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Union Pacific's Q4 2016 Earnings Review: Recovering Top Line And Productivity Improvements Bode Well For Profitability Going Forward
Union Pacific announced its Q4 earnings and conducted a conference call with analysts on January 19. As expected, a recovery in Union Pacific’s top line and its productivity improvement initiatives boosted the company’s earnings. Union Pacific witnessed a stabilization in its shipments in Q4 after several quarters characterized by declines. A recovery in the demand for coal has played a major role in Union Pacific’s overall shipments reverting close to levels seen a year ago. An increase in demand for coal by utilities amid rising natural gas prices has driven up U.S. rail shipments of the commodity. Union Pacific reported a 9% year-over-year decline in its coal shipments for Q4 2016, considerably lower as compared to the 20% decline for the full year 2016. The company’s top line also benefited from an improvement in core pricing, reflecting improving market conditions. In addition, the company’s efforts to realize savings through improving efficiency helped prop up the company’s results throughout 2016, including the fourth quarter. Going forward, improving economic conditions are likely to translate into a broad-based increase in shipment volumes. In addition, a few sector-specific factors are likely to positively impact certain commodity shipments. Higher gas prices should continue to drive demand for coal whereas regulatory intervention by U.S. authorities against unfairly traded steel imports should translate into higher metals shipments. Besides an improving top line, Union Pacific plans to continue with its productivity improvement initiatives, targeting $350-400 million worth of savings through these measures in 2017. Thus, a combination of rising revenue and a focus on boosting productivity bodes well for Union Pacific’s margins going forward. Have more questions about Union Pacific? See the links below. What Is Union Pacific’s Revenue And EBITDA Breakdown? What Is Union Pacific’s Fundamental Value Based On 2015 Results? By What Percentage Did Union Pacific’s Revenue & EBITDA Grow In The Last 5 Years? By What Percentage Can Union Pacific’s Revenue & EBITDA Grow In The Next 3 Years? How Has Union Pacific’s Revenue Composition Changed Over The Last 5 Years? How Will Union Pacific’s Revenue Composition Change By 2020? What Would Be The Impact Of A 100 Basis Points Decline In Union Pacific’s Share Of U.S. Rail Intermodal Shipments? Union Pacific Corporation: A Look Back At The Year 2015 Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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Did Anadarko Receive A Fair Price For Its Eagle Ford Assets?
The year 2016 was a comeback year for  Anadarko Petroleum (NYSE:APC), as the oil and gas company recovered almost 42% of its stock price over the year backed by the rebound in commodity prices, and the acquisition of Deepwater Gulf of Mexico (GOM) assets during the year. In addition to this, the US-based company finalized two significant asset sales of more than $3.5 billion over the last one month, that have put the company on track to exceed its divestment plan of $5 billion. The two deals include the sale of  Eagleford shale assets in South Texas for $2.3 billion to Sanchez Energy Corporation and Blackstone Group LP, and sale of its upstream and midstream assets in the Marcellus Shale to Alta Marcellus Development for a sum of  $1.24 billion (For More Details Read: Anadarko Shifts Focus To High-Margin Basins By Divesting Non-Core Assets ). In this note, we analyze if the company paid a fair price for these asset sales in comparison to recently closed deals in the region.  Source: Google Finance Eagleford Shale Assets We begin by comparing the sale of Anadarko’s Eagleford assets with the latest asset sale by SM Energy and Sanchez Energy. In the table below, we summarize the economics of the three deals, and calculate the price per acre and price per barrel of oil received by each seller. Although the size and the dynamics of the two deals may vary, on comparing the financials of the deals, we figure that Anadarko received a higher price of roughly $34,000 per flowing barrel of oil equivalent per day (BOED) for an ongoing production of 67,000 BOED compared to SM Energy that realized only around $29,000 per flowing BOED for an existing production of 27,000 BOED, a few days prior to Anadarko’s deal. However, Sanchez Energy, the company that has bought Anadarko’s Eagleford assets, sold off some of its own assets in the same region in October 2016, receiving over $58,000 per flowing BOED for a meager production of 3,100 BOED. This means that Anadarko has received significantly less than what Sanchez, the buyer of its assets, realized for similar assets a few months ago. However, the dynamics of the commodity markets have changed since the Sanchez deal, and Anadarko is