HI-Quality Company Updates

Thursday, Dec. 5, 2019

Ulta Beauty-ULTA reported third quarter sales increased 7.9% to $1.7 billion with net income dipping 1% to $130 million and EPS increasing 3.2% on fewer outstanding shares to $2.25. Comparable sales (sales for stores open at least 14 months and e-commerce sales) increased 3.2% compared to an increase of 7.8% in the third quarter of fiscal 2018, driven by 2.3% transaction growth and 0.9% growth in average ticket and a modest increase in traffic. By category, skincare generated double-digit comp growth, fragrance increased high-single digits, haircare sales increased mid-single digits while makeup declined by low-single digits. Despite the current challenging environment in cosmetics, Ulta Beauty continued to gain market share in the category. During the third quarter, Ulta Beauty opened 28 net new stores ending the quarter with 1,241 stores. During the quarter, the company repurchased 529,404 shares, a higher number than initially planned, at a cost of $128.6 million, or $242.91 per average share. Year-to-date, the company repurchased 1,639,438 shares at a cost of $507 million, or $309.19 per average share. As of November 2, 2019, $388.8 million remained available under the $875 million share repurchase program announced in March 2019 with the company expecting to repurchase a total of $700 million shares in 2019. Year-to-date, the company generated free cash flow of $316 million, up 10.7% from last year, ending the quarter with $209 million in cash. Given challenged top line growth due to softness in the makeup category and the year-to-date performance, the company narrowed its full year guidance. Sales are now expected to increase 10% versus the previous expectation of growth between 9% and 12% with same store sales growth now expected in the range of 4.7% to 5% versus 4% to 6% previously expected. EPS are now expected in the range of $11.93 to $12.03 versus $11.86 to $12.06 previously expected. Capital expenditures are now expected in the range of $305 million to $315 million, $35 million less than previously expected due to the decision to delay the opening of the new Jacksonville distribution until 2021.


Brown-Forman-BFB reported fiscal second quarter revenues rose 9% to $989 million with net income up 13% to $282 million and EPS up 14% to $.59. Results improved during the second quarter as the company delivered solid underlying growth from both a geographic and portfolio basis despite the impact of tariffs and the uncertain global economic and geopolitical environment.  Underlying net sales grew 6% in the United States, 5% in emerging markets and 3% in developed international markets. Jack Daniel’s family of brands underlying net sales grew 2% bolstered by the October launch of Jack Daniel’s Tennessee Apple. The company’s premium bourbons grew underlying net sales 22% driven by Woodford Reserve’s 20% growth and even stronger growth from Old Forester. The tequila portfolio grew underlying net sales 11% led by Herradura’s 19% growth and el Jimador’s 13% growth.  During the first half of the fiscal year, free cash flow declined 37% to $139 million with the company paying $158 million in dividends. During the quarter, the board raised the dividend 5%, marking the 36th consecutive year of dividend increases and 74 consecutive years of dividend payments. As the company gets set to celebrate its 150th anniversary in 2020, management reaffirmed its full year fiscal 2020 underlying net sales growth outlook of 5% to 7% with EPS expected in the range of $1.75-$1.85.

Wednesday, Dec. 4, 2019

Stryker-SYK announced that its Board of Directors has declared a quarterly dividend of $0.575 per share payable on January 31, 2020 to shareholders of record at the close of business on December 31, 2019, representing an increase of approximately 11% versus the prior year and the previous quarter. “We continue to deliver strong financial results, and consistent with our stated capital allocation philosophy, are raising our dividend 11%," said Kevin Lobo, Chairman and Chief Executive Officer. 

Private sector employment increased by 67,000 jobs from October to November according to the November ADP National Employment Report®.  "In November, the labor market showed signs of slowing," said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. "The goods producers still struggled; whereas, the service providers remained in positive territory driven by healthcare and professional services. Job creation slowed across all company sizes; however, the pattern remained largely the same, as small companies continued to face more pressure than their larger competitors." Mark Zandi, chief economist of Moody's Analytics, said, "The job market is losing its shine. Manufacturers, commodity producers, and retailers are shedding jobs. Job openings are declining and if job growth slows any further unemployment will increase."

Tuesday, Dec. 3, 2019

Mastercard-MA announced that its Board of Directors has declared a quarterly cash dividend of 40 cents per share, a 21 percent increase over the previous dividend of 33 cents per share. The Board of Directors also approved a new share repurchase program, authorizing the company to repurchase up to $8 billion of its Class A common stock. The new share repurchase program will become effective at the completion of the company’s previously announced $6.5 billion program. The company has approximately $300 million remaining under the current program authorization.

Alphabet Inc.-GOOGL announced a management change. The change is effective immediately. Larry Page and Sergey Brin, the CEO and President, respectively, of Alphabet, have decided to leave these roles. They will continue their involvement as co-founders, shareholders and members of Alphabet’s Board of Directors. Sundar Pichai, the CEO of Google, becomes the CEO of Google and Alphabet. He will remain the CEO of Google and assumes the role of managing Alphabet’s investment in its portfolio of Other Bets. Pichai will remain a member of Alphabet’s Board of Directors.

Biogen-BIIB  announced positive top-line results from the Phase 2 LILAC study evaluating the efficacy and safety of BIIB059, a fully humanized IgG1 monoclonal antibody (mAb) targeting blood dendritic cell antigen 2 (BDCA2) expressed on plasmacytoid dendritic cells, in patients with lupus. “There is substantial unmet medical need for people with lupus given the limited number of treatment options available to help manage this difficult-to-treat and chronic disease,” said Nathalie Franchimont, M.D., Ph.D., Vice President, Lupus and Multiple Sclerosis Portfolio at Biogen. “We are excited by the LILAC study results, and the potential for BIIB059 to be a meaningful new treatment option for patients living with lupus. We also believe these results support Biogen’s goal of continuing to build a multi-franchise portfolio by bringing potential new treatment options to people with great unmet medical need.”

Canadian National-CNI announced that its recovery plan is on track and that it is revising its guidance following the impact of the 8-day strike. Due to the impact of the strike, estimated at around $0.15 of EPS, CNI is revising its 2019 full year financial outlook, and remains focused on continuing to realign its resources in light of the weaker demand, including its workforce, to address cost takeout efforts that started prior to the strike. CNI is now targeting to deliver 2019 adjusted diluted EPS growth in the low to mid single-digit range versus last year's adjusted diluted EPS of C$5.50, compared with its October 22, 2019 financial outlook which called for adjusted diluted EPS growth in the high single-digit range.

 

Monday, Dec. 2, 2019

UnitedHealth Group’s-UNH revenues for 2019 are expected to approximate $242 billion, with net earnings to approach $14.25 per share and adjusted net earnings to approach $15.00 per share, at the higher end of the company’s most recent earnings per share outlook provided with its third quarter 2019 earnings release. Adjusted net earnings exclude from net earnings only the after-tax non-cash amortization expense pertaining to acquisition-related intangible assets. UnitedHealth Group’s 2020 outlook includes revenues of $260 billion to $262 billion, net earnings of $15.45 to $15.75 per share, and adjusted net earnings of $16.25 to $16.55 per share. Cash flows from operations are expected to range from $19.0 billion to $19.5 billion in 2020.


General Dynamics-GD
was named lead contractor on a $22.2 billion U.S. Navy contract for the construction of nine Virginia-class submarines, the Pentagon said in announcing its largest-ever shipbuilding award.


Tuesday, Nov. 26, 2019

Hormel Foods-HRL reported fourth quarter revenues declined 1% to $2.5 billion with net income down 2% to $256 million and EPS down 2% to $.47. For the full year, revenues were relatively flat at $9.5 billion with net income and EPS each down 3% to $979 million and $1.80, respectively. Return on shareholders’ equity was 15.5% for the year.  Organic volume for the year was flat at 4.74 billion pounds with organic sales up 1% and operating income up 1%. Free cash flow declined 23% during the year to $667 million due to working capital changes as the company strategically built inventory.  During the year, the company paid $437 million in dividends, repurchased $174 million of its common stock and repaid $375 million of debt taken on for an acquisition. Thanks to the sale of a business during the year for $480 million, Hormel’s cash and investments increased 50% during the year to $688 million. Hormel announced an 11% increase in its annual dividend to $.93 per share. This is the 54th consecutive year of dividend increases and the 11th consecutive year of double-digit growth in the dividend. Management’s outlook for 2020 is for net sales in the range of $9.5billion-$10.3 billion with EPS expected in the range of $1.69-$1.83. This outlook assumes higher protein prices and further volatility related to the impact from African swine fever and global trade uncertainty. The company expects organic pretax earnings growth of 5%-7%.  Results in 2019 included $.10 per share related to CytoSport which was sold during the year.


Thursday, Nov. 20, 2019

Ross Stores-ROST reported fiscal third quarter revenues rose 8% to $3.8 billion with net income up 9% to $370.9 million and EPS up 13% to $1.03. Comparable store sales increased a strong 5% in the quarter driven by both traffic and average basket size. Growth was broadbased in all departments and geographies with the best growth coming from the children’s department and the Midwest region. Results were better than management’s expectations with the 12.4% operating margin also above plan due to better than expected sales and merchandise margin. Free cash flow declined 13% during the first nine months to $1.0 billion with the company paying $278 million in dividends and repurchasing $966 million of its common stock during the same time period. For the full year, the company expects to repurchase$1.275 billion in common stock. For the fourth quarter, comparable store sales are expected to increase 1% to 2% in a competitive retail landscape and given ongoing uncertainty surrounding the macro environment and political environment. For the full fiscal year, Ross Stores raised their EPS guidance to a range of $4.52 to $4.57 up from $4.26 in fiscal 2018. Ross Stores expects to end the year with 89 new stores including 1,546 Ross Stores and 259 dd’s Discounts stores.

Brown-Forman-BFB announced today that its Board of Directors increased its quarterly cash dividend on its Class A and Class B Common Stock by 5.0% to $0.1743 per share from the prior quarter’s $0.1660 per share. As a result, the indicated annual cash dividend will rise from $0.6640 per share to $0.6972 per share. This marks the 36th consecutive year of dividend increases at Brown-Forman, and the 74th year of paying quarterly dividends at the company. Lawson Whiting, President and Chief Executive Officer of Brown-Forman said, "Our increased dividend reflects the strength of our cash flows, the health of our balance sheet, and our confidence in the long-term growth prospects for the company.”

Tuesday, Nov. 19, 2019

TJX Companies-TJX rang up a 6% increase in third quarter sales to $10.5 billion with net earnings increasing 9% to $828 million and EPS charging ahead by 11.5% to $0.68. Consolidated comparable store sales increased 4%, driven by customer traffic increases. By business segment, Marmaxx sales increased 6% to $6.4 billion on a 4% comparable store increase; HomeGoods sales increased 8% to $1.6 billion on a 1% comparable store increase; TJX Canada sales increased 4% to $1.1 billion on a 2% comparable store increase and TJX International sales increased 6% to $1.4 billion on a 6% comparable store increase. During the third quarter, the company increased its store count by 107 to a total of 4,519 stores with square footage increasing by 4%. During the third quarter, TJX Companies returned a total of $778 million to shareholders through dividend payments of $278 million and share repurchases of $500 million at an average cost of $55.56 per share. Year-to-date, TJX Companies generated $881 million in free cash flow, down 45% from last year on working capital changes and a 14% jump in capital expenditures. Year-to-date, the company returned nearly $2 billion to shareholders through dividends of $795 million and share repurchases of $1.15 billion. The company expects to repurchase a total of $1.5 billion to $1.75 billion of TJX stock this fiscal year. On November 18, 2019, TJX Companies completed an investment of $225 million for a 25% ownership stake in privately held Familia, Russia’s only major off-price apparel and home fashions retailer. Familia currently operates more than 275 stores throughout Russia. This transaction gives TJX an opportunity to invest in an established, off-price retailer with significant growth potential in the Russian market. The company’s ownership in Familia is expected to be slightly accretive to earnings per share beginning in fiscal 2021. Looking ahead to the full year, sales are expected in the $41.2 billion to $41.3 billion range, up 6% year-over-year. EPS are expected in the $2.61 to $2.63 range, up 7% to 8% from last year. The EPS outlook is based on estimated comparable store sales growth of 3% on a consolidated basis and 3% to 4% at Marmaxx.

Maximus-MMS reported fourth fiscal quarter revenue increased 35% to $755 million with net income up 30% to $60 million and EPS up 31% to $0.91. By segment, U.S. Health and Human Services revenue increased 4% to $300 million driven by new work with a 17.9% operating margin. As expected, U.S. Federal Services revenue increased 166% to $312 million driven by the acquisition of the federal citizen engagement centers business.  Operating margin for the segment was 10.0%. Outside the U.S. Segment revenue decreased 6% to $142 million due to a slowdown in its employment services business with operating margin decreasing to 1.5%. Year-to-date signed contract awards at September 30, 2019, totaled $2.6 billion and contracts pending (awarded but unsigned) of $242 million. For the full fiscal year, revenues increased 21% to $2.9 billion with net earnings up 9% to $241 million and EPS up 11% to $3.73. Maximus generated a 19% return on shareholders’ equity during the fiscal year. During the year, free cash flow was $294 million with the company paying $64 million in dividends and repurchasing $47 million of its common stock. For fiscal 2020, management expects revenue of $3.15 to $3.30 billion and EPS of $3.95 to $4.15.  Free cash flow is expected to be in the range of $275 to $325 million with operating margins between 10.7% to 10-8%.

Thursday, Nov. 14, 2019

NIKE-NKE announced today that its Board of Directors has approved a quarterly cash dividend of $0.245 per share on the company’s outstanding Class A and Class B Common Stock. This represents an increase of 11 percent versus the prior quarterly dividend rate of $0.22 per share. The dividend declared today is payable on January 2, 2020 to shareholders of record at the close of business December 2, 2019. “NIKE has consistently delivered strong cash flow and returns for shareholders and today’s announcement marks NIKE’s 18th consecutive year of increasing dividend payouts,” said Mark Parker, Chairman, President and CEO of NIKE, Inc. “This dividend increase, combined with the four-year $15 billion share repurchase program announced in 2018, reflects continued confidence in our strategies to generate long-term, profitable growth as we accelerate execution of our Consumer Direct Offense.”

 

Wednesday, Nov. 13, 2019

Cisco Systems-CSCO reported fiscal first quarter revenues rose 1% to $13.2 billion with product revenue up 1% and service revenue up 4%. Product revenue growth was led by growth in Security, up 22%, and Applications, up 6%. Infrastructure Platforms were down 1%. On a geographic basis, revenues were up 4% in the Americas and EMEA and down 8% in APJC. During the first quarter, net income was down 18% to $2.9 billion and EPS were down 12% to $.68. Excluding the sale of the SPVSS business for all periods, net income and EPS rose 5% and 12%, respectively. Free cash flow declined 5% during the quarter to $3.4 billion with Cisco spending $1.5 billion on dividends and repurchasing 16 million shares for $768 million at an average price of $48.91 per share. The company has $12.7 billion remaining authorized for future share repurchases. Cisco saw broad-based weakness in orders throughout the first quarter as business confidence declined due to uncertainty around Hong Kong unrest, the China/US trade tensions, Brexit, and uncertainty in Latin America and Washington DC politics. With the macro environment not expected to improve in the second quarter, Cisco expects second quarter revenues to decline 3%-5% with EPS declining to a range of $.61-$.67.

Disney-DIS announced its new streaming service Disney+ hit 10 million subscribers in the U.S., Canada and The Netherlands just one day after launch.

Tuesday, Nov. 12, 2019

The board of directors of Automatic Data Processing, Inc-ADP approved a $0.12 increase in the quarterly cash dividend to an annual rate of $3.64 per share, Carlos Rodriquez, ADP's president and chief executive officer, announced today.  The increased cash dividend marks the 45th consecutive year in which ADP, a leading global technology company providing human capital management (HCM) solutions, has raised its quarterly dividend. "The 15% increase in our quarterly dividend is the latest example of ADP's long-standing commitment to shareholder-friendly actions and is a strong signal of the board's confidence in ADP's future," said Carlos Rodriguez. In addition, the board of directors  authorized the purchase of $5 billion of its common stock. This authorization replaces in its entirety the previous 2015 authorization to purchase up to 25 million shares of common stock.  ADP had approximately 433 million common shares outstanding as of October 30, 2019.  


T. Rowe Price Group, Inc.-TROW reported preliminary month-end assets under management of $1.15 trillion as of October 31, 2019, a 19% increase since year end.

Thursday, Nov. 7, 2019

Walt Disney-DIS reported fiscal fourth quarter sales increased 34% to $19.1 billion with net earnings declining 66% to $785 million and EPS falling 72% to $0.53. These results include charges of $1.1 billion from goodwill amortization related to the 21st Century Fox and Hulu acquisitions and restructuring and integration charges. By business segment, Media Networks revenues for the quarter increased 22% to $6.5 billion and segment operating income decreased 3% to $1.8 billion, hurt by the higher operating costs at ESPN and lower ABC Studios program sales. Parks, Experiences and Products revenues for the quarter increased 8% to $6.7 billion and segment operating income increased 17% to $1.4 billion. Operating income growth for the quarter was due to increases from merchandise licensing, Disneyland Resort and Disney Vacation Club. Studio Entertainment revenues for the quarter increased 52% to $3.3 billion and segment operating income increased 79% to $1.1 billion. The increase was driven by the performance of The Lion King, Toy Story 4 and Aladdin in the current quarter compared to Incredibles 2 and Ant-Man And The Wasp in the prior-year quarter. Direct-to-Consumer & International revenues for the quarter increased from $825 million to $3,428 million and the segment operating loss increased from $340 million to $740 million. The increase in operating loss was due to the consolidation of Hulu, costs associated with the upcoming launch of Disney+ and ongoing investment in ESPN+. For the full fiscal year, revenues increased 17% to $69.6 billion with net earnings declining 17% to $10.4 billion and EPS dropping 25% to $6.27. DIS generated an 11% return on shareholders’ equity during the fiscal year. During the year, free cash flow was $1.1 billion with the company paying $2.9 billion in dividends. Disney ended the year with $5.4 billion in cash, $38.1 billion in long-term debt and $93.7 billion in shareholder’s equity.

Booking Holdings-BKNG booked a 4% increase in third quarter revenues to $5.0 billion with net earnings increasing 10% to $2.0 billion and EPS increasing 23% to $45.54 on a 10% decline in share count. Gross bookings increased 4% to $25.3 billion with the company booking 223 million room nights, up 11% year-over-year. The global travel market remains healthy notwithstanding some regional headwinds. Travel in Europe is stable despite sluggish GDP growth; travel in China and Hong Kong was subdued due to geopolitical and macroeconomic challenges; and international travel to the U.S. has been hurt by the strong dollar. Booking Holdings’ global scale helped it navigate through the tricky environment. During the quarter, Booking Holdings generated $1.9 billion in cash flow from operations and $1.8 billion in free cash, down 4% from last year, with the company repurchasing $1.3 billion shares at an average cost per share of $1,860. Year-to-date, Booking Holdings generated $3.5 billion in free cash flow with the company repurchasing 3.76 million shares for $6.84 billion, or $1,819 per average share. As of September 30, 2019, $12.9 billion remains under the $15 billion authorization, which the company expects to complete during the next two to three years. Booking Holdings ended the quarter with $11.8 billion in cash and investments and $7.5 billion in long-term debt on its strong balance sheet. For the fourth quarter, the company expects room nights booked to increase 6% to 8% with total gross bookings increasing 0.5% to 2.5%. Revenues are expected in the range of -0.5% to 1.5% with net income per share in the $20.40 to $20.90 range, up from $13.86 reported last year. Adjusted EPS are expected in the $21.50 to $22.00 range, down from $22.49 reported last year.


Monday, Nov. 4, 2019

Stryker-SYK announced a definitive agreement to Group N.V. acquire all of the issued and outstanding ordinary shares of Wright Medical-WMGI for $30.75 per share, or a total equity value of approximately $4.0 billion and a total enterprise value of approximately $5.4 billion (including convertible notes). Wright Medical, which was founded in 1950, is a global medical device company focused on extremities and biologics. Wright Medical brings a highly complementary product portfolio and customer base to Stryker’s trauma and extremities business. With global sales approaching $1 billion, Wright Medical is a recognized leader in the upper extremities (shoulder, elbow, wrist and hand), lower extremities (foot and ankle) and biologics markets, which are among the fastest growing segments in orthopaedics. “This acquisition enhances our global market position in trauma & extremities, providing significant opportunities to advance innovation, improve outcomes and reach more patients,” said Kevin Lobo, Chairman and Chief Executive Officer, Stryker. “Wright Medical has built a successful business, and we look forward to welcoming their team to Stryker.”

Saturday, Nov. 2, 2019

Berkshire Hathaway-BRKB reported the company’s net worth during the first nine months of 2019 rose 14% with book value equal to $243,675 per Class A share as of 9/30/19.

During the third quarter, Berkshire reported net earnings of $16.5 billion, an 11% decrease compared to the prior year period. New accounting rules in 2018 require Berkshire to include the changes in unrealized gains/losses of its equity security investments in net income instead of comprehensive income which resulted in a $8.7 billion gain in the third quarter from investments and derivatives compared to a $11.7 billion gain in the prior year period.

Berkshire’s five major investment holdings represent 66% of total equities, including American Express at $17.9 billion (up 23% during the first nine months or $3.4 billion), Apple at $57 billion (up 41% during the first nine months or $16.7 billion), Bank of America at $27.8 billion (up 23% during the first nine months or $5.2 billion), Coca-Cola at $21.8 billion (up 15% during the first nine months or $2.9 billion) and Wells Fargo at $20.2 billion (down 2% or $500 million).

Berkshire’s operating revenues increased 2.1% in the third quarter to $64.7 billion with growth in all business segments except BNSF and McLane. Operating earnings increased 14% in the third quarter to $7.9 billion, boosted by a 20% jump in insurance investment income.

During the third quarter, Berkshire’s operating earnings in the insurance underwriting operations dipped slightly to $440 million. On the other hand, insurance investment income was 20% higher at $1.5 billion during the quarter, reflecting higher interest rates on short-term investments and higher dividend income due to increases in the portfolio of equity securities, including the August 8, 2019 investment in Occidental 8% preferred stock, and higher dividend rates. The float of the insurance operations approximated $127 billion as of 9/30/19, an increase of $4 billion since year end. The average cost of float was negative during the first nine months as the underwriting operations generated pre-tax earnings of $1.5 billion.

Burlington Northern Santa Fe’s (BNSF) revenues declined 2% during the third quarter at $6 billion with net earnings chugging 5% higher to $1.5 billion. Aggregate year-to-date volumes were 7.68 million cars/units, representing a 4% decrease in volume from the same period last year. BNSF experienced severe winter weather and flooding on parts of its network in the first half of 2019, which negatively affected revenues, expenses and service levels. Reduced consumer demand, trade policy, higher available truck capacity and lower international intermodal market share also impacted volume.

Berkshire Hathaway Energy reported revenues increased slightly to $5.7 billion during the third quarter due to growth at the real estate brokerage unit that was mostly offset by lower results of the energy units. Net earnings increased 8% during the quarter to $1.2 billion primarily due to growth in earnings at the real estate brokerage unit and lower tax expense from tax reform that Berkshire Energy began passing along to customers.

Berkshire’s Manufacturing businesses reported a 1% increase in revenue growth in the third quarter to $15.9 billion with operating earnings up nearly 5% to $2.5 billion. Revenue growth was led by Building Products with 6% growth to $5.3 billion thanks to 19% growth at Clayton Homes, reflecting increased home sales and changes in sales mix. Industrial Products revenues inched up 0.5% to $7.7 billion with growth at Precision Castparts, IMC and Marmon offsetting declines at Lubrizol and CTB. Consumer Products revenues declined 5% to $2.9 billion primarily due to an 11% decline in Forest River sales and a 4% decline in the apparel and footwear business that was partially offset by a 7% increase in Duracell sales. The 20% increase in operating earnings in Building Products and the slight uptick in Industrial profits more than offset the 3% decline in Consumer Products.

Service and Retailing revenues dipped slightly during the quarter to $20.0 billion with pre-tax earnings down 7.5% to $689 million. Service revenues dipped 1.6% to $3.3 billion in the third quarter with operating earnings down nearly 13% to $451 million. TTI’s sales declined 7% during the third quarter continuing a trend that began in the fourth quarter of 2018 due to reduced customer demand, the effects of U.S. tariffs and lower sales prices. Retailing revenues increased 5% during the quarter to $4.0 billion with operating earnings up 2% to $188 million, reflecting growth at Berkshire Hathaway Automotive in all significant product categories, including a 6% increase in new auto sales. Home furnishing group revenues, which represent about 20% of the aggregate retailing group revenues, were relatively unchanged in the third quarter.  McLane’s revenues declined by 1.7% during the quarter to $12.6 billion. McLane’s operating earnings increased 14% to $50 million reflecting a slight increase in average gross margins and changes in business mix, partially offset by increased employee-related operating expenses with the company continuing to operate within an intensely competitive business environment.

Berkshire’s balance sheet continues to reflect significant liquidity and a strong capital base of $397.6 billion as of 9/30/19, unmatched in corporate America. Excluding railroad, energy and utility investments, Berkshire ended the quarter with $381 billion in investments allocated approximately 57.7% to equities ($220 billion), 5.0% to fixed-income investments ($19.2 billion), 4.6% to equity method investments ($17.5 billion), and 32.7% in cash and equivalents ($124.4 billion).  

Berkshire’s financial strength allows Buffett to make significant investments and acquisitions, although there was minimal activity during the first nine months of 2019. During the quarter, Berkshire closed on the deal to invest a total of $10 billion in Occidental Petroleum in connection with Occidental’s proposal to acquire Anadarko Petroleum. Berkshire’s investment includes newly issued Occidental Cumulative Perpetual Preferred Stock with an aggregate liquidation value of $10 billion, together with warrants to purchase up to 80 million shares of Occidental common stock at an exercise price of $62.50 per share. The preferred stock will accrue dividends at 8% per annum and will be redeemable at the option of Occidental commencing on the tenth anniversary of issuance.

Free cash flow declined 6% during the first nine months to $15.5 billion.  During the period, capital expenditures increased 11% to $11 billion, including $7.4 billion in the capital-intensive railroad, utilities and energy businesses. Berkshire expects additional capital expenditures to approximate $3.8 billion for BNSF and Berkshire Hathaway Energy over the balance of 2019.  During the first nine months, Berkshire sold or redeemed a net $36.2 billion in Treasury Bills and fixed-income investments and bought a net $8.0 billion of equity securities.

Berkshire revised its buyback policy which now permits Berkshire to repurchase shares at prices below Berkshire’s intrinsic value, as conservatively determined by Warren Buffett and Charlie Munger.  Year-to-date, Berkshire repurchased $2.8 billion of its common stock, including 3,168,863 Class B shares at an average price of $198.73 and 213 Class A shares at an average price of $307,207 during the third quarter. We would expect further share repurchases given Berkshire’s current attractive valuation.

Friday, Nov. 1, 2019

Fitbit, Inc. announced that it has entered into a definitive agreement to be acquired by Google-GOOGL for $7.35 per share in cash, valuing the company at approximately $2.1 billion. Fitbit supports more than 28 million active users around the globe who rely on the products to live a healthier, more active life.  Fitbit pioneered the wearables category and has sold more than 100 million devices and supports an engaged global community of millions of active users, utilizing data to deliver unique personalized guidance and coaching to its users. Fitbit will continue to remain platform-agnostic across both Android and iOS. Consumer trust is paramount to Fitbit. Strong privacy and security guidelines have been part of Fitbit’s DNA since day one, and this will not change. Fitbit will continue to put users in control of their data and will remain transparent about the data it collects and why. The company never sells personal information, and Fitbit health and wellness data will not be used for Google ads. The transaction is expected to close in 2020. 


Wednesday, Oct. 30, 2019

Cognizant Technology Solutions – CTSH reported third quarter 2019 results with revenue increasing for the quarter by 4.2% to $4.25 billion despite headwinds from foreign currency translations.    Geographically, Europe and the rest of the world led growth with Europe growing 4.4% and the rest of the world jumping 8.9%.  North America which represents 75% of CTSH business added 3.7% growth year over year.  In the business segments: Product and Resources led the growth with Digital Engineering and the Internet of Things (IoT) support driving broad-based growth in support of retail, consumer goods, travel and logistics support businesses. Communications, Media and Technology grew 9% for the quarter. The growth was primarily driven by recent acquisitions and increased demand for Digital Engineering support.  The growth was partially offset by reduced spending by a large client.  CTSH will be exiting a portion of this business over the next year.  This decision is expected to reduce revenues in the segment $240 to $270 million dollars with approximately a $150 million revenue reduction projected next year. Excluding any growth from new business, the projected reduction will represent a 10% decline in the revenue from this segment over the next two years.   Financial Services, CTSH’s largest business segment, grew 1.9% during the quarter.  The growth was driven by the ramp-up in project work for insurance clients significantly offset by the continued softness and pricing pressure in the banking and financial services portion of the business.  While CTSH saw revenue gains from its partnership with three financial firms to operate a shared core platform, three of the company’s five largest financial service clients remain under pressure from current economic conditions. The Healthcare segment shrunk in the quarter with revenues declining 1.2% as CTSH’s business continues to feel the negative impact of consolidation in the healthcare industry.  This combined with a large North American client taking the work supported by CTSH back in house and a dispute with another client over a contract issue negatively impacted the segment in the third quarter. Operating income in the third quarter declined 11% to $669 million.   A general increase in operating expenses and $65 million in realignment charges negatively impacted results in the third quarter.  Management still sees pricing pressure in its major markets which will impact earnings but has also seen some improvement in being able to pass on some price increases for associates salary adjustments and related costs.  Earnings per share jumped 10% for the quarter to $0.90 per share primarily driven by share buybacks reducing the number of shares outstanding.  The company repurchased 3.6 million shares in the third quarter and 27 million shares for the full year, thus far. Long-term debt of $709 million equals 6.6% of stockholder’s equity.  Additionally, the company has over $3 billion in cash and short-term investments. Free cash flow remained strong for the quarter and year-to-date although both declined at September 30th primarily due to timing differences in the payments related to balance sheet items and non-cash expenses. In looking forward for the remainder of the fourth quarter of 2019, management projects revenue to increase 2%-3% with the fourth quarter revenue projected in the range of $4.21 billion.  Foreign currency translation will continue to negatively impact revenue growth in the quarter.  Full year revenues are projected between $16.7 billion and $16.9 billion reflecting a year over year growth in the 3.5% to 3.8% range.  Earnings per share for 2019 are projected in the range of $3.95 and $3.98 leaving the fourth quarter projection between $1.38 and $1.41 a share.

Apple-AAPL reported record fiscal fourth quarter revenues of $64 billion, up 2%, with net income down 3% to $13.7 billion and EPS up 4% to $3.03 on fewer shares outstanding. On a geographic basis, revenues increased 6.6% in both the Americas and the Rest of Asia to $29.3 billion and $3.7 billion, respectively. Japan sales declined 4% to $5 billion, European sales declined 3% to $14.9 billion and Greater China sales dropped 2% to $11 billion. Trends in China continue to improve from the 20% decline recorded in the first quarter to the 2% decline during the current quarter thanks to double-digit growth in services, the healthy reception of wearables, pricing, trade-in credits and monthly payment terms. iPhone sales declined 9% during the quarter to $33 billion. During the quarterly conference call, Tim Cook announced that effective immediately, it will allow customers to buy iPhones with payments spread over 24 months with no interest or fees for purchases made with the Apple credit card. The company set an all-time record for Services with revenues of $12.5 billion, an increase of 18% over the prior year period. With more than 450 million paid subscriptions to its services, up from 330 million last year, Apple is well on its way to achieving its goal of 500 million paid subscriptions in 2020. Apple also set a new record for Wearables, Home and Accessories with revenues of $6.5 billion, an increase of 54%, thanks to strong growth of Apple watches and AirPods. Mac sales declined 5%% during the quarter to $7 billion on difficult comps and iPad sales increased 17% to $4.7 billion, driven by the iPad Pro and the seventh generation of Ipads introduced in September. For the full fiscal year, Apple’s revenues declined 2% to $260 billion with net earnings declining 7% to $55 billion and EPS dipping slightly to $11.89. Apple generated a juicy 61% return on shareholders’ equity during the fiscal year. Free cash flow decreased 8% during the the fiscal year to $59 billion with the company paying $14.1 billion in dividends and repurchasing $66.9 billion of its common shares. Apple ended the quarter with $206 billion of cash and marketable securities on its fruitful balance sheet and $92 billion in long-term debt. For the fiscal first quarter 2020, management expects revenues between $85.5 billion and $89.5 billion, gross margin between 37.5% and 38.5%, operating expenses between $9.6 billion and $9.8 billion, other income of $200 million and a tax rate of about 16.5%.

Starbucks Corporation-SBUX reported fiscal fourth quarter sales increased 7% to $6.75 billion, net income increased 6% to $803 million and EPS increased 20% to $.67 on fewer shares outstanding. Global comparable store sales increased 5% with a 3% increase in average ticket and 2% increase comparable transactions. Net revenues for the Americas segment grew 9% to $4.65 billion, primarily driven by 6% growth in comparable store sales and 607 net new store openings. Americas operating margins decreased 70 basis points to 20.2%, primarily due to the 2019 Starbucks Leadership Experience and wage increases. International segment sales increased 6% to $1.57 billion, primarily driven by 1,337 net new store openings.  International segment operating margin expanded 180 basis points to 16.7%, primarily due to sales leverage, cost savings initiatives, labor efficiencies and the impact of the conversions of certain retail businesses to fully licensed markets. Starbuck’s Channel Development segment reported a 6% decline in sales to $508 million due to the licensing of Starbuck’s CPG and foodservice business to Nestle. For the full fiscal 2019 year, revenues rose 7% to $26.5 billion with net income down 20% to $3.6 billion and EPS declining 10% to $2.92. During the year, Starbucks generated $3.2 billion of free cash flow, repurchased $10.2 billion of its common stock and paid $1.8 billion in dividends. For fiscal 2020, Starbucks expects global revenue growth of 6% to 8%on comparable store sales growth of 3% to 4%. The company expects to open about 2000 net new Starbucks stores with 600 in the Americas and 1,400 in the International segment. EPS is expected to be in the range of $2.84 to $2.89. Starbucks declared a $0.41 per share quarterly dividend, a 14% increase over the prior period.

Facebook-FB reported third quarter revenues rose a friendly 29% to $17.7 billion with net income increasing 19% to $6.1 billion and EPS up 21% to $2.12. Daily active users were 1.62 billion on average for Sept. 2019, an increase of 9% year-over-year. Monthly active users increased 8% to 2.45 billion as of 9/30/19. The company estimates that around 2.2 billion people now use Facebook, Instagram, WhatsApp or Messenger every day on average and around 2.8 billion people use at least one of the company’s services each month.   Mobile advertising revenue increased to 94% of total advertising revenue, which was up 28% during the quarter and grew in all geographic regions. Free cash flow increased 35% during the first nine months of 2019 to $16.2 billion with the company repurchasing $2.9 billion of its common stock during the same time period. Facebook ended the quarter with $52.3 billion in cash and investments and $8.3 billion in operating lease liabilities on its strong balance sheet. Headcount increased 28% year-over-year to 43,030 as of 9-30-19 as the company increased its staff to enhance privacy and security of its platform. For fiscal 2019, total expenses are expected in the range of $46 billion to $48 billion which are expected to increase to $54 billion to $59 billion in fiscal 2020 as the company continues to increase its headcount. Capital expenditures in 2019 are expected to approximate $16 billion and increase to $17 billion to $19 billion in fiscal 2020 as the company continues to invest in datacenters, servers and office facilities to support future growth.  Revenue growth  in the fourth quarter is expected to decelerate closer to the range of 20%-25% growth with revenue growth in 2020 moderating more slowly than in 2019.

