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Textron Q3 Earnings: Revenues And Earnings Miss; Guidance Revised Upwards As Aviation And Industrial Continue To Perform
  • By , 10/24/16
  • tags: TXT
  • Textron  (NYSE:TXT) reported earnings and revenue figures short of analyst estimates in Q3. The negative impact on sales at Bell and Textron Systems was partially offset by positive growth at Aviation and Industrial, reflecting in a marginal overall revenue increase of $71 million year on- year. Earnings suffered primarily due to higher than anticipated corporate expenses which reflected higher stock-based compensation and higher spending on the troubled Scorpion program. That said, the company’s stock price rallied upwards after the earnings call on the back of an optimistic guidance revision by Textron management.   Aviation Remains Resilient In A Slumped Market: In the recent past, the business jet market has remained soft on the back of slowing GDP growth rates worldwide and a dismal oil market. Since these factors have a direct impact on corporate profit growth, which has suffered in many sectors so far, business jet usage has slowed this year. However, despite the downturn, Cessna at Textron has managed to stay on top of things by making market share gains through some of its new business jet-programs and securing large orders. Revenues at Aviation were up $39 million in the quarter primarily due to higher pre-owned aircraft volumes. The segment delivered 41 Jets as compared to 37 last year and 29 King Airs flat with last year. However, segment profit was $100 million down from $107 million year-on-year. Backlog in the segment remains at $1.1 billion flat with the second quarter. We expect the NetJets orders to help float the segment in the near future until the market conditions improve again. Sales At Industrial Shine Yet Again: Revenues at Industrial increased by $58 million due to the impact of a newly acquired business and higher volumes in the automotive and specialised vehicle businesses. Segment profit increased by close to $5 million reflecting improved performance. In the quarter, Textron acquired a Swedish De-Icer manufacturer, Safeaero. The acquisition will benefit the continually growing ground support equipment portfolio. Furthermore, last month, management announced a consolidation between Jacobson and a specialised vehicle business in order to optimise efficiency. Within the commercial business space, the company introduced a new line of Cushman Hauler utility vehicles. At Kautex, Textron’s selective catalytic reduction product line continues to drive growth above the current auto market. We can expect Industrial to consistently perform going forward barring some seasonal factors that could reflect on sales. The Dismal Oil And Gas Industry Continues To Weigh On Bell’s Top Line: The current troubles in the helicopter manufacturing industry are testament to the fact that the downturn in the oil industry continues to have a domino effect across various sectors. Helicopters are the primary mode of transport used in the oil industry to ferry workers and cargo to oil platforms. Approximately 25% of the global helicopter fleet is deployed in the oil and gas sector. Bell has suffered majorly in this respect, with lower commercial deliveries more than offsetting higher military volumes. The segment managed to deliver only 25 commercial helicopters, down from 45 in the third quarter last year. Furthermore, test flights on the Bell 525 are still suspended following the crash that took place in June, killing both the test pilots. Before the mishap, Textron was targeting its first delivery in 2017. However, the crash will likely create a variety of uncertainties and delays in FAA certification and, consequently, the delivery of the aircraft. This is bound to have a negative effect on the segment’s top-line. Despite the negatives, Textron management revised guidance for FY 2016 up to  $2.65 to $2.75 a share, which corresponds to GAAP EPS of $3.06 to $3.21 per share. That said, the company lowered guidance for cash flow from continuing operations of the manufacturing group for pension contributions, from the $600 million to $700 million range to $500 million to $600 million range. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
    SAP Logo
    Cloud Services Continue To Drive SAP's Upward Trajectory
  • By , 10/24/16
  • Software giant  SAP SE  (NYSE:SAP) released robust third quarter earnings, achieving top line growth of 9% year over year, driven by 28% growth in cloud services and favorable exchange rates. In the legacy on-premise software licenses business, the company continued to rack up new customers in the third quarter for its S/4HANA ERP platform. It added 400 new customers to its S/4HANA platform, with total customers now at 4,100. Despite the increase in revenues, the company’s operating profit declined 8% from the prior year quarter level to $1.2 billion. The decline in operating margins was mainly attributed to an 18% year-over-year increase in R&D expenses, and a 36% increase in sales & marketing expenses. The uptick in expenses was reflected in the net income, which declined from $988 million in Q3 2015 to $815 million in Q3 2016. Cloud Services Cloud services continue to drive SAP’s growth. In the quarter ended September 30th, they contributed $860 million to the company’s revenue, an increase of 30% over the prior year quarter. On constant currency basis, the segment showed a growth of 28% over the same period. The growth was driven by new customers, who provided an incremental revenue of $296 million, an increase of 24% over the same quarter last year. The growth in cloud services has resulted in it contributing 15% to the company’s top line, against 11% contribution in the first quarter of fiscal year 2015. The increase in revenue from the segment also warranted additional investment, which was evident by higher capital expenditure by the company. For the last quarter, the company’s spending rose 180% over the prior year quarter to $285 million. For fiscal 2016, the company guides revenues from cloud subscriptions and support to be in the range of $3.35 billion to $3.40 billion (expected at current exchange rates), an uptick of 6.5% to 8.5% over last year’s numbers.  The company expects the gross margins to be 83%, similar to 2015 figures, and operating profits to be in the range of $7.25 billion to $7.50 billion (at current exchange rates). More Trefis Research
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    Honeywell Q3 Earnings: Revenue And Earnings Beat; Company Optimistic Of A Brighter Future
  • By , 10/24/16
  • tags: HON
  • Honeywell  (NYSE: HON) reported a solid Q3 earnings last week. The company managed to post an earnings of $1.67 per share (excluding restructuring charges of $0.07 per share), beating the consensus estimate of $1.60 by a wide margin. The third quarter witnessed some important changes in the structure of the company that are expected to drive performance going forward, despite the slow environment. These include the split of the former automation and controls solutions segment, the acquisition of Intelligrated, the sale of its government services business and the spin of resins and chemicals. The conglomerate is expecting to return to double-digit EPS growth in the fourth quarter. Further, if all goes to plan, Honeywell could be seeing its full-year EPS growth target to come in at around 8% to 9% as communicated on October 7. Furthermore, CEO Dave Cote took this earnings call as an opportunity to reaffirm the management’s confidence in the company and its future, reassuring investors that Honeywell is poised to outperform in the coming quarters. Key Financial Highlights: Sales in Q3 were reported at $9.8 billion primarily reflecting the impact of acquisitions. On a core organic growth basis, the sales of the company were down almost 3%. Revenues growth was primarily driven by process solutions, transportation systems, and home and building technologies. That said, the positive impacts were more than offset by the softness in business jets, defense and space, productivity solutions and UOP. Segment margins declined on the back of adverse impacts from OEM incentives, M&A integration costs and lower volumes. This was partially offset by benefits from previous restructuring endeavours. As mentioned previously, EPS was up 4% to $1.67, excluding a restructuring charge. However, individual restructuring projects in Q3 are expected to provide attractive accretion in both 2017 and 2018. The dismal business jet market continues to hurt sales at Honeywell’s aerospace business. The company expects the subpar sales figures going into 2017 as well. OEM incentives ate into the companies margins this quarter and will continue to do at least until the next quarter. Furthermore, the company is experiencing lower volumes in defense and space as well. We can expect the business to be down in the mid single digit range in Q4. The aftermarket business is expected to see a steady growth in spares, primarily due to the new jet wave installations and channel and customer demand. However, repair and overhaul will moderate slightly on lower aircraft utilization. The Home and Building Technologies (HBT) saw revenues increase by about 17% year over year, with a positive organic growth of about 5%. Going forward, we can expect organic growth in the low single-digit range in both products and distribution businesses. The reported growth will however be supported by Elster, where significant rollouts are on the cards in the UK. On the product side, sales in the environment and energy solutions business will continue to improve on the back of new product introductions in North and South America, and a continued double digit growth in China and India. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