receiving a higher price than the most recent deal, the SM Energy sale, in the region. Thus, it is fair to say that Anadarko realized a good price in terms of the existing production, even though it is not the best price for its current output. However, when comparing the price per acre acquired of the deals, we see that Anadarko earned only around $15,000 per acre sold, though SM Energy obtained a higher price of $21,000 per acre sold. But, on comparing the Sanchez sale, which generated only $12,000 per acre, Anadarko seems to have done notably better than Sanchez. Hence, while it can be said that Anadarko’s acreage in the region was under-valued compared to SM Energy’s price, the deal managed to generate a higher price than Sanchez’s sale. Besides, the deal will facilitate the company’s plan of exiting the Eagle Ford Basin and will provide cash flows that will allow the company to concentrate on its priority basins – Delaware basin, DJ basin, and Deepwater GOM assets. Marcellus Shale Now, we compare Anadarko’s Marcellus Shale sale. Similar to the Eagle Ford Basin, the Marcellus region has also seen a surge in the merger and acquisition activity over the last few months. A few companies, such as EQT Corp. and Antero Resources, have done a number of small deals in the region. Based on the available data, we have collated the price per acre metrics of two other deals completed in the region. The table below depicts that Anadarko received a price of $6,400 per acre of assets sold in the Marcellus region. In comparison, however, Trans Energy and a private party earned $10,000 and $12,000 per acre respectively for the sale of their acreage in the region in October of last year. This clearly indicates that Anadarko obtained a notably low price for its acreage, compared to these deals, in the Marcellus shale region. Thus, even though we see that the Marcellus sale realized lower proceeds compared to similar deals in the region, the proceeds will augment the company’s plan to divest its non-core and unprofitable assets, and focus its finances and efforts at developing its three key assets, mentioned earlier. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
What Can We Expect From Cree's Q2'17 Earnings?
Leading LED manufacturer,  Cree  (NYSE:CREE) is set to report its Q1 2017 earnings on January 24th. (Fiscal years end with June.) Going by the company’s guidance for the quarter, its Q2 revenues have likely increased sequentially and declined on a year over year basis. Furthermore, Cree’s operating expense has likely increased in Q2’17, due to an increase in promotional spending related to the GEN4 bulb launch. However, the company claims that it expects  its operating expenses to be offset by higher revenue growth in the coming quarters. It is worth noting that Cree expects its operating revenues to remain flat in FY 2017, even though it forecasts the overall market size to expand during this period. Fierce competition in the LED industry, and its impact on pricing, are the reasons behind sluggish revenue growth for the company. In the table below, we note the key metrics as expected for the company in Q2’17.  As can be seen, revenues as guided would be down 15% year to year.  Via the same comparisons, the consensus estimates suggest a decline of  25% and  73%  in revenues and EPS, respectively. Clearly, Cree is operating in a grim marketplace. Cree Focused On Expanding Its Product Offering Though Cree’s performance in the past year has been significantly affected by the heightened competition in the lighting market, it is focused on expanding its product offering to drive its top-line growth higher going ahead. Cree recently came up with a new GEN4 LED bulb, which according to the company provides premium light and quality at a lower price point. The company believes that this new bulb has the potential to improve its margins going ahead. The company has also  hinted  at having an increased focus on smart lighting related products, which could be the key to its long term growth. Increased demand for energy efficient and intelligent lighting solutions is likely to drive this market. The company is also likely to consider M&A opportunities as they arise, to expand its business inorganically. Power & RF Division Sale Expected To Close Soon In Q4’16, Cree announced  the sale of its Power and RF division to Infineon with the aim to become a more focused LED lighting company. This transition is expected to close by the end of this calendar year. It should help Cree improve its cash position and accelerate the growth of its lighting and LED businesses. The company’s core LED business was significantly hit in the past year due to severe decline in margins, as a result of heightened competition from Chinese players in the industry. Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap | More Trefis Research
Why Might We Expect Ctrip To Grow Even Further And Be A Major Threat To The OTA Leaders In The Future?