ADP- ADP reported fiscal first quarter sales increased 6% to $3.5 billion with net earnings increasing 15% to $582 million and EPS up 17% to $1.34. Excluding the benefit during the same period last year related to transformation initiatives, net earnings and EPS increased 10% and 12%, respectively. By business segment, Employer Services revenues increased 4% to $2.4 billion on a 6% jump in new business bookings. Pays Per Control increased 2.4% and segment operating margins increased by 50 basis points to 27.9%. PEO Services revenues increased 8% to $1.1 billion on a 7% increase in Average Worksite Employees paid to about 563,000. PEO Services segment margin decreased 70 basis points to 14%, pressured by workers' compensation reserve reductions at ADP Indemnity in the first quarter of fiscal 2019. Interest on funds held for clients increased 13% to $134 million thanks to a 7% increase in average client funds balances to $23.7 billion and a 10 basis point improvement in the average interest yield on client funds to 2.3%. During the quarter, ADP generated $376 million in free cash flow with the company returning $653 million to shareholders through dividend payments of $343 million and share repurchases of nearly $310 million. ADP’s aim of repurchasing 1% of its outstanding shares annually has resulted in a 30% decline in its outstanding shares since the early 2000s. Looking ahead to the full fiscal year, management expects revenues to increase in the 6% to 7% range with adjusted EPS growing by 12% to 14%.

According to the ADP National Employment Report, private sector non-farm employment increased by 125,000 in October including a 17,000 gain in small business with 1 to 49 employees, a 64,000 gain in medium-sized businesses with 50 to 499 employees and a 40,000 gain in large businesses. Goods-producing business shed 13,000 jobs while service providers added 138,000 jobs. “While job growth continues to soften, there are certain segments of the labor market that remain strong,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “The goods producing sector showed weakness; however, the healthcare industry and midsized companies had solid gains.” Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth has throttled way back over the past year. The job slowdown is most pronounced at manufacturers and small companies.”

Tuesday, Oct. 29, 2019

Stryker-SYK reported a healthy 10.6% increase in third quarter to $3.6 billion with operating income increasing 9% to $628 million and net income and EPS declining 21% to $466 million and $1.23, respectively. Adjusted net income and EPS increased 13%. Orthopaedics net sales of $1.3 billion increased 7.8% in the quarter and 8.8% in constant currency, including 10.1% from increased unit volume partially offset by 1.3% from lower prices. During the quarter, 51 MAKO robots were installed, including 42 in the U.S., up from 37 installed last year including 26 in the U.S. Stryker now boasts of 800 installed MAKO robots including 600 in the U.S. During the third quarter, 18,000 knee replacements were performed with the MAKO robot, up 60% year-over-year and MAKO hip replacements increased 40% from last year’s third quarter. Japan recently approved the use of MAKO with the company installing 4 MAKO robots in Japan during the quarter. MedSurg net sales of $1.6 billion increased 9.2% in the quarter, 10.0% in constant currency and 8.8% organically, including 9.2% from increased unit volume partially offset by 0.4% from lower prices. Neurotechnology and Spine net sales of $0.7 billion increased 19.4% in the quarter, 20.2% in constant currency and 7.6% organically, including 7.8% from increased unit volume partially offset by 0.2% from lower prices. During the first nine months of the year, Stryker generated $1 billion in free cash flow, down 12% from last year due to increased working capital requirements and an 8% increase in capital expenditures. The company returned nearly $900 million to shareholders year-to-date through dividend payments of $585 million and share repurchases of $307 million. The company did not repurchase any of its shares during the quarter. Based on Stryker’s year-to-date performance and anticipated strength in the remainder of the year, management now expects 2019 organic net sales growth to be toward the higher end of the previously guided range of 7.5% to 8.0% with adjusted EPS to be in the range of $8.20 to $8.25.

Mastercard-MA reported third quarter revenues charged 15% higher to $4.5 billion with net income up 11% to $2.1 billion and EPS up 14% to $2.07. This solid double-digit growth was driven by an increase in switched transactions of 20%; an increase in cross-border volumes of 17%; and a 14% increase in gross dollar volume to $1.7 trillion on a constant-currency basis. As of 9/30/19, the company’s customers had issued 2.6 billion Mastercard and Maestro-branded cards. Mastercard renewed an agreement with Citi for five years through 2029. Many other renewals and expanded deals also occurred including with Bank of America and H & R Block. Free cash flow increased 6% year-to-date to $4.9 billion with the company paying $1 billion in dividends and repurchasing $5.5 billion of its common stock during the same period. During the third quarter, the company repurchased 6.4 million shares for $1.8 billion  at a cost of $281.25 per share. Subsequent to quarter end, the company repurchased and additional 1.6 million shares for $449 million which leaves $800 million remaining authorized for future share repurchases.  Mastercard’s view of the macro environment is that consumer spending remains strong although moderating from 2018. In the U.S., consumer spending is stable with low unemployment and high consumer confidence. Europe is experiencing modest growth with the U.K. solid despite Brexit concerns. The Asia/Pacific region has negative business sentiment primarily due to the China/U.S. trade tensions although monetary policy is accommodative. Latin America remains mixed with Brazil strong and Mexico weak.

Monday, Oct. 28, 2019

Alphabet-GOOGL reported third quarter revenues rose 20%, or 22% on a constant currency basis to $40.5 billion with operating income up 6% to $9.2 billion and net income and EPS each down 23% to $7.1 billion and $10.12, respectively. Third quarter earnings were impacted by a $1.5 billion unrealized loss on equity securities held.  Total Traffic Acquisition Costs increased 14% during the quarter to $7.5 billion.   Record revenues were driven by mobile search, YouTube and Cloud as Alphabet celebrated its 21st birthday during the quarter. . Paid clicks on Google properties increased 18% during the quarter with cost-per-click declining 2%. Google advertising revenue increased 17% to $33.9 billion with Google other revenue up 39% to $6.4 billion and Other Bets revenues up 6% to $155 million during the quarter. Google operating income was up 15% to $10.9 billion with Other Bets operating loss widening from $727 million in the prior year period to a loss of $941 million this quarter.  As part of the Other Bets, Waymo is testing driverless long-haul trucking in Arizona and Wing drone deliveries are occurring in Virginia.  Free cash flow increased 34% through the first nine months to $22.6 billion with the company repurchasing $12.3 billion of its common stock including $5.7 billion in the third quarter as part of its increased $25 billion repurchase authorization. Alphabet ended the quarter with more than $133 billion in cash and investments and$4 billion in long-term debt on its strong balance sheet. Alphabet recently announced advancements in search and quantum computing which will provide further long-term growth opportunities.

Bank of Hawaii Corporation-BOH reported third quarter revenue increased 1% to $167 million with net income declining 7.4% to $52 million and EPS falling 8% to $1.29. Excluding a $6 million, or $0.11 per share, charge related to the settlement of an overdraft fee class action lawsuit, net income increased 2% year-over-year and EPS were flat. Net interest income was $125 million up 2% from last year’s third quarter. Net interest margin declined by 6 basis points to 3.01%, squeezed by falling short-term interest rates. Third quarter noninterest income increased 12% to $46.5 million, largely due to an increase in mortgage banking income and customer derivative activity. Deposits increased 3.4% to $15.3 billion and total loan and lease balances increased 6.4% to $10.9 billion. The bank’s overall asset quality remained strong during the quarter with total non-performing assets representing 0.20% of total loans. During the third quarter, Bank of Hawaii generated a 1.17% return on average assets compared with 1.33% in the same quarter last year and the efficiency ratio for the third quarter was 58.55% compared with 55.07% last year. Excluding the overdraft fee class action settlement charge, Bank of Hawaii generated a 1.27% return on assets and its adjusted expense ratio was 55.05%. During the third quarter, the company repurchased .4 million shares at total cost of $29.9 million, or $83.07 per share. From October 1 through October 25, 2019 the company repurchased an additional 92,000 shares of common stock at an average cost of $84.46 per share. Since BOH’s share repurchase program was initiated in July 2001, the company has repurchased 56.6 million shares and returned $2.3 billion to shareholders at an average cost of $40.09 per share. Remaining buyback authority under the share repurchase program was $57 million at September 30, 2019. On the third quarter conference call, management stated that BOH stock remains an attractive vehicle for returning cash to shareholders. General economic conditions in Hawaii remained positive during the third quarter of 2019 although recent trends indicate a more modest growth rate going forward. Statewide seasonally-adjusted unemployment rate continues to remain low at 2.7% compared to 3.5% nationally. Total visitor arrivals increased 5.2% in the first eight months of 2019, supported by strong growth in air seat capacity. Total visitor spending decreased 0.5% for the eight-month period. The real estate market remains active with strong growth in single-family home sales during the third quarter of 2019.

Walgreens Boots Alliance-WBA reported fourth quarter revenues rose 1.5% to $34 billion with net income dropping 55% to $677 million and EPS off 52% to $.75. For the full fiscal 2019 year, revenues rose 4% to $136.9 billion with net income down 21% to $4 billion and EPS declining 15% to $4.31. Earnings for the quarter and year were adversely impacted by acquisition, impairment, restructuring and tax charges. On an adjusted basis, fourth quarter EPS declined 3.7% and for the year, adjusted EPS decreased 0.5%. Return on shareholders’ equity for the year was 16.5%. Free cash flow declined 44% during the year to $3.9 billion primarily reflecting cash flows related to the integration of Rite Aid stores, non-recurring tax benefits in fiscal 2018, legal settlements and restructuring charges.  During fiscal 2019, Walgreens paid $1.6 billion in dividends and repurchased $4.2 billion of its common stock. The company raised its annual cost saving target from its transformational cost management program to in excess of $1.8 billion from in excess of $1.5 billion as they make progress on their strategic priorities to deliver long-term growth. For fiscal 2020, revenues are expected to increase 2% to 3% with core operating income growth of around 5% and flat adjusted EPS growth impacted in part by a higher tax rate and change in bonus payouts. The company expects to invest $800 million -$850 million in investments for future growth and $1.75 billion on share repurchases in fiscal 2020.  

Friday, Oct. 25, 2019

Microsoft-MSFT has been awarded a firm-fixed-price, indefinite-delivery/indefinite-quantity contract with a ceiling value of $10,000,000,000 over a period of 10 years, if all options are exercised.  The JEDI Cloud contract will provide enterprise level, commercial Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) to support Department of Defense business and mission operations. 

Thursday, Oct. 24, 2019

3M-MMM posted a 2% decline in revenues with net income increasing 2.6% to $1.6 billion and EPS up 5.4% to $2.72. By business segment, Safety & Industrial sales declined 5.7% to $2.8 billion, Transportation & Electronics sales declined 4.4% to $2.5 billion, Healthcare sales increased 4.7% to $1.7 billion and consumer sales increased 1.7% to $1.3 billion. In local currency, sales declined by 1.1% in the U.S. and by 4.4% in Asia Pacific including a 9.4% decline in China. Europe/Middle East/Africa sales increased by 2% and Latin America/Canada sales increased 2.8%, led by a 7% increase in Canada and 6.2% in Mexico. Operating margins increased 50 basis points to 25.2%, driven by benefits from acquisitions and divestitures, price increases and foreign currency that more than offset a 1.6% margin squeeze from volume declines. 3M generated free cash flow of $1.7 billion during the third quarter, down 5% from last year, with the company returning nearly $1 billion to shareholders through dividends of $828 million and share repurchases of $142 million. 3M ended the quarter with $7.8 billion in cash and investments, $17 billion in long-term debt and $11 billion in shareholders’ equity. Given the softening global economy, 3M updated its full-year sales guidance with organic local-currency sales now expected to decline by 1% to 1.5% versus a prior expectation of minus 1% to plus 2% with EPS now expected in the range of $8.20 to $8.30 versus a prior expectation of $8.25 to $8.75. In addition, the company updated its range for return on invested capital to include the impact of the Acelity acquisition. Return on invested capital is now expected in the 18.5% to 19.5% range versus a prior expectation of 20% to 22%. Free cash flow conversion is now expected in the range of 105% to 110% versus a prior expectation of 95% to 105%.

Tractor Supply-TSCO reported third quarter sales increased 5.4% to $1.98 billion with net income increasing 4.6% to $122 million and EPS plowing ahead 7.4% to $1.02 on fewer shares outstanding. Comparable store sales increased 2.9%, on top of a 5.1% increase in last year’s third quarter.  Comparable store sales results included increases in average ticket of 2.3% and comparable transaction count of 0.6%.  Comparable store sales growth was geographically broad-based, driven primarily by strength in everyday merchandise, along with growth across spring and summer seasonal categories. During the third quarter, the company opened 25 new Tractor Supply stores and 1 new Petsense store while closing 1 Tractor Supply store and 2 Petsense stores. Year-to-date through the third quarter, Tractor Supply generated free cash flow of $270 million with the company returning nearly $596 million to shareholders through cash dividends of $121.2 million and share repurchases of $490 million. Since 2017, the company has repurchased $2.95 billion of its shares leaving $1.5 billion remaining under the current share repurchase authorization. Based on the year-to-date performance, management updated its guidance with sales now expected in the $8.40 billion to $8.42 billion range, compared to its previous expectation of $8.40 billion to $8.46 billion. Comparable store sales growth is now expected in the 3.2% to 3.4% range, compared to previous expectations of 3.0% to 4.0%. EPS are now expected in the $4.66 to $4.70 range, compared to previous guidance of $4.65 to $4.75.


T. Rowe Price-TROW reported third quarter net revenues rose 2% to $1.4 billion with net operating income up 3% to $659 million, net income down 6% to $546 million and EPS down 3% to $2.23. On an adjusted basis for changes in non-operating income, net income and EPS increased 3% and 7%, respectively. Average assets under management increased 5% during the quarter with ending assets under management increasing 4% to $1.126 trillion at the end of the quarter. Long-term investment performance remains strong despite a choppy market environment in the third quarter with net client inflows of $2.5 billion. Net flows were primarily driven by multi-asset and fixed income, while equities experienced modest outflows. Expense growth year- to- date has been slower than anticipated, primarily driven by lower than planned distribution and product-related expenses with the company lowering its non-GAAP operating expense growth guidance from a range of 4% to 7% to a range of 4% to 5% for the full 2019 year. During the first nine months of 2019, the firm spent $566.7 million to repurchase 5.7 million shares, or 2.4% of its shares, at an average price of $99.57 per share, including $173.1 million spent to repurchase 1.6 million shares during the third quarter. T. Rowe Price remains debt-free with ample liquidity including $5.6 billion in cash and investments in T. Rowe Price products.

MSC Industrial Supply-MSM reported fiscal fourth quarter sales increased 0.6% to $843 million with net income dropping 8.8% to $67 million and EPS dipping 7% to $1.20. Gross margins declined 90 basis points to 42%. By segment, aerospace continued to be strong while the company continued to see a weakening demand and pricing environment across other segments. Despite the difficult operating environment, average daily sales increased 2.1% to $13.4 million and vending implementation was strong as MSC Industrial continues its journey to become a mission critical partner on the plant floor with its customers. For the full fiscal 2019 year, revenues increased 5% to $3.4 billion with net income declining 12% to $289 million and EPS declining 10% to $5.20. Return on shareholders’ equity for the year was 19%. Free cash flow decreased 6% to $276.7 million with the company returning $230.3 million to shareholders through share repurchases of $84.6 million and dividends of $145.7 million. MSC ended the year with $32 million in cash and $266 million in long-term debt on its balance sheet. Looking ahead to the first quarter of fiscal 2020, management expects net sales to be between $811 million and $827 million. At the midpoint, average daily sales are expected to decrease roughly 1.5%. EPS are expected to be between $1.12 and $1.18, down 13.5% at the midpoint.

Raytheon-RTN reported better than expected results in the third quarter with record sales up 9% to $7.4 billion, net income rocketing 34% higher to $860 million and EPS up 37% to $3.08. The increase in earnings reflected operational improvements along with the absence of the unfavorable $.80 per share impact last year of the pension plan annuity transaction. Strong bookings of $9.4 billion led to a record backlog of $44.6 billion at quarter end with a book to bill ratio of 1.27. Bookings strength across the company’s broad portfolio of technology solutions positions the company well for future growth. Free cash flow more than doubled during the first nine months to $1 billion with the company paying $773 million in dividends and $800 million for share repurchases. Raytheon’s merger with United Technologies was approved with the transaction expected to be completed in the first half of 2020. Raytheon raised its full year 2019 guidance for sales and EPS with sales expected in the range of $29.1 billion to $29.4 billion and EPS expected in the range of $11.70-$11.80. Operating cash flow for the full year is still estimated to be between $4.0 billion to $4.2 billion. The company’s initial outlook for 2020 is for 6%-8% growth in revenues with growth expected across all business segments. Raytheon expects another year of record backlog in 2020 with the book to bill ratio greater than 1.0. Strong free cash flow should lead to a significant return to shareholders of dividends and share repurchases.

Johnson & Johnson-JNJ confirmed an agreement in principle to settle opioid litigation as publicly announced and outlined by a committee of State Attorneys General on October 21, 2019. The Company would contribute $4 billion, subject to various conditions and an agreement being finalized. The agreement in principle is intended to provide certainty for involved parties and critical assistance for families and communities in need. This agreement in principle is not an admission of liability or wrong-doing and would resolve opioid lawsuits filed and future claims by states, cities and counties. This agreement in principle is a recognized subsequent event and previously reported GAAP net earnings for the fiscal third quarter and nine months ended September 29, 2019 is reduced from $4.8 billion to $1.8 billion and $14.2 billion to $11.1 billion, respectively. Previously reported earnings per share (EPS) for the fiscal third quarter and nine months ended September 29, 2019 is reduced from $1.81 to $0.66 and $5.28 to $4.13, respectively. There is no impact to previously reported Adjusted Earnings, Adjusted EPS and Adjusted Operational EPS for each of the periods reported.

Wednesday, Oct. 23, 2019

F5 Networks-FFIV reported fiscal fourth quarter sales increased 5% to $590 million with net income and EPS falling 29% to $95 million and $1.57, respectively. Product revenues, which represented 45% of total revenues, increased 3% to $265 million driven by the second consecutive quarter of 91% year-over-year growth in software revenues. Software revenues represented 31% of product revenue during the quarter, up from 17% last year as the company continues to transition from selling hardware toward becoming a software and services vendor. Systems sales of $182 million, representing about 69% of product revenue, declined 15% year-over-year as customers continue to accelerate their transition to software-based solutions. Services revenue of $325 million grew 6% year-over-year and represented about 55% of total F5 Networks’ revenue. By region, Americas revenue increased 11% year-over-year and accounted for 59% of the total. EMEA sales declined by 3% and accounted for 23% of total revenue while APAC dipped 2% and accounted for 18% of total revenue. Enterprise customers represented 61% of product bookings and service providers accounted for 17%. F5 Networks’ government business was very strong during the fiscal fourth quarter and represented 22% of product bookings, including 13% from U.S. Federal. During the quarter, the company generated $186 million in free cash flow, down slightly from last year. The company refrained from buying back shares during the quarter, opting instead to build its cash war chest for strategic purposes. F5 Networks ended the quarter with $1.3 billion in cash and investments on its debt-free balance sheet. For the full fiscal year, F5 Networks delivered 4% revenue growth to $2.2 billion with net earnings declining 6% to $427.7 million and EPS declining 3% to $7.08. The company generated a robust 24.3% return on shareholders’ equity during fiscal 2019. Looking ahead to the first quarter of fiscal 2020, management expects to deliver revenue in the range of $560 million to $570 million, up 4% from last year at the midpoint, with EPS in the range of $2.41 to $2.44, also up 4% year-over-year at the midpoint. Separately, F5 Networks announced a multi-year strategic collaboration agreement with Amazon Web Services (AWS) allowing customers to use F5 for new cloud-native application workloads and extend their existing F5 investments on AWS.

 Microsoft-MSFT reported first fiscal quarter revenue increased 14% to $33.1 billion with net income and EPS increasing 21% to $10.7 billion and EPS $1.38, respectively. Demand for Microsoft’s cloud offerings drove commercial cloud revenue to $11.6 billion, up 36% year-over-year. By business segment, Productivity and Business Processes revenue increased 13% to $11.1 billion, Intelligent Cloud revenue climbed 27% to $10.8 billion and More Personal Computing revenue grew 4% to $11.1 billion. Free cash flow increased 4% to $10.4 billion with the company returning $7.9 billion to shareholders through share repurchases of $4.4 billion and dividends of $3.5 billion. Microsoft ended the quarter year with $136.6 billion in cash and $66.5 billion in long-term debt on its sturdy balance sheet. Looking ahead, management expects second quarter revenue to be in the range of $35.2 billion to $35.9 billion.  For the full fiscal 2020 year, Microsoft expects double-digit revenue and operating income growth.

Tuesday, Oct. 22, 2019

Despite a softening economy, Canadian National Railway-CNI reported third quarter revenues chugged ahead 4% to C$3.8 billion with net income up 5% to C$1.2 billion and EPS up 8% to C$1.66. Excluding gains from asset sales in 2018, adjusted net income increased 8% and EPS increased nearly 11%. Third quarter revenues and RTMs told a tale of two economies -- that of manufacturers and consumers. Rail centric supply chain (manufacturing, energy and natural resources) revenues increased 1% while consumer products supply chain revenues increased 13% as consumer spending remains robust. While revenue ton miles (RTM) dipped 1% to 60.8 billion, freight revenue per RTM increased 6% to C$5.95, driven by freight rate increases and higher intermodal revenues due to the inclusion of the March 2019 TransX acquisition. Operating income increased 8% as management increased productivity by right sizing its car fleet to meet demand while putting the brakes on expenses, evidenced by the 1.6 point improvement in its operating ratio to 57.9%. CNI also delivered a 4% improvement in fuel productivity, producing an all-time record performance and supporting its sustainability agenda. CNI’s sustainability practices once again earned it a place on the Dow Jones Sustainability World and North American Indices, for the 8th and 11th consecutive year, respectively. During the quarter, the company generated C$700 million in free cash flow, up 20% from last year, due to working capital efficiencies and lower capital expenditures as track capacity infrastructure projects near completion. During the first nine months of 2019, Canadian National Railway generated nearly C$1.5 billion in free cash flow with the company returning more than C$2.4 billion to shareholders through share repurchases and dividends. CNI made good progress on its C$1.7 billion share repurchase program, repurchasing C$1.26 billion of its shares year-to-date at an average cost per share of C$118.49. Year-to-date dividend payments of C$1.16 billion increased 18% from last year, marking the 23rd consecutive year of uninterrupted annual dividend increases. For 2019, management expects growth across a range of commodities, particularly in Canadian coal exports, refined petroleum products and natural gas liquids, Canadian grain and petroleum crude compared to 2018. The company also expects lower volumes of U.S. coal exports, forest products, potash and frac sand compared to 2018 and now expects intermodal traffic volumes to be lower than 2018. Underpinning the 2019 business outlook is the expectation that North American industrial production will increase in the range of 0.5% to 1%. With RTMs expected to be down slightly from 2018, overall pricing above rail inflation and a stable Canadian to U.S. dollar exchange rate, management now expects full year EPS growth in the high-single-digit range.

Biogen-BIIB reported third quarter revenues increased 5% to $3.6 billion with net earnings increasing 7% to $1.55 billion and EPS increasing 17% to $8.39. Multiple sclerosis (MS) revenues increased 2% to $2.35 billion driven by a 3% increase in TECFIDERA sales. Revenue from SPINRAZA increased 17% to $547 million with approximately 9,300 patients being treated. Biogen's Biosimilars revenues increased 36% to $184 million, driven by IMRALDI, a market leading biosimilar for Humira. Uptake of Biogen’s biosimilars are expected to contribute to healthcare savings of 1.8 billion euros across Europe during 2019. During the first nine months of the year, Biogen repurchased 15.9 million shares for a total cost of $3.8 billion. Biogen has approximately $3.4 billion remaining under the current share repurchase program. Biogen ended the third quarter with cash, cash equivalents, and marketable securities totaling $6.3 billion and notes payable of $6.0 billion. In March, Biogen discontinued studies related to aducanumab, an Alzheimer's disease candidate. A new analysis of a larger dataset is showing a statistically significant reduction in clinical decline versus placebo. The positive results of this new analysis were driven primarily by greater exposure to high dose aducanumab in the larger dataset. Following discussions with the FDA, Biogen plans to submit a regulatory filing in early 2020. If approved, aducanumab would become the first therapy to reduce clinical decline in Alzheimer’s disease.

TD Ameritrade-AMTD reported fourth quarter revenues rose 11% to $1.6 billion with net income up 21% to $551 million and EPS up 25% to $1.00. For the full fiscal 2019 year, revenues increased 10% to $6.0 billion with net income up 50% to $2.2 billion and EPS up 53% to $3.96. Return on shareholders’ equity for the year was 25.4%. During the fiscal year, the company gained record net new assets of approximately $93 billion, an annualized growth rate of 7%. The company ended the year with client assets of about $1.3 trillion, up 2% year over year. The company also reported record average client trades of about 860,000, up 6% year over year.  Effective Oct. 3, 2019, TD Ameritrade eliminated commissions for its online exchange-listed stock, ETF and option trades, moving from $6.95 to $0. Management expects this decision to have a negative revenue impact of about $220 million to $240 million per quarter, resulting in about a 15%-16% revenue decline. The company will need to work diligently to create new revenue opportunities and to control expenses to replace the lost economics. The industry-wide commission change to zero commissions will represent near-term challenges for TD Ameritrade  in fiscal 2020 with both revenues and earnings expected to decline for the year. The company increased its dividend 3% for fiscal 2020 with plans to return about 90% of non-GAAP earnings to shareholders through dividends and share repurchases of at least 15 million shares in the next 12 months. With a CEO transition underway, the company will remain open to merger and acquisition opportunities. TD Bank currently owns 43% of TD Ameritrade with its ownership capped at 45% per a Stockholders Agreement.

 

UPS - UPS delivered a 5% increase in third quarter revenues to $18.3 billion with net earnings and EPS increasing 16% to $1.75 billion and $2.01, respectively. Adjusted EPS, which excludes business transformation costs, increased 14% to $2.07. U.S. Domestic Package revenue increased nearly 10% to $11.5 billion, driven by a 24% jump in Next Day volume, a 17% increase in Deferred Air and a 7% increase in Ground volume. Growth came from B2C and B2B shippers, led by retail, healthcare and high-tech sectors. Adjusted U.S. Domestic Package operating margins increased 130 basis points and unit cost per package declined nearly 3%, powered by productivity gains and increased efficiencies in the company’s new automated facilities. International revenues increased slightly to $3.5 billion on increased export volume in intra-European and virtually all Asia trade lanes, except to the U.S. The company’s flexible network allowed UPS to respond nimbly to trade flow changes by moving aircraft and other resources from China to Europe and the U.S. On the global trade horizon, management sees rays of sunshine as the U.K. makes progress in Brexit negotiations with both Ireland and the EU while the U.S. and China hammer out a phase 1 trade deal. UPS continues to navigate through the dynamic Supply Chain and Freight business with revenues falling nearly 5% to $3.4 billion. Year-to-date, UPS generated $5.7 billion in operating cash flow and $3.2 billion in free cash flow. Given efficiencies realized thus far in deploying capital, UPS lowered expected CapEx by $500 million in 2019 and 2020 while leaving network automation targets and other transformation goals unchanged. Year-to-date, UPS returned $3.3 billion to shareholders through share repurchases of $753 million at an average cost per share of $107.57 per share and dividends of $2.5 billion that were up 5.5% from last year. Given the visible results from transformation initiatives designed to improve network efficiencies and create new solutions, management reaffirmed full-year adjusted EPS in the range of $7.45 to $7.75. Guidance assumes no further deterioration regarding global trade uncertainty or U.S. industrial weakness. Free cash flow for the year is projected to be over $4 billion.

United Technologies-UTX reported strong sales and operating profit in the third quarter with sales soaring 18% to $19.5 billion and operating profit ascending 35% to $2.5 billion. Net income declined 7% to $1.14 billion with EPS down 14% to $1.33 which included nonrecurring charges of $.82 per share and restructuring charges of $.06 per share. On an adjusted basis, EPS increased 15%. . These results reflect the integration of Rockwell Collins. United Technologies delivered 5% organic sales growth and margin expansion across all four businesses. Collins Aerospace commercial aftermarket sales were up 78% and up 20% organically. Pratt & Whitney commercial aftermarket sales were up 6%. Equipment orders at Carrier were down 11% organically. Otis new equipment orders were up 6% on a constant currency basis. Free cash flow increased 45% during the first nine months to $2.0 billion with the company paying $611 million in dividends and repurchasing $42 million of its common shares. With results coming in stronger than expected, management raised their adjusted EPS outlook to a range of $8.0-5-$8.15, up $.13 from the midpoint of the prior outlook. Organic sales are expected to increase 4%-5% for the full 2019 year with reported sales expected in the range of $76.0 billion-$76.5 billion. The free cash flow outlook was revised $750 million higher at the midpoint to a range of $5.3 billion-$5.7 billion for 2019. The merger with Raytheon was approved and is scheduled to be completed after the company establishes Otis and Carrier as independent companies in the first half of 2020 with the end of the first quarter as the target date for the completed transactions.

Friday, Oct. 18, 2019

Gentex-GNTX reported third quarter sales rose 4% to $477.8 million with net income up 0.5% to $111.9 million and EPS up 5% to $.44. The 4% sales growth was achieved despite global light vehicle productions declining approximately 3%. Additionally, the GM strike negatively impacted sales 2% in the quarter, which means Gentex effectively outperformed the underlying market by 7%-9% during the third quarter.  Automotive sales growth was driven primarily by strength in Full Display Mirror shipments, as well as an 18% increase in exterior auto-dimming mirror unit shipments. Other net sales, which includes dimmable aircraft windows and fire protection products, were $13.5 million, an increase of 22%. The third quarter gross margin improved to 37.7% from 37.6% last year, despite the fact that escalating tariff costs negatively impacted gross margin by an additional 50 basis points during the quarter. Free cash flow through the first nine months was relatively steady at $327 million. During the third quarter, Gentex repurchased 3.6 million shares of its common stock at an average price of $27.07 per share for a total of $96.6 million. Year-to-date, Gentex has repurchased 11.4 million shares at an average price of $23.11 per share for a total of $262.7 million. As of 9-30-19, the company has approximately 22.5 million shares remaining available for repurchase.  Based on the GM strike which is resulting in lost sales of $7 million to $8 million per week, Gentex   lowered their sales outlook for the full year to $1.84 billion to $1.87 billion with gross margin expected in the range of 36.6% to 37.0%. Despite 2020 light vehicle production forecasts which have continue to worsen as the year progressed, Gentex is not changing its previous guidance for 2020 sales of 3%-8% growth over 2019 sales.

Out of an abundance of caution, Johnson & Johnson-JNJ announced that it is initiating a voluntary recall in the United States of a single lot of its Johnson's Baby Powder in response to a U.S. Food and Drug Administration (FDA) test indicating the presence of sub-trace levels of chrysotile asbestos contamination (no greater than 0.00002%) in samples from a single bottle purchased from an online retailer. In parallel, JNJ has immediately initiated a rigorous, thorough investigation into this matter, and is working with the FDA to determine the integrity of the tested sample, and the validity of the test results. JNJ has a rigorous testing standard in place to ensure its cosmetic talc is safe and years of testing, including the FDA's own testing on prior occasions--and as recently as last month--found no asbestos. Thousands of tests over the past 40 years repeatedly confirm that JNJ’s consumer talc products do not contain asbestos. JNJ’s talc comes from ore sources confirmed to meet their stringent specifications that exceed industry standards. Not only do JNJ and their suppliers routinely test to ensure the talc does not contain asbestos, the talc has also been tested and confirmed to be asbestos-free by a range of independent laboratories, universities and global health authorities.


Thursday, Oct. 17, 2019

Genuine Parts-GPC reported third quarter sales motored ahead 6% to a record $5 billion with net earnings increasing 3% to $227 million and EPS up nearly 5% to $1.56. Excluding the impact of transaction costs and other income related primarily to the acquisition of Inenco Group and the sale of EIS, the Electrical Specialties Group of Motion Industries, net income increased 0.6% to $219 million and EPS increased 1.4% to $1.50. Total sales for the third quarter included the contribution of 1.2% comparable growth and 6.7% from acquisitions, offset by a 1% foreign currency translation headwind and 0.7% due primarily to the sale of Grupo Auto Todo in the first quarter of 2019. By business segment, third quarter sales for the Automotive Parts Group were up 5.3% to $2.8 billion, including a 1.8% comparable sales increase and a 6.5% benefit from acquisitions, partially offset by a 1.8% unfavorable foreign currency translation impact and 1.2% from the sale of Grupo Auto Todo. Sales for the Industrial Parts Group were up 9.9% to $1.7 billion, including a 0.9% comparable sales increase and 9% from acquisitions. Sales for the Business Products Group were down 0.9% to $492 million on a decline in comparable sales growth. During the nine months ended 9/30/19, Genuine Parts generated $563 million in free cash flow with the company returning $401 million to shareholders through dividends of $328 million and share repurchases of $73 million. GPC’s 2019 dividend hike of 6% to $3.05 per share marked the 63rd consecutive year of dividend increases for GPC shareholders. Given the year-to-date results, as well as the impact of the 9/30/2019 sale of EIS, management updated its guidance and now expects sales to increase by 3.5%, down from previous guidance of a 4.5% to 5.5% sales increase. EPS are now expected in the $5.44 to $5.52 range with adjusted EPS in the $5.60 to $5.68 range, down from previous guidance of $5.65 to $5.75, primarily due to the sale of EIS. When asked on the quarterly conference call about tariffs, management stated that it has been able to pass along the impact of tariffs with price increases.

Tuesday, Oct. 15, 2019

Johnson & Johnson-JNJ reported third quarter sales increased 2% to $20.7 billion with net earnings increasing 23% to $4.8 billion and EPS increasing 26% to $1.81. Excluding specific items in both 2019 and 2018, adjusted earnings and EPS increased 1.5% and 3.4%, respectively. By business segment, pharmaceutical sales increased 5% to $10.9 billion as double-digit growth in ten branded drugs more than offset an 18% decline in arthritis drug Remicade sales which were hurt by increased rebates and biosimilar competition. Medical device sales declined by 3% to $6.4 billion. Excluding the impact of acquisitions and divestitures, medical device sales grew 5.3% operationally, driven by the growth in the Interventional Solutions business, ACUVUE contact lenses, the Advanced Surgery business, wound closure and Orthopaedics, which grew by 1.2%, the largest growth seen since 2016. Consumer worldwide sales grew 1.6% to $3.5 billion, driven by NEUTROGENA beauty products and over-the-counter products including TYLENOL analgesics, international upper respiratory products and digestive health products, partially offset by lower sales of baby care products on difficult product relaunch comps. During the quarter, Johnson & Johnson returned $3.7 billion to shareholders through dividend payments of $2.5 billion and share repurchases of $1.2 billion, completing its $5 billion share repurchase program. Management estimates year-to-date free cash flow at $14.5 billion. Given the year-to-date results, management raised its guidance with full year operational sales expected to increase 4.5% to 5%, up from previous guidance of 3.2% to 3.7%. Reported sales are expected to increase 0.2% to 0.7%, up from previous guidance of -1% to flat. Adjusted EPS are expected to increase 5.4% to 6%, up from 4.3% to 5.5% previously guided. When asked about pending litigation during the quarterly conference call, management spoke to the three headline grabbers: Risperdal, opioids and talc. JNJ will appeal the “egregious” $8 billion award in the Risperdal case and it remains confident of the outcome given that for decades the World Health Organization has designated Risperdal as the preferred treatment for psychosis. The company will also appeal the Oklahoma opioid award even as it settles cases like those brought in Ohio that benefit people who are addicted. The talc litigation should be the poster child for the big business of product liability litigation that has grown into a $36 billion business, half of which is against the life sciences industry even though products have never been safer or more effective. Year-to-date, plaintiff attorneys have spent $400 million in TV advertising to drum up more business. With its small team of lawyers, Johnson & Johnson will continue vigorously defending its talc product known to be safe by countless scientists at the FDA, National Cancer Institute and prestigious universities. JNJ will successfully navigate through this challenge as it has for 133 years while its 135,000 associates focus on bringing better solutions and innovation to health care.

