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TZOO Logo
Feeble Presence In Mobile Search Will Adversely Impact Travelzoo
  • by , 16 hours ago
  • tags: TZOO PCLN EXPE TRIP
  • Travelzoo (NASDAQ:TZOO) is slated to release its earnings for the first quarter of 2014 on Thursday, April 17. A healthily growing travel business helped the company to pump its top-line up by 5% to $158.2 million in 2013. However, the company struggled with its search business through the year as it had to lower investments into the division in order to build a new hotel booking platform. Search revenue declined by over 10% to $24 million in 2013. Travelzoo is presently conducting a performance review of its SuperSearch product and has brought new executives on board to devise the future strategy for search. We expect to see continued weakness in search in Q1 as the company’s efforts to revive the business will take time to ramp. We also expect operating margins to remain under pressure due to continued investments in building the hotel platform. Travelzoo’s EBITDA margin fell by over 3 percentage points to 18.1% in 2013 owing to a $3.1 million investment in the platform. We will update our $24.41 price estimate for Travelzoo after the upcoming quarterly results are announced. See our complete analysis of Travelzoo’s stock here Hotel Booking Platform Will Start Bringing In Revenues From This Year The primary agenda behind building the new platform is to reduce the friction associated with hotel bookings. The platform will allow users to book quickly and easily within Travelzoo’s websites and mobile products, thus also allowing suppliers to promote deals in a more flexible manner; e.g. loading a last minute rate for a hotel will become much easier compared to Travelzoo’s current solution, which redirects users to the hotel’s website. The hotel platform is presently in its beta testing phase with the roll out expected across all devices later this year. Since revenue is recognized when the stay occurs and not when the booking occurs, the platform will start generating revenue in the second half of 2014. The company has already increased its headcount ahead of the platform’s launch. During the earnings call, management conveyed that it will now start allocating more resources towards subscriber marketing. We believe that Travelzoo’s entry in hotel bookings is a good long term strategy, as it opens up an additional revenue opportunity for the company. In our view, Travelzoo’s growth will accelerate as the platform grows its scale by attracting more subscribers and advertisers. To learn more on how the hotel booking feature can drive Travelzoo’s growth, read our article:  Travelzoo’s Hotel Booking Feature Can Help Drive Big Growth Travelzoo Needs To Aggressively Target Mobile To Revive Search Travelzoo’s search products include SuperSearch, a pay-per-click travel search tool, and Fly.com, a travel search engine that allows users to find the best prices on flights from different airlines and online travel agencies (OTAs). Fly.com completed the first full quarter of its mobile site in Q4 last year. It processed about 750,000 searches in its first quarter of business. However, it does not have any mobile app. This led the average number of monthly searches on Fly to decline from 3.5 million in 2012 to 3.3 million in 2013. The number of monthly searches on SuperSearch also plummeted from 5.1 million to 4.1 million contemporaneously since the brand has neither a mobile app nor a mobile site. SuperSearch and Fly also faced the brunt of rising traffic acquisition costs and the need to balance spending which forced Travelzoo to decrease investments into search. The company is considering whether to reposition, terminate or merge SuperSearch with Fly. It is also focusing on driving profitable growth, which could result in a revenue decline of about $1.5 million from SuperSearch in Q1 2014 compared to the year-ago period. Travelzoo has stated that the hotel platform will be its key focus area in 2014, and thus, we think that it may not significantly increase its investments on search to bolster growth. About 66% of Travelzoo’s revenues are generated in the U.S. Future growth in the U.S. search sector is expected to come from mobile. According to eMarketer, about 2% of the digital ad spending on search in 2010 occurred on mobile devices. This was expected to reach 22% last year, and eMarketer forecasts that the figure will cross the 50% mark by 2017. In line with this trend, search engines are increasing their focus on mobile devices to attract traffic. We believe that Travelzoo needs to heavily invest in building mobile products and modernizing its search offerings. The company has $66 million in cash on its balance sheet with no debt. It could utilize the cash or raise money through the debt channel to invest into mobile search. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis)
    BBRY Logo
    BlackBerry May Exit Devices Business If It Remains Unprofitable
  • by , 17 hours ago
  • tags: BBRY AAPL GOOG SSNLF MSFT
  • BlackBerry (NASDAQ:BBRY) CEO John Chen is looking to get the company more focused on software and services while reducing its reliance on smartphones, as part of a turnaround strategy that he thinks will take about two years to show results. The company is seeing deep market share losses on the devices front, with BlackBerry smartphone shipments last quarter dropping by nearly 80% year-over-year. In order to reduce its exposure to the mobile device market and mitigate inventory risk, Blackberry entered into a 5-year strategic partnership with Foxconn to manufacture its smartphones late last year. More recently, it tapped Wistron to initiate a new production run of the popular BB7 device, Bold, for worldwide distribution. By outsourcing a large chunk of its hardware business, BlackBerry wants to enhance the division’s profitability while focusing its in-house resources on more strategic goals of driving revenue growth in enterprise services and BBM. By our estimates, BB software and services account for about 45% of its overall value.
