easing, we saw U.S. bond yields soar. Between May and December of 2013, yields on the U.S. 10-year notes almost doubled. But since then the unexpected happened. Chart courtesy of Since the beginning of 2014, the yields on the same bonds have plunged 30%. Despite the Federal Reserve telling us it expects to raise interest rates in 2015 and 2016 (which would be catastrophic for bonds), bond prices are rising . . . Odd, to say the least. Second, I hear hints about QE4 from key members of the Federal Reserve. In an interview with Reuters, the president of the Federal Reserve Bank of San Francisco said, “If we really get a sustained, disinflationary forecast . . . then I think moving back to additional asset purchases in a situation like that should be something we should seriously consider.” (Source: “Exclusive: Fed’s Williams downplays global risks, eyes U.S. inflation,” Reuters, October 14, 2014.) In other words, if inflation in the U.S. economy doesn’t meet the Federal Reserve’s target of two percent, then the Fed should reconsider its thoughts on quantitative easing. Sadly, according to the official figures, inflation in the U.S. economy for the first eight months of the year was just 1.3%—well below what the Federal Reserve wants. (Source: Bureau of Labor Statistics web site, last accessed October 15, 2014.) Third, the U.S. economy is showing signs of weakness as economic data suggest the so-called recovery is stalling. Retail sales are down. Unemployment (when you include people who have given up looking for work and those who have part-time jobs because they can’t get full-time jobs) is still a huge overhang on the economy five years after the financial crisis. To fight this issue, the Federal Reserve may do what it has been doing since the Great Recession—print more money and hope for growth. Finally, if the stock market crashes further, I believe it will be in the Fed’s best interest to come in and support the market. After all, a falling stock market would damage consumer confidence, which would push retail sales and corporate profits down. Here come the layoffs!   The post About That QE4… appeared first on Stock Market Advice | Investment Newsletters – Profit Confidential .
    The Death of the iPad?
  • By , 10/24/14
  • tags: AAPL MSFT
  • Submitted by Sizemore Insights as part of our contributors program The Death of the iPad? by  Charles Lewis Sizemore, CFA Apple ( AAPL ) knocked the ball out of the park in this week’s earnings release, boosting quarterly revenues by 12% and earnings per share by 20%.  And these numbers included less than three weeks’ worth of iPhone 6 sales. (The iPhone 6 and iPhone 6 Plus were only released on September 9.)  Gross margins actually expanded a little, from 37% to 38%, proving that Apple remains—at least thus far—immune from price competition.  With the momentum from the phone launch still building, I expect Apple to finish calendar year 2014 with a bang. Investors in Apple stock have a lot to celebrate right now.  But iPad sales are distinctly not one of them.  iPad sales actually fell during the quarter from 13.1 million to 12.3% million . Of course, some of this weakness is due to would-be tablet buyers sitting on their wallets until the latest-generation models came available early this quarter, and were this an isolated incident I would be tempted to leave it at that.  Unfortunately, it’s not.  iPad sales have been consistently weaker than expected for most of 2014. What gives?  Are we witnessing the death of the iPad? Yes.  Or more accurately, “sort of.” I’ll start with the most obvious point.  Apple made a strategic decision to cannibalize its own business with the IPhone 6 Plus.  The larger-screen phone makes a tablet redundant;  an iPad becomes a larger version of your phone except without the ability to make regular voice calls.  I consider this the right decision, as it makes the iPhone—Apple’s biggest moneymaker— more competitive with larger-screen Android devices.  Forgone iPad sales are acceptable collateral damage in the far more important smartphone war. But iPad sales had started to decelerate long before the iPhone 6 Plus was released, and the story is a little more complex than that.  What I see happening to iPads—and to tablets in general—is what happened to PCs starting around 2012. Two years after the 2010 launch of the Apple iPad, PCs sales actually went into year-over-year decline, and have continued their decline until now.  The most recent sales data shows PC sales as flat this year rather than down, but the fact remains that the tablet radically changed the PC market.  The upgrade cycle got stretched, as consumers made do with their older desktops and laptops a little longer and diverted the funds they would have used to upgrade to a tablet instead.  And in some cases—particularly in the lower-end consumer market—buyers ditched their PCs altogether, as a tablet was more than sufficient for their modest computing needs at home, such as reading books and emails and checking Facebook. Moving forward to 2014, we see similar dynamics at play.  Consumer Intelligence Research Partners finds that American iPad buyers tend to hold on to their tablets for 2-4 years between upgrades .  The lifespan of an iPhone is shorter, at 2 years or less.  (On a side note, my smartphones tend to have a life of about 12-15 months; I’m a heavy user, and I have two rambunctious young boys in the house that have a talent for finding new and exciting ways to break them.) Frankly, iPads don’t change that much from generation to generation, or at least in ways that would persuade a user to upgrade.  