When it comes to Ctrip, it is not an exaggeration to say that the Chinese online travel giant is growing in leaps and bounds. After conquering the domestic travel front in China by consolidating the Chinese online travel market, Ctrip is now on an expedition to capture a higher portion of the Chinese outbound travelers market (which happens to be the largest outbound travel market in the world) and also to grow its international presence. With around 40% stake in each of Qunar and eLong, Ctrip is currently the second largest OTA in the world in terms of its over $20 billion market capitalization. Along with this, Ctrip’s big ticket acquisition such as Skyscanner and its partnerships with international travel services providers including the leading names like Priceline and Expedia, ensure that the company is making the right moves for global domination. What comes as an even better news for Ctrip is the current state of China’s travel market and the spending power of the Chinese travelers. According to a recent report  mentioned by Ctrip, Chinese tourists spent over $87 billion (600 billion yuan) in 2016, through the online travel platforms reflecting a 34% y-o-y growth and this figure was significantly higher than the money spent through the brick-and-mortar travel agencies . The report also mentioned that around 250 million travelers spent around 20 billion yuan on the Ctrip platform, with an average customer spend of around 3,000 yuan. The majority of the transactions took place through mobile transactions. Out of the total transactions on Ctrip, around two-thirds of the tourist spending was on overseas trips with the most popular destinations in decreasing order of preference being Thailand, Japan, Republic of Korea, and the United States. Ctrip expects the total number of trips booked through its platform to shoot over 5 billion this year thereby witnessing an 11% y-o-y growth. We see that Ctrip currently enjoys over 40% of the Chinese travelers spending on online platforms. We expect this figure to rise with Ctrip’s further growth in China and abroad, along with the rise in online spending by Chinese tourists. To add on to this growth, Ctrip is bringing more services on its platform to cater to both domestic and outbound travelers, such as the recent investments in Mobike, a smartphone enabled bicycle renting service, or the acquisition of the ground transportation company, TangReng World . In fact, its growth trajectory looks so promising that at a recent conference, the company’s CEO, Ms. Jane Sun, had mentioned that the company will reach its 1 trillion yuan gross merchandise value target by 2018 itself, two years before the earlier predicted timeline of 2020. We expect Ctrip’s outreach outside China also to increase with its strategic alliances and takeovers. Ctrip is increasingly becoming a force to reckon with, and it might not be long before Ctrip disrupts the leadership positions in the global online travel arena. Editor’s Note: 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 Have more questions about Ctrip? See the links below. What Is Ctrip’s Revenue And EBITDA Breakdown? How Has Ctrip’s Revenue And EBITDA Composition Changed Over 2012-2016E? Ctrip Q4 2015 Pre-Earnings Report What Drove Ctrip’s Revenue Growth And Led To Its EBITDA Decline Over The Last Five Years? Ctrip: Year 2015 In Review Ctrip Q1 2016 Earnings Preview Where Can Ctrip’s Growth Come From In The Next 5 Years? Which Two Segments Are The Biggest Contributors To Ctrip’s Growth? How Fast Is Ctrip’s Hotel Revenue Growing? How Can Ctrip’s Expansion In Geographies Like The U.S. Impact Its Share Price? How Did The Brexit Decision Impact Ctrip So Far? Ctrip Q2 2016 Earnings Preview Ctrip Continues Growing Though Its Bottom Line Remained Dampened Due To Investments What Drove Ctrip’s Packaged Tour Business In Q2 2016? Reasons Why We Upgraded Ctrip’s Stock Price By Almost 20% Why Did Ctrip Acquire SkyScanner? Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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Corning Pre Earnings: Growth Momentum Built In Last Quarter To Continue In Q4’16
Corning (NYSE: GLW) will report its Q4’16 earnings on Tuesday, January 24th. We expect its revenues to increase on the back on strong demand for display technology products, which typically display seasonal strength in the fourth quarter. Corning’s optical communication business has also picked up growth momentum after slight decline in revenues due to software implementation issue in Q1’16, and this is expected to continue in Q4 as well. We may also start seeing growth in Corning’s specialty materials and environmental technology sales from this quarter, due to new contract wins in both segments. Declining operating income has been a concern for Corning in the first half of 2016, but its margins improved in Q3’16 and we expect this momentum to be carried in this quarter as well.   