    UNP Logo
    Union Pacific’s Earnings Preview: Volume Growth May Offset High Operating Costs
  • by , 17 hours ago
  • tags: UNP NSC CSX
  • Union Pacific Corporation (NYSE:UNP), one of the leading railroad networks in the U.S., will report its first quarter 2014 results on April 17, 2014. We believe that volume growth and pricing gains will be a major factor driving earnings in the first quarter and countering the negative effects of high operating costs incurred due to the harsh winter weather. In the previous quarter, the company reported a 7% gain in revenue driven by strong pricing gains and modest volume growth. Declining coal shipments impacted overall volumes for Union Pacific throughout 2012 and 2013. However, the trend seems to have reversed in the first quarter of 2014 with growth in coal volumes. This should more than offset the decline in automotive shipments, which have been severely impacted by the harsh winter weather. Agricultural, industrial, intermodal and chemicals shipments will also grow in the first quarter, however, somewhat tempered due to the bad weather. Union Pacific’s operating ratio (operating expenses expressed as a percentage of revenues), may be impacted by the high operating costs incurred during the quarter. We believe that pricing gains combined with volume growth may be able to offset the high operating costs and may prevent the operating ratio from deteriorating. See our complete analysis of Union Pacific here Revisiting Q4 2013 Results Union Pacific posted overall volume growth of 2% in the fourth quarter 2013, despite a significant decline of 10% in coal shipments, supported by strong growth in agricultural, automotive, and industrial products shipments. Union Pacific’s total revenue in the fourth quarter grew 7% year on year to reach $5.6 billion, driven by strong pricing gains and volume growth. Operating expenses increased 4% compared to the fourth quarter of the previous year. However, when expressed as a percentage of revenue, the ratio declined from 67.1% to 65%. This indicates an increase in Union Pacific’s efficiency in managing its operating expenses. Union Pacific is targeting to bring the ratio down to sub-65% levels by 2017. Bad Weather Causes Performance Metrics To Dwindle Leading To Increase In Costs Union Pacific’s performance metrics, such as terminal dwells and velocity, have performed badly due to the severe weather. Terminal dwell, which indicates the average time a freight car resides in a terminal, has increased 13% year over year and average car velocity has decreased 9%, both unfavorable directions of change which will impact operational costs. Union Pacific has had to increase crew and equipment count in order to facilitate smooth functioning of its services amidst the severe weather conditions. This will lead to higher labor costs, rental expenses and fuel costs for the quarter which will significantly impact operating costs and operating ratio. Coal Business May Turnaround Union Pacific’s coal shipments declined 10% in the fourth quarter of 2013. However, coal shipments are expected to improve in the first quarter 2014 due to increased price of natural gas and easier comparison to last year’s heavily depressed volumes. Lately, natural gas prices have risen due to increasing demand and the harsh winter weather this season. This has eroded the price advantage that natural gas had over coal. In the first quarter 2014, Union Pacific’s coal shipments grew 7% year over year. Coupled with pricing gains, we believe that the segment may post high single digit growth in revenues. Agricultural Shipments Revenue Will Continue To Grow In The First Quarter In the previous quarter, Union Pacific’s agricultural shipments increased by 13% resulting in a 19% increase in revenue. We expect to see growth in agricultural revenue in the first quarter 2014 primarily due to the spillover effects of the strong harvest last year which boosted agriculture shipments. Corn production