    MWW Logo
    Monster Pushes For Shareholder Approval Of Randstad Deal As Q3 Results Slide
  • By , 10/24/16
  • tags: MWW LNKD
  • Monster Worldwide  (NASDAQ:MWW) announced its results for the third quarter Friday, October 21st. The company’s impending acquisition by Randstad Holding for $429 million at a purchase price of $3.40 per share was again the primary focus of the earnings release. Monster reiterated its support and stated that it would soon publish an investor presentation highlighting its benefits for Monster shareholders.  Yet Monster’s largest shareholder, MediaNews Group Inc., is dissuading shareholders from accepting Randstad’s offer, citing its arbitrary and low valuation.  Still, the acquisition is expected to close in the fourth quarter of 2016. For Q3 2016 ended September 30th, Monster’s revenue declined 13% over the prior year quarter to about $145 million, in line with the preliminary results released by the company earlier this month. The 13% top line fall was primarily due to the decline in revenue from North America, which declined 16% on a year over year basis to $99.7 million. The company reported an operating loss of $193 million in Q3 2016, compared to an operating income of $10.8 million in the prior year quarter. The significant drop in Monster’s operating income was primarily due to goodwill and asset impairment charges of over $182 million. This resulted in the company reporting a net loss of about $181 million or $2.03 per share for the quarter, which was below market expectations of 4 cents a share. See our complete analysis for Monster Do you have a question, suggestion or an analysis request? Feel free to email  
    ETFC Logo
    Interest Earning Assets Propelled Revenue Growth For E-Trade in Q3
  • By , 10/24/16
  • tags: ETFC AMTD SCHW
  • E*Trade Financial  (NASDAQ:ETFC) reported better than expected Q3 earnings, supported by an increase in revenue from interest earning assets. The Fed’s interest rate hike in the end of 2015 and indications of another hike under improving macro-economic conditions in the U.S. has led to an impressive growth in the company’s top line through the year so far. The company reported a net revenue of $486 million and EPS of $0.51. Excluding the $370 million loss in Q3, 2015 related to the termination of wholesale funding obligations, the revenue grew by 10% year over year.  Trading commissions, which contribute about 25% to the revenue, have declined slightly year over year. The recent acquisition of OptionsHouse did bring about an increase in trading volumes, which otherwise would have seen 6% decline and negatively affected the trading commissions. The company has indicated that its top priority is to completely integrate OptionsHouse, which would likely boost their trading volumes and elevate their position against other brokerages. Further, the company is focusing on increasing its customer base, mainly by extensive marketing of its products and services and consequently enhancing the growth of its assets and accounts. With the recent entry into digital advisory, we expect E-Trade’s Adaptive Portfolio to boost the company’s assets under management in future. Our price estimate for E-Trade stands at $24.07, implying nearly 15% discount to the market. We are currently reviewing our estimates in the light of recent earnings, and will have an update ready soon. See Our Complete Analysis For E-Trade Here Fed’s Decision Is Boosting Interest Earning Assets Interest earning assets generate about 60% of the brokerage’s revenue. We believe a 25 bps hike in December 2015 influenced the growth in these assets during the first half of 2016. Additionally, the expectation of another hike in early 2017 has encouraged investors to infuse money. A net interest yield on these assets is 2.6%, which is higher than that of competing brokerages. This is a significant advantage as for instance, a $1 billion gain in interest earning assets could result in approximately $26 million rise in E*Trade’s interest earning revenue in comparison to around $15-18 million rise for brokerages like Charles Schwab and Ameritrade. Trading Volumes Decline Under Unfavorable Market Conditions; Likely To Rise Due To Recent Acquisition E-trade’s trading revenues have been declining since the beginning of the year, apart from a slight increase in June due to Brexit. With less volatile market conditions, we believe that investors have opted for safer avenues. In addition, increased competition from other brokerages is weighing on trading revenues as well. Excluding the impact of the acquisition of OptionHouse, daily trading volumes declined 4% sequentially and 6% year-over-year. With a continuous increase in brokerage accounts and improving macro conditions in the U.S., daily trading volumes are likely to show a steady improvement. We expect this to boost the brokerage’s trading commissions. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
    LMT Logo
    What Can We Expect From Lockheed Martin's Q3 Earnings?
  • By , 10/24/16
  • tags: LMT
  • Lockheed Martin  (NYSE: LMT) is expected to report Q3 earnings on Tuesday, October 25th. In the first two quarters of the year, the company posted stellar results, beating consensus estimates in both revenues and earnings. With additional F-35 sales and Sikorsky’s inclusion, we expect this momentum to continue into Q3 as well. That said, earnings could suffer slightly due to Lockheed’s divestiture of its Information Systems and Global Solutions (IS&GS) business. Analysts at Wells Fargo expect Lockheed to grow its third-quarter revenue by about 3% year-on-year on the back of a 57% increase in its newly created Rotary and Mission Systems business, sparked entirely by its Sikorsky acquisition last November. Additionally, Wells Fargo expects to see a 7% increase in the company’s Aeronautics segment as a result of high F-35 orders. For the quarter, Wall Street anticipates earnings per share to come in around $3.09. Furthermore, last quarter, management revised full year guidance upwards, with revenues expected to come in between $50.0-$51.5 billion and EPS to fall within the $12.15-$12.45 range. Divestitures and Acquisitions: Lockheed Martin concluded the divestiture of its Information Systems and Global Solutions (IS&GS) business, which was spun off and merged with Leidos Holdings Inc, officially on August 16. The divestiture could impact earnings adversely, which in turn may lead to a reduction in the 2016 earnings guidance. However, one must keep in mind that this will be a one time expense and will not plague the company’s books. As a part of this deal with Leidos, the company received a special cash payment of about $1.8 billion. The company stated that it intends to use this cash to repay its debt, issue dividends and repurchase stock. The business generated about $5 billion in revenues every year. Source: Investor Presentation, Q2 2016 Furthermore, it was announced in the earnings call last quarter that LMT has increased its stake in Atomic Weapons Establishment (AWE). AWE is a joint venture with Serco and Jacobs Engineering Group to help the U.K. manage its atomic weapons. This could result in a gain within the company’s Space Systems division. Further, with the increased stake, Lockheed now has control of the joint venture.   Sikorsky Immune To Helicopter Market Slump Overall, But Could Suffer In Aftermarket Sales: The helicopter manufacturing industry has been in quite a slump recently as the depressed oil industry continues to have a domino effect across other sectors. Helicopters are the primary mode of transportation used to ferry workers and cargo to oil platforms. Almost 25% of the helicopter fleet are deployed in the oil and gas sector. According to research at Wood Mackenzie, more than $1 trillion worth of investment cuts have been planned worldwide for the remainder of the decade, and hence, fleets of helicopters are being idled. Sikorsky has the largest backlog amongst its competitors. That said, almost 75% of its orders are from military customers and only 7% are from the oil industry. This makes the helicopter manufacturer relatively immune to the order deferrals. Source: Market Realist However, with fleets of helicopters getting parked, manufacturers are losing out on lucrative aftermarket sales. Unfortunately for Sikorsky, it faces a larger aftermarket risk than other players, with about 11% of Sikorsky’s in-service fleets exposed to the oil sector. This could partially offset the growing top-line in the near future. Notes: 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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    Microsoft Earnings: Cloud Adoption Takes Center Stage As Revenue Improve Slightly