UnitedHealth Group-UNH reported strong and diversified performance in the third quarter with revenues up 7% to $60.4 billion, led by double-digit growth at Optum.  Operating earnings increased 9% to $5 billion, including double-digit growth rates in each Optum business.  Third quarter net income grew a healthy 11% to $3.5 billion with EPS up 13% to $3.67. UnitedHealthcare grew to serve 415,000 more people with medical benefits over the past year driven by growth in commercial and Medicare Advantage membership and with greater focus on serving people with higher acuity needs.  Third quarter medical cost trends remained in line with expectations with the operating cost ratio improving 20 basis points to 14.8% reflecting the continued effects of operating cost productivity. Return on equity of 26.2% in the period continued to reflect the company’s efficient capital base and strong earnings profile. Cash flows from operations were $3.2 billion in the quarter and $12.3 billion year-to-date or 1.2 times earnings, a sign of high-quality earnings. Free cash flow declined 8% to $10.8 billion year-to-date reflecting working capital changes. Through the first nine months, United Health paid $2.9 billion in dividends and repurchased 20.8 million shares for $5.1 billion at an average cost of $245.19 per share as part of its disciplined capital allocation process. Based on strong third quarter results and a positive view for the rest of the year, management increased its full year net earnings outlook to $14.15 to $14.25, a $.15 per share increase at the mid-point. For fiscal 2020, management expects double-digit earnings growth to continue but come in at the lower end of its long-term objective of 13%-16% growth given headwinds in increased medical costs, Medicaid funding  and the pacing of investments for future growth.

Friday, Oct. 11, 2019

Despite sluggish business conditions and a cautious tone from customers, Fastenal (FAST) reported third quarter sales, net income and EPS increased 8% to $4 billion, $214 million and $.37, respectively. Daily sales increased 6.1% year-over-year, driven by higher unit sales from industrial vending and Onsite locations plus higher product pricing taken to mitigate the impacts of general and tariff-related inflation. Sales of fastener products grew 3% on a daily basis and represented 33.7% of sales while sales of non-fastener products grew 8% on a daily basis and represented 66.3% of sales. The company opened two branches during the third quarter and closed 22, ending the quarter with 2,146 branches. Fastenal activated 87 Onsite locations in the third quarter of 2019 and closed 35, ending the quarter with 1,076 active Onsite locations. Gross profit declined 90 basis points to 47.2%, primarily due to increased industrial vending and Onsite location sales, which generate lower gross margins than the company average. During the first nine months of 2019, Fastenal generated $590.3 million in operating cash flow, up 19% year-over-year, representing 96.4% of the period's net earnings versus 85.1% in the first nine months of 2018 thanks to effective working capital management. Free cash flow increased 2% to $406 million on a nearly two-fold increase in capital expenditures to expand the company’s hub capacity, vending device, and hub vehicles. Fastenal returned $126.2 in dividends to shareholders in the third quarter, up 10% from last year. The company did not repurchase any common stock during the quarter.

Thursday, Oct. 10, 2019

Hormel-HRL updated its fiscal 2019 earnings guidance to $1.76 - $1.80 per share from $1.71 - $1.85 per share. The company will provide details of the fourth quarter results and fiscal 2020 outlook on its upcoming earnings call on November 26, 2019.

MAXIMUS-MMS announced that its Board of Directors has approved a 12% increase in the quarterly cash dividend to $0.28 per share.  The dividend is payable on November 29, 2019, to shareholders of record on November 15, 2019. On an annual basis, this brings the Company’s cash dividend to $1.12.

T. Rowe Price Group-TROW reported preliminary month-end assets under management of $1.13 trillionas of September 30, 2019, representing a 17% increase since year end.

Friday, Oct. 4, 2019

Johnson & Johnson-JNJ  announced it has committed to ensuring more than $500 million is dedicated to world class research & development and delivery programs over the next four years to accelerate global efforts to eliminate HIV and tuberculosis (TB) by 2030.  As one of the world's largest healthcare companies, Johnson & Johnson is deeply engaged in global health innovation, working closely with governments and strategic partners to improve the health and well-being of more people in more places around the world.

Thursday, Oct. 3, 2019

PepsiCo-PEP reported third quarter revenues rose 4% to $17.2 billion with net income down 16% to $2.1 billion and EPS down 15% to $1.49. Organic growth has been accelerating and was up 4.3% in the quarter with the company now expecting to meet or exceed their full-year organic growth target of 4%. Frito-Lay is generating the best growth in a decade behind increased advertising and capacity additions. PepsiCo expects to deliver on their $1 billion in productivity savings during 2019 while at the same time investing in their brands and capacity to propel future growth. While international markets are volatile, underlying demand remains strong with the company gaining market share. Mexico and Saudi Arabia are generating double-digit growth and growth is strong in India, Russia and China. Free cash flow dipped 2% during the first nine months of the year to $3.1 billion due to increased capital expenditures with the company paying dividends of $4 billion and repurchasing $2.3 billion of its common stock so far in the fiscal year. For the full 2019 year, PepsiCo expects to deliver $9 billion in operating cash flow and $5 billion in free cash flow after investing $4.5 billion in capital expenditures. Total cash returns to shareholders are expected to approximate $8 billion in 2019 comprised of dividends of about $5 billion and share repurchases of about $3 billion. For the full 2019 year, core EPS is expected to decline 3% to $5.50, reflecting a 2% foreign exchange headwind.

Wednesday, Oct. 2, 2019

Paychex-PAYX reported first quarter revenues rose 15% to $992 million with operating income up 9% to $349.1 million, net income up 8% to $264.2 million and EPS up 9% to $.73. The acquisition of Oasis Outsourcing Group in Dec. 2018 contributed about 10% to the growth in total revenues with the integration of Oasis going well. Paychex had a solid start to the year with good progress across all major business lines with human resource outsourcing services, time and attendance solutions and retirement services performing well. In addition, demand for professional employer organization (PEO) business continues to grow.  Client retention remains at historical highs. Interest on funds held for clients increased 20% to $20.5 million in the first quarter due to higher average interest rates earned which approximated 2%. Return on equity for the trailing 12 months topped 40%. Free cash flow increased 8% during the quarter to $268.4 million. During the quarter, the company paid $222 million in dividends and repurchased 2 million shares for $171.9 million at an average price of $85.95 per share. The company’s positive cash flows have historically allowed the company to pay substantial dividends with a target payout of 80% of net income. With a better than expected start to the new fiscal year, management expects total revenues to increase 10%-11% for the full fiscal 2020 year with net income and EPS expected to increase 9%.

Private sector employment increased by 135,000 jobs from August to September according to the September ADP National Employment Report®.  "The job market has shown signs of a slowdown," said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. "The average monthly job growth for the past three months is 145,000, down from 214,000 for the same time period last year." Mark Zandi, chief economist of Moody's Analytics, said, "Businesses have turned more cautious in their hiring. Small businesses have become especially hesitant. If businesses pull back any further, unemployment will begin to rise."

TD Ameritrade-AMTD announced that its U.S. brokerage firm will eliminate commissions for its online exchange-listed stock, ETF (domestic and Canadian), and option trades, moving from $6.95 to $0, effective Thursday Oct. 3, 2019. Clients trading options will now pay $0.65 per contract with no exercise and assignment fees.  “This is great news for our clients, and thanks to the diversity of our business model, we’re able to make it a reality,” said Steve Boyle, chief financial officer, TD Ameritrade. “We expect this decision to have a revenue impact of approximately $220-240 million per quarter, or approximately 15-16 percent of net revenues, based on June Quarter fiscal 2019 revenue. We’ll have more information about our fiscal 2020 plan when we release fourth quarter earnings later this month.”

 

Tuesday, Oct. 1, 2019

UPS-UPS subsidiary UPS Flight Forward Inc. announced it has received the U.S. government’s first full Part 135 Standard certification to operate a drone airline. The company will initially expand its drone delivery service further to support hospital campuses around the country, and to provide solutions for customers beyond those in the healthcare industry. UPS Flight Forward plans in the future to transport a variety of items for customers in many industries, and regularly fly drones beyond the operators’ visual line of sight.

Thursday, Sept. 26, 2019

FactSet-FDS reported fiscal fourth quarter revenues rose 5.3% to $364.3 million with net income up 33% to $91.5 million and EPS up 32% to $2.34 benefiting from a lower tax rate. On an adjusted basis, EPS increased 19% as adjusted operating margin expanded 260 basis points to 33.9%. Revenue growth was primarily due to higher sales of analytics, content and technology solutions and wealth management solutions. Annual Subscription Value (ASV) plus professional services increased 5% to $1.48 billion as of quarter end. Client count increased 119 clients during the past quarter to 5,574, driven by an increase in corporate and wealth management clients. User count increased by 3,871 to 126,822 during the quarter driven by an increase in banking and wealth management users. Annual client retention was 89%. Employee count increased 1.1% in the last 12 months to 9,681. For the full year, revenue rose 6.3% to $1.4 billion with net income up 32% to $352.8 million and EPS up 34% to $9.08. Return on shareholders’ equity for the year was 52.5%. Free cash flow increased 4.4% to $367.8 million with the company paying $100.1 million in dividends and repurchasing $220.3 million of its common stock. FactSet has $239 million remaining authorized for future share repurchases. For fiscal 2020, FactSet expects revenues in the range of $1.49 billion to $1.50 billion with EPS expected in the range of $8.70 to $9.00.

Accenture-ACN reported fourth fiscal quarter revenues increased 5%, or 7.2% in local currency, to $11.1 billion. Net earnings and EPS clicked up 10% to $1.1 billion and $1.74, respectively. By business segment, Products increased 6% to $3.1 billion, Communications, Media & Technology increased 4% to $2.2 billion, Financial Services increased 2% to $2.1 billion, Health & Public Service increased 7% to $1.9 billion and Resources increased 9% to $1.7 billion. New bookings of $12.9 billion reached an all-time high. Free cash flow dipped 3% year-over-year to $1.87 billion on a 34% increase in capital expenditures as the company continues to invest to drive growth. During the quarter, the company repurchased 2.1 million shares for $407 million, or $189.78 per average share. For the full fiscal year, Accenture reported revenues of $43.2 billion with net earnings of $4.8 billion and EPS of $7.36. Excluding the impact of tax law changes in 2018, EPS increased 9%. During the fiscal year, Accenture generated an impressive 33.2% return on shareholders’ equity. Accenture generated $6 billion in free cash flow during fiscal 2019, up 11% from last year, representing 1.25 times reported net earnings.  Accenture returned $4.56 billion to shareholders through share repurchases of $2.7 billion and dividends of $1.9 billion. The company announced a 10% increase in its dividend and that it has moved to paying quarterly dividends at the rate of $0.80 per share. Accenture ended the fiscal year with $6.4 billion in cash and investments and $16 million in long-term debt on its pristine balance sheet. Looking ahead, Accenture expects local currency revenue growth to be in the range of 5% to 8% with EPS in the range of $7.62 to $7.84, up 4% to 7% from fiscal 2019.


Tuesday, Sept. 24, 2019

Nike-NKE reported a strong results for its first fiscal quarter with revenues up 7% (10% constant currency) to $10.7 billion with net income jumping 25% to $1.4 billion and EPS running 28% higher to $.86. These results were driven by growth across all geographies, including 27% revenue growth in China. Nike has generated double-digit growth every quarter in China for the last five years. Nike’s strong product innovation combined with industry-leading digital experiences has fueled broad-based growth across the global portfolio despite an increasingly volatile macroeconomic and geopolitical environment. Gross margin expanded 150 basis points in the first quarter to 45.7% due to higher average selling prices and margin expansion in Nike Direct, which grew revenues 42% during the quarter. During the first quarter, Nike repurchased 11.9 million shares for approximately $995 million at an average price of $83.61 per share as part of the four-year $15 billion repurchase program approved in June 2018. For the full fiscal 2020 year, Nike continues to expect revenue growth in the high single-digit range despite tariffs and foreign exchange headwinds with gross margin expansion o f 50-75 basis points.

Thursday, Sept. 19, 2019

Microsoft-MSFT announced that its board of directors declared a quarterly dividend of $0.51 per share, reflecting a 5 cent or 11% increase over the previous quarter’s dividend. The dividend is payable Dec. 12, 2019, to shareholders of record on Nov. 21, 2019. The ex-dividend date will be Nov. 20, 2019. The board of directors also approved a new share repurchase program authorizing up to $40 billion in share repurchases. The new share repurchase program, which has no expiration date, may be terminated at any time.

Friday, Sept. 13, 2019

Eisai Co., Ltd. and Biogen Inc.-BIIB  announced the decision to discontinue the Phase III clinical studies on the investigational oral BACE (beta amyloid cleaving enzyme) inhibitor elenbecestat in patients with early Alzheimer's disease. The decision is based on the results of a safety review conducted by the Data Safety Monitoring Board, which recommended to discontinue these trials due to unfavorable risk-benefit ratio. 

Thursday, Sept 12, 2019

T. Rowe Price-TROW reported assets under management of $1.12 trillion as of 8/31/19, a 16.8% increase since year end.

Wednesday, Sept. 11, 2019

Oracle-ORCL reported first fiscal quarter revenues were relatively flat at $9.2 billion driven by 3% growth in cloud services and license support. Operating income rose 4% during the quarter to $2.9 billion with a 31% operating margin.  Net income declined 6% to $2.1 billion with EPS up 10.5% to $.63. Shares outstanding declined due to the substantial share repurchase program. During the quarter, Oracle repurchased 89 million shares for $5 billion at an average price of $56.18 per share. During the last 12 months, the company has repurchased 611 million shares for $31 billion at an average price of $50.74 per share with shares outstanding reduced by 25% over the last five years. The company announced an additional $15 billion share repurchase program. Free cash flow declined 11% during the quarter to $5.6 billion with the company paying $795 million in dividends. Operating cash flow was $13.8 billion during the trailing 12 months.  As the low margin hardware businesses continue to get smaller, while the higher margin cloud businesses continue to grow larger, Oracle expects operating margins, EPS and free cash flow all to grow. With a good start to fiscal 2020, Oracle expects this to be their 3rd consecutive year of double-digit non-GAAP EPS growth.  The company also announced that  Mark Hurd, co-CEO, will be taking a medical leave of absence  with Larry Ellison, founder and executive chairman, and Safra Catz, co-CEO, covering his responsibilities during his absence.

Tuesday, Sept. 10, 2019

Apple-AAPL held its annual product event update. Apple launched Apple Arcade gaming service that will feature 100 exclusive games for iPhone, iPad, Mac and Apple TV for $4.99/month for the whole family. Apple is also launching Apple TV + services that will feature original programming for $4.99/month for the whole family which will begin Nov. 1 in 10o countries.  If customers purchase a new Apple product, they will get one year of Apple TV+ for free. Apple also introduced new iPads, iPhones and Apple Watches with enhanced features.

Friday, Sept. 6, 2019

Fastenal-FAST reported August net sale rose 1.6% to $475.6 million with daily sales up 6.3% to $21.6 million. Daily sales growth by end market was 8.8% for manufacturing and 1.4% for non-residential construction. Daily sales growth by product line was 4.6% for fasteners and 7.5% for other products.  About 66% of the top 100 national accounts were growing and 56% of the public branches.

Thursday, Aug. 29, 2019

Ulta Beauty-ULTA reported second quarter revenues rose a solid 12% to $1.7 billion with net income up 9% to $161.3 million and EPS up 12% to $2.76. Comparable store sales increased 6.2% during the quarter driven by 5.4% transaction growth and 0.8% growth in average ticket. The company’s gross profit margin expanded 40 basis points to 36.4% due to improvement in merchandise margins and leverage of fixed store costs. Average inventory per store was flat compared to the prior year period.  During the quarter, the company opened 20 new stores. Free cash flow increased 20% during the first half of the year to $296.1 million with the company repurchasing 1.1 million shares of its common stock at a cost of $378.3 million. For the full fiscal year, Ulta expects to repurchase $700 million of its common stock. Given industry-wide headwinds the company is seeing in the U.S. cosmetics industry with both prestige and mass market make-up trends soft, Ulta Beauty lowered their sales and earnings outlook for the full fiscal year. The company now expects total sales growth between 9% to 12% (compared to previous expectations for low double-digit growth) with comparable store sales growth of 4% to 6% (compared to previous guidance of 6% to 7%). Operating profit margin is expected to deleverage in the range of 60 to 70 basis points, leading to EPS in the range of $11.86 to $12.06, representing 8% to 10% growth over last year (compared to previous guidance of $12.83 to $13.03). For the full year, the company continues to expect to open about 80 new stores with capital expenditures expected in the range of $340 million to $350 million compared to the prior outlook of $380 million to $400 million.

The Walt Disney Company-DIS announced that it has sold its equity interest in the YES Network (“YES”) to a newly formed investor group that includes Yankee Global Enterprises (the “Yankees”) and Sinclair Broadcast Group (SBGI) (“Sinclair”), among others. The group acquired the 80 percent of the YES Network not already held by the Yankees at a total enterprise value of $3.47 billion.

Wednesday, Aug. 28, 2019

Brown-Forman-BFB reported fiscal first quarter revenues were flat at $766 million with net income down 7% to $186 million and EPS off 6% to $.39. These results were impacted by tariffs and the timing of customer orders. Underlying sales grew 4% in the United States driven by sustained double-digit growth from the premium bourbons, Woodford Reserve and Old Forester, and high single-digit underlying net sales growth from the tequilas, Herradura and el Jimador. The Jack Daniel’s family of brands grew underlying net sales in the low-single digits reflecting improving trends for Jack Daniel’s Tennessee Whiskey. The company’s consumer takeaway trends in the U.S. continues to improve, growing mid-single digits and inline with total distilled spirits. Underlying net sales in the company’s emerging markets grew 3% despite a difficult macroeconomic and political environment. Underlying net sales in developed international markets declined 3%, suppressed by 6% of tariff-related buy-ins last year and net pricing reductions this year. Gross profit declined by 5% pulled down by tariffs and higher input costs. Free cash flow declined 50% during the first quarter to $51 million with the company paying $79 million in dividends. Despite growing uncertainty around the global economic and geopolitical environment, Brown-Forman reaffirmed their 2020 outlook for underlying net sales growth of 5% to 7% with underlying operating income growth of 3% to 5% and EPS of $1.75 to $1.85.

Thursday, Aug. 22, 2019

Ross Stores-ROST reported revenues rose 6.5% to $4.0 billion with comparable store sales up 3%, driven by both increases in customer traffic and the ticket of the average basket. Ne t income rose 6% to $412.7 million with EPS up 10% to $1.14 on lower shares outstanding. The best performing merchandise was the Men’s business with the Ladies business expected to improve in the second half.   The best geographic areas were in the Midwest and Southeast. Operating margin was 13.7% in the second quarter, which was better than expected due to favorable timing of expenses. Freight cost headwinds are expected to abate in the second half due to lower oil prices. Free cash flow was fairly stable at $833 million during the first half of the year with the company paying $186.6 million in dividends and repurchasing $640.2 million of its common stock during the same time period. For the full fiscal year, Ross Stores expects to repurchase $1.275 billion of its shares. The sales outlook for the full fiscal year remains unchanged with same store sales growth expected in the range of 1%-2%. The company continues to plan on opening 100 new stores during the fiscal year including 75 Ross Stores and 25 dd DISCOUNTS stores.  Capital expenditures are expected in the $600 million range for the full year.  With the recent announcement of 10% tariffs on goods sourced from China, including apparel and footwear, the company slightly lowered their EPS outlook to a range of $4.41-$4.50, reflecting a $.03 per share additional headwind from the tariffs.

Hormel-HRL reported fiscal third quarter sales declined 3% to $2.3 billion on a 4% decline in volume to 1.1 billion pounds. Net income and EPS declined 5% to $199 million and $0.37, respectively. By segment, Refrigerated Foods sales increase 1% to $1.3 billion on strong demand for foodservice items Hormel® Bacon 1™ cooked bacon, Old Smokehouse® premium raw bacon and Hormel® Fire BraisedTM products. Refrigerator segment operating profits increased 13%, fattened by improved profitability for value-added products as consumers continue to move from behind the glass deli offerings to higher margin grab-and-go products. Grocery Products sales declined 11% to $543 million on the heels of the Cytosport divestiture. Grocery Products operating profits dropped 30%, squeezed by higher avocado prices and lower Skippy peanut butter pricing. Jennie-O Turkey sales declined by 6% to $299 million and operating margins fell 9% on lost distribution in the wake of two voluntary product recalls. International sales were flat with last year at $148 million as improved results in China offset the divestiture of CytoSport. Results in China were positively impacted by strong demand for foodservice and Skippy®peanut butter products as well as increased distribution of SPAM® luncheon meat. Segment profit for the quarter was slightly higher, driven by growth in China. During the quarter, Hormel repurchased $107 million shares for an average cost per share of $39.63. Year-to-date free cash flow declined 10% to $455 million on a 15% jump in inventory as management purchased inventory in advance of expected price increases. During the first nine months of fiscal 2019, Hormel returned $499 million to shareholders through share repurchases of $174 million and dividends of $325 million. Hormel paid its 364th consecutive quarterly dividend on Aug. 15, 2019, at the annual rate of $0.84 per share, a 12% increase over the prior year. The company ended the quarter with $574 million in cash and investments and $250 million in long-term debt on its sturdy balance sheet. Despite protein cost volatility, higher avocado prices and challenging peanut butter category dynamics, management affirmed its fiscal 2019 guidance.


Tuesday, Aug. 20, 2019

The TJX Companies-TJX rang up a 5% increase in sales to $9.8 billion driven by 2% same stores sales growth primarily due to customer traffic increases, which marks the 20th straight quarter of customer traffic increases at TJX and Marmaxx. Net earnings increased 3% to $759 million, impacted by higher wage and freight costs, with EPS up 7% to $.62 on lower shares outstanding. By business segment: Marmaxx sales increased 4.4% to $6.1 billion on a 2% increase in comp store sales; HomeGoods sales increased 7.4% to $1.4 billion on flat comp store sales; TJX Canada sales increased 3% to $967 million on a 1% increase in comp store sales and TJX International (Europe & Australia) sales increased 5.3% to $1.3 billion on a 6% increase in comp store sales. TJX opened 31 new stores during the quarter adding 800,000 square feet of retail space. During the first half of the year, TJX generated $321.2 billion in free cash flow, down 44% from last year, as the company took advantage of tremendous inventory buying opportunities during the first quarter. For the first half of fiscal 2020, the company returned $1.2 billion to shareholders through share repurchases of $650 million at an average cost of $52.85 per share and dividends of $517 million. TJX expects to repurchase $1.75 billion of stock for the full fiscal 2020 year. TJX ended the first half with $2.2 billion in cash and investments, reflecting the company’s strong cash flow generation and financial flexibility. With the third quarter off to a solid start, management reaffirmed its full year EPS outlook to a range of $2.56 to $2.61, representing 5% to 7% growth, with same store sales growth of 2% to 3% anticipated.


Friday, Aug. 16, 2019

Genuine Parts Company-GPC announced that it has entered into a definitive agreement to sell its wholly-owned subsidiary EIS, Inc. (EIS), the Electrical Specialties Group of Motion Industries, to Audax Private Equity (Audax). GPC intends to use the net cash proceeds from the transaction in accordance with its disciplined capital allocation strategy. The use of these funds may include potential investments for both organic and acquisitive growth, reinvestments in the business, share repurchases and the repayment of debt. The transaction is expected to close by the end of September 2019. Terms were not disclosed.


Wednesday, Aug. 14, 2019

Cisco Systems- CSCO reported fourth quarter sales increased 6% to $13.4 billion with net income falling 42% to $2.2 billion and EPS down 37% to $0.51. Excluding the impact of tax reform and other items, EPS increase 8% to $0.83. By region, Americas revenues increased 8% to $8.1 billion, Europe Middle East & Africa revenues increased 4% to $3.3 billion while Asia Pacific Japan China revenues declined 5% to $2 billion. During the earnings conference call, Chuck Robbins, Cisco’s chairman and CEO, said that while China is not a large part of Cisco’s business, it dropped off precipitously (25%) during the quarter as the company had been disinvited from bidding on state-owned enterprise business. By product category, Infrastructure Platforms revenue increased 6% to $7.9 billion, Applications clicked up 11% to $1.5 billion and security increased 14% to $714 million while services increased 4% to $3.3 billion. Subscriptions as a percent of software revenue increased 12 points to 70%. Orders from service providers dropped 21% as ordering dropped off ahead of the anticipated 2020 5G Network upgrade. Enterprise product orders dipped 2% while public sector orders increased 13% and commercial orders increased 7%. During the quarter, Cisco generated $3.9 billion in free cash flow, down 4% from last year, with the company returning $6 billion to shareholders through dividends and share repurchases at an average cost per share of $54.99. For the full fiscal year, Cisco’s revenues increased 7% to $51.7 billion with net income and EPS of $11.6 billion and $2.61, respectively, up from $110 million and $0.02 last year. Adjusted net income and EPS were $13.8 billion and $3.10, up 8.5% and 19%, respectively. Cisco generated an impressive 34.6% return on shareholders’ equity during fiscal 2019. Full year free cash flow increased 16% to $14.9 billion with the company returning $27 billion to shareholders through dividends of $6 billion and share repurchases of $21 billion at an average cost of $49.23 per share. Cisco ended the fiscal year with more than $33 billion in cash and investments, $14 billion of debt and $33.6 billion in shareholders’ equity. Looking ahead to the first quarter of 2020, Cisco expects revenue to be flat to up 2% year-over-year with adjusted earnings between $0.80 to $0.82.

Monday, Aug. 12, 2019

T. Rowe Price-TROW reported assets under management of $1.14 trillion as of July 31, 2019, representing an 18.1% increase since year end.

Friday, Aug. 9, 2019

Maximus-MMS reported third fiscal quarter revenue increased 22% to $730.7 million with net income up 5% to $63 million and EPS up 6.6% to $0.97. By segment, U.S. Health and Human Services revenue decreased 7.4% to $291.1 million, principally due to the rebid or extension of certain larger contracts, with an 18.6% operating margin. As expected, U.S. Federal Services revenue increased 161% to $292.3 million with the addition of $163.4 million in revenue from the acquisition.  Operating margin for the segment was 11.6%. Outside the U.S,. Segment revenue decreased 14% to $147.3 million due to expected decreases on welfare-to-work contracts in Australia and the United Kingdom with operating margin increasing to 3.4%. Year-to-date signed contract awards at June 30, 2019, totaled $1.8 billion and contracts pending (awarded but unsigned) of $687 million. Free cash flow for the first three quarters of fiscal 2019 increased 35% to $224.7 million. During the same period, Maximus repurchased $46.1 million of its common stock and paid $47.9 million in dividends. Management lowered full fiscal 2019 guidance from revenue of $2.925 - $2.95 billion to $2.88 - $2.90 billion and narrowed EPS guidance from $3.65 - $3.75 to $3.70 - $3.75.  Free cash flow guidance remain unchanged in the range on $235 - $285 million but management expects to be at the high end of the range.

Wednesday, Aug. 7, 2019

Booking Holdings-BKNG reported  second quarter revenues rose 8.8%, or 14% on a constant currency basis,  to $3.9 billion with net income relatively flat at $979 million and EPS traveling 11.5% higher to $22.44 as the company significantly reduced its shares outstanding through a substantial share repurchase program. Gross bookings increased 5%, or 10% on a constant currency basis, to $25 billion. Room nights booked during the quarter increased 12% to 213 million. Rental car days motored 1.2% higher to 21 million with a 2.4% increase in airline tickets.  Free cash flow declined 15% during the first half of the year to $1.7 billion with the company repurchasing $5.5 billion of its common shares during the same time period. Booking Holdings ended he quarter with $11.4 billion in cash and investments, $7.7 billion in long-term debt and $5.3 billion in shareholders’ equity. The macro environment in Europe remains cautious, but the company performed better than expected due to a solid start to the travel season. While outbound travel from China to the U.S. declined for the first time last year due to trade tensions, Booking Holdings still views China a great long-term growth opportunity. For the third quarter, the company expects total gross travel bookings to increase 3% to 5% on a constant currency basis with room nights booked expected to increase 6% to 8%, generating 4%-6% revenue growth on a constant currency basis and EPS in the range of $42.60 to $43.60. For the full 2019 year, Booking Holdings expects low double-digit EPS growth and to continue to gain market share.

Walgreens Boots Alliance-WBA previously announced plans to close approximately 200 stores in the United Kingdom on its earnings call for the fiscal quarter ended May 31, 2019. Following a review of the real estate footprint in the United States, the company also plans to close approximately 200 locations in the United States. The company currently estimates that the Transformational Cost Management Program will result in cumulative pre-tax charges to its GAAP financial results of approximately $1.9 billion to $2.4 billion. The company currently estimates that approximately 80% of the cumulative pre-tax charges relating to the Transformational Cost Management Program will result in future cash expenditures, primarily related to lease and other real estate payments, employee severance and technology costs related to the Company’s IT transformation.


Tuesday, Aug. 6, 2019

Walt Disney-DIS reported fiscal third quarter sales increased 33% to $20.2 billion with net earnings declining 51% to $1.4 billion and EPS falling 59% to $0.79. These results include charges of $1 billion, or $0.56 per share, from goodwill amortization related to the 21st Century Fox and Hulu acquisitions, restructuring and integration charges plus impairment charges related to an investment in a cable channel at A+E Television Network. By business segment, Media Networks revenues for the quarter increased 21% to $6.7 billion and segment operating income increased 7% to $2.1 billion, boosted by the consolidation of 21CF businesses (primarily the FX and National Geographic networks) and an increase at ESPN. Parks, Experiences and Products revenues for the quarter increased 7% to $6.6 billion and segment operating income increased 4% to $1.7 billion. Operating income growth for the quarter was due to increases at the consumer products businesses and Disneyland Paris, partially offset by a decrease at domestic parks and resorts. Studio Entertainment revenues for the quarter increased 33% to $3.8 billion and segment operating income increased 13% to $792 million. The increase was driven by the performance of Avengers: Endgame, Aladdin, Captain Marvel and Toy Story 4 in the current quarter compared to Avengers: Infinity WarIncredibles 2, Black Panther and Solo: A Star Wars Story in the prior-year quarter. Direct-to-Consumer & International revenues for the quarter increased from $827 million to $3,858 million and the segment operating loss increased from $168 million to $553 million. The increase in operating loss was due to the consolidation of Hulu, the ramp up of investment in ESPN+, which was launched in April 2018 and costs associated with the upcoming launch of Disney+. At the end of the third quarter, ESPN+ had 2.4 million paid subscribers and Hulu had 28 million paid subscribers. During the earnings conference call, Bob Iger, Disney Chairman and CEO, announced that in addition to its launch Disney+ on Nov. 12 at a monthly cost of $6.99, Disney is set to launch a bundle including Disney+, Hulu, and ESPN+ for $12.99 monthly. This three-pronged offering includes Disney+ for family and children’s programming, ESPN+ for sports, and Hulu, described as targeting adult viewers. During the quarter, free cash flow was a negative $2.9 billion due to Disney’s full operational control of Hulu and investments made in Disney’s direct to consumer offerings. Disney ended the quarter with $10.6 billion in cash and investments, $36 billion in long-term debt and $96 billion in shareholder’s equity. Year-to-date, Disney has distributed $1.3 billion in dividends and does not expect to resume share repurchases in the near term as it continues to invest in efforts to integrate the 21st Century Fox assets and advance its strategic transformation. Looking ahead to the fourth quarter, management expects that the Direct to Consumer business will generate $900 million in losses, up $560 million year-over-year. In addition, Media Networks segment operating income will decline by 10% due to difficult comps at ABC and higher programming costs at ESPN.

Mastercard-MA announced it has entered into an agreement to acquire the majority of the Corporate Services businesses of Nets, a leading European PayTech company, for €2.85 billion (approximately US $3.19 billion). The acquisition comprises the clearing and instant payment services, and e-billing solutions of Nets’ Corporate Services business. “The global opportunity for real-time payments is accelerating,” said Michael Miebach, chief product & innovation officer, Mastercard. “This deal strengthens our unique position as the one-stop partner for any bank, merchant or government’s payment needs. The combination with existing Mastercard assets such as Vocalink, Transfast and Transactis delivers real-time payment capabilities, innovation and expertise that are truly differentiated.” The transaction is anticipated to close in the first half of 2020. Mastercard expects the transaction to be dilutive for up to 24 months after the deal closes, primarily related to purchase accounting and integration related costs.


Fastenal-FAST
reported July net sales increased 11.2% to $457.5 million with average daily sales up 6.1% to $20.8 million. Daily sales growth by end market was 7.9% in manufacturing and 1.6% in non-residential construction. Daily sales growth by product line was 1.8% for fasteners and 8.7% for other products. Growth slowed across all customer and channel types compared to last year.

Saturday, Aug. 3, 2019

Berkshire Hathaway-BRKB reported the company’s net worth during the first half of 2019 rose 9.7% with book value equal to $234,115 per Class A share as of 6/30/19.

During the second quarter, Berkshire reported net earnings of $14.1 billion, a 17% increase compared to the prior year period.  New accounting rules in 2018 require Berkshire to book the net changes in unrealized appreciation/depreciation in net income instead of comprehensive income which resulted in a $7.9 billion gain in the second quarter from investments and derivatives compared to a $5.1 billion gain in the prior year period.

Berkshire’s five major investment holdings represent 69% of total equities, including American Express at $18.7 billion (up 29% during the first half or $4.2 billion), Apple at $50.5 billion (up 25% or $10.2 billion), Bank of America at $27.6 billion (up 22% or $5.0 billion), Coca-Cola at $20.4 billion (up 8% or $1.5 billion) and Wells Fargo at $20.5 billion (down 1% or $200 million).

Berkshire’s operating revenues increased 2.2% in the second quarter to $63.5 billion with growth in all business segments except Berkshire Hathaway Energy and McLane. Operating earnings declined 11% in the second quarter to $6.1 billion, primarily due to lower insurance underwriting results. Kraft Heinz has not filed its 2019 financial statements. Accordingly, Berkshire’s earnings exclude Kraft Heinz results.

During the second quarter, Berkshire’s operating earnings in the insurance underwriting operations declined 63% to $353 million with lower financial results in all insurance business units. On the other hand, insurance investment income was 20% higher at $1.4 billion during the quarter, reflecting higher interest rates on short-term investments and higher dividend income due to increases in the portfolio of equity securities and higher dividend rates. The float of the insurance operations approximated $125 billion as of 6/30/19, an increase of $2 billion since year end.  The average cost of float was negative during the first half as the underwriting operations generated pre-tax earnings of $943 million.

Burlington Northern Santa Fe’s (BNSF) revenues were relatively flat during the second quarter at $5.9 billion with net earnings chugging 2% higher to $1.3 billion. Aggregate year-to-date volume were 5 million cars, representing a 4.5% decrease in volume from the first half of 2018. BNSF experienced severe winter weather and flooding on parts of its network in the first half of 2019, which negatively affected revenues, expenses and service levels. Reduced consumer demand, trade policy and higher available truck capacity also impacted volume.

Berkshire Hathaway Energy reported revenues decreased 2% to $5.0 billion during the second quarter due to lower results from all energy units partly offset by growth at the real estate brokerage unit   Net earnings increased 4.5% during the quarter to $607 million primarily due to growth in earnings at NV Energy, Northern Powergrid, the natural gas pipelines and the real estate brokerage unit.

Berkshire’s Manufacturing businesses reported a 2% increase in revenue growth in the second quarter to $16.2 billion with operating earnings relatively flat at $2.5 billion. Revenue growth was led by Building Products with 11% growth to $5.4 billion thanks to 25% growth at Clayton Homes, reflecting increased home sales and increased interest income.  Industrial Products revenues inched up 0.5% to $7.9 billion with growth at Precision Castparts, Marmon and CTB offsetting declines at Lubrizol and IMC.  Consumer Products revenues declined 9% to $3.0 billion primarily due to decreases at Forest River, Duracell and the apparel and footwear businesses. The increase in operating earnings in Building Products was more than offset by the declines in Industrial and Consumer Products.