grew from 273 million tons in 2012 to 355 million tons in 2013 and Soybeans production grew from 82.5 million tons in 2012 to 88.6 million tons in 2013. This increase in production has driven Union Pacific’s grain shipments, which includes corn and soybean, by 38% in the first quarter. Easier year on year comparisons will also have a favorable impact on agricultural shipments. Intermodal Shipments To Post Modest Growth Union Pacific’s intermodal revenue remained stagnant in the fourth quarter 2013 due to declines in revenue per car because of lower fuel surcharges, which offset modest growth in intermodal volumes. Volume of intermodal shipments increased 4% in the first quarter. Revenue per car may increase due to increase in fuel surcharge driven by the rise in diesel prices over the quarter. Diesel prices increased from $3.8 per gallon in December 2013 to $4.0 per gallon in March 2014. Volume growth coupled with increase in revenue per car may help the segment post modest growth in revenue. Construction and Shale Related Volumes Will Help Growth In Industrials Shipments In the fourth quarter 2013, Union Pacific’s industrials shipments grew 9% on increased shale related volumes and construction material and lumber shipments. The shale gas boom in North America continues to drive demand for frac sand, finished pipes and other drilling commodities. Shale related volumes along with crude oil accounted for 4.5% of Union Pacific’s overall volumes in 2013, and we expect the number to increase in the first quarter and throughout 2014 with continued growth in shale related activity. Union Pacific’s lumber & wood products and crushed stone, gravel and sand shipments are used for commercial, residential and government construction activity. In the first quarter 2014, lumber & wood products shipments grew 2% and crushed stone, gravel and sand shipments grew 15% due to an increase in the overall construction spending in the U.S. Spending on construction increased from $928 billion in November 2013 to $945 billion in February 2014. Growth in shipments of construction material will help drive revenues for Union Pacific’s industrial shipments segment. Revenue From Automotive Shipments May Decline The growing U.S. auto industry had a positive impact on Union Pacific’s automotive shipments throughout 2013. However, automotive shipments declined 4% in the first quarter 2014 due to the impact of the bad winter weather. Revenue from the segment, which accounts for 10% of the overall revenue, may suffer unless offset by pricing gains. See More at Trefis | View Interactive Institutional Research (Powered by Trefis)
    FCX Logo
    Indonesian Government Relaxes Its Stance In Tax Dispute With Freeport And Newmont
  • by , 17 hours ago
  • tags: FCX VALE NEM ABX RIO
  • There is some good news for  Freeport McMoRan Copper (NYSE:FCX) and Newmont Mining. The Indonesian government has relaxed its earlier export tax demand of 25% quite significantly. The mining ministry has recommended a sharp cut in the 25% tax rate that was initially imposed on copper concentrate exports beginning mid-January. The ministry has recommended that the export tax should be no more than 10%, while Freeport and Newmont are saying that they are not ready to pay more than 5%. Freeport and Newmont have stopped exports of copper concentrate ever since the new tax was announced and shipments worth $4 billion are estimated to have been halted. The relaxation offered by the mining ministry is still not within the two companies’ comfort zone and the two haven’t reacted so far. Besides, an approval of the finance ministry is still needed before they can resume copper exports. The deputy finance minister had said last month that a deal with the two companies has already been reached and shipments are expected to resume by end of April. However, we think that a lot of things are yet to be resolved and it will take further negotiations to arrive at a mutually agreeable solution.