Strong Performance Of Optical And Display Segments To Continue Corning’s overall revenues grew in second and third quarter of 2016, driven by strong performance in optical communications and display technology segments, which saw a jump of nearly 20% and 6% in their sales, respectively. The demand for display panels strengthened ahead of the Q4 peak retail season in the U.S. and Europe and this is likely to reflect in sequential growth fourth quarter’s results. Interestingly, this would also mean year-to-date growth in Corning’s revenues this quarter as Corning’s Q3’16 revenues were already 12% above the Q4’15 level. Additionally, Corning’s optical communications segment has grown at a CAGR of 11.8% over the past five years due to growth in global IP data and higher demand for cloud computing. We expect this momentum to continue. Corning has been putting special emphasis on its specialty materials segment, which manufactures material formulations for glass, glass ceramics and fluoride crystals such as Gorilla Glass.  This has been the focus of its R&D spending this year. Corning introduced several specialty material products for automotive industry this year including FLORA, which helps in reducing vehicle emissions. The automotive industry is rapidly changing, driven by new trends in connectivity, fuel efficiency, and social behavior. Corning is constantly delivering lighter, tougher, and more technologically advantaged solutions, enabling improved fuel efficiency. We believe that Corning’s growth in the coming quarters will be driven by automotive industry sales. Corning won several new GPF (gas particulate filter) contracts in 2016 on the back of the Euro VI regulation, which are likely to begin ramping in 2017.   Declining Operating Income, A Cause of Worry?   Corning’s operating income declined nearly 25% in the first nine months of 2016. The largest decline was observed in the display technology segment, followed by environmental technology. Corning’s SG&A expenses increased nearly 15% in the first nine months of 2016 while the revenue increase was marginal. Much of this can be attributed to the revenue decline observed in the first half of 2016 and the software implementation issue in optical communication segment. The situation improved in the third quarter and we expect the momentum to carry in the fourth quarter as well, aided by the holiday season.   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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Decline In Top Line To Continue In Q4'16 For McDonald's, As Industry Fundamentals Deteriorate
The burger mammoth,  McDonald’s  (NYSE:MCD), is slated to announce its fourth quarter and full year results on 23rd January, 2017. In the third quarter, the company continued to see its revenues drop. However, owing to the improvement seen in comparable sales data in the U.S. and Japan, McDonald’s stock price was seen moving higher. The upcoming quarterly results are expected to be tough for the company as the timings overlap that of the launch of the very popular All Day Breakfast in the fourth quarter of 2015. In the following note, we discuss some of the key trends that can be expected to be seen in the upcoming quarterly results. Key Trends: McDonald’s is trying to reinvent itself by refreshing its menu in various locations. It launched a new version of a burger filled with Nutella in Italy, a bigger and a smaller version of the very famous Big Mac in the U.S., a Sriracha hot sauce version of the Big Mac in Columbus, Ohio, and Sriracha sauce as a dipping sauce for McNuggets and French fries. However, the initial response of customers to its various innovations has been mixed, at best. The rating agency, Fitch, believes that McDonald’s will continue to lose market share in the U.S. due to heightened competition due to the rise of specialty burger competitors and increasing breakfast competition. Making matters worse would be the decreased growth forecast of food away from home. Consequently, we may see some repercussions of this in sales numbers for the company. The company has continued to see strong comps in its foundational markets quarter over quarter. McDonald’s is renewing its focus to reinforce the growth potential of these international markets by introducing items to suit local tastes. The launch of a new breakfast menu in India that will feature versions for local favorites such as “Masala Dosa Brioche” and “Masala Scrambled Eggs,” in addition to traditional breakfast items such as waffles and hash browns, is an attempt in this direction. The main raw material used in McDonald’s burgers is beef and pork (for patties). The recent slump in the price of beef and pork is likely to help the company offset the impact of higher wages, and buoy its margins upwards. Furthermore, the Cowen Group forecasts ground beef prices to fall in the range of 10% to 15% between 2018 and 2020. This, in turn, could help the company in improving its margins over the next few years. McDonald’s has decided to use fresh beef patties at its restaurants in order to appeal to the health sensitive generation of millennials. However, the move may cost the company more than the savings from cheap raw material, as it may increase the wait time for customers, hampering the ability to serve large number of customers quickly. Consequently, the advantage from low raw material costs on operating margins may be reduced. To cut through the waiting time and manage the through-put, McDonald’s plans to introduce table service and self-ordering kiosks across its 14,200 stores in the U.S. The concept has been pilot tested at 500 locations in New York, Florida, and Southern California. McDonald’s will