HI-Quality Company Updates

Tuesday, Sept. 22, 2020

NIKE-NKE reported fiscal 2021 first quarter sales dipped 1% to $10.6 billion with net income increasing 11% to $1.5 billion and EPS up 10% to $0.95. During the quarter, lower revenue in the wholesale business and NIKE-owned stores offset a 12% increase in direct sales on strong NIKE Brand digital growth of 82%. By geography, North America sales declined by 2% to $4.2 billion, Europe Middle East & Africa sales increased 5% to $2.9 billion, Greater China sales increased 6% to $1.8 billion with Asia Pacific & Latin America declining 18% as slower sales in Latin America more than offset gains in Japan and South Korea. Operating margins improved more than 200 basis points on a 33% decline in demand creation expense to $677 million due to lower marketing spend as live sporting events were predominately postponed or cancelled. Nike ended the quarter with $6.7 billion in inventories, up 15% from last year and down 9% from the previous quarter as management continues to strategically manage excess inventory resulting from significant door closures and lower wholesale shipments. The company ended the quarter with $9.5 billion in cash and investments, up $5.8 billion from last year, boosted by proceeds from a corporate bond sale in March and positive free cash flow, partially offset by share repurchases and dividends. During the quarter, Nike paid dividends of $384 million, up 11% from last year, with the company increasing its dividend for18th consecutive years.  Prior to the suspension of its share repurchase program during the fourth quarter of fiscal 2020, Nike had repurchased $4 billion shares, leaving about $11 billion remaining under the 2018 program. Nike ended the quarter with $9.4 billion in long-term debt and $9.2 billion in shareholders’ equity. The company expects improving trends to continue.


Microsoft-MSFT announced plans to acquire ZeniMax Media, the parent company of Bethesda Softworks, one of the largest, privately held game developers and publishers in the world for $7.5 billion in cash. More than three billion people on the planet play games for fun, escape, and human connection. The cultural phenomenon of gaming has made it the largest and fastest-growing form of entertainment in the world—an industry that is expected to be more than $200 billion in annual revenue in 2021. Games are the primary growth engine in gaming, and games are fueling new cloud-gaming services like Xbox Game Pass, which has reached a new milestone of over 15 million subscribers. Microsoft expects the acquisition to close in the second half of fiscal year 2021 and to have minimal impact to non-GAAP operating income in fiscal years 2021 and 2022.

Thursday, Sept. 17, 2020

Accenture-ACN announced the formation of Accenture Cloud First with a $3 billion investment over three years to help clients across all industries rapidly become "cloud first" businesses and accelerate their digital transformation to realize greater value at speed and scale. Karthik Narain will lead Accenture Cloud First and join the Global Management Committee, effective October 1.

 

To further aid employers with creating a safe and protected work environment, Walgreens-WBA has launched Walgreens Test & Protect™, a new program to aid businesses in their COVID-19 work plans and strategies. The program is part of Walgreens’ latest expansion of COVID-19 testing, which also includes increased capacity across its testing sites to allow for more than 500,000 COVID-19 tests per month.

Wednesday, Sept. 16, 2020

Berkshire Hathaway-BRKB invested $250 million in Snowflake, a cloud-based data management company, at the initial public offering (IPO) price of $120 per share. Additionally, Berkshire said it would also buy 4 million shares which belong to Snowflake’s former CEO Bob Muglia, bringing Berkshire’s total investment to $735 million. This investment was likely made by Todd Combs, one of Berkshire’s investment managers. Snowflake’s stock surged more than 100% in the largest software IPO in history. With 277.3 million shares outstanding, the deal values Snowflake at $33.3 billion at the offering price. At $245 a share, the stock had a valuation of nearly $68 billion. This valuation makes it about one-third the size of Oracle -ORCL, which this year is likely to report sales about 70 times those of unprofitable Snowflake. This hot IPO is another sign of a “flaky” market.

Starbucks-SBUX said its sales recovery in the U.S. is at least another six months away as consumers continue to work from home and many of its stores in central business districts remain closed due to the pandemic. Comparable sales at Starbucks’s company-owned stores in U.S. urban centers are still down from last year. On the other hand, the chain’s U.S. suburban stores with drive-throughs were now up from last year, and the company is increasingly focused on building more of those sites. The company said it is seeking more parking spots as it builds up a pickup service at hundreds of its suburban stores. Many of the 400 stores it intends to close or move in the next 12 to 18 months are in city centers. Same-store sales at its company-owned U.S. locations were 11% lower in August compared with a year earlier, though it was an improvement from July. In the company’s key China market, Starbucks’s sales have experienced a choppy recovery with continuing disruptions to commuting and international travel to the country. Same-store sales in China for company-owned Starbucks stores were flat in August year-over-year, following a 10% decline for July and an 8% drop in June. About 1% of Starbucks’s 4,500 stores in China remain closed, while those open have restored most of their seating. The chain still expects to add more than 500 new stores in China and recover sales there by the end of its current fiscal year.

Microsoft-MSFT announced that its board of directors declared a quarterly dividend of $0.56 per share, reflecting a five cent or 10% increase over the previous quarter's dividend.

Tuesday, Sept. 15, 2020

Apple-AAPL introduced several new products including the Apple Watch 6 (premium version starting at $399) and Apple Watch SE (less expensive version starting at $279). These devices will have additional health features and sleep monitoring and also allow you to monitor your blood oxygen. Apple also introduced Fitness+, a new service that includes fitness metrics on the Apple Watch and workout videos, with a subscription costing $9.99 a month for the entire family. Apple also introduced Apple One, which will combine iCloud storage, Apple Music, Apple TV+, Apple Arcade, Apple News +, and Apple Fitness + all for $29.99/month. Consumers also can have selected services for $14.99/month. Apple also launched the 8th generation Apple iPad for$329 with better performance and a 10.2” display and the next generation iPad Air, featuring a 10.9” display with fingerprint identification built into the screen, a USB port, and 40% faster performance starting at $599. Apple will also release iOS 14, iPad OS 14, and Apple TV and Apple Watch OS7 software updates. The Watch OS7 will include hand washing detection technology.

3M-MMM reported total sales for August increased 2 percent year-on-year to $2.7 billion. Total sales increased 23 percent in Health Care, 6 percent in Safety and Industrial, and 3 percent in Consumer, while Transportation and Electronics declined 11 percent. On a geographic basis, total sales increased 7 percent in EMEA (Europe, Middle East and Africa), and 4 percent in the Americas, while Asia Pacific declined 2 percent. While significant global economic uncertainty remains due to the COVID-19 pandemic, the company estimates, with one month left in the quarter, its sales to be in the range of $8.2 to $8.3 billion for the third-quarter. Given the current economic uncertainty, 3M will continue its monthly reporting of sales information through the end of the year to provide transparency on its ongoing business performance.

Monday, Sept. 14, 2020

Oracle-ORCL confirmed Secretary Mnuchin's statement that it is part of the proposal submitted by ByteDance, owner of TikTok, to the Treasury Department over the weekend in which Oracle will serve as the trusted technology provider.  Oracle has a 40-year track record providing secure, highly performant technology solutions.

Friday Sept. 11, 2020

Biogen-BIIB announced new data underscoring the efficacy and safety of its broad, industry-leading portfolio of multiple sclerosis (MS) therapies. “We at Biogen are proud of our commitment to addressing both the urgent and long-term challenges facing people living with MS,” said Maha Radhakrishnan, M.D., Chief Medical Officer at Biogen. “The data we are presenting at ACTRIMS-ECTRIMS highlight the improved outcomes that our broad MS portfolio has continued to provide for people with relapsing forms of MS, regardless of where they are in their treatment journey, as well as our ongoing investment in research and development to identify potentially effective drug candidates.”



T. Rowe Price Group-TROW reported preliminary month-end assets under management of $1.34 trillion as of August 31, 2020. This represented an 11% increase from year end.

 

Thursday Sept. 10, 2020

Oracle Corporation-ORCL reported fiscal 2021 first quarter sales increased 2% to $9.4 billion with net earnings increasing 5% to $2.3 billion and EPS increasing 14% to $0.72. Cloud services and license support revenues, which accounted for 74% of total revenues, increased 2% to $6.9 billion. Cloud applications businesses continued growing rapidly with Fusion ERP up 33% and NetSuite ERP up 23%. Oracle now boasts 7,300 Fusion ERP customers and 23,000 NetSuite ERP customers in the Oracle Cloud. Oracle’s cloud infrastructure businesses also continued growing rapidly with revenue from Zoom more than doubling during the quarter.  Cloud license and on-premise license revenues, which represented 9% of total sales, increased 9% to $886 million. Hardware sales, also 9% of total sales, dipped slightly from last year to $814 million and Services sales, 8% of the total, fell 8% to $720 million. Operating margins increased 300 basis points to 34% on lower expenses. Oracle generated $5.5 billion in free cash flow during the quarter, down 2% from last year on a 13% jump in capital expenditures as the company continues to build out its global cloud infrastructure. The company returned $5.7 billion to shareholders during the quarter through dividends of $730 million and share repurchases of $5 billion. During the past 12 months, Oracle repurchased $19.2 billion shares and during the past decade, the company has reduced its shares outstanding by 40%. The company ended the quarter with more than $42 billion in cash and marketable securities, $68 billion in long-term debt and $10 billion in shareholders’ equity. Looking ahead to the fiscal second quarter, revenues are expected to be flat to up 2% with EPS up 10% to 14% to between $0.98 and $1.02.


Tuesday, Sept. 8, 2020

Mastercard-MA continues to see improvement in card growth rates, in part due to further relaxation of social distancing measures in several markets, partially offset by the expiration of elevated unemployment benefits in the United States. They are seeing continued improvement in travel and entertainment related categories such as lodging, restaurants, auto rental and gas.
Volume growth rates, excluding travel and entertainment, are now like what was seen before the pandemic in Q4 2019, thereby highlighting the impact of the pandemic on the travel and entertainment sector. From a geographic perspective, all regions outside the United States have improved from July to August. There are now countries showing positive year-over-year growth rates in each region, including Brazil, United Arab Emirates and South Africa.

Friday, Sept. 4, 2020

Fastenal-FAST reported net sales declined 2.2% to $465.2 million during August with average daily sales up 2.5% to $22.2 million. Daily sales growth declined 5% in manufacturing and 13.5% in non-residential construction. Daily sales growth by product line increased 35% in safety products and declined 7% and 2% in fasteners and other products, respectively.

Wednesday, Sept. 2, 2020

eBay, the global commerce leader that connects millions of buyers and sellers, and UPS-UPS are announcing a new collaboration to expand shipping options on eBay's global marketplace. eBay supports its sellers by bringing them the best tools and services for their business needs, and beginning later this week, the company will offer sellers even more choice when it comes to how they ship with the option to use UPS as an integrated service. The full launch of this new shipping option will be available to all sellers by the end of September.

Brown-Forman-BFB reported first quarter sales declined 2% (+3% on an underlying basis) to $753 million with net income up 74% (+15% on an underlying basis) to $342 million and EPS up 73% to $.67. The sharp increase in EPS was helped by an estimated $.19 per share gain from the sale of the Canadian Mist, Early Times and Collingwood brands and an $.08 per share tax benefit.  The United States and developed international markets grew underlying sales 9% and 12%, respectively, while underlying sales in emerging markets declined 3%. Travel Retail saw substantial volume declines reflecting travel bans. Management does not expect Travel Retail sales to rebound this year. Jack Daniel’s family of brands grew underlying net sales 3% thanks to expanding consumer demand as folks are enjoying spirits at home during the pandemic. Premium bourbons grew underlying sales 18% driven by Woodford Reserve’s 14% growth and sustained high double-digit growth from Old Forester. The tequila portfolio grew underlying sales 16% with consumers making more margaritas at home. While gross margin declined due to higher input costs and unfavorable mix related to the closures in the on-premise channel, the company’s lower advertising and lower discretionary spending helped underlying operating income increase 15%. Free cash flow increased 49% during the first quarter to $76 million. With a strong financial position and solid cash flows, Brown-Forman is navigating well the headwinds of the pandemic and expects to emerge from the crisis in a stronger position. Brown-Forman expects to continue to pay dividends as they have over the last 75 years.

Private sector employment increased by 428,000 jobs from July to August according to the August ADP National Employment Report®. "The August job postings demonstrate a slow recovery," said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. "Job gains are minimal, and businesses across all sizes and sectors have yet to come close to their pre-COVID-19 employment levels."

Monday, Aug. 31, 2020

Berkshire Hathaway-BRKB has acquired slightly more than 5% of the outstanding shares in five of the leading Japanese trading companies. The companies, listed alphabetically, are Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo. These holdings were acquired over a period of approximately twelve months through regular purchases on the Tokyo Stock Exchange. Berkshire Hathaway has a long history of substantial, passive holdings in successful businesses. For instance, Berkshire Hathaway has held major stakes in Coca-Cola for 32 years, American Express for 29 years and Moody’s for 20 years. Berkshire Hathaway’s intention is to hold its Japanese investments for the long term. Depending on price, Berkshire Hathaway may increase its holdings up to a maximum of 9.9% in any of the five investments. However, Warren E. Buffett, CEO of Berkshire Hathaway, has pledged that the company will make purchases only up to an ownership of 9.9% in any of the five investments. The company will make no purchases beyond that point unless given specific approval by the investee’s board of directors. Mr. Buffett expressed his pleasure with the investments: “I am delighted to have Berkshire Hathaway participate in the future of Japan and the five companies we have chosen for investment. The five major trading companies have many joint ventures throughout the world and are likely to have more of these partnerships. I hope that in the future there may be opportunities of mutual benefit.” Berkshire Hathaway has 625.5 billion of yen-denominated bonds outstanding, maturing at various dates beginning in 2023 and ending in 2060. Consequently, the company has only minor exposure to yen/dollar movements.

Thursday, Aug. 27, 2020

Ulta Beauty-ULTA reported second quarter revenues declined 26% to $1.2 billion with net income and EPS each down 95% to $8.1 million and $.14, respectively. These results reflect temporary store closures due to the impact of COVID-19 during the quarter. In May, the company started phased store re-openings with 90% of stores re-opened by the end of June with all stores re-opened by mid-July.  Comparable store sales decreased 27% during the quarter as transactions declined 36.2% while the average ticket increased 14.9%. Trends improved significantly throughout the quarter with comp sales down in the mid-single digit range for the first three weeks of August. Sales from e-commerce operations more than tripled during the quarter.  While the company reported negative free cash flow during the first half due to lower earnings, Ulta Beauty ended the first half with$1.2 billion in cash. As a precautionary measure during the economic uncertainty due to COVID-19 and to enhance financial flexibility, the company drew down $800 million under its $1 billion credit facility in the first quarter. New store activity was temporarily paused during the quarter due to COVID-19. Ulta Beauty ended the second quarter with 1,264 stores with plans to permanently close 19 underperforming stores in the third quarter. For the full fiscal 2020 year, the company plans to open 30 news stores and incur capital expenditures between $180 million and $200 million. The company also plans to open at least 30 news stores in fiscal 2021 with the goal of operating 1,500 to 1,700 stores in the U.S. over the long term. While management is encouraged by the recent improvement in sales trends, they believe it will take time to fully return to pre-COVID levels with sales expected to continue to be challenged for the rest of the year with comp sales expected to decline in the mid-teens range in the second half. Ulta Beauty is optimizing its cost structure to respond to the lower sales. Over the longer term, management is confident the company will continue to innovate, improve efficiency and grow as the largest and most admired beauty retailer in the U.S.

Tuesday, Aug. 25, 2020

Hormel Foods-HRL reported record fiscal third quarter net sales of $2.4 billion, up 4%, with net earnings of $203 million up 2% from last year. Hormel reported EPS of $0.37, flat to last year. By segment, Refrigerated Foods net sales increased 5%, with segment profit down 11%. Grocery Products net sales increased 7% with the segment profit increasing by 36%. Jennie-O Turkey net sales decreased 4% with segment operating profit decreasing 67%. The sharp decline in segment profit was primarily due to higher manufacturing and live production costs attributed to the ongoing impact of three plant pauses on the vertically integrated supply chain. International net sales increased 2% with segment profit up 26% due to worldwide demand for Skippy and SPAM products. During the quarter, Hormel generated $330 million in cash flow from operations, up 59%, with lower levels of inventory and accounts receivable driving the increase. Year-to-date, free cash flow increased 56% to $419 million.The company paid its 368th consecutive quarterly dividend on Aug 17, 2020, at the annual rate of $0.93 per share, an 11% increase over the prior year. Hormel ended the quarter with $1.7 billion in cash and investments, $1 billion in long-term debt and $6.7 billion in shareholders’ equity on its beefy balance sheet. Even though the COVID-19 pandemic has caused a dramatic shift in consumer behavior, operational disruptions and extreme volatility in raw material markets, management remains confident it is well-positioned to successfully weather the pandemic outbreak. The CEO said, “in most businesses we are producing more product than we ever have, which is quite an accomplishment.”

 General Dynamics European Land Systems-GD awarded $870 million of a $2.1 billion contract for 348 Spanish 8x8 combat vehicles.


Thursday, Aug. 20, 2020

Ross Stores-ROST reported second quarter sales slumped 33% to $2.7 billion with net earnings and EPS falling 95% to $22 million and $0.06, respectively. Both sales and earnings reflect the COVID-19 related closures of all Ross Dress for Less® and dd’s DISCOUNTS ® locations that began on March 20th and continued through a portion of the second quarter. The company began a phased process of reopening its stores on May 14th, with most of its retail locations open and operating by the end of June. COVID flareups in Florida, California, Texas and Arizona, where 50% of Ross stores are located, continue to have a negative impact on Ross. Comparable store sales were down 12% for reopened stores from the date of reopening to the end of the fiscal quarter. Comparable stores sales during the quarter were impacted by a number of factors. During the initial re-openings, sales were ahead of management’s conservative plans as Ross Stores benefitted from pent-up demand and aggressive markdowns to clear aged inventory. In the weeks thereafter, trends were negatively impacted from depleted store inventory levels while management ramped up buying and distribution capabilities.  Second quarter 2020 results include a $174 million or $0.19 per share benefit related to the partial reversal of the inventory valuation reserve from the first quarter and $65 million in COVID-related costs. During the first half of the year, Ross generated negative free cash flow of $78 million. As previously announced, the company has suspended its dividend and share repurchases. Before shareholder distributions will resume, management requires greater visibility on future sales and the sustainability of those sales. Ross Stores ended the quarter with $4.3 billion in liquidity including $3.8 billion in cash and $500 million in an untapped line of credit, $2.3 billion in long-term debt and $2.9 billion in shareholders’ equity. While management suspended guidance due to all the uncertainty, it expects third quarter comp store sales to decline in the mid-single digits.


Wednesday, Aug. 19, 2020

The TJX Companies-TJX reported second quarter sales slumped 32% to $6.7 billion with the company reporting a loss of $214 million or ($.18) per share. These results were negatively impacted by the temporary closure of its stores for nearly one third of the quarter due to the impact of the COVID-19 global pandemic. By the end of the quarter, the company had reopened more than 4,500 stores worldwide. Customer response to the reopening of stores was well beyond management’s expectations. Both the top and bottom line well exceeded internal plans. The merchandise margin was excellent thanks to few markdowns. Especially strong sales were seen in the HomeGoods and Homesense stores with HomeGoods comparable sales up a stellar 20%. Apparel sales were stronger in the casual and comfortable apparel women wear around the home compared to dressy and career wear which was weak as people continue to work remotely. Pent up demand led to very strong initial sales across all retail stores and countries upon reopening. Traffic and sales moderated later in the second quarter and into the third quarter. The company expects third quarter comparable store sales to decline 10% to 20%, This was due to slower back-to-school sales, COVID-19 factors and lighter inventories in stores. The company ended the quarter in a strong liquidity position with $6.6 billion of cash. During the second quarter, the company generated $3.4 billion of operating cash flow and paid off the $1 billion it drew down from its revolving credit facilities. The company has $1.5 billion of borrowing capacity. The company is in a strong financial position but will continue to be prudent due to the current uncertain environment. As a result, the company does not plan to resume share repurchases this year or pay a dividend in the third quarter, although management remains committed to paying a dividend over the long term. Capital expenditures for the full year are expected in the range of $600 million to $800 million as the company invests for the future. Management is confident TJX will gain significant market share as the economy normalizes and that the company will emerge from the crisis stronger than ever.

Johnson & Johnson-JNJ announced it has entered into a definitive agreement to acquire Momenta Pharmaceuticals, Inc., a company that discovers and develops novel therapies for immune-mediated diseases, in an all cash transaction for approximately $6.5 billion. The transaction is expected to close in the second half of 2020. While the closing of the transaction is expected to be modestly dilutive, JNJ is maintaining its current 2020 Adjusted EPS  guidance range. Looking ahead, the costs associated with the development of Momenta's portfolio are expected to result in an incremental investment in R&D and have an EPS impact worth approximately $0.10-$0.15 in 2021.

Thursday, Aug. 13, 2020

3M-MMM reports July sales rose 6% to $2.8 billion with organic sales up 3%. Total sales increased 29% in Health Care, 9% in Consumer, and 6% in Safety and Industrial, while Transportation and Electronics declined 7%. On a geographic basis, total sales increased 10% in the Americas, 3% in EMEA (Europe, Middle East and Africa) and were flat in Asia Pacific.

Wednesday, Aug. 12, 2020

Cisco Systems-CSCO reported fourth quarter revenues declined 9% to $12.2 billion with net income routing up 19% growth to $2.6 billion and EPS up 22% to $.62. By the end of the year, Cisco had met its goal of more than half of revenues coming from software and services.  During the fourth quarter, the company delivered strong margins despite a challenging environment. Cisco plans to cut costs by $1 billion over the next few quarters. Software subscriptions now make up 78% of software revenues. During the fourth quarter, product revenue was down 13%, with all products down except Security which was up 10%. Service revenue was flat. While large enterprises continued to place orders for their digital transformation due to the massive and rapid shift to remote operations during the quarter, smaller and midsize businesses paused spending to conserve cash due to the uncertainty around the pandemic.   For the full fiscal 2020 year, revenues declined 5% to $49.3 billion with net income down 4% to$11.2 billion and EPS up 1% to $2.64. Return on shareholders’ equity was an impressive 30% for the year. Free cash flow dipped 2% to $14.7 billion for the year with the company using this strong cash flow to pay $6 billion in dividends and repurchase $2.7 billion of its common stock. Cisco ended the year with a strong financial position with more than $29 billion in cash and investments, $11.6 billion in long-term debt and $37.9 billion in shareholders’ equity. In the first quarter of fiscal 2021, Cisco completed its acquisition of ThousandEyes, an Internet and Cloud intelligence platform that delivers deep visibility and insights into the digital delivery of applications and services over the Internet. Management’s outlook for the first quarter of fiscal 2021 is for revenue declines of 9%-11% and EPS in the range of $.41 to $.47.  

T. Rowe Price Group-TROW reported preliminary month-end assets under management of $1.28 trillion as of July 31, 2020, representing a 6% increase since year end.

Saturday, Aug. 8, 2020

Berkshire Hathaway-BRKB reported the company’s net worth during the first half of 2020 declined 7% with book value equal to $245,781 per Class A share as of 6/30/20.

During the second quarter, Berkshire reported net earnings increased 87% to $26.3 billion primarily due to the rebound in Berkshire’s equity investments during the quarter. Accounting rules require Berkshire to include the changes in gains/losses of its equity security investments in net income which resulted in a $31.6 billion net gain in the second quarter from investments and derivatives compared to a $7.9 billion net gain in the prior year period. Berkshire also reported a non-cash $10.9 billion goodwill impairment charge in the second quarter related primarily to its acquisition of Precision Castparts in 2016 along with Berkshire’s portion of impairment charges reported by Kraft-Heinz during the quarter.

Berkshire’s four major investment holdings represent 71% of total equities, including American Express at $14.4 billion (down 24% during the first half of 2020 or $4.5 billion), Apple at $91.5 billion (up 24% or $17.8 billion), Bank of America at $22.6 billion (down 32% or $10.8 billion), and Coca-Cola at $17.9 billion (down 19% or $4.2 billion). Wells Fargo was notably absent from the list of top equity investments, signaling further selling of the bank by Berkshire. 

Berkshire’s operating revenues declined 11% during the second quarter of 2020 to $56.8 billion with operating earnings down 10% to $5.5 billion primarily due to the adverse impact of the pandemic on all operations except insurance.   

During the second quarter, Berkshire’s operating earnings in insurance underwriting more than doubled to $806 million. This was primarily attributable to unusually high operating earnings from GEICO of $2.1 billion during the quarter due to lower claims frequencies as drivers stayed home due to shelter in place orders. GEICO announced the GEICO Giveback credit which provides a 15% credit for all policies renewing between 4/8/20 and 10/7/20 as well as new policies due to the lower loss frequencies. The credits are expected to average $150 per auto policy and $30 per motorcycle policy for a total of $2.5 billion in premium credits. These credits may result in underwriting losses for the balance of the year as driving resumes. Insurance investment income was relatively unchanged at $1.4 billion during the quarter, reflecting the significant decline in interest rates. Berkshire believes interest rates, which are historically low, to remain low and that investment income will be substantially lower than in 2019 over the remainder of the year. Berkshire reduced its overall stock investments in the second quarter, and dividend income in the second half of the year may also decline from the first half. The float of the insurance operations approximated $131 billion as of 6/30/2020, an increase of $2 billion since yearend 2019. The average cost of float was negative during the first half as the underwriting operations generated pre-tax earnings of $1.5 billion.


Burlington Northern Santa Fe’s (BNSF) revenues declined 22% during the second quarter to $4.6 billion with net earnings declining 15% to $1.1 billion reflecting the negative impact on volumes of the COVID-19 pandemic. BNSF is an important part of the national and global supply chain. As an essential business. BNSF has continued to operate throughout the duration of the pandemic. However, the pandemic is expected to cause an economic slowdown that could be significant and could adversely affect the demand for BNSF’s services. Berkshire believes BNSF’s fundamental business remains strong and has ample liquidity to continue business operations during this volatile period.


Berkshire Hathaway Energy reported revenues declined 6% during the quarter to $4.7 billion. Net earnings rose 4% during the quarter to $633 million with mixed results from the energy business segments. Double-digit earnings growth was reported by MidAmerican Energy, NV Energy, the natural gas pipelines and other energy businesses partly offset by declines at PacifCorp, Northern Powergrid and the real estate brokerage business.


Berkshire’s Manufacturing businesses reported second quarter revenues declined 20% to $13 billion with operating earnings down 45% to $1.4 billion. The Industrial Products segment was especially hard hit with revenues down 27% and operating earnings plummeting 66%, Precision Castparts experienced lower sales across all its major markets due the decline in aerospace sales related to the suspension of Boeing’s 737 Max aircraft and significant declines in the aerospace markets. The COVID-19 pandemic produced material declines in commercial air travel during the second quarter. Airlines responded by reducing and/or cancelling aircraft orders, which adversely impacted Precision Castparts’ business. The company is aggressively restructuring operations in response to the reduced volumes in the aerospace markets including reducing its workforce by 10,000, representing about 30% of its total workforce. Profit margins are expected to continue to be negatively impacted for the balance of the year due to inefficiencies associated with the realignment of operations to reduced aircraft build rates. Berkshire believes the effect of the pandemic on commercial airlines and aircraft manufacturers continues to be particularly severe. The timing and extent of the recovery in the commercial airline and aerospace industries may be dependent on the development and wide-scale distribution of medicines or vaccines that effectively treat the virus. Berkshire took a non-cash $9.8 billion goodwill impairment charge related to Precision Castparts during the quarter. Lubrizol, Marmon and IMC also each reported 20+% revenue declines during the quarter due to the pandemic.


Service and Retailing revenues declined 13% during the second quarter to $17.2 billion with pre-tax earnings down 44% to $452 million. Revenues and earnings declined in all business segments. The spread of COVID-19 had a significant negative impact on NetJets and FlightSafety operations due to lower demand for services and increased asset impairment and restructuring charges. The spread of COVID-19 also resulted in the temporary closures of many of Berkshire’s retail store operations and significantly lower volumes for those operations that remained open. McLane’s revenues decreased 10% during the quarter to $11.2 billion with pre-tax earnings declining 25% to $44 million due to credit and inventory losses in the foodservice operations related to COVID-19 and lower sales and margins in the grocery operations.


Berkshire’s balance sheet continues to reflect very significant liquidity and a very strong capital base of $393.5 billion as of 6/30/20, a decrease of $31.3 billion since years. This decrease included a net loss of $23.5 billion in the first half of the year, reflecting the decline in the market prices of equity securities since year end. The decline also included the $10.9 billion impairment charge. Excluding railroad, energy and utility investments, Berkshire ended the quarter with $386.6 billion in investments allocated approximately 53.7% to equities ($207.5 billion), 5.0% to fixed-income investments ($19.2 billion), 4.4% to equity method investments ($17.1 billion), and 36.9% in cash and equivalents ($142.8 billion).


Free cash flow rose 13% during the first half of 2020 to $11.3 billion. During the first half, capital expenditures declined 8% to $6.2 billion, including $4.5 billion in the capital-intensive railroad, utilities and energy businesses. Berkshire expects additional capital expenditures to approximate $5.7 billion for BNSF and Berkshire Hathaway Energy in 2020. During the first half, Berkshire purchased a net $46.1 billion in Treasury Bills and fixed-income investments and sold a net $10.9 billion of equity securities, including the sale of all its airline investments. Most of the proceeds were reinvested in Treasury Bills. Subsequent to quarter end, Berkshire disclosed at least $2 billion of additional investments in Bank of America with Berkshire owning nearly 12% of the bank. In July 2020, Berkshire Hathaway Energy reached an agreement with Dominion Energy to acquire substantially all of Dominon’s natural gas transmission and storage business for $4 billion in cash and the assumption of $5.7 billion in existing long-term debt. The acquisition is expected to close in the fourth quarter of 2020.


Berkshire revised its buyback policy which now permits Berkshire to repurchase shares at prices below Berkshire’s intrinsic value, as conservatively determined by Warren Buffett and Charlie Munger. During the first half, Berkshire repurchased about $6.7 billion of its common stock, including a record $5.1 billion in the second quarter. These repurchases included 7,514,590 Class B shares acquired at an average price of $178.59 and 1,282 Class A shares purchased at an average price of $268,816 per share during June 2020. After quarter end, it appears Berkshire has acquired approximately an additional $2 billion of its common stock based on its lower share count on the 10-Q as of July 30, 2020. With Berkshire’s stock valuation still appearing attractively valued, we expect further share repurchases.


Berkshire’s operating businesses are preparing for reduced cash flows from reduced revenues and economic activity as a result of COVID-19 and taking appropriate measures to reduce costs as appropriate. While management cannot predict reliably when all businesses will become fully operational, they currently believe Berkshire’s liquidity and capital strength, which is extremely strong, to be more than adequate.

Friday, Aug. 7, 2020

Biogen-BIIB and Eisai, Co., Ltd. announced that the U.S. Food and Drug Administration (FDA) has accepted the Biologics License Application  for aducanumab, an investigational treatment for Alzheimer’s disease. The application has been granted Priority Review, with a Prescription Drug User Fee Act action date on March 7, 2021, and the FDA has stated that, if possible, it plans to act early on this application under an expedited review. If approved, aducanumab would become the first therapy to reduce the clinical decline of Alzheimer’s disease and would also be the first therapy to demonstrate that removing amyloid beta resulted in better clinical outcomes.

Thursday, Aug. 6, 2020

Maximus-MMS reported third quarter sales rose 23% to $901.3 million with net income up 2% to $64.5 million and EPS up 7% to $1.04. Revenue growth was driven by the extension of the Census contract and new COVID-19 response work such as contract tracing and assistance with unemployment benefits. EPS benefited from a change order totaling $.11 per share. Revenue and earnings were better than management expected principally due to new work and the expansion of existing contracts as a result of COVID-19 and an improved outlook in Australian operations. Year-to-date free cash flow declined 70% to $67.6 million with the company paying $53 million in dividends and repurchasing $167 million of common stock during the same time period. Free cash flow was negatively impacted due to additional investments in working capital, the timing of collections and lower income outside the U.S. Year-to-date contract awards as of quarter end totaled $1.5 billion and contracts pending totaled $672 million. The sales pipeline as of 6.30.20 was $28.9 billion comprised of $1.9 billion in proposals pending, $1.9 billion in proposals in preparation and $25.1 billion in opportunities tracking. The pipeline dynamics continue to be unique since the pandemic began with procurements being completed in record time for efforts to support COVID-19. Maximus increased its revenue and earnings guidance for fiscal 2020 with fiscal 2020 revenue expected to range between $3.375 billion and $3.425 billion and EPS between $3.20 and $3.30. Cash flows from operations are expected to range between $200 million and $220 million with free cash flow between $180 million and $200 million. Management is committed to managing the business in a conservative manner with a focus on liquidity and remaining flexible. No disruption is anticipated to future dividends. However, a pause remains in effect on share repurchases and significant merger and acquisition activity. The initial outlook for fiscal 2021 is that the company can exceed consensus revenues of $2.95 billion with consensus EPS estimates of $3.71 achievable but a bit optimistic due to continued uncertainty related to the pandemic.

Biogen-BIIB and Denali Therapeutics Inc. announced that they have signed a binding agreement to co-develop and co-commercialize Denali’s small molecule inhibitors of leucine-rich repeat kinase 2 (LRRK2) for Parkinson’s disease. Biogen will also receive rights to opt into two programs and a right of first negotiation for two additional programs, in each case for neurodegenerative diseases leveraging Denali’s Transport Vehicle (TV) technology platform to cross the blood-brain barrier (BBB). Under the terms of the agreement, Biogen will make an upfront payment to Denali of $560 million and make a $465 million equity investment in Denali from the purchase of 13.3 million newly issued shares of Denali common stock at approximately $34.94 per share, representing 11.2 percent of Denali’s pro-forma outstanding stock. Should the LRRK2 program achieve certain development and commercial milestones, Denali will be eligible to receive up to $1.125 billion in potential milestone payments.

Tractor Supply-TSCO announced that its Board of Directors declared a quarterly cash dividend of $0.40 per share of the Company’s common stock, a 14.3 percent increase of the previous dividend of $0.35 per share. "We are pleased to raise our dividend by more than 14 percent, marking the tenth consecutive year of increase. This dividend increase is in recognition of our robust performance, strong financial position and confidence in the future of Tractor Supply as we work to emerge from the pandemic stronger than before," said Cynthia Jamison, Tractor Supply’s Chairman of the Board.

Fastenal-FAST reported a 2.6% increase in July net sales to $469.5 million with average daily sales also up 2.6% to $21.3 million. Daily sales growth by end market was -5.5% in manufacturing and -9.6% in non-residential construction. Daily sales growth by product line was led by 38% sales growth in safety products and a 7.5% decline in fasteners and a 3.6% decline in other products.

 

Facebook-FB announced Instagram Reels: a new way to create and discover short, entertaining videos on Instagram. This is a rival to TikTok, which Microsoft-MSFT is considering acquiring.

 

Wednesday, Aug. 5, 2020

Johnson & Johnson-JNJ announced its Janssen Pharmaceutical Companies have entered into an agreement with the U.S. government for the large scale domestic manufacturing and delivery in the U.S. of 100 million doses of Janssen's SARS-CoV-2 investigational vaccine, Ad26.COV2.S, for use in the United States following approval or Emergency Use Authorization by the U.S. Food and Drug Administration (FDA). The Biomedical Advanced Research and Development Authority (BARDA), part of the U.S. Department of Health and Human Services' Office of the Assistant Secretary for Preparedness and Response, in collaboration with the U.S. Department of Defense, is committing over $1 billion for this agreement. The vaccine will be provided at a global not-for-profit basis for emergency pandemic use. The U.S. government may also purchase an additional 200 million doses of Ad26.COV2.S under a subsequent agreement. The Company is evaluating one- and two-dose regimens, in its clinical program and working diligently to ensure broad, global access to the vaccine following approval or authorization by regulators. Johnson & Johnson aims to meet its goal to supply more than one billion doses globally through the course of 2021, provided the vaccine is safe and effective.

 

Private sector employment increased by 167,000 jobs from June to July according to the July ADP National Employment Report®. "The labor market recovery slowed in the month of July," said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. "We have seen the slowdown impact businesses across all sizes and sectors."