  • By , 10/24/16
  • tags: MSFT
  • Microsoft  (NASDAQ:MSFT) announced its earnings for Q1 FY17 on October 20th. (Fiscal years end with June.) The company posted a 3% year-over-year growth (5% in constant currency)  in revenues to $20.453 billion. In  our pre-earnings note, we noted that cloud services would boost revenues across productivity and business processes and intelligent cloud divisions. Commercial cloud annualized revenue run rate exceeded $13 billion, and the company is on course to achieve $20 billion annual run rate by fiscal year 2018. As a result, the stock was trading at all-time high on Thursday (after market hours). However, the secular decline in PC shipments, together with the rising popularity of Chrome OS, impacted revenues for personal computing division.  Below, we review Microsoft’s Q1 FY 17 (Q3 CY2016) results by segment. See our complete analysis of Microsoft here Increasing Adoption Of Cloud Boosts Productivity And Business Processes Division Microsoft has been able to leverage the popularity of its enterprise offerings to cross sell its cloud SaaS products. During the quarter, Microsoft reported that its Office commercial products and cloud services revenue grew 5% (up 8% in constant currency), driven by Office 365 commercial revenue growth of 51% (up 54% in constant currency). Monthly active users of Office 365 commercial are now over 85 million, up more than 40% year over year, while Office 365 consumer subscriber base grew to 24 million resulting in 8% (8% in constant currency) growth in Office consumer and cloud services revenue. Microsoft’s Dynamic cloud services continue to report an increased adoption, as Microsoft’s clients continue to adopt the CRM and ERP services that deploy machine learning and intelligent cloud to glean insights from previously siloed data to transform how people work across finance, sales, marketing and customer service. During the quarter, Dynamics products and cloud services revenue grew 11% (up 13% in constant currency) driven by Dynamics online revenue growth. Dynamics online paid seats more than doubled year over year. We expect Dynamic ERP and CRM revenue will continue to grow as it offers the benefit of cloud and the backing of Microsoft’s ecosystem of services. Server & Cloud Witness Another Quarter Of Strong Adoption Microsoft’s Windows Server division is one of the fastest growing divisions of Microsoft and contributes over 30% to Trefis’s estimated stock price. During Q1FY17, the intelligent cloud segment (Azure, Server products and enterprise services) delivered $6.28 billion in revenues, a year-over-year growth of 8% (10% in CC). While server products and cloud services revenue grew by 11% (13% in constant currency), driven by growth in Microsoft SQL Server, adoption of the cloud-based Azure platform resulted in 116% growth (121% in CC) in its revenues. As a result of these products, the company’s cloud revenue run rate exceeded $13 billion. We’re encouraged by the continual growth that this division posted, and it is becoming an important driver for Microsoft’s value. OS Licensing Revenue Stabilizes As New Metrics For Gaming Indicates Growth For Xbox Live, Devices Revenues Continue To Flounder    Windows Operating system division is the third largest division and makes up nearly 6% of Microsoft’s estimated stock price. While Microsoft   reported that its Windows OEM non- Pro licensing revenues declined by 1% and its OEM Pro revenue grew by 1%. The declines are the result of slowdown in global PC industry. Recent data from Gartner indicates that PC shipments declined by 5.7% in Q3 2016.  However, the company was able to buck this trend as license sales declined at a slower pace due to a the ecosystem of its services that is endorsed among enterprise clients. Furthermore, as both its existing and new OEM partners are bringing to market an expanded set of device offerings at lower price points for Windows 10 offering, we expect sales to pick up in the coming quarters. This is the first time that the company has disclosed the topline numbers for its gaming division. The reported numbers indicates that Microsoft’s XBox live continues to find favour among gamers. With nearly 47 million Xbox live users and an installed base of 60 million Xbox 360 consoles, the company generated over $1.8 billion revenues during the quarter. While gaming revenue declined 5% (or 4% in constant currency) due to lower console hardware revenue, strong engagement on Xbox platform resulted in 21% growth in monthly active Xbox live users. As a result, software and services revenue from console, PC in other gaming devices grew 6% (or 8% in constant currency). Microsoft’s devices continued to perform poorly as revenue decreased 27% (down 25% in constant currency) due to a 72% (71% in CC) decline in phone hardware revenue. However, Surface revenue increased 38% (39% in constant currency), driven by year-over-year growth for surface Pro. We expect that, as the company is nearly done with phasing out its phone hardware, the revenue for the devices segment will report growth in the coming quarters. Online Service Division (OSD) The online services division also reported some encouraging signs as online search advertising revenue grew 9% to over $1 billion. Furthermore, search advertising revenue improved due to increased revenue per search resulting from ongoing improvements in ad products and higher search volumes. We forecast Bing’s global market share to increase steadily throughout our forecast period but any surprises to the upside are not expected to increase the company’s value substantially. We are in the process of updating our Microsoft model. At present, we have  $56.05 price estimate for Microsoft, which is 8% 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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    Akamai Earnings Preview: Loss Of Customers To Weigh On Results
  • By , 10/24/16
  • tags: AKAM
  • Akamai is scheduled to release its Q3 fiscal 2016 results on October 25th and going by the prevalent trend, it appears that the company won’t be able to report promising results. Revenues from Akamai’s top technology clients such as Apple and Facebook are declining as these companies are investing in their own network delivery infrastructure. Revenue from Akamai’s six biggest technology companies accounted for just 11% of its net sales in Q2 2016, down from 18% in the year ago period. This factor is expected to have had significantly influenced Akamai’s revenues for the third quarter, as well. However, Akamai’s CEO believes that the worst may be behind them. While the decline in prices from some customers can impair the company’s margins in the near term, it expects to see some improvement next year. Nevertheless, near term results would be suppressed due to a permanent shift in several customers’ approach, partially offset by increased web traffic due to the recently concluded Olympic games.   Have more questions about Akamai? See the links below: What’s Akamai’s Revenue & Earnings Breakdown Based On Expected 2016 Results? What’s Akamai’s Fundamental Value Based On Expected 2016 Results? How Has Akamai’s Revenue Composition Changed In The Last Five Years? What Has Led To A ~100% Increase In Akamai’s Revenues & EBITDA In The Last Five Years? By What Percentage Can Akamai’s Revenues Grow Over the Next Five Years? How Are Akamai’s Revenue & EBITDA Composition Expected To Change By 2020? Notes: Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap | More Trefis Research
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    Strong Inflows Into iShares, Cost Focus Helps BlackRock's Q3 Results, But Industry Headwinds To Hurt Profits Going Forward
  • By , 10/24/16
  • tags: BLK STT BK JPM
  • BlackRock  (NYSE:BLK) reported strong performance figures for the third quarter last week, with the world’s largest asset manager continuing to leverage its strength in the ETF industry to boost revenues even as it keeps a close watch on its operating expenses. The highlight of the results was the increase in BlackRock’s investment advisory fees to an all-time high of $2.55 billion. As this fee income represents a recurring revenues stream for the company (as opposed to more volatile performance-related fees), the overall increase in these fees is a good sign for investors in the long run. But the global asset management industry is currently undergoing some major changes which we believe will put pressure on BlackRock’s earnings in the future. Firstly, there has been a steady outflow of funds from lucrative actively-managed equity funds for all asset managers over recent quarters, as active funds have been unable to outperform indexed funds or ETFs over recent years. This trend is not expected to change anytime soon. And secondly, the price wars in the rapidly growing ETF industry are only expected to become more intense in light of the Department of Labor’s  fiduciary rule  governing retirement investment advice. We revised our  price estimate for BlackRock’s shares downward from $385 to $380  to reflect the impact of these industry-wide changes on the company. The new price target is roughly 10% ahead of the current market price.
    S Logo
    Will Sprint's Postpaid Phone Momentum Continue Into Q2?