Service and Retailing revenues rose 1% during the quarter to $19.9 billion with pre-tax earnings down 3% to $804 million. Service revenues rose 2.5% to $3.4 billion in the second quarter with operating earnings down 6% to $502 million. TTI’s revenues slowed considerably in the second quarter due to reduced customer demand for electronic components and lower sales prices which contributed to lower earnings. Demand and revenues for TTI in the third quarter are expected to be lower than in 2018.   Retailing revenues increased 2.5% during the quarter to $4.0 billion with operating earnings up 6% to $243 million, reflecting growth at Berkshire Hathaway Automotive due to a year-to-date  9% increase in pre-owned vehicles sales partly offset by a 3% decline in new auto sales. Shifts in the Easter season for See’s Candies contributed to a sweet 43% jump in See’s sales in the quarter.  Soft consumer demand and unfavorable weather conditions negatively impacted the home furnishing operations with sales down 3% and operating earnings down 23% during the quarter.  McLane’s revenues were relatively flat during the quarter at $12 billion. McLane’s operating earnings declined 12% to $59 million due to unfavorable operating conditions which are expected to continue for the remainder of 2019.

Berkshire’s balance sheet continues to reflect significant liquidity and a strong capital base of $382.5 billion as of 6/30/19, unmatched in corporate America. Excluding railroad, energy and utility investments, Berkshire ended the quarter with $357 billion in investments allocated approximately 56.2% to equities ($200.5 billion), 5.6% to fixed-income investments ($20.0 billion), 4.8% to equity method investments ($17.2 billion), and 33.4% in cash and equivalents ($119.1 billion).  

Berkshire’s financial strength allows Buffett to make significant investments and acquisitions, although there was minimal activity in the first half of 2019.  Berkshire has committed to invest a total of $10 billion in Occidental Petroleum in connection with Occidental’s proposal to acquire Anadarko Petroleum, If completed, Berkshire’s investment would include newly issued Occidental Cumulative Perpetual Preferred Stock with an aggregate liquidation value of $10 billion, together with warrants to purchase up to 80 million shares of Occidental common stock at an exercise price of $62.50 per share. The preferred stock will accrue dividends at 8% per annum and will be redeemable at the option of Occidental commencing on the tenth anniversary of issuance.

Free cash flow increased 2.6% during the first half to $10.0 billion.  During the first half, capital expenditures increased 7% to $6.7 billion.  Berkshire expects additional capital expenditures to approximate $7 billion for BNSF and Berkshire Hathaway Energy over the balance of 2019.  During the first half, Berkshire sold or redeemd a net $2.8 billion in Treasury Bills and fixed-income investments and sold a net $1.6 billion of equity securities.

Berkshire revised its buyback policy which now permits Berkshire to repurchase shares at prices below Berkshire’s intrinsic value, as conservatively determined by Warren Buffett and Charlie Munger.  During the first half, Berkshire repurchased $2.1 billion of its common stock, including 733,907 Class B shares at an average price of $205.16 and 55 Class A shares at an average price of $311,293 during June 2019. We would expect further share repurchases given Berkshire’s current attractive valuation.

Berkshire Hathaway’s stock appears undervalued, currently trading at $306,000 per A share and $202.67 per B share. Based on current business fundamentals, we expect Berkshire’s A shares to trade between $307,000-$372,000 per share and the B shares to trade between $205-$248 per share.  Buy.

 Wednesday, July 31, 2019

Cognizant Technology Solutions-CTSH reported second quarter revenues rose 3.4% to $4.1 billion with net income up 11.6% to $509 million and EPS up 15.4%. By business segment, Financial Services revenue, representing 35.6% of revenues, was relatively flat but up 1.7% in constant currency driven by modest improvement in banking, notably with three Finnish financial institutions. Healthcare revenue, accounting for 27.4% of revenues, declined 1.9% with segment revenue negatively impacted by industry consolidation. Products and Resources revenue, representing 22.4% of revenues, grew 10.4% driven by solid growth across all industries. Results reflect continued strength in cloud and digital engineering services. Communications, Media and Technology revenues, accounting for 14.6% of revenues, grew 12.2% led by double-digit growth in Technology. During the first half of the year, free cash flow declined 24% to $642 million with the company paying $232 million in dividends and repurchasing $1.8 billion of its common stock during the same time period. Cognizant ended the quarter with $3 billion in cash and $718 million in long-term debt and $10.6 billion in shareholders' equity on its sturdy balance sheet.  With a muted outlook for banking and healthcare clients, Cognizant expects full year 2019 revenues to grow 3.8% to 4.8% on a constant currency basis with an adjusted operating margin of17% leading to adjusted EPS in the range of $3.92 to $3.98.  

ADP-ADP reported fourth fiscal quarter revenues increased 6% to $3.5 billion with net earnings of $476 million and EPS of $1.09, compared with net earnings of $141 million and EPS of $0.32 reported last fiscal year. Excluding last year’s pre-tax charges of $365 million related to ADP’s Voluntary Early Retirement Program and other restructuring charges, adjusted net earnings increased 13% to $498 million and adjusted EPS increased 15% to $1.14. For the full fiscal year, revenues increased 6% to $14.2 billion with net earnings increasing 22% to $2.3 billion and EPS increasing 23% to $5.24. Fiscal 2019 adjusted net earnings increased 19% and adjusted EPS increase 21%. By business segment, PEO Services, which provides comprehensive employment outsourcing solutions, reported revenues increased 9% to $4.2 billion on an 8% increase in Average Worksite Employees paid to about 547,000 for the year. Employer Services, which offers a comprehensive range of Human capital management software (HCM) and Human Resources Outsourcing solutions, reported revenues increased 5% to $9.9 billion on a 2.7% increase in pays per control. Employer Services new business bookings increased 8% and client revenue retention was up 40 basis points to 90.8%. Interest on Funds Held for Clients increased 20% to $562 million with average client funds balances increasing 5% to $25.5 billion for the fiscal year. The average interest yield on client funds increased 30 basis points to 2.2%. During fiscal 2019, ADP generated an impressive 42.5% return on shareholders’ equity and $2.5 billion in free cash flow, up 9.4% from last year. The company returned $2.2 billion to shareholders in fiscal 2019 through dividend payments of $1.3 billion and share repurchases of $938 million. This year’s 25% quarterly dividend increase marked the 44th year of consecutive dividend increases for ADP shareholders. ADP ended the year with $1.9 billion in cash, $2 billion in debt with a AA credit rating and $5.4 billion in shareholders’ equity. Looking ahead to fiscal 2020, management expects revenues to increase 6% to 7% with adjusted EPS increasing 12% to 14%.

In a separate  press release,  the ADP Research Institute® in collaboration with Moody’s Analytics reported private sector employment increased by 156,000 jobs from June to July according to the July ADP National Employment Report®. The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. “While we still see strength in the labor market, it has shown signs of weakening,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “A moderation in growth is expected as the labor market tightens further.” Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth is healthy, but steadily slowing. Small businesses are suffering the brunt of the slowdown. Hampering job growth are labor shortages, layoffs at bricks-and-mortar retailers, and fallout from weaker global trade.”                    

Tuesday, July 30. 2019

Apple-AAPL reported fiscal third quarter revenues increased 1% to $53.8 billion with net income down 13% to $10 billion and EPS dropping 7% to $2.18. International revenues accounted for 59% of total revenues.  On a geographic basis, revenues increased 2% in the Americas to $25.1 billion, 6% to $4.1 billion in Japan and 13% to $3.6 billion in Rest of Asia Pacific. European sales declined 2% to $11.9 billion and Greater China sales dropped 4% to $9.2 billion. Trends in China are improving thanks to price adjustments Apple made, a government stimulus program in China and trade and financing programs. iPhone sales declined 12% during the quarter to $26 billion. The company set an all-time record for Services with revenues of $11.5 billion, an increase of 13% over the prior year period. Apple has over 420 million paid subscribers to its services, an increase of 30 million in the last quarter alone. Apple also set a new record for Wearables, Home and Accessories with revenues of $5.5 billion, an increase of 48%, thanks to strong growth of Apple watches and Airpods. Together, the Services and Wearables businesses are approaching the size of a Fortune 50 company.  Mac sales increased 11% during the quarter to $5.8 billion and iPad sales increased 8% to $5 billion. Free cash flow decreased 12% during the first nine months of the fiscal year to $41.7 billion with the company paying $10.6 billion in dividends and repurchasing $49.5 billion of its common shares during that same time period. Apple ended the quarter with $211 billion of cash and marketable securities on its fruitful balance sheet and $108 billion in long-term debt. For the fiscal fourth quarter, management expects revenues between $61 billion and $64 billion, gross margin between 37.5% and 38.5%, operating expenses between $8.7 billion and $8.8 billion, other income of $200 million and a tax rate of about 16.5%.

Mastercard-MA reported strong second quarter results with revenues up 12%, or 15% on a constant currency basis, to $4.1 billion and net income charging 31% higher to $2.0 billion with EPS ringing up 33% growth. On an adjusted basis, net income and EPS rose 11% and 14%, respectively. Second quarter gross dollar volume was up 13% to $1.6 trillion with cross-border volume up 16% on a local currency basis. Switched transactions increased 18%. Other revenues increased 23% driven by the company’s Cyber & Intelligence and Data & Services solutions.  As of quarter end, there were approximately 2.6 billion Mastercard and Maestro cards issued globally, a 6% increase over the prior year period. Free cash flow increased 14% during the first half of the year to $2.7 billion with the company paying dividends of $677 million and repurchasing $3.7 billion of its shares outstanding during the same period. During the second quarter, Mastercard repurchased 7.7 million shares at a cost of $1.9 billion or about $246.75 per share with $2.6 billion remaining authorized for future share repurchases. During the quarter, the company also issued $2 billion in long-term debt.  In the United States, Mastercard sees healthy consumer spending thanks to low unemployment and high consumer confidence. For the balance of the year, Mastercard sees U.S. consumer spending remaining solid although moderating. Europe is  experiencing modest growth with U.K. consumers still spending despite the uncertainty surrounding Brexit. Trade tensions are weighing on Asia Pacific spending, notably in China. Latin America spending is mixed with Brazil strong and Mexico weak. For the full 2019 year, Mastercard expects to report revenue growth in the low teens with operating expenses up in the high-single digits, implying further  profit margin expansion.


Friday, July 26, 2019

AbbVie-ABBV reported second quarter revenues were relatively flat at $8.3 billion with net income declining 63% to $741 million and EPS off 61% to $.49. These results included a $2.3 billion payment related to Skyrizi future milestones and royalty payments along with other specified items. On an adjusted basis, EPS increased 13% during the quarter to $2.26. Second quarter U.S.  Humira revenues were $3.8 billion, an increase of 7.7%. Internationally, Humira net revenues were $1.1 billion, a decline of 31% operationally due to biosimilar competition. Second quarter global net revenues from the hematologic oncology portfolio were $1.3 billion, an increase of 39% with Imbruvica net revenues increasing 29% to $1.1 billion. Second quarter HCV net revenues declined 19% to $784 million. During the quarter, AbbVie announced an agreement to acquire Allergan in c ash and stock valued at approximately $63 billion. The acquisition is expected to provide scale, diversity and profitability to AbbVie’s growth platform, enhance long-term research and development investment and increase Allergan’s global commercial scales. The combined company is expected to be 10% accretive in the first year after the deal closes and produce robust cash flow to support continued dividend growth and reduction of debt levels. The deal is expected to close in the first quarter of 2020. AbbVie updated its full year 2019 GAAP EPS to a range of $5.69 to $5.79 and raised their adjusted EPS range to $8.82 to $8.92, representing growth of 12% at the midpoint.

Thursday, July 25, 2019

Starbucks Corporation-SBUX reported fiscal third quarter sales increased 8% to $6.8 billion, net income increased 61% to $1.4 billion and EPS increasing 84% to $1.12 on fewer shares outstanding. Global comparable store sales increased 6% with a 3% increase in average ticket and comparable transactions. Net revenues for the Americas segment grew 11% to $4.7 billion, primarily driven by 7% growth in comparable store sales and 641 net new store openings. Americas operating margins increased 130 basis points to 22.8%, primarily due to sales leverage and cost savings initiatives, partially offset by wage increases. China/Asia Pacific (CAP) sales increased 9% to $1.3 billion, primarily driven by 994 net new store openings and a 5% increase in comparable store sales. CAP operating margins increased 120 basis points to 20.2% due to sales leverage and cost savings initiatives. Europe Middle East and Asia (EMEA) sales declined 11% to $232 million due to the conversion of Starbuck’s France and Netherlands retail businesses to fully licensed operations during the previous quarter and the closure of certain company-operated stores, partially offset by 286 net new store openings. EMEA operating margin declined 400 basis points to 7.2%, primarily due to higher restructuring costs associated with the closure of certain company-operated stores, partially offset by the shift in portfolio towards more licensed stores. Starbuck’s Channel Development segment reported a 6% decline in sales to $533 million due to the licensing of Starbuck’s CPG and foodservice business to Nestle. During the quarter, Starbucks repurchased 6.8 million shares and paid a cash quarterly dividend of $0.36 per share, up 20% from last year. For the full fiscal year, Starbucks expects global revenue growth of 7%, up from prior guidance of 5% to 7%, on comparable store sales growth of 4%, up from 3% to 4%. The company expects to open about 2000, previously 2,100, net new Starbucks stores with 600 in the Americas, about 1,100 in CAP (including nearly 600 in China) and about 300 licensed stores in EMEA. EPS are now expected in the $2.86 to $2.88 range, up from prior guidance of $2.40 to $2.44.

3M-MMM reported second quarter sales declined 2.6% to $8.2 billion with net earnings falling 39% to $1.1 billion and EPS declining 37% to $1.92. Foreign currency translation decreased sales by 1.8%. Continued end-market softness in automotive, electronics and China along with customer destocking led to a 90 basis point decline in organic sales. On a geographic basis, total sales grew 1.7% in the U.S., with declines of 2.9% in Latin America/Canada, 3.5% in Asia Pacific and 9.4% in EMEA (Europe, Middle East and Africa). By business segment, Healthcare sales grew 5.8% to $1.8 billion with declines of 0.5% in Consumer sales to $1.3 billion, 2.9% in Transportation and Electronics to $2.5 billion and 9% in Safety and Industrial to $3 billion. During the quarter, 3M finalized its restructuring plans to eliminate 2,000 positions worldwide, which resulted in a pretax charge of $148 million. This restructuring is expected to generate annual savings of $225 million to $250 million with $110 million expected in the second half of the year. Beyond the restructuring, management took additional steps to increase cash flow including reducing manufacturing output and inventory levels by over $250 million in the quarter and reducing indirect costs by more than $80 million. Free cash flow declined 19% from last year’s second quarter to $1.2 billion, representing a free cash flow conversion rate of 110%. During the quarter, 3M returned $1.2 billion to shareholders through dividend payments of $830 million and gross share repurchases of $400 million. For the full year, 3M expects to repurchase $1 billion to $1.5 billion of its common stock. 3M maintained its 2019 outlook with organic local-currency growth of -1% to 2%, adjusted EPS in the $9.25 to $9.75 range, return on invested capital between 20% to 22% and free cash flow conversion of 95% to 105%.

Tractor Supply-TSCO rang up a 6.3% sales increase to $2.35 billion with net income increasing 6% to $219 million and EPS up 6.5% to $1.80. Comparable store sales for the second quarter 2019 increased 3.2%, driven by comparable average ticket and transaction count of 2.2% and 1%, respectively.  All geographic regions had positive comparable store sales growth.  The increase in comparable store sales was primarily driven by strength in everyday merchandise, including consumable, usable and edible products, along with solid demand for spring and summer seasonal categories. Tractor Supply opened 15 new Tractor Supply stores and one new Petsense store during the quarter. During the first half of the year, the company generated $265 million in free cash flow, up 69% from last year on working capital efficiencies and lower capital expenditures. The company returned $414 million to shareholders through dividend payments of $80 million and share repurchases of $334.2 at an average cost per share of $95.49. During the quarterly conference call, when asked about the impact of tariffs, management explained that its investments in digital pricing tools uniquely positions the company to mitigate the impact of tariffs. Digital web scraping tools extract large amounts of data from websites that help management analytically assess elasticity and make appropriate changes to offset the impact of tariffs. Tractor Supply’s digital tools also enable it to drive sales through personalized marketing campaigns to its Neighborhood Club loyalty customers designed to increase share of wallet and target new customers. Based on year-to-date performance, management updated its guidance for the full year. Net sales are expected in the $8.40 billion to $8.46 billion range on 3% to 4% comparable store sales with EPS in the $4.65 to $4.75 range. This compares to sales of $7.9 billion on 5.1% comparable sales growth and EPS of $4.31 reported in 2018. Management reiterated its plans to open 80 new Tractor Supply stores and 10 to 15 new Petsense locations during 2019.  


Stryker-SYK reported second quarter sales increased a heathy 10% to $3.7 billion with net income and EPS increasing 6% to $480 million and $1.26, respectively. Organic net sales increased 8.5% including 9.3% from increased unit volume partially offset by 0.8% from lower prices. Orthopaedics net sales of $1.3 billion increased 3.7% in the quarter, or 5.6% organically including 6.9% from increased unit volume partially offset by 1.3% from lower prices. Volume growth included hip and knee market share gains thanks to the installation of Mako robots into competitive accounts. Stryker sold 44 Mako robots during the quarter, up 13% from last year, including 35 in the U.S. Stryker now counts 700 Mako robots installed globally with 600 in the U.S. During the second quarter, 27,000 joint replacement surgeries were performed using Mako robots, including 18,000 knee replacement surgeries that bumped up utilization rates by 80%. MedSurg net sales of $1.6 billion increased 11.1% in the quarter, powered by a 19% increase in instrument sales. Neurotechnology and Spine net sales of $800 million increased 19%, boosted by the acquisition of K2M, a global leader of complex spine and minimally invasive solutions. Operating income declined 340 basis points to 16.8%, hurt by restructuring and recall-related charges. During the first half of the year, Stryker generated $540 million in free cash flow, down 19% from last year, pressured by cash expended in the K2M integration, which is expected to level off in the back half of 2019. Stryker ended the quarter with $1.8 billion in cash (including 40% held outside the U.S.), $8 billion in debt and $12 billion in shareholders’ equity. Acquisitions continue to be the number one priority for cash as Stryker continues building its robust product pipeline. Based on second quarter performance, 2019 organic net sales growth is expected in the range of 7.5% to 8%, up from prior guidance of 6.8% to 7.5% growth. Adjusted EPS is expected in the $8.15 to $8.25 range, compared to prior guidance of $8.05 to $8.20.

Alphabet-GOOGL reported second quarter revenues increased 19%, or 22% on a constant currency basis, to $38.9 billion with net income and EPS each more than tripling to $9.9 billion and $14.21, respectively. Adjusting for the EC fine recorded last year, net income and EPS each rose more than 20% during the quarter.  Alphabet recorded 20%+ growth in all geographic regions which was driven by mobile search, YouTube and Cloud. Management is excited about the improvements in Search, Maps and the Google Assistant and new breakthroughs in artificial intelligence (AI) and their growing Cloud and Hardware offerings. Google advertising revenues increased 16% to $32.6 billion with paid clicks on Google properties increasing 28% and cost-per-click declining 11%. Google other revenues jumped 40% to $6.2 billion fueled by the Cloud and Play. Other Bets revenues increased 12% to $162 million, derived primarily from Fiber and Verily, with the Other Bets operating loss widening to $989 million during the quarter.  Free cash flow increased 54% during the first half of the year to $13.9 billion with the company repurchasing $6.6 billion of its common stock. Alphabet announced a new $25 billion stock repurchase program. Alphabet ended the quarter with a strong balance sheet with more than $133 billion in cash and investments and $4.1 billion in long-term debt. The company continues to view privacy controls as very important as they look to welcome the next 1 billion users to their services.

Wednesday, July 24, 2019

F5 Networks-FFIV reported third fiscal quarter revenue increased 4% to $563.4 million with net income falling 30% to $85.9 million and EPS dropping 28% to $1.43. Software sales outpaced the slowdown in systems sales as the company continued executing on its strategy to transition to a software-driven application services provider offering consistent application security and reliable performance across private, public and multi-cloud environments. Year-over-year software sales grew 91%, and now represents 27% of product revenue, while systems sales declined by 11%. Operating margin fell to 18.2% from 28% last year, primarily due to NGINX acquisition and integration charges. While NGINX, a leader in the open-source application delivery space, is expected to contribute less than $8 million of revenue in during the fourth quarter, management is optimistic about its prospects. The acquisition enables 5F Networks to offer multi-cloud application services across all environments, providing the ease-of-use and flexibility developers require while also delivering the scale, security, reliability and enterprise readiness network operations teams demand. Year-to-date, F5 Networks generated $459 million in free cash flow, down 12% from last year, mainly due to increased capital expenditures as the company enters into the final phase of building its new Seattle headquarters. The company did not repurchase any shares during the quarter focusing instead on rebuilding its cash position after the NGINX acquisition. F5 Networks ended the quarter with $1.15 billion in cash and investments on its debt-free balance sheet. When asked on the earnings conference call if the company would consider paying a dividend, management stated that dividends were not an efficient way to distribute cash to shareholders. Guidance for the next quarter includes a revenue range of $577 million-$587 million, implying a 3% annual growth rate at the midpoint, and a non-GAAP EPS of range of $2.53-$2.56 down from $2.90 reported last year.

Raytheon Company-RTN reported second quarter sales increased 8.1% to $7.2 billion with net income from continuing operations increasing 2.3% to $817 million and EPS up 5% to $2.92. By business segment, Integrated Systems (IDS) sales increased 8% to $1.6 billion, Intelligence, Information, and Services (IIS) sales increased 5% to $1.8 billion, Missile Systems (MS) sales increased 8% to $2.2 billion, Space and Airborne Systems (SAS) sales increased 13% to $1.8 billion and Forcepoint sales increased 5% to $156 million. Total company bookings increased 9% to a record $9.5 billion resulting in a book-to-bill ratio to 1.32 and total backlog of $43.1 billion, up 8% from last year. Operating cash flow from continuing operations for the quarter was $823 million, down 29% year-over-year, primarily due to the timing of collections. The company is progressing well on the previously announced merger with United Technologies (UTX) and expects transaction to close in the first half of 2020. During the first half of 2019, Raytheon repurchased 4.4 million shares of its common stock for $800 million. Due to the merger agreement, the company is restricted from additional share repurchases. Raytheon ended the quarter with $2.2 billion of cash, $4.3 billion of long-term debt and $12.2 billion of shareholders’ equity on its strong balance sheet. Management now expects sales of $28.8 billion to $29.3 up from previous guidance of $28.6 billion to $29.1 billion. Estimated EPS increased from prior guidance of $11.40 to $11.60 to $11.50 to $11.70 and operating cash from continuing operations outlook increased from $3.9 billion to $4.1 billion to $4.0 billion to $4.2 billion.

Biogen-BIIB reported second quarter revenues increased 8% to $3.6 billion with net earnings increasing 72% to $1.5 billion and EPS increasing 88% to $7.85. On an adjusted basis, net earnings and EPS were up 45% and 58%, respectively. Multiple sclerosis (MS) revenues increased 3% to $2.4 billion driven by a 6% increase in TECFIDERA® sales. Revenue from SPINRAZA® increased 15% to $488 million with approximately 8,400 patients being treated, up 12% year over year. Biogen's Biosimilars revenues increased 45% to $184 million, driven by IMRALDI, a market leading biosimilar for Humira. Uptake of Biogen’s biosimilars are expected to contribute to healthcare savings of 1.8 billion euros across Europe during 2019. Other revenues increased 47% to $160 million. During the first half, Biogen repurchased 12.8 million shares for a total cost of $3.1 billion. Biogen has approximately $4.8 billion remaining under the current share repurchase program. Biogen ended the second quarter with cash, cash equivalents, and marketable securities totaling $4.3 billion and notes payable of $5.9 billion. In June, the company completed its acquisition of Nightstar Therapeutics for approximately $800 million. The acquisition added two mid- to late-stage clinical assets, as well as preclinical programs in ophthalmology. Management raised full year 2019 revenue guidance from the range of $13.6 billion to $13.8 billion to the range of $14.0 billion to $14.2 billion. EPS is now expected to be in the range of $29.60 to $30.40, up from previous guidance of $26.65 to $27.65.

Facebook-FB reported second quarter revenue increased 28% to $16.9 billion with net earnings falling 49% to $2.6 billion and EPS dropping 48% to $0.91. Earnings include $2.0 billion in legal expense related to the U.S. Federal Trade Commission (FTC) settlement and a $1.1 billion income tax expense due to a change in to the treatment of share-based compensation expense in a cost sharing arrangement. Excluding these expenses, EPS would have been $1.08 higher. Mobile ad revenue now represents about 94% of Facebook’s total ad revenue, up from 91% last year. Facebook daily active users reached 1.59 billion and monthly active users (MAUs) grew to 2.41 billion, both up 8% from last year. Regional ad revenue growth was led by U.S. & Canada at 30%, followed by Europe at 25% and Rest of World at 21%, which was impacted by currency headwinds. Total expenses increased 66% including the $2 billion accrual taken in connection with the FTC’s inquiry into Facebook’s platform and data practices. During the first half of 2019, the company generated $10.2 billion in free cash flow, ending the quarter with about $48.6 billion of cash and marketable securities on its likable debt-free balance sheet. During the first half of the year, the company repurchased $1.8 billion of its class A common stock. Management expects that revenue growth rates will decelerate sequentially throughout 2019 on a constant currency basis. Furthermore, it anticipates that ad targeting headwinds will be more pronounced during the second half of 2019. Expense growth is now expected in the 53% to 61% range, up from prior guidance of 47% to 55%, including the $5 billion expense related to the FTC settlement. Capital expenditures are now expected in the $16 billion to $18 billion range, driven primarily by continued investment in data centers and servers, slightly down from previous guidance of the $17 billion to $19 billion range.

T. Rowe Price-TROW reported second quarter revenues increased 3.7% to $1.4 billion with net income increasing 17.5% to $527.5 million and EPS increasing 21.5% to $2.15. Investment advisory fees increased 4.6% to $1.3 billion, comprised of a 1.6% increase in mutual fund advisory fees to $861 million and an 11.4% increase in subadvised and separate account fees to $410 million. Assets under management increased by $43.3 billion during the quarter to $1.125 trillion as of June 30, 2019. The increase in assets under management included $2.5 billion of net client inflows and $40.8 billion of income and net market appreciation provided by healthy global stock and bond market returns. Clients transferred $5.9 billion in net assets from the U.S. mutual funds to other investment products, primarily the target-date trusts, during the quarter. The company’s effective fee rate of 46.3 basis points in the second quarter decreased from 47.0 basis points in last year’s second quarter due to client transfers to lower fee vehicles or share classes during the last twelve months. Operating expenses increased 4% to $780 million mainly due to higher salary and bonus compensation and a 12% increase in technology investments. Non-operating income increased to $125 million compared to $34 million last year as strong equity markets led to significant net investment portfolio gains. T. Rowe Price generated $1.1 billion in free cash flow year-to-date with the company returning $762 million to shareholders through dividends of $368 million and share repurchases of $394 million at an average cost of $96 per share, including $164 million to repurchase 1.6 million shares during the second quarter. T. Rowe Price ended the quarter with $5.2 billion in cash and investments on its debt-free balance sheet.

UPS-UPS reported second quarter revenues rose 3% to $18.0 billion with net income and EPS each trucking 14% higher to $1.7 billion and $1.94, respectively. This was the best quarterly performance in the company’s history. Rising demand for next-day services led to these strong financial results as U.S. daily volume grew over 7% with next-day air volume soaring over 30%, the best performance in a decade. Investments in network efficiencies have resulted in a steady decline in unit cost growth for the third straight quarter. The International segment benefited from its highly flexible network and by targeting growth markets within the company’s diverse revenue base. Despite trade uncertainty, the International segment generated its second-best quarter profit in history and expanded adjusted operating margins to 19%. The Supply Chain and Freight operating profit increased nearly 26%, or up more than 10% on an adjusted basis, thanks to successful cost management. Year-to-date, UPS generated $4.2 billion in cash flow from operations and invested $2.9 billion in capital expenditures, resulting in free cash flow of about $1.3 billion. During the first six months, UPS paid $1.7 billion in dividends and repurchased 4.8 million shares for $500 million at an average cost of about $104.16 per share. For the full year, UPS reaffirmed that adjusted EPS is expected in the range of $7.45 to $7.75 with adjusted free cash flow projected in the range of $3.5 billion to $4 billion, with the potential for upside from working capital initiatives. The U.S. economy boasts low unemployment, improving GDP and a healthy consumer offset a bit by the expectations for industrial production declining for the year due to prolonged trade uncertainty. 

Tuesday, July 23, 2019

Canadian National Railway-CNI reported second quarter revenues chugged ahead by 9% to a record $4 billion with net income up 4% to C$1.4 billion and EPS up 6% to C$1.88. The increase in revenues was mainly due to the TransX acquisition, positive translation impact of a weaker Canadian dollar, freight rate increases and higher petroleum crude and grain volumes that were partly offset by lower volumes of frac sand, lumber and potash. RTMs, measuring the relative weight and distance of freight transported, increased by 2% from the year-earlier period. Freight revenue per RTM increased by 8%, powered by the inclusion of TransX, positive foreign currency translation and freight rate increases. Operating expenses for the second quarter increased by 8% to C$2,277 million, driven by the inclusion of TransX, the negative translation impact of a weaker Canadian dollar and higher costs resulting from increased volumes of traffic. During the quarter, the company generated C$533 million in free cash flow, down 37% from last year, mainly due to upfront delivery of locomotives and TransX investing activities. Canadian National returned C$832 million to shareholders during the quarter through dividend payments of C$387 million and share repurchases of C$445 million at an average cost of C$122.86 per share. For  2019, management expects to deliver EPS growth in the low double-digit range with RTM volume growth assumed in the mid-single-digit range with overall pricing above rail inflation. Dividends are expected to be 18% above 2018 with a targeted 35% payout ratio. Financial targets for 2020 through 2022 include low-double digit annualized EPS growth and return on invested capital of 15% to 17% with free cash flow growing faster than earnings and dividend per share growth in line with earnings growth. 

United Technologies-UTX reported strong second quarter sales growth of 18% to $19.6 billion, including 6% of organic sales growth, 13% of acquisition benefit from Rockwell Collins, which is performing better than expected, offset by 1% of foreign exchange headwind. Net income declined 7% during the quarter to $1.9 billion with EPS down 14% to $2.20. Adjusting for restructuring and other items, including a divestiture gain last year, adjusted EPS increased 12%. During the quarter, Collins Aerospace commercial aftermarket sales were up 75% and up 18% organically. Equipment orders at Carrier were down 12% organically with Otis new equipment orders down 6% on a constant currency basis. United Technologies remains on track to spin off Otis and Carrier as independent companies in the first half of 2020. Management also is working on the merger with Raytheon, which they expect to be immediately accretive to earnings and enable them to accelerate capital returns to shareholders with $18 billion to $20 billion expected to be returned in the first three years after the merger. Free cash flow increased 51% in the first half of 2019 to $2.8 billion with the company paying $1.2 billion in dividends during the first half, a 14% increase over last year. For the full year, free cash flow is expected in the range of $4.5 billion to $5.0 billion, including $1.5 billion of one-time cash payments related to the separation of Otis and Carrier. Based on the strong first half, management raised their outlook for full year sales and EPS growth with organic sales expected to increase 4% to 5% and adjusted EPS expected in the range of $7.90 to $8.05, which is $.08 higher than previous guidance at the midpoint.

Monday, July 22, 2019

 

TD Ameritrade-AMTD reported revenues increased 8% to $1.5 billion with net income up 23% to $555 million and EPS up 27% to $1.00. During the quarter, TD Ameritrade added about $19.5 billion in net new client assets, representing an annualized growth rate of 6%. Revenue increased sequentially due to increases in asset-based and other revenue. Transaction-based revenues dipped 3% to $477 million on a 5% increase in average trades per day to 825,000 that were propelled by strong net buying and the robust season of high profile IPOs. Average commission per trade fell 6.5% to $6.92. Asset-based revenues increased 11% to $955 million, and now represent 64% of total sales. Net interest revenue increased 15% due to average margin balance growth and strong net stock lending. Bank Deposit Revenue (BDA) revenue increased 9% to $421 million while Investment Product Fee revenue increased 8% on higher average balances from nearly all products and slightly higher net rates due to mix. Operating Expenses increased 2.7% due to legal expenses and a seasonal increase in advertising, slightly offset by less headcount. The company announced plans to reduce its branch footprint by about 20%, or 80 branches. Since integrating Scottrade, management realized it was “over-indexed” in certain markets. After the reduction, TD Ameritrade will have 283 locations, with more than 80% of its clients within 25 miles of a branch. The company returned $408 million to shareholders during the quarter through dividend payments of $166 million and $242 million to repurchase 4.7 million shares at an average cost per share of $51.49. As of June 30, 2019, the company has approximately 7 million shares remaining for share repurchases under its stock repurchase program. TD Ameritrade ended the quarter with nearly $3 billion in cash and $3.6 billion in long-term debt on its sturdy balance sheet. During the earnings conference call, the company announced that the Board of Directors and President and Chief Executive Officer, Tim Hockey, have made the decision that he will leave the company upon the appointment of a new leader to guide its next phase of growth.

Bank of Hawaii-BOH reported second quarter net interest income increased 3% to $124.1 million with net income up 4% to $56.9 million over the prior year period with EPS up 8% to $1.40. Loan and lease balances increased 7% to $10.8 billion with total deposits up 4% to $15.5 billion during the second quarter. Return on average assets for the second quarter was 1.31% with the return on average equity of 17.97%. The efficiency ratio improved to 54.69% in the second quarter. The net interest margin was 3.04% during the second quarter, which is what it is expected to approximate in the second half due to the challenging interest rate environment.  The company has factored in two .25% cuts into their net interest margin assumptions for the year. The company’s asset quality,   capital and liquidity continued to remain strong during the quarter. The Tier 1 Capital Ratio at quarter end was 12.46% with the Tier 1 Leverage ratio 7.36%.  During the second quarter, the company repurchased 433,400 shares of common stock at a total cost of $34.9 million at an average cost of $80.49 per share with a remaining buyback authorization of $86.9 million as of quarter end. General economic conditions in Hawaii continued to remain positive in the second quarter although growth is slowing which is reflective of the 10-year expansion. The unemployment rate in Hawaii is 2.8% and continues to remain among the lowest in the U.S. compared with 3.7% nationally. For the first five months of 2019, total visitor arrivals increased 3.8% and air seat capacity increased 1.6%, although visitor spending decreased 3.1% even with the growth in arrivals. The real estate market remains mixed with sales down 3.7% during the first half with pricing flat and inventory still tight. Bank of Hawaii expects mid-single digit loan and deposit growth in 2019.

Friday, July 19, 2019

Pepsico-PEP agreed to acquire all the outstanding shares of Pioneer Foods Group Ltd. for R110.00 per share in cash, representing a 56% premium to the stock’s price prior to the agreement’s announcement. Pioneer Foods has a robust, locally produced product portfolio that complements PepsiCo's current lineup, with strong positions in cereals, juices, and other African nutritional food staples, including well-known, scaled brands like Weet-Bix, Liqui-Fruit, Ceres, Sasko, Safari, Spekko, and White Star. The acquisition provides a solid beachhead for Pepsico’s expansion into Sub-Saharan Africa by boosting the company's manufacturing and go-to-market capabilities, enabling scale and distribution. As part of the transaction and PepsiCo's goal to become faster and more locally focused, the company will create a new operating sector for Sub-Saharan Africa ("SSA"). PepsiCo SSA will be led by Eugene Willemsen, who most recently served as Executive Vice President of Global Categories & Franchise Management. Willemsen, who has been with PepsiCo for nearly 25 years, has extensive experience in growth markets, having previously led the company's businesses in Turkey and South East Europe. This new structure will not impact PepsiCo's reporting structure, and PepsiCo SSA will remain part of Europe Sub-Saharan Africa ("ESSA") from a financial reporting perspective. The acquisition, valued at about US $1.7 billion, which implies approximately 11x FY2020E consensus EBITDA, will be funded through a combination of debt and cash, and has been unanimously approved by the Boards of Directors of both companies. The transaction is subject to a Pioneer Foods shareholder vote, and is expected to close by Q1 calendar year 2020.