Monday, July. 31, 2020

ADT, a leading provider of security and smart home solutions, and Google, a unit of Alphabet-GOOGL, announced they are entering into a long-term partnership to create the next generation of smart home security offerings. The partnership will combine Nest’s award-winning hardware and services, powered by Google’s machine learning technology, with ADT’s installation, service and professional monitoring network to create a more helpful smart home and integrated experience for customers across the United States. Google will make a $450 million investment in ADT. Upon the closing of Google’s equity investment in ADT, Google will own 6.6% of ADT’s outstanding aggregate common equity.

Thursday, July 30, 2020

Facebook-FB reported second quarter revenues rose 11% to $18.9 billion with net income and EPS each increasing 98% to $5.2 billion and $1.80, respectively. Last year’s results included $2.2 billion in legal expenses and $1.1 billion in income tax expense. Facebook Daily Active Users increased 12% during he quarter to 1.79 billion on average with Monthly Active Users also increasing12% to 2.7 billion. Family Daily Active People increased 15% during the quarter to 2.47 billion on average. Family Monthly Active People increased 14% to 3.14 billion. The increased engagement reflected people sheltering in place and using Facebook products to connect with the people and organizations they care about. Facebook is seeing signs of normalization in user growth and engagement as shelter-in-place measures have eased around the world with the number of expected users expected to be flat to slightly down in most regions in the third quarter. About 180 million small businesses are using Facebook tools, such as their free websites, to set up Facebook shops and reach customers which is helping them to survive and thrive during the pandemic. There are about 9 million active advertisers on Facebook, which primarily are the small businesses Facebook serves. COVID-19 is accelerating the digital economy. Facebook is continuing to invest during the crisis with headcount up 32% year over year to 52,534. Most employees are currently working remotely with management expecting longer term that 50% of employees will continue to work remotely over the next 5-10 years. During the first half of the year, Facebook’s free cash flow declined 23% to $8.1 billion with the company repurchasing $2.6 billion of its common shares. The company ended the quarter with a strong financial position with more than $58 billion in cash and investments, no long-term debt and $110 billion in shareholders’ equity. In the first three weeks of July, year over year ad revenue growth was about 10%, which is what is expected for the full third quarter. For the full year 2020, total expenses are expected to be in the range of $52-$55 billion with capital expenditures expected to be about $16 billion as the company has resumed its data center construction efforts earlier than expected.

Apple-AAPL reported fiscal third quarter sales increased 11 % to $59.7 billion with net income increasing 12% to $11.3 billion and EPS increasing 18% to $2.58. Apple’s record June quarter was driven by double-digit growth in both Products and Services and growth in all geographic segments. Product sales increased 10% to $46.5 billion on a 2% increase in iPhone sales to $26.4 billion, which were boosted by the successful SE phone launch, continued economic stimulus and the lifting of shelter in place restrictions around the world.  iPad and Mac sales were up a robust 31% and 22%, respectively, despite supply chain shortages, with demand picking up in May and June as the devices became integral to working and learning from home. Wearables, Home and Accessories increased 17% on difficult comps. Service growth of 15% to $13 billion moderated somewhat due to the impact of reduced economic activity and store closures on advertising and AppleCare revenue.  Apple met its goal of doubling service revenue from 2016 levels six months early and, with 550 million paid subscriptions, Apple is well on its way to meeting its target of 600 million by the end of 2020. During the quarter, Apple returned over $21 billion to shareholders, including $3.7 billion in dividends and $10 billion through share repurchases of 31.3 million Apple shares at an average cost of $319.49 per share. The company also began a $6 billion accelerated share repurchase program in May resulting in the initial delivery and retirement of an additional 15.2 million shares. Apple ended the quarter with $194 billion in cash plus marketable securities, $94 billion in debt and $72 billion in shareholders’ equity and is well on the path to reaching a net cash neutral position over time. Apple’s board approved a four-for-one stock split to make the stock more accessible to a broader base of investors. Each Apple shareholder will receive three addition shares for every share held and trading will begin on a split-adjusted basis on August 31, 2020. While Apple suspended guidance, it expects to see continued strong customer demand for the iPhone SE and will begin selling the new iPhone several weeks later than usual. Operating expenses are expected in the $9.8 billion to $9.9 billion range.

Stryker-SYK reported second quarter net sales decreased 24.3% to $2.8 billion with the company reporting a loss of $83 million or <$.22> per share. Orthopaedics net sales of $.9 billion decreased 24.3% in the quarter, MedSurg net sales of $1.3 billion decreased 17.3% and Neurotechnology and Spine net sales of $.5 billion decreased 29.6%. Net sales were significantly negatively impacted by the global response to the COVID-19 pandemic, resulting in lower than previously expected unit volume growth rates across all segments. Stryker’s free cash flow rose 77% during the first half to $958 million with the company returning $431million to shareholders through dividend payments. The company had previously suspended its share repurchase program in anticipation of the Wright Medical acquisition which is expected to close by the end of the third quarter. Stryker ended the quarter with $6.6 billion in cash and investments, $11.8 billion in long-term debt and $12.8 billion in shareholders’ equity. Given the fluidity of the current environment, Stryker suspended its 2020 earning guidance. However, given the strength of Stryker’s balance sheet and cost containment efforts underway, management believes the company is well positioned to manage through this unprecedented situation. “We were encouraged to see increased sales momentum through the quarter and into July and are poised to capitalize on the broader resumption of deferrable surgeries” said Kevin Lobo, Chief Executive Officer.


Alphabet-GOOGL
reported second quarter revenue declined 2% to $38.3 billion with net income down 30% to $7.0 billion and EPS down 29% to $10.13. Results were impacted by the pandemic although the company saw gradual improvement in the ads business during the quarter and strong 43% growth in Google Cloud revenues which topped $3 billion as clients migrated their business to the cloud. Other Google revenues rose 26% during the quarter to $5.1 billion driven by Google Play as people stayed home and non-advertising YouTube subscriber growth. YouTube ads increased 6% to $3.8 billion. Profitability was primarily impacted by the 8% drop in Google advertising revenues to $30 billion. Advertising spend correlates with the macro environment, and it is too soon to determine the duration of the pandemic. However, Google is seeing stabilization in ad spending across all their business segments. Free cash flow increased 1% during the quarter to $14 billion with the company repurchasing $15 billion of its common shares. The Board of Directors authorized the company to further expand the share repurchase program by an additional $28 billion. Capital expenditures are expected to be lower this year due to less spending on office space and land with continued investments in datacenters and servers. Alphabet ended the quarter with a fortress balance sheet with $134 billion in cash and investments, $4 billion in long-term debt and shareholders’ equity of $207 billion.

Mastercard-MA reported revenue dropped 19% to $3.3 billion with net income falling 31% to $1.4 billion and EPS down 30% to $1.41. Mastercard’s revenue decline was driven by a 12% decrease in gross dollar volume to $1.4 trillion, a decrease in cross-border volume of 54% to $637 million and a decrease in switched transactions of 7% to $1.9 billion. These decreases were partially offset by a 12% increase in other revenues, boosted by increased Cyber & Intelligence and Data & Services solutions sales as the COVID pandemic accelerated the shift to digital and contactless payments and, hence, clients’ need for data analytics and cybersecurity tools. The number of Mastercard and Maestro cards increased 5% during the quarter to $2.646 billion cards.  During the first half of the year, Mastercard generated $3.1 billion in free cash flow, representing 100% of net income, a sign of high-quality earnings. The company returned nearly $2.2 billion to shareholders year-to-date through dividend payments of $804 million and share repurchases of $1.4 billion. The company resumed its share repurchase program at the end of the quarter, repurchasing $1 billion shares at an average per share of $303 through July 21, which leaves $5.9 billion remaining under the current authorization. Mastercard ended the quarter with $11.5 billion in unrestricted cash and investments, $12 billion of long-term debt and $6.5 billion in shareholders’ equity. While the company suspended earnings guidance, it provided investors with an update through July 21, demonstrating that global business activity is moving from the normalization phase into the growth phase with some sectors and geographies performing better than others. For instance, switched volume moved from a 23% decline in April to a 9% decline in May and a 3% decline in June. During the first week of July, switched volume increased 1% and during the second week it grew by 2%, driven by U.S. growth of 6% during the first week of July and 7% during the second week. Cross-border volume improved from minus 50% in April to minus 40% during the third week of July as nations began relaxing border restrictions, most notably in Europe. Mastercard saw a 15% improvement in “card present” spending on lodging, restaurants and clothing, giving it confidence that global economic activity will return to growth, albeit in a non-linear and uneven manner.


Genuine Parts-GPC reported second quarter revenue declined 14% to $3.8 billion with the company reporting a net loss from continuing operations of $363.5 million or <$2.52> per share. The second quarter sales environment was pressured by the unprecedented global COVID-19 pandemic. Broad shelter-in-place restrictions, full lockdowns and other measure significantly slowed mobility and overall economic activity, contributing to a significant decline in April sales. While Industrial segment sales remained pressured throughout the quarter, the Automotive Group had a stronger recovery in May and June led by sales volumes in Europe and Australasia that returned to pre-COVID-19 levels. The net loss was primarily driven by a non-cash goodwill impairment charge related to European operations. The company generated cash flow from operations of $921 million during the first half of 2020, a significant increase from the prior year, primarily due to an agreement to sell accounts receivable which provided $500 million of operating cash flows and the effective management of working capital. Proceeds from the sale of S.P. Richards for about $400 million were used to pay down debt and strengthen the company’s cash position, which was nearly $984 million as of quarter end. During the first half, the company repurchased $96 million of its common shares and paid dividends of $225 million. The company has paused its share repurchase program and curtailed its acquisition activities to maintain liquidity and maximize cash flow during this period of great uncertainty in the macro environment. The company remains committed to paying its dividend, which was increased 4% over last year and has been increased for 64 consecutive years. The dividend currently yields 3.5%. While Genuine Parts is unable to provide guidance due to the economic uncertainty related to the pandemic, the company stands well-positioned  and prepared for the various scenarios that may evolve over the near term as they successfully manage through the challenges of COVID-19 with ample liquidity.

UPS-UPS reported second quarter revenues rose 13% to $20.5 billion with net income and EPS each up 5% to $1.8 billion and $2.03, respectively. These results were better than management expected, driven in part by the changes in demand that emerged from the pandemic. This included a surge in residential volume with U.S. domestic average daily volume increasing a record 23%, reaching 21.1 million packages per day. Business to consumer shipment growth was up 65% due to strong demand for residential delivery as a result of shelter in place restrictions, retail closures and stimulus checks. International average daily volume grew 10%, driven by strong outbound demand from Asia and an increase in cross-border e-commerce volume in Europe. Free cash flow nearly tripled during the first half of the year to $3.9 billion with the company paying $1.7 billion in dividends, representing a 5% increase over the prior year period. The dividend is a hallmark of UPS financial strength with the dividend reflecting 50 years of stability and growth. UPS maintains a strong credit rating which provides the business with financial flexibility. Carol Tome, the new CEO, is focused on improving operating margins and return on invested capital over the longer term to help UPS get “better not bigger” which will increase cash flow generation and shareholder returns. During the second half of 2020, UPS expects a more gradual economic recovery until the virus spread is controlled and a vaccine is widely available.



Johnson & Johnson-JNJ
announced that its lead vaccine candidate protected against infection with the virus that causes COVID-19 in pre-clinical studies. The data shows that JNJ’s vaccine elicited a robust immune response as demonstrated by "neutralizing antibodies," successfully preventing subsequent infection and providing complete or near-complete protection in the lungs from the virus in non-human primates in the pre-clinical study. Based on the strength of the data, Phase 1/2a first-in-human clinical trial of the vaccine candidate, Ad26.COV2.S, in healthy volunteers, has now commenced in the United States and Belgium. The company also will emphasize representation of populations that have been disproportionately impacted by the pandemic as it designs and implements its COVID-19 Phase 3 trial program. In the United States, this would include significant representation of Blacks, Hispanic/Latin and participants over 65 years of age.

Wednesday, July 29, 2020

  

Technology CEOs, including Tim Cook from Apple-AAPL, Mark Zuckerberg from Facebook-FB and Sundar Pichai from Alphabet-GOOGL testified during a House hearing about “Online Platforms and Market Power.” Tim Cook noted that the 30% commission rate in the App Store is well below the 50%-70% commissions software developers often paid in the pre-App Store era. There are 1.7 million apps in the store, but only 60 from Apple itself. He said more than 1.9 million American jobs are attributable to the App Store ecosystem. He also noted that in 2019, the App Store ecosystem facilitated over $500 billion in commerce worldwide, and $138 billion in the U.S. alone. Mark Zuckerberg said, “Facebook is a proudly American company.” The company has 35,000 people working on safety and security, triple the amount three years ago. He added, “I understand that people have concerns about the size and perceived power that tech companies have. Ultimately, I believe companies shouldn’t be making so many judgments about important issues like harmful content, privacy, and election integrity on their own. That’s why I’ve called for a more active role for governments and regulators and updated rules for the internet.” Sundar Pichai explained there are more than 120,000 “Googlers,” and more than 75,000 of them are in the U.S. In 2018, the company invested more than $20 billion, making it the largest capital investor in the U.S. that year. It has been among the five largest U.S. capital spenders in each of the past three years. The company’s R&D spending was $26 billion in 2019, up from $2.8 billion 10 years ago. Total R&D spending over 5 years was $90 billion. Ad costs have come down 40% over the last 10 years due to competition, Pichai said.

 

Cognizant Technology Solutions-CTSH reported second quarter sales declined 3.4% to $4 billion with net income falling 29% to $361 million and EPS dropping 26% to $0.67. Performance was negatively impacted by the COVID-19 pandemic and the ransomware attack, primarily in the month of April, with revenue and bookings improving sequentially through May and June, as client demand increased in areas such as cloud and enterprise application services, IT modernization and digital engineering. Bookings increased 14%, powered by a 50% increase in digital bookings. By business segment, Financial Services (34.9% of revenues) revenue decreased 5.2% to $1.4 billion, driven by declines in both banking and insurance. Weakness across global banking accounts and capital markets continued throughout the quarter while North America saw relatively better performance in regional banking. Healthcare (28.9% of revenues) revenue grew 2% to $1.2 billion, driven by increases from life sciences clients, specifically by revenues from the acquisition of Zenith. Products and Resources (21.7% of revenues) revenue decreased 6.5% to $867 million. The decline was driven by retail, consumer goods, travel and hospitality clients that were particularly adversely affected by the pandemic, partially offset by double-digit growth in manufacturing, logistics, energy and utilities. Communications, Media and Technology (14.5% of revenues) revenue decreased 4.4% to $580 million, pressured by the 2019 strategic decision to exit certain content-related services. Excluding that impact, Communications, Media and Technology grew about 5%. Communication and media was flat, with the growth of certain communications clients offset by weakness with clients exposed to studios, cable TV and theme parks. Headcount declined 2.5% year-over-year to 281,000. During the quarter, Cognizant generated $886 million in free cash flow, up from $479 million last year, boosted by a $380 million deferred tax payment. Excluding the deferred tax payment which will be paid during the second half of 2020 through 2022, free cash flow was 140% of net income. During the quarter, the company repurchased $40 million of its shares at an average cost of $45 per share with $1.8 billion remaining under the current authorization. Cognizant ended the quarter with $4.6 billion in cash, $2.4 billion in long-term debt and $11 billion in shareholders’ equity on its strong balance sheet. Looking ahead to the full year, the company expects revenue to be in the range of $16.4 billion to $16.7 billion, down 1.4% from last year at the midpoint. Adjusted EPS are expected in the $3.48 to $3.58 range, down from $3.99 reported last year.  


ADP-ADP reported fiscal fourth quarter revenues declined 3% to $3.4 billion with net income declining 13% to $412 million and EPS declining 12% to $0.96. By business segment, Employer Services (ES) revenues declined 6% to $2.4 billion on a 10.8% drop in U.S. pay per control which gradually improved during the quarter. Including a backlog adjustment, new business bookings declined by 67%. ES operating margins of 25.7% were flat compared to last year thanks to expense reductions made across the business which were partially offset by continued investment in ADP’s sales force and next generation products to fuel future growth. Interest on funds held for clients dropped 22% to $115 million due to an 8% decline in average client fund balances to $24 billion and a 30 basis point drop in average client funds yield to 1.9%. Client retention dipped 20 basis points on out-of-business losses. ADP’s Professional Employer Organization (PEO) Services revenues increased 4% to $1 billion. Excluding zero-margin benefits pass-throughs, PEO revenues fell 5% on a 3% decline in average worksite employees paid to 548,000. PEO operating margin fell 450 basis points on a larger than forecasted expense at ADP Indemnity. For the year, ADP reported sales increased 3% to $14.6 billion with net income up 8% to $2.5 billion and EPS up 9% to $5.70. The company generated a stellar 42.9% return on shareholders’ equity during fiscal 2020 and $2.9 billion in free cash flow which was up 13% from last year. During the fiscal year, ADP returned nearly $2.5 billion to shareholders through dividends of $1.5 billion and share buybacks of $1 billion. ADP ended the fiscal year with nearly $2 billion in cash, $1 billion in long-term debt and $5.8 billion in shareholders’ equity on its sturdy balance sheet. Looking ahead to fiscal 2021, ADP expects revenues to decline by 1% to 4% with EPS expected to decline by 12% to 17% due to lower pays per control and interest on funds held for clients and higher zero-margin  pass-through revenues.


General Dynamics-GD reported second quarter revenues declined 3% to $9.3 billion with net income down 23% to $625 million and EPS down 21% to $2.18. These results reflect the impact of the pandemic notably in the Aerospace sector due to restrictions on travel and the Information Technology segment as there was a hard stop on many programs due to the closing of client offices. The company delivered 32 aircraft during the quarter, up from 23 last quarter, despite continued pandemic-related challenges to making international deliveries. The company’s defense business held up relatively better during the quarter with the Combat Systems and Marine Systems revenues each up 6%. Total backlog at the end of the second quarter was a strong and resilient $82.7 billion, 22% higher than the prior year period. Total estimated contract value, the sum of all backlog components, was $132.2 billion, up about 30% over the year-ago quarter. Management is focused on aggressive cost management, performance and cash conversion as they manage through this challenging period. Cash flow from operations rose $552 million to $843 million during the quarter. Free cash flow was $622 million, representing 100% of earnings. The company ended the quarter with $2.3 billion of cash on hand, which is $1.6 billion more than the prior year period. During the first half of the year, the company paid $610 million in dividends and repurchased $501 million of its common stock. While the share repurchase program has been suspended to preserve liquidity during these uncertain times, management remains committed to paying a dependable dividend. General Dynamics has weathered the COVID-19 storm and management believes the second quarter will represent the low point in earnings with improvement seen in the second half of the year. For the full 2020 year, General Dynamics expects revenues to approximate $38.4 billion with EPS in the range of $11.00-$11.10.

T. Rowe Price-TROW reported second quarter revenues rose 1% to $1.4 billion with net income increasing 14% to $603 million and EPS jumping 19% to $2.55. T. Rowe Price had approximately $1.22 trillion in assets under management at the end of the quarter, an 8% increase over the prior year period. During the quarter, net client inflows were $14.7 billion thanks to continue demand for their investment strategies. The company plans to launch several new active exchange-traded funds in August. The second quarter saw a powerful rebound in global equity and credit markets from the steep losses of February and March, fueled by the most extensive fiscal and monetary stimulus in history. Management believes a new global economic recovery has begun but its sustainability is uncertain as the number of confirmed coronavirus cases in the world continue to rise. Management’s approach to capital management remains unchanged as they continued to pay a healthy divided and repurchased 1.3 million shares of their common stock during the quarter, bringing their outstanding share count below the level at their IPO in 1986. The company’s balance sheet remains rock solid with more than $5.7 billion in cash and investments and no long-term debt.

 

Tuesday, July 28, 2020

3M-MMM reported second quarter sales declined 12% to $7.2 billion with net earnings increasing 14.5% to $1.3 billion and EPS increasing 16% to $2.22. Excluding special items, second quarter adjusted income declined 17% to $1 billion and adjusted EPS declined 16% to $1.78. The COVID-19 pandemic continues to evolve and affect 3M’s businesses in various ways. During the second quarter, end-market demand remained strong in personal safety, home improvement, general cleaning, semiconductor, data center and biopharma filtration. At the same time, several other end markets continued to experience significant weakness including healthcare elective procedures, automotive OEM and aftermarket, general industrial, commercial solutions and office supplies. By business segment, total sales declined 0.4% in Health Care to $1.8 billion, 6.2% in Consumer to $1.2 billion, 9.2% in Safety and Industrial to $2.7 billion and 20.9% in Transportation and Electronics to $1.9 billion. On a geographic basis, total sales declined 8.5% in Asia Pacific, 12.7% in the Americas and 16.4% in EMEA (Europe, Middle East and Africa). During the quarter, 3M generated $1.5 billion in free cash flow, up 18% year-over-year, thanks to effective working capital management and timing of income tax payments. During the quarter, 3M returned $800 million to shareholders through dividend payments and reduced debt by $1.7 billion ending the quarter with $4.5 billion in cash and investments, $19 billion in debt and $11 billion in shareholders’ equity. Due to the continued evolving and uncertain impact of the COVID-19 pandemic, 3M has withdrawn 2020 guidance. However, the company is seeing broad-based sales improvements across its businesses and geographies to start the third quarter. With one week left in July, total company sales are currently up low-single digits year-over-year. 3M will maintain its monthly reporting of sales information during the third quarter to provide transparency on its ongoing business performance.

Starbucks-SBUX reported fiscal third quarter revenues fell 38% to $4.2 billion with the company posting a net loss of $678 million or $0.58 per share compared with a profit of $1.4 billion or $1.12 per share last year. Management estimates Starbucks lost $3.1 billion in sales due to the pandemic. Global comparable store sales declined 40%, driven by a 51% decrease in comparable transactions, partially offset by a 23% increase in average ticket. By segment, revenues from the Americas fell 40% to $2.8 billion, primarily due to a 41% comp store decline related to the COVID-19 outbreak. Operating margin of -14.4% contracted from 21.8% last year on sales deleveraging, catastrophic pay for frontline associates, increased safety measures and other COVID-related expenses. Ninety-six percent of U.S. stores were open at the end of the quarter, up from 44% at the beginning of the quarter. U.S. comp store sales improved from -65% at the pandemic’s mid-April peak to -16% on 6/30/2020.  International revenues fell 40% to $950 million, primarily due to a 37% declined in comparable store sales, with the segment generating an operating loss of $86 million compared to income of $270 million last year. Comparable store sales in China declined by 19%.  Channel Development revenue fell 16% to $447 million primarily due to non-COVID related factors with the segment generating operating margins of 28%, down from 34% last year. During the first nine months of the fiscal year, Starbucks’ free cash flow was negative $1.1 billion compared to $2.7 billion in free cash flow generated last year. Starbucks returned $3.1 billion to shareholders through dividends of $1.4 billion and share repurchases of $1.7 billion since the beginning of the fiscal year. During May, Starbucks issued $3 billion in debt to secure additional liquidity. Starbucks ended the quarter with $4.4 billion in cash and investments, $14.6 billion in long-term debt and negative shareholders’ equity of $8.6 billion. For the fiscal fourth quarter, Starbucks expects revenue to decline by 10% to 15% on comparable store sales declines of 12% to 17% with EPS expected in the range of $0.06 to $0.21. For the full fiscal year, the company expects EPS in the range of $0.50 to $0.65, compared to previous guidance of $.33 to $0.73.

Raytheon Technologies-RTX reported second quarter sales of $14.1 billion with a loss of $3.8 billion or <$2.56> per share. This loss reflected significant and/or non-recurring charges and acquisition accounting adjustments. On an adjusted basis, EPS was $.40. During the quarter, the company delivered good performance in the defense business but faced substantial challenges in commercial aerospace as expected due to the pandemic. The aerospace sector is much worse than expected with management believing it will take until 2023 for this business segment to recover to 2019 levels. Five airlines around the world have already filed for bankruptcy just in the last quarter. As a result, the company is accelerating cost reductions and cash conservation actions, including $600 million of cost reductions and about $1 billion of cash conservation actions during the second quarter. The company is in a strong liquidity position with nearly $7 billion in cash and remains committed to paying its dividend. The resiliency of the defense business will help Raytheon Technologies weather this storm as they continue to capitalize on growth opportunities supported by a record $158.7 billion backlog, which consists of $85.6 billion from commercial aerospace and $73.1 billion from defense. The defense book to bill ratio was a strong 1.2 following notable defense bookings during the quarter. The company expects sequential improvement in the second half of the year and is proactively managing the business and aggressively reducing costs to position for a strong recovery as the environment improves.

 

Mastercard-MA and Microsoft-MSFT announced a collaboration that will accelerate Mastercard Labs' cloud native research and development activities, enabled by Azure and AI, to advance Mastercard Labs' mission to de-risk and commercialize emerging technologies and platforms for digital commerce. Through access to technical expertise and cutting-edge technologies, Mastercard's partners will be further empowered to build and securely scale new solutions.


Monday, July 27, 2020

F5-FFIV reported third quarter revenue rose 4% to $583 million with net income down 19% to $70 million and EPS down 20% to $1.14 due to higher operating expenses. During the pandemic, large enterprise customers are accelerating their digital transformation, increasing their digital engagement and boosting capacity and security on customer facing applications and on platforms that enable employee collaboration.  Demand for these solutions drove the revenue growth during the quarter as customers look to F5 to enable their mission-critical application and security needs. Free cash flow increased 5% during the first nine months of the fiscal year to $437 million with $50 million of common stock repurchased. While F5 has $1.3 billion authorized for future share repurchases, the company has suspended the share buyback program to prioritize its cash usage on debt repayment related to an acquisition and to conserve its cash position during these uncertain times. As of quarter end, F5 maintained a weatherproof balance sheet with more than $1 billion in cash and investments, long-term debt of $374 million and shareholders’ equity of $2.2 billion. For the fourth quarter, management expects to deliver non-GAAP revenue in the range of $595 million to $615 million with non-GAAP EPS in the range of $2.30-$2.42.

 

 

PepsiCo-PEP and Microsoft-MSFT announced a five-year partnership. As part of the agreement, PepsiCo will roll out Microsoft 365 and Microsoft Teams to all its 270,000 employees worldwide. In addition, Microsoft Azure will provide PepsiCo with greater agility and the ability to derive new insights from its data to fuel product innovations, customer intimacy and sustainability goals.


Alphabet-GOOGL
announced it will keep its 200,000 employees home until at least next July due to the coronavirus pandemic.


Bank of Hawaii-BOH
reported net interest income rose 5% during the second quarter to $180 million with EPS down 30% to $.98. Results for the second quarter included a provision for credit losses of $40.4 million compared to $4.0 million in the prior year period reflecting the uncertainty caused by the coronavirus on loan repayments. Unemployment in the state has fallen from 24% in April to 14% in June. The Governor of Hawaii has pushed back tourism to the state by another month. Loan and lease balances increased 10% during the quarter to $11.8 billion with total deposits up 12.5% to a record high of $17.4 billion. Bank of Hawaii performed well in a challenging environment as the balance sheet continued to grow while maintaining strong levels of capital and liquidity. Asset quality remained stable and the bank reopened nine branches during the quarter with 40 branches now back in operation from a pre-pandemic level of 60 branches open. The return on average assets declined to .82% during the quarter due to low interest rates with the return on average equity declining to 11.58%. The efficiency ratio for the second quarter improved to 50% from 55% in the prior year quarter. Total shareholders’ equity increased to $1.4 billion with book value equal to $33.76 at quarter end. While the bank has suspended share repurchases, it is still paying a substantial dividend as the bank generates significant capital in excess of well-capitalized minimums. The dividend currently yields an attractive 4.6%.

Friday, July 24, 2020

Gentex-GNTX reported second quarter net sales declined 51% to $229.9 million with a net loss of $2.4 million compared to net income of $109 million in the prior year quarter. The impact of COVID-19 created extended shutdowns in the global automotive industry resulting in a 45% reduction in light vehicle production volumes worldwide during the past quarter. The government mandated shutdowns resulted in the most severe change in demand in a very short period that Gentex has ever experienced.  Lost sales due to the COVID-19 pandemic resulted in manufacturing inefficiencies and the loss  during the quarter. The company took immediate actions to reduce costs given the dramatic change in demand. Severance related costs of $8.8 million were incurred during the quarter in order to achieve an estimated $35 million in annualized savings. During the second quarter, Gentex had positive cash flow from operations of $39.2 million despite the significantly lower sales levels. Gentex maintains a strong balance sheet with no long-term debt and $585 million in cash and investments as of quarter end. Gentex did not repurchase any common stock during the quarter as efforts were focused on preservation of capital. The company still has 13 million shares remaining available for repurchase. Due to the pandemic, Gentex expects light vehicle production to decline 7% for the second half of 2020 and 20% for the full year 2020. Management expects second half sales to approximate $865 million to $915 million. Despite the decrease in production, management is optimistic  that the forecasted improvements in light vehicle production throughout the second half of the year, in addition to their significant cost initiatives achieved during the second quarter, will allow the company to return to more normalized gross and operating margins during the second half of the year.

Thursday, July 23, 2020

Tractor Supply-TSCO plowed up exceptional growth in the second quarter with sales jumping 35% to $3.2 billion, net income growing 54% to $339 million and EPS climbing 61% to $2.90. Comparable store sales growth increased an impressive 30.5% with strong double-digit growth across all product categories and geographic regions. Comparable transaction count increased 14.6% with the comparable average ticket increasing 15.8%. Strong sales of big-ticket items like lawn mowers, trailers, kayaks and power washers during the quarter contributed to the high-ticket increase. E-commerce sales more than tripled during the quarter. The COVID-19 pandemic and great spring weather had a significant impact on consumer demand as customers focused on the care of their homes, land and animals. The government stimulus checks helped provide customers with buying power as customers shifted their buying patterns from traveling and dining out to backyard living and pet care.  Backyard poultry, gardening and bird feeding products sold strongly.  Pet adoption reached record levels during the pandemic which led to increased demand for pet food. Tractor Supply gained market share in the pet food, gardening and on-line categories. The company gained new customers at the fastest rate in company history with 4.3 million new customers during the quarter. New customers were young, had high income and were 50% female. Free cash flow more than tripled during the first half of the year to $907 million. During the first half, the company paid $81.5 million in dividends and repurchased $263 million of its common stock. During the quarter, the company opened 18 new Tractor Supply stores. For the full year, the company now expects to open 75 to 80 new Tractor Supply stores and 10 new Petsense locations with the capital expenditure outlook increased to $300 million to $325 million. The company’s strong balance sheet with robust operating cash flows provides the company with significant financial flexibility. The company is in a very strong liquidity position with about $1.3 billion in cash and investments and no drawdown on its $500 million revolving credit facility. For the third quarter, management expects comparable store sales growth will moderate to a still high range of 12% to 18% with net sales expected in the range of $2.3 billion to $2.4 billion and EPS expected in the range of $1.15 to $1.35. The company expects the impact of COVID-19 will be a significant factor until mid-year 2021, and they are taking actions to capitalize on opportunities in their business and to emerge from the crisis stronger than ever thanks to higher technology and store productivity initiatives.

 

Berkshire Hathaway-BRKB bought roughly $813 million worth of Bank of America stock. Berkshire purchased roughly 33.9 million of the bank’s shares at an average price of $23.99 per share, boosting its stake by more than 3% to about 981.7 million shares, according to a regulatory filing.  

Wednesday, July 22, 2020

 

Microsoft-MSFT reported fourth quarter sales increased 13% to $38 billion with net income and EPS decreasing 15% to $11.2 billion and $1.46, respectively. Excluding a $450 million charge related to the closure of Microsoft retail stores during the quarter and a $2.6 billion tax benefit in 2019, net income and EPS increased 5% and 7%, respectively. COVID-19 positively impacted Microsoft’s Productivity and Business Processes and Intelligent Cloud segments, with increased cloud usage and demand as customers continued to work and learn from home. Transactional license purchasing continued to slow, particularly in small and medium businesses and LinkedIn was negatively impacted by the weak job market and reductions in advertising spend. In the More Personal Computing segment, Windows OEM, Surface and Gaming benefited from increased demand to support work-, play-, and learn-from-home scenarios, while Search was negatively impacted by reductions in advertising spend. Revenue in Productivity and Business Processes was $11.8 billion, up 6%, driven by a 19% increase in Office 365 Commercial revenue and a 38% jump Dynamics 365 revenue. Revenue in Intelligent Cloud was $13.4 billion, up 17%, driven by Azure revenue growth of 47%. Revenue in More Personal Computing was $12.9 billion, up 14%, highlighted by a 65% jump in Xbox content and services revenue and a 28% increase in Surface revenue. Search advertising revenue excluding traffic acquisition costs declined 18%, hurt by a reduction in advertising spend. During the quarter, Microsoft generated $13.9 billion in free cash flow, up 16% from last year, with the company returning nearly $9.7 billion to shareholders through dividend payments of $3.9 billion and share repurchases of $5.8 billion. For the full year, Microsoft reported sales increased 14% to $143 billion with net income increasing 13% to $44.3 billion and EPS up 14% to $5.76. During fiscal 2020, Microsoft generated a stellar 37.4% return on shareholder equity and $45 billion in free cash flow, up 18% from last year, driven by improving profit margins and operating leverage across the business. Microsoft returned $38 billion to shareholders during the fiscal year through dividends of $15 billion and share repurchases of $23 billion. The company ended the fiscal year with nearly $137 billion in cash on its AAA-rated balance sheet.  Looking ahead to the first fiscal quarter of 2021, management expects continued strong usage and consumption in its cloud platform, as well as continued benefit of work, learn and play from home, albeit at a moderated rate as stay-at-home guidelines ease around the globe. Management expects small- and medium-sized business weakness to continue, primarily in Office and Windows OEM. By business segment, Productivity and Business Processes revenue is expected in the $11.65 billion to $11.9 billion range, up 6% from last year at the midpoint. Intelligent Cloud revenues are expected in the $12.55 to $12.8 billion range, up 17% at the midpoint with More Personal Computing revenues expected in the $10.9 billion to $11.35 billion range, up slightly from last year.

SEI Investments-SEIC reported second quarter revenues declined 2% to $400.6 million with net income down 20% to $101 million and EPS down 17% to $.68. Revenues declined due to lower assets under management from the carryover effect of the sharp market downturn during March 2020. Average assets under management, excluding LSV, declined $1.8 billion, or 1%, to $226.8 billion during the second quarter. This decline was partially offset by increased fees from higher assets under administration from positive cash flows and sales of new business in the Investment Managers segment. The average assets under administration increased $49.2 billion, or 8%, to $672.8 billion during the second quarter. Earnings were impacted by increased consulting costs related to continued investments in new business opportunities, such as the One SEI strategy and IT offerings. Earnings from LSV decreased by $9.5 million, or 25%, to $28.3 million in the second quarter due to lower assets under management as the value investing strategy is not popular right now resulting in negative cash flows from existing clients and client losses. During the quarter, SEI Investments generated $145.3 million in free cash flow and repurchased 1.6 million shares of its common stock for $89.5 million at an average price of about $54.45 per share. The company ended the quarter with a strong balance sheet with more than $865 million in cash and investments and no long-term debt. Over its 50-year history, SEI Investments has always focused on the long term. While the company is facing short-term headwinds from the COVID-19 disruption, management is confident t they  will weather today’s challenging environment and emerge stronger once the coronavirus crisis abates.

Biogen-BIIB reported second quarter revenues rose 2% to $3.7 billion with net income up 3% to $1.5 billion and EPS jumping 22% to $9.59 on significantly lower shares outstanding. Using its strong cash flows from operations, including $1.9 billion in the second quarter, Biogen repurchased 9 million shares during the second quarter for $2.8 billion at an average price of $313 per share. The company has $1.25 billion remaining authorized for future share repurchases. The company ended the quarter with a solid balance sheet with $5.25 billion in cash and investments and $7.4 billion in long-term debt. During the quarter, Biogen completed its submission to the FDA for aducanumab to treat Alzheimer’s disease in the U.S. If it is approved, it would be the first therapy to reduce the clinical decline in Alzheimer’s disease. Biogen is continuing to build a multi-franchise portfolio of products based on their expertise in neuroscience with near-term opportunities in other areas such as ALS, Parkinson’s, ophthalmology, lupus, stroke and biosimilars. Research and development expense increased 34% during the quarter to $648 million. Biogen updated its 2020 financial guidance with revenue expected to be in the range of $13.8 billion to $14.2 billion, which is slightly lower than previously expected due to the impact of COVID-19. The 2020 EPS outlook was raised to a range of $32.00 to $34.00 based on better than expected first half results in earnings.