  • By , 10/24/16
  • tags: S s TMUS VZ T
  • Sprint (NYSE:S), the smallest of the four national wireless carriers, is expected to publish its Q2 FY’16 earnings on October 25th. Below, we outline some of the key factors that we will be watching when the firm reports earnings. We have a $6 price estimate for Sprint, which is about 15% below the current market price.  Postpaid Phone Strength Should Continue Sprint has been performing well on the postpaid phone front, leveraging its network enhancements, well-received promotions such as offering new customers 50% off their current bills, and some weakness at Verizon and AT&T, who have been letting go of feature phone customers. Sprint added a net of 173k customers during Q1 FY’16, compared to a loss of about 12k customers in the year ago quarter and we expect the trend to continue into Q2. Sprint also stands to benefit the most from the launch of Apple’s iPhone 7. While nationwide U.S. carriers have been offering the device for free with trade-in promos, Sprint will only offer the promotion with its leasing scheme, rather than via equipment installment plans (EIP), reducing its loss per sign-on by as much as half compared to its bigger rivals (related:  Why Sprint stands to gain the most from iPhone 7 ). This will enable Sprint to offer its promos for an extended period of time (most rivals ended their promos in late September), winning over more subscribers. Prepaid Business In Focus Sprint’s prepaid business has been shrinking, on account of competition from AT&T’s Cricket brand and T-Mobile’s MetroPCS, as well as its own de-emphasis on the low-value pay-as-you-go segment. The carrier lost about 331k prepaid subscribers during Q1 FY’16, while its prepaid churn stood at 5.55%. The decline is somewhat concerning, as the prepaid market is actually becoming more attractive to wireless carriers due to a shift to monthly billing cycles and a narrowing gap between prepaid and postpaid ARPUs. We will be closely watching Sprint’s postpaid metrics for the quarter. Margin Expansion Could Continue  Sprint has been boosting its EBITDA margins in recent quarters (up by about 500 bps year-over-year to 31% during Q1 FY’16). Although this partly attributable to the shift towards handset leasing, which moves costs to the depreciation header, the carrier has also been cutting down on its network and SG&A expenses (down by about 12% each, during Q1). It’s likely that Sprint’s margins continued to expand in Q2, as its revenue base rose, driven by its recent postpaid subscriber growth and also as it looks to achieve a sustainable reduction of $2 billion (roughly 10% of total OpEx) or more in run-rate operating expenses exiting this fiscal year. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
    PG Logo
    Procter & Gamble Likely To Reap Marketing Benefits in Q1'17 As Macros Continue To Be Hostile
  • By , 10/24/16
  • tags: PG KMB UL CL
  • The world’s leading FMCG company Procter & Gamble (NYSE:PG) will report its Q1’17 earnings on 25th October. P&G’s stock price fell 3.5% after Unilever (NYSE:UL) reported midling results in the wake of slow consumer demand and high commodity prices.  Clearly, therefore, markets are fearing a similar impact on P&G’s earnings. Although the above mentioned factors are likely to affect P&G’s earnings, but  the company’s large exposure to more stable developed markets (65% sales from developed regions) might save it from the volatility in the emerging markets which had a toll on Unilever’s earnings.  Also, it will be interesting to note how P&G’s increased marketing and R&D expense, combined with its divestiture strategy, affected its organic sales and volumes in Q1’17.  We believe these two factors might offset some of the pressure P&G faces economically. See   our complete analysis for Procter & Gamble High Impact of Currency Headwinds P&G derives 23% of its sales from Europe, and post Brexit, the Euro and Pound have weakened 4% and 17% respectively against the US Dollar. Therefore, P&G might experience a currency impact more than what Unilever experienced because the former has the larger share of its sales coming from the developed market as compared to the latter. On a positive note, this very fact might also protect P&G from the slowed down growth in emerging markets. According to World Bank  forecasts, GDP growth in Latin America and Asia Pacific region is expected to slow in 2016 as compared to 2015, whereas it is likely to improve in the European regions, which is the stronghold of P&G. Marketing and R&D Expenses Likely To Yield Results P&G has been facing tough competition from local players as far as the innovation part is concerned. For instance, in the diaper segment, P&G is experiencing a fierce resistance in Asian markets from Japanese brands like Merries, Moonies and Goon, primarily due to the fact that the diapers by these brands are thought to be custom made for the skin type and fit of Asian babies. To tackle such issues, P&G has increased its R&D to net sales percentage from 2.6% earlier in this decade to 4.1% in 2015. This combined with larger spend on marketing yielded good results on the volume front in Q4’16 as all the five segments reported a rise in organic sales and organic volumes. The company is likely to reap more benefits of higher R&D and marketing expenses in this fiscal year, which might bring its growth on track. Watch Out For Beauty Segment In 2015, P&G divested 43 of its non performing beauty brands including Camay, Zest, Covergirl and Gucci. The positive impact of these divestitures was seen on the organic sales and volumes of the segment as both increased 1% in Q4’16. However, the constant currency net earnings from the beauty segment saw a massive 27% year-over-year decline due to the marketing investments. It will be crucial to watch how the segment performs in the coming quarters of FY 2017, as it will largely be a measure to the success of P&G’s divestiture and marketing strategy. Get Trefis Technology
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    Mercedes-Benz Spearheads Growth For Daimler In Q3 As Daimler Trucks Witness Sales Decline
  • By , 10/24/16
  • Daimler AG  reported better than expected growth in earnings per share in Q3, as the continual growth momentum in Mercedes-Benz boosted results. However, lower truck sales, especially in the NAFTA region, took a toll on Daimler Trucks, dragging down the group’s top line growth. The demand for medium and heavy trucks remained strong all through last year in the U.S. on the back of robust freight activity, fleet utilization, and growing profitability for fleet operators as crude oil prices continued to decline at a fast pace. Unit sales in the North American Heavy Truck Market grew by 12% in 2015, but the demand has weakened this year. The weaker Class 8 registrations are due to the cooling off phase, as refilling of fleet took place aggressively in the last couple of years. Weak overall investment is expected to decrease demand for Class 6-8 trucks by ~15% in 2016. Although Daimler expects significantly high growth for Mercedes-Benz this year, its outlook is somewhat dampened on the back of lower anticipated sales and EBIT for the Daimler Trucks division. Have more questions on Daimler? See the links below. Mercedes’ Strong SUV Lineup Is Helping It Weather The Storm In The US Automotive Market Why Daimler Is Valued More Than Volkswagen Despite Selling Far Fewer Vehicles Daimler AG Is Putting Its High R&D Expenditure To Good Use Slowing Truck Sales In North America Are Obstructing Daimler’s Growth Daimler Earnings Review: Mercedes Posts Record Results Through June, But Margin Down On Added Expenses Mercedes’ Strong Growth Could Give Impetus To Daimler’s Stock Daimler Earnings Review: Profit Declines As Currency, Negative Mix Impact Results Where Will Daimler’s Revenue And Gross Profit Growth Come From Over The Next Three Years? What Is Daimler’s Revenue And Gross Profit Breakdown? By What Percentage Have Daimler’s Revenues And Gross Profit Grown Over The Last Five Years? What Is Daimler’s Fundamental Value Based On Expected 2016 Results? How Has Daimler’s Revenue And Gross Profit Composition Changed Over 2012-2016E? Notes: Get Trefis Technology
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    Pandora Earnings Preview: Expecting Another Weak Quarter
  • By , 10/24/16
  • tags: P
  • Pandora is scheduled to release its Q3 fiscal 2016 earnings on October 25th and although there will likely be a notable growth in revenues, the company is likely to remain in the net loss position. Pandora’s monetization has been improving consistently, driving revenues upwards and we expect this trend to have continued in the recently concluded quarter. However, we expect a significant decline in the company’s EBITDA for the third quarter, on account of the recent increases in royalty rates (0.02 cents per performance) and surging sales and marketing costs. Also, we will keep an eye out for updates on Pandora’s recently launched on-demand music subscription service. Details around the initial response to this feature can greatly help in assessing the company’s potential future as a subscription-based service. Pandora has traditionally relied on advertisements for a bulk of its revenues, which haven’t been enough to counter its burgeoning content and sales and  marketing costs. Although the Internet radio company did have the subscription side of the business, its limited song library along with radio station format of listening (unavailability of on-demand music) could never really convince users to pay for ad-free services. With the on-demand service, the company can hope to bolster its subscriber base, thereby increasing its monetization. Have more questions about Pandora? See the links below: By How Much Have Pandora’s Revenue & EBITDA Increased In The Last Five Years? How Has Pandora’s Revenue Composition Changed In The Last Five Years? What’s Pandora’s Fundamental Value Based On Expected 2016 Results? Notes: Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap | More Trefis Research
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    DuPont Q3 Earnings Preview: No Surprises Expected, Focus To Remain On Merger With Dow
  • By , 10/24/16
  • tags: DD
  • DuPont (NYSE: DD) will report its Q3’16 earnings on October 25th. The company had reported non-GAAP EPS of $1.24 for the second quarter, a jump of 14%  as compared to same quarter last year on account of reduced expenses. For the third quarter, we expect DuPont to report a continued decline in sales, largely because of depressed agri-commodities markets. We do not expect any significant improvement in operating margins as cost saving efforts would have been offset by new product launch costs. As a result we expect the company to post a drop in non-GAAP EPS. Having performed well in the first half of 2016 and relatively better expected performance in Q4’16, DuPont is likely maintain its non-GAAP EPS guidance of $3.15 to $3.20 for this fiscal year. DuPont had reported a net sales of about $7 billion for Q2’16 a drop of about 1% on year-over-year basis. The decline was due to depressed prices and currency effects. However, the company has been trying to deliver value by better managing its operating and capital expenditure. This effort should help DuPont improve its free cash flow for the current fiscal year. Our price estimate for DuPont stands at $58  is under update You can use our widget embedded below to create your own price estimate for DuPont: Expect Weaker Agriculture Business, Improvement In Performance Materials Agriculture science division contributes about 35% to DuPont’s valuation according to our estimates. We expect weaker results for Q3 as compared to Q2 mainly on account of subdued demand for soybean and crop-protection products, as well as softness in prices. We also expect an increase in operating expense because of costs related to launch of new products. However, the company is likely to report better results for corn due to higher demand in the U.S. and Latin America. Its new product Leptra is likely to help it perform well in corn market. For performance materials business, we expect DuPont to report higher sales driven by higher demand from automotive industry, especially from China. It is worth noting that performance materials contributes over 20% to DuPont’s value as per our estimates. DuPont Dow Merger To Watch Out For We expect the management to throw some light on where things stand on the announced merger with Dow Chemicals. The merger is under intense regulatory scrutiny globally and is facing opposition from farmers’ community (Read: Dissecting Dow-DuPont Deal: Concern Over Concentration ). It was expected to be closed in H2’16. However, given the regulatory concern we expect the management to postpone the timeline of closure to H1’17.   We care deeply about your inputs, and want to ensure our content is increasingly more useful to you. Please let us know what/why you liked or disliked in this article, and importantly alternative analyses you want to see. Drop us a line at
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    Caterpillar Pre Earnings: Another Challenging Quarter For Caterpillar?