Gentex Corporation-GNTX reported net sales motored ahead by 3% to $469 million with net income down slightly to $109 million and EPS up 5% to $0.42 on fewer shares outstanding. Second quarter market conditions were very similar to those of the first quarter with light vehicle production down 8% year-over-year. Despite the drop in global vehicle production, Gentex’s automotive sales increased 3% to $457 million. This 11% underlying market outperformance reflected strength in Full Display Mirror sales and domestic exterior auto-dimming mirror shipments, which jumped 12% to 3.5 million units. Second quarter gross margin of 37.7% dipped slightly from last year due to a 60 basis point tariff headwind. Management continues taking steps to mitigate the impact of tariffs by sourcing from suppliers manufacturing outside of China. To alleviate the impact of retaliatory tariffs on Gentex’s shipments into China, management continues its due diligence into the possibility of shifting assembly to the mainland for products sold in China. Operating expenses increased 5% year-over-year due to increased spending on development and launch of existing products including additional auto-dimming mirror applications, Full Display Mirror, Integrated Toll Module and the new aerospace program. In addition, Gentex continues to expand the product portfolio in areas expected to provide long-term growth including the connected car, digital vision and large area dimmable devices. During the quarter, Gentex generated $109 million in free cash flow, down 9% year-over-year, due to changes in working capital with the company repurchasing about 3.1 million shares at an average price of $22.72 per share, for a total of $69.9 million. Year-to-date, the company has repurchased 7.8 million shares at an average price of $21.30 per share, for a total of $166.1 million. As of June 30, 2019, about 26 million shares remained available for repurchase under the current authorization. Gentex ended the quarter with  $572 million in cash and investments on its sporty, debt-free balance sheet. Given updated estimates of growth in global light vehicle production (up 1%), product mix, expense growth and actual performance through the first six months of 2019, Gentex updated its previously announced annual guidance. Sales are now expected in the range of $1.87 billion to $1.9 billion, tightened from prior guidance of $1.83 billion to $1.93 billion, and up 3% from 2018 at the midpoint. No changes were made to revenue guidance for calendar year 2020, estimated to be up in the range of 3% - 8% from 2019.

Thursday, July 18, 2019

Microsoft-MSFT reported fourth fiscal quarter revenue increased 12% to $33.7 billion with net income increasing 49% to $13.2 billion and EPS increasing 50% to $1.71. The earnings results include a net income tax benefit of $2.6 billion or $.34 per share. Demand for Microsoft’s cloud offerings drove commercial cloud revenue to $11 billion, up 41% year-over-year. By business segment, Productivity and Business Processes revenue increased 14% to $11 billion, Intelligent Cloud revenue climbed 19% to $11.4 billion and More Personal Computing revenue grew 4% to $11.3 billion. For the full fiscal 2019 year, revenues increased 14% to $125.8 billion with net income and EPS each more than doubling to $39.2 billion and $5.06, respectively. Return on shareholders’ equity for the year was in the clouds at 38.3%. Free cash flow increased 19% to $38.3 billion with the company returning $33.3 billion to shareholders through share repurchases of $19.5 billion and dividends of $13.8 billion. Microsoft ended the year with $133.8 billion in cash and $66.7 billion in long-term debt on its sturdy balance sheet. Looking ahead to fiscal 2020, management expects first quarter revenue to be in the range of $31.8 billion to $32.4 billion.  For the full fiscal 2020 year, Microsoft expects double-digit revenue and operating income growth.

Genuine Parts-GPC reported second quarter sales motored ahead 2.3% to a record $4.9 billion on 1.6% comparable sales growth and 2.7% from acquisitions, offset by a 1.5% foreign currency headwind and 0.5% due to the divestiture of Grupo Auto Todo in the first quarter of 2019.  Net income for the second quarter was $224.4 million, down 1%, and EPS were $1.53, down slightly from last year.  By business segment, Automotive Parts Group sales increased 1.4% to $2.8 billion on a 1.3% comparable sales increase, a 3.5% benefit from acquisitions, an unfavorable foreign currency headwind of 2.5% and a negative 0.9% from the divestiture.  U.S., Australasian and Canadian automotive operations delivered positive sales comps and steady growth, while Genuine Parts’ business in Europe remained challenged by transitory factors such as the mild winter weather and a softening economic environment which resulted in a high-single digit decline in comparable sales growth. Sales for the Industrial Parts Group were up 4.9% to $1.7 billion, powered by a 3.1% comparable sales increase and 2.1% from acquisitions. GPC’s industrial business continues to perform well in North America despite mixed signals from recent broad economic indicators. Management remains confident in additional growth opportunities from Inenco, its new industrial business in Australasia, which is expected to generate about $400 million in 2019 revenues. Sales for the Business Products Group were down 1.1% to $478 million on negative comparable sales growth, partially offset by increased sales in the fast-growing Facility and Break Room Supply segment, which now accounts for 35% of divisions’ total sales. GPC’s gross margins improved 80 basis points to 32.4% thanks to volume incentives from the company’s global supply chain, price increases taken to offset tariffs and higher input costs along with product mix. Operating expenses increased 6.5% due to payroll increases and continued investments in the company’s digital transformation and cybersecurity. During the first half of the year, Genuine Parts generated $195 million in free cash flow, down 50% from last year on higher capital expenditures and greater working capital requirements from GPC’s recent acquisitions. During the first half of 2019, the company returned $217 million to shareholders through dividend payments, up 6% from last year. This year marks the 63rd year of consecutive annual dividend increases for GPC. Given GPC’s 2019 results thus far, the continued softness expected in Europe for the balance of the year, as well as the impact of the PartsPoint and Inenco acquisitions, management updated its full year 2019 sales and earnings guidance.  The company expects sales to increase 4.5% to 5.5%, inclusive of a 2% sales contribution from the PartsPoint and Inenco acquisitions, up from prior guidance of 3% to 4%. EPS are now expected in the $5.42 to $5.52 range, down from prior guidance of between $5.56 to $5.71. Genuine Parts earned $5.50 per share in 2018.

Tuesday, July 16, 2019

Johnson & Johnson-JNJ reported revenues declined 1.3% to $20.6 billion in the second quarter with net earnings up 42% to $5.6 billion and EPS up a healthy 43% to $2.08. Excluding the impact of acquisitions, divestitures and currency, adjusted operational sales growth increased 3.7% with adjusted EPS up 23%. Earnings during the quarter included a $2.0 billion pre-tax gain from the sale of the Advanced Sterilization Products business. During the quarter, Worldwide Pharmaceutical sales increased 1.7% to $10.5 billion, with operational growth up 4.4%. Double-digit growth was generated in nine key products across multiple therapeutic areas. Worldwide Medical Devices sales decreased 6.9% during the quarter to $6.5 billion, but grew 3.2% on an operational basis led by Interventional Solutions and Advance Surgery. Worldwide Consumer Sales increased 1.2% to $3.5 billion with operational growth up 2.3% driven by Neutrogena and Aveeno. JNJ ended the quarter with $15.3 billion in cash and investments and $29.4 billion in long term debt. During the quarter, management invested $2.7 billion in research and development as reinvesting in their business is their number one capital allocation priority. At the same time, the company was able to pay $2.5 billion in dividends, which have increased each year for the last 57 years, and repurchase $2.0 billion of JNJ’s common stock. Due to the strength in the business, management raised their sales outlook for the full 2019 year with reported sales expected in the range of $80.8 billion to $81.6 billion. Adjusted operational sales are expected to increase 3.2% to 3.7% for the year with adjusted operational EPS expected in the range of $8.73 to $8.83, reflecting 6.7% to 7.9% growth.

Thursday, July 11, 2019

Fastenal-FAST reported second quarter sales increased 8% to $1.4 billion with net income down 3% to $204.6 million and EPS off 3.2% to $.36. Adjusting for a one-time tax gain in 2018, adjusted EPS would have been up 1.5%. While general economic activity remained positive, second quarter sales growth slowed to the first sub-10% reading in nine quarters as overall activity in end markets slowed. Business sentiment turned more cautious among manufacturing customers as reflected by slowing U.S. industrial production levels that are a material step-down from recent quarters. While manufacturing daily sales were up 9% in the second quarter, weakness in heavy machinery was a bit more pronounced and the oil and gas industry remains challenging. Non-residential construction daily sales were up 7% with smaller construction customers being weaker than large ones. Fastenal’s gross margin declined 180 basis points in the second quarter to 46.9% due to the impacts of customer and product mix and inflation on product margins. While the company successfully raised prices to offset tariffs placed on products sourced from China, those increases were not sufficient to also counter general inflation in the market. Management has taken additional actions in the third quarter to counter the broader cost pressures as well as the additional tariffs that were leveled on China-sourced products in May 2019. Free cash flow declined 16% during the first half of the year to $210 million due to increased capital expenditures for hub capacity, vehicles and vending equipment to support future growth. For the full year, Fastenal continue to anticipate capital spending between $195 million and $225 million. During the first half, Fastenal paid $246.1 million in dividends, a 16% increase over last year. Subsequent to quarter end, the company announced a 2% additional increase in the quarterly dividend to $.22 per share with the dividend currently yielding approximately 3%.


T. Rowe Price-TROW
reported assets under management of $1.13 trillion as of 6/30/19, an increase of 16.9% since year end.

Wednesday, July 10, 2019

Walgreens Boots Alliance-WBA announced that its board of directors has declared a quarterly dividend of 45.75 cents per share, an increase of 4 percent. The increased dividend is payable September 12, 2019 to stockholders of record as of August 20, 2019, and raises the annual rate from $1.76 per share to $1.83 per share. This marks the 44th consecutive year that Walgreens Boots Alliance and its predecessor company, Walgreen Co., have raised the dividend.

Raytheon Company-RTN announced it was awarded two direct commercial sales contracts by the State of Qatar for additional integrated air and missile defense capability. The contracts, worth approximately $2.2 billion, include the National Advanced Surface-to-Air Missile System, final certification of the AMRAAM®-Extended Range missile, and an unspecified quantity of additional Patriot™ fire units. These awards are part of a larger agreement being pursued by the Qataris with the U.S. government. The combined value is expected to total up to $3B.

In separate new, Raytheon-RTN was selected by the Boeing Company as radar supplier for the B-52 bomber radar modernization program. Under the contract, Raytheon will design, develop, produce and sustain active electronically scanned array radar systems for the entire U.S. Air Force B-52 fleet. The advanced radar upgrade will ensure the aircraft remains mission ready through 2050 and beyond. Low rate initial production is scheduled to begin in 2024.

MSC Industrial Supply-MSM reported fiscal third quarter sales increased 4.6% to $866.5 million with net income up slightly to $79.6 million and EPS up 3.6% to $1.44. The company saw a step-down in demand during the quarter resulting in an uncertain pricing environment due to the overhang of tariffs and trade issues. By market, aerospace continued to be strong while automotive, oil & gas and Midwest agriculture represented pockets of weak demand. Even outside the pockets of weakness, management saw a change in customer demand throughout the quarter with more customer uncertainty, shorter backlogs and increased concerns about softness in export demand. Despite the difficult operating environment, average daily sales increased 4.6% to $13.6 million (2% excluding acquisitions), the pace of account wins was robust and vending implementation was strong as MSC Industrial continues its journey to become a mission critical partner on the plant floor with its customers. Gross margins declined 110 basis points to 42.5%, squeezed by acquisitions, price increases that lagged cost increases and product mix. During the quarter, MSC Industrial generated $75.8 million in free cash flow, down 23% year-over-year, on changes in working capital. Given MSC Industrial’s robust cash flow, strong balance sheet and confidence in management’s ability to successfully navigate through the current challenges, the Board increased the quarterly dividend by 19% to $0.75 per share, representing a payout ratio of about 57%. This payout ratio increase represents a shift in the company’s capital allocation strategy with higher acquisition ROI hurdle rates and more cash distributions to shareholders going forward. Looking ahead to the fourth quarter of fiscal 2019, management expects net sales to be between $835 million and $851 million, up slightly from last year at the midpoint. At the midpoint, average daily sales are expected to increase roughly 2.2% (or 1% excluding acquisitions). EPS are expected to be between $1.21 and $1.27, down 3.9% at the midpoint.

Tuesday, July 9, 2019

Cisco-CSCO announced they have agreed to acquire Acacia for $70.00 per share in cash, or for approximately $2.6 billion on a fully diluted basis, net of cash and marketable securities. An existing Cisco supplier, Acacia designs and manufactures high-speed, optical interconnect technologies that allow webscale companies, service providers, and data center operators to meet the fast-growing consumer demands for data. The acquisition is expected to close during the second half of Cisco's fiscal 2020 year.


Wednesday, July 3, 2019

Private sector employment increased by 102,000 jobs from May to June according to the June ADP National Employment Report®.  "Job growth started to show signs of a slowdown," said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. "While large businesses continue to do well, small businesses are struggling as they compete with the ongoing tight labor market. The goods producing sector continues to show weakness. Among services, leisure and hospitality's weakness could be a reflection of consumer confidence." Mark Zandi, chief economist of Moody's Analytics, said, "The job market continues to throttle back. Job growth has slowed sharply in recent months, as businesses have turned more cautious in their hiring. Small businesses are the most nervous, especially in the construction sector and at bricks-and-mortar retailers."

 

Thursday, June 27, 2019

Nike-NKE reported fourth quarter revenue increased 4% to $10.2 billion or 10% on a constant currency basis with net income down 13% to $989 million and EPS down 10% to $.62. Earnings were driven by strong revenue growth, gross margin expansion of 80 basis points, a lower average share count offset by a slightly higher selling and administrative expense and a significantly higher tax rate due to several discrete items in the prior year related to tax reform. For the full fiscal 2019 year, revenues increased 7% to $39.1 billion or up 11% on a constant currency basis with net income and EPS each more than doubling to $4.0 billion and $2.49, respectively, due to 90 basis point gross margin expansion and a significantly lower tax rate for the full year related to tax reform.  Growth was broad based across geographies, led by 22% growth from Greater China during the fourth quarter, and driven by growth across Nike Direct and wholesale, key categories including Sportswear, Jordan and Running, and double-digit growth across footwear and apparel. Return on shareholders’ equity jumped to a stellar 44.6% for the full year. Nike ended the year with $4.7 billion of cash and investments after repurchasing 54.3 million of its common shares during the year for $4.3 billion at an average price of $79.19 per share. .Growth is expected in all four geographies with trade tensions not impacting business in China thus far. Overall, revenue in 2020 should increase at a high single-digit rate with gross margin expected to potentially expand a further 50 basis points despite foreign currency headwinds.

Accenture-ACN reported fiscal third quarter revenue rose 4% to $11.1 billion with net income up 19% to $1.3 billion and EPS up 21% to $1.93. On a constant currency basis, revenues increased 8% as the company gained significant market share.  Adjusted EPS increased 8%, excluding a tax charge last year. Operating margin expanded 20 basis points during the quarter to 15.5%. New bookings for the quarter were $10.6 billion with consulting bookings of $6.0 billion, an increase of 3%, and outsourcing bookings of $4.6 billion, and increase of 5%.  Third quarter growth was broad based across industries and geographic regions led by 13% growth in Resources and 9% growth in North America. Free cash flow increased 19% year-to-date to $4.2 billion with the company paying $1.9 billion in dividends and repurchasing $2.3 billion of its common stock during that time period. Accenture raised their outlook for revenues and earnings for the full fiscal 2019 year with constant currency revenue growth of 8%-9% expected and EPS of $7.28-$7.35 expected compared to previous guidance of $7.18 to $7.32. The company expects operating margin to expand 20 basis points for the full year to 14.6%. Free cash flow is expected in the range of $5.2 billion to $5.6 billion for the full 2019 fiscal year.

Walgreens Boots Alliance-WBA reported fiscal third quarter sales rose 0.7% to $34.6 billion with net income down 24% to $1.0 billion and EPS dropping 16% to $1.13. On a constant currency basis, revenues increased 2.9% during the quarter due to growth in the Retail Pharmacy USA and Pharmaceutical Wholesale divisions. Retail Pharmacy USA sales increased 4.3% in the quarter to $26.5 billion, reflecting higher brand inflation and prescription volume and strong growth in central specialty. The division filled 290.7 million prescriptions, an increase of 1.9% over the prior year quarter or an increase of 4.7% on a comparable store basis. Retail prescription market share decreased about 50 basis point to 21.2%, reflecting store optimization after the Rite Aid acquisition. Gross profit decreased 3.6% in the Retail Pharmacy USA division due to reimbursement pressure in pharmacy and lower retail sales. Retail Pharmacy International sales decreased 7.3% to $2.8 billion reflecting an adverse currency impact of 5.7% and weakness in Boots U.K. Gross profit decreased 8.5% due to lower pharmacy margin and retail sales in Boots U.K. Pharmaceutical Wholesale sales decreased 1.7% to $5.9 billion, due to an adverse currency impact of 10%. On a constant currency basis, sales increased 8.3% primarily reflecting growth in emerging markets. Free cash flow declined 56% year-to-date to $2 billion due to working capital changes, litigation settlements and higher taxes. Free cash flow is expected to normalize next year. During the past nine months, Walgreens paid $1.2 billion in dividends and repurchased $3.7 billion of its common stock. Walgreens maintained its adjusted EPS guidance for fiscal 2019 of roughly flat, at constant currency rates with $.06 per share of adverse currency impact on a reported basis. Following a difficult second and third quarter, management is now aggressively responding to rapidly shifting  trends and has already seen improved U.S. retail sales and prescription growth with gross margins expected to improve in the fourth quarter.

Wednesday, June 26, 2019

Paychex-PAYX reported fourth quarter sales increased 16% to $980 million with net income increasing 6% to $230 million and EPS increasing 7% to $0.64. Management Solutions revenue increased 4% to $695 million, driven primarily by growth in the client base and growth in revenue per check. Within Management Solutions revenue, retirement services revenue also benefited from an increase in the number of plans served as well as an increase in revenue earned on the asset value of participants’ 401(k) funds. PEO and Insurance Services revenue increased 67% to $263.3 million for the fourth quarter. Excluding the acquisition of Oasis, which was completed last December, PEO and Insurance Services revenue increased 10%, driven by growth in clients and client worksite employees across the combined existing PEO business. Demand for the company’s existing PEO services, along with growth within its client base, resulted in double-digit growth in the number of client worksite employees served. Insurance Services revenue benefited from an increase in the number of health and benefit clients and applicants, offset by the impact of softness in the workers’ compensation market as state insurance fund rates declined. Interest on funds held for clients increased 25% to $22.2 million for the fourth quarter, resulting primarily from higher average interest rates earned--2.1% during the fourth quarter of 2019 versus 1.7% last year. Funds held for clients average investment balances of $4.15 billion were flat year-over-year, primarily due to the impact of lower client withholdings resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) and changes in client base mix, partially offset by the impact of wage inflation. For the full fiscal year ended May 31, 2019, Paychex revenue increased 12% to $3.8 billion with net income and EPS increasing 4% to $1.03 billion and $2.86, respectively. Cash flows from operations were $1.3 billion for fiscal 2019, an increase of 1% from the prior year, primarily the result of higher net income and non-cash adjustments, offset by fluctuations in working capital. Free cash flow increased 4% to $1.2 billion on lower capital expenditures. During fiscal 2019, Paychex returned nearly $884 million to shareholders through share repurchases of $56.9 million, or $81.29 per average share, and dividends of $827 million, up 12% from fiscal 2018. The company ended the fiscal year with $799 million in cash and investments and $796 million in long-term debt on its solid balance sheet. Paychex generated a robust 39.5% return on shareholder equity during fiscal 2019. Looking ahead to fiscal 2020, total revenue is anticipated to grow in the range of 10% to 11% comprised of 4% growth in Management Solutions revenue and 30% to 35% growth in PEO & Insurance Services revenue, thanks the Oasis acquisition which will anniversary in December. Management expects Interest on funds held for clients to grow in 4% to 8% range provided there are no significant changes in interest rates. Net income and EPS are expected to grow by 8%.

Tuesday, June 25, 2019

FactSet-FDS reported third quarter revenue rose 7% to $364.5 million with net income up 23% to $92.3 million and EPS up 24% to $2.37. The increase is primarily due to higher sales of analytics, content and technology solutions and wealth management solutions. Client count as of quarter end was 5,455, a net increase of 50 clients driven by an increase in wealth management and corporate clients. User count increased by 888 to 122,951. Annual client retention was 90%.  Annual Subscription Value plus professional services increased to $1.45 billion as of quarter end, representing organic growth of 5.6%. The company’s operating margin expanded to 32.3% from 27.4% reflecting improved operating results and favorable foreign exchange. Free cash flow increased 4% year-to-date to a record $272 million. During the quarter, the company increased its dividend 12.5%, marking the 14th consecutive year of dividend increases, and repurchased 175,000 shares of its common stock for $47.6 million at an average cost of $272 per share. FactSet also approved a new $210 million increase to the share repurchase program, bringing the total authorization to $300 million. FactSet increased its outlook for the full fiscal year and expects revenue in the range of $1.42 billion to $1.44 billion with EPS expected in the range of $8.90 to $9.00.  

AbbVie-ABBV announced an agreement to acquire Allergan in a cash and stock transaction for a transaction equity value of approximately $63 billion, based on the closing price of AbbVie's common stock of $78.45 on June 24, 2019. Allergen shareholders will receive .8666 AbbVie shares and $120.30 in cash for each Allergan share. With 2019 annual combined revenue of approximately $48 billion, scale in more than 175 countries, an industry-leading R&D pipeline and robust cash flows, the combined company will have the opportunity to strengthen Allergan’s franchises and drive incremental growth. The deal provides immediate scale and profitability to AbbVie's growth platform, excluding Humira, while significantly expanding and diversifying its revenue base with new therapeutic areas, including Allergan's leading medical aesthetics business, such as Botox. AbbVie's enhanced growth platform, comprised of growing and durable franchises across highly-attractive therapeutic areas, is expected to grow at a high-single digit annual growth rate well into the next decade, from more than $30 billion in 2020. Humira’s sales, which approximate 60% of current sales, will drop below 40% of the new AbbVie sales, helping to mitigate the loss of domestic patent exclusivity expected in 2023. The deal also enhances long-term R&D funding capacity, allowing for continued investment and sustained focus on innovative science and advancement of an industry-leading pipeline. With increased global commercial scale, this should further maximize the value of Allergan's attractive portfolio of fast-growing products. The combined company will produce robust cash flow to support continued dividend growth, further investment in the pipeline and reduction of debt levels. AbbVie is expected to generate significant annual operating cash flow, which will support a debt reduction target of $15 to $18 billion before the end of 2021, while also enabling a continued commitment to Baa2/BBB or better credit rating and continued dividend growth. The transaction delivers significant and immediate accretion and provides an attractive return on invested capital in excess of AbbVie’s cost of capital in the first full year after the combination. This transaction is expected to be 10% accretive to adjusted earnings per share over the first full year following the close of the transaction, with peak accretion of greater than 20%. AbbVie anticipates that the acquisition will provide annual pre-tax synergies and other cost reductions of at least $2 billion in year three while leaving investments in key growth franchises untouched. The deal is expected to create substantial value for shareholders of both companies and is expected to close in early 2020. It is expected that, immediately after the closing of the Acquisition, AbbVie shareholders will own approximately 83% of AbbVie on a fully diluted basis and the Allergan Shareholders will own approximately 17% of AbbVie on a fully diluted basis.

Wednesday, June 19, 2019

Oracle-ORCL reported fourth quarter revenues rose 1%, or 4% on a constant currency basis, to $11.1 billion with net income up 14% to $3.7 billion and EPS up 35% to $1.07. For the full fiscal 2019 year, revenues increased 3% on a constant currency basis with reported revenues relatively flat at $39.5 billion.  Full year net income and EPS each more than tripled to $11.1 billion and $2.97, respectively. On a non-GAAP basis, EPS increased 16% to $3.52. Return on shareholders’ equity in fiscal 2019 was an outstanding 50%. These solid results were driven by the company’s high margin Fusion and Net Suite cloud applications businesses which continue to grow rapidly, while Oracle downsizes their low-margin legacy hardware business. The result of the shift from commodity hardware to cloud applications was a non-GAAP operating margin of 47%, the highest the company has generated in five years. Oracle is gaining market share in the cloud applications business as it has done for the last three years. During the fourth quarter, the company added over 5,000 new Autonomous Database trials. The new Gen2 Cloud Infrastructure offers a self-driving database that automatically encrypts all data, backs itself up, tunes itself, upgrades itself and patches itself when a security threat is detected all without the need of any human intervention and without the need for any downtime. Free cash flow declined 6% during the year to $12.9 billion primarily due to tax-related items. During the year, the company paid $2.9 billion in dividends and repurchased a whopping 734 million shares of its common stock for $36 billion at an average price of $49.05 per share. During the past five years, Oracle has reduced its shares outstanding by 25%. In fiscal 2020, Oracle expects its revenue growth to accelerate with the operating margin  expected to improve leading to double-digit EPS growth.  Capital expenditures are expected to increase to $2.2 billion for the year.

Tuesday, June 18, 2019

Calibra, a newly formed Facebook-FB subsidiary, will provide financial services that will let people access and participate in the Libra network. The first product Calibra will introduce is a digital wallet for Libra, a new global currency powered by blockchain technology. The wallet will be available in Messenger, WhatsApp and as a standalone app — and is expected to launch in 2020. For many people around the world, even basic financial services are still out of reach: almost half of the adults in the world don’t have an active bank account and those numbers are worse in developing countries and even worse for women. The cost of that exclusion is high — approximately 70% of small businesses in developing countries lack access to credit and $25 billion is lost by migrants every year through remittance fees. From the beginning, Calibra will let people send Libra to almost anyone with a smartphone, as easily and instantly as you might send a text message and at low to no cost. And, in time, Facebook hopes to offer additional services for people and businesses, like paying bills with the push of a button, buying a cup of coffee with the scan of a code or riding your local public transit without needing to carry cash or a metro pass.

Wednesday, June 12, 2019

T. Rowe Price Group-TROW reported preliminary month-end assets under management of $1.07 trillion as of May 31, 2019, which increased 11% since year end.


Monday, June 10, 2019

Thor Industries-THO reported third fiscal quarter sales motored ahead 11% to $2.5 billion with net income skidding 76% to $32.8 million and EPS dropping 77% to $0.59. Sales from the acquisition of Erwin Hymer Group (EHG), completed at the start of the third quarter, added $767.5 million to total company sales. This sales boost was partially offset by a 23.1% decrease in North American Towable RV sales to $1.2 billion and a 23.3% decrease in North American Motorized RV sales to $459 million. The stalling of North American sales reflects independent dealer inventory rationalization, as dealers continued to reduce inventory levels to better match ongoing retail demand for RVs in North America. Gross margin declined to 240 basis points to 11.7%, flattened by the step-up in EHG inventory sold during the quarter to fair value based on the acquisition price, which increased cost of goods sold by $61.4 million. As a result of lower wholesale shipments relative to retail demand, Thor’s North American independent dealer inventory levels decreased by 20.3% to 132,500 units, compared to 166,200 units as of April 30, 2018. North American RV backlog fell 30% to $1.4 billion. Operating cash flow during the quarter fell 11% to $175.8 billion while free cash flow declined just 5.2% to $92 million on lower capital expenditures. During the quarter, Thor paid down about $255 million of acquisition-related debt, bringing total long-term debt at quarter’s end to $2.2 billion, representing 107% of shareholders’ equity. Based on current trends, management expects that the North American retail market will be softer for the remainder of calendar 2019, though retail will likely continue to outperform wholesale shipments, supporting the continued independent dealer inventory rationalization. With the steady improvement of North American independent dealer inventory, management expects a firmer start for fiscal 2020. As shipments fluctuate, Thor will continue its efforts to balance production with demand.

      

Raytheon-RTN and United Technologies-UTX have entered into an agreement to combine in an all-stock merger of equals.  The transaction will create a premier systems provider with advanced technologies to address rapidly growing segments within aerospace and defense. The merger of Raytheon, a leading defense company, and United Technologies, a leading aerospace company, comprised of Collins Aerospace and Pratt & Whitney, will offer a complementary portfolio of platform-agnostic aerospace and defense technologies. The combined company, which will be named Raytheon Technologies Corporation, will offer expanded technology and R&D capabilities to deliver innovative and cost-effective solutions aligned with customer priorities and the national defense strategies of the U.S. and its allies and friends. The combination excludes Otis and Carrier, which are expected to be separated from United Technologies in the first half of 2020 as previously announced. The combined company will have approximately $74 billion in pro forma 2019 sales including $21 billion from Pratt & Whitney and $22 billion from Collins Aerospace on the United Technologies side and $18 billion from Intelligence, Space and Airborne Systems and $16 billion from Integrated Defense and Missile Systems on the Raytheon side. Pro forma sales by geography include 55% in the United States and 45% in international markets. The deal is also balanced on sales by end markets with 54% of sales generated by defense markets and 46% by commercial markets. . With a strong balance sheet and robust cash generation, Raytheon Technologies will enjoy enhanced resources and financial flexibility to support significant R&D and capital investment through business cycles. Under the terms of the agreement, which was unanimously approved by the Boards of Directors of both companies, Raytheon shareowners will receive 2.3348 shares in the combined company for each Raytheon share. Upon completion of the merger, United Technologies shareowners will own approximately 57 percent and Raytheon shareowners will own approximately 43 percent of the combined company on a fully diluted basis. The merger is expected to close in the first half of 2020, following completion by United Technologies of the previously announced separation of its Otis and Carrier businesses. With a combined annual company and customer funded R&D spend of approximately $8 billion, seven technology Centers of Excellence, and over 60,000 engineers, the company will develop new, critical technologies faster and more efficiently than ever before. Areas of joint advancement include, but are not limited to: hypersonics and future missile systems; directed energy weapons; intelligence, surveillance, and reconnaissance (ISR) in contested environments; cyber protection for connected aircraft; next generation connected airspace; and advanced analytics and artificial intelligence for commercial aviation.  Robust free cash flow growth and a strong balance sheet will support continued investment and return of capital to shareowners. The combined companies expect to generate double-digit free cash flow growth with expectations of approximately $8 billion in pro forma free cash flow by 2021. The free cash flow growth will be generated by organic growth working capital efficiencies, capital expenditure investment cycle moderation and cost synergies. The combined company expects to return $18 to $20 billion of capital to shareowners in the first 36 months following completion of the merger. As a result of the combination, the company also expects to capture more than $1 billion in gross annual run-rate cost synergies by year four post-close, with approximately $500 million in annual savings returned to customers. In addition, the combination presents significant long-term revenue opportunities from technology synergies. Net debt for the combined company at the time of closing is expected to be approximately $26 billion, with United Technologies expected to contribute approximately $24 billion. The combined company targets an 'A' category credit rating at the time of the closing. The combined company's Board of Directors will be comprised of 15 members, consisting of 8 directors from United Technologies and 7 from Raytheon, with the lead director from Raytheon. Tom Kennedy will be appointed Executive Chairman and Greg Hayes will be named CEO of Raytheon Technologies. Two years following the close of the transaction, Hayes will assume the role of Chairman and CEO. There is no change to either Raytheon's or United Technologies' financial outlook for 2019.

Thursday, June 6, 2019

Alphabet’s-GOOGL Google unit announced that it has entered into an agreement to acquire Looker, a unified platform for business intelligence, data applications and embedded analytics, in a $2.6 billion all-cash transaction. Upon the close of the acquisition, Looker will join Google Cloud. This acquisition builds on an existing partnership where the two companies share more than 350 joint customers, such as Buzzfeed, Hearst, King, Sunrun, WPP Essence, and Yahoo!. The acquisition of Looker is expected to be complete later this year.  

Fastenal-FAST reported May sales rose 9.5% to $472.4 million with average daily sales also up 9.5% to $21.5 million. Daily sales growth by geography was 11.5% in manufacturing and 9.9% in non-residential construction. Daily sales growth by product line was 8.1% in fasteners and 10.8% in other products.


Wednesday, June 5, 2019

Brown-Forman-BFB reported fourth fiscal quarter sales increased 1% to $744 million with net income increasing 45% to $159 million and EPS increasing 47% to $0.33. Excluding the impact of last year’s initial $70 million foundation contribution to support charitable giving in communities where its employees live and work, underlying operating income increased 9% thanks to lower compensation costs and efficiency initiatives. For the fiscal year ended April 30, 2019, sales increased 2% to $3.3 billion with net income and EPS up 17% to $835 million and $1.73, respectively. Net sales growth took a 2% hit from foreign currency headwinds and a 1% dip due to tariff-related lower net prices as the company absorbed tariff costs in certain markets. Brown-Forman delivered solid, broad-based sales growth around the world, with the strongest results coming from the emerging markets, as well as continued mid-single digit growth in the international developed world. U.S. sales increased 2%. During the earnings conference call, management reported that recent increases in mass media advertising and promotional activity are just beginning to boost domestic sales. By segment, The Jack Daniel’s family of brands grew underlying net sales 4%, including 2% underlying net sales growth for Jack Daniel’s Tennessee Whiskey. Premium bourbons grew underlying net sales 23%, including 22% underlying net sales growth from Woodford Reserve. Herradura and el Jimador both grew underlying net sales 13%. Gross margins declined 260 basis points, squeezed by a 160 point decline from tariff costs and increases in input costs due to higher agave and wood prices. Brown-Forman generated $681 million in free cash flow during the fiscal year, up 29% from last year, with the company returning $510 million to shareholders through share repurchases of $200 million at an average cost of $47 per share and dividends of $310 million. Brown-Forman has paid regular quarterly cash dividends for 73 consecutive years and has increased the dividend for 35 consecutive years. Looking ahead, management expects that tariffs, which have created additional uncertainty around short-term forecasts, will remain in place for all of fiscal 2020. Despite the tariff troubles, fiscal 2020 sales growth is expected in the 5% to 7% range with operating income growth of 3% to 5% and EPS in the $1.75 to $1.85 range. “Although tariffs and higher input costs will negatively impact our gross margins again this year, we believe we are on track to return to high single digit operating income growth as we move beyond fiscal 2020. Our growth prospects remain bright as we develop our premium spirits portfolio around the world, led by the Jack Daniel’s family of brands and Woodford Reserve.”

Private sector employment increased by 27,000 jobs from April to May according to the May ADP National Employment Report®.  "Following an overly strong April, May marked the smallest gain since the expansion began," said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. "Large companies continue to remain strong as they are better equipped to compete for labor in a tight labor market." Mark Zandi, chief economist of Moody's Analytics, said, "Job growth is moderating. Labor shortages are impeding job growth, particularly at small companies, and layoffs at brick-and-mortar retailers are hurting."

Tuesday, June 4, 2019

Canadian National-CNI reaffirmed its 2019 financial outlook and issued its financial perspective for the next three years. Canadian National still aims to deliver 2019 adjusted diluted earnings per share (EPS) growth in the low double-digit range this year versus last year's adjusted diluted EPS of C$5.50  and now assumes mid single-digit volume growth in 2019 in terms of revenue ton miles (RTMs). With a solid pipeline of organic growth opportunities and a focus on taking Scheduled Railroading to the next level, Canadian National aims to deliver diluted EPS CAGR in the low double digits.

Monday, June 3, 2019

United Technologies’-UTX Pratt and Whitney Engines unit was awarded a $3.2 billion Navy contract expected to be completed in January 2022 This modification provides for the production and delivery of 56 F135-PW-100 propulsion systems for the Air Force; 10 F135-PW-100 propulsion systems for the Navy; 24 F135-PW-600 propulsion systems for the Marine Corps; 125 F135-PW-100 and 18 F135-PW-600 propulsion systems for non-Department of Defense (DoD) participants and Foreign Military Sales (FMS) customers. In separate news, the company announced the appointments of David L. Gitlin as president & chief executive officer of Carrier and Judith F. Marks as president & chief executive officer of Otis, as the company prepares to spin off these units early in 2020.