Tuesday, July 21, 2020

Canadian National Railway-CNI reported second quarter revenue declined 19% to C$3.2 billion with net income skidding 60% to C$545 million and EPS dropping 59% to C$.77. These results reflect the adverse impact of the pandemic as well as a one-time charge related to the sale of non-core rail lines. The decrease in revenues was mainly due to lower volumes across most commodity groups caused by the COVID-19 pandemic and lower fuel surcharge rates, which were partly offset by increased shipments of Canadian grain, higher Canadian coal exports as well as freight rate increases. Volume significantly declined beginning in mid-March as the pandemic resulted in economic lockdowns and bottomed in May with sequential improvement seen since then. Management quickly and aggressively rightsized resources by furloughing 26% of employees and reducing active railcars by 14% with 14,500 railcars and 500 locomotives in storage.  With volume now slowly improving, CNI is recalling train crews. During the quarter, the company’s fuel efficiency improved to record levels with fuel costs down nearly 50%.  During the first half of the year, free cash flow nearly doubled to $1.6 billion with the company paying $817 million in dividends. Management is proud that they were able to increase the dividend 7% despite the recession. While the share buyback program is currently on pause, they will reassess it on an ongoing basis. CNI did an opportunistic debt issuance of C$600 million during the quarter at a favorable interest rate of 2.45% for 30 years. Canadian National has the best investment credit rating in the industry. With a strong financial position and a commitment to contribute to the economic recovery, the company announced it will purchase about 1,500 new, efficient, high-capacity, covered hopper cars to expand their grain export business for delivery in January of 2021 as record grain shipments are expected. This is part of the company’s $2.9 billion capital investment plan for 2020. CNI is well prepared even if there is a second wave of the virus.

Ulta Beauty-ULTA provided a COVID-19 update to its operations. Ulta Beauty has completed its phased reopening process and will require all guests and associates to wear facial coverings when in the stores. To date, approximately 50% of furloughed employees in April have been reactivated. The company is optimizing their real estate portfolio by temporarily reducing new store openings to 30 in fiscal 2020 and closing 19 stores, with the goal to operate between 1,500 to 1,700 Ulta Beauty stores in the U.S. As new store opening plans are finalized for fiscal 2021, the company anticipates opening additional new stores in the U.S. and in mid-2021, will make its entry to Canada with a number of stores.



Cognizant-CTSH
announced that its Shared Investigator Platform (SIP), a life sciences Software as a Service (SaaS) solution, has reached a new milestone of over 100,000 users in 84 countries. The platform has become increasingly critical to progressing clinical trials as prevailing social distancing norms have significantly curtailed in-person collaboration. Many of the companies utilizing the Shared Investigator Platform are working to accelerate COVID-19 therapies through virtual clinical trial processes.

Friday, July 17, 2020

The National Institute of Allergy and Infectious Diseases, part of the National Institutes of Health (NIH), recently established the COVID-19 Prevention Network (CoVPN). Its goal is to register millions of volunteers for large-scale clinical testing of vaccines and monoclonal antibodies intended to protect people from COVID-19. As part of this initiative, Oracle-ORCL developed a Cloud System called the CoVPN Volunteer Screening Registry to identify and screen volunteers who want to participate in COVID-19 clinical trials. The system has been live for less than a week, and more than 100,000 people have already registered. This program is expected to support hundreds of clinical trial sites across the US and internationally by the end of the year.

Thursday, July 16, 2020

Johnson & Johnson-JNJ reported second quarter revenues declined 11% to $18.3 billion with net income and EPS each down 35% to $3.6 billion and $1.36, respectively. These results were driven by the negative impact of the COVID-19 pandemic with results expected to improve going forward. The strength of the Pharmaceutical business resulted in 2% sales growth to $10.8 billion driven by growth across most therapeutic areas.  Consumer Health sales declined 7% during the quarter to $3.3 billion due primarily to a decline in skin health and beauty care products. Partially offsetting the impact was strong growth in Tylenol with sales up 30% and increased demand for Listerine mouthwash due to COVID-19. The hardest hit unit during the quarter was Medical Devices with sales plunging 34% to $4.3 billion due to the deferral of medical procedures during the pandemic. Office visits declined 70% during the initial phases of the pandemic and currently are down about 10%-15% compared to last year.  Free cash flow approximated $5.5 billion in the second quarter with the company investing $2.7 billion in research and development and paying $2.7 billion in dividends. With a strong balance sheet, JNJ’s capital allocation strategy remains unchanged  with the first priority of the cash generated by operations used to meet organic growth business needs, and free cash flow used for investments in mergers and acquisitions and to pay dividends, which have been increased for 58 consecutive years, and share repurchases. JNJ is making encouraging progress on developing a vaccine for COVID-19. Studies have accelerated on the vaccine with Phase III studies expected to begin in September. JNJ is building global manufacturing operations to be able to produce greater than one billion doses of the vaccine in 2021. While there has been a resurgence of the virus in certain states, JNJ sees better protocols for treatment leading to better outcomes. If there is a second wave of COVID-19 in the Fall, JNJ does not expect it to have the same impact as during the initial stages of the pandemic as the world is much better prepared in terms of testing, equipment and treatments. In addition, a certain portion of the population has already developed antibodies. JNJ increased their 2020 sales and earnings outlook for 2020 with sales expected to decline 1%-3% to a range of $79.9 billion to $81.4 billion and constant currency, adjusted operational  EPS expected to decline 7%-10% to a range of $7.85 to $8.05. In fiscal 2021, JNJ expects financial results to improve in all business segments with operating margins expanding on higher sales growth which will  lead to strong EPS growth.

Wednesday, July 15, 2020

UnitedHealth Group-UNH reported second quarter revenues rose 2.5% to $62.1 billion with net income and EPS both more than doubling to $6.6 billion and $6.91, respectively. These results were substantially higher than expected due to the unprecedented, temporary deferral of health care during the quarter especially among elective procedures. In March and April people avoided going to the doctor unless necessary as the pandemic advanced. COVID-19 has accelerated telemedicine with UnitedHealth arranging four million digital visits for patients which was more than 30 times the level in January. Digital behavioral services are also helping patients address isolation and anxiety caused by the pandemic. The resumption of healthcare began to recover in May and approached more typical levels by the end of June. With COVID-19 profoundly impacting the health of people around the world, UnitedHealth moved swiftly to assist the people they serve by providing $1.5 billion in direct consumer support through premium credits, waivers of co-pays and other efforts. The company expects another $1 billion in rebates to be paid in future periods. In addition, UnitedHealth used its financial strength to accelerate nearly $2 billion of payments to care providers to provide needed liquidity for the health system. Free cash flow increased 48% to $12 billion during the first half of the year due to the higher earnings and deferral of tax payment until the third quarter. During the first half of the year, the company paid $2.2 billion in dividends and repurchased $1.7 billion of its common stock. Because UnitedHealth expects the resumption of deferred care and future COVID-19 costs will increase in the second half of the year, they maintained their full year earnings outlook of $15.45 to $15.75 per share despite the much better than expected financial results in the first half of the year. Management expects high unemployment will continue well into 2021, and they are taking actions to help provide affordable healthcare to underserved communities. While virus outbreaks in the U.S. will likely continue to spike on a regional basis, UnitedHealth does not expect to see a broad-based shutdown of the economy as regions deal with the ebbs and flows of the virus.


Europe's second-highest court rejected an EU order for Apple-AAPL to pay 13 billion euros ($15 billion) in Irish back taxes.



To help the world respond to COVID-19, 3M-MMM and researchers at MIT are testing a new rapid test that detects the virus. Accelerated research is underway to learn if a simple-to-use, diagnostic device can produce highly accurate results within minutes and is feasible to mass manufacture millions of units per day. The test could be administered at the point-of-care and would not need to be sent to labs for testing.

 

Tuesday, July 14, 2020

Fastenal-FAST reported second quarter revenues rose 10% to $1.5 billion with net income and EPS each bolting 17% higher to $238.9 million and $.42, respectively. These results were driven by a surge in personal protective equipment (PPE) sales and good cost discipline which resulted in operating margin expanding 80 basis points to 20.9% during the quarter. The PPE surge masked what were weak conditions in other parts of the business.  Safety daily sales more than doubled during the quarter. Growth was driven by a PPE surge in orders from government, health care and critical infrastructure entities. Safety sales remained firm in June, but surge volumes moderated. Fastener sales, which better reflect underlying economic conditions, were down 17% in the second quarter with trends improving in May and June from the bottom in business activity in April. Free cash flow increased 91% during the first half of the year to $402 million thanks to higher earnings, deferral of taxes and good working capital management.  During the first half, the company repurchased $52 million of stock and paid $286.8 million in dividends. Fastenal maintains a strong and conservative balance sheet. While business is expected to normalize in the third quarter, the pace is uncertain and will be linked to the trajectory of the pandemic.

Monday, July 13, 2020

PepsiCo-PEP reported second quarter revenue declined 3% to $15.9 billion with net income down 19% to $1.6 billion and EPS down 18% to $1.18. These results reflected the significant challenges and complexities related to the COVID-19 pandemic as the global economy contracted during the quarter due to restrictions and closures from the global lockdown. PepsiCo incurred $400 million of incremental COVID-19 related costs to keep employees safe and ensure business continuity. The global snacks and foods business held up better than the beverages business during the quarter. Quaker Foods was the star of the quarter with sales up 23% and operating profit up 55% as people ate more breakfast meals at home and increased in-home dinners and baking.  Quaker Foods is excited to launch Cheetos Mac ‘N Cheese this coming Fall. Frito-Lay North America experienced a 7% increase in sales with a 2% increase in operating earnings as the company gained market share. Tostitos, Fritos and Cheetos all experienced double-digit growth. On the other hand, beverages saw a sharp decline in revenues and profits due to the closure of restaurants and convenience stores during the quarter. Encouragingly, as restrictions and closure eased, PepsiCo saw improving trends in all their businesses in May and June. E-commerce U.S. retail sales doubled in the quarter.  Free cash flow increased 24% during the first half of the year to $274 million. During the first half, PepsiCo paid $2.7 billion in dividends and repurchased $1.1 billion of its common stock. The dividend reflects a 7% increase in the annualized dividend that began in June and represents the 48th annual dividend increase. The environment remains volatile and much uncertainty remains about the duration and long-term implications of the pandemic. PepsiCo does not expect a linear recovery but more of a rollercoaster recovery with many ups and downs depending on the path of the virus. Therefore, PepsiCo is not providing a financial outlook for the full year 2020. Third quarter revenue is expected to increase within a low-digit range with operating margin expected to contract due to continued COVID-19 related costs. However, management believes they have ample liquidity and flexibility to meet the needs of the business and return cash to shareholders including paying dividends of $5.5 billion in 2020 and repurchasing $2 billion of its shares. With a strong portfolio of brands, agile supply chain and flexible business model, PepsiCo is building their competitive advantages to emerge an even stronger company in the future.

Google, a division of Alphabet-GOOGL, said it plans to spend $10 billion over the next five to seven years to help accelerate the adoption of digital technologies in India.

T. Rowe Price-TROW reported preliminary month-end assets under management of $1.22 trillionas of June 30, 2020, reflecting a 1% increase since year end. 

Friday, July 10, 2020

Berkshire Hathaway-BRKB has reduced its share count by 1.2% since April 23, which was revealed in a regulatory filing related to Buffett's $2.9 billion donation of Berkshire stock to five nonprofits as part of his pledge to give away nearly all his fortune. If Berkshire repurchased those shares, it might have conducted roughly $4.9 billion to $5.9 billion of buybacks, depending on the price, over 2-1/2 months.

Thursday, July 9, 2020

Walgreens Boots Alliance-WBA reported fiscal third quarter sales were relatively flat at $34.6 billion with the company reporting a loss of $1.7 billion or <$1.95> per share. The quarterly performance was significantly impacted by the COVID-19 pandemic stay-at-home orders, especially in the United Kingdom. The Boots U.K. stores had a dramatic 85% reduction in foot traffic which resulted in a $700 million to $750 million shortfall in sales during the quarter. Gross margin was adversely impacted by a shift from higher to lower margin categories and supply chain costs.   Walgreens re-evaluated goodwill of the Boots U.K. business and took a non-cash impairment charge of $2 billion reflecting the operating loss and continued uncertainty related to COVID-19.  Globally, pharmacy volume was impacted by a drop in doctor visits and hospital patient admissions. The company is accelerating investments in key strategic priorities such as creating neighborhood health destinations, driving cost transformation, digitalization and restructuring its retail offering. Walgreens increased its annual cost savings target to in excess of $2 billion by fiscal 2022 from its transformational cost management program.  As consumer behavior rapidly shifts, the company is increasing its investments in omnichannel and digital infrastructure in partnership with Microsoft and Adobe. In restructuring its retail offering, Walgreens substantially increased its offering of personal protective equipment, added digital order ahead drive-thru and put in place new delivery options. Walgreens digital sales increased 23% during the quarter with Boots.com digital sales up 78%. Free cash flow increased 24% year-to-date to $2.4 billion with the company paying$1.3 billion in dividends and repurchasing $1.4 billion of its common shares. Walgreens has suspended its share buyback program for the time being. At the same time, the company increased its dividend 2.2% to an annual rate of $1.87 per share, which marks the 45th consecutive year of dividend increases and the 87th year a dividend has been paid. The dividend currently yields a healthy 4.8%.  For fiscal 2020, Walgreens expects adjusted EPS in the range of $4.65-$4.75 including an estimated adverse COVID-19 impact of $1.03-$1.14. In the fourth quarter, UK retail sales are expected to remain very depressed despite gradual easing of restrictions. More robust sales growth is expected in the United States , although retail margins are expected to remain compressed. Despite significant current challenges, Walgreens is expected to come out of the crisis in a strong position with a path set for long-term sustainable growth.

Wednesday, July 8, 2020

Biogen-BIIB and Eisai Co., Ltd. announced that Biogen has completed the submission of a Biologics License Application (BLA) to the U.S. Food and Drug Administration (FDA) for the approval of aducanumab, an investigational treatment for Alzheimer’s disease. The completed submission followed ongoing collaboration with the FDA and includes clinical data from the Phase 3 EMERGE and ENGAGE studies, as well as the Phase 1b PRIME study. As part of the completed submission, Biogen has requested Priority Review. If approved, aducanumab would become the first therapy to reduce the clinical decline of Alzheimer’s disease and would also be the first therapy to demonstrate that removing amyloid beta resulted in better clinical outcomes.


Walgreens Boots Alliance-WBA and VillageMD announced that Walgreens will be the first national pharmacy chain to offer full-service doctor offices co-located at its stores at a large scale, following a highly successful trial begun last year. This expanded partnership will open 500 to 700 "Village Medical at Walgreens" physician-led primary care clinics in more than 30 U.S. markets in the next five years, with the intent to build hundreds more thereafter. The clinics will uniquely integrate the pharmacist as a critical member of VillageMD’s multi-disciplinary team to deliver the very best healthcare to patients, and will be staffed by more than 3,600 primary care providers, who will be recruited by VillageMD. Under the terms of the new agreement, WBA will invest $1 billion in equity and convertible debt in VillageMD over the next three years, including a $250 million equity investment to be completed now. Of WBA’s investment, 80 percent will be used by VillageMD to fund the opening of the clinics and build the partnership, including integration with Walgreens digital assets. It is anticipated, assuming full conversion of the debt, that WBA will hold an approximately 30 percent ownership interest in VillageMD at the completion of the investment.

 Tuesday, July 7, 2020

Paychex-PAYX reported fourth quarter revenue decreased 7% to $915.1 million with net income down 4% to $220.7 million and EPS down 5% to $.61.  Results were impacted by COVID-19 causing worldwide business shutdowns directly impacting small and medium-sized businesses and their payrolls. Since the end of April, Paychex has seen sequential improvement in their key business metrics such as number of paid employees, sales leads and sales productivity. For the full fiscal 2020 year, revenue increased 7% to $4 billion with net income up 6% to $1.1 billion and EPS up 6% to $3.04.  Client retention hit an all-time high of 83%. Return on shareholders’ equity was a high 39.5% for the year. Free cash flow increased 14% during the year to $1.3 billion with the company paying $889 million in dividends and repurchasing 2million shares of its common stock for $171.9 million at an average price of $85.95 per share.  Paychex ended the year with a strong financial position with more than $900 million in cash. Paychex’s strong balance sheet and operational flexibility allowed the company to successfully manage through the initial impact of COVID-19 while protecting its cash flow and liquidity. In fiscal 2021, Paychex plans to accelerate cost-savings and the reduction of its geographic footprint which will result in a one-time charge of about $40 million. Excluding these one-time costs, Paychex expects total revenue for fiscal 2021 to decline 2% to 5% with adjusted EPS expected to decline 6% to 10%.  The first half of the year will be weak, with improvement seen in the second half of the fiscal year.

Monday, July 6, 2020

Dominion Energy announced that it has executed a definitive agreement to sell substantially all of its Gas Transmission & Storage segment assets to an affiliate of Berkshire Hathaway-BRKB in a transaction valued at $9.7 billion, including the assumption of $5.7 billion of existing indebtedness. Warren Buffett, chairman of Berkshire Hathaway, said: "I admire Tom Farrell for his exceptional leadership across the energy industry as well as within Dominion Energy. We are very proud to be adding such a great portfolio of natural gas assets to our already strong energy business." These assets include more than 7,700 miles of natural gas storage and transmission pipelines and about 900 billion cubic feet of gas storage. Berkshire will make a cash payment of approximately $4 billion to Dominion Energy upon closing which is expected to occur during the fourth quarter.

Friday, June 26, 2020

Raytheon Technologies-RTX received a $2.3 billion US Missile Defense Agency contract for seven GaN-based AN/TPY-2 radars as part of the Terminal High Altitude Area Defense (THAAD) system, which is designed to protect against incoming ballistic missile threats.
The contract is part of a foreign military sale to the Kingdom of Saudi Arabia.

Thursday, June 25, 2020

Nike-NKE reported fourth quarter revenues declined 38% to $6.3 billion with the company reporting a loss of $790 million during the quarter or <$.51> per share. This was a result of the majority of Nike-owned and partner stores outside of China being closed due to the COVID-19 pandemic with retail sales coming to a halt. Sales in China returned to growth in the fourth quarter as the majority of the stores in China reopened.  Nike digital sales increased 75%, or 79% on a constant currency basis, with strong double-digit increases across all geographies thanks to the strong Nike brand. Digital sales accounted for approximately 30% of total revenues. For the full fiscal 2020 year, revenues declined 4% to $37.4 billion with net income down 37% to $2.5 billion and EPS down 36% to $1.60. For the fiscal year, Greater China revenues increased 8%, or 11% on a constant currency basis, marking the sixth consecutive year of double-digit constant-currency growth despite the headwinds from COVID-19 in the second half of the year. Return on shareholders’ equity was 31.5% for the year. Nike ended the year with $7.4 billion in inventories, which were up 31% reflecting the impact of the store closures as well as lower wholesale shipments. Management expects to “right-size” inventories by the fiscal second quarter. Total liquidity as of May 31 was $12.5 billion with robust cash and short-term investments of $8.8 billion. This is a $4.1 billion increase due to proceeds from a $6 billion corporate bond issuance in March offset by share repurchase activity in the first 10 months of the year, dividends and investments in infrastructure. In addition, Nike secured a  new $2 billion credit facility, adding to the existing credit facility of $2 billion to ensure appropriate liquidity and flexibility during the pandemic. Nike has a strong track record of investing to fuel growth and consistently increase returns to shareholders through dividends and share repurchases including 18 consecutive years of increasing dividend payouts. In fiscal 2020, the company returned $4.5 billion to shareholders including dividends of $1.5 billion and share repurchases of $3 billion. The share repurchase program was suspended in March to maximize liquidity during the current environment. Given the continued economic uncertainty, Nike is not providing guidance for fiscal 2021 although management expects the first fiscal half to continue to show declines in growth compared to the prior year period with the second half showing significant growth with the full fiscal 2021 year expected to result in flat to positive revenue growth.


Accenture-ACN reported third quarter revenue declined 1% to $11.0 billion with net income down 1.7% to $1.2 billion and EPS down 1.5% to $1.90. Revenues by geographic market were strongest in North America with growth of 2%. By industry group, Health and Public Services experienced the highest growth of 11%. The operating margin expanded 10 basis points to 15.6% during the quarter. New bookings increased 4% to $11 billion with consulting bookings of $6.2 billion and outsourcing bookings of $4.8 billion. This was impressive as the world faced health, economic and social challenges during the quarter. There was strong demand for Accenture’s digital, cloud and security services in a “remote everything” world with these services making up 70% of new bookings. Accenture expects strong bookings for these services in the fourth quarter as well. Year-to-date free cash flow increased 12% to $4.7 billion. During the first nine months of the year, Accenture used its very strong free cash flow to make acquisitions of $1.3 billion, pay dividends of $1.5 billion, a 10% increase, and repurchase $2.33 billion of its common shares at an average price of $245.26 per share. Accenture has $1.9 billion authorized for future share repurchases. For the full 2020 fiscal year, Accenture now expects revenue growth in the range of 3.5% to 4.5% with EPS expected in the range of $7.57 to $7.70. The company raised its free cash flow outlook to $5.8 billion to $6.3 billion for the full year.


FactSet-FDS
reported third quarter revenues rose 2.6% to $374.1 million with net income up 9.7% to $101.2 million and EPS up 11% to $2.63. The increase in sales is primarily due to higher sales of analytics, content and technology solutions and wealth management solutions. Annual Subscription Value plus professional services was $1.52 billion as of quarter end, representing 5% organic growth. This was due to higher sales in FactSet’s wealth and research workflow solutions and price increases in the company’s international region. FactSet increased its dividend 7% to $.77 during the quarter, marking the 15th consecutive year of dividend increases. Client count increased by 55 clients during the quarter to 5,743 at quarter end driven by an increase in corporate and wealth management clients. User count increased by 2,199 to 131,095 during the quarter driven by an increase in wealth advisors and buy-side research users. Client annual retention was 89%. Year-to-date free cash flow increased 4% to $283.5 million with dividend payments of $81.4 million and share repurchases of $171.0 million. The company expanded its share repurchase program by $220 million during the quarter and has $288 million currently authorized for future share repurchases. For the full 2020 fiscal year, FactSet expects revenues in the range of $1.485 million and $1.490 million with EPS expected in the range of $9.60 to $9.80. Despite the challenging environment, FactSet expects to end the fiscal 2020 year on a strong note as they continue to close deals and bring on new clients. The company’s strong balance sheet and cash flows provide the company’s resilient business model with stability during uncertain times.

Tuesday, June 23, 2020

Mastercard-MA announced it has entered into an agreement to acquire Finicity, a leading North American provider of real-time access to financial data and insights. The purchase price is $825 million, and Finicity’s existing shareholders have the potential for an earn-out of up to an additional $160 million, if performance targets are met. As with past acquisitions, Mastercard does not expect this acquisition to be incrementally dilutive to its business for greater than 24 months.

 
Cognizant-CTSH

is providing a team of its life sciences experts to support Verily's Baseline COVID-19 Testing Program to increase individuals' access to test scheduling. Verily is a unit of Alphabet-GOOGL. Verily's Baseline COVID-19 Testing Program began earlier this year in collaboration with federal, state, and local government health authorities, as well as private health organizations to expand access to testing in areas with high volumes of known cases. The Baseline COVID-19 Testing Program is a connected solution that supports individuals through screening, testing, and receiving results safely and quickly. The program is in operation at more than 140 testing sites across 13 states and has supported the administration of more than 284,000 COVID-19 tests. Plans are also in place to continue to expand testing locations nationally.


Apple-AAPL
announced new updates to its operating system by introducing iOS 14 which will allow users to organize apps into an App Library; provide more accessible widgets that can be placed on the home screen; bring picture-in-picture to iPhone; add in-line replies and mentions to messages; introduce a new language translation app; provide maps which will track electric car charging and tell you where you need to go to charge up; and support cars to unlock and start the car with the iPhone. Apple also introduced App Clips that will allow you to tap on apps for food delivery, parking payments, and other items. Apple also previewed watchOS 7, delivering enhanced customization tools and new health and fitness features to the advanced smartwatch, including new watch faces, sleep tracking, automatic handwashing detection, additional workout types including dance, and a new hearing health feature. Conveniently on the wrist, Maps is updated with cycling directions, and Siri now offers language translation.

Monday, June 22, 2020

Walgreens-WBA announced the company is resuming immunization services with additional safety measures in place for pharmacy team members and patients. The changes follow recently updated U.S. Centers for Disease Control and Prevention (CDC) guidelines and come ahead of flu season, which health officials warn may coincide with a second wave of COVID-19. Walgreens pharmacists have a history of providing immunizations to patients in communities across the country, having administered more than 60 million vaccines in the U.S. since 2010. As a highly accessible healthcare resource in communities, pharmacists are playing an even bigger role as part of patient care teams and can help protect communities from vaccine-preventable illnesses and improve health outcomes.


As of June 21, 2020, 1,177 Ulta Beauty-ULTA stores, or about 93% of the fleet, offer curbside pickup, and 866 Ulta Beauty stores, or about 68% of the fleet, are open to guests for retail, with 827 stores offering salon services. The company continues to expect to have substantially all stores reopened in some capacity by the end of June.

Wednesday, June 17, 2020

Oracle-ORCL reported fourth quarter revenues declined 6% to $10.4 billion with operating income up 1% to $4.3 billion, net income down 17% to $3.1 billion and EPS down 8% to $.99. During the fourth quarter, the company had strong performances in both the cloud infrastructure and cloud applications businesses. Leading the way was the Fusion Cloud ERP Suite that grew 35% in constant currency and the Fusion Cloud HCM Suite which grew 29% in constant currency. The overall business did remarkably well considering the pandemic, but results would have been even better except for customers in the hardest-hit industries that Oracle serves such as hospitality, retail and transportation where purchases were postponed. For the full fiscal 2020 year, Oracle reported revenues dipped 1% to $39.1 billion with operating income up 3% to $13.9 billion, net income down 9% to $10.1 billion and EPS +4% to $3.08. Return on shareholders’ equity was 80%, driven by additional leverage as the company increased its debt by $20 billion in the fourth quarter to take advantage of lower interest rates. Free cash flow declined 10% during the year to $11.6 billion with the company paying $3.1 billion in dividends and repurchasing 361 million of its common stock for $19.2 billion at an average price of about $53.19 per share. Over the last decade, Oracle has reduced its shares outstanding by about 40%. With business expanding and the business mix shifting to more profitable business, Oracle is confident that their revenue will accelerate with operating margin expected to expand. For the first fiscal quarter, revenue growth is expected to be down 1% to up 1% with non-GAAP EPS expected to increase 4% to 8% to a range of $.84-$.88.

Monday, June 15, 2020

Apple®-AAPL announced the App Store® ecosystem supported $519 billion in billings and sales globally in 2019 alone. The new study, conducted by independent economists at Analysis Group, found that the highest value categories were mobile commerce (m-commerce) apps, digital goods and services apps, and in-app advertising. The results encapsulate the full sweep of the dynamic, competitive, and flourishing app economy, which has unleashed a torrent of innovation across 175 countries and revolutionized the way the world learns, works, and connects.

 

3M-MMM reported total sales for May declined 20% to $2.2 billion. Total sales declined 11% in Health Care, 12% in Consumer, 17% in Safety and Industrial and 30% in Transportation and Electronics. On a geographic basis, total sales declined 15% in Asia Pacific, 21% in the Americas and 26% in EMEA (Europe, Middle East and Africa).

Wednesday, June 10, 2020

T. Rowe Price Group-TROW reported preliminary month-end assets under management of $1.19 trillion as of May 31, 2020, which is down 1.7% from year end.

Biogen-BIIB announced new results from NURTURE, the longest study of pre-symptomatic patients with spinal muscular atrophy (SMA) that is transforming expectations of early treatment with SPINRAZA (nusinersen). In infants genetically diagnosed with SMA, new data demonstrate that early and sustained treatment with SPINRAZA for up to 4.8 years enabled unprecedented survival. Patients continued to maintain and make progressive gains in motor function compared to the natural course of the disease.

Starbucks-SBUX reported that its business is steadily recovering and moving beyond the “mitigate and contain” phase of dealing with the pandemic into the “monitor and adapt” phase, as the company re-opened the vast majority of its stores around the world. With each passing week, Starbucks is seeing clear evidence of business recovery, with sequential improvements in comparable store sales performance. The Starbucks brand is resilient, customer affinity is strong, and management believes the most difficult period is now behind them. Although new store development activity was temporarily paused in the Americas due to the onset of COVID-19, new store openings have now resumed. Building on the approximately 200 net new stores that were opened in the Americas through the second fiscal quarter, Starbucks now expects to open approximately 300 net new stores in fiscal 2020 for the segment, down from the original expectation of 600. This repositioning will include the closure of up to 400 company-operated stores over the next 18 months. Beyond fiscal 2021, Starbucks expects its targeted 3%-4% Americas net new unit growth model to remain intact, with improved profitability. Operating margins have shown gradual improvement with the preliminary estimates for GAAP and non-GAAP EPS of approximately $0.33 to $0.73 and $0.55 to $0.95, respectively, for fiscal 2020. Given the company’s financial strength and the steady recovery progress, management remains confident in their ability to maintain appropriate liquidity through the current crisis. There has been no change to fiscal 2020 capital allocation plans with the temporary suspension of share repurchases, uninterrupted quarterly dividends and capital expenditures of approximately $1.5 billion.



Johnson & Johnson-JNJ announced it has accelerated the initiation of its COVID-19 vaccine human trials. Initially scheduled to begin in September, the trial is now expected to commence in the second half of July. The company is in discussions with the National Institutes of Allergy and Infectious Diseases with the objective to start the Phase 3 clinical trial ahead of its original schedule, pending outcome of phase 1 studies and approval of regulators. The company committed to the goal of supplying more than one billion doses globally through the course of 2021, provided the vaccine is a safe and effective. To get longer term immunity, might require booster shot 2-3 years later.


Tuesday, June 9, 2020

Brown-Forman-BFB reported fourth quarter revenues declined 5% to $709 million with net income and EPS each dropping 20% to $128 million and $.27, respectively. COVID-19 began to affect performance in the middle of March and continued throughout April as both on-premise, representing about 20% of global business, and Travel Retail channels essentially came to a halt. Brown-Forman experienced strong growth in the off-premise and e-premise channels across most developed markets as country lockdowns and government restrictions resulted in increased at-home consumption and some pantry loading. Consumers looked for trusted brands like Jack Daniel’s and affordable luxuries during the pandemic in developed markets. Emerging markets without safety nets will remain challenging.  For the full fiscal 2020 year, revenues increased 1% to $3.4 billion with net income and EPS each dipping 1% to $827 million and $1.73, respectively. Return on equity for the year was a cheerful 42%. Free cash flow declined 10% during the year to $611 million with the company paying $325 million in dividends. Brown-Forman has paid dividends for 75 consecutive years and has increased the dividend for 36 uninterrupted years. Given the substantial uncertainty related to the evolving COVID-19 pandemic and its effect on the global economy, the company is not providing any financial guidance for fiscal 2021. With a strong balance sheet, solid cash flows and ample liquidity, the company expects to fully fund ongoing investments in the business and pay regular dividends. With an attractive portfolio of brands in growing categories and a resilient supply chain, Brown-Forman expects to successfully navigate these unchartered waters, similar to other challenges encountered over the last 150 years, and emerge an even stronger company with healthier brands to drive growth for the next generation.

Mastercard-MA updated its operating metrics with an additional three weeks of information. Mastercard is monitoring the impact of the pandemic and related actions being taken by governments as it relates to border restrictions, social distancing measures and opening of businesses, and the resultant impact on spending levels. With an additional three weeks of activity, it continues to see the transition from the Stabilization phase to the Normalization phase in most markets domestically. The Stabilization phase is characterized by spending stabilizing around new lower levels as a result of compliance with social distancing and mobility limitations. The Normalization phase occurs when these restrictions are relaxed and spending begins to gradually recover from the new lower levels, with some sectors recovering faster than others. Spending is improving in clothing, gas, home improvement, restaurants and domestic travel. Cross-border volume continues to be impacted by the decline in travel and remains essentially unchanged.

 Monday, June 8, 2020

Alphabet Inc’s Google-GOOGL is planning to introduce additional features on its Maps navigation app to alert users of COVID-19 travel restrictions. The alerts are intended to help users plan their trips accordingly if government mandates impact bus and train services or require wearing a mask on public transportation.  “Because of COVID-19, it’s increasingly important to know how crowded a train station might be at a particular time or whether the bus is running on a limited schedule,” said Ramesh Nagarajan, Product Management Director at Google Maps. “Having this information before and during your trip is critical for both essential workers who need to safely navigate to work and will become more important for everyone as countries around the world begin to reopen.” In addition, Google Maps is also introducing driving alerts to notify users about COVID-19 checkpoints and restrictions along a route, for example when crossing national borders starting first in Canada, Mexico and the U.S. Furthermore, when navigating to medical facilities or COVID-19 testing centers, Google Maps will display alerts reminding users to verify eligibility and facility guidelines to avoid being turned away or causing additional strain on the local healthcare system.


Thursday, June 4, 2020

Fastenal-FAST reported May sales rose 4.4% to $493.2 million with daily sales up 14.8% to $24.7 million. Daily sales growth by end market was <4.2%> for manufacturing and <9.8%> for non-residential construction. Daily sales growth by product line was <15.3%> for fasteners, 136.3% for safety and <6.0%> for other products.

Wednesday, June 3, 2020

Private sector employment decreased by 2,760,000 jobs from April to May according to the May ADP National Employment Report®. "The impact of the COVID-19 crisis continues to weigh on businesses of all sizes," said Ahu Yildirmaz, co-head of the ADP Research Institute. "While the labor market is still reeling from the effects of the pandemic, job loss likely peaked in April, as many states have begun a phased reopening of businesses." 

Tuesday, June 2, 2020

Volumes rose 4% at Canadian National Railway-CNI in the last week of May as manufacturing and construction sectors reopened, said Chief Financial Officer Ghislain Houle. While the recovery is expected to be slow, it’s a positive sign after shipments hit bottom last month. “I think we’re seeing the light at the end of the tunnel. Hopefully, it will hold,” Houle said at an industry conference. Rail volumes fell sharply during the height of the pandemic as manufacturers cut production amid shutdowns to contain the outbreak. CNI furloughed more than 2,500 employees and put 710 locomotives and 20,000 rail cars in storage in response to lower demand. Things started to turn during the last week of May when lumber shipments rose 20% and automotive volumes climbed 60% from the previous week, Houle stated. The railway is bullish on grain and coal shipments through the West Coast while crude and frack-sand shipments will probably remain under pressure amid low oil prices. The railway will be “patient” before returning locomotives, cars and crews back to its network. Volumes in June are expected to be “less worse” than May but still lower than a year ago, Houle noted. The recovery will probably be gradual as social-distancing rules continue across parts of North America amid concerns there could be a second wave of the virus. “It’s not all a rush at the gate,” Houle said. “It’s gradual.”



UnitedHealth-UNH authorized payment of a quarterly cash dividend of $1.25 per share, to be paid June 30, 2020, to common stock shareholders of record as of the close of business June 22, 2020. This represents a healthy 16% increase over the prior quarter dividend.