also introduce a mobile payments platform to make the ordering process seamless. The move is likely aimed towards the younger, more tech-savvy generations, such as millennials, who form the majority of the U.S. population. The company expects this change to provide a boost to average check size. To revive its business in the China/Asia Pacific region, McDonald’s has entered an agreement to sell-off some 2,200 odd restaurants in China and Hong Kong to a consortium of Carlyle and Citic Group. The company will be selling off 80% of its business in the region at a value of $2.08 billion. The deal also includes 20-year mass franchise rights. It will help McDonald’s trim its overall operational costs and preserve capital. The softening in company-operated revenues is expected to continue primarily due to the negative impact of refranchising, as the company-operated sales will be increasingly replaced by franchised revenues in the form of rent and royalty, based on a percentage of sales. The company aims to become 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). The company will continue to focus on completion of its three-year $30 billion share buyback target, in order to support the bottom line, even as the top line continues to suffer. The industry-wide slowdown in the restaurant sector continued in the fourth quarter. Restaurants have now posted four consecutive quarters of declining year-over-year sales. This is due to fewer number of people eating out, and most of the consumer spending going towards big ticket purchases rather than soft goods. The following table gives a summary of the declining comps and traffic in the three months of the fourth quarter.   Have more questions on McDonald’s? See the links below. How Will The Restaurant Industry Be Affecte d By A Federal Wage Hike? Will McDonald’s Be Able To Revisit Its Past Glory Days? McDonald’s Bounces Higher On The Back Of Q3’16 Results, Future Uncertain McDonald’s Q3 FY 2016 Earnings Preview: Top Line To Be Weighed Down By Industry-Wide Declines How Did McDonald’s Japan Turn Around Its Business? Will McDonald’s Succeed In Keeping The Buzz Alive? Health Revolution: Healthy For Some, Unhealthy For Others 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? Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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Johnson & Johnson Earnings Preview: Don't Expect Big Surprises
Johnson & Johnson  (NYSE:JNJ) will report its Q4 2016 earnings on Tuesday, January 24th. We expect mild growth driven primarily by the pharma business, which continues to benefit from the growth in its two key franchises: Immunology and Oncology. One of the biggest concerns is how Inflectra’s launch will impact Remicade’s sales. While there is no doubt that it will eventually cause Remicade’s sales to decline, the impact in the fourth quarter will be very limited. Overall, J&J is facing a challenging environment, with multiple drugs nearing maturity and medical business reeling under competitive pressure. Therefore, a lot rides on new product launches and the company’s pipeline as far as the next few years are concerned. Our  price estimate  of $115 for Johnson & Johnson is roughly in line with the market. Here is what we can expect from the company’s Q4 2016 earnings. First. We believe that the key growth drivers will continue to be the same. They include new oncology drugs such as Darzalex and Imbruvica, which have a combined peak sales potential of $10 billion, along with immunology drugs Simponi and Stelara, and blood thinner Xarelto. We note that Xarelto’s growth may moderate slightly due to growing competition from Bristol-Myers Squibb and Pfizer’s Eliquis. Second.  The impact of Inflectra’s launch on Remicade’s sales will be very limited in Q4 2016. Inflectra, which is a biosimilar version of Remicade, was launched by Pfizer in late November and therefore had merely 1 month of sales period in the fourth quarter. Additionally, Pfizer is selling Inflectra at a 15% discount to Remicade. Therefore, the economic incentive to switch is not big enough to warrant rapid adoption by patients. Also, as biosimilars tend to be injectables and require a physician to administer them, the inertia to change the medication is higher. Third. There might be minor positive contribution from additional approvals that J&J’s existing drugs received in Q4 2016. These include Invokamet, Stelara and Darzalex. Fourth.  Some specific segments of J&J’s medical devices business did relatively well in the third quarter. Going forward, there is some hope from vision care, orthopedics and advanced surgery. Nevertheless, intense competition and pressure from various stakeholders, such as payers and health care providers, is likely to keep the growth in check. China will continue to see above-average market growth but J&J has limited presence in the region. Fifth.  We expect to hear more about the progress of J&J’s acquisition talks with Actelion. The companies have reportedly agreed to a tentative acquisition price. With Pfizer’s launch of a biosimilar against Remicade (an immunology drug) in the U.S., J&J’s reliance on oncology drugs to offset the expected sales slump will increase significantly. This makes it imperative for the company to look at additional growth avenues. Actelion, with its focus on rare diseases which tend to have more price protection and fewer competitors, is one such option. Please let us know your views by commenting in the box below. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology  