  • By , 10/24/16
  • tags: CAT DE GE
  • Caterpillar  (NYSE:CAT) will declare its Q2’16 earning results on October 25th. We expect mid to low single digit growth in earnings due to about 21% increase in crude oil prices in Q3’16 and company’s restructuring efforts which were announced in September 2015. We expect the construction equipment sales to remain weak due to lower used equipment prices worldwide and uncertainty in global economy from Brexit vote and sluggish growth in China. Although, Caterpillar’s restructuring efforts have started to pay off, they are likely to be offset by slower GDP growth of developed economies and less construction starts in the U.K. where Caterpillar has significant sales.   Construction equipment sales to remain weak as North America market declines Exports of U.S. made construction equipment declined by 24% year on year in the first half of 2016 primarily due to stronger U.S. dollar. Slowdown of China and lower commodity prices have also contributed to the decline in equipment sales. U.S. Agricultural equipment exports to Canada and and Central America declined by 23% and 7% respectively in the first half of 2016.This trend is likely to spill over to Q3 results. Additionally, United Kingdom’s vote in favor of Brexit has added some amount of uncertainty in the markets which may have slightly negative impact on Caterpillar’s 2016 earnings, as a significant chunk of its revenues comes from United Kingdom. The company employs about 10% of its total workforce in the U.K. itself along with 1 R&D facility. China has not recovered completely from its economic slowdown which may impact Caterpillar’s sales negatively. This is evident from the fact that world’s Economic Impact Index declined from 46.7 points in Q3’15 to 44.0 in Q1’16 and has continued its decline. We believe that Caterpillar’s revenues are likely to be negatively impacted from these events as about 45% of its total sales comes from EMEA and Asia pacific region.   Resource, Energy and Transportation industry may see marginal increase in revenues Crude oil prices surged by 21.5% in Q3’2016 as Organization of Petroleum Exporting Countries (OPEC) finally concluded that they will cap their combined oil production between 32.5 and 33 million barrels per day. Although this triggered an oil price surge, Iran and others may not commit to it as the final agreement has not been signed yet. Iran may resist again as it emerged from years of international sanctions in January 2016. Improved oil prices are likely to strengthen oil and gas industry resulting in increased revenues for Caterpillar’s Resource, Energy and transportation division. However, the increase will be marginal in this quarter as the uncertainty over oil prices continues. Thus, we forecast 13.8% decline in overall revenues of Caterpillar for full year 2016 due to company’s weak performance in first half of 2016, weak construction and uncertainty over crude oil prices.   Restructuring and cost reduction Caterpillar’s EBITDA has declined by 27.5% since 2013 and stood at $6.7 billion in 2015. If the company executes its cost reduction plan effectively, we estimate $0.7 billion reduction in costs by the end of 2016. Under its restructuring plan, Caterpillar has already cut about 16000 jobs, and expects facility consolidations and closures to impact about 20 of its facilities and 10% of its manufacturing square footage since September 2015. Despite these efforts, Caterpillar was not able to offset its revenue decline in the first half of 2016, but we may see improved margins in Q3’16. We expect company’s overall EBITDA margin to decline from 14.3% in 2015 to 13.6% by 2017, but recover thereafter to reach 14.0% by 2020 due to revenue revival and cost rationalization.   Notes: 1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email 2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to  our complete analysis of Caterpillar 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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    Key Trends To Watch For In ConocoPhillips' 3Q'16 Earnings
  • By , 10/24/16
  • tags: COP CHK APC EOG
  • With a notable recovery in commodity prices over the last three months, ConocoPhillips (NYSE:COP), a leading independent oil and gas producer, is expected to report an improvement in its third quarter financial results, slated for release on 27th October 2016. The US-based exploration and production company had suffered a severe decline in its top line as well as profitability in the June quarter, despite the sudden recovery in commodity prices. However, since then, the company has revised its 2016 production guidance upwards by almost 2% in anticipation of higher commodity prices and better-than-expected production from its key regions. While the company is likely to post losses even in this quarter, the magnitude of loss is expected to be much lower compared to the previous quarter due to higher price realizations. ConocoPhillips expects to produce 1,510 to 1,550 MBOED (thousand barrels of oil per day) in the September quarter, despite major turnaround activities planned during the quarter. On the one hand, the company will continue to ramp up its production in the Canadian oil sands at FCCL and Surmont. On the other hand, the Houston-based oil and gas producer will continue to exit the deepwater exploration market in a phased manner. On the cost side, the company has been consistently working towards reducing its operating costs to sustain its margins in the current downturn. In line with this, the Houston-based oil and gas producer had revised its operating cost guidance from $7 billion to $6.8 billion for the full year 2016. Thus, we expect these operational efficiencies to result in better margins for the company in this quarter, as well as the next couple of quarters. As a positive news for the company’s shareholders, ConocoPhillips has announced a quarterly dividend of 25 cents per share for the quarter. Although the company had lowered its quarterly dividend a few quarters ago, it has not completely discontinued its dividends, unlike other oil and gas producers who have either suspended their dividends, or have filed for bankruptcy. Thus, we figure that ConocoPhillips is fighting tooth and nail to sustain its operations in this commodity slump. Have more questions about  ConocoPhillips  (NYSE:COP)? See the links below: ConocoPhillips’ 2Q’16 Earnings Remain Depressed; Revises 2016 Production And Capex Guidance ConocoPhillips’ 2Q’16 Earnings To Remain Depressed Due To Persistently Low Commodity Prices Why Are We Bullish On ConocoPhillips? Why Is OPEC An Important Determinant Of Crude Oil Prices? Why Is China A Key Factor In Determining Crude Oil Prices? How Are Crude Oil Prices And Global Oil Rig Count Correlated? How Are Natural Gas Prices And Global Gas Rig Count Correlated? How Have Plummeting Crude Oil Prices Impacted Merger And Acquisitions In The US Oil And Gas Industry? How Will ConocoPhillips’ Revenue And EBITDA Grow Over The Next Five Years? How Has ConocoPhillips’ Production Mix And Price Realizations Changed Over The Last 6 Years? How Will ConocoPhillips’ Revenue Move If Crude Oil Prices Rebound To $100 Per Barrel By 2018? How Will ConocoPhillips’ Revenue Move If Crude Oil Price Average At $50 Per Barrel In 2018? Notes: 1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email 2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to  our complete analysis for ConocoPhillips 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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    What Can We Expect From United Technologies' Q3 Earnings?