Thursday, May 28, 2020

Ulta Beauty-ULTA reported fiscal first quarter sales of $1.2 billion, down 33% from last year, and a net loss of $78.5 million, or $1.39 per share, compared with net income of $192 million, or $3.26 per share reported last year.  Comparable sales (sales for stores open at least 14 months, including stores temporarily closed due to COVID-19, and e-commerce sales) decreased 35.3%, compared to an increase of 7% in the first quarter of fiscal 2019. The 35.3% comparable sales decrease was driven by a decline of 38.6% in transactions which was partially offset by a 3.3% increase in average ticket. Results include Impairment charges of $19.5 million related to tangible long-lived assets and operating lease assets associated with about 20 retail stores. Fiscal 2020 started off well, with good growth in comparable store sales, market share, and the Ultamate Rewards loyalty program through mid-March. However, the rapid escalation of COVID-19 resulted in significant disruption to Ulta Beauty’s operations. From March 11 through May 2, same store sales plummeted 62% on the heels of management’s decision to close all stores.  For much of the first quarter, Ulta Beauty operated as a digital-only business, and while e-commerce sales exceeded expectations, it was not enough to fully offset the impact of store closings. With safety continuing to guide management’s decisions, Ulta has begun to reopen stores, and today more than 800 stores offer curbside pickup and more than 330 stores are open to guests. While it is still early, sales have been stronger-than-expected in reopened stores, boosted by pent up demand for salon services. During the quarter, management took multiple steps to reinforce the company’s financial strength and preserve liquidity including: drawing down $800 million under its $1 billion revolving credit facility; suspending new hires, deferring merit increases for all corporate, store, and salon associates; reducing marketing, travel and other discretionary expenses; moderating the pace of investment to support international capabilities; reducing planned new store openings, relocations and remodel projects; and suspending its stock repurchase program. Given all the uncertainty, management withdrew its 2020 guidance. During the quarter, free cash flow was a negative versus nearly $200 million last year. The company ended the quarter with $1.2 billion in cash, $1.7 in capital lease obligations and $800 million in long-term debt. Given its strong, differentiated operating model, strong brand and solid financial position, management is confident Ulta Beauty will emerge from this crisis well-positioned to accelerate market share gains and extend its competitive advantages.

Tuesday, May 26, 2020

Building on the momentum in its business in the first quarter of 2020, Tractor Supply-TSCO continues to experience record sales across its channels, product categories and geographic regions. The Company’s e-commerce business, including a redesigned website and mobile app, has experienced substantial growth quarter-to-date with many customers choosing Buy Online, Pickup At Store and the new contactless curbside delivery option. While there is still a significant portion of the second quarter ahead, the Company currently forecasts record net sales growth of 24% to 29% and comparable store sales growth of 20% to 25%. The Company’s gross profit performance continues to be strong with gross margin expansion anticipated for the second quarter. For the second quarter, the net incremental operating expenses related to the COVID-19 pandemic are estimated to be at the high end of the Company’s previous guidance range of $30 million to $50 million. Diluted earnings per share for the second quarter is forecasted to be in the range of $2.45 to $2.65. Tractor Supply raises frontline team member compensation permanently and adds new Benefits for part-time team members. Appreciation Bonuses will continue through June 27.


Thursday, May 21, 2020

Ross Stores-ROST reported first quarter revenues declined 51% to $1.8 billion with the company reporting a loss of $305.8 million or ($.87) per share reflecting the closure of all stores starting on March 20th, 2020 through the end of the quarter due to the COVID-19 pandemic and an inventory valuation charge. This was the company’s first quarterly operating loss in more than 30 years.  During the quarter, the company used $1.1 billion in cash flow from operations. During the quarter, the company took the following actions to increase its liquidity and financial flexibility including drawing down $800 million under its revolving credit facility, completing a $2 billion public bond offering, suspending the stock repurchase program and aggressively cutting costs. The company also announced the suspension of its dividend and the reduction of new store openings to 66 stores for the year compared to the previous plan to open 100 new stores. This will reduce capital expenditures to an expected $430 million from the planned $730 million for the year. The company ended the quarter with $2.7 billion in cash and a new $500 million revolving credit facility which provides management with the confidence that they will be able to successfully navigate through these challenging times. On May 14th, the company began a phased reopening of stores with about 700 of its 1800 stores now open with the balance expected to be open by the end of June.  Given the lack of visibility created by COVID-19, the company is not providing financial guidance for the second quarter or year.

The TJX Companies-TJX reported first quarter sales declined 52% to $4.4 billion with the company reporting a loss of $887 million or ($.74) per share due to the temporary closure of all their stores for half of the quarter as a result of the global pandemic. The company used $3.1 billion of cash flow during the quarter as the company paid its payroll and the vast majority of its merchandise costs for inventory that had been ordered prior to the pandemic despite the substantial loss of sales from store closures. The company also paid the fourth quarter dividend of $278 million which had been previously declared and $201 million for share repurchases. The company suspended share repurchases for the balance of the year. The company also suspended its first and  second quarter dividend but is committed to resuming dividend payments for the long term, as it has done for decades, whenever the environment and its business stabilize.  In response to the COVID-19 pandemic, the company took actions to strengthen its financial liquidity and flexibility during the quarter. This included drawing down the full amount of $1 billion from its revolving credit facilities and issuing $4 billion in debt maturing 5-30 years from now at an average weighted rate of 3.85%. The company has reduced its capital expenditure plan from $1.4 billion for the year to a range of $400 million to $600 million and lowered its new store openings to 50. While TJX paid most of its rent during the first quarter, they have negotiated with many landlords the deferral of a meaningful portion of second quarter rent payments to later dates, primarily to next year. Beginning on May 2, 2020, the company started to reopen stores. To date, the company has reopened 1,600 of its 4,500 stores around the globe. Initial sales, worldwide, have been above last year’s sales even with most stores limited to 25% of capacity, reflecting strong pent up demand for the company’s great values. Traffic has been strong in most locations with baskets reflecting significantly higher units.  Home goods sales have been stronger than apparel sales. The company hopes to have most of its stores reopened by the end of June.  Due to the high level of uncertainty around store re-openings, the current retail environment and future consumer demand, the company is not providing guidance for the fiscal year. With $4.3 billion in cash at the end of the quarter, management is confident that it currently has sufficient liquidity for the remainder of the year.

 

Starbucks-SBUX has now regained about 60-65 percent of prior year comparable U.S. store sales while reopening U.S. stores under modified operations and with reduced hours. In China, comparable store sales have reached about 80 percent of prior year levels, reflecting gradual improvements over the past several weeks.

Hormel Foods-HRL reported record fiscal second quarter sales of $2.4 billion, up 3%, with net earnings of $228 million, or $0.42 per share, down 19% from last year. Excluding the gain from the CytoSport divestiture in 2019, earnings and EPS declined 9%, mainly due to lower investment income. The COVID-19 pandemic and subsequent shelter-in-place restrictions drove higher and sustained retail sales for each of Hormel’s segments. The company gained market share in the majority of its retail categories as consumers purchased branded food products at an accelerated rate through various retail outlets, including traditional, mass, club, discount and e-commerce retailers. The effect of the pandemic also caused sharp sales declines in the foodservice channel during the quarter for each of the company's segments. By segment, Refrigerated Foods sales declined 1% to $1.2 billion with segment operating profit declining 17% as strong retail and deli products sales and the Sadler's Smokehouse acquisition did not fully offset a dramatic decline in foodservice sales. Grocery Products sales increased 8% to $683 million with segment operating profits increasing 22% as retail consumer demand for branded products increased. Double-digit growth from products such as the SPAM® family of products, SKIPPY® peanut butter, Hormel® chili and Hormel® Compleats® microwave meals more than offset the divestiture of the CytoSport business last year. Jennie-O Turkey sales increased 12% to $343 million with segment operating profit increasing 54% as Improved retail, commodity and whole-bird sales more than offset a decline in foodservice sales. Distribution gains prior to the COVID-19 outbreak and subsequent strong demand during the outbreak for Jennie-O® lean ground products drove double-digit retail sales increases. International sales increased 2% to $149 million on strong global demand for SPAM® luncheon meat and other branded exports overcame softer foodservice sales, especially in China.. During the quarter, Hormel generated $360 million in cash flow from operations, up 102%, with lower levels of inventory and accounts receivable driving the increase. Free cash flow of $280 million, representing more than 120% of reported earnings, increased 115%.   The company paid its 367th consecutive quarterly dividend on May 15, 2020, at the annual rate of $0.93 per share, an 11% increase over the prior year. Hormel also finalized the acquisition of Sadler's Smokehouse for $269 million during the quarter. Hormel ended the quarter with $623 million in cash and investments, $57 million in long-term debt and $6.6 billion in shareholders’ equity on its beefy balance sheet. Hormel recently renewed its shelf registration statement and will be looking at near-term opportunities to access the debt capital markets to refinance existing debt maturing in April 2021 and to maintain ample liquidity at favorable interest rates. Even though the COVID-19 pandemic has caused a dramatic shift in consumer behavior, operational disruptions and extreme volatility in raw material markets, management remains confident it is well-positioned to successfully weather the pandemic outbreak just as it has weathered a myriad of challenges during the company’s 127-year history.

Wednesday, May 20, 2020

With small businesses struggling, Facebook-FB is launching Facebook Shops and investing in features across their apps that inspire people to shop and make buying and selling online easier. Facebook Shops make it easy for businesses to set up a single online store for customers to access on both Facebook and Instagram. Creating a Facebook Shop is free and simple. Businesses can choose the products they want to feature from their catalog and then customize the look and feel of their shop with a cover image and accent colors that showcase their brand. This means any seller, no matter their size or budget, can bring their business online and connect with customers wherever and whenever it’s convenient for them.


Tuesday, May 19, 2020

Paychex-PAYX provided a COVID-19 business update noting that while the impact on the economy of COVID-19 is severe, they are seeing early signs of moderation and stabilization in key business metrics. Paychex’s financial position remains strong and they expect their cash and projected operating cash flows will support their normal business operations, capital expenditures, share repurchases and dividend payments for the foreseeable future. Management believes their strong balance sheet and operational flexibility will allow them to successfully manage through the current situation while protecting cash flow and liquidity. For the full fiscal year ending in May 2020, Paychex expects revenue growth of 7% with net income and EPS growth of 6%.

Friday, May 15, 2020

   

ProtectWell™ combines UnitedHealth Group’s-UNH clinical and data analytics capabilities with Microsoft’s-MSFT technology leadership to help in the next phases of COVID-19 recovery efforts. The ProtectWell™ app is powered by Microsoft Azure, AI and analytics solutions, and also takes advantage of the Microsoft Healthcare Bot service, which is being used around the world for AI-assisted COVID-19 symptom triaging. The ProtectWell™ app includes an AI-powered health care bot that asks users a series of questions to screen for COVID-19 symptoms or exposure. If risk of infection is indicated, employers can direct their employees to a streamlined COVID-19 testing process that enables closed-loop ordering and reporting of test results directly back to employers. Health care information is managed by UnitedHealth Group and employers in accordance with occupational health laws.

Thursday, May 14, 2020

Nike-NKE reported that 100 percent of NIKE-owned stores and over 95 percent of partner stores in Greater China and South Korea are open, with some still operating with reduced hours. In these markets, retail traffic trends are progressing and while physical store traffic remains below prior year levels, this is largely offset by higher conversion rates and continued strong digital demand. Since mid-March, the vast majority of NIKE-owned and wholesale partner stores outside Greater China and South Korea have been completely closed in order to protect the health and safety of employees and help slow the spread of COVID-19. In light of store closures, product shipments to wholesale customers have slowed resulting in significantly lower wholesale revenue and higher inventory which is expected to have a material impact on NIKE in the fourth quarter. Nike has gradually reopened a small number of NIKE-owned stores across North America, EMEA and APLA as states and countries within each of these geographies ease quarantine measures and begin marketplace recovery. Specifically, store reopening has begun in over 15 countries including Germany, France, the Netherlands, Brazil and the United States. Roughly 40 percent of NIKE-owned stores in EMEA, 15 percent in APLA and 5 percent in North America, are open with some operating with reduced hours.

3M-MMM reported April sales declined 11% to $2.3 billion. Total sales grew 5 percent in Health Care, with declines of 5 percent in Consumer, 11 percent in Safety and Industrial, and 20 percent in Transportation and Electronics. The COVID-19 pandemic continues to impact 3M’s businesses in several ways. 3M has continued to experience strong end-market demand specifically in personal safety, electronics (semiconductor and data center), general cleaning, food safety and biopharma filtration. At the same time, several other end markets have experienced significant weakness due to factors including social distancing and shelter-in-place mandates. These end markets include oral care, automotive OEM and aftermarket, general industrial, commercial solutions, and stationery and office. On a geographic basis, total sales declined 5 percent in Asia Pacific, 12 percent in EMEA (Europe, Middle East and Africa), and 13 percent in the Americas.

 

Wednesday, May 13, 2020

Cisco Systems-CSCO reported fiscal third quarter revenues declined 8% to $12 billion with net income dropping 9% to $2.8 billion and EPS 6% lower at $.65. The pandemic has driven organizations around the globe to digitize their operations and support remote workforces at a faster speed and greater scale than ever before. Cisco focused on providing the technology and solutions customers needed to accelerate their digital operations. Cisco believes an element of remote working will remain in place after the crisis as will online education and telemedicine. Customers will need to build out more robust digital operations to support their organizations, especially in security. Cisco’s Security products rose 5% during the quarter with their Services revenues also up 5%. Cisco’s Webex platform in April hosted 500 million meetings or 25 billion meeting minutes, triple the volume in February as the world went online overnight. During the quarter, Cisco used their strong balance sheet to help their customers access the technology they needed and to invest for the recovery while deferring most of the payments until early 2021 through a $2.5 billion financing program for customers and partners.  Fiscal year-to-date, Cisco’s free cash flow dipped 1% to $11.1 billion with the company paying $4.5 billion in dividends and repurchasing $2.7 billion of its common stock. Cisco ended the quarter with $28 billion in cash, $11.6 billion in long-term debt and $35.7 billion in shareholders’ equity. Cisco’s strong balance sheet and healthy free cash flow generation are competitive advantages for the business. Cisco remains committed to returning at least 50% of free cash flow to shareholders through dividends and share repurchases. The company’s remaining share repurchase authorization is $10.8 billion. For the fiscal fourth quarter, Cisco expects revenues to decline 8.5% to 11.5% with EPS expected in the range of $.57-$.62.

Mastercard-MA believes that we are starting to see the spending transition from the Stabilization phase to the Normalization phase in some markets, although it is very early days. The Stabilization phase is characterized by spending stabilizing around new lower levels as a result of compliance with social distancing and mobility limitations. The Normalization phase occurs when these restrictions are relaxed and spending begins to gradually recover from the new lower levels, with some sectors recovering faster than others. Cross-Border volume continues to be impacted by the decline in travel, although they have seen modest improvements over the last week in part due to an increase in intra-Europe travel.


Friday, May 8, 2020

Carrier Global-CARR reported first quarter revenues declined 10% to $3.9 billion with operating income down 37% to $315 million.  Interest expenses, taxes and restructuring charges resulted in net income and EPS each declining 76% to $96 million and $.11, respectively. Cash flow from operations was $47 million and capital expenditures were $48 million resulting in a use of free cash flow of $1 million, which was an improvement from the negative $224 million of free cash flow in the prior year period. Carrier ended the quarter with $768 million in cash and $11 billion in long-term debt. Due to the COVID-19 pandemic, management is taking aggressive cost reduction actions, identifying $425 million of savings and a 40%-50% reduction in planned capital spending. To preserve cash during this uncertain time, Carrier has delayed declaring a dividend and will likely reduce the amount of the dividend initially planned for the year. The company expects the second quarter to be the worst of the year with results gradually improving in the second half of the year.  The company forecasts  sales in the range of $15 billion to $17 billion with adjusted operating profit of $1.7 billion to $2.0 billion and free cash flow in excess of $1 billion for the full year.

Thursday, May 7, 2020

Cognizant Technology Solutions-CTSH reported revenue increased 2.8% to $4.2 billion with net income falling 17% to $367 million and EPS declining 13% to $0.67. By segment, Financial Services (34% of total revenues) increased 1%, Healthcare (28% of total revenues) increased 2.5%, Products and Resources (23% of revenues) grew 4.4% and Communications, Media and Technology (15% of revenue) grew 5%. During the quarter, Cognizant Technology Solutions generated $385 million in free cash flow, representing 105% of earnings, with the company returning $632 million to shareholders through dividend payments of $121 million and share repurchases of $511 million at an average cost of $60.12 per share. The company ended the quarter with $4.3 billion in cash, $2.4 billion in long-term debt and $10.6 billion in shareholders’ equity on its strong balance sheet. With a 30% increase in contract awards during the quarter, including 50% growth in digital business, management made significant progress executing its growth strategy during the quarter. However, COVID-19-related disruptions reduced revenue in March, reflecting delays in project fulfillment as Cognizant rapidly enabled the shift to work-from-home capabilities across its delivery teams. In April, Cognizant Technology Solutions encountered a Maze ransomware attack causing service disruptions for some clients while other clients disengaged from Cognizant’s systems to avoid spreading Maze. Management believes it has contained the attack and that the actor is no longer operating in the company’s environment. Given all the uncertainty, management withdrew guidance but provided assumptions for 2020.  While management expects secular trends of core modernization and cloud to accelerate post COVID-19 crisis, it expects weakness in Q2 given the additional impact of Maze, which is estimated to cost $50 million to $70 million. Travel & hospitality, retail, auto, energy and media & entertainment (about 20% of revenues) will continue to see heightened COVID-19 impact. Continued execution of 2020 Fit for Growth Plan is expected to deliver $450 million in annualized savings. "We executed well in what was a challenging quarter, and posted our strongest quarterly signings since 2017," said Brian Humphries, Chief Executive Officer. "Amid the pandemic's unprecedented human and economic challenges, we remain focused on the health and safety of our associates whilst maintaining business continuity for our clients and supporting our communities. While we expect a challenging demand environment throughout 2020, we believe the pandemic is accelerating the secular trends of core modernization and cloud migration as companies shift to digital business models. These and other related IT trends play directly to Cognizant's strategy. I am confident we will emerge from this crisis in a position of strength."

Booking Holdings-BKNG reported first quarter revenues declined 19% to $2.3 billion with the company reporting a loss of $699 million versus a profit of $765 million in the prior year period.  The first quarter loss included impairment charges of $489 million for OpenTable and Kayak goodwill and $100 million for an investment in equity securities.  Gross travel services booked by customers decreased 51% during the quarter to $12.4 billion with room nights booked declining 43% as the COVID-19 pandemic spread around the world. Rental car days booked declined 36%. New bookings in March were down greater than 100% which means that there were more cancellations than new bookings.  The COVID-19 pandemic has profoundly impacted the company and the entire travel industry. The company took immediate steps to stabilize the company by reducing costs and bolstering its liquidity position. The company ended the quarter with $9.2 billion in cash and $7.6 billion in long-term debt. Early in the quarter, the company repurchased $1.3 billion of its common stock but has since halted share repurchases to conserve cash. On April 8, the company increased cash further through a $4.1 billion bond offering. Management believes the company has sufficient liquidity to weather a long period of lower travel demand, which they expect to last for years rather than quarters. Emerging from a deep recession, travel demand will recover later than other industries, especially until a vaccine is available to make people feel safe to travel internationally again. New bookings in April were down 85% with very early signs that domestic travel is improving in countries like China, South Korea and Germany. New outbreaks such as those seen in Singapore, however, may result in travel declining once again. Management expects the road ahead to be tough for the travel business. They will optimize the business to reduce costs and be well positioned to capitalize when travel recurs as it always has. With a highly variable cost structure, strong liquidity and strong brands, Bookings Holdings expects to emerge from the crisis in a position of strength that will allow them to extend their leadership in the industry.

Otis Worldwide Corporation-OTIS reported first quarter sales declined 2.5% to $3.0 billion with net income and EPS declining 40% to $165 million and $0.38, respectively. Sales decline in the New Equipment was partially offset by continued strength in the Service segment. New Equipment sales of $1.1 billion declined 12% with organic sales declining in all major regions with a double-digit decline in Asia, primarily due to COVID-19 in the region, and a high-single digit decline in the Americas. New Equipment operating margin increased by 110 basis points to 5.7% as the impact from lower volume in Asia was more than offset by strong material productivity and lower commodity prices. New Equipment orders were flat with double-digit growth in the Americas and mid-single digit growth in EMEA offset by a decline in China. Service sales increased 1% to $1.8 billion with Maintenance & Repairs, which were deemed essential services in most jurisdictions, increasing 2.5% on growth in all major regions.  Modernization sales increased 6.8%. During the quarter, Otis made concessions to its customers, mainly in the hospitality and retail segments which account for less than 10% of service sales. Service operating margins increased 20 basis points to 22% thanks to lower SG&A expenses resulting from steps management took as the pandemic spread to reduce costs by freezing hiring, reducing executive pay, deferring merit pay, furloughing workers and reducing discretionary costs like travel. During the quarter, Otis generated $159 million in operating cash flow, down 46% from last year, primarily driven by $67 million from a tax prepayment, $32 million of a nonrecurring separation payment and $22 million of public company standalone costs. Free cash flow declined 55% to $120 million on an 11% increase in capital expenditures. Otis ended the quarter with $1.2 billion in cash and $6.3 billion in long-term debt. For the full year, organic sales are expected to decline by 3% to 7% with New Equipment sales down 5% to 10% and Service sales down low-to-mid single digits as discretionary repairs and modernization projects are deferred. Cost reduction actions are expected to result in savings of $300 million. Adjusted net income is expected in the $840 million to $940 million range with EPS in the $1.93 to $2.16 range. Free cash flow conversion is expected in the 110% to 120% range and the company expects a 40% dividend payout ratio, or $260 million.

Maximus-MMS reported fiscal second quarter revenues rose 11% to $818.1 million with net income up and EPS falling 55% to $27.7 million and $.43, respectively. Revenue growth was driven primarily by the Census contract in the U.S. Federal Services segment. Earnings reflect a $24 million, $.28 per share, write-down related to the COVID-19 pandemic in the Outside the U.S. segment. Free cash flow decreased 17% during the first half of the fiscal year to $90.2 million with the company paying $35.8 million in dividends and repurchasing $167 million of common stock. In order to manage liquidity during this period of uncertainty, management is halting share buy backs in the near-term. Year-to-date signed contract awards at 3/31/20 totaled $729.8 million with contracts pending of $215.8 million. The sales pipeline at 3/31/20 was $29.2 billion comprised of approximately $2.8 billion in proposals pending, $2.0 billion in proposals in preparation and $24.4 billion in opportunities tracking. Maximus reinstated its fiscal 2020 revenue and earnings  guidance with revenue expected to range between $3.15 and $3.25 billion, lowering the upper range from the original revenue guidance of $3.15 billion and $3.30 billion and EPS in the range of $2.95 and $$3.15, down from original earnings guidance of $3.95 and $4.15. Free cash flow for fiscal 2020 was lowered from the previous range of $275 million to $325 million to the range of $200 million to $250 million.

Raytheon Technologies-RTX reported first quarter revenues declined 1% to $18.2 billion, including flat organic sales, with a net loss of $83 million or ($.10) per share. The earnings included $1.66 per share of charges related to Otis and Carrier portfolio separation activities. On an adjusted basis, EPS declined 7% to $1.78. The merger with Raytheon did not occur until after quarter end so Raytheon’s results are not included in the above figures. Raytheon’s sales rose 6.5% during the quarter to $7.2 billion with the company reporting a record backlog of $51.3 billion, up 25% or $10.2 billion, compared to the prior year period.  The book-to-bill ratio was 1.44. Free cash flow declined 78% during the quarter to $249 million, which included $700 million of one-time cash separation payments.  The COVID-19 pandemic has significantly impacted the aerospace sector with more than 50% of the world’s planes parked resulting in repair work down more than 50%, too. The significant slowdown in air travel is expected to come back slowly. It could take two to three years before results return to 2019 levels. The company took immediate actions to drive $2 billion of cost reductions and $4 billion of cash conservation.  The company has a flexible balance sheet with ample liquidity to weather the current environment while paying a competitive dividend. While the company is suspending its share repurchase program this year, they plan to maintain their dividend, which currently yields 3.3%. The company now expects to return $18 billion to $20 billion in capital to shareholders over four years instead of three years as originally planned. Management noted that the company has lived through past challenging times and will get through this crisis and come out stronger on the other side.

Wednesday, May 6, 2020

Genuine Parts-GPC reported first quarter revenues declined 3.7% to $4.6 billion but were up 1.1% excluding divestitures. Net income declined 15% to $136.5 million with EPS off 14% to $.94. With the spread of COVID-19, the company experienced a sharp decline in demand beginning in mid-March, and this trend continued throughout April. Average daily sales were down 16% in the last two weeks in March and 25% in April. The company estimated that COVID-19 lockdowns around the world created an approximate 3% headwind to sales during the March quarter and adversely impacted EPS by $.21. The company took a disciplined response to the unprecedented market challenges while all their business segments continued to operate as essential businesses. Management reduced costs, modified capital allocation priorities, reviewed their debt structure and more effectively managed working capital to preserve cash and ensure ample liquidity through the crisis. Cash flow from operations increased 20% during the first quarter to $74 million due to effective working capital management. Capital expenditures were held relatively flat at $45 million as the company reduced non-essential capital expenditures with plans to cut capital expenditures 35%-50% for the full year to a range of $150 million to $200 million. The company repurchased $96 million of its common stock during the quarter and paid $111 million in dividends. To maintain liquidity and maximize cash flow, the company has decided to suspend its share repurchase program and curtail acquisition activities for the balance of the year. The 4% increase in the dividend in 2020 will be maintained. Genuine Parts has increased its dividend for 64 consecutive years and remains committed to the dividend which currently yields an attractive 4.2%. Due to the economic uncertainty as a result of the pandemic, the company cannot estimate its full financial results for the year although they expect the worst may be behind them in the second quarter. For economies that have reopened like New Zealand, Australia, Germany and Netherlands, the company has seen sales rebound.

 

Fastenal-FAST reported April sales increased 6.7% to $491.5 million with average daily sales also up 6.7% to $22.3 million. The sales growth was attributed to a surge in Safety sales as the company saw strong demand for personal protection equipment (PPE) for first responders and front-line workers during the pandemic. Safety sales jumped 120% during April with 11,000 new accounts coming to FAST for supplies.  Fastenal quickly pivoted their operations to meet the extraordinary Safety demand. Gross margins are lower on Safety products which will impact overall profitability although the increased volume will help the company leverage operating expenses.   Excluding safety products, sales would have declined 16% during the month due to the sharp drop in fasteners and other products as manufacturing and non-residential construction sales declined 16%.  May will likely continue to see strong demand for Safety products. Orders are already coming in for back to work kits, including masks, thermometers and hand sanitizer. With market conditions remaining volatile, Fastenal has little visibility into the second half of the year which will greatly depend on the state of the industrial economy.


Private sector employment decreased by 20,236,000 jobs from March to April according to the April ADP National Employment Report®.  The report utilizes data through the 12th of the month.  The NER uses the same time period the Bureau of Labor and Statistics uses for their survey.  As such, the April NER does not reflect the full impact of COVID-19 on the overall employment situation.  "Job losses of this scale are unprecedented.  The total number of job losses for the month of April alone was more than double the total jobs lost during the Great Recession," said Ahu Yildirmaz, co-head of the ADP Research Institute.  "Additionally, it is important to note that the report is based on the total number of payroll records for employees who were active on a company's payroll through the 12th of the month. This is the same time period the Bureau of Labor and Statistics uses for their survey."

 

Tuesday, May 5, 2020

Walt Disney-DIS reported second fiscal quarter sales increased 21% to $18 billion with net income from continuing operations plummeting 91% to $475 million and EPS falling 93% to $0.26.  The impact of COVID-19 and measures to prevent its spread are affecting Disney’s segments in a number of ways, most significantly at Parks, Experiences and Products  where Disney closed its domestic parks and resorts, cruise line business and Disneyland Paris in mid-March, while Asia parks and resorts were closed earlier in the quarter. Management estimates the COVID-19 shaved about $1 billion from Parks, Experiences and Products quarterly segment operating income, primarily due to revenue lost as a result of the closures.  In addition, Disney has delayed, or in some cases, shortened or cancelled theatrical releases and suspended stage play performances at Studio Entertainment and saw advertising sales declines at Media Networks and Direct-to-Consumer & International.  COVID-19 caused disruptions in the production and availability of content, including the cancellation or deferral of live sports events and suspension of production of most film and television content. In total, COVID-19 cost the company an ominous $1.4 billion in income from continuing operations during the quarter. One bright spot during the quarter was Disney’s Direct-to-Consumer & International business where revenues grew to $4.1 billion from $1.1 billion last year, albeit with an operating loss that expanded to $812 million from $385 million.  During the company conference call, Disney announced it had surpassed 50 million subscribers, up from nearly 29 million it reported during its last quarterly earnings call. During the quarter, Disney’s cash flow from operations declined 19% to $3.2 billion with free cash flow declining 30% to $1.9 billion. During the earnings call, Disney said it has taken a number of steps to conserve cash, including suspending July’s semi-annual dividend, cutting executive pay, furloughing 100,000 employees and issuing debt to improve liquidity. Disney ended the quarter with  $17.5 billion in cash and investments, $43 billion in long-term debt and $90 billion in shareholders’ equity. “While the COVID-19 pandemic has had an appreciable financial impact on a number of our businesses, we are confident in our ability to withstand this disruption and emerge from it in a strong position,” said Bob Chapek, Chief Executive Officer, The Walt Disney Company. “Disney has repeatedly shown that it is exceptionally resilient, bolstered by the quality of our storytelling and the strong affinity consumers have for our brands, which is evident in the extraordinary response to Disney+ since its launch last November.”

Berkshire Hathaway-BRKB reported the company’s net worth during the first quarter of 2020 declined 12.5% with book value equal to $228,937 per Class A share as of 3/31/20.

During the first quarter, Berkshire reported a net loss of $49.8 billion compared to net earnings of $21.7 billion in the prior year period. New accounting rules in 2018 require Berkshire to include the changes in unrealized gains/losses of its equity security investments in net income instead of comprehensive income which resulted in a $55.6 billion loss in the first quarter from investments and derivatives compared to a $16.1 billion gain in the prior year period.


Berkshire’s five major investment holdings represent 69% of total equities, including American Express at $13.0 billion (down 31% during the first quarter or $5.9 billion), Apple at $63.8 billion (down 13% or $9.9 billion), Bank of America at $20.2 billion (down 40% or $13.2 billion), Coca-Cola at $17.7 billion (down 20% or $4.4 billion) and Wells Fargo at $9.9 billion (down 47% or $8.7 billion). The unrealized losses in the first quarter of 2020 reflected the widespread declines in equity prices related to the COVID-19 crisis.

Berkshire’s operating revenues increased 1% during the first quarter of 2020 to $61.1 billion primarily due to the insurance operations. Operating earnings increased 6% during the quarter to $5.9 billion due primarily to higher insurance investment income and other income. 


During the first quarter, Berkshire’s operating earnings in insurance underwriting declined 7% to $363 million which included 28% earnings growth from GEICO and losses from the reinsurance group. In response to the impact of COVID-19 on policyholders, GEICO implemented a moratorium on the cancellation of coverage due to non-payment through 5-31-20. GEICO also announced the GEICO Giveback credit which provide a 15% credit for all policies renewing between 4/8/20 and 10/7/20 as well as new policies due to the lower loss frequencies resulting from shelter in place orders. The credits are expected to average $150 per auto policy and $30 per motorcycle policy for a total of $2.5 billion in premium credits. Insurance investment income increased 12% to $1.4 billion during the quarter, reflecting higher dividend income. The float of the insurance operations approximated $130 billion as of 3/31/120, an increase of $1 billion since yearend 2019. The average cost of float was negative during the quarter as the underwriting operations generated pre-tax earnings. 


Burlington Northern Santa Fe’s (BNSF) revenues declined 6% during the first quarter to $5.4 billion with net earnings declining 5% to $1.2 billion reflecting the negative impact on volumes of the COVID-19 pandemic. BNSF is an important part of the national and global supply chain as an essential business and has continued to operate throughout the duration of the pandemic. However, the pandemic is expected to cause an economic slowdown that could be significant and could adversely affect the demand for BNSF’s services. Berkshire believes BNSF has sufficient liquidity to continue business operations during this volatile period.


Berkshire Hathaway Energy reported revenues declined 4% during the quarter to $4.5 billion with growth in the real estate operating unit more than offset by declines in the energy operations. Net earnings declined 7% during the quarter to $617 million with mixed results from the energy business segments. MidAmerican Energy’s 21% decline in earnings reflected lower electric and natural gas utility margins.


Berkshire’s Manufacturing businesses reported first quarter revenues were relatively flat at $15 billion with operating earnings down 4% to $2.1 billion. Revenue and earnings growth in Building Products was offset by declines in the Industrial and Consumer products groups. Precision Castparts experienced lower sales across all its major markets due the decline in aerospace sales related to the suspension of Boeing’s 737 Max aircraft and reduced shipments affected by COVID-19. Consumer products experienced lower sales volumes in the apparel and footwear businesses prompted by temporary retail store closures reflecting the effects of COVID-19.


Service and Retailing revenues declined 2% during the first quarter to $18.8 billion with pre-tax earnings down 15% to $623 million. Revenues and earnings declined in all business segments. The spread of COVID-19 had a significant negative impact on NetJets and FlightSafety operations during March and April. The spread of COVID-19 also resulted in the temporary closures of many of Berkshire’s retail store operations and significantly lower volumes for those operations that remained open. McLane’s revenues decreased 3% during the quarter to $11.8 billion with pre-tax earnings declining 41% to $65 million due to credit and inventory losses in the foodservice operations related to COVID-19 and lower sales and margins in the grocery operations.


Berkshire’s balance sheet continues to reflect very significant liquidity and a very strong capital base of $371.6 billion as of 3/31/20, a decrease of $53.2 billion since year end due to the decrease in the market prices of equity securities held as previously noted. Excluding railroad, energy and utility investments, Berkshire ended the quarter with $349.5 billion in investments allocated approximately 51.7% to equities ($180.8 billion), 5.1% to fixed-income investments ($17.9 billion), 5.0% to equity method investments ($17.5 billion), and 38.1% in cash and equivalents ($133.3 billion).


Free cash flow declined 13% during the quarter to $3.8 billion. During the first quarter, capital expenditures declined 6% to $3 billion, including $2 billion in the capital-intensive railroad, utilities and energy businesses. Berkshire expects additional capital expenditures to approximate $8.8 billion for BNSF and Berkshire Hathaway Energy in 2020. During the first quarter, Berkshire purchased a net $22.5 billion in Treasury Bills and fixed-income investments and bought a net $1.8 billion of equity securities. Subsequent to quarter end, during the month of April, Berkshire received approximately $6.1 billion from the net sale of equity securities, including the sale of all its airline investments. The proceeds were reinvested in Treasury Bills.


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 about $1.7 billion of its common stock. These repurchases included 319,814 Class B shares at an average price of $214.18 and 1,001 Class A shares at an average price of $301,085 per share during March 2020. We would expect further share repurchases given Berkshire’s current attractive valuation.


Berkshire’s operating businesses are preparing for reduced cash flows from reduced revenues and economic activity as a result of COVID-19 and taking appropriate measures to reduce costs as appropriate. While management cannot predict reliably when all businesses will become fully operational, they currently believe Berkshire’s liquidity and capital strength, which is extremely strong, to be adequate.


During the annual meeting on May 2, Buffett remarked that while no one knows the full consequences of shutting down the U.S. economy, we will manage through it. Berkshire’s operating earnings in 2020 will be less than what they would have been if the virus had not come along. Berkshire’s three major businesses, insurance, BNSF railroad and utilities, are all in decent position and will produce cash even if earnings go down. Berkshire will maintain an extraordinary financial position.


Berkshire’s investments are heavily tilted toward equities, especially for an insurance company. In the annual report, Warren Buffett explains, “If something close to current rates should prevail over the coming decades and if corporate taxes also remain near the low level businesses now enjoy, it is almost certain that equities will over time perform far better than long-term, fixed-rate debt instruments. Occasionally, there will be major drops in the market, perhaps of 50% magnitude or even greater. But the combination of the American Tailwind and compounding wonders will make equities the much better long-term choice for the individual who does not use borrowed money and who can control his or her emotions. “

FactSet-FDS announced that its Board of Directors approved a 7% increase in the regular quarterly cash dividend from $0.72 per share to $0.77 per share. The $0.05 per share increase marks the fifteenth consecutive year the company has increased dividends, demonstrating its ongoing commitment to bring value to shareholders.