Thursday, May 30, 2019

Ulta Beauty-ULTA rang up a stylish 13% increase in first fiscal quarter sales to $1.7 billion with net income increasing 17% to $192 million and EPS up 21% to $3.26. Comparable sales―sales for stores open at least 14 months plus e-commerce sales―increased 7%, driven by 4.3% transaction growth and 2.7% growth in average ticket. During the quarter, the company opened 22 new stores and remodeled one, ending the quarter with 1,196 stores and square footage of 12,573,741, an 8% increase compared to last year’s first quarter. During the quarter, Ulta Beauty generated nearly $200 million in free cash flow with the company repurchasing $107.4 million of its shares at an average cost per share of $337.28. Ulta Beauty ended the quarter with $521 million in cash and investments. Looking ahead to the full fiscal year, Ulta Beauty expects to open about 80 new stores, execute approximately 20 remodel or relocation projects and complete about 270 store refreshes. After a long period of intense study, management has decided to take the next step in its growth trajectory by expanding into Canada. The company expects to start small in its global expansion footprint and scale quickly if it is successful. Fiscal 2019 sales growth is expected in the low double digits percentage range on comparable stores growth of 6% to 7%, including e-commerce growth of 20% to 30%. Management raised its EPS guidance to between $12.83 and $13.03 from $12.65 to $12.85. This new guidance assumes $700 million in share repurchases during the fiscal year and a 24% effective tax rate. Management continues to expect that EPS growth will be slightly weighted to the second half of the year.

Interim data from an ongoing single-arm, open-label Phase 3 clinical trial, EVOLVE-MS-1, evaluating Biogen's-BIIB diroximel fumarate (DF) in patients with relapsing multiple sclerosis (MS) showed a treatment effect and favorable safety profile. MS patients who were previously treated with interferon or glatiramer acetate (Teva's Copaxone) who received DF experienced significant improvements in radiological and clinical endpoints over one year. Adjusted annualized rate dropped 72% from baseline to week 48. Mean number of gadolinium-enhancing (Gd+) lesions (lesions in the brain indicating inflammation) dropped 64%. The percentage of patients with no Gd+ lesions at week 48 was 89% compared to 74% at baseline. DF is a prodrug designed to convert to monomethyl fumarate in the body which can cross the blood-brain barrier. Its value proposition is comparable efficacy to Tecfidera (dimethyl fumarate) at a lower dose with less side effects.

Thursday, May 23, 2019

Ross Stores-ROST rang up a 6% increase in first fiscal quarter sales to $3.8 billion with net earnings up slightly to $42 million and EPS up 4% to $1.15. Despite continued underperformance in ladies apparel, comparable store sales increased 2% due to an increase in the average basket. The company opened 22 new Ross Stores during the quarter and 6 new DD’s Discount Stores, and is on track to meet the goal of opening 100 new stores during fiscal 2019, including 75 new Ross Stores and 25 new DD’s. While operating margin of 14.1% was down from the prior year, it was above plan mainly due to higher merchandise margin. This improvement was more than offset by increases in freight and wage costs and the timing of packaway-related expenses that benefited the prior year period. During the quarter, Ross Stores generated $413 million in free cash flow, up 5.4% from last year, with the company returning nearly $413 million to shareholders through dividend payments of $94 million and share purchases of $320 million at an average cost of $94.12 per share. Ross Stores ended the quarter with $1.4 billion in cash and $313 million in long-term debt on its stylish balance sheet. For the 13 weeks ending August 3, 2019, management expects same store sales to increase 1% to 2% on top of a 5% gain last year. Second quarter 2019 EPS are projected to be $1.06 to $1.11, up 4% from last year at the midpoint. Based on first quarter results and guidance for the second quarter, Ross Stores now projects EPS for the 52 weeks ending February 1, 2020 to be in the range of $4.38 to $4.52, up from $4.26 last year, which included a $.07 per share benefit in the fourth quarter from the favorable resolution of a tax matter.

Hormel Foods-HRL reported record second fiscal quarter sales of $2.3 billion, up 1% from last year, with net earnings of $282 million, up 19%, and EPS of $0.52, up 18%. Excluding a $.06 gain from the sale of CytoSport finalized during the quarter, EPS rose 5%. Volume of 1.2 billion pounds increased 1%, fattened by Hormel’s innovative product lines such as Hormel® Bacon 1TM cooked bacon, Hormel® Fire BraisedTM products, Hormel® Natural Choice® snacks and Herdez® salsa which all grew at double-digit rates. Core product lines such as Hormel® pepperoni, Dinty Moore® stew and Austin Blues® authentic barbeque products also contributed to the growth. Despite record sales, second quarter earnings fell short of management’s expectations due to the impact of African swine fever in China, which led to rapidly rising global hog and pork input costs. In response, Hormel announced pricing action across its branded value-added portfolio in the Grocery Products, Refrigerated Foods and International segments. Jennie-O Turkey Store profits declined 45% due to a combination of lower retail sales resulting from last year’s voluntary recall of more than 164,000 pounds of ground turkey meat on salmonella concerns and plant startup costs. While Jeannie-O Turkey Store retail sales declined in the voluntary recall aftermath, management is reactivating promotional activity and advertising in order to regain distribution. While plant startup efforts to automate Hormel’s whole-bird facility in Melrose, Minnesota was more difficult than anticipated, management made excellent progress through the quarter and is now on track to deliver the expected production efficiencies. Year-to-date cash generated from operations declined 18% to $366 million, crimped by higher working capital as the company beefed up its inventory in anticipation of price increases. Free cash flow of $309 million was flat compared with last year on a 40% decline in second quarter capital expenditures due to weather related delays, which will shift capital expenditures into fiscal 2020. The $474 million received from the CytoSport sale was used to pay down short-term debt incurred in the $375 million Columbus Craft Meats acquisition and to add to Hormel’s cash coffers of $646 million as of April 28, 2019. During the quarter, Hormel paid its 363rd consecutive quarterly dividend at an annual rate of $0.84, up 12% from last year. Hormel also repurchased $23 million of its shares at an average cost of $40.93 per share. Given investments required to regain Jennie-O® brand retail distribution, the forecast for volatile domestic pork prices and that Hormel’s branded value-added pricing actions lag input cost increases, management revised its full year guidance. Fiscal 2019 sales are now expected in the $9.5 billion to $10 billion range, compared to prior guidance of $9.7 billion to $10.2 billion. EPS are now expected in the $1.71 to $1.85 range, down from the prior guidance of $1.77 to $1.91. In fiscal 2018, Hormel reported sales of $9.55 million with EPS of $1.86.


Tuesday, May 21, 2019

The TJX Companies-TJX reported first quarter revenues rose 7% to $9.3 billion driven by 5% comparable sales growth with comp sales growth in all four major divisions due primarily to customer traffic increases. The company’s largest division, Marmaxx, generated an outstanding 6% comp increases with both the apparel and home categories very strong. Net earnings declined 2% to $700.2 million due to higher wage and freight costs with EPS up 2% to $.57 on lower shares outstanding. Free cash flow was a negative $168 million as the company increased inventories to take advantage of good buying opportunities with inventory expected to decline over the balance of the year. During the first quarter, TJX paid $239 million in dividends and repurchased 6.7 million of its common stock for $350 million at an average price of $52.24 per share. During the quarter, TJX increased its dividend 18%, marking the 23rd consecutive year of dividend increases. The company also expects to repurchase $1.75 to $2.25 billion of stock for the full fiscal 2020 year. With results coming in better than expected in the first quarter, management raised their EPS outlook to a range of $2.56 to $2.61, representing 5% to 7% growth, with consolidated comparable store sales growth of 2% to 3% anticipated.


Friday, May 17, 2019

FactSet-FDS announced that its Board of Directors approved a 12.5% increase in the regular quarterly cash dividend from $0.64 per share to $0.72 per share. The $0.08 per share increase marks the fourteenth consecutive year the Company has increased dividends, demonstrating its continued commitment to return value to shareholders. The cash dividend will be paid on June 18, 2019 to holders of record of FactSet’s common stock at the close of business on May 31, 2019.

Wednesday, May 15, 2019

Cisco Systems-CSCO reported third quarter revenues increased 4% to $13 billion with net income up 13% to $3 billion and EPS up a 23% gain to $.69 thanks to expanding margins. Revenue by geographic segment was: Americas up 9%, EMEA up 5%, and APJC down 4%. Product revenue performance was broad based with growth in Security, up 21%, Applications, up 9%, and Infrastructure Platforms, up 5%.Free cash flow increased 25% during the first three quarters to $11.2 billion with the company paying $4.5 billion in dividends and repurchasing $16 billion of its common stock. During the quarter, Cisco closed the acquisitions of Luxtera, a privately held semiconductor company, and Singularity Networks, a privately held network infrastructure analytics company. For the fourth quarter, management expects 4.5%-6.5% revenue growth with EPS in the range of $.66-$.71.

 

Tuesday, May 14, 2019

The Walt Disney Company-DIS and Comcast Corporation announced that Disney will assume full operational control of Hulu, effective immediately, in return for Disney and Comcast entering into a “put/call” agreement regarding NBCUniversal’s  33% ownership interest in Hulu. Under the put/call agreement, as early as January 2024, Comcast can require Disney to buy NBCUniversal’s interest in Hulu and Disney can require NBCUniversal to sell that interest to Disney for its fair market value at that future time. Hulu’s fair market value will be assessed by independent experts but Disney has guaranteed a sale price for Comcast that represents a minimum total equity value of Hulu at that time of $27.5 billion. Disney and Comcast have agreed to fund Hulu’s recent purchase of AT&T Inc.’s 9.5% interest in Hulu, pro rata to their current two thirds/one third ownership interests and, going forward, Comcast will have the option but not the obligation to fund its proportionate share of Hulu’s future capital calls and will be diluted if it elects not to fund. Disney has agreed that only $1.5 billion of any year’s capital calls can be funded through further equity investments with any capital in excess of that annual amount being funded by non-diluting debt. Whether Comcast funds its share of those equity capital calls or not, Disney has agreed that Comcast’s ownership interest in Hulu will never be less than 21% such that Comcast is guaranteed to receive at least $5.8 billion under the put/call agreement. In addition to the put/call agreement, Comcast has agreed with Hulu to extend the Hulu license of NBCUniversal content and the Hulu Live carriage agreement for NBCUniversal channels until late 2024 and to distribute Hulu on its Xfinity X1 platform. NBCUniversal can terminate most of its content license agreements with Hulu in three years’ time, and in one year’s time NBCUniversal will have the right to exhibit on its own OTT service certain content that it currently licenses exclusively to Hulu in return for reducing the license fee payable by Hulu.

Friday, May 10, 2019

T.Rowe Price-TROW reported preliminary month-end assets under management of $1.11 trillion as of April 30, 2019, which is a 15.8% increase since year end.

Thursday, May 9, 2019

Booking Holdings-BKNG reported first quarter revenues decreased 3.1% (or up 3% on a constant currency basis) to $2.8 billion with net income up 26% to $765 million and EPS up 37% to $16.85. Earnings were favorably impacted in 2019 by a $451 million pre-tax gain related to net unrealized gains on marketable securities. On a non-GAAP basis, EPS decreased 7%. Results in the quarter were impacted by the Easter timing shift and foreign currency headwinds. Nevertheless, the company gained market share in the mobile market and expanded their alternative listings to 5.8 million, up 13% during the quarter. Since 2007, the company has booked more than three-quarters of a billion alternative guest days.  During the quarter, gross bookings increased 2% (up 8% on a constant currency basis) to $25.4 billion The company recorded 217 million room nights booked in the quarter, which was up 10%. Rental car days growth declined 1.3% to 18 million with airline tickets up 4.4% to 2 million. Free cash flow declined 92% during the quarter to $150 million due in part to a $403 million tax payment made to France. During the first quarter, the company repurchased $2.8 billion of its common shares and an additional $1.8 billion subsequent to quarter end. Given the company’s strong financial position, high free cash flow generation and management’s high confidence in growth over the long-term, Booking Holdings announced a new $15 billion share repurchase program which is expected to be completed over the next two to three years. For the full fiscal 2019 year, Booking Holdings expects low double-digit EPS growth despite increased investments and a still sluggish European economy.

Maximus-MMS reported second fiscal quarter revenue increased 20% to $736.5 million with net income up 12% to $61.9 million and EPS up 14% to $0.96. By segment, U.S. Health and Human Services revenue decreased 5% to $290.7 million, principally due to the rebid or extension of certain larger contracts, with a 19.6% operating margin. As expected U.S. Federal Services revenue increased 149% to $289.7 million with the addition of $176.0 million in revenue from the acquisition.  Operating margin for the segment was 10.2%. Outside the U.S. Segment revenue decreased 18% to $156.0 million due to expected decreases on welfare-to-work contracts in Australia and the United Kingdom with operating margin falling to 2.9%. Year-to-date signed contract awards at March 31, 2019, totaled $1.0 billion and contracts pending (awarded but unsigned) of $725 million. Free cash flow for the first half of fiscal 2019 increased 5% to $108.7 million. During the same period, Maximus repurchased $46.1 million of its common stock and paid $32.0 million in dividends. Management narrowed full fiscal 2019 guidance from revenue of $2.925 - $3.0 billion to $2.925 - $2.95 billion and EPS of $3.55 - $3.75 to $3.65 - $3.75.  Free cash flow expectations remain unchanged in the range on $235 - $285 million.

 

Tractor Supply-TSCO announced that its Board of Directors has declared a quarterly cash dividend of $0.35 per share of the Company’s common stock, a 12.9 percent increase over the previous dividend of $0.31 per share.   The Board also authorized a $1.5 billion increase to its existing share repurchase program, bringing the total amount authorized to date under the program to $4.5 billion. As of March 30, 2019, the Company had repurchased 62.8 million shares of common stock (adjusted to reflect the effect of stock splits) for approximately $2.6 billion since the inception of its share repurchase program in 2007. “Tractor Supply has a strong track record of returning capital to our shareholders through share repurchases and dividends. The strength of the Company’s balance sheet and free cash flow gives us the flexibility to execute a balanced capital allocation strategy that includes reinvesting in our business, growing our dividend and executing on our share repurchases. Today’s expanded capital return for shareholders is based on the confidence of the Tractor Supply Board of Directors in the Company’s ONETractor strategy and long-term growth outlook,” said Cynthia Jamison, Tractor Supply’s Chairman of the Board. 

 Wednesday, May 8, 2019

The Walt Disney Company-DIS reported second quarter revenue rose 2.3% to $14.9 billion with net income from continuing operations up 79% to $5.6 billion and EPS up 81% to $3.53. Excluding certain items including a non-cash $4.9 billion gain on the acquisition of controlling interest in Hulu, EPS decreased 13% during the quarter. Financial results include the acquisition of 21st Century Fox during the quarter including the consolidation of 11 days of Fox and Hulu activities. Management is “thrilled” with the record-breaking success of Avengers:Endgame which generated $2.3 billion in revenues in just two weeks and is the second-highest grossing film of all time. During the second quarter, Media Networks revenue was relatively flat at $5.5 billion with operating income down 3% to $2.2 billion primarily due to a 29% decline in Broadcasting income due to higher programming costs, lower program sales and a decrease in advertising revenue. Parks, Experiences and Products delivered 5% revenue growth to $6.2 billion with operating income up 15% to $1.5 billion due to increased guest spending and higher attendance. Management is excited about the opening of Star Wars Land at DisneyLand in May, which is the largest land ever opened and boasts the most advanced technology of any land at the theme parks. Direct-to-Consumer and International revenues rose 15% during the quarter to $955 million with the loss widening to $393 million due to the ongoing investment in ESPN+, costs associated with the upcoming launch of Disney+ and higher losses from streaming technology services. Free cash flow declined 23% during the first half of fiscal 2019 to $3.6 billion given the company’s increased investments in parks, resorts and other property. During the first half, Disney paid dividends of $1.3 billion and suspended its share buyback program as the company focuses on using excess cash to reduce the debt taken on for the Fox acquisition.

Monday, May 6, 2019

Sinclair Broadcast Group and The Walt Disney Company-DIS announced that they have entered into an agreement under which Sinclair will acquire the equity interests in 21 Regional Sports Networks (RSN’s) and Fox College Sports, which were acquired by Disney in its acquisition of Twenty-First Century Fox, Inc.  The transaction ascribes a total enterprise value to the RSNs equal to $10.6 billion, reflecting a purchase price of $9.6 billion.

Fastenal-FAST reported April net sales increased 12.5% to $460.7 million with average daily sales up 7.4% to $20.9 million. Daily sales growth by end market was 7.4% in manufacturing and 8.3% in non-residential construction. Daily sales growth by product line was 5.1% in fasteners and 8.8% in other products. Daily sales growth by customer was 12% for national accounts and 1% for non-national accounts. Total personnel increased 6.5% to 22,309.

Saturday, May 4, 2019

Berkshire Hathaway-BRKB reported the company’s net worth during the first quarter rose 5.9% with book value equal to $224,952 per Class A share as of 3/31/19.

During the first quarter, Berkshire reported net earnings of $21.7 billion compared to a loss of $1.1 billion in the prior year period.  New accounting rules in 2018 require Berkshire to book the net changes in unrealized appreciation/depreciation in net income instead of comprehensive income which resulted in a $16.1 billion gain in the first quarter from investments and derivatives compared to a $6.4 billion loss in the prior year period.

Berkshire’s five major investment holdings represent 68% of total equities, including American Express at $16.6 billion (up 14.5% during the first quarter or $2.1 billion), Apple at $48.5 billion (up 20.3% or $8.2 billion), Bank of America at $25.4 billion (up 12.4% or $2.8 billion), Coca-Cola at $18.7 billion (down 1% or $200 million) and Wells Fargo at $20.9 billion (up 1% or $200 million).

Berkshire’s operating revenues increased 3.6% in the first quarter to $60.5 billion with growth in all business segments led by 8.4% growth in the total insurance operations. Operating earning increased 5% in the first quarter to $5.6 billion. Kraft Heinz has not filed its 2018 10-K with first quarter financial statements also not available. Accordingly, Berkshire’s first quarter operating earnings exclude Kraft Heinz results.

During the first quarter, Berkshire’s operating earnings in the insurance underwriting operations declined 4% to $389 million as solid results by GEICO were offset by underwriting losses in the Berkshire Hathaway Reinsurance and Berkshire Hathaway Primary Group. Insurance investment income was 22% higher at $1.2 billion during the quarter, reflecting higher interest rates on short-term investments and higher dividend income due to increases in the portfolio of equity securities and higher dividend rates. The float of the insurance operations approximated $124 billion as of 3/31/19, an increase of $1 billion since year end.  The average cost of float was negative during the first quarter as the underwriting operations generated pre-tax earnings of $487 million.

Burlington Northern Santa Fe’s (BNSF) revenues rose 2.5% during the first quarter to $5.8 billion with net earnings chugging 9% higher to $1.3 billion. Results benefited from higher rates per car/unit and a retirement plan gain partially offset by lower unit volume. Severe winter weather and flooding across the mid-U.S. in the first quarter had a significant negative impact on freight volumes and operating results.  

Berkshire Hathaway Energy reported revenues increased 3.5% to $4.7 billion during the first quarter led by 14% growth at MidAmerican Energy due to increased volume and average rates.   Net earnings increased 3% during the quarter to $605 million primarily due to growth in earnings at PacifiCorp, MidAmerican and the natural gas pipelines.

Berkshire’s Manufacturing businesses reported a 2% increase in revenue growth in the first quarter to $15.1 billion with operating earnings dipping 0.6% to $2.2 billion. Revenue growth was led by Building Products with 12% growth to $4.6 billion thanks to 25% growth at Clayton Homes, reflecting increased home sales and increased interest income.  Industrial Products revenues inched up 0.8% to $7.8 billion with growth at Precision Castparts and CTB offsetting declines at Lubrizol and Marmon and flat results at Iscar.  Consumer Products revenues declined 6% to $2.8 billion primarily due to decreases at Forest River and Duracell. The increase in operating earnings in Building Products was more than offset by the declines in Industrial and Consumer Products.

Service and Retailing revenues rose 1% during the quarter to $19.2 billion with pre-tax earnings up 16% to $732 million. Service revenues rose 8% to $3.4 billion in the first quarter with operating earnings up 14% to $472 million primarily due to TTI and NetJets. Retailing revenues declined 1% during the quarter to $3.6 billion with operating earnings down 6% to $149 million, reflecting shifts in the Easter season for See’s Candies and Oriental Trading and slowing consumer demand and unfavorable weather for the home furnishing businesses.   McLane’s revenues were relatively flat during the quarter at $12 billion. McLane operating earnings jumped 85% to $111 million due primarily to inventory adjustments.  With intense competition, McLane’s unfavorable operating conditions are expected to continue in 2019.

Berkshire’s balance sheet continues to reflect significant liquidity and a strong capital base of $369 billion as of 3/31/19, unmatched in corporate America. Excluding railroad, energy and utility investments, Berkshire ended the quarter with $339 billion in investments allocated approximately 56.6% to equities ($191.8 billion), 5.7% to fixed-income investments ($19.4 billion), 5.1% to equity method investments ($17.3 billion), and 32.6% in cash and equivalents ($110.5 billion).  

Berkshire’s financial strength allows Buffett to make significant investments and acquisitions, although there was minimal activity in the first quarter. Subsequent to quarter end, Berkshire committed to invest a total of $10 billion in Occidental Petroleum in connection with Occidental’s proposal to acquire Anadarko Petroleum, If completed, Berkshire’s investment would include newly issued Occidental Cumulative Perpetual Preferred Stock with an aggregate liquidation value of $10 billion, together with warrants to purchase up to 80 million shares of Occidental common stock at an exercise price of $62.50 per share. The preferred stock will accrue dividends at 8% per annum and will be redeemable at the option of Occidental commencing on the tenth anniversary of issuance.

Free cash flow declined 11% during the first quarter to $4.4 billion due to the change in investment gains, taxes and higher capital expenditures.  During the first quarter, capital expenditures increased 22% to $3.2 billion.  Berkshire expects additional capital expenditures to approximate $9 billion for BNSF and Berkshire Hathaway Energy over the balance of 2019.  During the first quarter, Berkshire purchased a net $7.5 billion in Treasury Bills and fixed-income investments and sold a net $536 million of equity securities. Buffett revealed that a new equity purchase made by Berkshire during the quarter was Amazon, although it was not Buffett’s purchase.

Berkshire revised its buyback policy which now permits Berkshire to repurchase shares at prices below Berkshire’s intrinsic value, as conservatively determined by Warren Buffett and Charlie Munger.  During the first quarter, Berkshire repurchased $1.7 billion of its common stock at an average price of $200.73 for the B shares and $303,813 for the A shares. During the annual meeting, Buffett said he wasn’t “salivating” over buying back shares in the first quarter. He added, "I would easily see periods where we would spend very substantial sums if we thought they were selling 25% or 30% less than they were worth and couldn't see anything better to buy.”

Berkshire Hathaway’s stock appears fairly valued, currently trading at $327,766 per A share and $218.60 per B share. Based on current business fundamentals, we expect Berkshire’s A shares to trade between $280,000-$357,000 per share and the B shares to trade between $187-$238 per share.  Hold.

Friday, May 3, 2019

Paychex-PAYX announced that its board of directors approved a $.06 increase in the company’s regular quarterly dividend, an increase of approximately 11%. The dividend will increase from $.56 per share to $.62 per share and is payable May 30, 2019 to shareholders of record May 15, 2019. “This dividend increase demonstrates our strong commitment to providing ongoing, outstanding shareholder value,” said Martin Mucci, Paychex president and CEO. “Through the combination of our financial strength and investment in strategic growth opportunities, we are able to expand the returns we deliver to our shareholders.”

Thursday, May 2, 2019

Cognizant Technology Solutions-CTSH reported disappointing first quarter results with sales up 6% to $4.1 billion, net income down 15% to $441 million and EPS declining 13% to $.77. By business segment, Financial Services revenues ( representing 35% of revenues) declined 1.7% due to continued softness in business with a few of the company’s largest banking clients and several insurance and North American regional banking clients. Healthcare revenues (accounting for 28% of revenues) grew 3.9% with the segment revenue negatively impacted by continued industry consolidation. Products and Resources revenue (22% of revenues) grew 11.3%, driven by double-digit growth across key industries. Communications, Media and Technology revenues (15% of revenues) grew 17% led by growth among technology clients. Revenues grew in all geographic areas during the quarter led by 7.3% growth in Europe. During the quarter, headcount increased 9% to 285,800. With headcount growing faster than revenues, operating margins were pressured. Cognizant is working to reduce their cost structure in the next few quarters in line with the expectations of slower growth in Financial Services and Healthcare for the remainder of 2019. Free cash flow declined 44% during the first quarter to $163 million due to the lower earnings and higher capital expenditures. During the first quarter, Cognizant paid $116 million in dividends and repurchased $771 million of its common shares and ended the quarter with more than $3.7 billion in cash and investments. Given the first quarter underperformance, the company lowered its outlook for the full fiscal 2019 year with revenue growth expected in the range of 3.6% to 5.1% on a constant currency basis with adjusted EPS expected in the range of $3.87 to $3.95.

3M-MMM announced that it has entered into a definitive agreement to acquire Acelity Inc. and its KCI subsidiaries worldwide for a total enterprise value of approximately $6.7 billion, including assumption of debt. Acelity is a leading global medical technology company focused on advanced wound care and specialty surgical applications marketed under the KCI brand. The acquisition is expected to expand 3M’s presence in advanced and surgical wound care. Acelity had 2018 revenues of $1.5 billion. On a GAAP reported basis, 3M estimates the acquisition to be $0.35 dilutive to earnings per share in the first 12 months following completion of the transaction, including financing costs. Excluding purchase accounting adjustments and anticipated one-time expenses related to the transaction and integration, 3M estimates the acquisition to be $0.25 accretive to earnings per share over the same period. As a result of this announcement, 3M now expects full-year 2019 share repurchases to be in the range of $1.0 billion to $1.5 billion versus $2.0 billion to $4.0 billion previously. The transaction is expected to close in the second half of 2019. 3M will finance the transaction with a combination of available cash and proceeds from the issuance of new debt.

Wednesday, May 1, 2019

Automatic Data Processing-ADP reported fiscal third quarter revenues increased 4% to $3.8 billion or 5% on an organic constant currency basis. Net earnings increased 14% to $754 million with EPS up 16% to $1.73. Margin expansion was driven by transformation initiatives and operating leverage. Employer Services new business bookings grew 10% in the quarter, aided by the acquisition of a customer list. ADP raised their full year outlook for new business bookings to 8% to 9% growth. Pays per control increased 3.1%. Average worksite employees paid by PEO Services increased 8% t0 554,000.  Interest on funds held for clients increased 24% to $167 million during the quarter as the average client funds balance increased 4% to $30 billion and the average interest yield on client funds increased 30 basis points to 2.2%. Through the first nine months of the fiscal year, free cash flow increased 11% to $1.8 billion with ADP paying $950 million in dividends and repurchasing $761 million of its common shares during the same time period. ADP’s outlook for the full fiscal 2019 year is for revenue growth of 6% to 7%, likely at the lower end of the range due to foreign exchange headwinds with EPS growth of 22% to 23%. ADP’s management sees the economy continuing to move along at a very good pace. Even with unemployment at low levels, there are enough people on the sidelines to be drawn into the workforce. While ADP is seeing some wage pressure, that is good for their float business. All the leading indicators for the U.S. economy continue to look very strong and even Europe had a solid quarter for ADP.

Private sector employment increased by 275,000 jobs from March to April according to the April ADP National Employment Report®.  "April posted an uptick in growth after the first quarter appeared to signal a moderation following a strong 2018," said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute.  "The bulk of the overall growth is with service providers, adding the strongest gain in more than two years." Mark Zandi, chief economist of Moody's Analytics, said, "The job market is holding firm, as businesses work hard to fill open positions. The economic soft patch at the start of the year has not materially impacted hiring.  April's job gains overstate the economy's strength, but they make the case that expansion continues on."

Tuesday, Apr. 30, 2019

Apple-AAPL reported fiscal second quarter revenues declined 5% to $58 billion with net income sliced 16% lower to $11.6 billion and EPS dropping 10% to $2.46. International revenues accounted for 61% of total revenues and foreign currency headwinds negatively impacted sales with constant currency revenue growth up 2% better than the reported sales growth.  On a geographic basis, revenues increased 3% in the Americas to $25.6 billion and 1% to $5.5 billion in Japan. European sales declined 6% to $13 billion with Greater China sales dropping 22% to $10.2 billion and the Rest of Asia Pacific sales declining 9% to $3.6 billion. Trends in China are improving thanks to price adjustments Apple made, a government stimulus program in China and trade and financing programs. iPhone sales declined 17% during the quarter to $31.1 billion. Thanks to Apple’s installed base of 1.4 billion active devices, the company set an all-time record for Services with revenues of $11.5 billion, an increase of 16% over the prior year period. Apple has over 390 million paid subscribers to its services, an increase of 30 million in the last quarter alone. The company expects to have more than 550 million subscribers by 2020. Apple also set a new March quarter record for Wearables, Home and Accessories with revenues of $5.1 billion, an increase of 30%, thanks to strong growth of Apple watches and the “incredible” demand for Airpods. The Wearables business has grown into the size of a Fortune 200 company in just four years.  Mac sales declined 5% during the quarter to $5.5 billion primarily due to processor constraints.  iPad sales during the quarter increased 22% to $4.9 billion which was the strongest growth in six years thanks to strong demand. Free cash flow increased 12% during the first half of the fiscal year to $32.1 billion with the company paying $7 billion in dividends and repurchasing $32.5 billion of its common shares during that same time period. Apple ended the quarter with $225.4 billion of cash on its fruitful balance sheet and $90 billion in long-term debt. Given this financial strength and the value Apple management sees in their stock, the Board authorized an additional $75 billion for share repurchases and increased the dividend 5%, marking the seventh increase in less than seven years. With the company paying more than $14 billion in dividends, Apple is one of the largest dividend payers in the world. For the fiscal third quarter, management expects revenues between $52.5 billion and $54.5 billion, gross margin between 37% and 38%, operating expenses between $8.7 billion and $8.8 billion, other income of $250 million and a tax rate of about 16.5%

Mastercard Incorporated-MA reported that first quarter revenue increased 9%, or 13% on a foreign currency neutral basis, to $3.9 billion. Net income charged ahead 25% to $1.9 billion with EPS up 28% to $1.80. Excluding the impact of U.S. tax reform this quarter and litigation charges last year, net income and EPS increased 16% and 19%, respectively. The revenue advance included 10% growth in Domestic Assessments to $1.6 billion, 9% growth in Cross-Border Volume Fees to $1.3 billion, 13% growth in Transaction Processing Fees to $1.9 billion, partially offset by a 17% increase in Rebates and Incentives to $1.7 billion. First quarter Gross Dollar Volume (GDV) increased 12% to $1.5 trillion, including 8% growth in the U.S. to $451 billion and 13% growth in the Rest of World to $1 trillion. Switched transactions increased 17% to 19.2 billion. As of March 31, 2019, the company’s customers had issued 2.5 billion Mastercard and Maestro-branded cards, up 7% from last year. Operating expenses, excluding one-time items, increased 2%. During the quarter, Mastercard generated $1.2 billion in free cash flow, up 29% from last year. Mastercard returned more than $2.1 billion to shareholders through dividends of $340 million that were up 29% from last year, and share repurchases of $1.8 billion at an average cost per share of $206.90. Quarter-to-date through April 25, the company repurchased an additional 2 million shares at a cost of $467 million, or $233.50 per average share, which leaves $4.5 billion remaining undercurrent repurchase program authorizations. During the conference call, Ajay Banga, Mastercard’s president and CEO, summed up the current macroeconomic environment. Solid growth continues across Mastercard’s markets, albeit with some moderation from last year. Management continues to monitor trade negotiations and other political and economic policies that could impact future growth. The U.S. consumer remains confident with low unemployment and wage growth that drove a 3.5% increase in retail sales, reflecting some moderation in growth and a shift in the timing of Easter. Europe’s growth moderated with mixed consumer confidence with declines in consumer confidence in the U.K., Ireland and the Netherlands. Despite uncertainty around Brexit, spending in the U.K. remained healthy. Despite trade instability, growth in the Asia Pacific region remained favorable, underpinned by favorable monetary policies and stable labor markets, though management continues to monitor growth in China. Latin America’s economies remain mixed with strength in Brazil and Chile tempered by weakness in Mexico. In EMEA, Egypt saw healthy growth while the oil-producing countries economies softened. Looking ahead to the full year, Mastercard expects net revenues to grow in the low-teens with operating expenses expected to increase in the high-single-digits as the company continues to invest in its core business while diversifying its offerings and expanding its global footprint.

Occidental Petroleum announced that, in connection with the financing of Occidental’s proposal to acquire Anadarko Petroleum, Berkshire Hathaway-BRKA has committed to invest a total of $10 billion in Occidental. The investment is contingent upon Occidental entering into and completing its proposed acquisition of Anadarko. Berkshire Hathaway will receive 100,000 shares of Cumulative Perpetual Preferred Stock with a liquidation value of $100,000 per share, together with a warrant to purchase up to 80.0 million shares of Occidental common stock at an exercise price of $62.50 per share. The preferred stock will accrue dividends at 8% per annum (or with respect to dividends that are accrued and unpaid, 9%). The preferred stock to be issued to Berkshire Hathaway will be redeemable for cash (in whole or in part) at the option of Occidental commencing on the tenth anniversary of issuance at a redemption price equal to 105% of the liquidation preference plus accumulated and unpaid dividends, if any. The preferred stock will also be mandatorily redeemable for cash (in whole or in part) upon certain specified capital return events. Dividends will be paid in cash or, at Occidental’s option, in shares of Occidental common stock. The warrant to be issued with the preferred stock may be exercised in whole or in part and from time to time, until one year after the redemption of the preferred stock.

Monday, Apr. 29, 2019

Canadian National Railway-CNI reported first quarter revenue rose 11% to C$3.5 billion with net income up 6% to C$786 million with EPS up 8% to C$1.08. Adjusted net income and EPS increased 14% and 17%, respectively. The increase in revenues was mainly attributable to the weaker Canadian dollar, freight rate increases, higher volumes of petroleum crude, refined petroleum products, coal and Canadian grain, and higher fuel surcharge rates. Revenue ton-miles increased by 3% and carloadings increased by 1% to 1,418 thousand during the quarter. The railroad’s operating ratio increased 1.7 points to 69.5%. Free cash flow decreased 11% in the quarter to C$286 million with the company paying C$389 million in dividends and repurchasing C$432 million of its shares. Management reaffirmed 2019 adjusted EPS guidance for growth in the low double-digits range and continues to expect high single-digit volume growth in 2019 in terms of revenue ton miles.

Alphabet-GOOGL reported first quarter revenue rose 17% to $36.3 billion with net income and EPS both down 29% to $6.6 billion and $9.50, respectively. Earnings were negatively impacted by a $1.7 billion European Commission fine related to competition. The company’s strong revenue growth was led by mobile search, YouTube and Cloud. Double-digit revenue growth was generated in all geographic regions led by 27% growth in the APAC region. Paid clicks on Google properties increased 39% with cost per click on Google properties declining 19%. Free cash flow increased 70% during the quarter to $7.4 billion due primarily to a drop in capital expenditures. For the full year, capital expenditures are expected to approach $13 billion and be higher than last year as the company invests heavily in datacenters across the country. During the quarter, Alphabet repurchased $3 billion of its common shares. The company ended the quarter with a fortress balance sheet with more than $113 billion in cash and investments and $4.1 billion in long-term debt.