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What We Can Expect From TI's Q4'16 Earnings
Leading analog chip maker,  Texas Instruments (NYSE:TXN) is set to report its Q4 2016 earnings on January 24th. Going by the company’s guidance for the quarter, its revenue and EPS figures have likely declined sequentially and moderately increased on a year-over-year basis. It should be noted that Q3 is usually a seasonally strong quarter for TI, due to which there is a sequential decline in its revenues and net income in Q4. In the table below, we note the key metrics as expected for the company in Q4. Going ahead, we can expect TI to see improvements in its gross margins. The company’s effective manufacturing strategy has helped it improve its gross margins by approximately 10 percentage points in the last five years. At 62%, the company’s gross margins were at its highest levels in Q3’16.  Margin improvements for TI are as a result of an increasing proportion of its revenues coming from the 300mm production facilities. Further, the company could witness an increased demand for its products if the infrastructure spending in the U.S. were to increase under the Trump administration. More Scope For Margin Improvements We believe that TI should continue to benefit from an efficient manufacturing strategy going forward, which includes shifting more production to 300mm analog capacity and purchasing assets ahead of demand. In 2015, the company had about $2 billion of its Analog revenues coming in from the 300mm analog production, which translates to only 25% of its overall analog segment revenue. The proportion of TI’s revenues from 300mm production is likely to go up in the coming quarters, driving the margins higher for the company. To increase its 300mm production, the company is likely to ramp up its production from its RFAB and DMOS6 facilities, which have 300mm production, and were largely under-utilized until 2015. TI’s RFAB and DMOS6 production facilities were operating at  45% and 25% of their full production capacity, respectively, in 2015. Fiscal Boost To Benefit TI Going ahead, TI can be an indirect beneficiary of an increased infrastructure spending by the Trump administration. It should be noted that the new administration has been vocal about its seriousness to boost infrastructure spending.  A fiscal stimulus by the government to boost infrastructure is likely to drive growth in the industrial, automotive and telecommunications markets. This, in turn, should result in an increased capex in these sectors. Given that TI derives revenues from each of these segments, an uptick in infrastructure spending will be beneficial for the company. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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What Can We Expect From Lockheed Martin's Q4 2016 Earnings?
Lockheed Martin  (NYSE: LMT) has performed solidly in the first three quarters of the year, beating analyst estimates for earnings every time. We believe this momentum continued into the fourth quarter as well on the back of higher F-35 sales and the Sikorsky inclusion. Furthermore, the world’s largest defense contractor has carried out significant restructuring over the last year, with the acquisition of Sikorsky and the sale of its Information Systems and Global Solutions (IS&GS) business to Leidos. All this change has been carried out in an effort to streamline operations and focus more on what they do best. Such a strategy is bound to bode well for the company in the future. The F-35 Program Will Continue To Benefit The Company In the recent past, customer support and demand for the F-35 has increased tremendously. Key milestones in the year included the rollout of the first F-35 aircraft for the Japan Air Self-Defense Force. At present, the company is on track to provide Japan with 42 aircraft for its national defense requirements. Furthermore, Norway has stated its interest to participate in a multiyear, multinational block buy of the F-35. In its 2017 budget, the country has outlined a request to buy 12 F-35 fighters and remains on track to purchase a total of 52 aircraft for its national defense needs. In addition, the F-35 program is expected to see a massive boost in cash under the Trump Presidency. Despite Trump’s public outcry on Twitter regarding the mounting costs, it is expected that production will carry on without much of a hitch as Lockheed works hard to reduce the cost per plane. The Air Force had in the past asked the company to bring the cost per plane  down to about $85 million . As recently as May this year, Lockheed managed to bring the cost per plane down to just under $100 million (not including the engines), which is a significant drop. The latest bulk purchase by the Pentagon shows that the company has made further progress in this respect. Last month, the Pentagon ordered 90 planes at a price of about $7.2 billion. This brings the cost per plane down to a whopping $80 million. This again is exclusive of engines, however. At present, each engine costs about $16 million, bringing