 Friday, May 1, 2020

3M-MMM announced that it has completed the sale of substantially all of its drug delivery business to an affiliate of Altaris Capital Partners, LLC., for approximately $650 million in total consideration, including cash, an interest-bearing security, and a 17 percent noncontrolling interest in the new company, Kindeva Drug Delivery, that will operate the business. Kindeva Drug Delivery is a global leader in drug delivery partnering with pharmaceutical and biotech companies to develop and manufacture complex pharmaceutical products using differentiated inhalation, transdermal, microneedle, and conventional drug delivery technologies. The divested business has annual global sales of approximately $380 million. On a GAAP basis, 3M will record a gain of approximately $0.40 per share as a result of this transaction, net of actions related to the divestiture. 3M’s ongoing ownership interest in the business will be reported using the equity method of accounting.

Thursday, April 30, 2020

Stryker-SYK reported first quarter sales increased 2% (3% in constant currency) to $3.6 billion with net income increasing 20% to $493 million and EPS increasing 19% to $1.30. Adjusted net earnings  and EPS declined by 2% to $699 million and $1.84, respectively. Orthopaedics net sales of $1.2 billion decreased 2% in the quarter, MedSurg net sales of $1.6 billion increased 6.2% and Neurotechnology and Spine net sales of $700 million increased 0.7%. Net sales were significantly negatively impacted by the global response to the COVID-19 pandemic, resulting in lower than previously expected unit volume growth rates across all segments. During the last week of March, Stryker’s sales declined by 30% and management expects April sales to decline by 35% to 40% given the deferral of elective procedures, especially in hips, knees, spine and endoscopy. At the same time, demand for many of Stryker’s Medical portfolio products increased which prompted the ramp up of manufacturing capacity for medical equipment like face shields, patient protective gear for ambulances, stretchers, beds and ICU equipment. During the quarter, Stryker generated $447 million in free cash flow with the company returning $215 million to shareholders through dividend payments. The company had previously suspended its share repurchase program in anticipation of the Wright Medical acquisition which is expected to close by the end of the third quarter. Stryker ended the quarter with $4 billion in cash and investments, $9.4 billion in long-term debt and $13 billion in shareholders’ equity.  Given the fluidity of the current environment, Stryker suspended its 2020 earning guidance.  Given the strength of Stryker’s balance sheet and cost containment efforts underway, management believes the company is well positioned to manage through this unprecedented situation. And as patients who have deferred surgical procedures begin to return over the coming weeks and months, the company will work with customers to help meet the expected demand.

Apple-AAPL reported second quarter sales rose 1% to $58.3 billion with net income down 3% to $11.2 billion and EPS up 4% to $2.55. International sales accounted for 62% of total revenues. Despite the global impact of COVID-19, the company generated record Services sales which increased 17% to $13.3 billion. Subscriptions to Apple’s services increase by 125 million year-over-year to 515 million with the company expected to reach its goal of 600 million paid subscriptions by the end of the 2020 calendar year. Wearables, Home and Accessories revenues increased 23% to $6.3 billion with double-digit growth in all geographic segments.  iPhone revenues declined 7% to $29 billion impacted both by supply and demand constraints in China due to COVID-19 during the quarter. Supply chains in China have now returned to typical levels.  While store traffic in China has not returned to pre-virus levels, Apple reported record retail sales driven by robust on-line sales. Mac sales declined 3% during the quarter to $5.4 billion with iPad sales down 10% to $4.4 billion. As remote learning and remote working continues, Apple expects both Mac and iPad segments to show growth in the third quarter due to strong demand. Trends in iPhones and Wearables are expected to worsen in the quarter ending in June. Apple’s active installed base of devices reached an all-time high in all geographic segments and all major product categories. Free cash flow increased 24% during the first half of the year to $40 billion. During the first half, the company paid $6.9 billion in dividends and repurchased $39.3 billion of its common stock. Apple ended the quarter with $192.8 billion in cash and investments and $89 billion in long-term debt. Given the company’s extraordinary financial strength and unmatched free cash flow generation, Apple announced a 6% increase in its dividend and announced a new $50 billion share repurchase program. The company currently has $40 billion remaining authorized for future share repurchases  which brings the total repurchase program authorization to over $90 billion. After a very depressed month in March, Apple saw sales begin to pick up in the second half of April due to new products and help from economic stimulus. Management remains confident in Apples future and continues to make significant investments in all areas of their business, including a five-year commitment to contribute $350 billion to the U.S. economy.

Wednesday, April 29, 2020

Microsoft-MSFT reported fiscal third quarter revenue increased 15% to $35 billion with net income increasing 22% to $10.8 billion and EPS up 23% to $1.40. Revenue in Productivity and Business Processes was $11.7 billion, up 15%, driven by a 25% increase in Office 365 Commercial revenue, a 15% increase in Office Consumer products and cloud services revenue with continued growth in Office 365 Consumer subscribers to 39.6 million. LinkedIn revenue increased 21%, Dynamics products and cloud services revenue increased 17% on a 47% increase in Dynamics 365 revenue. Revenue in Intelligent Cloud increased 27% to $12.3 billion on a 30% increase in server products and cloud services revenue, driven by Azure revenue growth of 59%. Revenue in More Personal Computing increased 3% to $11 billion on flat Windows OEM revenue, a 17% increase in Windows Commercial products and cloud services, a 1% increase in search advertising, a 2% increase in Xbox content and a 1% increase in Surface revenue. COVID-19 had minimal net impact on the total company revenue during the quarter. In the Productivity and Business Processes and Intelligent Cloud segments, cloud usage increased, particularly in Microsoft 365 including Teams, Azure, Windows Virtual Desktop, advanced security solutions and Power Platform, as customers shifted to work and learn from home. In the final weeks of the quarter, there was a slowdown in transactional licensing, particularly in small and medium businesses and a reduction in advertising spend in LinkedIn. In the More Personal Computing segment, Windows OEM and Surface benefited from increased demand to support remote work and learn scenarios, offset in part by supply chain constraints in China that improved late in the quarter. Gaming benefited from increased engagement following stay-at-home guidelines. Search was negatively impacted by reductions in advertising spend, particularly in the industries most impacted by COVID-19. Microsoft delayed some cloud infrastructure spend due to supply constraints that have since eased and management reduced discretionary spend in areas such as travel and marketing in response to COVID-19. During the quarter, Microsoft generated $17.5 billion in operating cash flow, up 29% year-over-year, driven by strong cloud billings and collections. Free cash flow increased 25% year-over-year to $13.7 billion, representing nearly 127% of reported net income signaling the high quality of Microsoft's reported earnings. The company returned $9.9 billion to shareholders during the quarter, up 33% compared to last year’s third quarter. Microsoft ended the quarter with over $137 billion in cash and short-term investments, $63 billion in long-term debt and $114 billion in shareholders’ equity on its fortress-like balance sheet. Looking ahead to the fourth quarter revenues are expected in the $35.9 billion to $36.8 billion range, up nearly 8% from last year at the midpoint.


Facebook-FB reported first quarter revenue rose 18% to $17.7 billion with both net income and EPS more than doubling to $4.9 billion and $1.71, respectively. With people sheltered in place around the world, Facebook saw increased engagement, especially in messaging and video calls, as people relied on their products more than ever to connect with the people and organizations they care about. Facebook daily active users were 1.73 billion on average for March, an increase of 11%. Facebook monthly active users were 2.6 billion, an increase of 10%. Family daily active people was 2.36 billion, an increase of 12% with family monthly active people of 2.99 billion, an increase of 11%. Free cash flow increased 36% during the quarter to $7.4 billion with the company repurchasing $1.3 billion of its common stock. Facebook ended the quarter with a fortress balance sheet with more than $60 billion in cash, $9.5 billion in operating lease liabilities and $105 billion in shareholders’ equity. Subsequent to quarter end, Facebook announced a $5.7 billion investment in Jio Platforms in India and paid the previously announced $5 billion settlement with the FTC. Over the last three weeks of March, Facebook experienced a significant reduction in the demand for advertising as well as a related decline in the pricing of their ads. After the initial steep decrease in advertising revenue in March, the company has seen signs of stability reflected in the first three weeks of April, where advertising revenue has been about flat with the prior year period. The April trends reflect weakness across all geographies as most major countries have had some sort of shelter-in-place guidelines. Weakness in travel and auto ads is expected to persist, although gaming, technology and ecommerce advertising spending remains solid. Facebook has committed over $300 million to date in investments to help the broader community during the crisis, including creating a $100 million grant program to help small businesses and investing $100 million to help the local news industry. Facebook is also donating $25 million to support healthcare workers and providing health organizations with free ads and tools to track the pandemic. Given the great uncertainty related to the pandemic, Facebook is moderating operating expenses to a range of $52 billion to $56 billion and capital expenses to a range of $14 billion to $16 billion. Profit margins are expected to decline for the year. Management expects to maintain high profit margins over the long term. Given the company’s financial strength, they still expect to hire 10,000 people this year. Facebook ended the quarter with a headcount of more than 48,000, an increase of 28% year over year.

General Dynamics - GD reported first quarter sales decreased 5.5% to $8.7 billion with net income decreasing 5.2% to $706 million and EPS down 5.1% to $2.43. By business segment, Aerospace sales decreased 24.5% to $1.7 billion, Combat Systems sales increased 4.4% to $1.7 billion, Information Technology sales decreased 8.3% to $2.0 billion, Mission Systems sales decreased 3.6% to $1.1 billion and Marine Systems sales increased 9.1% to $2.2 billion. Travel restrictions due to the COVID-19 pandemic delayed deliveries of business-jet aircraft, which resulted in a $549 million decline in revenue for the Aerospace segment. Backlog dipped 1.4% from the fourth quarter of 2019 to $85.7 billion, for a  book-to-bill of 1.2-to-1.  During the quarter, the company paid $295 million in dividends and repurchased $449 million of its shares. In March, General Dynamics increased the quarterly dividend 7.8% to $1.10 per share, which was the company's 23rd consecutive annual dividend increase.  Management lowered previously issued sales guidance of $40.7 billion by approximately $1.5 billion and lowered EPS from the previous range of $12.55 to $12.60 to the range of $11.30 to $11.40.

 

ADP-ADP reported third fiscal quarter revenues increased 6% to $4 billion with net earnings increasing 9% to $821 million and EPS increasing 10% to $1.90. ADP’s third quarter operating performance was driven by continued execution of transformational initiatives and operating efficiencies, partially offset by a one-time $50 million global associate assistance payment related to COVID-19. Employer Services (ES) revenue increased 3% to $2.8 billion with operating margins increasing 100 basis points to 36.5%. U.S pays per control increased 2%, average client funds balances increased 4% and new bookings declined by 9% due to the significant COVID-19 impact in March. PEO services revenues increased 11% to $1.2 billion and operating margins increased slightly to 14%. Average Worksite Employees paid increased 7% to 595,000. Average client funds balances increased 4% to $31.3 billion with the average interest yield on client funds declining 20 basis points to 2%, resulting in a 5% decline in interest on funds held for clients to $150 million. ADP remains focused on delivering exceptional service to clients and their employees as they face the COVID-19 challenge,  providing an Employer Preparedness Toolkit, hosting webinars, training thousands of ADP associates to answer critical questions and redeploying hundreds of associates serve clients’ needs. ADP developed headcount and payroll cost reporting capabilities to help clients obtain a forgivable SBA loan under the Paycheck Protection Program and provided hundreds of thousands of these reports to clients at no cost.  During the first nine months of fiscal 2020, ADP generated $2.1 billion in free cash flow, up 15% from last year, with the company returning nearly $2.1 billion to shareholders through share repurchases of $1 billion and dividends of $1.1 billion. When asked on the earnings conference call about the safety of ADP’s dividend, Mr. Rodriguez stated that the Board wouldn’t have approved payment of the increased dividend on April 8th if they had concerns about the company’s capital position. ADP has a 45-year track record of paying and increasing its dividend. With its strong balance sheet, capital light business model that generates strong cash flow and a payout ratio of between 55% to 60%, ADP has ample room to continue increasing the dividend.  While ADP provides mission critical services to businesses and processes payroll for one of six employees in the U.S. and 40 million around the world, it is seeing substantial impact to employment metrics in its client base. Therefore, management revised its guidance with fiscal 2020 revenues now expected to increase 3% from 6% previously with EPS up 4% to 7% from 12% to 14% previously. For the fiscal fourth quarter, ADP expects an elevated level of out-of-business client losses, a mid-teen decline in pays per controls and a low-double-digits decline in client fund balances. When asked about the shape of the U.S. economic  recovery, Mr. Rodriquez stated that he doesn’t think the recovery will look like a V, U or L, but rather like a Nike swoosh with the economy hopefully  rebounding after the abrupt decline in three to six months, rather than twelve to eighteen months.  As management models all potential scenarios including the most optimistic, it is watching several leading economic indicators, including job postings, background checks performed by its clients along with time and attendance statistics, especially hours worked, which is a precursor to hiring.  Mr. Rodriquez noted that in his 20 years at ADP, he has been through two recession (now three), Y2K, 9/11, wars and multiple changes in technology. Each time in ADP’s 70-year history when presented with challenges, some people think, “This is the challenge we won’t get through,” yet they do.  Mr. Rodriguez doesn’t expect this challenge to be any different. Mr. Rodriguez ended the conference call with words of wisdom given to him by Henry Taub, ADP’s founder, “Always take care of your associates and they will take care of your clients and everything else will take care of itself.”

 

Mastercard-MA reported first quarter revenues rose 3% to $4.0 billion with operating income flat at $2.2 billion. Net unrealized losses on equity investments contributed to net income declining 9% to $1.7 billion with EPS off 7% to $1.68. First quarter gross dollar volume increased 8% with purchase volume up 8% and switched transactions increasing 13%.  Cross-border volume declined 1%. As of 3/31/20, the company’s customers had issued 2.6 billion Mastercard and Maestro-branded cards. Free cash flow increased 41% during the quarter to $1.7 billion due to favorable working capital changes. During the quarter, the company paid $403 million in dividends and repurchased 4.7 million shares for $1.4 billion at an average cost of about $297.87 per share. Due to the continued uncertainty around the duration and severity related to the COVID-19 pandemic, Mastercard has temporarily suspended its 2020 share repurchase activity and will reevaluate this as macroeconomic visibility improves.  The company has $6.9 billion remaining authorized for future share repurchases. The dividend remains unchanged. The company has a strong balance sheet with $10.7 billion in cash and $12.5 billion in long-term debt, as the company issued $4 billion in long-term debt in March 2020 to buttress its liquidity. While the first quarter started strong, the spread of the pandemic resulted in truly extraordinary challenges for the world. Mastercard said as this healthcare crisis is met with effective treatments and vaccines, global economies will recover through containment, stabilization, normalization and then growth. In the United States, we are still in the containment and stabilization stages with early signs of spending levels stabilizing. China is in the early phases of normalization and Mastercard has seen spending pick up again locally. Cross-border volume spending will not pick up significantly until travel resumes which likely will not occur until next year when a vaccine is available. Coming out of the pandemic, Mastercard expects ecommerce and digital trends will persist. The acceleration to electronic and contactless payments and away from cash will occur which will benefit the company. In addition, demand for Mastercard’s Cyber & Intelligence and Data & Services solutions will increase. Mastercard management is confident the company will emerge from the crisis even stronger than before.

Tuesday, April 28, 2020

Starbucks Corporation-SBUX reported fiscal second quarter sales declined 5% to $6 billion with net income declining 51% to $328 million and EPS declining 47% to $0.28. Management estimates that COVID-19 caused a $915 million hit to revenues during the quarter and $0.45 cents to EPS. Global comparable store sales declined 10%, the first decline in 11 years, driven by a 13% decrease in comparable transactions, partially offset by a 4% increase in average ticket.  Americas and U.S. comparable store sales declined 3%, driven by a 7% decrease in comparable transactions, partially offset by a 5% increase in average ticket as customers made group purchases for friends, family and frontline workers. Prior to the last two weeks of March when Starbucks took swift, dramatic action to protect partners and customers by closing 50% of U.S. stores and limiting the other 50% stores to drive-in and delivery only, comparable U.S. store sales grew by 8%. International comparable store sales were down 31%, driven by a 32% decline in comparable transactions, slightly offset by a 1% increase in average ticket. China comparable store sales were down 50%, with comparable transactions down 53%. Operating margin contracted 550 basis points year-over-year to 8.1%, primarily due to sales deleverage and additional costs incurred in response to the COVID-19 outbreak, mainly catastrophe wages as well as enhanced pay programs and additional benefits in support of retail store partners, inventory write-offs and store safety items. The company opened 255 net new stores during the quarter, yielding 6% year-over-year unit growth, ending the period with 32,050 stores globally, of which 51% and 49% were company-operated and licensed, respectively. Starbucks® Rewards loyalty program grew to 19.4 million active members in the U.S., up 15% year-over-year. During the first half of fiscal 2020, Starbucks generated $475 million in operating cash flow, down 83% from last year. Free cash flow was a negative $284 million. Starbucks ended the quarter with $2.8 billion in cash and investments and $12 billion in long-term debt. When asked on the earnings call about the company’s negative cash flow, management stated that peak cash burn was about $125 million monthly after capital expenditures but before the dividend. Starbucks has plenty of liquidity to navigate through the storm and has deferred some capital spending, cut discretionary spending and suspended share buybacks while remaining committed to paying dividends to provide shareholders with a reliable return. The company plans to begin reopening U.S. stores on May 4 and expects 90% of its domestic stores to be open by early June, relying on drive-through, delivery and pick up for now. Starbucks suspended its guidance. While it expects the negative impact of COVID-19 to be significantly greater in the third quarter, it expects the impact to be temporary and remains confident that the company will emerge from the crisis stronger than before.

Alphabet-GOOGL reported first quarter revenues rose 13%, or 15% on a constant currency basis, to $41.2 billion with net income up 3% to $6.8 billion and EPS up 4% to $9.87. These results were led by Search, YouTube and Cloud.  Search revenues rose 9% to $24.5 billion, YouTube revenues rose 33% to $4 billion, and Cloud revenues rose 52% to $2.8 billion. Network revenues were up 5% to $5.2 billion with Other revenue up double-digits to $4.4 billion driven in part by 30% growth at  Google Play. Performance was strong during the first two months of the quarter, but then in March, Alphabet experienced a significant slowdown in ad revenues as the economy went into lockdown due to the pandemic. Management is seeing a few green shoots in advertising in  April as the economy unfreezes, but it is still too early to be certain about the durability of the recovery. Due to the pandemic, many companies will now seek to digitalize their operations. Alphabet expects to see an increase in online work, shopping, telemedicine, entertainment and learning with these changes expected to be long lasting. The company is adding 3 million users daily to its video chat app, Google Meet, in response to demand from all these areas. The company also now has 6 million paying G-suite customers to aid in remote working and also saw a 30% increase in Android game downloads in March. Alphabet expects the second quarter will be a difficult quarter for advertising revenues but expects results to improve in the second half. Given the challenging environment, the company is curtailing costs by slowing its pace of hiring and reducing other discretionary  costs. Free cash flow declined 26% during the first quarter to $5.4 billion. The company repurchased $8.5 billion of its common stock during the first quarter and plans to continue to repurchase shares given its strong financial position. Alphabet ended the quarter with $117 billion in cash and investments, $5 billion in long term debt and $203.7 billion in shareholders’ equity. Management remains confident about long-term opportunities for the business.

3M-MMM reported first quarter sales increased 2.7% to $8 billion with net earnings up 45% to $1.3 billion and EPS up 47% to $2.22. Excluding litigation expense and other one-time charges, adjusted net income declined 4% to $1.25 billion and EPS dipped 2.7% to $2.16. Given the breadth and diversity of 3M’s businesses, the financial impact of COVID-19 varied across the company. During the first quarter, 3M saw strong growth in personal safety, as well as in other areas of the portfolio experiencing high demand due to the pandemic, namely medical consumables, drug delivery, food safety and home care. At the same time, the company experienced weak demand in several end markets that were more severely impacted by actions taken around the world to slow the pandemic, namely abrasives, industrial adhesives & tapes, automotive & aerospace solutions, oral care and stationery & office. “We are attacking the pandemic from all angles, which includes mobilizing all of our resources and rapidly increasing output of critical supplies to healthcare workers and first responders,” said Mike Roman, 3M’s chairman and chief executive officer. Since January, 3M has doubled production of N95 respirators to 100 million per month at its global manufacturing facilities, including 35 million per month in the U.S. 3M will double its capacity again within the next 12 months. During the quarter, 3M generated $1.2 billion in operating cash flow, up 16% from last year, on strong working capital management and $881 million in free cash flow, up 34% on lower capital expenditures.  The company returned $1.2 billion to shareholders during the quarter through dividends of $847 million and share repurchases of $365 million. While it remains committed to its dividend, the company has suspended its share repurchase program and reduced its capital expenditures to $1.3 billion in 2020, from $1.6 billion to $1.8 billion previously guided. The company’s aggressive management in discretionary spending is expected to provide $350 million to $400 million in cost savings during the second quarter. Given all the uncertainty, the company withdrew its 2020 guidance, but plans to provide monthly financial information to keep investors abreast of the trajectory of 3M’s global business. Management currently expects the second quarter to be the weakest quarter for the global economy.  Through late April, sales fell in the mid-teens with Americas down about 20%, EMEA down 15% and APAC down low-single digits, led by China where several sectors, like automotive, semiconductors, health and oral care improved after steep first quarter declines.

T. Rowe Price-TROW reported first quarter revenues rose 10% to $1.5 billion with operating income up 32%. Due to unrealized losses on investments, net income and EPS each declined 33% to $343.1 million and $1.41, respectively. On an adjusted basis, EPS was flat at $1.87. Average assets under management increased 11% to $1.2 trillion during the quarter with ending assets under management down 7% to $1.0 trillion. During the quarter, net client outflows were $6 billion. The swiftness of the decline in risk assets due to the coronavirus pandemic was “breathtaking.” The S&P 500 index fell 35% from its all-time high on Feb. 19th to the current low on March 23 in just 33 days amid extreme volatility. Though markets have recovered sharply after quarter end, the global disruption of daily activity and associated economic uncertainty continue unabated. T. Rowe Price is in very strong financial shape with no debt and plenty of cash, which enable management to continue to make long term investments despite volatile markets. The company is curtailing operating expense growth which is expected to be in the range of 1% to 4% in 2020, down from a previous outlook of 6% to 9% growth. Management responded to the drop in their share price by repurchasing 8.3 million shares during the quarter. Total shares outstanding finished the quarter at 228 million, the lowest level since 1986. The company’s balance sheet remains rock solid with$3.4 billion in cash and investments and no long-term debt.

PepsiCo-PEP reported first quarter revenues rose 8% to $13.9 billion with operating profit dipping 4% to $1.9 billion. First quarter net income declined 5% to $1.3 billion and EPS dropped 4% to $.96. Organic revenue growth accelerated to 7.9% with revenue growth broad-based across business segments and geographies led by 14% growth in Europe. During the period, PepsiCo paid $1.3 billion in dividends and repurchased $573 million of common stock. Given the uncertainties associated with the COVID-19 pandemic, management withdrew the previously announced financial guidance for 2020. However, management is maintaining shareholder cash return guidance of $7.5 billion, comprised of dividends of $5.5 billion and share repurchases of $2 billion thanks to the company’s strong balance sheet, highly cash generative business and ample liquidity. PepsiCo recently closed its acquisition of Rockstar Energy Beverages and entered into a new distribution agreement with Vital Pharmaceuticals, Inc. which provides the company with the exclusive right to distribute Bang Energy beverages in the United States. With a strong portfolio of brands in attractive categories, an agile supply chain and flexible go-to-market systems, PepsiCo is successfully managing through the complexities of today and building competitive advantages to emerge an even stronger company in the future.

UPS-UPS reported first quarter revenues increased 5% to $18.0 billion driven by growth in business-to-consumer shipments as on-line shopping increased substantially during the pandemic along with gains in healthcare services.  Average daily volume in the U.S. domestic market increased 8.5% with growth across all products. Next Day Air average daily volume increased 20.5%.  The product mix shifted dramatically during the quarter as commercial deliveries declined while residential deliveries were elevated resulting in revenue per piece decreasing less than 1%. International average daily volume was down 1.8% during the quarter although China volume rebounded in March as its economic recovery accelerated, offsetting declines in January and February.  Net income and EPS each declined 13% during the quarter to $965 million and $1.11, respectively. The company’s results were adversely affected by the disruption to business customers that were locked down due to the coronavirus, higher self-insurance accruals and other items. UPS has been designated by governments around the world as a Critical Infrastructure Business and continues to operate in all major countries by keeping critical goods moving for businesses and consumers globally. In the U.S., the company is also front and center in leading the pandemic logistics response for FEMA. UPS supported customers with near record on-time service during the quarter. The company’s liquidity and financial condition remain strong, as the company refinanced $3.5 billion in debt in March. During the quarter, the company generated $2.6 billion in cash flow from operations and free cash flow of $1.6 billion. Given the challenging environment, UPS is suspending share buybacks for 2020 and reducing capital expenditures by $1 billion. The company remains committed to paying its dividend, which currently yields 4.1%. UPS is withdrawing its financial guidance for the year due to the uncertainty relating to the pandemic. Management remains confident that UPS is well prepared for the economic recovery regardless of the shape it takes.  Business trends seen so far in April include Asia stabilizing, Europe still in transition and business-to-consumer representing 70% of U.S. volume with average daily volume up mid-single digits.

Oracle-ORCL announced that Zoom Video Communications, Inc. is turning to Oracle Cloud Infrastructure to support its growth and evolving business needs as the enterprise video communications company continues to innovate and provide an essential service to its extensive customer base.

MAXIMUS-MMS Federal has been awarded a $40 million contract from the Internal Revenue Service (IRS). The five-year award enables MAXIMUS to continue its incumbent support of the IRS’ Custodial Financial Systems, which records and reports tax information to allow the agency to conduct private debt collection and passport management, as well as to meet the requirements of the annual GAO audit of the U.S. General Ledger. The award also makes it possible for MAXIMUS to help support the IRS’ ability to provide agile support to implement new tax legislation with impacts at the agency level and for tax filers and preparers.

Monday, April 27, 2020


F5 Networks-FFIV reported fiscal second quarter sales increased 7% to $583.5 million with net earnings declining 47% to $61 million and EPS falling 48% to $1.00.  Second quarter results were negatively impacted by costs and write-downs related to the $1 billion Shape Security acquisition which closed on January 24, 2020.  Service revenue, which accounted for 56% of total revenue, increased 5% to $324 million. Product revenue, which accounted for 44% of total revenue, increased 9% to $260 million, powered by a 96% jump in software sales which now account for 35% of product sales, up from 19% in 2017 when management embarked on the journey to transform F5 to a more software-driven business. With 65% of F5’s sales now coming from recurring revenue, management continues to deliver on its goal of creating a resilient business model that can weather economic uncertainty resulting from the COVID-19 pandemic. Indeed, F5’s business was boosted by its ability to help customers transition to remote work. For the six months ended 3/31/2020, F5 generated $290 million in free cash flow, down 15% from last year with the company repurchasing $50 million of its shares for an average cost of $113.18 per share. The company ended the quarter with over $820 million in cash and investments, $358 million in long-term debt and nearly $2 billion in shareholders’ equity. Management’s current focus is to build the company’s cash position. Looking ahead to the third quarter, F5 expects to deliver revenue of $555 million to $585 million, compared to $564 million last year, with non-GAAP earning expected in the range of $1.91 to $2.13, compared to $2.52 last year.

Canadian National Railway-CNI reported first quarter revenues were relatively flat at C$3.5 billion with net income chugging 29% higher to C$1.0 billion and EPS up 32% to C$1.42. On an adjusted basis, EPS increased 4% during the quarter. This was solid performance given the month-long illegal blockades of Canadian railway tracks during the quarter and the impacts of the COVID-19 pandemic. Management is right-sizing resources to match the weaker demand caused by the global recession which quickly reduced costs during the quarter. CNI has a solid track record of resiliency in periods of economic weakness. The company’s strong investment grade credit rating is the best in the rail industry and has proven its strategic value by providing the company with robust low-cost liquidity. While the company is suspending its share repurchases given the economic circumstances, management remains committed to maintaining its previously announced 7% dividend increase for 2020. CNI expects the second quarter to be tough with oil, industrial products and oil shipments adversely impacted due to the pandemic. While management expects the second half of 2020 to improve, they have withdrawn their financial guidance due to the high degree of uncertainty caused by the pandemic in terms of its severity, magnitude and duration. The company is still working to generate a minimum of C$2.5 billion of free cash flow for the full year after planning to invest about C$2.9 billion in capital expenditures. There is an economy beyond the pandemic, and CNI is well positioned for the recovery no matter what shape it takes with the experienced management team focused on the long term.

Walgreens-WBA and LabCorp expand partnership to help company triple testing capacity through use of LabCorp COVID-19 nasal swab diagnostic test. Walgreens announced plans to open COVID-19 testing locations in 49 U.S. states and Puerto Rico, as the company further expands drive-thru testing to help meet the growing need in communities nationwide. With this latest expansion, Walgreens will focus its efforts on improving access to testing in underserved communities, and over time will also be working with companies to provide testing to employees, to help more businesses re-open in the weeks and months ahead. Walgreens expects to test more than 50,000 people each week.

Raytheon Technologies-RTX announced that its Board of Directors has declared a dividend of 47.5 cents per outstanding share of RTX common stock. The dividend will be payable on June 18, 2020, to shareowners of record at the close of business on May 15, 2020. "The long-term fundamentals of our newly merged company are strong. Raytheon Technologies' quarterly dividend demonstrates our confidence in our strong balance sheet, ample liquidity, and our ongoing commitment to delivering value to shareowners," said Raytheon Technologies CEO Greg Hayes. RTX, formerly United Technologies Corporation, has paid cash dividends on its common stock every year since 1936.

 

 

Friday, April 24, 2020

Gentex-GNTX reported first quarter revenues declined 3% to $453.8 million with net income down 14% to $89.5 million and EPS down 10% to $.36. The impact of COVID-19 created shutdowns in the global automotive industry resulting in a 24% reduction in light vehicle production volumes worldwide during the past quarter. China was the first country to see a hard stop in production due to the pandemic, but auto production has now restarted with auto demand spiking initially, although it is yet to be determined how sustainable the demand will remain. South Korea did not shut down production much, but by mid-March the European and North American auto production environment was brought to a grinding halt. Gentex expects auto production in Europe and North America will restart slowly beginning in mid-May. During the first quarter, free cash flow increased 16% to $135.7 million thanks to favorable working capital changes. Gentex maintains a strong balance sheet with no long-term debt and $587 million in cash and investments as of quarter end. Gentex increased their dividend 4% during the quarter, marking the 10th consecutive year of dividend increases. In addition, the company repurchased 7 million shares of its common stock at an average price of $25.48 per share with 13 million shares remaining authorized for future share repurchases.  Management likes to maintain at least $500 million in liquidity and will be opportunistic on future share repurchases. Due to the pandemic, Gentex now expects light vehicle production to decline 20% in 2020 with the company’s sales expected to decline 10%-15% to a range of $1.58 billion to $1.67 billion.  Thanks to a lean organizational structure, management expects to respond quickly to and manage through this new business environment with the opportunity to become more efficient  over the long term.

Thursday, April 23, 2020

Tractor Supply-TSCO reported solid first quarter results with sales up 8% to $2.0 billion and net income growing 9% to $83.8 million with EPS sprouting 13% higher to $.71. These results underscore Tractor Supply as an essential, needs-based retailer for the rural community.  Comparable store sales increased 4.3% during the quarter, including an increase in the average ticket of 5.4% and a decrease in comparable transactions of 1.1%. All geographic regions of the company experienced positive comparable stores sales growth with solid demand for livestock feed, pet food, fuel and spring seasonal categories.  Free cash flow increased substantially during the quarter to $54.3 million thanks to a strong and resilient business model. During the quarter, the company repurchased 2.9 million shares of its common stock for $263.2 million at an average price of $90.76 per share and paid dividends of $40.8 million. As a precautionary action, the company increased its liquidity by borrowing money to buttress its strong balance sheet and maintain financial flexibility during the COVID-19 crisis. To preserve cash, the company suspended its share buyback program effective 3/12/20. The company does not expect to suspend or reduce its quarterly dividend. The company opened 20 new Tractor Supply stores during the quarter and remains committed to its new store opening program, although delays may occur, with capital expenditures still targeted in the range of $225 million to $275 million for 2020. While second quarter sales are off to a strong start, the company withdrew its financial outlook given the uncertainty around the COVID-19 pandemic and the incremental costs associated with the pandemic including increased pay and benefits to its employees and increased cleaning costs for its stores. With a record number of new customers, a strong business model and financial flexibility, management is confident they will emerge from the crisis stronger than ever.

Wednesday, April 22, 2020

Biogen-BIIB reported first quarter revenues rose 1.3% to $3.5 billion with net income dipping 1% to $1.4 billion, reflecting a $75 million charge related to an acquisition, with EPS up 13% to $8.08 on lower shares outstanding. Multiple sclerosis (MS) revenues increased 9% to $2.3 billion, SPINRAZA revenues increased 9% to $565 million and biosimilar revenues increased 25% to $219 million during the first quarter. Other revenues decreased 63% to $109 million due to the sale of hemophilia inventory to Bioverativ last year. Biogen estimated that its first quarter product revenue benefitted by $100 million attributed to accelerated sales due to the COVID-19 pandemic, primarily in Europe. Additionally, Biogen’s MS revenues in the U.S. benefitted by approximately $54 million due to extra shipping days versus the prior year quarter. Biogen has an open Biological License Application with the U.S. FDA and has started to submit modules of the filing for its potential treatment of Alzheimer’s disease. Biogen expects to complete the filing in the third quarter of 2020. In the first quarter, Biogen generated approximately $1.5 billion in net cash flow from operations. During the quarter, the company repurchased approximately 7.3 million shares of its common stock for about $2.2 billion or an average cost of $303 per share.  The company has abou$4.1 billion remaining authorized for future share repurchases. As of quarter end, the company maintained a strong balance sheet with $4.8 billion in cash, $6 billion in notes payable and $12,5 billion in shareholders’ equity. The magnitude and uncertainty surrounding the pandemic clearly introduces unanticipated and potentially unquantifiable risks to their business and results over the near term. However, Biogen continues to develop and expand their robust pipeline with multiple long-term opportunities for potential treatments for Alzheimer’s, ALS, stroke, Lupus and ophthalmology.

Facebook-FB announced a $5.7 billion investment in Jio Platforms Limited, part of Reliance Industries Limited, making Facebook its largest minority shareholder with a 9.9% stake. This investment underscores Facebook’s commitment to India.  In less than four years, Jio has brought more than 388 million people online, fueling the creation of innovative new enterprises and connecting people in new ways.  In just the past five years, more than 560 million people in India have gained access to the internet.

Tuesday, April 21, 2020

Virginia’s Center for Innovative Technology (CIT) partnered with UPS’s-UPS drone delivery subsidiary, UPS Flight Forward, and drone technology companies, DroneUP and Workhorse Group, in tests designed to determine how unmanned aerial systems can assist medical professionals in their fight to stop the spread of the coronavirus. Drones could add safety, speed, predictability and efficiency to healthcare logistics.

Monday, April 20, 2020

Bank of Hawaii-BOH reported first quarter net interest income rose 1% to $126 million with net income declining 41% to $34.7 million and EPS dropping 39% to $.87.  The decrease is the result of an increased provision expense of $33.6 million related to changes in economic conditions driven by the impact of COVID-19 and the anticipated effect of significantly slower economic growth and higher unemployment in Hawaii partially offset by the benefits of government stimulus programs. Bank of Hawaii maintains a strong balance sheet including a high-quality securities portfolio, good asset quality, high levels of liquidity, and a solid capital base that will allow the bank to provide financial support to customers and the Hawaiian community as needed to emerge from the COVID-19 crisis. While Hawaii faces short/mid-term challenges with tourism currently at a standstill, the long-term attractiveness of its visitor and military assets remains intact. Hawaii has been relatively fortunate with 580 cases and 10 deaths resulting from COVID-19 so far. The curve has flattened already in Hawaii with only 6 new cases reported yesterday. For more than 120 years, Bank of Hawaii has served its island communities and has always placed a premium on conservatism. Bank of Hawaii has a seasoned management team, exceptional liquidity, a conservative loan portfolio and strong market and capital positions. While Bank of Hawaii has temporarily suspended its share buyback program, the bank did declare its  regular quarterly dividend of $.67 per share payable on June 12, 2020. The bank has a long and unbroken history of dividend payments over more than three decades. Bank of Hawaii was one the few banks to maintain its dividend even during the Great Financial recession in 2008/2009. The dividend currently yields an attractive 4.7%.

