HI-Quality Company Updates

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.