the cost for the complete plane to a grand total of $96 million. Regardless, this a major accomplishment by the company. What it essentially means is that Lockheed has managed to shave off about 20% of the airplane’s cost in just six months. At present the Pentagon has expressed its need for 1,763 air combat fighters. This number could easily hit the 2,000 mark given Trump’s statements on  increasing the overall size of the airforce . International Sales To Nudge Revenues In The Positive Direction Over the past two years, Lockheed Martin has worked to try and improve its sales from international customers. The company had previously aimed to expand its focus and footprint overseas in an attempt to achieve 25% of annual sales from international customers. Due to a change in its portfolio content, resulting from the acquisition of Sikorsky and the divesture of IS&GS, the company seems on track to exceed the goal within the year. In general, international work across all segments is expanding. The increased sales of F-35 Joint Strike Fighter, missile defense systems, C-130J cargo planes and tactical missiles abroad are testament to this fact. Specifically, the company has witnessed demand for its equipment, ranging from C-130J aircraft in France and Germany to helicopters in Poland to missile defense systems in the Asia-Pacific, Europe and Middle East theaters. This demand has greatly benefitted the company as the international portfolio continues to grow faster than the DOD budget. Additionally, increased international work is also providing Lockheed Martin with greater economies of scale that enhance the company’s ability to improve the affordability of platforms and services to both domestic and international customers. The company now expects to increase international sales to at least 30% of the total annual sales over the next few years. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
Can Costco Be Threatened By Amazon’s New Prime Visa Card?
Costco ‘s (NYSE:COST) membership based warehouse model has been going strong despite e-commerce companies offering several conveniences for grocery shopping. Its loyal customers still prefer to visit its warehouse-like stores with their shopping lists and buy groceries and other home supplies in bulk. Costco has been slow in its e-commerce initiatives but the company does not seem to be overly concerned about this. Costco prefers its customers to visit its warehouses, since they are likely to spend more in a physical visit than online. However, Amazon now appears to be taking Costco head on by launching a new credit card which gives its Prime customers an additional 5% discount on all purchases on its platform. This is a Visa card that can be used by customers everywhere and earn discounts in both restaurants and gas stations as well. Amazon has more than 60 million Prime members and it is luring them through these discounts to shop more on its platform. Amazon’s Visa card is similar to the new Visa card launched by Costco last year after the company ended its long term relationship with American Express . These cards entitle its members a 2% cash back on all purchases at Costco and discounts on gas stations and restaurants.  However Amazon’s Prime members get a 5% discount on purchases on its platform via its new Visa card. Amazon could be targeting Costco’s loyal member base through this new Visa card which offers higher discounts on its platform. There is a high degree of overlap between Costco and Amazon members. A Morgan Stanley survey based on 2,700 people revealed that 45% of Costco members had a Prime membership indicating that both players can co-exist and Amazon’s gain need not necessarily be Costco’s loss. Costco has an edge in the groceries segment while Amazon sells everything from fashion products to electronics. However, the latter is now increasing its focus on groceries and looking at ways to add to customer conveniences. Its Amazon Go experiment, if successful, can disrupt the traditional convenience stores and supermarkets. The Morgan Stanley survey reveals that both Costco and Amazon have a loyal user base which is difficult to break. Amazon is using customer convenience as the biggest incentive to attract customers – which should appeal to the millennial population who are looking at saving time for grocery shopping. However, Costco’s value for money model also appeals to a large section of the population including millennials. The new Visa card does appear to be Amazon’s initiative to attract more customers to its Prime umbrella. While U.S. households are okay to hold two memberships currently and the overlap is high, this might not last for long with users looking to give up one of the memberships, especially if the perks and discounts are similar (or slightly better). Familiarity and comfort with one player might become the deciding factor. Amazon can have the edge here since its membership offers several other perks such as prime video, music subscriptions and even photo printing. However, Costco’s edge in grocery supplies is not very easy to surpass. Costco has a formidable competitor, but the company seems to keeping up with this challenge for now. 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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