Thursday, April 16, 2020

Starbucks-SBUX is planning to “gradually expand” operations at some stores in the U.S., citing progress in the fight to contain the coronavirus. The company is taking a store-by-store approach to resuming business activities, which will remain limited to services like drive-thru, delivery and takeout via mobile orders and contactless pickup. “As we experienced in China, this will be a journey,” Chief Executive Officer Kevin Johnson wrote in a memo to staff. “We are thoughtfully preparing for this next phase as we adapt in the U.S.”

To help hospitals treating patients with the novel coronavirus, Carrier Global-CARR launched the OptiClean™ portable negative air machine, which cleans and removes air potentially contaminated by the virus. Going forward, with professional installation OptiClean could be used in homes, businesses, assisted living facilities and elsewhere to provide cleaner air and protect vulnerable populations and communities.


Biogen-BIIB
, Broad Institute of MIT and Harvard, and Partners HealthCare announced a consortium that will build and share a COVID-19 biobank. The biobank will help scientists study a large collection of de-identified biological and medical data to advance knowledge and search for potential vaccines and treatments. According to researchers, this unique, clustered group of patients with a common exposure will offer a valuable lens into why some people show signs of disease and others are asymptomatic. It may also shed light on why among those with symptoms, some have more severe symptoms than others. Researchers will also examine blood samples from recovered patients to evaluate the levels of neutralizing antibodies against SARS-CoV-2 and other aspects of their immune profile, which may point the way toward short- and long-term therapeutic options.

Wednesday, April 15, 2020

UnitedHealth Group reported first quarter revenues increased 7% to $64.4 billion with net income down 2% to $3.4 billion and EPS off 1% to $3.52. These results reflect minimal impact from COVID-19 as the factors impacting financial results occurred late in the quarter. Free cash flow during the quarter declined 8% to $2.5 billion with the company paying $1 billion in dividends, an increase of 19% over last year, and repurchasing 6.2 million shares for $1.7 billion of stock during the quarter at an average price of about $274 per share. The company increased its short-term borrowings and ended the quarter with $24.4 billion in cash and short-term investments to assure strong liquidity levels in response to financial market volatility. Return on equity of 23.6% continued to reflect the company’s strong overall profitability. Given the company’s balanced and diversified businesses, management maintained its full year EPS outlook for 2020 of $15.45-$15.75. UnitedHealth Group provided expansive support to COVID-19 response efforts during the past quarter, including accelerating nearly $2 billion of payments to care providers to provide needed liquidity for the health system.

Tuesday, April 14, 2020

Fastenal-FAST reported first quarter sales increased 4.4% to $1.4 billion with net income also increasing 4.4% to $203 million and EPS increasing 4% to $0.35.  While domestic PMI improved from 47.9 last quarter to 50 during the first quarter of 2020, the macro data did not capture sharp degradation in business activity at quarter-end in response to societal actions designed to address the coronavirus pandemic. March finished very weak with about 120 Onsites closed at month end, with more planned to close in April. Manufacturing daily sales increased 3% in the first quarter, but down 1.1% in March. This impacted fastener sales, which declined 2.6% during the quarter, including a 10.1% drop in March. Non-Residential Construction daily sales declined 0.2%, including a 7.8% decline in March.  Fastenal’s designation as "critical infrastructure" due to its presence with state/local governments, first responders, food processors, etc., and its supply chain capabilities resulted in an 18.4% increase in Safety daily sales, including a 31% jump in March. Fastenal’s ability to globally source PPE continues to generate significant volume, including to state and local governments and healthcare organizations. National Accounts' daily sales increased 5.5% during the quarter, with 53 of Fastenal’s Top 100 customers growing. Non-National Account daily sales were down about 3%, with 52% of the company’s branches growing in the first quarter. During the quarter, Fastenal generated $192 million in free cash flow, up 28% from last year, on lower working capital needs given the slower growth and lower capital expenditures, reflecting the deferral of spending due to weakening business activity. During the quarter, Fastenal returned $196 million in cash to shareholders through $144 million in cash dividends and $52 million in share repurchases at an average cost per share of $32.54. Knowing how important dividends are to shareholders, including Fastenal employees who collectively own 4.3 million shares in the company’s 401K plan, leadership remains committed to its dividend. However, given all the uncertainty, the company does not plan to actively participate with share repurchases. During the quarter, Fastenal acquired certain assets of its vending partner, Apex, for $125 million, which should improve Fastenal’s cost profile and enhance development of its vending technology platform. Fastenal’s balance sheet remains strong and lightly leveraged with $161 million in cash, $450 million in long-term debt and $2.7 billion in shareholders’ equity on March 31, 2020.  With its strong balance sheet and about $344 million remaining available under its revolver loan, Fastenal  is well-prepared to resupply a re-starting economy.

Johnson & Johnson-JNJ reported first quarter revenues increased 3%, or 6% on an operational basis, to $20.7 billion with net income up 55% to $5.8 billion and EPS up 56% to $2.17. On an adjusted basis for special items, net income rose 9% with EPS up 10%. Pharmaceutical sales increased 9% to $11.1 billion thanks to strong growth across multiple therapeutic areas with Consumer Health Sales up 9% to $3.6 billion driven by strong demand for Tylenol and Motrin. Medical Device sales declined 8% to $5.9 billion due to the deferral of medical procedures related to the impact of the COVID-19 pandemic. With a century-plus history of leading in times of great challenge, JNJ is leveraging their scientific expertise, operational scale and financial strength in their effort to advance the work on their lead COVID-19 vaccine candidate. A vaccine is critical to eradicating the pandemic. JNJ is accelerating their R&D and manufacturing to get one billion doses of the vaccine available for emergency use authorization beginning in the first quarter of 2021 on a not-for-profit basis. During the first quarter, JNJ generated $3 billion in free cash flow. The company’s triple-A rated balance sheet held $18.1 billion in cash and $27.6 billion in long-term debt as of quarter end. During the quarter, the company invested $2.6 billion in research and development and paid $2.5 billion in dividends. Thanks to its strong financial position, JNJ increased its dividend 6.3% to an annualized $4.04, marking the 58th consecutive year of dividend increases. The company’s capital allocation strategy is to first invest in the company’s organic growth business needs and then use free cash flow to increase their dividend while using excess cash for share repurchases and mergers and acquisitions to bolster their portfolio and enhance their pipeline. JNJ sees the impact of COVID-19 on their medical devices business having a significant negative impact in the second quarter with stabilization occurring in the third quarter and recovery beginning in the fourth quarter. As a result, JNJ lowered their sales and earnings outlook for the full 2020 year with reported sales expected to decline 2% to 5.5% to a range of $77.5 billion to $80.5 billion with adjusted EPS declining 9% to 13.6% to a range of $7.50-$7.90.  In China, JNJ is seeing a gradual return of their business to “normal” conditions with more than 50% of their people back to work. In the United States, they expect the country to reopen as new infections begin to wane, testing and diagnostics become more available, tracking devices are used, therapeutics become available to treat the disease with successful vaccines in 2021 allowing the world to manage COVID-19 and eventually put it behind us.

Cisco-CSCO is continuing its global commitment to help customers and partners navigate an evolving landscape with the introduction of a new Business Resiliency Program. Offered through Cisco Capital, the vendor financing business within Cisco, and designed to help mitigate financial challenges resulting from the Covid-19 pandemic, this program includes $2.5 billion in financing to provide organizations with access to the solutions they need to keep their businesses running and productive, their employees safe and support their communities during these unprecedented times.

3M-MMM is partnering with Cummins to increase the production of high efficiency particulate filters for use in 3M’s powered air purifying respirators, or PAPRs. The partnership has the potential to more than double the current production of filters for 3M’s PAPRs. The additional filters are needed as 3M has ramped up production of PAPRs to meet a surge in demand for personal protective equipment due to the COVID-19 outbreak. Since the COVID-19 outbreak began, 3M has increased production of critical safety and healthcare products at its manufacturing facilities in the U.S. and around the world. Beginning in January, 3M ramped up production of N95 and other respirators and doubled its global output to 1.1 billion per year – including 35 million a month in the United States. 3M has already put into motion additional investments and actions that will enable it to double its capacity again to 2 billion globally within 12 months, with additional capacity to begin coming online in the next 60 to 90 days. In the United States, 3M expects to produce N95 respirators at a rate of 50 million per month in June, a 40 percent increase from current levels.


Friday, April 10, 2020

 

Across the world, governments and health authorities are working together to find solutions to the COVID-19 pandemic, to protect people and get society back up and running. Software developers are contributing by crafting technical tools to help combat the virus and save lives. In this spirit of collaboration, Google-GOOGL and Apple-AAPL  are announcing a joint effort to enable the use of Bluetooth technology to help governments and health agencies reduce the spread of the virus, with user privacy and security central to the design. Since COVID-19 can be transmitted through close proximity to affected individuals, public health officials have identified contact tracing as a valuable tool to help contain its spread. Given the urgent need, the plan is to implement this solution in two steps while maintaining strong protections around user privacy. First, in May, both companies will release APIs that enable interoperability between Android and iOS devices using apps from public health authorities. These official apps will be available for users to download via their respective app stores. Second, in the coming months, Apple and Google will work to enable a broader Bluetooth-based contact tracing platform by building this functionality into the underlying platforms. This is a more robust solution than an API and would allow more individuals to participate, if they choose to opt in, as well as enable interaction with a broader ecosystem of apps and government health authorities. Privacy, transparency, and consent are of utmost importance in this effort. Every one at Apple and Google believe there has never been a more important moment to work together to solve one of the world’s most pressing problems. Through close cooperation and collaboration with developers, governments and public health providers, they  hope to harness the power of technology to help countries around the world slow the spread of COVID-19 and accelerate the return of everyday life.

 

 Thursday, April 9, 2020

Alphabet’s-GOOGL Google has reported that Google Classroom, a free service teachers use to send out assignments and communicate with students, has doubled active users during the pandemic to more than 100 million since the beginning of March. That’s boosting other products. Meet, a videoconferencing app is being used 25 times as much as it was in January, and the broader G Suite for Education offering has 120 million users, up from 90 million a year ago. Google doesn’t charge most schools to use Classroom. The real prize is the millions of young people learning how to use its software. When those students enter the workforce, they’re likely to keep using paid versions, and encourage colleagues to adopt the tools, too. Google Classroom was already popular in the U.S., but demand is now coming from places with few customers before the virus, such as Italy and Indonesia, according to Avni Shah, Google’s vice president for education. “All these places were really lighting up in the last month,” she said. Google recently pledged to provide internet connections to as many as 100,000 households in California and distribute 4,000 Chromebooks to kids in need.


Starbucks-SBUX disclosed how their team in China is now focusing on recovery, which is progressing as expected with over 95% of their stores now open, though many are operating with reduced hours and limited seating in compliance with local guidelines. Starbucks expects their business in China to fully recover in the next two months. The company is seeing similar improvements underway in South Korea, which reinforce both the resilience of their brand as well as their success in replicating their recovery model across markets as people are able to return to their daily lives and work. Starbucks plans to follow the same playbook in the United States. Starbucks continues to believe that these extraordinary circumstances are temporary, and they expect that Starbucks will emerge from this global crisis even stronger than before. Quarter-to date through March 11, U.S. comparable store sales growth was 8%, with comparable transaction growth of 4%. These were the strongest top-line results that the company had delivered in four years—and when coupled with very strong margin performance, demonstrate the overall strength of the Starbucks brand and the continued effectiveness of their key growth and margin-improvement strategies, prior to the business disruption resulting from the spread of COVID-19. Management expects these same strategies will further lift their sales and margins as they emerge from the current crisis and that the business will recover over time, substantiated by what they are seeing in China. Comparable same store sales in the U.S. began to decline on March 12 and steadily worsened as they temporarily closed more stores and traffic slowed in response to the rise in “shelter-in-place” mandates and “social distancing” requirements across the country. During the last week of the month, comparable store sales declines stabilized in the range of -60% to -70%, with 44% of U.S. company-operated locations operating, most under modified store hours, primarily through the drive-thru channel. At quarter end, 58% of U.S. company-operated stores were drive-thru locations, of which 76% were open; additionally, approximately 55% of U.S. licensed stores remained open at quarter-end, the vast majority of which were in grocery stores. Notwithstanding the very strong performance for the first ten weeks of the quarter, comparable store sales in the U.S. were down approximately 3% in Q2 versus the prior year, reflecting the very rapid onset of COVID-19 business impacts in the final three weeks of the quarter. Management estimates that the business disruption related to COVID-19 in China had an adverse impact to Starbucks GAAP and non-GAAP EPS for Q2 in line with previous expectations, in the range of $0.15 to $0.18. The U.S. business was materially impacted by the growing pandemic in the final three weeks of Q2. As a result, Starbucks preliminary estimates for Q2 FY20 GAAP and non-GAAP EPS are approximately $0.28 and $0.32, respectively. These estimates reflect the impact of lost sales for the period as well as incremental expenses for partner wages and benefits, store operations and other activities related to the COVID-19 outbreak. This includes inventory write-offs, honoring supplier obligations, store safety-related items, asset impairments and preliminary estimates of certain government stimulus program benefits.


Walt Disney-DIS announced Disney+ has now achieved a new milestone, with 50 million paid subscribers globally within five months after its U.S. launch. In the past two weeks, Disney+ rolled out in eight Western European counties including the UK, Ireland, France, Germany, Italy, Spain, Austria, and Switzerland. Additionally, Disney+ became available last week in India, where it is offered in conjunction with the existing Hotstar service, and already accounts for approximately eight million of Disney+'s 50 million paid subscribers.


Cognizant Technology Solutions-CTSH announced certain updates in response to the impact of the novel coronavirus (COVID-19) on business operations. First quarter revenue is expected to be $4.22-$4.23 billion, up 2.7-2.9% (3.4-3.6% in constant currency) from the prior-year quarter, including a negative 50 basis point impact from the exit of certain content services. Financial performance in the first two months of the quarter was on track to exceed previous guidance, driven by strong performance across the North America market. During the latter part of March, COVID-19 increasingly affected Cognizant’s business due largely to: • Delays in project fulfillment as delivery, particularly in India and the Philippines, shifted to work-from-home. • Reduced client demand, primarily in the travel and hospitality industries. Entering the second quarter, Cognizant expects the pandemic to further reduce client demand as its societal and economic impact causes broader disruptions across industries. The long-term fundamentals of their business remain strong. However, given the unprecedented nature of this crisis, uncertainty around its duration and its impact on our ability to forecast performance, the company is withdrawing its 2020 guidance. Cognizant has proactively taken steps to strengthen its financial flexibility, including drawing down $1.74 billion on its revolving credit facility on March 23, 2020, bringing the Company’s total cash and investment balance as of March 31st to approximately $4.7 billion , or net cash of $2.2 billion. The Company has no significant debt maturities until 2023. During the first quarter Cognizant completed the acquisitions of Code Zero and Lev and repurchased approximately 8 million shares. Since March 31st, Cognizant has not initiated any new share repurchase programs. “We are confident that the combination of our strong balance sheet, and our robust operating and cash generative business model, will enable us to weather this disruption,” said Karen McLoughlin, Chief Financial Officer. “The execution of our 2020 Fit for Growth program along with prudently managing our cost structure to react quickly to changes in the demand environment is critical to maintaining financial flexibility to navigate near-term headwinds while repositioning the business for long-term success.”


ADP-ADP is doing everything possible to help small business and ADP's clients. ADP's efforts to date have been focused on providing information and tools to help clients understand and navigate the legislative relief that has been adopted over the past few weeks. From the moment the federal government enacted the FFCRA and the CARES Act, ADP has been working non-stop to provide support for all employers on the relief available under both laws. This includes an Employer Preparedness Toolkit that helps explain the federal and state government relief as well as a website dedicated to providing critical information about the Paycheck Protection Program (PPP). ADP has also hosted multiple webinars focused on helping to explain the FFCRA and CARES Act and trained thousands of ADP associates who have fielded several hundred thousand calls from clients since the beginning of the crisis. ADP has also built tools to help clients obtain the data they need to expedite the process for SBA loans under the PPP. This includes payroll cost reporting and headcount reporting tools that were updated with each change in SBA guidance since the PPP was enacted under the CARES Act. To date, over 240,000 clients have downloaded these types of reports.


Wednesday, April 8, 2020

Berkshire Hathaway-BRKA said GEICO will give its auto and motorcycle policyholders a 15% credit on their bills as their policies come up for renewal through Oct 7, 2020. The credit will also apply to new policies bought in the same period. The company said the average auto policy has a six-month premium around $1,000, and generally covering more than one vehicle, so it expects to credit on average about $150 per auto policy and about $30 per motorcycle policy. The company estimated that the benefit to its 18 million auto and 1 million motorcycle customers will be around $2.5 billion. "Shelter-in-place policies have reduced driving significantly. Vehicle accidents are down considerably, and although Geico expects a return to near-normal once the impacts of COVID-19 subside, Geico remains committed to serving its customers' changing needs in the best way it can," the company said in a statement. Geico in March said it was pausing coverage cancellations due to non-payment and policy expiration through at least April 30.

Starbucks-SBUX said that it has committed $10 million to coronavirus-related economic relief efforts for workers at company-owned and licensed stores around the world. The new Starbucks Global Partner Emergency Relief Program, part of the effort, will offer one-time grants to those in need. Part of the $10 million commitment will benefit the company's existing CUP Fund, which has a similar goal. The money will also help Starbucks markets around the world fund programs to help workers. 

Booking Holdings-BKNG announced the commencement of an offering of $750 million in aggregate principal amount of its convertible senior notes due 2025 along with an offering of one or more series of its Senior Notes. Booking Holdings intends to use the net proceeds from the offerings for general corporate purposes, which may include repayment of debt, including the repayment, at maturity or upon conversion prior thereto, of its 0.35% Convertible Senior Notes due June 2020 and its 0.90% Convertible Senior Notes due September 2021. Due to the outbreak of COVID, Booking’s expected results for the quarter ended March 31, 2020 have been significantly and negatively impacted, with a material decline in gross travel bookings, room nights booked, total revenues, net income, cash flow from operations and Adjusted EBITDA as compared to the corresponding period in 2019. Newly-booked room night reservations—excluding the impact of cancelations—have been declining as the COVID19 outbreak has spread, and in recent days have decreased by over 85% as compared to the comparable period in 2019. Booking currently expects that the COVID-19 outbreak will impact their financial performance for the quarter ended June 30, 2020, much more significantly than it impacted the quarter ended March 31, 2020 with the spread of COVID-19 to Europe, the United States and other regions.  Booking expects the outbreak and its effects to continue to have a significant adverse impact on their business for the duration of the pandemic and during the subsequent economic recovery, which could be an extensive period of time. As a result of the deterioration of their business due to the COVID-19 outbreak, they are currently evaluating goodwill, long-term investments and long-lived assets for possible impairment. Booking currently believes that their goodwill (a substantial portion of which relates to OpenTable and KAYAK with a combined carrying value of $2.1 billion as of December 31, 2019) may have experienced a decline in value due to the COVID-19 outbreak, and it is likely that they will record a significant impairment charge when they report their results for the quarter ended March 31, 2020. In addition, given the volatility in global markets and the financial difficulties faced by many of their travel service provider and restaurant partners, they expect to increase their provisions for bad debt and for cash advances to travel service provider and restaurant partners, which increase could be material and adversely impact cash flows.  

Tuesday, April 7, 2020

UnitedHealth Group-UNH has announced it is taking steps immediately to accelerate payments and other financial support to health care providers in the U.S. to help address the short-term financial pressure caused by the COVID-19 emergency. "We are grateful to the health care providers and their teams who are on the front lines battling COVID-19," said UnitedHealth Group Chief Executive Officer David S. Wichmann. "The actions we are taking today will provide nearly $2 billion in accelerated payments and financial support so our care provider partners can focus on delivering needed care."

The Executive Compensation Committee (“ECC”) of the Board of Directors of The TJX Companies-TJX approved on April 1, 2020, and the executive officers of the company agreed to, certain base salary adjustments for the period beginning on April 12, 2020 and ending on July 4, 2020, as follows: the base salary of Ernie Herrman, Chief Executive Officer and President, and Carol Meyrowitz, Executive Chairman, will be reduced by 30%, and the base salary of each other executive officer of the Company will be reduced by 20%. The ECC also approved salary reductions for other senior executives of the Company, and the Board of Directors of the Company agreed to a reduction in its cash retainer fees, in each case, for this same period. The Company previously announced that all of its stores would be closed for at least two weeks, effective March 19, and that it had temporarily closed its online businesses, its distribution centers and its offices with Associates working remotely where possible. The Company continues to monitor developments, including government requirements and recommendations at the federal, state and local level, and has extended such closures. The Company expects the cadence of re-openings to vary by state and locality in the U.S., and by country. TJX has committed to pay its Associates until the week ending April 11, 2020, and is implementing temporary furloughs after that date for the majority of store and distribution center Associates in the U.S., with employee benefits for eligible Associates continuing during the temporary furlough at no cost to impacted Associates. The Company is taking comparable actions with respect to portions of its non-U.S. workforce and continues to evaluate a variety of additional measures. TJX is working to prepare for re-openings as soon as the Company believes it can operate safely in the communities it serves. As the COVID-19 pandemic is complex and rapidly evolving, the Company’s plans as described above may change. At this point, TJX cannot reasonably estimate the duration and severity of this pandemic. The temporary closure of the Company’s stores and distribution centers is expected to have an adverse impact on its results of operations, financial position and liquidity.

UPS-UPS announced the company is managing and brokering 25 charter flights in support of Project Airbridge, a coordinated effort between the Federal Emergency Management Agency (FEMA), numerous countries and the private sector designed to expedite the arrival of critical supplies needed in U.S. hospitals.  “UPS Healthcare, and our full portfolio of services, is providing a suite of highly-choreographed logistics solutions in support of Project Airbridge,” said UPS Chairman and CEO, David Abney. “In addition to managing and brokering air freight flights, UPS is ramping up around-the-clock operations to provide receipt of PPE and kitting for distribution to hospitals and hot spots around the country. We are bringing the full power of our integrated global logistics network to bear to assist FEMA in the pandemic fight.” The first charter flights have already arrived, and will continue for the next two weeks. In total, the 25 UPS-managed flights will carry more than three million pounds of materials – the equivalent of 14 full Boeing 747 freighters. Cargo will include masks, surgical gowns, gloves, medical swabs and thermometers. Led by FEMA and the White House Coronavirus Taskforce, Project Airbridge is a partnership between UPS and large U.S. healthcare distributors including Cardinal Health and others, and the U.S. federal government. UPS is providing air freight brokerage services on third-party aircraft, as well as on UPS-owned aircraft. Goods will be distributed at the direction of FEMA to hospitals and COVID-19 hot spots throughout the country. Simultaneously, UPS’s Healthcare division opened a new 450,000 square-foot healthcare distribution center on April 4, with dedicated space for FEMA. The facility is located just a few miles from UPS Worldport, the company’s automated global air hub, in Louisville, KY. With that proximity, UPS has the ability to quickly fulfill orders for delivery overnight, anywhere in the U.S. The UPS Supply Chain Solutions business unit offers transportation and freight services, logistics and distribution, consulting, and customs brokerage services – and FEMA is taking advantage of almost every aspect of UPS Supply Chain Solutions’ capabilities.

 

Bob Iger, chairman of Disney-DIS, was recently interviewed by Barron’s. Here are his comments on Disney’s financial strength, “We’re fortunate as a company that we have access to capital that will keep us more than solvent through a prolonged period. Now when I say prolonged, I don’t necessarily mean forever. No one’s got that. That said, we’ve taken steps during this period of time—you know, the furloughs—to reduce costs out of necessity. We started with the senior executives. We felt that was necessary, not just in terms of reducing costs, but also sending a signal. Others obviously will feel the impact as well as we look to preserve the long-term health of the company financially. In addition to that, I don’t think we’re ever going to see a return to business as usual in the sense that, I can’t speak for all companies, but Disney will take this opportunity to look for ways to run our businesses more efficiently when we come back. So what we’re doing is thinking, OK, as things start to return, one, what must we address in terms of making people feel safe, but secondly, what must we address in terms of running the company more efficiently, given what we believe business conditions will dictate.”

Tractor Supply-TSCO reported preliminary first quarter results with net sales increasing 7.5% to $1.96 billion as comparable store sales increased 4.3%. Starting in early March, the company benefited from strong sales as consumers stocked up on core everyday consumable, usable and edible merchandise categories related to the COVID-19 pandemic. This stock up activity more than offset the decline in cold-weather seasonal categories sales in January and February resulting from generally warmer weather conditions. For the March period, overall comparable store sales increased 12% above the prior year with key consumable categories up more than 20%, offset by declines in discretionary categories such as clothing, footwear, toys and gift items. The Company’s e-commerce business also experienced significant growth in March. As a result of the above factors, the ompany expects diluted earnings per share for the first quarter to be between $0.69 and $0.71. Beginning in early March as the COVID-19 crisis evolved, the company saw a significant increase in their comparable store sales with a focus in consumable categories such as companion animal food, livestock feed and heating fuel and other core categories like agricultural fencing, safes, generators and sustainable living. “While the second quarter comparable store sales growth has started out strong as Tractor Supply’s customers move from stock up purchases to more seasonally relevant categories, there is a significant degree of uncertainty going forward. As a result, we are withdrawing our fiscal 2020 guidance. We believe our resilient business model, which has been proven over time, and our strong financial position will continue to serve us well in the future,” said Kurt Barton, Tractor Supply’s Chief Financial Officer. All of the Company’s stores and e-commerce operations are open and plan to remain open. As of March 28, 2020, the Company had more than $450 million in cash and cash equivalents and approximately $165 million in available liquidity through existing credit facilities. While Tractor Supply will continue to invest in its business and team members, the Company has suspended its share repurchase activity effective March 12, 2020. Barton continued, “At Tractor Supply, we have a strong balance sheet with significant financial flexibility and cash flow. Nevertheless, we are taking steps to further enhance the Company’s financial flexibility. We are reprioritizing capital expenditures and deferring certain investments while accelerating investments in some of the key strategic initiatives to respond to COVID-19, such as increased delivery options, additional mobile point of sale technology and contactless curbside delivery. While we are adapting to the current operating environment, we continue to invest in our long-term growth opportunities.” Tractor Supply is embarking on the company's most ambitious hiring drive ever with plans to immediately fill more than 5,000 full-time and part-time Team Member positions across its nearly 1,900 stores in 49 states and eight distribution centers. These job opportunities represent existing and new positions with a focus on increased customer service and safety in stores."


In response to the rapidly evolving COVID-19 outbreak and pandemic, Genuine Parts-GPC has implemented preparedness plans to ensure continued operations and business continuity across their global network. Each of their automotive, industrial and business products segments have been classified as "essential" businesses and their operations remain substantially open to serve our customers through this pandemic, with the exception of France and New Zealand due to preemptive government mandates. Paul Donahue, CEO, said, "We believe the steps we are taking to stabilize our business in these unprecedented times will position the Company for strong sales and earnings growth as we exit this global pandemic." Genuine Parts Company maintains a strong balance sheet and is conserving cash by taking steps to reduce cash outflows associated with capital expenditures and M&A, and suspending share repurchase activity in the current environment. In addition, they have expanded their original $100 million cost savings plan announced last October to include a variety of additional measures to reduce labor and other costs, as appropriate. Finally, while their current liquidity remains strong, with approximately $1.0 billion in cash and unused credit as of March 31, 2020, they continue to work with their banking and other partners for alternative forms of financing and to remain in continued compliance with their debt covenants. Through these actions and on-going working capital initiatives, the company has the liquidity to operate through these uncertain times as well as continue to pay the dividend. The growing uncertainties around COVID-19 have rapidly evolved and significantly affected the market conditions across global operations. While uncertain as to its full impact, Genuine Parts expects COVID-19 to negatively impact financial results. As a result, the company is withdrawing all of its previous guidance metrics.

3M-MMM announced a plan to import 166.5 million respirators over the next three months to support healthcare workers in the United States primarily from is manufacturing facility in China. 3M and the Administration worked together to ensure that this plan does not create further humanitarian implications for countries currently fighting the COVID-19 outbreak and committed to further collaborate to fight price gouging and counterfeiting. These imports will supplement the 35 million N95 respirators 3M currently produces per month in the United States."
Beginning in January, 3M ramped up production of N95 respirators and doubled its global output to 1.1 billion per year – including the 35 million a month in the United States. 3M has already put into motion additional investments and actions that will enable it to double its capacity again to 2 billion globally within 12 months, with additional capacity to begin coming online in the next 60 to 90 days. In the United States, for example, 3M expects to be producing N95 respirators at a rate of 50 million per month in June, a 40 percent increase from current levels.

 

Friday, Apr. 3, 2020

  

As detailed in the March newsletter, United Technologies-UTX merger with Raytheon Technologies-RTN has been completed with United Technologies changing its name to Raytheon Technologies Corp. and the ticker symbol changing to "RTX." Raytehon shareholders receive 2.3348 shares of RTX for each share of RTN held. The change comes after United Technologies completed the spinoff of Carrier Global Corp-CARR and Otis Worldwide Corp-OTIS. For each share of United Technologies held, shareholders received one share of Carrier and 0.5 share of Otis.

Thursday, April 2, 2020

Walgreens Boots Alliance-WBA reported second quarter revenues increased 3.7% in the second fiscal quarter ending Feb. 29, 2020 to $35.8 billion with net income down 18% to $946 million and EPS declining 14% to $1.07. These results exceeded management’s expectations with sequential improvement in comparable U.S. prescription volume and retail sales offset by weakness in the U.K. These results were largely before the impact of COVID-19. Walgreens is on the front lines of combating the COVID-19 pandemic in terms of providing essential services, products and information to its customers and patients. Walgreens experienced strong sales in the beginning of March as customers stocked up on prescriptions and household items, but then saw sales trends decline sharply in the last part of March as lockdowns across the country occurred reducing foot traffic into the stores which remain open. During the first half of the year, free cash flow increased $1.4 billion to $1.8 billion. Thanks to the strong cash flows, the company paid dividends of $857 million and repurchased $913 million of its common stock. Management expects to repurchase $1.7 billion of stock this fiscal year and plans to continue to increase its dividend thanks to the tremendous cash flows of the business. Prior to the COVID-19 pandemic, the company was on track to maintain fiscal 2020 guidance of roughly flat growth in adjusted EPS. Given the uncertainty on the depth and duration of the future impact of COVID-19 on multiple markets, Walgreens will provide further updates on expected earnings. The company remains on target to deliver in excess of $1.8 billion in annual cost savings by fiscal 2022. Walgreens’s management knows the current situation is temporary and with the company’s sound fundamentals, it expects to emerge from the crisis in a strong position.

Wednesday, April 1, 2020

Stryker-SYK is withdrawing its first quarter and full year 2020 organic sales growth and earnings per share guidance.  As the COVID-19 pandemic expands, unprecedented measures to slow the spread of the virus have been taken by local governments and health care authorities globally, including the deferral of elective medical procedures and social contact restrictions, which have had, and will continue to have, a significant negative impact on Stryker’s operations and financial results. Due to the uncertain scope and duration of the pandemic, and uncertain timing of global recovery and economic normalization, Stryker is unable to estimate the overall impacts on its operations and financial results, which could be material.

3M-MMM continues to act with urgency to address the coronavirus crisis from every angle. They are doing all they can to protect our heroic nurses, doctors and first responders. As previously communicated, beginning in January 3M ramped up to maximum production of N95 respirators, doubling their global output to a rate of 1.1 billion per year, or 100 million per month. This includes 35 million per month in the United States, and over just the last seven days they have delivered 10 million N95 respirators to healthcare facilities in states across the country. They have already put into motion additional investments and actions that will enable 3M to double their capacity once again, to 2 billion globally within the next 12 months – and some of that additional capacity will begin to come online in the next 60-90 days. In the United States, 3M expects to be producing N95 respirators at a rate of 50 million per month in June, a 40 percent increase from current levels. Even with 3M’s accelerated production combined with capacity from other manufacturers, the reality is that demand for N95 respirators is much higher than the industries’ ability to deliver. That is why 3M continues to explore innovative partnerships and solutions to help protect our healthcare workers in this extraordinary time. Given the high use rate of N95 respirators, 3M engineers are right now collaborating with several sterilization companies to find a way for hospitals to safely clean, reuse and extend the life of these respirators. Additionally, 3M is partnering with Ford to bolster production of 3M’s powered air purifying respirators (PAPRs), which are highly specialized pieces of equipment used in the most demanding healthcare environments. They are moving forward quickly with the goal of increasing PAPR production by six-fold within the next 60 to 90 days. 3M is also  continuing  to act on reports of counterfeiting and price gouging related to 3M’s respirators. 3M has not and will not raise its prices for respirators in this crisis, and they are offering  assistance in the fight against these unconscionable activities. As disappointing as this unethical activity is, it is equally heartening to see so many step up to help the world get through this crisis – including the many retailers and 3M customers that have voluntarily contributed or donated their excess stockpiles of respirators and other key supplies.

On March 30, 2020, the Board of Directors of T. Rowe Price Group-TROW approved a 15 million share increase in the company’s authorization to repurchase shares of its common stock. As a result, as of March 30, 2020, the total repurchase authorization was approximately 24.1 million shares of the Company’s outstanding common stock.

 

Monday, March 30, 2020

Johnson & Johnson-JNJ announced the selection of a lead COVID-19 vaccine candidate from constructs it has been working on since January 2020; the significant expansion of the existing partnership between the Janssen Pharmaceutical Companies of Johnson & Johnson and the Biomedical Advanced Research and Development Authority (BARDA); and the rapid scaling of the Company's manufacturing capacity with the goal of providing global supply of more than one billion doses of a vaccine. The company expects to initiate human clinical studies of its lead vaccine candidate at the latest by September 2020 and anticipates the first batches of a COVID-19 vaccine could be available for emergency use authorization in early 2021, a substantially accelerated timeframe in comparison to the typical vaccine development process. Through a landmark new partnership, BARDA, which is part of the Office of the Assistant Secretary for Preparedness and Response (ASPR) at the U.S. Department of Health and Human Services, and Johnson & Johnson together have committed more than $1 billion of investment to co-fund vaccine research, development, and clinical testing.



UPS’s-UPS
dedicated people, global network and public-private partnerships are creating a powerful combination for rapid deployment of protective equipment and test kits throughout the U.S., and around the world,” said UPS Chairman and CEO, David Abney. “UPS Healthcare has the expertise and experience to move vital, life-saving medicines, medical devices, diagnostic specimens and supplies everywhere they are needed.” UPS announced a stepped-up collaboration with FEMA to provide supply chain services for the agency’s distribution of PPE and necessary materials throughout the U.S., including respirators, N95 masks, and gloves for use by healthcare workers across the country. As part of the collaboration, FEMA will gain access to UPS’s expansive Worldport® facilities in Louisville for temporary staging of critical shipments from overseas. Additionally, UPS is working with an array of government agencies and companies to support swift transportation of test kits, PPE, supplies and medical devices. UPS Healthcare President Wes Wheeler. “Our strength is our ability to be nimble in times of emergencies, whether natural disasters or pandemics, so we will continue to do our part to help us all through this challenge.”


Raytheon-RTN
will produce and deliver SM-3® Block IB interceptors under a $2.1 billion, multi-year U.S. Missile Defense Agency contract. It is the first multi-year contract for the SM-3 program and covers fiscal years 2019–2023. SM-3 is the only ballistic missile interceptor that can be launched on land and at sea. It is deployed worldwide and has achieved more than 30 exoatmospheric intercepts against ballistic missile targets.


Friday, March 27, 2020

Alphabet-GOOGL is pledging $800 million in relief funds to customers and health-care workers to address the coronavirus pandemic. The contributions include $250 million in advertising credits for the World Health Organization and $340 million to small businesses to run promotions with Google. The economic fallout from the pandemic has dried up marketing spending. Another $20 million gives researchers working on the novel virus credits to use the company’s cloud-computing services. Google also said it would be working with a partner, Magid Glove and Safety Manufacturing LLC, a supplier based in Illinois, to produce between 2 million and 3 million protective face masks in the coming weeks to help meet the shortage for hospitals.