Processing power and networking speed is fast enough at this point to last you a few years. What does this mean for the Apple iPad and for tablets in general? Let’s look at the PC market for clues.  The PC is not “dead” by any stretch.  I sit in front of one for at least nine hours per day, as do most professionals, and that won’t be changing any time soon.  But I’m not buying a new one any time soon; I might use a given PC for 4-5 years between upgrades.   That’s where most iPad users are today.  They use their iPad regularly but there is no compelling reason to upgrade, particularly if you already have a new phone.  That’s a recipe for slow growth. The good news for Apple stock is that it really doesn’t matter.  I have argued for years that Microsoft ( MSFT ) was an attractive stock even in the face of declining PC sales because of its cheap price, its strength in its other business lines, its solid balance sheet and its ability (and willingness) to aggressively raise its dividend. Today, Apple is in the same position.  As I reasoned in “ Why Carl Icahn is (Kinda) right about Apple Stock,” Apple stock is being priced by Wall Street as a no-growth company.  But its balance sheet is a fortress, it is aggressively raising its dividend and repurchasing its stock, and its other product lines outside of the iPad are stronger than ever. Disclosures: Long AAPL in Dividend Growth Portfolio Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. Click here to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today’s best global value plays. This article first appeared on Sizemore Insights as The Death of the iPad?
    Why This Company Is a Consistent Winner for Investors
  • By , 10/24/14
  • tags: WGO SPY
  • Submitted by Profit Confidential as part of our   contributors program Why This Company Is a Consistent Winner for Investors Amid all the turmoil in capital markets, I’m reminded of all the good corporate earnings being released. Of course, the stock market is a system of discounting future business conditions and the recent sell-off has been pronounced, but stocks have come so far over the last several years. If the catalysts were deflationary pressures among oil prices and global economic activity, a little haircut in share prices is well deserved. One of the first businesses to show a real turnaround after the financial crisis sent stocks and the economy tanking was Winnebago Industries, Inc. (WGO). The first thing that dries up when there’s a shock to the economy is spending on luxury items and/or non-essential products. Likewise, the recreational vehicle market is very sensitive to prevailing economic conditions. For a number of years now, however, Winnebago Industries has been on a turnaround roll. Based in Forest City, Iowa, the company’s fourth fiscal quarter of 2014 (ended August 30, 2014) saw revenues improve a solid 15% to $246 million, up from $214 million in the same quarter last year. The company reported that it experienced a 15% improvement in total motorhome sales. A 25% comparable gain in motorhome unit growth was offset by lower average selling prices. Earnings came in solid with management noting particular bottom-line strength in towable recreational vehicles. Total fourth-quarter operating earnings grew 19% to $18.3 million. Net earnings grew to $12.9 million for a comparable quarterly gain of 22%, while net earnings per diluted share improved 26% to $0.48. All in all, it was another very good financial report from Winnebago Industries and the company just reinstated its quarterly dividend ($0.09 per share), which has been on hiatus since October of 2008. (See “ My Top Three Stocks in This ‘Alternative’ Housing Market Sector .”) The company also finished its 2014 fiscal year on a strong note, with a comparable sales gain of 18% and a diluted earnings per share gain of 45% compared to fiscal 2013. So while capital markets are likely to keep convulsing near-term, there’s a lot of reassurance in current earnings reports. So far, the numbers this current earnings season are coming in solid, with the expected currency translation affecting the bottom line. Because investor sentiment turned with oil prices, companies are seemingly no longer able to advance on the stock market, even if they beat consensus. We’ll probably get more correction-style trading action for another month, but given current monetary policy and the Federal Reserve’s proven proclivity to help Wall Street and the equity market, I see no reason why stocks can’t reaccelerate going into 2015. Winnebago Industries beat Wall Street consensus with its latest earnings report (to the degree that that matters). This stock is not expensively priced and it’s due for a turnaround. If there was any concern with the company’s latest numbers, it is with lower average selling prices and the stronger demand for less expensive motorhomes. Management did cite that its backlog for luxury motorhomes has dropped materially. But even if lower-priced units are less profitable, the company has proven that it can adapt its manufacturing in a financially positive manner to suit its marketplace.       The post Why This Company Is a Consistent Winner for Investors appeared first on Stock Market Advice | Investment Newsletters – Profit Confidential .