    GE Logo
    Industrial Segment Growth & Gains From Cost Cuts Will Likely Lift GE's Results
  • by , 17 hours ago
  • tags: GE
  • General Electric (NYSE:GE) will announce its first quarter earnings on April 17. The industrial conglomerate is coming off a good last year in which its earnings rose by 7% annually to $1.47 per share. GE’s 2013 results benefited from strong growth in some of its industrial segments like aviation and oil & gas. Cost cuts implemented across the company’s segments also played a key role in shoring up its profits. Throughout 2013, GE slashed its employee headcount and removed excess enterprise resource planning (ERP) systems. It consolidated production facilities to ensure greater sharing of common resources and also removed significant structural costs from Europe where its results have been impacted by slowdown. These measures enabled GE to reduce its structural costs by $1.6 billion in 2013, expanding its margins by 66 basis points. As these cost reduction measures continue in 2014, we figure gains from these will further expand GE’s margins and profits in the first quarter. In its latest guidance, GE estimates to take out an additional $1 billion from its structural costs in 2014. We will be noting how much of this is achieved in the first quarter. In our view, GE’s cost reduction is crucial for its profit growth, as the current macro environment does not support strong top line growth. Additionally, we also anticipate GE’s first quarter results to gain from strong growth in some of its industrial segments, particularly aviation and oil & gas. This growth could be offset in part by weaker results from GE’s financial arm, GE Capital, due to its smaller size. Separately, we will watch GE’s earnings for any new information on the IPO of its North American retail finance unit. We currently have a stock price estimate of $26.66 for GE, marginally ahead of its current market price. See our complete analysis of GE here Lower Cost Structures Will Enable GE To Compete More Aggressively GE is slashing its cost structures across its industrial segments, which include power & water, oil & gas, energy management, aviation, healthcare, transportation and appliances & lighting, under an initiative called simplification. Through this initiative, GE is seeking to not only reduce its costs but also make itself more agile to customers. We figure simplification is very important for GE as it will help the company compete more aggressively with smaller companies, which due to their size are able to respond faster to changing customer demands. At the same time, GE considers cost savings realized through simplification as important as investments in technology for maintaining market leadership. In technology, the company already leads in most industries it is present in. For instance, GE’s strong showing at the Dubai Air Show where it won airplane engine orders worth $40 billion – more than its competitors – was due to its technologically advanced portfolio. In our view, if the company can support its technological lead with lower costs, which translates into competitive pricing, then competitors will find it very difficult to take market share from GE. Aviation And Oil & Gas Will Lift GE’s First Quarter Results In addition to gains from lower costs, we anticipate GE’s first quarter results to benefit from strong growth in some of its industrial businesses, especially aviation and oil & gas. In aviation, demand for engines from airplane makers such as Boeing (NYSE:BA) and Airbus is growing as they are hiking their production rates in response to rising orders from airlines. This is raising engine shipments of GE. At the same time, GE’s services revenue from aviation is also rising as the worldwide airplane fleet is growing in size. More planes flying with GE engines are generating higher revenues for GE from engine servicing, repair and overhaul. In oil & gas, where GE provides oil/gas drilling equipment and machinery, the company’s sales are rising driven by growing demand for oil and gas worldwide, especially from the emerging countries. On the flip side, we figure this growth in GE’s first quarter industrial results from aviation and oil & gas will be partially offset by weakness in its transportation segment, which apart from providing locomotives serves the global mining industry. And the ongoing weakness in the mining sector caused by lower capital and cost spending from mining companies, will impact results at GE’s transportation segment. Overall, we anticipate results at GE’s industrial segment, which constitutes over 55% of its total earnings, to grow in the first quarter. Smaller GE Capital Could Weigh On GE’s Sales and Profits In comparison, GE’s financial business – GE Capital – will continue to contract in the first quarter. This will likely weigh on GE’s revenues and profits from GE Capital. The reduction in GE Capital’s size is not a fallout of an external change, but an intended outcome of a GE strategy. Since the financial crisis of 2009, GE has slashed GE Capital’s size in an attempt to lower its dependence on the financial sector. The company seeks to ultimately raise the share of its industrial segment to 70% of its total earnings. As part of this process, GE in March, filed a statement with the Securities and Exchange Commission for the initial public offering of its North American retail finance unit. This unit, which provides credit on store sales, is the largest issuer of private-label credit cards in the U.S.. GE plans to dilute around 20% of its stake in this unit through an IPO later this year. Thereafter, the company will divest its remaining stake in this unit next year. Read here in greater detail about GE’s exit from this business. For GE, this exit from its North American retail finance unit will play a key role in reducing the share of GE Capital to 30% in its total earnings. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis)
    ABT Logo
    Abbott Earnings Preview: Emerging Markets & New Products Likely To Drive Sales
  • by , 18 hours ago
  • tags: ABT BSX MDT JNJ
  • Abbott Labs (NYSE:ABT) is scheduled to release its Q1 2014 earnings on Wednesday, April 16. In the previous quarter, operational sales increased 3.3% year-over-year (y-o-y) to $5.7 billion, driven by robust sales of its Diagnostics, Vascular and Medical Optics products. Nutritionals, the company’s largest business segment, continued to be impacted by the supplier recall that was initiated in international markets in August of last year and reported a marginal 1.1% y-o-y increase in operational sales. On the cost side, the healthcare conglomerate improved its gross margins by 60 basis points to 55.4% on the back of improving operating margins in the Nutritionals and Diagnostics businesses. In the company’s first quarter earnings, we expect operational sales to grow in the mid-single digits, driven by continued growth in Diagnostics and a marginal improvement in Nutritionals. Abbott’s management stated in the previous earnings call that the company expected adjusted gross margins to decline to about 54% in the first quarter of 2014 on account of increasing competition, foreign exchange impacts and the supplier recall in Nutritionals. We expect gross margins to match company estimates. Emerging markets contributed about 40% of total sales in the fourth quarter last year. We expect this to increase going forward as Abbott increases its presence in emerging markets such as China, India and Brazil, anticipating higher growth prospects compared to developed regions. The company introduced several new products last year and they are likely to contribute significantly to sales in the near future. We have a price estimate of $40 for Abbott Labs, implying a premium of over 5% to the current market price.