 

Apple-AAPL is releasing an app and website that will direct users to guidance from the Centers for Disease Control on the disease caused by the coronavirus. The app, which will be available in the app store as “COVID-19,” will ask users questions about symptoms, location and risk factors and then provide the appropriate up-to-date guidance from the CDC. The app will also answer frequently asked questions about the coronavirus disease with official information from the CDC. The same information will be available at a website https://www.apple.com/covid19 that will be accessible to the users of Windows PCs, Android phones and other non-Apple devices. Apple said that it will not collect the answers users give to the app and website's questions and that the answers will not be sent to either Apple or any government entity. Apple Chief Executive Tim Cook said that the company had donated 10 million protective masks to U.S. health care groups after using Apple's supply chain team to locate and buy the masks.

 

Walgreens Boots Alliance-WBA expands pick-up offerings at drive-thru services. As more and more people across the country continue to look for safe and convenient options to pick up daily essentials amidst the COVID-19 pandemic, Walgreens is now offering select products at its more than 7,300 pharmacy drive-thrus nationwide. The offering provides greater convenience while also helping to promote social distancing. More than 60 front-end products are currently available for purchase at drive-thru, including household essentials chosen specifically to support the needs of customers and communities during the pandemic.

Oracle-ORCL director Charles Moorman purchased $1 million of the company’s stock.

Thursday, March 26, 2020

FactSet-FDS reported fiscal second quarter revenue increased 4.2% to $369.8 million with net income net income and EPS increasing 5% to $88.7 million and $2.30, respectively. FactSet’s sales increase was powered by higher sales of analytics, wealth management solutions, and content and technology solutions (CTS). Annual Subscription Value (ASV), which represents the forward-looking revenues for the next twelve months from all subscription services currently supplied to clients, increased 4% to $1.5 billion, driven by higher sales in FactSet's analytics, CTS, and wealth workflow solutions and a price increase in the Americas region. Annual ASV retention was greater than 95%. When expressed as a percentage of clients, annual retention was 89%. Employee count was 9,892, up 3.8% over the last twelve months. Client count at quarter-end was 5,688, a net increase of 87 clients in the past three months. User count increased by 2,111 to 128,896 during the quarter, driven by in increase in wealth advisors and portfolio managers.  During the quarter, FactSet generated $74.6 million in free cash flow, down 15% from last year, on higher capital expenditures due to new office space build out and technology upgrades to fuel growth. During the quarter, FactSet repurchased 267,500 shares of its common stock for $74.2 million, or $277.28 per average share. The board recently approved an increase of $220 million to the existing share repurchase program, bringing the total authorized to $300 million.  The company ended the quarter with $367 million in cash, $574 million in long-term debt and $717 million in shareholders’ equity. Given all the uncertainty created by COVID-19, FactSet revised its full fiscal year guidance with ASV now expected to increase in the range of $50 million to $75 million over 2019 with revenue expected in the range of $1.49 billion and $1.5 billion and EPS in the range of $8.70 and $9.00. With FactSet’s subscription model, stable and robust cash flows and strong balance sheet, management is confident in FastSet’s resiliency during periods of uncertainty. Indeed, with its flexible technology platform, clients look to FactSet to help them implement their continuity plans which include remote work.  

Wednesday, March 25, 2020

Paychex-PAYX reported third quarter revenues rose 7% to $1.1 billion with net income and EPS each up 9% to $354.5 million and $.98, respectively. During the quarter, Paychex experienced solid growth across all major business lines. These results largely predated the disruption caused by the COVID-19 outbreak. Interest on funds held for clients decreased 7% to $21.2 million in the quarter due to lower average interest rates earned as interest rates were cut by the Fed. The company’s financial position remains strong with cash of $853.4 million and net debt of $847.9 million. Free cash flow increased 3% to $960.8 million through the first nine months of the year with the company paying $666.8 million in dividends and repurchasing $171.9 million of common stock.  Paychex’s positive cash flows have historically allowed the company to support their business and to pay substantial dividends. The dividend currently yields an attractive 4%. Paychex’s strong financial position and cash flows should enable them to continue to pay their dividend despite expected business weakness from COVID-19. For the 2020 fiscal year ending in May, management anticipates revenues will increased 8% to 9% with an operating margin of 36%, and adjusted net income and EPS each increasing 6%. In fiscal 2021, Paychex expects revenues to be flat to down in the low single- digit range with the operating margin dipping to 35%. Paychex thinks once the economy reopens, a solid bounce back will occur as the biggest challenge for small business prior to COVID-19 was finding workers due to full employment. Paychex expects the first fiscal 2021 quarter to show a significant decline due to the sharp recession that will impact the small businesses they serve with the second and third quarter expected to show modest improvement with recovery by the fourth quarter. The Federal Government is addressing the challenges small businesses are facing with significant stimulus designed to help keep employees on the payroll.

MAXIMUS-MMS suspended its fiscal 2020 revenue and earnings guidance due to the uncertainty of the impact on global operations following the emergence of the coronavirus pandemic (COVID-19). The duration and broader implications of the pandemic and related developments cannot be reasonably predicted at this time, but MAXIMUS expects negative impacts to the income statement and cash flows for fiscal 2020. The Company’s strong balance sheet will enable it to meet its contractual and financial obligations as these come due, including its income protection plan for its employees. Going forward, MAXIMUS will continue to exercise a disciplined approach to cash outflows in an effort to maintain liquidity and flexibility. The Company will continue its ongoing evaluation of its cash position and use of cash on a holistic basis which includes its approach to buybacks, dividends, and M&A. The MAXIMUS share purchase program will conclude on March 25, 2020, under a share purchase plan previously implemented by the Company and will be re-evaluated once there is clarity around the impact of the COVID-19 crisis. MAXIMUS believes it has adequate cash reserves, including access to a $400 million revolving credit facility to navigate this pandemic.

A study led by UnitedHealth Group-UNH Research & Development and OptumCare clinicians has demonstrated that a simple, self- collected test is as effective in identifying COVID-19 infections as the current clinician-collected test. Widespread adoption of this less invasive test will reduce exposure for health care workers and improve overall testing efficiency across the country. "We know that broad, rapid and accurate testing is essential to addressing the COVID-19 crisis, yet the current clinician-administered process significantly limits testing capacity, puts frontline health care workers at risk of COVID-19 exposure, and is unpleasant for patients," said study-lead Dr. Yuan-Po Tu, an infectious disease expert at The Everett Clinic, part of OptumCare. "Making simple, patient-administered testing widely available will substantially improve testing efficiency, while protecting health care workers and preserving urgently needed personal protective equipment, such as face masks, gowns and gloves."

Tuesday, March 24, 2020

COVID-19 has upended the lives of billions of people around the world. In response to this emergency, Facebook-FB has been supporting the global public health community and working to provide people with information to help them stay safe. As the pandemic expands and more people practice physically distancing themselves from one another, this has also meant that many more people are using their apps. In many of the countries hit hardest by the virus, total messaging has increased more than 50% over the last month. Similarly, in places hit hardest by the virus, voice and video calling have more than doubled on Messenger and WhatsApp.  In Italy, specifically:  Facebook has seen up to 70% more time spent across their apps since the crisis arrived in the country. Instagram and Facebook Live views doubled in a week. They have also seen messaging increase over 50% and time in group calling (calls with three or more participants) increase by over 1,000% during the last month. Much of the increased traffic is happening on their messaging services, but they’ve also seen more people using their feed and stories products to get updates from their family and friends. Facebook doesn’t monetize many of their services where increased engagement is occurring while working hard to keep these services stable and reliable. At the same time, Facebook’s business is being adversely affected like so many others around the world due to reduced advertising in countries taking aggressive actions to reduce the spread of COVID-19.

 

Nike-NKE reported third quarter revenues rose 5%, or 7% on a constant currency basis, to $10.1 billion with net income down 23% to $847 million and EPS off 22% to $.53. Digital sales increased 36%. Earnings were impacted by COVID-19 in Greater China and a $.25 per share non-recurring, non-cash charge associated with the transition to a strategic distributor model in South America. Growth was broad-based across geographies and product lines, offset by the impact of COVID-19 on business in Greater China. Greater China revenues were down 4% during the third quarter following 22 consecutive quarters of double-digit growth. Digital sales in Greater China increased more than 30% while brick and mortar retail sales were impacted by temporary store closure related to COVID-19. At the peak of the health crisis in Greater China, 75% of Nike stores were closed. Currently, nearly 80% of Nike stores have reopened in China. Greater China has provided Nike with the playbook to get through the coronavirus crisis in the rest of the world by following four actions. 1) Containment occurred to close stores for 5-6 weeks to protect employees and customers. While people were confined at home, Nike engaged digitally with customers through a Training Workout app to help customers remain active at home. The app saw an 80% increase in users which then fed into its digital business with digital sales up more than 30%. 2) Nike’s recovery stage began in China about 30 days ago as they reopened stores, including stores in Wuhan to strong demand. 3) Normalization then occurred with some stores already back to pre-virus levels with digital sales remaining strong.4) Nike expects to return to profitable, capital efficient growth leveraging their strong financial position and brands. Nike saw this same strategy play out in Japan and South Korea and expects to follow the same playbook in Europe and North America even as the company expects several challenging weeks in the U.S. in the quarter ahead. While Nike cannot predict how long containment will last in the U.S., they know they will see the other side of the crisis in the near future. Nike expects to emerge from the crisis with their brands stronger than ever as they gain market share and “strong brands get even stronger.” While Nike’s strong brands are a competitive advantage, so is their financial strength. Liquidity is not an issue for Nike as they maintain a strong balance sheet with more than $3 billion in cash and ample capital fueled by their strong cash flows. During the third quarter, Nike repurchased 9.6 million shares of common stock  for about $957 million with about $11 billion remaining authorized for future share repurchases. Given the uncertainty about the coronavirus containment  in the United States, Nike is unable to  provide guidance for the fiscal fourth quarter.

Microsoft-MSFT CEO S. Nadella made these comments on CNBC:  He called Microsoft "digital first responders," and noted that Teams is now used by 44 million daily users as customer use from home increases. He described Azure scale as "unprecedented” with the company seeing peak demand in Azure. They also are seeing peak demand in Xbox. SaaS and cloud architectures is holding and scaling as needed. Microsoft expects return to work across the country will be in waves, not all at once. They expect new demand when the virus subsides and are confident Microsoft will come out of this period very strong. Microsoft is supportive of fiscal stimulus to aid workforce -- both those out of work and those who are planning on coming back.

 UnitedHealthcare-UNH announced  several updates to its programs in response to the COVID-19 national emergency. In addition to previously announced telehealth and virtual care expansion, the company will open a special enrollment period for some of its existing commercial customers to enable people to get coverage for their health care needs. The company is also further easing administrative requirements to access care through reduced prior authorization requirements.

As the impact of the virus has rapidly expanded around the globe, Mastercard-MA has seen further deterioration in their cross-border, switched volume and switched transaction metrics, although revenue related to services lines has held up reasonably well. As a result, they are making the following updates to first quarter year-over-year growth rates for both net revenue and operating expenses with first quarter growth in net revenue in the low-single-digits range. The foreign currency impact will be about a 2%-point headwind to net revenue growth in the first quarter. First quarter growth in operating expenses is expected in the low-to-mid-single-digits range. The long-term fundamentals of their business remain strong. However, due to the speed with which the COVID-19 situation is developing and the unknown duration and severity of the event, Mastercard suspended their annual 2020 outlook for both net revenue and operating expense growth at this time.


In response to COVID-19’s impact on travel, Booking Holdings-BKNG is cutting non-essential business travel across their business; cancelling internal company events and offsites; dramatically reducing marketing spend worldwide; and implementing a general hiring freeze company-wide until further notice. In addition, senior management is forgoing salaries during this time of the crisis, effective immediately. The Board of Directors has also voluntarily declined to accept any cash retainer payments during the same time period.


Genuine Parts-GPC Director Tom Gallagher disclosed the purchase of 5,000 shares worth about $276,000 (transaction date 3/23).

Friday, March 20, 2020

Adaptive Biotechnologies Corp. and Microsoft-MSFT announced they will leverage their existing partnership mapping population-wide adaptive immune responses to diseases at scale to study COVID-19. Finding the relevant immune response signature may advance solutions to diagnose, treat and prevent the disease, augmenting existing research efforts that primarily focus on the biology of the virus. These data will be made freely available to any researcher, public health official or organization around the world via an open data access portal. "The solution to COVID-19 is not likely going to come from one person, one company or one country. This is a global issue, and it will be a global effort to solve it," said Peter Lee, corporate vice president, AI and Research, Microsoft. "Making critical information about the immune response accessible to the broader research community will help advance ongoing and new efforts to solve this global public health crisis, and we can accomplish this goal through our proven TCR-Antigen mapping partnership with Adaptive."

On March 18, Congress passed and the President signed into law the Families First Coronavirus Response Act to address the impact of the coronavirus (COVID-19) pandemic. Paychex-PAYX is helping business owners understand what the legislation means, both for their business and employees, as well as offering support and resources. In general, the Families First Coronavirus Response Act dedicates tens of billions of dollars for paid sick and family leave, unemployment insurance, free COVID-19 testing, and other measures to help Americans impacted by the crisis.

Since the COVID-19 outbreak, 3M-MMM has doubled its global output of N95 respirators to an annual rate of over 1.1 billion per year, or nearly 100 million per month. In the U.S., 3M currently manufactures more than 400 million N95 respirators annually, which is increasingly being directed to support both government and public health response. The company also manufactures respirators at locations in Europe, Asia Pacific and Latin America. In addition, 3M is increasing its investments, primarily in the U.S., to expand its global capacity by over 30 percent in the next 12 months. The company is also maximizing production of a wide range of other products used in the COVID-19 response globally including hand sanitizers, disinfectants and filtration solutions as the pharmaceutical industry works to find a vaccine to fight the virus. 3M is working with governments, medical officials, customers and distributors around the world to help get supplies where they are needed most. 3M has not changed the prices it charges for 3M respirators as a result of the COVID-19 outbreak, but the company cannot control the prices dealers or retailers charge for 3M respirators.

 

Thursday, March 19,2020

Accenture-ACN reported strong fiscal second quarter results with revenues up 7% to $11.1 billion and net income and EPS each up 10% to $1.2 billion and $1.91, respectively.  Operating margin expanded 10 basis points to 13.4% during the quarter. The company reported record new bookings of $14.2 billion including consulting bookings of $7.2 billion and outsourcing bookings of $7 billion. Growth was broad-based among operating groups and geographies led by 14% growth in the Health & Public Service group and 11% growth in North America. During the first half of the year, free cash flow declined 5% to $2.1 billion with the company paying $1 billion in dividends, a 10% increase over last year, and repurchasing $1.7 billion of its common stock. The company ended the quarter with a strong financial position with more than $5.7 billion in cash and investments.  The world is now facing a global health crisis and a significant disruption in the global economy, which Accenture is adapting to and successfully navigating. About 65% of Accenture’s revenues are derived from digital, cloud and security services. With most workers now required to work remotely, the company is seeing strong demand for these services. Given the significant uncertainty regarding the duration and magnitude of the economic impact of the coronavirus, Accenture lowered their outlook for fiscal 2020. The fiscal third quarter is expected to feel the biggest impact with the fiscal fourth quarter expected to see improvement as the world adjusts to the new environment. For fiscal 2020, Accenture now expects revenue growth to be in the range of 3% to 6% in local currency, compared with 6% to 8% previously with EPS expected in the range of $7.48 to $7.70 compared with $7.66 to $7.84 previously.  Free cash flow in fiscal 2020 is expected in the range of $5.5 billion to $6.0 billion compared with $5.7 billion to $6.1 billion previously with management expected to return $4.8 billion in cash to shareholders through  dividends and share repurchases.

The TJX Companies-TJX announced several actions related to its response to the rapidly changing market uncertainty from the COVID-19 pandemic. Effective today the Company is closing all of its stores in the United States, Canada, Europe, and Australia for two weeks. In certain regions, including Germany, Poland, Austria, Ireland, and the Netherlands, and a number of U.S. and Canadian locations, the Company had previously closed stores based on several factors, including government or health department requirements. The Company is also closing its online businesses tjmaxx.com, marshalls.com, and sierra.com. Further, the Company is temporarily closing its distribution centers and offices, with Associates working remotely when they can. We know our Associates are very concerned for their health and financial well-being, and we plan to pay our store, distribution center and office Associates for two weeks during these closures. To further strengthen its financial position and balance sheet, and maintain financial liquidity and flexibility, the Company is taking the following actions: Drawing down $1 billion from its revolving credit facilities; suspending its share repurchase program; evaluating its dividend program; reviewing all operating expenses; and reducing capital expenditures. The Company also announced today that it is withdrawing its first quarter and full year Fiscal 2021 financial guidance given on its February 26, 2020 earnings conference call. The Company is not providing an updated outlook at this time. As the COVID-19 pandemic is complex and evolving rapidly, the Company’s plans as outlined above may change.

Johnson & Johnson-JNJ is running its Tylenol manufacturing at maximum capacity in North America in order to contend with surging demand for the product due to the fast-spreading coronavirus outbreak. "We're running it at all-out, maximum capacity," said Kathleen Widmer, group chairman for North America of Johnson & Johnson Consumer Health. Widmer said that they had added crews and were maximizing the use of equipment and capacity in plants in Puerto Rico and Pennsylvania where the drug is produced. Widmer also said the company is not experiencing a shortage of the raw materials it needs to make Tylenol.

 

Microsoft-MSFT said that Teams, its chat and conferencing app, reached 32 million users as of March 11 amid a surge in remote work by companies around the world in response to the coronavirus outbreak. The number was up sharply from November, when Microsoft said it had 20 million daily active users. Microsoft also rolled out several features designed to help with telemedicine and working from home, such as bookings application for Teams to help hospitals manage virtual appointments. "As organizations around the world are changing the way they work in response to the [coronavirus] situation, we're going to learn a tremendous amount," Satya Nadella, Microsoft's chief executive, said in a virtual news conference. Microsoft charges fees to businesses for its full versions of Teams, but there is a free version that can be used by consumers. Microsoft said Thursday that doctors at St. Luke’s University Health Network in Pennsylvania, who had already been using the Teams app, will start tapping it for videoconferencing with patients, including those vulnerable to the novel coronavirus, to protect patients and the hospital. Microsoft also said it was working on several new features using artificial intelligence that could make working from home easier for Teams users. One feature can automatically replace the background during a video chat, for example cropping out a messy home bedroom and replacing it with a picture of a tidy commercial office. Another feature can filter out background sounds during a conference call, such as the crinkling of a plastic potato chip bag.

During the COVID-19 outbreak, Tractor Supply-TSCO is committed to staying open and providing customers the everyday products they rely on, including animal feed, pet food, livestock and pet medicines, agricultural supplies, hardware and maintenance supplies, hydraulic fluid for farm equipment, lawn and vegetable garden products, and heating and fuel. Currently, all Tractor Supply stores are open and plan to remain open to support customers. Serving rural communities for more than 80 years, Tractor Supply has provided essential, needs-based products that rural customers depend on to help them take care of their families, homes, land, livestock animals and pets. At this critical time, the Company is making an investment to enhance customer service in store through additional store labor hours and increasing its inventory of animal feed and pet food. The Company has a long history of helping customers in times of need and serving as a key resource in the local communities it calls home. In order to protect our team members and prevent the spread of the virus, our stores are conducting extra daily cleanings to give our customers the safest environment to shop in. Tractor Supply is extending its paid sick leave for full-time and part-time team members affected by illness. Beginning last week, all team members can receive up to an additional two weeks of paid sick leave. Team members who self-report contagious, flu or COVID-19 symptoms that keep them out of work; are part of a mandated or self-imposed quarantine; are impacted by the temporary closing of a location due to the outbreak; or have a confirmed case of COVID-19 will continue to be paid during that time.

Ross Stores-ROST provided a business update in response to the impact of COVID-19 on the Company’s operations. While February sales were ahead of its expectations, the Company has experienced a broad-based deceleration in sales trends over the past week from the continued spread of the virus throughout the country and the mandatory closure of stores in certain markets. Further, additional store closures are expected. As a result of this unprecedented period of uncertainty, including the unknown duration and overall impact on consumer demand, the Company is withdrawing its first quarter and 2020 full year sales and earnings guidance issued on March 3, 2020. To preserve financial liquidity, and out of an abundance of caution, management is also temporarily suspending the Company’s stock repurchase program and is drawing down $800 million under its revolving credit facility to add to its cash balances. In addition, the Company is currently reducing its capital expenditure and expense plans as well as aligning inventory positions with current sales trends in the business.

Wednesday, March 18, 2020

MAXIMUS-MMS announced that its Board of Directors has authorized the expansion of purchases of MAXIMUS common stock of up to an aggregate of $200 million, which includes the remaining balance from the 2018 authorization of $37.2 million as of March 17, 2020. "We remain committed to the execution of our strategic priorities to drive shareholder value and this includes the opportunistic purchase of MAXIMUS common stock. We view this step as a thoughtful and disciplined approach to capital allocation that is beneficial to shareholders and a pillar of our long-term strategy," commented Bruce Caswell, Chief Executive Officer and President of MAXIMUS.


As the world grapples with the vast scale and human impact of COVID-19, Starbucks-SBUX CEO Kevin Johnson says Starbucks has the financial strength and resilience to manage through this extraordinary time. With customer and partner (employee) safety paramount, Starbucks activates its “to go” model for communities across the US & Canada, leveraging theStarbucks mobile app, Drive Thru and new Starbucks® Delivers. Starbucks offers paid sick leave and catastrophe pay and also announces a new mental-health benefit for U.S. partners and their families. The company celebrates continued recovery in China, with 90 percent of stores now open and the announcement of a new sustainable roasting plant coming in 2022. Starbucks announced today that its Board of Directors has authorized the repurchase of up to 40 million shares of the company’s common stock. This authorization is in addition to the approximately 16 million shares that remained available as of December 29, 2019 for repurchase under an existing authorization. In fiscal 2019, the company returned $12 billion to shareholders through a combination of dividends and repurchases of approximately 140 million shares.

Tuesday, March 17, 2020

For 21 years, Google’s mission has been to organize the world’s information and make it universally accessible and useful. Helping people get the right information to stay healthy is more important than ever in the face of a global pandemic like COVID-19. Google is partnering with the U.S. government in developing a website dedicated to COVID-19 education, prevention, and local resources nationwide. This includes best practices on prevention, links to authoritative information from the World Health Organization (WHO) and the Centers for Disease Control (CDC), and helpful tips and tools from Google for individuals, teachers and businesses. Alphabet’s-GOOGL Verily, which is focused on health and life sciences, is working in collaboration with California state, local and federal health authorities to help establish testing sites in the San Francisco Bay Area, and on an online tool to increase risk screening and testing for people at high risk of COVID-19. Californians will be able to take an online COVID-19 screener survey through Verily’s Project Baseline, and those who meet eligibility and requirements for testing will be directed to mobile testing sites based on capacity. While Verily is in the early stages of this pilot program, the plan is to expand to other locations over time. As previously shared, DeepMind released predictions that could help scientists better understand the coronavirus protein structure in order to develop future treatments.

 

UPS-UPS continues to deliver for customers even as Coronavirus uncertainty is requiring greater flexibility and creativity to adapt to new social distancing and other health maintenance protocols. Recently, the White House through the Rapid-Response Taskforce for Coronavirus Testing Sites asked UPS to assist with the logistics planning and operations to support the opening and regular operation of drive-up Coronavirus community-based testing sites in several cities. UPS is ready to assist with transportation support as needed for the community-based testing sites.

 

As the COVID-19 outbreak escalates, Facebook’s-FB focus has been on keeping people safe and informed by making sure everyone has accurate information, supporting global health experts and stopping misinformation. Facebook is providing $100 million in loans to help 30,000 small businesses in over 30 countries to help pay employees who can’t come to work and to cover rent and operational costs. Facebook is also offering a $1,000 bonus to each of its 45,000 employees.


Ulta Beauty-ULTA announced updates to its operations in response to the continued spread of COVID-19. With COVID-19 continuing to spread throughout the U.S., Ulta Beauty believes it is the Company’s responsibility to help communities and governments contain this pandemic. As a precautionary measure, Ulta Beauty will temporarily close all of its stores effective 6:00 p.m. on March 19, 2020 until at least March 31, 2020. However, most stores will continue to be outlets for buy online and pick up in store as allowed by local and state regulations, and all guests can continue to shop through the Ulta Beauty app or visit ulta.com. Due to the fast-moving nature of this situation and the uncertainty of impacts on costs and revenue, the Company is withdrawing guidance previously issued for fiscal 2020. The Company is not providing an updated outlook at this time.


Thursday, March 12, 2020

Ulta Beauty-ULTA reported fiscal fourth quarter sales increased 8.5% to $2.3 billion with net income up 3.7% to $223 million and EPS increasing 7.8% to 3.89. Comparable sales--sales for stores open at least 14 months and e-commerce sales--increased 4% on top of a of 9.4% in the fourth quarter of fiscal 2018. The 4% comparable sales increase was driven by 1.8% transaction growth and 2.2% growth in average ticket. For fiscal 2019, net sales increased 10.1% to $7.4 billion with net income increasing 7% to $706 million and EPS up 11% to $12.15. Comparable sales increased 5%, compared to an increase of 8% in fiscal 2018. The 5% comparable sales increase was driven by 3.3% transaction growth and 1.7% growth in average ticket. Ulta Beauty ended fiscal 2019 with 1,254 stores and square footage of 13,193,076, representing a 6.9% increase in square footage compared to fiscal 2018. During fiscal 2019, Ulta Beauty generated a glamourous 37.1% return on shareholders’ equity and $803 million in free cash flow, which represented nearly 114% of reported earnings, a sign of high-quality reported earnings. During fiscal 2019, the company repurchased 2,320,896 shares of its common stock at a cost of $681 million, or $293.42 per average share. The company’s board of directors approved a new share repurchase authorization of $1.6 billion, with the company expecting to repurchase $1.3 billion during fiscal 2020. Since 2014, Ulta Beauty has returned $2.2 billion to shareholders through its share repurchase program, while continuing to make strategic growth investments. The company ended fiscal 2019 with $502.3 million in cash and investments, lease obligations of $1.7 billion and shareholders’ equity of $1.9 billion. Management is carefully watching the unfolding COVID-19 situation, placing paramount importance on the health and safety of its associates, guests and partners. To that end, the company has increased store sanitation protocols, changed tester policies, limited employee travel, postponed large group gatherings and told associates to stay home if they are not feeling well with the assurance they be compensated for sick leave. For fiscal 2020, Ulta Beauty expects to open about 75 net new stores, execute about 15 remodel or relocation projects, and complete about 42 store refreshes. Sales are expected to increase by about 7% to 8% on comparable sales growth of 3% to 4%. EPS are expected in the $12.55 to $12.75 range, up 4% from fiscal 2019 at the midpoint. This guidance does not factor in the impact of COVID-19 on the business though management believes its business model provides the flexibility to prosper even during recessions.

Oracle-ORCL reported fiscal third quarter sales increased 2% to $9.8 billion with net earnings declining 6% to $2.6 billion and EPS up 4% to $0.79. Cloud Services and License Support revenues increased 4% to $6.9 billion and accounted for nearly 71% of total revenues, up from 69% last year. Cloud License and On-Premise License revenues declined 2% to $1.2 billion. Oracle saw momentum across its applications portfolio with GAAP applications subscription revenues at $2.8 billion, up 7%. Fusion apps were up 32%. Fusion ERP was up 38% and Fusion HCM was up 27%. NetSuite ERP was up 26%. Vertical SaaS was up high-single digits and Data Cloud was up low-single digits. Operating cash flow over the last four quarters was $13.9 billion and free cash flow was $12.4 billion, or 115% of reported net income. Year-to-date, Oracle has returned $16.3 billion to shareholders through dividends of $2.3 billion and share repurchases of $14 billion. Over the last 12 months, Oracle repurchased 366 million shares for a total of $20 billion, or $54.64 per average share. And over the last five years, the company has reduced its shares outstanding by nearly 28%. The company’s board increased the authorization for share purchase by $15 billion. Oracle ended the quarter with about $26 billion in cash and investments, $49 billion in long-term debt and $15 billion in shareholders’ equity. As for the COVID-19 virus, Oracle is largely conducting business as usual with some modifications such as using video conferencing and asking employees to postpone non-essential travel. Other companies are taking precautionary actions and it's not yet clear what the effect of the virus will have on Oracle’s customers and suppliers. With that backdrop, looking ahead to the fiscal fourth quarter, total subscription revenues are expected to range between 3% to 5%  with total revenue expected to range between negative 2% to positive 2%. Non-GAAP EPS is expected to grow between 3% to 9% and be between a $1.20 and $1.28.


Wednesday, March 11, 2020

Rowe Price Group-TROW reported preliminary assets under management (AUM) of $1.15 trillion as of February 29, 2020, down 5% from 1/31/2020. Client transfers from mutual funds to other portfolios, including trusts and separate accounts, were $0.9 billion in February 2020 and $3.7 billion for the quarter-to-date period ended February 29, 2020. At month end, AUM invested in equities represented about 80% of the total while fixed income investments, including money market funds, accounted for about 20%.

Thursday, March 5, 2020

Starbucks-SBUX reported that prior to the COVID-19 outbreak, China comparable store sales growth was expected to be approximately 3% in Q2 FY20, in line with Q1 FY20 results. As a result of the business disruption related to COVID-19 in China, they currently estimate that comparable store sales in China for Q2 FY20 will be down approximately 50% versus the prior year. Therefore, they expect a COVID-19-related headwind of approximately $400 million to $430 million to China’s revenue in Q2 FY20 versus prior expectations. The  current estimates for China’s Q2 FY20 comparable store sales and revenue reflect the  current expectation that substantially all stores in the market will be open by the end of the quarter and that traffic will improve modestly for the balance of the quarter relative to February’s swift and severe slowdown. The business disruption related to COVID-19 in China is expected to have an adverse impact to Starbucks GAAP and non-GAAP earnings per share (“EPS”) for Q2 FY20 in the range of $0.15 to $0.18. This estimate reflects the impact of expected lost sales for the period, as well as continued expenses related to partner wages and benefits, store operations and additional costs incurred in response to the COVID-19 outbreak including incremental partner-related benefits, inventory write-offs and store safety-related items.  Given the planned Chinese New Year holiday and its subsequent extension, and workforce dislocation due to COVID-19, activities related to Starbucks China’s development of new stores have been temporarily paused. As a result, some store openings planned for fiscal year 2020 will likely be deferred to fiscal year 2021.  While the current situation in China continues to be dynamic, management believes that the financial impacts of COVID-19 are temporary, and they  remain confident in the strength of the Starbucks brand and the long-term profitability and growth potential of their  business in China. As the COVID-19 situation continues to evolve globally, Starbucks business operations in Japan, South Korea and Italy have also been impacted by store closures and/or reduced customer traffic. Given the early stage of these developments, they are currently unable to forecast business impacts in markets outside of China with reasonable accuracy. They are also currently unable to estimate business impacts beyond Q2 FY20 with reasonable accuracy. Therefore, current estimate of the impact of the COVID-19 outbreak on financial performance is limited to Q2 FY20 and does not include potential business impacts in any Starbucks markets beyond China.

Fastenal-FAST reported February total sales and average daily sales each increased 4.7% to $431.2 million and $21.6 million, respectively. Daily sales growth by end market was 6.2% for manufacturing and 4.9% for non-residential construction. Daily sales growth by product line was 1.6% for fasteners and 6.9% for other products. The percentage of Top 100 National Accounts growing during the month was 62% with 55% of the  public branches growing  during the month.

Wednesday, March 4, 2020

The board of directors of General Dynamics-GD declared a regular quarterly dividend of $1.10 per share on the company's common stock, payable May 8, 2020, to shareholders of record on April 10, 2020. This is the 23rd consecutive annual dividend increase authorized by the General Dynamics board, and represents a 7.8% increase over last year's dividend.The board also provided management with the authority to repurchase an additional 10 million shares of the company's issued and outstanding common stock on the open market.

Brown-Forman-BFB reported fiscal third quarter sales dipped slightly to $899 million with net income and EPS increasing 2% to $227 million and $0.47, respectively. For the nine months ended 1/31/2020, sales increased 3% to $2.7 billion with net income increasing 3% to $699 million and EPS increasing 4% to $1.45. Gross margins declined 220 basis points to 63.1%, squeezed by higher agave and wood prices and tariff costs. Year-to-date sales growth was led by 6% growth in the U.S., which represents half of Brown-Forman’s sales, driven by continued double-digit growth from Old Forester and Herradura, premium brands that both recently celebrated 150-year anniversaries, and Woodford Reserve, the launch of Jack Daniel’s Tennessee Apple and double-digit underlying net sales growth in el Jimador. Sustained double-digit growth of Jack Daniels ready-to-drink (RTDs) beverages also contributed to the domestic sales growth. Underlying net sales in the company’s emerging markets grew 6%, or 4% reported, reflecting volume gains for the Jack Daniel’s family of brands. Russia delivered strong underlying net sales growth up 15%, Poland’s underlying net sales improved in the quarter to 6%, Brazil grew underlying net sales by 6% while Mexico’s underlying net sales growth moderated to 2% due to the weak economy. Developed international markets grew underlying net sales 2% as strength in Germany (up 5%) and France (up 3%) was partially offset by a 7% decline in the UK, impacted by softness in the cash and carry channel and short-term disruptions from changes in promotional strategy and upcoming route-to-market transition to Brown-Forman’s complete control slated for May 2020. Year-to-date free cash flow declined 14% to $425 million with the company returning $243 million to shareholders through share repurchases of $1 million and dividend payments of $242 million. Brown-Forman has paid dividends for 74 consecutive years and has increased its dividend for 36 consecutive years, including the 5% increase delivered in fiscal 2020. The company ended the quarter with $276 million in cash, $2.3 billion in debt and $2.0 billion in shareholders’ equity.  Given lower expectations in some international markets, reflecting both short-term disruptions and an increasingly uncertain global economic and political environment coupled with uncertainty surrounding the impact of COVID-19, the company tempered its outlook for the full fiscal 2020 year. Underlying sales growth is now expected in the low-single digits, down from prior guidance of 5% to 7% growth. Operating income is expected to be flat to slightly negative, down from previous guidance of up 2% to 4% and EPS are now expected to be in the $1.70 to $1.80 range, down from prior guidance of $1.75 to $1.80. On the conference call, Lawson Whiting, president and CEO, stated that since its founding in 1870, Brown-Forman has ably navigated through world wars, prohibition, the Great Depression and the Great Recession by focusing on building the business and its strong brands for the long-term, a continuing management focus despite the heavy near-term headwinds.  

Tuesday, March 3, 2020

Ross Stores-ROST reported fourth quarter revenues rose 8% to $4.4 billion with comp store sales up 4%, net income up 3% to $456.1 million and EPS up 7% to $1.28. For the full year, revenues rose 7% to $16.0 billion, with same store sales up 3%, net income up 5% to $1.7 billion and EPS up 8% to $4.60. Return on shareholders’ equity for the year was a very dressy 49.4%. Free cash flow dipped 2% t $1.6 billion due to higher capital expenditures. During the year, the company paid $370 million in dividends and repurchased $1.275 billion of stock.  Ross Stores expects to repurchase an additional $1.275 billion of stock in fiscal 2020. The Board also recently increased the dividend 12%. The increases in shareholder payouts for 2020 reflect management’s ongoing confidence in the company’s ability to generate significant amounts of cash after funding their growth and other capital needs of the business. Ross Stores has repurchased stock as planned every year since 1993 and raised their dividend annually every year since 1994. For fiscal 2020, Ross is planning to open 100 new stores, 75 Ross Stores and 25 dd Discounts locations, leading to  sales growth of 4%-5%, with same store sales growth of 1%-2% and EPS in the range of $4.67-$4.88 with operating margins contracting 20 basis points due to tariffs. This guidance does not reflect the potential unknown impacts from the evolving coronavirus outbreak. There remains a high level of uncertainty over supply chain disruptions in China. It also is unclear how a further spread of the coronavirus could negatively impact U.S. consumer demand.