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    Comcast To Build A $3.3 Billion Theme Park In Beijing
  • By , 10/23/14
  • tags: CMCSA DIS
  • Comcast ‘s (NASDAQ:CMCSA) NBCUniversal (NBCU), along with Beijing Shouhuan Cultural Tourism Investment Co. (a consortium of four state-owned companies), will build a $3.3 billion Universal theme park in Beijing. The theme park will be spread over 300 acre site and eventually expand to 1000 acres. The project was approved this week by the Chinese government. Along with the theme park, NBCU will develop an entertainment complex and a Universal themed resort hotel. It must be noted that Disney (NYSE:DIS) is also building a theme park resort in Shanghai that is expected to open in 2015. China plays important role in the success of big Hollywood movies and building a theme park in the region makes a lot of sense. On the economic front, China is home to 11 of the top 20 amusement parks in Asia with about 166 million visits and close to $3 billion in revenues in 2013. It is a huge market and it is expected to overtake the U.S. market by 2020. On that note, we discuss below Comcast’s opportunity in the Chinese market.
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    Yahoo Earnings: Mobile And Windfall profits From Alibaba Sale Boost Results
  • By , 10/23/14
  • tags: YHOO GOOG AOL
  • Yahoo! (NASDAQ:YHOO) reported its third quarter earnings Tuesday, October 22. The company’s core advertising revenues continued to disappoint as the revenues (excluding Traffic Acquisition Cost or TAC) increased marginally by 1% year on year to $1.094 billion. However, the non-GAAP operating income declined by 10% to $156 million. While Yahoo’s core search ad revenues (excluding TAC) improved by 6% year over year, its display ad revenues declined by 6%. The primary reason for growth in search ads revenue was the growth in the price per click. Additionally, sale of Yahoo’s 140 million shares in Alibaba boosted its cash position by $7 billion to $12 billion. The highlight of the earnings release was the growth in mobile revenues, which exceeded $200 million in Q3 and are expected to be over $1.2 billion for the full year. Yahoo attracted a record number of mobile users to its properties during the quarter. While Yahoo’s mobile platform continues to gain traction, it has now forayed into online mobile ad technology with the acquisition of Flurry. In this note, we will discuss the highlights of Yahoo’s earnings announcement. See our complete analysis of Yahoo! here Outlook For Fourth Quarter For the fourth quarter, Yahoo expects revenues (ex-TAC) to be in $1.14-$1.18 billion range. Additionally, it expects adjusted EBITDA to be between $340 million and $380 million, and non-GAAP operating income to be between $190 million and $230 million. Mobile Ads Revenues Gain Traction In our pre earnings note, we argued that Yahoo’s mobile platform will drive its revenue growth going forward. Yahoo continued to report growth in its total mobile unique visitors, which grew to over 550 million in the quarter. The growth in mobile user base also translated into growth in mobile revenues as the company posted $200 million in GAAP revenue. 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 ad divisions. Furthermore, the Gemini marketplace for mobile devices, which was launched six quarters ago, and unites mobile search with a native ad buying platform, raked in $65 million revenues in Q3. We believe that a strong mobile platform is important for Yahoo as it can bolster Yahoo’s revenue by capturing a substantial piece of the global mobile advertising market, which will stand at approximately $42 billion in 2017, according to Gartner. Buyback Intensifies As Alibaba Stake Sale Strengthens Balance Sheet At present, the cash and equivalents on company’s balance sheet stands at over $12 billion, primarily due to  receipt of the Alibaba pre tax IPO proceeds of $9.4 billion. While the company netted approximately $6 billion after taxes from Alibaba’s IPO, it plans to return $3 billion to shareholders. Considering that over the past two year, Yahoo has returned $7.7 billion to shareholders using share buybacks, we expect that it will return the proceeds from stake sale by buying back more shares in the coming quarters. We believe that this will improve earnings per share, and can increase company’s per share value in the future. Improvement In Ad Volume And Price Per Click Buoys Revenues Search ads make up 10% of Yahoo’s estimated value. During the quarter, search ad revenues (ex-TAC) grew by 6% year over year to $450 million. While the company reported no 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. We expect these trends to continue in the coming quarters as advertisers