Friday, April 26, 2019

3M-MMM reported first quarter sales declined 5% to $7.9 billion with net income of $891 million and EPS of $1.51, compared with $602 million and $0.98 reported last year. First quarter adjusted EPS--which excludes significant litigation-related charges of $0.72 per share--were $2.23, down 10.8% from last year’s adjusted EPS, which excluded a $1.16 litigation charge and a $0.36 charge related to tax reform. On a geographic basis, total sales inched up slightly in the U.S., with declines of 6.5% in Latin America/Canada, 7.4% in Asia Pacific and 9.4% in EMEA (Europe, Middle East and Africa). First-quarter operating income was $1.1 billion with operating margins of 14.4%. Excluding litigation-related charges, operating income was $1.7 billion, down 11.6% on negative organic growth and weak productivity. Adjusted operating margins were 21.4%. Two significant litigation issues impacted 3M’s first-quarter earnings which resulted in a litigation-related pre-tax charge of $548 million. 3M established a reserve of $235 million to resolve certain environmental matters and litigation, in which 3M is a defendant, related to its historical manufacture and disposal of PFAS-containing waste. 3M manufactured or used PFAS at five manufacturing plants globally, including in Alabama, Illinois and Minnesota in the United States, as well as in Belgium and Germany. The company also increased its respirator reserve by $313 million to address the cost of resolving all current and expected future coal mine dust lawsuits in Kentucky and West Virginia. Free cash flow for the quarter was $657 million, representing free cash flow conversion of 74%. During the quarter, 3M returned $1.5 billion to shareholders through dividend payments of $830 million and share repurchases of $701 million. Reflecting a slower than expected 2019, 3M initiated restructuring and other actions that will result in an expected reduction of 2,000 positions worldwide with an estimated annual pre-tax savings range of $225 million to $250 million, with $100 million in the remainder of 2019. The company anticipates a pre-tax charge in 2019 of about $150 million, or $0.20 per share. These actions will span all business groups, functions and geographies, with emphasis on corporate structure and underperforming areas of the portfolio. 3M updated its 2019 earnings expectations to be in the range of $8.53 to $9.03 per share. Excluding the impact of significant litigation-related charges, 3M expects its adjusted full-year 2019 earnings to be in the range of $9.25 to $9.75 per share versus a prior expectation of $10.45 to $10.90 per share. 3M also updated its organic local-currency sales growth guidance to be in the range of minus 1% to plus 2% versus a prior range of 1% to 4%. Return on invested capital is expected in the range of 20% to 22% versus a prior range of 22% to 25%. 3M maintained its full-year expectations for free cash flow conversion of 95% to 105%.


Tractor Supply-TSCO reported first quarter earnings grew 8.3% to $1.82 billion with net earnings increasing 7.6% to $76.8 million and EPS up 10.5% to $0.63. Comparable store sales increased 5%, comprised of increases in comparable transaction count and average ticket of 1.8% and 3.2%, respectively. All geographic regions and all major product categories had positive comparable store sales growth. The increase in comparable store sales was driven by strength in everyday merchandise, including consumable, usable and edible products, along with strong demand for winter seasonal categories and, to a lesser extent, sales of spring merchandise.   Gross margin increased 26 basis points to 33.8%, cultivated by strong sell-through of winter seasonal categories and the strength of the company’s price management program, partially offset by an increase in transportation costs.  The company opened 10 new Tractor Supply stores and 1 Petsense store in the first quarter of 2019 compared to 15 new Tractor Supply store openings and 4 Petsense store openings in the prior year’s first quarter.   During the quarter, free cash flow was a negative $41.8 million compared to negative $67 million last year. Tractor Supply remains committed to returning cash to shareholders through share repurchases and dividends while maintaining a disciplined approach to capital allocation. During the quarter, the company paid cash dividends of $37.6 million and repurchased about 1.7 million shares for $155.3 million, or $91.35 per average share. As of quarter-end, $365 million remained under the current share repurchase authorization. Since inception of its share repurchase program in 2007, Tractor Supply has repurchased just over $2.6 billion of its common stock. Looking ahead to the full year, management reaffirmed its outlook for 2019 with net sales expected in the range of $8.31 billion to $8.46 billion, up 5% to 7%, on comp store growth of 2% to 4%. This outlook includes progress on profit improvement plans to help mitigate cost pressures. Operating profit margin is expected to be in the range of 8.9% to 9%. Net income is forecast in the range of $555 million to $575 million, or $4.60 to $4.75 per share, up 8.5% at the midpoint.

Thursday, April 25, 2019

Starbucks Corporation-SBUX reported fiscal second quarter sales increased 5% to $6.3 billion with net income increasing slightly to $663 million and EPS increasing 13% to $0.53 on fewer shares outstanding. Global comparable store sales increased 3%, driven by a 3% increase in average ticket. Net revenues for the Americas segment grew 8% to $4.3 billion, primarily driven by 686 net new store openings during the past twelve months and 4% growth in comparable store sales, that were perked up by price increases. Americas operating margins increased 80 basis points to 20.9%, primarily due to sales leverage and cost savings initiatives, partially offset by wage increases funded by U.S. tax reform savings. China/Asia Pacific (CAP) sales increased 9% to $1.3 billion, primarily driven by 998 net new store openings during the past twelve months and a 2% increase in comp store sales. CAP operating margins increased 80 basis points to 18% due to sales leverage and cost savings initiatives.  In March, Starbucks celebrated the opening of its 30,000th store in Shenzhen, China. Europe Middle East and Asia (EMEA) sales declined 9% to $228 million due to foreign currency headwinds and the conversion of Starbuck’s retail businesses in France and the Netherlands to fully licensed operations, partially offset by 307 net new store openings over the past twelve months. In EMEA, a net operating loss of $2.8 million was recorded during the quarter, versus last year’s $10.9 million loss, due to the shift towards more licensed stores and company store closures. Starbuck’s Channel Development segment reported a 21% decline in sales to $447 million due to the licensing of Starbuck’s CPG and foodservice business to Nestle following the close of the deal last August. During the quarter, Starbucks repurchased 37.4 million shares and paid a cash quarterly dividend of $0.36 per share, up 20% from last year. In March, Starbucks initiated a new $2 billion, accelerated share repurchase plan, which should be completed by the end of June, setting the company on a path to deliver over 80% of its $25 billion shareholder capital return commitment by the end of fiscal 2019. For the full fiscal year, Starbucks expects global revenue growth of 5% to 7% on comparable store sales growth  between 3% and 4%. The company expects to open about 1,200 net new Starbucks stores with 60 in the Americas, about 1,100 in CAP (including nearly 600 in China) and about 400 licensed stores in EMEA. EPS are now expected in the $2.40 to $2.44 range, up from prior guidance of $2.32 to $2.37.

Westwood Holdings Group-WHG reported first quarter revenues fell 29% to $23.9 million with net earnings and EPS dropping 95% to $392,000 and $0.05, respectively. The drop in net income was due to lower total revenues and a $0.6 million net foreign currency loss, partially offset by lower incentive compensation expense. During the quarter, net outflows totaled $1.3 billion. The company ended the quarter with $16.8 billion of assets under management, down nearly 26% from last year. To curtail the outflows and return to growth, management’s vision is to combine deeper client engagement with superior operational and reporting efficiencies to better position it to face more industry disruption in the years to come. To that end, the company continues to make significant investments in its portfolio management, sales, distribution and infrastructure teams to support strong business development while continuing to invest in its digital platform transformation. To compete with index funds, Westwood recently announced its Sensible Fees™ pricing structure that will offer a risk-adjusted incentive fee structure to investors owning efficient asset classes. The new pricing structure combines low fees of passive management with a compensation structure that will result in investors paying for alpha only when it is earned. During the quarter, Westwood generated $10.5 million in operating cash flow, up from $1.4 million last year. The sale of investments buoyed operating cash flow by $16.6 million. During the quarter, Westwood paid $7.7 million in dividends at $0.72 per share. At the current price, Westwood’s stock yields an outsized 7.9%. From 2002 to 2018, the company paid over $190 million in shareholder dividends with the firm increasing the annual dividend declared every year since then. Westwood ended the quarter with more than $108 million in cash and investments, no long-term debt and shareholders’ equity topping $156 million.


Raytheon Company-RTN reported first quarter sales increased 7.4% to $6.7 billion with net income from continuing operations increasing 24% to $775 million and EPS up 26% to $2.77. The increase in the first quarter 2019 EPS from continuing operations was primarily driven by operational improvements and pension related items. By business segment, Integrated Systems (IDS) sales increased 4% to $1.6 billion, Intelligence, Information, and Services (IIS) sales increased 12% to $1.8 billion, Missile Systems (MS) sales increased 9% to $2 billion, Space and Airborne Systems (SAS) sales increased 5% to $1.7 billion and Forcepoint sales increased 12% to $158 million. Total company bookings dipped 14% to $5.4 billion, bringing the trailing four-quarter book-to-bill ratio to 1.13 and the total backlog to $41.1 billion, up 8% from last year. Operating cash flow from continuing operations for the first quarter 2019 was an outflow of $411 million compared to an inflow of $283 million for the first quarter 2018. The decrease in operating cash flow from continuing operations was primarily due to higher net cash taxes and the timing of payments. During the first quarter 2019, Raytheon repurchased 2.8 million shares of its common stock for $500 million, or $178.57 per average share. Leadership sees values in Raytheon’s shares and remains committed to its share repurchase program and expects to repurchase about $1.3 billion of its shares in 2019, thereby reducing the share count by about 2%. In addition, as previously announced, Raytheon’s Board of Directors voted to increase the annual dividend rate by 8.6% from $3.47 to $3.77 per share, marking the fifteenth consecutive annual dividend increase. Raytheon ended the quarter with $2.1 billion of cash, $4.3 billion of long-term debt and $11.7 billion of shareholders’ equity on its strong balance sheet. Looking ahead to the full year, Raytheon expects sales of $28.6 billion to $29.1 billion, up 6.6% at the mid-point, with EPS from continuing operations of $11.40 to $11.60, up 13.3% at the mid-point, and operating cash from continuing operations of $3.9 billion to $4.1 billion, up 16.7% at the mid-point.

AbbVie-ABBV reported first quarter revenues dipped 1% to $7.828 with net income falling 12% to $2.5 billion and EPS declining 5% to $1.65 on fewer shares outstanding. Global HUMIRA net revenues of $4.446 billion decreased 5.6% from last year. In the U.S., HUMIRA net revenues of $3.2 billion grew by 7.1%. Internationally HUMIRA net revenues of $1.231 billion decreased nearly 28% due to biosimilar competition, especially from Biogen and Amgen. Global net revenues from the hematologic oncology portfolio of $1.173 billion increased 43%. Global IMBRUVICA net revenues were $1 billion, with U.S. net revenues of $829 million and international profit sharing of $193 million. Global VENCLEXTA net revenues were $151 million. Although AbbVie captured a greater global HCV net revenues, HCV revenues declined 11% to $815 million with U.S. HCV net revenues up 17% to $403 million and international sales falling 25% to $403 million. During the quarter, AbbVie made progress in advancing its pipeline, including the recent approval of SKYRIZI, which has the potential to set a new standard of care in psoriasis and represents a significant long-term opportunity for the company. During the past five years, AbbVie received approval for 12 new products and major indications, which provides management with confidence in future commercial viability of its robust pipeline. AbbVie raised its EPS guidance for the full-year 2019 to $7.26 to $7.36. This guidance does not reflect a non-cash charge for contingent consideration related to the approval of SKYRIZI, which will be communicated on the second-quarter earnings call. Adjusted EPS guidance range for the full-year 2019 was raised from $8.65 to $8.75 to $8.73 to $8.83, representing growth of 11% at the mid-point.

UPS-UPS reported first quarter sales edged up slightly to $17.2 billion with net earnings falling 17% to $1.1 billion and EPS declining 10% to $1.39. First-quarter results include a pre-tax charge of $123 million, or $0.11 per share after-tax, due to Transformation-related charges expected to provide efficiencies and produce higher-quality revenue growth. U.S. Domestic Package revenue increased 2.5% to $10.8 billion, with healthy growth in commercial Ground. Growth in Ground revenue per piece was strong at 2.9%, led by gains from healthcare, manufacturing and e-commerce. Average daily volume for air products grew nearly 8%, driven by high demand for faster delivery options. U.S. domestic package operating profit declined 12%, due, in part, to severe winter weather and Transformational-related charges. International Package revenue declined 2% to $3.5 billion with operating profits falling 11% to $528 million due to Transformation-related charges of $84 million for global realignment of systems and resources. Supply Chain & Freight revenue fell 4% to $3.2 billion with operating profits increasing 18% to $200 million as cost management actions helped balance market changes to volume and revenue, most notably in Coyote, more than offsetting $11 million in Transformation-related charges to optimize back-office support. During the quarter, UPS generated $763 million in free cash flow, down 70% year-over-year. UPS continued to reward shareowners with strong dividend yields, paying dividends of $867 million, an increase of 5.5% per share over the prior-year period. During the quarter, UPS repurchased 2.4 million shares for approximately $250 million, or $104.17 per average share. UPS ended the quarter with $5.1 billion in cash & marketable securities, $20 billion in long-term debt and $3.5 billion in shareholders’ equity. UPS reaffirmed its adjusted EPS in the range of $7.45 to $7.75, up 5% from last year at the midpoint. This guidance excludes Transformation-related charges and pension financing costs. In the second quarter, UPS will open about 30% of its planned 2019 capacity. Given that no facilities were opened during the same period last year, onboarding costs will weigh on the second-quarter results. Third-quarter adjusted EPS is expected to benefit from numerous items that should not repeat. Adjusted free cash flow for the year is projected to be between $3.5 and $4 billion, down from $6.1 billion in 2018.

Wednesday, April 24, 2019

Microsoft-MSFT reported third fiscal quarter revenue increased 14% to $30.6 billion with net income increasing 19% to $8.8 billion and EPS increasing 20% to $1.14. Demand for Microsoft’s cloud offerings drove commercial cloud revenue to $9.6 billion during the quarter, up 41% year-over-year. By business segment, Productivity and Business Processes revenue increased 14% to $10.2 billion, powered by Office 365 Commercial revenue growth of 30%, LinkedIn revenue growth of 27% and Dynamics 365 revenue growth of 43%. Intelligent Cloud revenue was $9.7 billion, up 22% with server products and cloud services revenue increasing 27%, driven by Azure revenue growth of 73%. More Personal Computing revenue increased 8% to $10.7 billion, thanks to a 9% increase in Windows OEM revenue, an 18% increase in Windows Commercial products and cloud services revenue, a 21% increase in Surface revenue, 5% growth in gaming revenue and a 12% jump in Search advertising revenue. Cash flow from operations increased 11% year-over-year to $13.5 billion, driven by strong cloud billings and collections. Free cash flow of $11 billion increased 19%, reflecting the timing of lower cash payments for property, plant and equipment. Microsoft returned $7.4 billion to shareholders during the quarter through share repurchases of $3.9 billion and dividends of $3.5 billion. Year-to-date, Microsoft returned $25.2 billion to shareholders, up 41% from last year, boosted by a 78% increase in share buybacks and a 9% dividend increase. Microsoft ended the quarter with $131.6 billion in cash and $66.6 billion in long-term debt on its super-strong balance sheet. Looking ahead to the fourth fiscal quarter, Microsoft expects customer demand and solid execution to drive continued strong performance across all commercial businesses. Microsoft projects total company fourth fiscal revenues in the range of $32.2 billion and $32.9 billion, up 8% from last year’s fourth quarter at the mid-point. Cost of goods sold is expected in the $10.65 billion to $10.85 billion range, up 10% at the midpoint while operating expenses are expected in the $10.7 billion to $10.8 billion range, up 8% at the mid-point. Looking ahead to fiscal 2020, management sees tremendous opportunity to drive sustained long-term growth through its investments in Cloud, Business and Microsoft 365. At the same time, Microsoft will continue to drive improvement and efficiency as the business grows, resulting in double-digit revenue and operating income growth in 2020.

Facebook-FB reported first quarter revenue increased 26% to $14.9 billion with net earnings falling 51% to $2.4 billion and EPS dropping 50% to $0.85. Advertising revenue increased 26% to $14.9 billion, driven by mobile ad revenue, which grew 30% year-over-year. Mobile ad revenue now represents about 93% of Facebook’s total ad revenue, up from 91% last year. Facebook daily active users reached 1.56 billion, up 8% from last year, led by growth in India, Indonesia and the Philippines. Monthly active users (MAUs) grew by 179 million to 2.38 billion as of March 31, an increase of 8%. Management estimates that, on average, over 2.1 billion people now use Facebook, Instagram, WhatsApp or Messenger, Facebook’s “family” of services, and about 2.7 billion people use at least one of Facebook’s “family” of services each month. Regional ad revenue growth was led by U.S. & Canada at 30%, followed by Asia-Pacific at 28% and Rest of World at 21%, which was impacted by currency headwinds. Average price per ad decreased 4% and the number of as impressions served across Facebook’s services increased 32%. Impression growth was primarily driven by ads in Instagram Stories, Instagram Feed and Facebook News Feed. The year-over-year decline in average price per ad reflects an ongoing mix shift towards Stories ads, now used by 3 million advertisers, and geographies that monetize at lower rates. Total expenses increased an unfriendly 80% to $11.8 billion, which includes a $3 billion accrual taken in connection with the FTC’s inquiry into Facebook’s platform and data practices. This unresolved matter is estimated to result in fines of between $3 billion and $5 billion. Absent this accrual, Facebook’s total expenses grew by 34%. Facebook ended the quarter with about 37,700 employees, up 36% from last year. During the quarter, Facebook invested about $4 billion in property, plant and equipment, driven by data centers, servers, office facilities and network infrastructure. During the quarter, the company generated $5.3 billion in free cash flow, ending the quarter with about $45.2 billion on its likable debt-free balance sheet. During the quarter, the company repurchased $521 million of its class A common stock. Management expects that revenue growth rates will decelerate sequentially throughout 2019 on a constant currency basis. Furthermore, it anticipates that ad targeting headwinds will be more pronounced during the second half of 2019. Expense growth is now expected in the 47% to 55% range, up from prior guidance of 40% to 50%, with the $3 billion accrual accounting for about 10% of the anticipated expense growth, implying a modest reduction in the core expense growth rate. Capital expenditures are expected in the $17 billion to $19 billion range, driven primarily by continued investment in data centers and servers.

F5 Networks-FFIV reported second fiscal quarter revenue of $544.9 million, up 2% from last year, driven by software solutions revenue growth. Net income increased 6% to $116 million and EPS increased 9% to $1.93 on fewer shares outstanding. Product revenue increased slightly from last year to $238 million and accounted for 44% of total revenue. Software sales, which accounted for 19% of Product revenue, jumped 30%, reflecting increased demand for application security and F5 Network’s new consumption models, including Enterprise Licensing Agreements as customers continue to deploy systems across private, public, hybrid and multi-cloud environments. System sales, which accounted for 81% of Product revenue, declined 5%, reflecting customer migration to the cloud. Services revenue increased 4% to $307 million, accounting for 56% of total F5 Networks’ sales. By region, sales in the Americas increased 4% and accounted for 56% of total sales. AMEA sales were flat and accounted for 25% of total sales while APAC sales increased 1% and accounted for 19% of the total. Enterprise customers accounted for 65% of sales during the quarter, telecom service providers accounted for 20% of sales and government accounted for 16% of the total, including 6% to the Federal government. Three distributors accounted for 10% or more of total revenue during the quarter. During the quarter, F5 Networks generated $164.5 million in free cash flow during the quarter, down 6% year-over-year, due to a nearly three-fold increase in capital expenditures, mostly related to the new corporate headquarters tower in downtown Seattle. During the second quarter of fiscal year 2019, F5 repurchased about 617,000 shares of its common stock at an average price of $162.06 per share for an aggregate purchase price of $100 million. F5 Networks also announced the acquisition of privately held NGINX for a total enterprise value of approximately $670 million.  With the acquisition, F5 hopes to bridge the divide between NetOps and DevOps with consistent application services across an enterprise’s multi-cloud environment. F5 ended the quarter with more than $1.6 billion in cash and investments on its debt-free, weather-resistant balance sheet. Looking ahead to the third quarter of fiscal 2019, management expects sales in range of $550 million to $560 million, flat with last year at the mid-point, and non-GAAP EPS in the range of $2.54 to $2.57, up 5% at the mid-point. For the full fiscal year, F5 expects capital expenditures of $110 million to $130 million, including $70 million related to the new headquarters, which is expected to be completed by the end of this summer.

Rowe Price-TROW reported first quarter revenues dipped slightly to $1.3 billion with net income up 3.4% to $461 million and EPS up 7.5% to $1.87. Assets under management increased $119.4 billion in the first quarter of 2019 to $1.082 trillion at 3/31/2019. The increase in assets under management included net cash inflows of $5.4 billion plus capital appreciation and investment income of $114 million. Clients transferred $6.1 billion in net assets from the U.S. mutual funds to other investment products, primarily the target-date trusts, during first quarter. The effective fee rate of 46.4 basis points in the first quarter of 2019 declined from 47 basis points in the first quarter of 2018, primarily due to client transfers to lower fee vehicles or share classes over the last twelve months. More than 85% of the firm's rated U.S. mutual funds ended the quarter with an overall rating of four or five stars from Morningstar. The performance of the firm's institutional strategies against their benchmarks remains competitive, especially over longer time periods. The firm employed 7,102 associates at quarter end, an increase of 2.4% compared to the prior year. T. Rowe Price remains debt-free with ample liquidity including cash and investments of $3.4 billion as of 3/31/2019. During the first quarter of 2019, the firm repurchased 2.5 million of its shares for a total cost of $229.8 million, $92.83 per average share.

Despite a 7% decline in global light vehicle production, Gentex-GTNX reported that first quarter sales increased 1% to $468.6 million. Net earnings declined 6% to $104.3 million and EPS were flat with last year at $.40, thanks to the 7% reduction in shares outstanding. During the quarter, Gentex shipped 10,682 units, up 1% from last year. Interior mirror shipments declined 2% to 7,483 while exterior mirror shipments increased 9% to 3,199, driven by a 50% increase in North American exterior mirror shipments on increased take rates and the takeover of a competitor’s business that will anniversary during the third quarter. Gross margin was 36.2%, down from 37.1% last year, primarily due to a 90 basis point tariff headwind that became effective during the second quarter. Operating expenses during the first quarter of 2019 were up 9% to $48 million, in-line with expectations given management’s focus on increasing growth through additional launches of the Integrated Toll Module, Full Display Mirror, which enables a driver to toggle between a normal auto-dimming mirror and a display image while driving at high speeds, and additional auto-dimming mirror applications. During the quarter, Gentex generated $133.8 million in cash flow from operations, down 9% from last year, dented by the lower net income and working capital demands. Free cash flow declined 3.5% to $117 million, despite a 36% decline in capital expenditures to $16.8 million. During the quarter, Gentex repurchased 4.7 million shares at an average price of $20.37 per share, for a total of $96.3 million of share repurchases. As of March 31, 2019, about 29.1 million shares remain available for repurchase pursuant to the previously announced share repurchase plan. Gentex ended the quarter with more than $528 million in cash, short-term investments and long-term investments on its debt-free balance sheet. Looking ahead, Gentex expects total global light vehicle production to decline by 4% during the second quarter with vehicle production rebounding during the second half of the year bringing the full-year decline in light vehicle production during 2019 to 2%.

Biogen-BIIB reported first quarter revenues increased 11% to $3.5 billion with net earnings increasing 20% to $1.4 billion and EPS increasing 29% to $7.15. Adjusted earnings, which excludes acquisition and divestiture-related costs and gains on marketable securities, rose 7% to $1.37 billion and adjusted EPS increased 15% to $6.98 on fewer shares outstanding. Multiple sclerosis (MS) revenues of $2.1 billion were relatively stable compared to last year, pressured by decreases in U.S. channel inventory. On the other hand, Biogen’s first quarter revenues were boosted by the continued global launch of SPINRAZA®, which contributed $518 million in revenues during the quarter, up 42% from last year. SPINRAZA®, Biogen’s novel treatment for spinal muscular atrophy which effects over 45,000 individuals globally, is now approved in more than 40 countries. As of March 31, 2019, 7,250 patients have been treated with 75% of those patients on SPINRAZA® maintenance dosages given every four months. Biogen's Biosimilars revenues increased 37% to $175 million, driven by the launch of IMRALDITM, a market leading biosimilar for Humira. Uptake of Biogen’s biosimilars are expected to contribute healthcare savings of 1.8 billion euros across Europe during 2019. Other revenues increased 78% to $292 million, primarily due to the sale of remaining hemophilia inventory on hand to Bioverativ Inc. Biogen generated $1.5 billion in free cash flow during the quarter, up 3% from last year, with the company repurchasing 2.4 million shares for a total cost of $656 million, or $273 per average share. From April 1, 2019 through April 24, 2019, Biogen repurchased an additional 2.1 million shares at a cost of $492 million, or $234 per average share. During the first quarter of 2019 Biogen’s Board of Directors authorized a program to repurchase up to $5 billion of the company’s common stock in addition to the $1 billion remaining under the share repurchase program authorized in August 2018. Biogen ended the first quarter with cash, cash equivalents, and marketable securities totaling $5.3 billion and notes payable of $5.9 billion. Despite disappointing clinical trial results, which led to the discontinuation of development of aducanumab, the company’s hoped for Alzheimer’s disease treatment, Biogen continued investing in diversifying its product pipeline in neuromuscular diseases and movement disorders. Furthermore, the company’s proposed $800 million acquisition of Nightstar Therapeutics would provide two potentially first-in-class mid- to late-stage clinical assets in specialty ophthalmology. By the end of 2020 Biogen expects readouts across its clinical programs in MS, progressive supranuclear palsy, ALS, Parkinson’s disease, pain, cognitive impairment associated with schizophrenia, epilepsy, stroke, and lupus.

Tuesday, April 23, 2019

Stryker-SYK reported first quarter sales increased 8.5% to $3.5 billion with net earnings declining 7% to $412 million and EPS falling 6% to $1.09, hurt by a jump in acquisition and integration-related charges. Adjusted net earnings of $714 million increased 12% from last year. Organic net sales increased 7.3% in the first quarter, including 8.7% from increased unit volume partially offset by 1.4% from lower prices. Orthopaedics net sales of $1.3 billion increased 2.8% year-over-year on a 5% organic sales increase, driven by healthy growth in knees. During the quarter, Stryker installed 35 MAKO robots, including 27 in the U.S., bringing the total installed base to 700 robots including 550 in the U.S. During the quarter, surgeons performed 15,000 knee replacements using MAKO robots, up more than 80% from last year. MedSurg net sales of $1.5 billion increased 8.2% on 9% organic net sales growth, powered by double-digit growth in instrument sales. Neurotechnology and Spine net sales of $700 million increased 21% on 8% organic net sales growth, heightened by the K2M acquisition. During the quarter, Stryker generated $191 million in free cash flow, up 8.5% from last year, with the company returning more than $500 million to shareholders through dividends of $195 million and share repurchases of $307 million at an average cost of $161.58 per share. Stryker ended the quarter with $1.8 billion in cash & investments and $8 billion in long-term debt on its sturdy balance sheet. Based on the strong first quarter performance, management now expects 2019 organic net sales growth to be in the range of 6.8% to 7.5% and adjusted EPS in the range of $8.05 to $8.20.

Raytheon-RTN Integrated Defense Systems has been awarded a firm-fixed-price, cost-plus-incentive-fee contract in the amount of $399,437,066 to provide long lead hardware procurement and manufacturing, systems engineering and program management, obsolescence and reliability updates, maintenance planning, facility design support, country support, and common software development to the Kingdom of Saudi Arabia. Work on the contract will be performed in Woburn, Massachusetts, and the performance period is April 23, 2019, to July 22, 2021. The award is the result of a sole-source acquisition.

United Technologies-UTX reported first quarter revenues increased 20% to $18.4 billion, including 8% organic growth. Net income increased 4% to $1.34 billion with EPS dipping 4% to $1.56 on a higher share count. During the quarter, commercial aftermarket sales were up 1% at Pratt & Whitney and 9% organically at Collins Aerospace Systems. Otis new equipment orders were down 1% on a constant currency basis and equipment orders at Carrier decreased 2% organically. During the quarter, United Technologies generated $1.1 billion in free cash flow, up from $116 million last year, with the company paying $609 million in dividends and repurchasing $29 million of its common shares. Management reaffirmed its 2019 sales and free cash flow outlook with sales expected in the range of $75.5 billion to $77 billion, including organic sales growth of 3% to 5%, and free cash flow of $4.5 billion to $5 billion. Management increased the lower end of its adjusted EPS guidance to the range of $7.80 to $8.00, up from $7.70 to $8.00. United Technologies is making good progress in separating the company into three industry-leading firms as previously announced and expects the divestitures will be completed during the first half of 2020.

Monday, April 22, 2019

Bank of Hawaii-BOH reported first quarter net income increased 9% to $58.8 million with EPS rising 12% to $1.43. The return on average assets for the first quarter was 1.38% compared to 1.29% in the prior year period. The return on average equity in the first quarter also improved to 18.81% compared to 17.74% in the prior year period. Net interest income, on a taxable-equivalent basis, increased 5% to $125.8 million. Net interest margin expanded to 3.12%, an increase of 12 basis points year-over-year.  General economic conditions in Hawaii remained healthy during the quarter with low unemployment, a strong real estate market and increasing tourist numbers. During the quarter, the company repurchased 513,400 shares of common stock at a cost of $39.9 million under its share repurchase program at an average cost of $77.79 per share. From the beginning of the share repurchase program initiated in July 2001, the company has repurchased 55.8 million shares for more than $2.2 billion at an average cost of $39.50 per share. The Company’s Board of Directors declared a quarterly cash dividend of $0.65 per share on the company’s outstanding shares, an increase of 4.8%  from the cash dividend of $0.62 per share in the previous quarter. The dividend currently yields a solid 3.1%.

Thursday, April 18, 2019

Fastenal Company-FAST announced  that its board of directors approved a two-for-one stock split of the Company's outstanding common stock. Holders of the Company's common stock of record at the close of business on May 2, 2019, will receive one additional share of common stock for every share of common stock they own. The stock split will take effect at the close of business on May 22, 2019.

 

Genuine Parts-GPC reported first quarter sales increase 3.3% to $4.7 billion with net income and EPS declining 9.2% to $160 million and $1.09, respectively. First quarter sales for the Automotive Group were up 2.3% to $2.6 billion, on a 3.1% comparable sales increase, a 2.9% benefit from acquisitions and an unfavorable foreign currency translation of 3.4%.  Sales for the Industrial Group were up 5.7% to $1.6 billion, on a 4.2% comparable sales increase and a 1.8% contribution from acquisitions.  Sales for the Business Products Group were up 1.0% to $479 million, consisting primarily of comparable sales growth. During the quarter, the company generated $16 million in free cash flow, down 85% from last year on changes in working capital. The company returned $105 million to shareholders through dividends during the period. Management reaffirmed its full year 2019 sales guidance and continues to expect sales to increase 3% to 4%. Earnings per share are expected to range from $5.56 to $5.71 down from previous guidance of $5.75 to $5.90 due to a divestiture of a business unit in Mexico.


Tuesday, April 16, 2019

PepsiCo-PEP reported first quarter revenues rose 2.5% to $12.9 billion with net income up 5.2% to $1.4 billion and EPS popping 6.4% higher to $1.00. While foreign currency headwinds negatively impacted reported revenue growth, the company’s underlying organic growth accelerated to more than 5% in the quarter, the best organic growth in three years. Frito-Lay North America and each of the international divisions delivered strong operating performance and PepsiCo Beverages North America generated sequential quarterly net revenue acceleration. Due to increased working capital needs and capital expenditures, the company used $787 million of its cash for operating and investing activities. In addition, PepsiCo paid $1.3 billion in dividends and repurchased $940 million of its common stock. For the full year, PepsiCo reaffirmed its previous guidance with organic growth expected to be 4% and core EPS expected to decline 3% to $5.50 as the company laps a number of 2018 strategic asset-sale and refranchising gains. PepsiCo expects to generate free cash flow of $4.5 billion during 2019 and pay dividends of about $5 billion and repurchase approximately $3 billion of its shares.

Monday, April 15, 2019

Johnson & Johnson-JNJ reported relatively flat first quarter sales of $20 billion with net income declining 14% to $3.7 billion and EPS down 13% to $1.39. On an operational basis, excluding currency translation and acquisitions and divestitures, adjusted worldwide sales increased 5.5% with adjusted EPS up 2%. Worldwide pharmaceutical sales increased 4.1% to $10.2 billion, representing 51% of total revenues. Strong broad based performance in nine key pharmaceutical products led to market share gains during the quarter. Growth was driven by increased volume.  Worldwide Medical Devices sales decreased 4.6% during the quarter to $6.5 billion, accounting for 33% of sales. On an operational basis, Medical Devices sales grew 4.3% driven by the growth of electrophysiology products, Acuvue contact lens and biosurgicals. During the quarter, JNJ completed the acquisition of Auris Health to enhance their digital surgery capabilities. Worldwide Consumer sales decreased 2.4% to $3.3 billion, representing about 17% of total sales. On an operational basis, Consumer sales increased 0.7% driven by strong growth in the beauty and over-the-counter segments, including Tylenol which reclaimed the number one branded adult analgesic position in the U.S. At the end of the quarter, JNJ had $14 billion of net debt. The company’s capital allocation strategy is 1) to reinvest cash in the company’s business including spending 14.3% of sales in the first quarter on research and development; 2) mergers and acquisitions and; 3) returning cash to shareholders, including $2.4 billion in dividends in the first quarter and $900 million spent on repurchasing shares. JNJ has $4.1 billion remaining authorized for future share repurchases. Thanks to the strong first quarter, management raised their outlook for sales and earnings growth for the full 2019 year with operational sales expected in the range of $82.0 to $82.8 billion, representing 0.5%-1.5% growth, and adjusted operational EPS in the range of $8.73 to $8.83, representing 6.7% to 7.9% growth.

Friday, April 12, 2019

Walt Disney-DIS unveiled its comprehensive direct-to-consumer strategy, including Hulu, Hotstar, ESPN+ and the upcoming Disney+ service, which will launch in the U.S. market on November 12, 2019, at $6.99 a month. The service will offer fans of all ages a new way to experience content from the company’s iconic entertainment brands, including Disney, Pixar, Marvel, Star Wars and National Geographic and will be available on connected TV and mobile devices. In its first year, Disney will release more than 25 original series and 10 original films, documentaries and specials by some of the industry’s most prolific and creative storytellers. Following its U.S debut, Disney+ will rapidly expand globally, with plans to be in nearly all major regions of the world within the next two years. “Disney+ marks a bold step forward in an exciting new era for our company—one in which consumers will have a direct connection to the incredible array of creative content that is The Walt Disney Company’s hallmark. We are confident that the combination of our unrivaled storytelling, beloved brands, iconic franchises, and cutting-edge technology will make Disney+ a standout in the marketplace, and deliver significant value for consumers and shareholders alike,” said Bob Iger, chairman and chief executive officer.

Thursday, April 11, 2019

Fastenal-FAST reported first quarter net sales increased 10% to $1.3 billion with net earnings increasing 11% to $194 million and EPS up 12% to $0.68. Daily sales increased 12.2% thanks to continued strong demand, price increases and contribution from Fastenal’s growth drivers, most notably industrial vending, Onsite locations and construction. Sales grew at 65% of Fastenal’s branches and at 81 of its top national accounts amid a constructive marketplace tone. Fastener product sales grew 11.8% year-over-year and represented 34.8% of sales while non-fastener product sales grew 12.7% and represented 65.2% of sales. Daily sales to national accounts grew 17% and the company signed 59 new national accounts during the quarter. In addition, Fastenal signed 109 onsite locations, finishing the quarter with 945 active sites, up 39% from last year. The company signed 5,603 vending locations, finishing the quarter with an installed base of 83,410 sites, up nearly 14% from last year. Gross profit declined 100 basis points to 47.7% from last year, squeezed by customer and product mix, higher freight costs and net inflation on product margins. Operating income improved 20 basis points to 20% thanks to operating expense leverage, partially offset by higher spending on industrial vending equipment, employee compensation and information technology. During the quarter, Fastenal generated operating cash flow of $205 million converting 105.6% of net income to operating cash, up from 92% last year. Free cash flow increased 17% year-over-year to $151 million with the company returning $123 million to shareholders through dividend payments, up 16% from last year. Fastenal ended the quarter with $185 million in cash on its sturdy balance sheet.