  • By , 10/24/16
  • tags: UTX
  • United Technologies  (NYSE: UTX) is all set to release earnings for Q3 early next week. In the last earnings call, the company revised guidance, now expecting an EPS between $6.45 and $6.60, rising $0.15 over the lower end of its previous guidance. Additionally, the management maintained its guidance for organic growth at a time when competitors like Honeywell have slashed their organic sales outlook. In keeping with the general optimism, the management has also promised to repurchase $2 billion to $3 billion worth of shares this year and  an additional $3 billion worth of shares in 2017. UTC has managed to beat consensus earnings estimates consecutively for the last eight quarters and revenue estimates twice in the same period. We expect this momentum to continue into Q3 as well. Otis Shines in China, But At A Price: One of Otis’ biggest competitors in China, KONE, stated in its investor presentation that it expected its elevator sales in the country to fall by a notable 10% in 2016, with the fall expected to push into 2017 as well. This comes as no surprise to UTC investors as the company has been gaining market share over KONE in the recent quarters. These are evident in its recent quarterly results. While KONE saw a 5% fall in orders in Q2, United Technologies’ elevator bookings rose by 4% in the same period. However, this rise has led to a 10% decrease in pricing. This shows that the company is willing to take a hit on margins in return for a gain in market share in key markets. At the recently held Morgan Stanley Laguna conference, United Tech stated that while its margins in China were around 20%, it was likely that adverse pricing pressures would persist throughout 2016 and the whole of 2017. The region represents $2.5 billion of UTC’s $12.5 billion Otis business, so it’s a key market that pressures margins. Otis’ operating margins have fallen steadily from 23% in 2010 to 19.9% in 2015. In 2016, the segment’s margins are expected to be around 18.8%.   Pratt & Whitney Sales Suffer: Earlier in the year, United Technologies expected to deliver about 200 geared turbofan engines in 2016. However, at the recent Morgan Stanley Laguna Conference in September, UTX reduced this number to about 150 deliveries. The company’s CEO, Gregory Hayes, attributed the delays to some of the parts, especially the fan blade, in the engines. The engines’ aluminium titanium blades are manufactured in different regions around the world and are assembled in one location. The precision and technology in the blades has held UTX back this year. The engine ordinarily takes the company about 30 days to build, but due to the struggle with precision and technology, the engine manufacturer has taken almost 60 days to build. So far in the year, the company has delivered about 80 engines. It intends to ship an additional 70 in Q4. That said, the ramp up in production is still significant. In 2017, UTC delivered 14 engines. Going forward, it expects to ship around 350-400. Notes: 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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    Walgreens Earnings Review: EPS Soars Despite Flat Revenue Growth
  • By , 10/24/16
  • tags: WAG CVS RAD
  • Walgreens Boots Alliance  (NASDAQ:WBA) announced mixed fourth quarter and full year earnings on Thursday, October 20th. For the quarter ending August 31st, the company’s revenue grew 0.4% to $28.6 billion over the prior-year quarter, missing the Reuters compiled revenue estimates of $29.5 billion. The company’s operating income increased 36% to $1.1 billion on year-over-year basis while the operating margin grew 1.1 percentage points to 4%, driven by lower selling, general and administrative expenses. In the last quarter, the company’s net income jumped more than 30 times to over $1 billion, for earning per share of $1.07.  This was an increase of 21% over the prior year quarter and exceeded analyst expectations of $1.01. For the quarter, the company’s free cash flow increased 96% to $2.2 billion, driven by a 77% increase in net cash from operating activities. For the full fiscal year, revenues of Walgreens rose 13% over the prior year to $117 billion, driven by a 3.5% surge in revenues of Retail Pharmacy U.S.A and a 53% surge in revenues of Retail Pharmacy International division. Despite the increase in revenues, the company’s EPS declined 5% over the prior year to $3.85, primarily due to fluctuations in the fair value adjustments of AmerisourceBergen warrants. For the year ending August 31st, the company’s free cash flow increased 48% to $6.5 billion, driven by a 39% increase in net cash from operating activities. As of August 31st, the company operates out of 12,848 stores across the globe, out of which 8,175 stores are situated in the United States. Retail Pharmacy  The Retail Pharmacy U.S division, the main contributor to the company’s revenue, reported revenues of $20.7 billion, an increase of 4% over the prior year quarter. The increase in revenues was primarily attributed to a 3.2% increase in sales of comparable stores. Pharmacy sales increased 6.2% over the prior year quarter while retail sales declined 0.5%. The number of prescriptions filled in comparable stores rose 3.9% over the prior year quarter, primarily driven by increase in Medicare Part D volume. The segment’s operating income rose 52% to $779 million while the adjusted operating income surged 4.4% to $1.1 billion. The increase was driven by increased pharmacy volume, procurement efficiencies and cost controls, partially offset by higher cost transformation and LIFO charges in the last quarter. The revenues of Retail Pharmacy International division declined 11% over the prior year quarter to $3 billion, primarily due to negative currency translations. On constant currency basis, the revenues showed a marginal declined of 0.6% over the prior year quarter. For the full fiscal year, the revenues of Retail Pharmacy U.S rose 3.5% on year-over-year basis to $84 billion, primarily driven by higher comparable store sales. The segment’s operating income increased 13.2% to $4.4 billion, the rise mainly attributed to higher pharmacy volumes. On non-GAAP basis, the operating income was reported at $5.4 billion, an increase of 5% over the prior year. The Retail Pharmacy International division showed an uptick of 53% over the fiscal year 2015 and reported revenues of $13.2 billion. The surge in revenues was attributed to addition of Alliance Boots to revenues of the company. Rite Aid Merger and Future Outlook In the earnings call following the release, Walgreens reiterated its position on the pending FTC approval of its acquisition of Rite Aid. The company clarified that it would divest between 500 to 1,000 stores, in order to comply with the requirements. The company now expects the merger to complete by early 2017, against its earlier expectations of completing the merger by the end of 2016. Going forward, the company expects Rite Aid to be accretive to earnings in the first year post acquisition. For fiscal year 2017, the company expects to generate EPS of $4.85 to $5.20 per share, which includes  $0.05 to $0.12 from Rite Aid. 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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    What Can We Expect From Under Armour's Q3 Earnings?
  • By , 10/24/16
  • tags: UA
  • Under Armour  (NYSE:UA) is set to report Q3 earnings Tuesday,  October 25th. Investors may have an idea about what to expect from the earnings, given Nike’s earnings release last month. The apparel giant beat the expected earnings and revenues by a large margin; a similar feat is expected by Under Armour in Q3. Furthermore, UA’s profit growth is set to accelerate sharply next year given the stellar footwear sales, a new clothing line hitting the market and a tie-up deal with Kohl’s. Things have been quite bad for Under Armour in the recent past. The company’s shares have fallen by almost 25% over the past year after rewarding investors consistently over much of the past half-decade. The Sports Authority bankruptcy had adverse effects on Under Armour’s profits. The golf star, Jordan Spieth, whose name was plastered all over the company’s latest line of golf shoes, had a meltdown at the Master’s this year. Critics completely ripped apart the new Curry line of shoes for being too bland. That said, one cannot undermine the potential that UA possesses and has displayed over the years. To put this into perspective, Under Armour has posted an average 34.4% earnings surprise in the last four quarters. Furthermore, the company’s overall sales jumped 28% year on year last quarter. Despite falling marginally short of the consensus estimate, such performance is a rare feat, given the current market conditions. Partnership With Kohl’s: Over the years, the company has relied heavily on key strategic partnerships in order to grow the brand and rake in additional sales. Retail revenues across all segments have grown at a considerable CAGR of 34.66% from 2010 to 2015. Last quarter, the company took things one step further by announcing a partnership with Kohl’s, one of America’s top activewear retailers. This partnership will enable the company to tap into a large and loyal customer base, a majority of which are women. Such a partnership could prove to be the opportunity UA was looking for, to improve the sluggish sales in the women’s category. Major Geographical Expansion in China: Last quarter, Under Armour announced plans for a major geographical expansion, most notably in Greater China. The country is poised to be a key market for the company as health, training and fitness have become increasingly popular in China. To tap into this growing opportunity, management has decided to open more premium brand houses and follow a full-price business model focused on basketball, running and training. Furthermore, the company hopes to increase its e-commerce reach globally. E-commerce business in the quarter increased by 157% this year so far. Additionally, the Curry brand continues to sell itself and the Curry 2 has become the company’s top-selling product in the region. However, due to a tough economic climate, the company has driven down its full year guidance for 2016. In terms of revenues, the company now expects to report $4.925 billion, representing a growth of 24%, for 2016. Additionally, Under Armour expects operating income to lie within the $440 million to $445 million range, representing a growth of 8% to 9%. Notes: 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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    McDonald's Bounces Higher On The Back Of Q3'16 Results, Future Uncertain