increase spending across Yahoo sites search. Going forward, we estimate RPS will decline from $13 to $12. Display Ads Revenue Disappoints The display ads division makes up 10% of Yahoo’s estimated value. In Q3, the display ad revenues (ex-TAC) declined by 6% year over year to $396 million. While the number of display ads sold across Yahoo properties rose by 24%, the price per ad declined by 24% due to unfavorable shift in mix of premium ads to low cost ads. Even though the company continues to roll out premium display content, it is 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 that can drag ad prices down. Going forward, we expect revenue per impression to remain flat. Positive Surprise From Investment In Tumblr Yahoo acquired Tumblr in May last year for $1.1 billion. During the 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) next year on the back of strong audience growth, which has grown 40% to 420 million users, and strong monetization. This announcement positively surprised the market, and the stock trade up to close with a 4.5% gain on the day.  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  $41.53 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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    Norfolk Southern Earnings: Intermodal And General Merchandise Growth Offsets Coal Weakness
  • By , 10/23/14
  • tags: NSC UNP CSX
  • Norfolk Southern (NYSE:NSC), one of the leading railroads in the eastern U.S., reported its third quarter 2014 results on October 22. Its revenue increased 7% year-on-year, to reach $3.02 billion, driven by volume growth across all commodities except for coal, which continues to suffer due to the weak export coal environment for the U.S. Norfolk Southern’s operating ratio (operating expense expressed as a percentage of revenues) improved significantly, 2.4% year-on-year, to reach 67%, driving a 16% increase in net profits. Norfolk Southern’s diluted earnings per share increased 17%, to reach $1.79. See our complete analysis of Norfolk Southern here Volume growth drives Norfolk Southern’s revenue In the third quarter, Norfolk Southern’s overall volume increased 7.7% driven by double digit growth at its Intermodal and General Merchandise segment. Its intermodal segment grew 10% driven by increased conversion of truckloads from highway to rail. The trucking capacity in the U.S. has been declining due to the dearth of truck drivers and the Hours-of-Service regulation ( Click here to read our article ). Shippers have therefore been forced to move their shipments via rail. Additionally, the lower cost and time-efficient services provided railroads make intermodal services provided by railroads such as Norfolk Southern, a lucrative shipping option. According to Norfolk Southern’s management, there is a price differential of 12-15% between intermodal prices and truckload prices. We believe that the continued tightening in trucking capacity will continue to drive growth in Norfolk Southern’s Intermodal segment in the future. Norfolk Southern’s General Merchandise shipments which comprises of chemicals, agricultural products, metals and construction materials, automotives, paper, clay and forest products, grew 10% driven by strong growth in their respective end or source markets. Last year’s strong corn and soybean harvest helped drive Norfolk Southern’s agricultural shipments. Corn production grew 30% in the last year pushing down prices. This encouraged an increase in ethanol production, which also contributed to the increase in agricultural shipments. Corn production is expected to increase 4% year-on-year in 2014, to 14.5 billion bushels and soybean production is expected to increase 17% year-on-year, to 3.93 billion bushels. This should help continue to drive growth in Norfolk Southern’s agricultural volumes through 2014 and 2015. Crude oil production in the U.S has been increasing consistently since 2011, thanks to horizontal drilling techniques. Shipments of frac sand, used for drilling, have also increased as a consequence of higher crude oil production. The U.S EIA forecasts crude oil production to increase to 8.54 million barrels per day in 2014 and 9.50 million barrels per day in 2015, compared to 7.44 million barrels per day in 2013. Norfolk Southern should continue to benefit from the growth in crude oil production. Housing starts have been fluctuating a lot in 2014. After a strong 1.117 million in July, housing starts declined to 956,000 in August. However, these numbers were up 24% and 8% year-on year in July and August respectively, indicating a continued upward trend. Housing starts increased 18% year-on-year in September. Building permits have also been up year-on-year. These trends are driving the forecast for a 