    C Logo
    Improved Trading Revenues Lift Citigroup's Q1 Results
  • by , 18 hours ago
  • tags: C JPM BAC WFC
  • Citigroup (NYSE:C) surprised investors with its performance figures for the first quarter of the year on Monday, as the banking group beat expectations comfortably with a sequential 60% jump in net income. Investor sentiment towards Citigroup had been low since February after the bank’s Mexican unit was found to be involved in a multi-million dollar loan fraud, and the Federal Reserve’s unexpected rejection of its capital plan for 2014 late last month only made matters worse (see Why The Fed Rejected Citigroup’s Capital Plan ). The ensuing investigations, as well as Citigroup’s $1.125 billion mortgage settlement with institutional investors last week, pointed to a lukewarm earnings report for this quarter – a notion that was only cemented by JPMorgan’s (NYSE:JPM) weaker-than-expected performance detailed last Friday, April 11. But the Q1 results provided investors some comfort, as the bank’s earnings for the year were 4% higher than the same period last year – and one of the best for the bank since the economic downturn of 2008. Consequently, the bank’s shares gained 4.4% over trading following the results.
    WFC Logo
    Wells Fargo Overcomes Shrinking Revenues To Report Record Results For Q1
  • by , 19 hours ago
  • tags: WFC BAC JPM USB C
  • Wells Fargo (NYSE:WFC) continued its strong run with yet another record performance in the first quarter of the year, as the bank reported a sequential 4.5% improvement in net income for the period even though its revenues shrank marginally. Compared to the same period last year, the bank reported a 14% jump in net income despite a 3% reduction in total revenues. Wells Fargo has reported an increase in its bottom line for each of the last sixteen quarters since Q1 2010 – a formidable effort considering that the period has seen significant changes in the country’s economic conditions and the regulatory framework for big banks. Even though the bank has seen revenues shrink from the peak figure of almost $22 billion in Q4 2012 – when the mortgage refinancing wave died – to the current figure of $20.6 billion, effective expense management has ensured that the bottom line continues to improve.
    KMP Logo
    Kinder Morgan Q1 Preview: Expect Higher Natural Gas Transport Volumes
  • by , 19 hours ago
  • tags: KMP KMI ENB
  • Kinder Morgan Energy Partners (NYSE:KMP), one of North America’s largest mid-stream energy companies, is expected to publish its Q1 2014 results on April 16. The company’s performance over the last few quarters has been driven by acquisitions in its natural gas pipelines division as well as strong oil production volumes in the CO2 business. In Q4 2013, the company’s revenues grew by around 29% year-over-year to about $3.47 billion while net income increased 26% to $809 million. Below we take a look at some of the factors to watch, and what to expect from the company’s natural gas and products pipelines business when it releases earnings. Trefis has a  price estimate of $83 for KMP, which is slightly ahead of the current market price.
    SNDK Logo
    Enterprise Storage To Drive SanDisk's First Quarter Performance
  • by , 20 hours ago
  • tags: SNDK WDC STX VMW
  • SanDisk Corporation (NASDAQ:SNDK) is scheduled to announce its Q1 2014 earnings on April 16. In the last quarter, the company met its guided revenue midpoint of $1.73 billion, and we expect the company to stay within its expected revenue range of $1.425-$1.5 billion in Q1. The company posted healthier margins and a higher net income in 2013 compared to 2012, primarily due to a better mix of high-margin enterprise-class solid-state drives (SSDs) over embedded and client SSDs. Looking ahead, the company expects gross margins to be around 48% for the quarter while it expects gross margins for the full year to be similar to last year’s at around 45%. A weak Yen during the previous quarter resulted in a 6% reduction in production costs, since the company sources many products from Japan. The company could witness further benefits in Q1, as exchange rates have been lower than the company’s anticipated figures.

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