  • By , 10/24/16
  • McDonald’s  (NYSE:MCD) stock price saw a 2.6% jump, as it reported its third quarter earnings on 21st October 2016. Although the burger chain posted a decline in revenues, the drop was less than expected by consensus estimates. Further, supported by a $3.4 billion share repurchase program, McDonald’s also beat the consensus on earnings, reporting a 7% y-o-y rise. The rise in its comparable sales data, especially in the U.S., at 1.3%, was considered a big positive, as is evident by the market’s reaction on the company’s stock price. Further, the turnaround seen in Japan buoyed the company’s segment labeled as Foundational Markets & Corporate higher. It not only saw 10.1% y-o-y rise comparable store sales, but also a 9.3% increase in franchised revenues. Keeping with the trend seen for a number of quarters now, McDonald’s revenues suffered a decline in the three months ended September. However, the softening was expected primarily due to the negative impact of refranchising, as the company-operated sales were increasingly replaced by franchised revenues in the form of rent and royalty, based on a percentage of sales. Going forward, we are likely to see this trend sustaining, as the company works on its goal to be 95% franchised by 2018. Most of the refranchising will take place in the company’s key future growth markets: High Growth (consisting of China and Asia Pacific) and Foundational (Japan, India, and other South-East Asian nations). In terms of bottom-line, the company only saw a notable increase in earnings, owing to its efforts at controlling costs. Operating expenses were down approximately 6.5% y-o-y in Q3’16, supported by declining company operated expenses and lower commodity prices. However, the decline in operating expenses was slightly offset by higher expenditure on franchisees occupancy costs. As a result, McDonald’s witnessed a 258 basis points improvement in operating margins. Going forward, the company will be facing tough comparables as the timings overlap that of the launch of the very popular All Day Breakfast in the fourth quarter of last year. To be sustainable in the long term, McDonald’s is working on projecting its food as healthy and nutritional. It recently completed the transition to chicken not treated with antibiotics, introduced buns that are not rich in fructose corn content, and removed artificial preservatives from its Chicken McNuggets. Further, it is increasingly using digital technology to showcase its tailor-made menu to attract more customers. The company emphasized that its focus is not on quarter to quarter performance but long term sustained growth, indicating that the path towards future growth remains uncertain as of now. Have more questions on McDonald’s? See the links below. How Much Upside Can Sustained Demand For “All Day Breakfast” Drive For McDonald’s? How Can McDonald’s Stock Price Be Affected By The Trend Towards Healthy Eating In The Next Year? The Continued Struggle Of The Restaurant Industry In The U.S. How Does McDonald’s Intend To Turn Around Its Chinese Business? Why Has McDonald’s Stock Price Risen 20% Over The Last One Year? Why Is McDonald’s Concentrating On Refranchising? Is McDonald’s Dependence On High Growth Markets Increasing? McDonald’s Versus Burger King: Whose Franchisees Perform Better? McDonald’s Slows Down In Q2’16, Despite Growth In Comparable Store Sales McDonald’s Q2 FY 2016 Earnings Preview: Investment In Quality, All Day Breakfast To Drive Revenues McDonald’s 2016 Revenues To Decline YoY Despite Improvement; To Pick Up Pace Thereafter What’s McDonald’s Fundamental Value Based On Expected 2016 Results? (Updated After Q1 2016) By What Percentage Have McDonald’s Revenues And EBITDA Grown Over The Last Five Years? What Is McDonald’s Revenue & EBITDA Breakdown? (Updated After Q1 2016) How Has McDonald’s Revenue And EBITDA Composition Changed Over 2011-2015? McDonald’s Q1 FY 2016 Earnings Preview: All Day Breakfast To Drive Comp Sales In The US Where Will McDonald’s Revenue And EBITDA Growth Come From Over The Next Three Years? (Updated After Q1 2016) Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Juniper Earnings Preview: Services To Drive Revenue Growth, Improve Profitability
  • By , 10/24/16
  • Juniper Networks (NYSE:JNPR) is scheduled to announce its Q3 results after market close on October 25th. The company expects roughly flat revenues over the year-ago period at $1.25 billion with the gross margin compressing by around a percentage point to 63%, as shown in the table below. Margins are expected to be slightly lower than 2015 levels, primarily due to pricing pressure for product sales leading to lower gross margins for the products division. In the first half of the year, Juniper experienced a 3% annual decline in product sales to $1.62 billion. Moreover, the gross margin of the product division compressed by 140 basis points over the comparable prior-year period, mainly due to elevated pricing pressure on products, especially in the EMEA region. Within the product division, Juniper witnessed strength in the Switching business, with revenues growing by double digits in Q2 both year over year and sequentially. Strong demand for Switching products was driven by telecom customers and the government sector. Moreover, the newly introduced QFX 10K platforms are expected to drive revenue growth in the latter half of the year. On the other hand, Services revenues were up 13% year over year in the same period. Growth was driven by the company’s cloud-enabled brand solution that allows enterprise customers and managed service providers to provide on-demand cloud services. Additionally, the improvement in Services gross margin was impacted by timing of spare parts purchases in previous quarters. As a result, Juniper management has taken measures to restrict growth in its operating expenses over the last two quarters. The company aims to improve its cost structure such that its operating expenses for the third quarter fall by 7% y-o-y to around $500 million. This is likely to further improve operating profit for the company. Have more questions about Juniper? See the links below: Services To Drive Juniper’s Top Line Growth In Coming Years Juniper’s Q2 Earnings: How The Company’s Retaliating Against The Industry Weakness How Has Juniper’s Revenue Composition Change In The Last Five years? What’s Juniper’s Revenue Composition In Terms Of Different Products & Services? Notes:
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    JetBlue's Q3'16 Earnings Preview: Reduction In Capacity Expansion To Arrest The Decline In Unit Revenues
  • By , 10/24/16
  •   Key Trends: JetBlue revised its capacity guidance for the full year from 8.5% – 10.5% to 8.0% – 9.5% to manage its declining unit revenues and increasing fuel cost. Yet, its capacity growth still remains fairly high as compared to its peers. In the third quarter, the company plans to grow its capacity at a rate much lower than that seen in the year so far. The reduction in capacity is likely to arrest the fall seen in unit revenues. However, the growth in revenues due to capacity expansion is expected to be partially offset by the impact of declining PRASM, although Latin America would likely see a turnaround. We have recently seen some recovery in oil prices, owing to the OPEC countries’ decision to restrict their combined oil output between 32.5 and 33 million barrels per day, a potential reduction of 200 to 700 MBPD (thousand barrels per day) compared to the output in August. However, the increase is unlikely to have any material impact on the fuel expenditure of the airline in the quarter, as the prices continue to be much lower than the historical $100 per barrel. The company is concentrating on cutting its non-fuel expenditure by promoting operational expertise, to offset higher fuel costs. However, after falling for the first two quarters, JetBlue’s unit cost is expected to grow at 1% – 3% y-o-y in the third quarter. Consequently, we can expect the operating margins to decline slightly.   See Our Complete Analysis For JetBlue here Have more questions about  JetBlue Corporation (NYSE:JBLU)? See the links below: Why Has Trefis Revised Its Price Estimate For JetBlue To $18 Per Share? Capacity Growth Fuels JetBlue’s Q2’16 Revenues, Slightly Offset By Declining PRASM JetBlue’s Q2’16 Earnings Preview: Capacity Expansion And Mint Services To Drive Results What Impact Will Crude Oil Prices Have On JetBlue’s Enterprise Value? How Are US Air Fares Correlated To Crude Oil Prices? Rapid Capacity Growth And Lower Fuel Costs Drive JetBlue’s 1Q’16 Results How Has JetBlue Utilized Its Cash Flows Over The Last Three Years? How Has JetBlue’s Revenue And EBITDA Grown Over The Last Five Years? What Will Drive JetBlue’s Revenue And EBITDA In The Next Five Years? How Would JetBlue’s Equity Value Be Impacted If Crude Oil Prices Reach $100 Per Barrel By 2018? How Much Value Will JetBlue’s International Operations Contribute To Its Revenue By 2020? How Will JetBlue’s Equity Value Be Impacted If Crude Oil Prices Average At $50 Per Barrel In 2018? Capacity Expansions And Fuel Cost Savings Drive JetBlue’s Earnings in 2015 How Did The Oil Slump Impact JetBlue’s Operating Margins In 2015? What Is JetBlue’s Fundamental Value Based On 2016 Expected Numbers? How Has JetBlue’s Revenue And EBITDA Composition Changed Over The Last Five Years? What Is JetBlue’s Revenue And EBITDA Breakdown? Notes: 1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email 2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to  our complete analysis for JetBlue Corporation 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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    Corning Earnings Preview: Revenues To Remain Flat In Q3’16