7.7% increase in housing starts in 2014. Housing starts for 2015 are expected to increase 24%. An increase in housing activity should continue to drive Norfolk Southern’s housing and construction shipments. Contract loss and weak export demand tempers Norfolk Southern’s coal shipments As we had pointed out in our previous article, Norfolk Southern’s 2.2% decline in coal shipments was the result of a loss of contract for one of the northern utilities in the first quarter of 2014 and the weak demand for U.S. coal in the global markets. Declining global prices of thermal and metallurgical coal, due to high exports from Australian coal suppliers and low demand from China, have created a challenging environment for U.S. coal. Recent reports put global prices for thermal and metallurgical coal at their 5 year lows. U.S. coal suppliers are unable to compete at such low prices, which leads to lower coal carloads for Norfolk Southern. Decline in export coal shipments also impacted Norfolk Southern’s coal revenue per unit, which was flat during the third quarter. With the recent announcement of China imposing tariffs on imported coal, the low price environment is expected to continue. This should continue to put pressure on U.S. coal, which will further impact Norfolk Southern’s export coal volumes and revenue per unit. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
    GLW Logo
    Gorilla Glass And Display Technologies Segment Will Drive Corning’s Earnings
  • By , 10/23/14
  • tags: GLW
  • Corning (NYSE:GLW) is set to announce its third quarter 2014 results on October 28. We expect to see growth in the firm’s Display Technologies and Specialty Materials segment. The acquisition of Samsung Corning Precision Materials, which was completed on January 15th of this year and now known as Corning Precision Materials, will add to Corning’s revenue. The Specialty Materials segment should see growth driven by the Gorilla Glass, as speculation exists about the possibility of it having been used on Apple’s iPhone 6. In the second quarter of 2014, Corning’s revenue grew 25.2% year-over-year to reach $2.48 billion, primarily driven growth at its Display Technologies, Optical Communications, and Environmental segments. Corning’s net income declined 73.5% on account of poor sales and margins at its Specialty Materials segment. See our complete analysis of Corning here ‘New product’ launch could have boosted Gorilla Glass sales During its second quarter earnings meet, Corning announced that it expects 10% sequential growth in Gorilla Glass sales driven by ‘new product’ launches. The only product that comes to mind is Apple’s iPhone 6. We all know that Apple is an important customer for Corning and contributes significantly to its Specialty Materials segment’s sales. Although Apple has not explicitly mentioned that the iPhone 6 or iPhone 6 Plus are equipped with Gorilla Glass, we have reasons to believe that this just might be the case . Similar to the previous quarter, Gorilla Glass sales may be tempered by the sluggish sales of tablets. With growing screen sizes and improving functionality of smartphones, tablets have been losing their appeal leading to a slowdown in their sales. Because of this, tablet shipments for the year are expected to rise by 12.1%, compared to a growth rate of around 51.8% during 2013. CPM will continue to drive inorganic growth in Corning’s Display segment In the first quarter and second quarter, Corning’s Display Technologies revenue grew 43% and 56% respectively, driven by the acquisition of Corning Precision Materials (CPM). We expect the third quarter revenue to witness similar inorganic growth due to the acquisition. LCD prices continued to decline in the second quarter due to oversupply in the industry negatively impacting Corning’s pricing. However, price declines have moderated significantly since the past few quarters. Additionally, Corning has already negotiated new contracts with customers which will ensure lower price declines. Growing internet traffic could drive Corning’s Optical Communications segment Cisco forecasts that the global network traffic will increase 23% every year through 2017 driven by higher online video content, an increase in the number of internet friendly mobile devices and growth in demand for cloud computing services. Growing internet traffic will drive sales of optical fiber and related equipment, the market for which is expected to grow to $80.6 billion by 2018, at an average growth rate of around 14% every year. We expect the trend to have a positive impact on Corning’s Optical Communication revenue in the third quarter and years to come. 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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