Wednesday, April 10, 2019

MSC Industrial-MSM reported second quarter revenues rose 7% to $823 million with average daily sales increasing 8.8%. Operating income declined 2.2% during the quarter to $96 million with net income declining 42% to $68.4 million and EPS off 40% to $1.24. The prior year period included tax benefits related to tax reform which impacted the bottom line comparison. While industrial market conditions remained generally solid in the second quarter, the company did see some moderation in demand in February which continued into March in due part to weather, the government shutdown and inventory destocking from customers concerned about tariffs. In the first week of April, demand improved. The pricing environment remained stable with the company able to increase prices 2%-3% during the second quarter. Free cash flow declined 25% during the first half of the year to $75.4 million due to lower earnings and higher capital expenditures. Free cash flow is expected to improve significantly in the third quarter due to positive working capital changes. During the first half of the year, MSC paid $70 million in dividends and repurchased $84 million of its common shares, including 275,000 shares repurchased in the second quarter at an average price of $76.02 per share. For the third quarter, management expects sales between $874 million and $891 million. At the midpoint, average daily sales are expected to increase about 6.5% with third quarter EPS expected in the range of $1.46 to $1.52.

T. Rowe Price Group-TROW reported preliminary month-end assets under management of $1.08 trillionas of March 31, 2019, representing a 12.5% increase since year end. 

Tuesday, April 2, 2019

Walgreens Boots Alliance-WBA reported disappointing second quarter results with revenues up 4.6% to $34.5 billion and net income down 14% to $1.1 billion and EPS off 9% to $1.24. Market challenges and weak macro trends accelerated during the quarter with management not responding as rapidly as needed to keep up with the changing market conditions. During the quarter, the company saw significant reimbursement pressure, compounded by lower generic deflation as well as continued consumer market challenges in the U.S. and U.K. To address the rapidly shifting trends, Walgreens is bringing in new senior management in a number of areas and accelerating the digitalization of the business through partnerships with companies like Microsoft-MSFT and Google-GOOGL. The company plans to invest $300 million an year on these partnerships. The company’s goal is to generate annual cost savings of more than $1.5 billion by fiscal 2022. Free cash flow declined 84% in the first half of the year to $402 million due to higher tax payments, legal settlements, changes in working capital and higher capital expenditures related to Rite-Aid store conversions. While cash flow from operations is expected to be pressured in fiscal 2019, management expects cash flow to normalize in subsequent years to the $5.5 billion to $6.0 billion range. During the first half of fiscal 2019, Walgreens paid $841 million in dividends and repurchased $3.1 billion of its common shares with share repurchases expected to approach $3.8 billion for the full year. Given the challenging first half, Walgreens lowered their adjusted EPS growth outlook from 7%-12% growth to flat growth at constant currency rates, with a $.04 per share adverse currency impact expected. While operational growth should improve in fiscal 2020, adjusted EPS will likely be flat with fiscal 2019 due to a higher tax rate and continued foreign exchange headwinds. Walgreens is positioning the company for mid-to-high single-digit growth in adjusted EPS in fiscal 2021 and the following years.

The TJX Companies-TJX announced that its Board of Directors has raised the amount of its quarterly dividend by 18% from the last dividend paid. Ernie Herrman, Chief Executive Officer and President of The TJX Companies, Inc., stated, “I am pleased to report that our Board of Directors has approved an 18% increase in our quarterly dividend. This marks our 23rd consecutive year of dividend increases. Over this period, the Company’s dividend has grown at a compound annual rate of 22%. In addition, we plan to continue our significant share buyback program, with approximately $1.75 to $2.25 billion of repurchases planned for Fiscal 2020. TJX continues to generate tremendous amounts of cash and deliver strong financial returns. These actions underscore our confidence in our ability to continue delivering profitable sales and strong cash flow, which enables us to simultaneously reinvest in the growth of the business and return value to our shareholders.”

Thursday, March 28, 2019

Accenture-ACN reported strong second quarter results with revenues up 5%, or 9% on a constant currency basis, to $10.5 billion and net income up 30% to $1.1 billion with EPS up 26% to $1.73. Adjusting for the benefit of tax reform last year, EPS increased 9%. Operating margin expanded 20 basis points during the quarter to 13.3%. Growth was broad-based during the quarter with three of the four operating groups generating double-digit constant currency revenue growth led by Resources with 22% growth. All geographies posted revenue growth led by 16% constant currency growth in Growth Markets. Reflecting significant market share gains, the company reported record new bookings of $11.8 billion during the quarter including consulting bookings of $6.7 billion and outsourcing bookings of $5.1 billion with bookings up 9% in each area on a constant currency basis. The book to bill ratio was 1.1. High demand for digital, cloud and security services comprised 65% of new bookings. Free cash flow increased 30% during the first half of the fiscal year to $2.2 billion. During the first half, Accenture paid dividends of $933 million and repurchased $1.8 billion of its common shares including 6.7 million shares in the second quarter for $1 billion at an average price of $149.46 per share. Accenture has $4.5 billion remaining authorized for future share repurchases. Accenture announced a 10% increase in the dividend to an annualized rate of $2.92 per share. For the full fiscal 2019 year, Accenture raised its sales, earnings and cash flow outlook with revenue growth expected in the range of 6.5% to 8.5% on a constant currency basis and EPS now expected in the range of $7.18 o $7.32, with operating margin expected to expand 10 to 30 basis points to a range of 14.5% to 14.7%. Free cash flow is expected in the range of $5.2 billion to $5.6 billion for the full year.

Wednesday, March 27, 2019

 

Paychex–PAYX reported fiscal third quarter sales increased 14% to $1.1 billion with net income declining 12% to $324.6 million and EPS down 11% to $0.90. Excluding the December 2018 acquisition of Oasis Outsourcing Group Holdings, total revenue increased 7%, driven by human resource outsourcing services, time and attendance solutions, health and benefit insurance, retirement services, new products and mobility app enhancements. Client worksite employees served grew by double-digits year-over-year. Excluding the impact of license agreement terminations and one-time tax benefits resulting from U.S. reform, adjusted net earnings and EPS increased 3%. Interest on funds held for clients increased 27% to $23 million for the third quarter, primarily due to higher average interest rates earned, which increased to 2.1% from 1.6% last year. Funds held for clients average investment balances decreased 4% to $4.4 billion, squeezed by the impact of lower client withholdings resulting from U.S. tax reform, partially offset by wage inflation. Year-to-date Paychex generated $935 million in free cash flow, up 11% from last year, with the company returning $637 million to shareholders through $604 million in dividend payments and $33 million in share repurchases. Paychex ended the quarter with $886 million in cash and corporate investments on its solid balance sheet. Paychex’s management sees a steady macroeconomic environment ahead with job growth flattening due work force shortages and overall wage growth in the 2.5% to 2.7% range with low-wage workers seeing increases of 3.5% to 4%. Many employers turning away business due to workforce shortages, have resorted to hiring unschooled people and training them, which helps Paychex’s business. Paychex has also seen a boost to their business as employers rely on the company to help them recruit and retain employees. Looking ahead to the full 2019 fiscal year, Paychex expects revenue excluding Oasis to grow in the 6% to 7% range with net income increasing 4% and adjusted EPS increasing in the 11% to 12% range.

Tuesday, March 26, 2019

FactSet-FDS reported fiscal second quarter revenues rose 5.9% to $354.9 million with net income up 59% to $84.7 million and EPS up 65% to $2.19 benefiting from a lower tax rate. On an adjusted basis, EPS increased 14% as adjusted operating margin expanded 180 basis points to 33.2%. Revenue growth was primarily due to higher sales of analytics, content and technology solutions and wealth management solutions. Organic Annual Subscription Value (ASV) plus professional services increased 6% to $1.44 billion as of quarter end. Client count increased 108 clients during the past quarter to 5,405, driven by an increase in corporate and wealth management clients. User count increased by 6,854 to 122,063 during the quarter driven by an increase in banking and wealth management users. Annual client retention was 91%. Employee count increased 1.8% in the last 12 months to 9,529. Free cash flow declined 12% during the first half to $124 million primarily due to the timing of tax payments and an increases in capital expenditures. During the first half, the company paid $48.4 million in dividends and repurchased $110.7 million of its stock, including 214,945 shares for $44.1 million in the second quarter at an average price of $205 per share. FactSet has $137.2 million remaining authorized for future share repurchases. For the full fiscal 2019 year, FactSet expects revenues in the range of $1.41 billion to $1.45 billion with EPS expected in the range of $8.70 to $8.85. On an adjusted basis, EPS is expected in the range of $9.50-$9.65, representing 12% growth at the midpoint.

Apple-AAPL announced Apple Card, an innovative, new kind of credit card created by Apple. Apple Card is built into the Apple Wallet app on iPhone, offering customers a familiar experience with Apple Pay and the ability to manage their card right on iPhone. Apple Card transforms the entire credit card experience by simplifying the application process, eliminating fees, encouraging customers to pay less interest and providing a new level of privacy and security. Available in the US this summer, Apple Card also offers a clearer and more compelling rewards program than other credit cards with Daily Cash, which gives back a percentage of every purchase as cash on customers’ Apple Cash card each day.

Apple also announced Apple Arcade, a game subscription service that will feature over 100 new and exclusive games which will be available to the App Stores’s more than 1 billion gaming customers. . Apple Arcade games will redefine games and be curated based on originality, quality, creativity, fun and their appeal to players of all ages. Apple Arcade will give customers the freedom to try any game from its handpicked collection of titles that are all-you-can-play, have no ads, ad tracking or additional purchases, and respect user privacy. 

In addition, Apple announced Apple TV+, the new home for the world’s most creative storytellers featuring exclusive original shows, movies and documentaries, coming this fall. Apple TV+, Apple’s original video subscription service, will feature a brand new slate of programming from the world’s most celebrated creative artists, including Oprah Winfrey, Steven Spielberg, Jennifer Aniston, Reese Witherspoon, Octavia Spencer, J.J. Abrams, Jason Momoa, M. Night Shyamalan, Jon M. Chu and more. On the Apple TV app, subscribers will enjoy inspiring and authentic stories with emotional depth and compelling characters from all walks of life, ad-free and on demand.

Apple also announced Apple News+, a new subscription service that brings together over 300 popular magazines, leading newspapers and digital publishers into a beautiful, convenient and curated experience within the Apple News app. Available in the US and Canada, Apple News+ presents the best and most relevant articles to meet any range of interests from renowned publications such as Vogue, National Geographic Magazine, People, ELLE, The Wall Street Journal and Los Angeles Times. 

Monday, March 25, 2019

Biogen-BIIB authorized a program to repurchase up to $5.0 billion of the company’s common stock (the “2019 Share Repurchase Program”). The 2019 Share Repurchase Program does not have an expiration date. All share repurchases under the 2019 Share Repurchase Program will be retired. The 2019 Share Repurchase Program is in addition to the approximately $1.7 billion remaining under a previous authorization.

Friday, March 22, 2019

The Board of Directors of Raytheon Company-RTN has voted to increase the company's annual dividend payout rate by 8.6 percent, from $3.47 to $3.77 per share. "With today's announcement, we have increased our annual dividend for 15 consecutive years," said Thomas A. Kennedy, Raytheon Chairman and CEO. "The dividend increase is a key part of our capital deployment strategy, and reflects our confidence in the company's growth outlook and our continued focus on creating value for shareholders."

Thursday, March 21, 2019

Nike-NKE reported fiscal third quarter revenues rose 7% to $9.6 billion, or up 11% on a currency neutral basis, with net income of $1.1 billion and EPS of $.68 compared to losses in the prior year quarter related to tax reform. Revenue growth was driven by broad-based strength across all geographies as well as Nike Direct, led by digital growth of 36% during the quarter. Sales in China continued to be robust with Nike reporting the 19th consecutive quarter of double-digit growth in China. Strong demand for Nike products led to continued double-digit growth across footwear and apparel. Gross margin increased 130 basis points to 45.1% primarily driven by higher average selling prices, favorable changes in foreign exchange and growth in Nike Direct, partially offset by higher product costs. Inventories were up 1% during the quarter to $5.4 billion with inventories remaining healthy across all geographies. The company ended the quarter with $4 billion in cash and investments. During the third quarter, the company repurchased 9.8 million shares for $754 million at an average price of $76.93 per share. This completed the company’s four-year $12 billion share buyback program with the company commencing a new four-year $15 billion share repurchase program. Nike expects fourth quarter constant currency revenue growth in the high single-digit range with a 6% headwind from foreign exchange leading to reported revenue growth in the low single-digit range with gross profit margin expansion of 75 basis points during the fourth quarter. For fiscal 2020, Nike expects high single-digit revenue growth with foreign exchange headwinds dissipating and gross margin expansion continuing. Nike sees four large growth opportunities for the future in international markets, digital sales, women’s sales and apparel sales.

Biogen-BIIB and and Eisai, Co., Ltd. announced the decision to discontinue the global Phase 3 trials, ENGAGE and EMERGE, designed to evaluate the efficacy and safety of aducanumab in patients with mild cognitive impairment due to Alzheimer’s disease and mild Alzheimer’s disease dementia. The decision to stop the trials is based on results of a futility analysis conducted by an independent data monitoring committee, which indicated the trials were unlikely to meet their primary endpoint upon completion. The recommendation to stop the studies was not based on safety concerns.

3M-MMM issued long-term financial targets of organic local currency sales growth of 3%-5% and earnings per share growth of 8% to 11% with return on invested capital of 20%.

Wednesday, March 20, 2019

The Walt Disney Company-DIS completed its $71 billion acquisition of Twenty-First Century Fox, Inc. for stock and cash. Disney is also acquiring approximately $19.8 billion of cash and assuming approximately $19.2 billion of debt of 21st Century Fox in the acquisition. “This is an extraordinary and historic moment for us—one that will create significant long-term value for our company and our shareholders,” said Robert A. Iger, Chairman and Chief Executive Officer, The Walt Disney Company. “Combining Disney’s and 21st Century Fox’s wealth of creative content and proven talent creates the preeminent global entertainment company, well positioned to lead in an incredibly dynamic and transformative era.” The acquisition is expected to be accretive to Disney earnings per share before the impact of purchase accounting for the second fiscal year after the close of the transaction, and to yield at least $2 billion in cost synergies by 2021 from operating efficiencies realized through the combination of businesses.

 

Starbucks-SBUX reaffirmed its growth goals of annual revenue growth of 7% to 9% and non-GAAP EPS growth of at least 10%. With a focus on disciplined growth in the U.S. and China, Starbucks celebrated the company’s 30,000th store opening. The company has returned $14 billion towards its previously announced commitment to return $25 billion to shareholders in the form of share buybacks and dividends over a three-year period through fiscal 2020. As part of this commitment, the company entered into a $2 billion accelerated share repurchase program (ASR) of the company’s common stock.

The European Commission announced an antitrust fine of $1.7 billion for Alphabet-GOOGL. The fine relates to the company’s search ad brokering business, which involves Google selling advertising space related to searches carried out on third party websites. Responding to the Commission’s decision in a statement, Kent Walker, Google’s SVP of global Affairs, said: “We’ve always agreed that healthy, thriving markets are in everyone’s interest. We’ve already made a wide range of changes to our products to address the Commission’s concerns. Over the next few months, we’ll be making further updates to give more visibility to rivals in Europe.” Alphabet is expected to accrue the fine in the first quarter.

Thursday, March 14, 2019

Oracle-ORCL reported third quarter revenues declined 1% to $9.6 billion, up 3% on a constant currency basis. Cloud services and license support led the growth with 1% growth, or 4% growth on a constant currency basis, to $6.7 billion. The company ended the quarter with a backlog of $31.5 billion with 62% of the backlog expected to be recognized in the next 12 months.  The company has nearly 1,000 paying Autonomous Database customers and added around 4,000 new Autonomous Database trials during the quarter. Net income for the period was $2.7 billion with earnings per share of $.76. This compares with a prior year loss of $4 billion, $.98 per share, primarily due to a one-time $6.9 billion charge related to U.S. tax reform. Free cash flow during the first nine months of the fiscal year decreased 5% to $8.9 billion. Oracle paid $2.1 billion in dividends and repurchased $29.9 billion of its common stock during the first nine months of the year, including 206 million shares in the third quarter for $10 billion. Over the last 12 months, the company has reduced its shares outstanding by 16%. During the fiscal fourth quarter, revenue is expected to increase 1%-3% on a constant currency basis with non-GAAP EPS expected to increase 12%-16% in the range of $1.05-$1.09.

Ulta Beauty-ULTA reported pretty fourth quarter results with revenues up 9.7% to $2.1 billion with net income up 3.1% to $214.7 million and EPS up 6.2% to $3.61. Excluding the 53rd week of fiscal 2017, revenues increased 16.2%. Comparable store sales increased a strong 9.4% during the quarter driven by 7.1% transaction growth and 2.3% growth in average ticket. Retail comparable sales increased 7%, including salon comparable sales growth of 6.2%. E-commerce comparable sales increased 25.1%. The excellent fourth quarter results reflected an acceleration in comparable store sales, driven by the best traffic seen in several quarters. The company continued to gain market share across all major categories. For the full year, revenue rose 14.1% to $6.7 billion with net income up 18.6% to $658.6 million and EPS up 22.1% to $10.94. Return on shareholders’ equity for the year was an alluring 36.2%. Free cash flow increased a robust 88% to $636.7 million with the company repurchasing 2,463,555 shares of its commons stock for $616.2 million at an average cost of about $250 per share. The company announced a new $875 million share repurchase authorization with management planning to repurchase $700 million of its shares in fiscal 2019. The company ended the year with 1,174 stores with a 9.2% increase in square footage. For fiscal 2019, Ulta plans to open approximately 80 new stores, execute 20 remodel or relocation projects and refresh about 270 stores with a capital expenditure budget of about $380 million to $400 million. The company expects to increase total sales in the low double-digit range in fiscal 2019 with comparable sales growth of about 6% to 7%, including e-commerce growth of 20% to 30%. Operating margins are expected to expand 10 to 20 basis points during the year which should lead to EPS in the range of $12.65 to $12.85 for fiscal 2019.

Stryker-SYK announced it has completed the acquisition of OrthoSpace, Ltd., a privately held company founded in 2009 and headquartered in Caesarea, Israel, in an all cash transaction for an upfront payment of $110 million and future milestone payments of up to an additional $110 million. OrthoSpace’s product portfolio provides a highly differentiated technology for the treatment of massive irreparable rotator cuff tears. The InSpace product is a biodegradable sub-acromial spacer, which is designed to realign the natural biomechanics of the shoulder. The technology has a long clinical history with over 20,000 patients treated across 30 countries. In the U.S., InSpace is currently under clinical study and not approved for use. The transaction is expected to have an immaterial impact to net earnings in 2019.

 

Tuesday, March 12, 2019

Biogen-BIIB announced that it has entered into a share purchase agreement with FUJIFILM Corporation under which Fujifilm will acquire the shares of Biogen’s subsidiary, which holds Biogen’s biologics manufacturing operations in Hillerød, Denmark, for up to $890 million in cash. As part of the proposed transaction, Biogen also announced that it will enter into manufacturing services agreements with Fujifilm. Following the completion of the transaction, Fujifilm will use the Hillerød site to produce commercial products for Biogen, such as TYSABRI, as well as other third-party products. The closing of the transaction is expected to occur in the second half of 2019. Biogen expects to record a total after-tax loss in the first quarter of 2019 of approximately $130 million to $150 million, or $0.66 to $0.76 per diluted share, related to the proposed transaction. This loss includes an estimate of $120 million associated with guarantees of future minimum purchase commitments.

Biogen-BIIB announced that it has entered into an agreement to acquire Nightstar Therapeutics, a clinical-stage gene therapy company based in London, which is focused on adeno-associated virus (AAV) treatments for inherited retinal disorders. Under the terms of the proposed acquisition, Biogen will pay $25.50 in cash for each NST share. This offer represents a total transaction value of approximately $800 million. Biogen expects to complete the acquisition by mid-year 2019.

Cognizant Technology Solutions-CTSH announced that it has entered into accelerated share repurchase ("ASR") agreements with HSBC Bank USA, National Association and Societe Generale to repurchase an aggregate of $600 million of Cognizant's Class A common stock. The ASR is part of the company's previously announced capital return plan to utilize approximately 50% of its global free cash flow on an annual basis for share repurchases and dividends.

Fastenal-FAST reported net sales in February increased 10.5% to $411.9 million with average daily sales also up 10.5% to $20.6 million. Daily sales growth by end market increased 11.6% for manufacturing and 11% for non-residential construction. Daily sales growth by product line increased 8.7% for fasteners and 11.9% for other products.

  1. Rowe Price Group-TROW reported preliminary month-end assets under management of $1.07 trillion as of February 28, 2019, an 11% increase since 12/31/18. Monday, March 11, 2019.

Monday, March 11, 2019

F5 Networks-FFIV announced a definitive agreement to acquire all issued and outstanding shares of privately-held NGINX, an open source leader in application delivery, for a total enterprise value of approximately $670 million, subject to certain adjustments. The acquisition of NGINX is expected to increase F5’s software revenue growth and increase the company’s software revenue mix in fiscal year 2019. It secures F5’s Horizon 2 (fiscal year 2021 to fiscal year 2022) objectives of mid-to-high single-digit revenue and double-digit non-GAAP earnings per share growth. Short-term, the company expects that the acquisition and organic investment in new and emerging solutions will result in modest earnings dilution in fiscal years 2019 and 2020.

March 6, 2019

Thor Industries-THO reported fiscal second quarter revenues declined 35% to $1.29 billion with a net loss of $5.4 million or $.10 per share compared to prior year net income of $79.8 million or $1.51 per share. Earnings reflected $42.1 million, $.75 per share, of acquisition related costs. In addition, higher promotion costs and reduced fixed overhead absorption negatively impacted earnings during the quarter. Sales for the second quarter decreased 35.8% for the Towable segment and 33.7% for the Motorized segment. Thor generated $79.8 million of free cash flow during the first half of the year and paid $41.2 million in dividends. On February 1, 2019, Thor completed its acquisition of Erwin Hymer Group, Europe’s premier RV manufacturer. The acquisition is expected to be accretive to earnings in its first twelve months.

Brown-Forman-BFB reported third fiscal quarter sales increased 3% to $904 million with net income increasing 19% to $227 million and EPS increasing 21% to $0.47. Year-to-date, underlying net sales grew 5% on broad-based portfolio growth including a 4% increase for the Jack Daniel’s family of brands, a 24% increase for Woodford Reserve, a 14% increase in Herradura and a 15% increase in el Jimador. Emerging markets grew underlying net sales by 10%, developed international markets grew underlying net sales by 4% and the United States grew underlying net sales by 4%. During the first nine months of the year, Brown-Forman generated $493 million in free cash flow and returned $437 million to shareholders through dividends of $231 million and share repurchases of $206 million. Recently enacted retaliatory tariffs on American whiskey have created uncertainty around the company’s near-term outlook, making it difficult to accurately predict future results. However, management reaffirmed its full fiscal 2019 year EPS guidance of $1.65 to $1.75, representing 11% to 18% growth from last year and underlying sales growth of 6% to 7%.

March 5, 2019

Ross Stores-ROST reported fourth quarter revenues increased 1% to $4.1 billion with net income down 2% to $442 million and EPS up 1% to $1.20. Sales and earnings for the prior year period included 14 weeks compared to 13 weeks in the current quarter. Comparable store sales rose 4% during the quarter. For the full fiscal 2018 year, revenues increased 6% to $15 billion with net income up 17% to $1.6 billion and EPS up 20% to $4.26. Return on shareholders’ equity was a dressy 48% during the year. Free cash flow increased 26% to $1.6 billion during the year with the company paying $337 million in dividends and repurchasing $1.1 billion of shares. The Board of Directors authorized a new program to repurchase $2.55 billion of its common stock over the next two years which equates to 8% of the total market value. For fiscal 2019, management expects total sales growth of 5%-6% with 1%-2% comparable store sales growth. Earnings per share are expected in the range of $4.30 to $4.50 reflecting 3% growth at the midpoint. The company plans to add 75 Ross Dress for Less and 25 dds Discounts stores in fiscal 2019.

Wednesday, Feb. 27, 2019

Booking Holdings-BKNG reported fourth quarter revenue rose 14.6% to $3.2 billion with net income of $646 million and EPS of $13.86 versus losses last year related to tax reform charges. During the quarter, room nights increased 13% while rental card days dipped .6% lower and airline tickets declined 1.3%. For the full year, revenues rose 14.6% to $14.5 billion with international operations contributing $13 billion to the revenues, an increase of 17% over the prior year.  During 2018, net income soared 70.8% to $4 billion with EPS up 78% to $83.26. The prior year period was impacted by tax reform charges. Operating income for 2018 increased 17.7% to $5.3 billion. In 2018, the company achieved a new milestone exceeding three-quarters of a billion total booked room nights. Alternative accommodations (non-hotels) generated $2.8 billion in revenues during the year and accounted for 20% of revenues with the business nicely profitable. As of 12-31-18, the company had 5.7 million alternative accommodation listings. Return on shareholders’ equity improved in 2018 to a superb 45.5%. Free cash flow increased 12% during the year to $4.9 billion with the company repurchasing $6 billion of its common stock during the year. Fiscal 2019 is getting off to a slow start due to macroeconomic factors in Europe, which is Booking’s largest market. Travel in Europe has slowed due to uncertainty over Brexit, yellow vests in France, an economic slowdown in Germany and Italy in a flux. As a result, Booking expects total gross travel bookings to increase 5% to 7%. If foreign exchange headwinds and the Easter shift this year versus last year are excluded, gross bookings will likely increase 7% to 9%. Revenues in the first quarter are expected to be flat to down 2% with EPS expected in the range of $9.90 to $10.20. The company expects non-GAAP EPS for the full 2019 year, on a constant currency basis, to grow in the low double-digit range.

The TJX Companies-TJX reported fourth quarter sales rose 1.5% to a record $11.1 billion with net income down 4% to $841.5 million and EPS down 1% to $.68. Fourth quarter comparable store sales increased a strong 6% with customer traffic driving the comp sales increases at every division in the fourth quarter thanks to a terrific holiday season. The company’s excellent values on great brands and great gift giving assortments resulted in strong results in both the apparel and home businesses. For the full fiscal year, revenues rose 8.7% to $39 billion with net income and EPS each up 17.3% to $3.1 billion and $2.43, respectively. Full year comparable sales increased 6%, which marked the company’s 23rd consecutive year of comp sales growth. Return on shareholders’ equity was a dressy 44%. Free cash flow increased 51% during the year to $3.0 billion. Thanks to continue strong cash flow, the company paid dividends of $923 million during the year and repurchased $2.4 billion of its common stock. TJX announced an 18% increase in its dividend for fiscal 2020, marking the 23rd consecutive year of dividend increases. Over this time, the company’s dividend has grown at an impressive compound annual rate of 22%. The company also announced its plan to repurchase $1.75 to $2.25 billion of its common stock during fiscal 2020. Since 1997, the company has repurchased approximately $22.1 billion of its stock. For fiscal 2020, management expects revenues to rise 5% to 6% to a range of $41 billion to $41.2 billion on comparable store sales growth of 2% to 3% with EPS expected in the range of $2.55 to $2.60.

Sunday, Feb. 24, 2019

Berkshire Hathaway-BRKB reported the company’s net worth during 2018 rose 0.4% with book value equal to $212,503 per Class A share as of 12/31/18. Since 1965, Berkshire’s book value has compounded at an impressive 18.7% annual rate with Berkshire’s stock price compounding at an outstanding 20.5% annual rate compared to the S&P 500 index with dividends reinvested, compounding at 9.7% over the same time period.

Surprisingly, Warren Buffett announced that he will be “retiring” book value changes as a metric of Berkshire’s performance in future annual reports. He cited three reasons that the change in book value metric had lost the relevance it once had. First, Berkshire has gradually morphed from a company whose assets are concentrated in marketable stocks into one whose major value lies in its operating businesses. Second, while equity holdings are valued at market prices, operating companies are included in book value at an amount far below their current value. Third, it is likely that over time, Berkshire will be a significant repurchaser of its shares, which will result in intrinsic value per share going up, but book value per share going down.

During the fourth quarter, Berkshire reported a loss of $25.4 billion compared to a gain of $32.6 billion in the prior year period, which benefited from a $29.1 billion positive impact from the enactment of the 2017 Tax Act. New accounting rules in 2018 require Berkshire to book the net changes in unrealized appreciation/depreciation in net income instead of comprehensive income which resulted in a $28.1 billion paper loss in net earnings in the fourth quarter from investments and derivatives. In addition, Berkshire recorded a $3 billion impairment of intangible assets charge in the fourth quarter related to Berkshire’s equity interest in Kraft Heinz. Operating earnings in the fourth quarter increased 71% to $5.7 billion.

For the full year 2018, Berkshire’s operating revenues rose 3% to $247.6 billion and the company earned $4.0 billion, which included a 71% increase in operating earnings to $24.8 billion, the $3 billion non-cash Kraft Heinz impairment charge, $2.8 billion in realized gains from the sale of investment securities and a $20.6 billion paper loss from a reduction in the amount of unrealized capital gains that existed on investment holdings during the year.

Due to the new accounting rules, wild swings in reported earnings will continue as Berkshire’s huge equity portfolio is valued at nearly $173 billion as of 12-31-18. This portfolio will often experience one-day price fluctuations of $2 billion or more. During the volatile fourth quarter, there were several days the portfolio gained or lost more than $4 billion. Warren Buffett’s advice to shareholders is to focus on operating earnings and pay little attention to the paper gains and losses, as Berkshire’s investments are expected to deliver substantial gains over time.  

Berkshire’s five major investment holdings represent 68% of total equities, including American Express at $14.5 billion (down $600 million year over year), Apple at $40.3 billion (up $12.1 billion due to additional purchases during the year), Bank of America at $22.6 billion (up $1.9 billion for the year), Coca-Cola at $18.9 billion (up $500 million for the year) and Wells Fargo at $20.7 billion (down $8.6 billion for the year).

During 2018, Berkshire’s insurance underwriting operations generated $1.6 billion in earnings compared to a $2.2 billion loss in the prior year period. The prior year period included $3 billion in pre-tax losses from three major hurricanes in the U.S. and an earthquake in Mexico. The insurance operations reflected significantly improved results from GEICO and Berkshire Hathaway Reinsurance and reductions of liabilities for prior years’ property/casualty loss events.  Insurance investment income was 17% higher at $4.6 billion during the year, reflecting higher interest rates on short-term investments, higher dividend income due to increases in the portfolio of equity securities and a lower tax rate. The float of the insurance operations approximated $123 billion as of 12/31/18, an increase of $8 billion since year end 2017.  The increase in float reflected the acquisition of MLMIC and overall growth of the insurance operations.  The average cost of float was negative during 2018 as the underwriting operations generated pre-tax earnings of $2.0 billion. Berkshire has operated at an underwriting profit for 15 of the past 16 years with a total pre-tax gain of $27 billion.

Burlington Northern Santa Fe’s (BNSF) revenues rose 12% during 2018 to $23.9 billion with net earnings chugging 32% higher to $5.2 billion, reflecting the favorable change in the tax rate. Pre-tax earnings rose a solid 9% to $6.9 billion.  During the year, BNSF generated a 6.2% comparative increase in average revenue per car/unit and a 4.1% increase in volume thanks to general economic growth across all business sectors, led by 16% revenue growth in the industrial and energy sectors, and tight truck capacity leading to conversion from highway to rail.

Berkshire Hathaway Energy reported revenues increased 6% to $20 billion during 2018 with all groups, except PacifiCorp, contributing to the growth.  Net earnings increased 29% during the year to $2.6 billion primarily due to tax credits. On a pre-tax basis, earnings declined 1% to $2.5 billion due to lower utility margins reflecting increased depreciation, maintenance and other operating expenses.  

Berkshire’s Manufacturing businesses reported a 7% increase in revenue growth in 2018 to $61.9 billion with operating earnings up 13% to $9.4 billion. Revenue growth was broad-based, led by Building Products with 10% growth to $18.7 billion, Industrial Products with 7% growth to $30.7 billion and Consumer Products with 3% growth to $12.5 billion. Industrial Products pre-tax earnings increased 15% to $5.8 billion during 2018. Iscar’s revenues increased 16% during the year with pre-tax earnings also increasing significantly due to increased unit sales, increased manufacturing efficiencies and business acquisitions.  Pre-tax earnings in the Building Products and Consumer Products each rose 9% during the year to $2.3 billion and $1.2 billion, respectively. The earnings increase in Building Products was due to higher earnings from Clayton Homes and Shaw, partially offset by lower earnings from Johns Manville. The increase in Consumer Products reflected increases from Duracell and the apparel and footwear businesses, partly offset by lower earnings from Forest River and Larson Juhl.

Service and Retailing revenues rose 3% during the year to $78.9 billion with pre-tax earnings up 13% to $2.9 billion. Service revenues rose 10% to $13.3 billion in 2018 with operating earnings up 21% to $1.8 billion. TTI’s revenues increased 34% due to an industry-wide increase in demand for electronic components in many geographic markets around the world, acquisitions and favorable foreign currency changes. While TTI’s revenue increases were significant, demand is beginning to moderate due to the impact of tariffs. TTI accounted for 84% of the increase in earnings in this unit with XTRA, Charter Brokerage and NetJets also contributing to the earnings growth.   Retailing revenues rose 4% during the year to $15.6 billion with operating earnings up 10% to $860 million, reflecting higher earnings from Berkshire Hathaway Automotive (BHA) and Louis Motorrad.   McLane’s revenues were relatively flat during the year at $50 billion. McLane operating earnings declined 18% to $246 million due to significant pricing pressures in an increasingly competitive grocery business environment.  McLane’s unfavorable operating conditions are expected to continue in 2019.

Berkshire’s balance sheet continues to reflect significant liquidity and a strong capital base of $349 billion as of 12/31/18, unmatched in corporate America. Excluding railroad, energy and finance investments, Berkshire ended the quarter with $319.2 billion in investments allocated approximately 54.1% to equities ($172.8 billion), 6.2% to fixed-income investments ($19.9 billion), 5.5% to equity method investments ($17.3 billion), and 34.2% in cash and equivalents ($109.2 billion).  

Berkshire’s financial strength allows Buffett to make significant investments and acquisitions. Apple was the largest stock investment in 2018. Berkshire closed the previously announced $2.5 billion acquisition of Medical Liability Mutual Insurance Company on Oct. 1, 2018. Bolt-on acquisitions approximated $1 billion in 2018.

Free cash flow declined 33% during 2018 to $22.9 billion due to the lower 2018 earnings and the lapping of the big boost to float from the AIG deal in the prior year period.  During 2018, capital expenditures increased 24% to $14.5 billion. In 2019, Berkshire expects capital expenditures to approximate $10.5 billion for BNSF and Berkshire Hathaway Energy.  During 2018, Berkshire sold and redeemed a net $10.9 billion in Treasury Bills and fixed-income investments and purchased a net $24.4 billion of equity securities, reflecting $43 billion in purchases, including Apple, Bank of America and other financial stocks, and $19 billion in sales, including all of IBM shares. Buffett believes the stocks purchased “offered excellent value, far exceeding that available in takeover transactions.” With prices “sky-high” for elephant-sized acquisitions that possess decent long-term prospects, Berkshire will likely continue to expand in 2019 their holdings of marketable equities. Berkshire normally acquires a 5% to 10% interest in marketable securities, which makes JP Morgan a likely candidate for further purchase if valuations remain reasonable.

Berkshire revised its buyback policy which now permits Berkshire to repurchase shares at prices below Berkshire’s intrinsic value, as conservatively determined by Warren Buffett and Charlie Munger.  During 2018, Berkshire repurchased $1.3 billion of its common stock.

Berkshire Hathaway’s stock appears attractively valued, currently trading at $302,000 per A share and $201.91 per B share. Based on current business fundamentals, we expect Berkshire’s A shares to trade between $273,000-$349,000 per share and the B shares to trade between $182-$232 per share.  Buy.