  • By , 10/24/16
  • tags: GLW
  • Corning (NYSE: GLW) is set to report its Q3’16 earnings on October 25th. We expect its earnings to remain flat due to: 1) the mixed impact of declining LCD panel prices; 2) decreases in mobile device shipments; 3) increased demand for optical communication and display products; and, 4) joint ventures in the areas of optical communication and diesel technologies in last few quarters. However, Corning’s recent acquisitions in Optical Communication segment and an expected surge in demand for optical communication equipment and fiber optic products globally are likely to drive its long-term growth. The company has also invested significantly in R&D resulting in disruptive specialty material such as Gorilla Glass 5 , Corning iris glass and slim glass substrates. This could add up to about 7% margin increase by the end of our forecast period if Corning capitalizes on its innovative products.   Mobile Device Shipments Fall A Cause Of Worry? Global mobile phone, tablet and computer shipments, which declined by 0.75% in 2015, are expected to fall nearly 3% in 2016 according to Gartner, due to market saturation. Only the premium ultra mobiles and entry level phones are expected to grow due to integration of the latest Intel CPU platform and Windows 10. Gartner also mentioned that global devices market is not on pace to return to single-digit growth soon. Growth is on pace to remain flat during the next five years. We have incorporated this in our forecast for Corning’s display technology revenues.  We expect this trend to impact the growth of Corning’s Display Technology business, which constituted close to 35% to Corning’s overall revenues in 2015. We believe that this segment is likely to exhibit either flat growth or may decline slightly in Q3’16 as well as in full year 2016. Additionally, declining LCD prices are also likely to impact Corning’s earnings.   Acquisitions made in Optical Communication segment to pay off Corning’s optical communication segment has grown at a CAGR of 11.75% in the last 5 years due to growth in global IP data and higher demand for cloud computing. We expect the demand for fiber optics to go up as companies shift from traditional IT system to cloud computing, and data consumption increases due to improved Internet connectivity and increased smartphone usage. Corning acquired Alliance Fiber Optic Products, TR Manufacturing and Samsung’s fiber optics business last year, we expect these acquisitions to pay off in 2016 onwards as it will lead to higher pricing power and increased growth of its optical communication segment.   Notes: 1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email 2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to  our complete analysis of Corning 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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    Chipotle Mexican Grill Q3 FY’16 Earnings Preview: Comps Will Remain Under Pressure
  • By , 10/24/16
  • Key Trends: Chipotle’s top line will continue to suffer as it struggles to restore its comp growth in the aftermath of the continued impact of the E.coli controversy. Implemented a food safety protocol and appointed a food safety expert, Dr. Marsden, in order to ensure the quality, hygiene, and nutrition levels of the food it serves. The launch of a reward program, Chiptopia, which was heralded as the harbinger of comp and revenue growth, is not showing expected results. Chipotle invested 26% more in marketing and promotional activity in the first half of 2016, as compared to the same period last year. The trend will continue, affecting the company’s operating margins adversely. A number of sales recovery initiatives have been undertaken in the form of an aggressive marketing campaign, targeting all of the U.S. and Canada, introduction of new menu items like “Chorizo” and the launch of short movies depicting the company’s commitment towards food safety. Expansion into Europe could be a potential game changer for the company, given the slowdown in the U.S. If it is able to popularize foods like tacos and burritos in the region, we may see a restoration in its key statistics in the very near future. Nomura has revised its forecast for Q3 same-store sales growth to -19.5% vs. -17.9% consensus, due to weaker than expected performance this past quarter and failure of its promotional activities to show significant results. An industry-wide slowdown due to a lesser number of people eating out. This is being speculated to happen due to grocery prices lagging behind menu prices, discouraging people from eating out. The trend is confirmed by September CPI data which shows that food at home inflation is -2.2% year on year, while food away from home is +2.4% y-o-y. The high costs of labor and healthcare further worsen the situation for the restaurant industry, by causing people to substitute spending on eating out on more basic necessities of healthcare.   Have more questions about Chipotle Mexican Grill (NYSE: CMG)? See the links below: Will Chipotle’s Latest Marketing Gimmicks Pay-Off? What Impact Can The Continued Fall In Spend Per Visit Have On Chipotle’s Stock Price In The Next Year? How Has Negative PR Affected Chipotle’s Operating Efficiency? What Can Produce Over 10% Upside To Chipotle’s Stock In The Next Year? How Is Chipotle Dealing With The Aftermath Of The E.coli Outbreak? Down, But Not Out: Chipotle Returns To Profitability In Q2’16, Despite Weakness In Top Line Chipotle Mexican Grill Q2 FY’16 Earnings Preview: Recovery In Top-line Likely To Be Weak Chipotle Mexican Grill Struggles in Q1 FY’16 As Last Year’s E.coli Controversy Impacts Comparable Sales Chipotle Mexican Grill FY 2015 Earnings Review: E.Coli Scandal Hinders Top-line Growth What’s Chipotle Mexican Grill’s Fundamental Value Based On Expected 2016 Results? What Is Chipotle Mexican Grill’s Revenue and EBITDA Bridge? How Has Chipotle Mexican Grill’s Operating Metrics Changed Over 2011-2015? Where Will Chipotle Mexican Grill’s Revenue and EBITDA Growth Come From Over The Next Three Years? Chipotle Mexican Grill Q1 FY’16 Earnings Preview: E.coli Scandal Might Still Impact Top-line Growth Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Key Trends To Watch As Apple Reports Q4 Earnings
  • By , 10/24/16
  • tags: AAPL aapl AAPL. GOOG SSNLF
  • Apple  (NASDAQ:AAPL) is scheduled to publish its Q4 FY 2016 earnings on October 25th, reporting on an eventful quarter that saw the firm refresh its flagship iPhone and introduce a new version of the Apple Watch. Below, we outline some of the key factors to watch when the firm publishes its results. We have a  $120 price estimate for Apple,  which is roughly in line with the current market price. See Our Complete Analysis For Apple Here iPhone 7 Unlikely To Have A Meaningful Impact Q4 Shipments Apple launched the iPhone 7 in mid-September and demand appears to have been very strong, driven in part by Samsung’s Galaxy Note 7 recall and attractive U.S. carrier promotions, which essentially offered the iPhone 7 for free with trade-ins. However, the device is unlikely to significantly impact Apple’s Q4 earnings, as it was available for just about two weeks during the quarter and also because Apple likely  underestimated initial demand . Q4 iPhone figures will still largely be driven by the 6S, which should have seen some discounting in order to drive volumes and reduce inventory prior to the launch of the new flagships. The lower-spec iPhone SE ($400 at launch) could also be a big driver of sales for the quarter. Overall, we expect iPhone shipments and ASPs to decline on a year-over-year basis, putting pressure on Apple’s gross margins (guided at 37.5% to 38% for the quarter). Chinese Headwinds Will Continue On FX, Competitive Headwinds Apple’s performance in Greater China (China, Hong Kong and Taiwan), its second largest geographic market, will also be a key factor to watch. During Q3 FY’16, revenues from the region declined by about 33% year over year to roughly $8.8 billion, accounting for about 60% of Apple’s overall revenue decline for the quarter. Key factors weighing down Apple’s performance in the region include significantly stronger competition from Chinese smartphone rivals, FX headwinds (RMB down by about 5% versus USD over the last year) as well as some regulatory setbacks. We expect things to improve slightly, on account of the launch of the Apple Watch Series 2 and the iPhone 7, which saw strong  promotional activity from Chinese carriers.   That said, revenues could still see a double digit decline compared to last year. iPad Could Look Up As Mac Struggles Apple’s Mac product line has been performing poorly in recent quarters,  amid a shrinking global PC market and Apple’s ageing product line-up (mainstream Macs haven’t seen a refresh in close to 18 months). Based on Gartner’s preliminary Q3 2016  figures, Mac shipments declined 13.4% year over year to just about 4.9 million units, while the overall PC market shrank by 5.7%. That said, the iPad business, which has seen its importance diminish amid cannibalization from large-screen smartphones, could look up on a year-over-year basis, both on account of the iPad Pro devices, which sport premium price tags, and also due to a favorable comparison with last year’s weak numbers. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research