Monday, Mar. 2, 2020

Alphabet’s-GOOGL autonomous driving company, Waymo, announced that it has closed its first round of external investment and raised $2.25 billion in financing from investors including Silver Lake, the Canada Pension Plan Investment Board, and Abu Dhabi’s sovereign wealth fund Mubadala Investment Company. Other firms including Andreessen Horowitz, global automotive supplier Magna International, pre-owned vehicle listing service AutoNation, and Alphabet also participated in Waymo’s round. Waymo did not say, precisely, what it will do with its newfound cash, but it did share a number of development and business milestones. The company says its autonomous Waymo Driver platform has driven “more than 20 million miles on public roads across over 25 cities, and over 10 billion miles in simulation.” Waymo added that the company has already shipped its first L4 autonomous vehicles (which include electric vehicles and Class 8 trucks, according to the company) which include the company’s latest hardware and beefed onboard sensors and compute hardware. The company also provided updates about Waymo One, its on-demand autonomous car service which currently operates in Arizona. The service has already provided thousands of trips to locals “in a high-speed mixed usage market area larger than San Francisco.”

 

Wednesday, Feb. 26, 2020

The TJX Companies-TJX rang up a 10% increase in fiscal fourth quarter sales to $12.2 billion with net income increasing a fashionable 17% to $985 million and EPS increasing, a greater than expected, 19% to $0.81. Fourth quarter consolidated comparable store sales increased a very strong 6%, over a 6% increase last year, driven by customer traffic. Each division delivered strong comp sales growth with Marmaxx delivering 5% comp growth on top of 7% growth last year, HomeGoods delivering 2% comp growth on top of 4% last year, TJX Canada delivering 2% comp growth on top of 4% last year and TJX International delivering 8% comp growth on top of 3% last year. For the full fiscal 2020 year, TJX reported sales increased 7% to $41.7 billion, surpassing its long-held sales goal of $40 billion, with net income up 7% to $3.3 billion and EPS increasing 10% to $2.67. Same store sales increased 4% over a 6% increase last year, marking TJX’s 24th consecutive year of comp store growth. While other retailers closed thousands of brick & mortar stores, TJX opened 223 new stores during fiscal 2020, ending the year with 4,529 stores and 120.7 million gross square feet, up 4% from last year. During fiscal 2020, TJX generated a fancy 55% return on shareholders’ equity and $2.8 billion in free cash flow. TJX returned $2.6 billion to shareholders during fiscal 2020 through share repurchases of $1.5 billion at an average cost per share of $55.35 and dividends of $1.1 billion. Given the company’s continued strong cash flow, the board raised the dividend by 13%, marking the 24th consecutive year of dividend increases. With $1.7 billion remaining under the current share repurchase authorization, the directors approved a new $1.5 billion share repurchase authorization, the 21st program approved since 1997. For fiscal 2021, the company expects EPS in the range of $2.77 to $2.83, up 4% to 6% from fiscal 2020. This guidance is based on estimated comp store sales growth of 2% to 3%. The company has not yet seen impact from the coronavirus. While it is too early to speculate about future impact from the virus, safety of TJX associates is management’s top priority. For now the company has modified travel for associates to keep them safe.

Booking Holdings-BKNG reported fourth quarter revenues rose 4% to $3.3 billion with net income flying 81% higher to $1.2 billion and EPS doubling to $27.75. Earnings included unrealized gains on equity investments in the fourth quarter compared to unrealized losses in the prior year period. On an adjusted basis, net income declined 6% in the fourth quarter. For the full year 2019, revenues rose 4% to $15.1 billion with net income up 22% to $4.9 billion and EPS up 34% to $111.82. On an adjusted basis, net income was comparable to the prior year. Booked nights increased 20% during the year to 845 million room nights, translating into 2.3 million room nights booked each day. Return on shareholders’ equity expanded to an impressive 82% in 2019. Free cash flow declined 8% during the year to $4.5 billion with the company repurchasing $8.2 billion of common stock during the year, including $1.3 billion in the fourth quarter. The company has $11.5 billion remaining authorized for future share repurchases. The coronavirus has had a significant and negative impact across Booking’s business during the first quarter of 2020 as cancellations have increased and new bookings have slowed as consumers curtail their travel plans. It is not possible to predict where, and to what degree, outbreaks of the coronavirus will disrupt travel patterns. Recognizing the situation is very fluid, Booking’s guidance for the first quarter is wide due to the great uncertainty. Total room nights booked are expected to decline 5% to 10% in the first quarter with total gross travel bookings down 10% to 15%. Revenues are expected to decline 3% to 7% in the first quarter with EPS expected to decline 12% to 17% to a range of $7.95 to $8.55. Despite the temporary headwinds facing the company, management is very confident in the long-term growth of their business.

 

Tuesday, Feb. 25, 2020

Mastercard-MA reported that the fundamentals of their business remain strong, as switched volume and switched transaction growth remain in-line with expectations. However, cross-border travel, and to a lesser extent cross-border e-commerce growth, is being impacted by the Coronavirus. As a result, they now expect that if the trends they have seen recently -- primarily in  cross-border drivers -- continue through the end of the quarter, year-over-year net revenue growth in the first quarter will be approximately 2-3 percentage points lower than discussed on their January 29, 2020 earnings call. Under these circumstances, they would expect year-over-year net revenue growth of 9-10% in the first quarter on a currency-neutral basis, excluding acquisitions. There are many unknowns as to the duration and severity of the situation and they are closely monitoring it. If the impact is limited to the first quarter only, they expect that their 2020 annual year-over-year net revenue growth rate would be at the low end of the low-teens range, on a currency-neutral basis, excluding acquisitions.

In separate news, Mastercard announced that Ajay Banga, President and Chief Executive Officer, will transition to the role of Executive Chairman of the Board of Directors of Mastercard Incorporated on January 1, 2021. Mastercard’s Board unanimously elected Michael Miebach, Chief Product Officer, to become Chief Executive Officer and a member of the Board of Directors on January 1, 2021 and, as part of the transition, he will become President of the company, effective March 1, 2020. As President of the company, Miebach will oversee the sales, marketing, products, services and technology organizations.

 

Monday, Feb. 24, 2020

Berkshire Hathaway-BRKB reported the company’s net worth during 2019 rose 22% with book value equal to $261,417 per Class A share as of 12/31/19.
During the year, Berkshire reported net earnings of $81.4 billion compared to $4.0 billion in the prior year period. New accounting rules in 2018 require Berkshire to include the changes in unrealized gains/losses of its equity security investments in net income instead of comprehensive income which resulted in a $57.4 billion gain in 2019 from investments and derivatives compared to a $17.7 billion loss in the prior year period.

Berkshire’s five major investment holdings represent 67% of total equities, including American Express at $18.9 billion (up 30% during 2019 or $4.4 billion), Apple at $73.7 billion (up 82% during 2019 or $33.4 billion), Bank of America at $33.4 billion (up 48% during 2019 or $10.8 billion), Coca-Cola at $22.1 billion (up 17% during 2019 or $3.2 billion) and Wells Fargo at $18.6 billion (down 10% or $2.1 billion).

Berkshire’s operating revenues increased 2.6% in 2019 to $254 billion with growth in all business segments except BNSF which remained relatively flat. Operating earnings declined 3% during 2019 to $24 billion due primarily to lower insurance underwriting as earnings from primary insurance operations were lower in 2019 and losses from reinsurance were higher than in 2018.

During 2019, Berkshire’s operating earnings in the insurance underwriting operations dropped to $325 million compared to $1.6 billion in the prior year. On the other hand, insurance investment income was 21% higher at $5.5 billion during the year, reflecting higher interest rates on short-term investments and higher dividend income due to increases in the portfolio of equity securities, including the August 8, 2019 investment in Occidental 8% preferred stock, and higher dividend rates. The float of the insurance operations approximated $129 billion as of 12/31/19, an increase of $6 billion during the year. The average cost of float was negative during the year as the underwriting operations generated pre-tax earnings of $400 million. Berkshire’s insurance operations have had an excellent underwriting record generating underwriting profits in 16 of the last 17 years with the cumulative pre-tax gain in the 17-year period totaling $27.5 billion.

Burlington Northern Santa Fe’s (BNSF) revenues declined 1% during 2019 to $23.5 billion with net earnings chugging 5% higher to $5.5 billion thanks to higher rates per car/unit and ongoing cost controls. Aggregate volume was 10.2 million cars/units, representing a 4.5% decrease in volume from last year. BNSF experienced severe winter weather and flooding on parts of its network in the first half of 2019, which negatively affected revenues, expenses and service levels. Reduced consumer demand, trade policy, higher available truck capacity and lower international intermodal market share also impacted volume.

Berkshire Hathaway Energy reported revenues increased slightly to $20 billion during 2019 due to growth at the real estate brokerage unit that was mostly offset by lower revenue of the energy units. Net earnings increased 8% during the year to $2.8 billion with all business segments contributing to the earnings growth.

Berkshire’s Manufacturing businesses reported a 1% increase in revenue growth in 2019 to $62.7 billion with operating earnings up 2% to $9.5 billion. Revenue and earnings growth were led by Building Products with 9% revenue growth to $20.3 billion and 13% growth in operating earnings to $2.6 billion, thanks to 22% growth at Clayton Homes, reflecting increased home sales and changes in sales mix. Industrial Products revenues were relatively unchanged at $30.6 billion with Consumer Products revenues declining 6% to $11.8 billion primarily due to a 13% decline in Forest River unit sales.

Service and Retailing revenues rose 1% during the year to $80.0 billion with pre-tax earnings down 3% to $2.8 billion. Revenues rose modestly in all business segments with earnings down 8% in the Service segment due to lower earnings from FlightSafety and TTI. FlightSafety experienced significant losses on a government contract in the fourth quarter. TTI was challenged by lower gross margin, higher operating expenses and foreign exchange headwinds. The decline in Service earnings was partly offset by growth in operating earnings in the Retailing and McLane segments.

Berkshire’s balance sheet continues to reflect significant liquidity and a strong capital base of $424.8 billion as of 12/31/19, an increase of $76.1 billion since last year, and unmatched in corporate America. Excluding railroad, energy and utility investments, Berkshire ended the year with $409 billion in investments allocated approximately 60.6% to equities ($248 billion), 4.6% to fixed-income investments ($18.7 billion), 4.3% to equity method investments ($17.5 billion), and 30.5% in cash and equivalents ($125 billion).

Berkshire’s investments are heavily tilted toward equities, especially for an insurance company. In the annual report, Warren Buffett explains, “If something close to current rates should prevail over the coming decades and if corporate taxes also remain near the low level businesses now enjoy, it is almost certain that equities will over time perform far better than long-term, fixed-rate debt instruments. Occasionally, there will be major drops in the market, perhaps of 50% magnitude or even greater. But the combination of the American Tailwind and compounding wonders will make equities the much better long-term choice for the individual who does not use borrowed money and who can control his or her emotions. “

Berkshire’s financial strength allows Buffett to make significant investments and acquisitions, although there was minimal activity during 2019. During the year, Berkshire closed on the deal to invest a total of $10 billion in Occidental Petroleum in connection with Occidental’s proposal to acquire Anadarko Petroleum. Berkshire’s investment includes newly issued Occidental Cumulative Perpetual Preferred Stock with an aggregate liquidation value of $10 billion, together with warrants to purchase up to 80 million shares of Occidental common stock at an exercise price of $62.50 per share. The preferred stock will accrue dividends at 8% per annum and will be redeemable at the option of Occidental commencing on the tenth anniversary of issuance. In addition, about $1.7 billion was invested in bolt-on acquisitions.

Free cash flow was relatively unchanged for the year at $22.7 billion. During 2019, capital expenditures increased 10% to $16 billion, including $11 billion in the capital-intensive railroad, utilities and energy businesses. Berkshire expects additional capital expenditures to approximate $10.6 billion for BNSF and Berkshire Hathaway Energy in 2020. Reinvestment in productive operational assets will remain the company’s top priority. During 2019, Berkshire sold or redeemed a net $17.6 million in Treasury Bills and fixed-income investments and bought a net $4.3 billion of equity securities.

Berkshire revised its buyback policy which now permits Berkshire to repurchase shares at prices below Berkshire’s intrinsic value, as conservatively determined by Warren Buffett and Charlie Munger. During 2019, Berkshire repurchased about $5 billion of its common stock, representing about 1% of the company. These repurchases included 953,070 Class B shares at an average price of $221.67 and 674 Class A shares at an average price of $333,298 per share during December 2019. We would expect further share repurchases given Berkshire’s current attractive valuation.

In an interview subsequent to the release of the annual report, Buffett acknowledged that it is difficult to repurchase Berkshire shares since there are so many long-term shareholders unwilling to part with their shares. Buffett has offered anyone with a $20 million or more block of Berkshire and inclined to sell it to call Berkshire.

In the same interview, Buffett was asked about the impact of the coronavirus on Berkshire’s businesses. Many of the roughly 1,000 Dairy Queens in China are closed, while those that are open "aren't doing any business to speak of," Buffett said, while Johns Manville insulation and Shaw carpeting have seen supply chain disruptions. In addition, his 5.6% holding in Apple and significant investment holdings in the airline stocks also are feeling the negative impact of the virus. However, Buffett noted that he buys businesses to hold for 20-30 years, and his positive outlook for these businesses has not changed due to the coronavirus. Buffett concluded that the coronavirus is “scary stuff” but it won’t cause him to sell any stocks. If stock market prices drop, it makes valuations appear more attractive, and Buffett is eager to buy more stocks and businesses with his $125 billion in cash.

 Thursday, Feb. 20, 2020

 

Hormel Foods-HRL reported fiscal first quarter sales increased 1% to $2.4 billion with net income up slightly to $243 million and EPS up 2% to $0.45. Volume of 1.2 billion pounds declined 1%, and increased 2% organically excluding the impact of the April 2019 CytoSport divestiture.  Organic sales growth of 4% was driven by volume and sales growth in three of Hormel’s four segments.  By segment, Refrigerated Foods sales increased 6% to $1.4 billion on a 3% volume increase, thanks to strong demand for value added products including Hormel® Bacon 1TM fully cooked bacon, Hormel® Fire BraisedTM products, Hormel® Black Label® bacon Hormel® Cure 81® ham and deli sales of Hormel® Gatherings® party trays and Applegate® branded items. Grocery Products sales declined 11% to $541 million on a 14% decline in volume, primarily due to the CytoSport divestiture. On an organic basis, growth from the SPAM® family of products and Wholly® guacamole dips did not offset declines from SKIPPY® products. Volatile pork and beef trim prices impacted profitability across many product lines in Grocery Products. Jennie-O Turkey Store delivered a second consecutive quarter of volume and sales growth--8% and 3%, respectively--as the company works to regain ground turkey distribution in the aftermath of the 2018 recall. International sales increased 5% to $162 million on a 5% volume increase. During the quarter, Hormel generated $131 million in free cash flow, down 26% year-over-year due to an inventory build in anticipation of ramping up new production facilities and a related jump in capital expenditures. The company recently paid its 366th consecutive quarterly dividend at the annual rate of $0.93 per share, an 11% increase over the prior year. Hormel announced it has agreed to acquire Sadler's Smokehouse, one of Hormel’s trusted suppliers for over two decades with about $140 million in sales. The $270 million acquisition is expected to close in March 2020 and is expected to be neutral to slightly negative to fiscal 2020 earnings. Hormel ended the quarter with nearly $740 million in cash and investments, $309 million in long-term debt and $6.5 billion in shareholder equity. During the conference call management stated that it has started to see a negative impact on its business in China from the coronavirus outbreak, especially in its food service business as many restaurants have closed. Many of Hormel’s production facilities have yet to reopen after the Chinese New Year as employees who are no longer quarantined lack transportation. Negative effects of the virus have been partially offset by stronger demand for grocery products like Spam. While the full impact of the coronavirus is unknowable, management expects strong momentum in Refrigerated Foods and Jennie-O Turkey Store will offset declines in its International segment. The company reaffirmed its 2020 guidance with sales expected in the $9.5 billion to $10.3 billion range and EPS in the $1.69 to $1.83 range, compared with 2019 sales and EPS of $9.5 billion and $1.80, respectively.   

Wednesday, Feb. 19, 2020

Genuine Parts-GPC reported fourth quarter sales increased 2.2% to $4.7 billion with net income and EPS skidding 95% lower to $8.9 million and  $0.06, respectively. The decline in earnings was due to restructuring charges and the writeoff of goodwill in the Business Products segment. Restructing charges of $112 billion are expected to generate annual savings run rates of $100 million by the end of 2020.  Excluding the impact of restructuring and goodwill writeoffs, net income dipped 1% to $197 million and EPS were flat at $1.35.  Total sales included 0.5% comparable growth and about 6.7% from acquisitions, offset by a 4.2% decline due to the sale of EIS, Inc and Grupo Auto Todo and a 0.8% negative impact from foreign currency. Fourth quarter sales for the Automotive Group were up 8.7% to $2.8 billion including a 3% comparable sales increase, a 7% net benefit from acquisitions, divestitures and other adjustments and unfavorable foreign currency of 1.4%. Sales for the Industrial Group were down 6% to $1.5 billion, including a 1.2% comparable sales decrease and a 12.3% decrease due to the sale of EIS, partially offset by a 7.6% increase from acquisitions. Sales for the Business Products Group were down 6.3% to $428 million. For the year, GPC reported record sales of $19.4 billion, up 3.5% year-over-year, with net income and EPS falling 23% to $621 million and $4.24, respectively. Adjusted net income was $833.2 million, or $5.69 per share, down slightly from last year. During 2019, GPC generated a nearly 17% return on shareholder equity. The company generated $594 million in free cash flow, down 35% on the lower net income and higher capital expenditures as the company continues to invest in its people, IT, and cybersecurity. The company returned $513 million to shareholders during 2019 through share repurchases of $74 million and dividends of $439 million. The board announced the company’s 64th consecutive year of dividend increases, raising the 4% dividend to $3.16 per share for 2020. The company expects to actively pursue share repurchases during 2020 and believes its stock is an attractive investment. GPC ended the year with $277 million in cash, $2.8 billion in debt with an average interest rate of 2.2%, and $3.7 billion in shareholders’ equity. While the coronavirus is a fluid situation, at the current time, management sees no sales weakness related to the virus as none of its sales come from China, although it does generate sales throughout Asia. However, GPC has both direct and indirect supply chain exposure to China. While management does not foresee material product shortages, it is in constant contact with suppliers across the globe to plan for any supply disruptions should the virus outbreak extend beyond the near-term. For 2020, sales are expected to be flat to up 1%, or up an adjusted 3% to 4% excluding the impact of the EIS and SPR Canada divestitures.  EPS are expected in the $5.80 to $5.90 range, an increase of 2% to 4%, or an adjusted 5% to 7% excluding the divestitures.


Tuesday, Feb. 18, 2020

As a result of a slower return to normal conditions in China due to the coronavirus, Apple-AAPL does not expect to meet the revenue guidance they provided for the March quarter due to two main factors. The first is that worldwide iPhone supply will be temporarily constrained. While iPhone manufacturing partner sites are located outside the Hubei province — and while all of these facilities have reopened — they are ramping up more slowly than anticipated. These iPhone supply shortages will temporarily affect revenues worldwide. The second is that demand for Apple products within China has been affected. All Apple stores in China and many partner stores have been closed. Apple is gradually reopening retail stores and will continue to do so as steadily and safely as they can. Stores that are open have been operating at reduced hours and with very low customer traffic. Outside of China, customer demand across product and service categories has been strong to date and in line with expectations. The situation continues to evolve.  Apple is fundamentally strong, and this disruption to the business is only temporary.

Genuine Parts Company-GPC announced a 4% increase in the regular quarterly cash dividend for 2020.  The Board of Directors of the Company, at its February 17, 2020 Board meeting, increased the cash dividend payable to an annual rate of $3.16 per share compared with the previous dividend of $3.05 per share.   GPC has paid a cash dividend every year since going public in 1948, and 2020 marks the 64th consecutive year of increased dividends paid to shareholders.

Thursday, Feb. 13, 2020

The UPS-UPS  Board of Directors  increased its regular quarterly dividend 5% to $1.01 per share on all outstanding Class A and Class B shares. The dividend is payable March 10, 2020 to shareowners of record on Feb. 25, 2020. For nearly 50 years, UPS has either increased or maintained its dividend. Since 2000, UPS’s dividend has more than quadrupled.

PepsiCo-PEP reported fourth quarter revenues rose 6% to $20.6 billion with operating profit popping 11% higher to $2.7 billion. Fourth quarter net income and EPS each dropped 74% to $1.8 billion and $1.26, respectively, due to tax changes. For the full 2019-year, revenue rose 4% to $67.2 billion with operating income up 2% to $10.3 billion. Full year 2019 net income and EPS each declined 41% to $7.3 billion and $5.20, respectively, due to tax changes with 7% core constant currency EPS growth.  Organic revenue growth accelerated to 4.5% for the full year with revenue growth broad-based across business segments and geographies as the company increased its brand support, strengthened operational execution and built a more sustainable food system. Return on shareholders’ equity during 2019 was a tasty 49.4%. Free cash flow declined 12% during the year to $5.4 billion primarily due to increased capital expenditures to support future growth. During 2019, PepsiCo paid $5.3 billion in dividends and repurchased $3 billion of common stock. The company announced a 7% increase in its annualized dividend to $4.09 for 2020, representing the 48th consecutive year of dividend increases. In 2020, PepsiCo expects full organic revenue growth to be 4% with constant currency EPS growth of 7%.  The company expects to generate $11 billion in cash flow from operations and $6 billion of free cash flow which assumes net capital spending of about $5 billion. Capital spending is expected to be in the $5 billion range annually over the next few years as the company invests to support future long-term growth. Total cash returns to shareholders in 2020 are expected to approximate $7.5 billion comprised of dividends of $5.5 billion and share repurchases of $2 billion.

Wednesday, Feb. 12, 2020

Cisco Systems-CSCO reported fiscal second quarter revenues declined 4% to $12 billion with net income up 2% to $2.9 billion and EPS up 8% to $.68. Product revenue declined 6% during the quarter with service revenue up 5%. Product revenue was led b growth in Security that was up 9% with Infrastructure Platforms and Applications each down 8%.  Cisco reported that 72% of revenue is now subscription-based and was up 7% during the quarter.  Revenue by geographic segments was weak around the globe due to macro headwinds.  Free cash flow dipped 1% during the first half of the fiscal year to $7.0 billion with the company paying $3 billion in dividends and repurchasing $1.6 billion of common stock, including 18 million shares in the second quarter for $870 million at an average cost of about $46.71 per share. Cisco has $11.8 billion remaining authorized for future share repurchases with no termination date. Cisco increased the quarterly dividend 3% to $.36 per share, bringing the current dividend yield close to 3%. For the fiscal third quarter, Cisco expects revenues to decline between 1.5% to 3.5% with EPS expected to declined to the range of $.62 to $.67.

T. Rowe Price Group-TROW reported preliminary month-end assets under management of $1.21 trillion as of January 31, 2020, representing a 0.4% increase since year end. T. Rowe Price Group, Inc. announced that its Board of Directors has declared a quarterly dividend of $0.90 per share payable March 30, 2020 to stockholders of record as of the close of business on March 16, 2020. The quarterly dividend rate represents a 18.4% increase over the previous quarterly dividend rate of $0.76 per share. This will mark the 34th consecutive year since the firm's initial public offering that the company will have increased its regular annual dividend.

Tuesday, Feb. 11, 2020

Johnson & Johnson-JNJ announced that its Janssen Pharmaceutical Companies will further expedite its investigational coronavirus vaccine program through an expanded collaboration with the Biomedical Advanced Research and Development Authority (BARDA), part of the Office of the Assistant Secretary for Preparedness and Response (ASPR) at the U.S. Department of Health & Human Services. The collaborative partnership with BARDA builds on Johnson & Johnson's multipronged response to the new coronavirus disease (COVID-19) outbreak. In addition to Janssen's efforts to develop a vaccine candidate, the Company is working closely with global partners to screen its library of antiviral molecules to accelerate the discovery of potential COVID-19 treatments and provide relief for people in China and around the world.

Thursday, Feb. 6, 2020

Cognizant Technology Solutions-CTSH reported fourth quarter revenues increased 3.8% to $4.3 billion with net earnings declining 39% to $395 million and EPS declining 38% to $0.72. The earnings reflect $101 million of realignment and restructuring costs. On an adjusted basis, EPS increased 9.2% year-over-year to $1.07. By business segment, Financial Services revenues increased 1.2% to $1.5 billion driven primarily by insurance. Healthcare revenues increased 1.6% to $1.2 billion driven by double-digit growth in life sciences and the acquisition of Zenith Technologies.  Products and Resources revenue grew 8.1% to $963 million reflecting demand for core modernization services of enterprise applications and for services within Digital Business. Communications, Media and Technology revenues increased 8.0% to $632 million with broad-based growth across all the industries. For the full year, revenues increased 4.1% to $16.8 billion with net income down 12% to $1.8 billion and EPS down 8.6% to $3.29. Return on shareholders’ equity was 16.7%. Free cash flow declined 4.9% to $2.0 billion with the company paying $453 million in dividends and repurchasing $2.2 billion of its shares. For 2020, management expects revenue growth in the range of 2.%0-4.0% in constant currency and adjusted EPS in the range of $3.97-4.13. In addition, management announced a 10% increase to its cash dividend and increased its share repurchase authorization by $2.0 billion.

 

Maximus-MMS reported fiscal first quarter revenues rose 23% to $818.2 million with net income up 5% to $58.7 million and EPS up 6% to $.91. Revenue growth was driven by the expected increases in the U.S. Federal Services segment due to a full quarter contribution from the acquired citizen engagement centers business, the expected ramp up on the Census contract and organic growth in the U.S. Health & Human Services and U.S. Federal Services segments. Operating margin declined to 9.7% from 11.2% due to a greater mix of cost-plus contracts from the federal acquisition and continue weakness in the employment services business in the Outside the U.S. segment. The impact from the bush fires in Australia and the coronavirus are estimated to negatively impact EPS by $.07-$.15 as tourism hiring is expected to slow. Free cash flow increased 56% during the first quarter to $76.8 million with the company paying $17.9 million in dividends and repurchasing 26,000 shares for $1.9 million at an average cost of $73 per share. The company’s capital allocation priority is mergers and acquisitions that drive long-term, sustainable growth and then opportunistic share repurchases and the payment of dividends. Year-to-date signed contract awards at 12/31/19 totaled $176.6 million with contracts pending of $439.5 million. The sales pipeline at 12/31/19 was $30.6 billion comprised of approximately $3.7 billion in proposals pending, $.7 billion in proposals in preparation and $26.3 billion in opportunities tracking. Maximus reiterated its fiscal 2020 revenue and earnings guidance with revenue expected to range between $3.15 billion and $3.30 billion and EPS in the range of $3.95 and $4.15. Free cash flow for fiscal 2020 is expected in the range of $275 million to $325 million.

NIKE-NKE announced it is transitioning its Nike Brand business in Brazil, Argentina, Chile and Uruguay to strategic distributor partnerships, enabling a more profitable, capital efficient and value accretive business model. This move demonstrates Nike’s ongoing approach to optimize country operating models across its global portfolio, with sharpened focus and investment against its biggest growth opportunities through the Consumer Direct Offense. As a result of the transactions, during the third quarter of fiscal 2020, NIKE will classify the assets and liabilities of the entities to be sold as held for sale on the Consolidated Balance Sheet and will recognize a one-time, non-recurring charge related to foreign exchange of approximately $425 million.

Fastenal-FAST reported January net sales and daily sales each increased 3.6% to $462.8 million and $21.0 million, respectively. Daily sales growth by end market was 4.3% in manufacturing and 3.2% in non-residential construction. Daily sales growth by product line was 1.3% for fasteners and 4.9% for other products. About 60% of the Top 100 national accounts grew during the month with 55% of the public branches growing.

Wednesday, Feb. 5, 2020

Private sector employment increased by 291,000 jobs from December to January according to the January ADP National Employment Report®.  "The labor market experienced expanded payrolls in January," said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. "Goods producers added jobs, particularly in construction and manufacturing, while service providers experienced a large gain, led by leisure and hospitality. Job creation was strong among midsized companies, though small companies enjoyed the strongest performance in the last 18 months." Mark Zandi, chief economist of Moody's Analytics, said, "Mild winter weather provided a significant boost to the January employment gain. The leisure and hospitality and construction industries in particular experienced an outsized increase in jobs. Abstracting from the vagaries of the data underlying job growth is close to 125,000 per month, which is consistent with low and stable unemployment."


The 3M -MMM Board of Director declared a dividend on the company’s common stock of $1.47 per share for the first quarter of 2020, an increase of 2 percent over the quarterly dividend paid in 2019. The dividend is payable March 12, 2020, to shareholders of record at the close of business on Feb. 14, 2020. This marks the 62nd consecutive year 3M has increased its dividend. The company has paid dividends to its shareholders without interruption for over 100 years. During the past decade, 3M has returned $57 billion to shareholders through a combination of dividends and gross share repurchases, or 121 percent of reported net income.

Tuesday, Feb. 4, 2020

Disney-DIS reported fiscal first quarter revenues rose 36% to $20.9 billion with segment operating income up 9% to $4 billion. Net income from continuing operations declined 23% to $2.1 billion with EPS down 37% to $1.17, impacted by amortization and restructuring charges related to acquisitions.  By business segment, Media Networks revenue rose 24% to $7.4 billion with operating income up 23% to $1.6 billion thanks to the consolidation of the Fox and National Geographic networks. Parks, Experiences and Products revenues increase 8% during the quarter to $7.4 billion with operating income up 9% to $2.3 billion due to higher guest spending at the domestic parks and higher merchandise licensing. Parks in Hong Kong and China are expected to be negatively impacted in the second quarter and for the balance of the year by closures due to the coronavirus. Studio Entertainment revenues and operating income more than doubled to $3.8 billion and $948 million, respectively, thanks to greater than $1 billion in revenues from the performance of  both Frozen II and Star Wars: The Rise of Skywalker. Direct-to-Consumer and International revenues more than doubled to nearly $4 billion with the operating loss widening to $693 million from $136 million due to the costs associated with the launch of Disney+, the consolidation of Hulu and a higher loss at ESPN +. The launch of Disney+ has exceeded management’s expectations with 26.5 million paid subscribers as of quarter end thanks to the company’s great brands and content. Paid subscribers has increased an additional 2.1 million since quarter end to 28.6 million. ESPN+ ended the quarter with 6.6 million paid subscribers while Hulu ended the quarter with 30.4 million paid subscribers.  Free cash flow declined 68% during the quarter to $292 million, reflecting the lower earnings and higher capital expenditures.


NIKE-NKE has temporarily closed approximately half of NIKE-owned stores in China due to the coronavirus with corresponding dynamics across partner stores. In addition, they are operating with reduced hours and experiencing lower than planned retail traffic in stores that do remain open. In the short term, Nike expects the situation to have a material impact on their operations in Greater China.

Monday, Feb. 3, 2020

Alphabet-GOOGL reported fourth quarter revenues rose 17% to $46.1 billion with net income up 19% to $10.7 billion and EPS up 20% to $15.35. Double-digit growth was broad based across business segments and geographies. For the full 2019-year, revenue rose 19% to $161.9 billion with net income up 12% to $34.3 billion and EPS up 13% to $49.16. Google Search revenues increased 15% to $98.1 billion, YouTube ads jumped 36% to $15.1 billion with Google Cloud revenues skyrocketing 53% higher to $8.9 billion. Google other revenues increased 21% to $17 billion. Return on shareholders’ equity was 17.4% in 2019. Free cash flow increased 36% during the year to $31 billion. Alphabet continued to heavily invest in capital expenditures of $23.5 billion for technology infrastructure and datacenters to support growth in artificial intelligence, ambient computing and cloud computing.  Employee headcount increased 20% during the year to 118,899 Googlers with most of the new hires being engineers. Capital expenditure and employee growth is expected to be higher in 2020 as the company invests for the long term. During the year, Alphabet used excess cash to repurchase $18.4 billion of common stock including $6.1 billion in the fourth quarter. The company has $21 billion remaining authorized for future share repurchases. Alphabet ended the year with a fortress balance sheet with nearly $120 billion in cash and investments, $4.6 billion in long-term debt and $201 billion in shareholders’ equity. The company’s capital allocation strategy continues to be 1) invest in current businesses to support future growth, 2) acquisitions and 3) share buybacks.

Friday, Jan. 31, 2020

Gentex- GNTX reported fourth quarter sales declined 2% to $443.8 million with net income skidding 6% to $99.5 million and EPS falling 4.8% to $0.39. The revenue decline was due, in large part, to the strike at General Motors, which negatively impacted sales in the quarter by about 5%. In addition to the strike creating domestic headwinds, the rest of the world light vehicle production declined 5%, including a 6% production decline in Europe and a 10% production decline in the Japan/Korea market that more than offset modest improvement in the China market.  Fourth quarter gross profit declined 140 basis points from last year to 36.5%, squeezed by the GM strike (125 basis points) and tariff headwinds (30 basis points). Absent these one-offs, profit margins would have increased year-over-year. For the full year, Gentex reported sales crawled ahead 1% to $1.86 billion with net income dipping 3% to $424.7 million and EPS increasing 2.5% to $1.66 on fewer shares outstanding. Gentex shipped 42.9 million auto-dimming mirrors during 2019, up 3% from last year, including 739,000 full display mirrors (FDMs) compared to 390,000 FDMs shipped in 2018.  During 2019, Gentex generated an impressive 21.9% return on shareholders’ equity and $421.4 million in free cash flow, down 10% from last year on the lower net income and working capital fluctuations. Gentex repurchased 13.8 million shares during 2019 at an average cost of $24.06 per share ending the year with 20.1 million shares remaining under the current share repurchase authorization. Gentex ended the year with $577 million in cash and investments and no long-term debt on its high-octane balance sheet. Looking ahead to 2020, based on an estimated 1% decline in global light vehicle production, Gentex expects sales in the $1.91 to $2 billion range, up 5% at the midpoint and profit margins between 36% to 37%, which includes a $20 million hit from tariffs. Sales growth will be driven by increased penetration rates of Gentex’s core mirror products, continued growth of FDM sales and launches of the new Integrated Toll Module product. Gentex remains committed to investing heavily in new technology in the areas of vision systems, connected car and dimmable glass. Gentex’s entrance into a new sales vertical with the introduction of its intelligent medical lighting application developed in partnership with Mayo Clinic will likely add to revenue growth for many years to come.


Thursday, Jan. 30, 2019

Biogen-BIIB reported fourth quarter revenues increased 4% to $3.7 billion with net income up 52% to $1.44 billion and EPS up 71% to $8.08. Excluding acquisition, restructuring and tax reform related items, adjusted earnings increased 6% to $1.5 billion and EPS increased 19% to $8.34. For the year, Biogen reported a healthy 7% increase in sales to $14.4 billion with net income increasing 33% to $5.9 billion and EPS increasing 46% to $31.42. Excluding special items, net income increased 17% to $6.3 billion and EPS increased 28% to $33.57. Full year sales growth was driven by growth in all the company’s core business areas with multiple sclerosis (MS) revenues increasing 2% to $9.2 billion, SPINRAZA® revenues increasing 22% to $2.1 billion and biosimilars revenues increasing 35% to $738 million. In 2019, Biogen repurchased 23.6 million shares for a total value of $5.9 billion, or $249 per average share, including 7.7 million shares repurchased in the fourth quarter of 2019 for a total value of $2.1 billion. As of December 31, 2019, $1.3 billion remained under the share repurchase program authorized in March 2019. In December, Biogen’s Board authorized an additional program to repurchase up to $5 billion shares. Biogen generated a robust 44.1% return on shareholders’ equity in 2019 and $7.1 billion in net cash flows from operations, including $1.96 billion in the fourth quarter of 2019. Biogen ended the year with $5.9 billion in cash and investments and $6 million in notes payable on its solid balance sheet. For 2020, revenues are expected in the $14 billion to $14.4 billion range with adjusted earnings in the $31.50 to $33.50 range, down slightly from last year as the company ramps up its operations in anticipation of completing a U.S. regulatory filing for its Alzheimer’s drug, aducanumab. On the conference call, Michael Vounatsos, Biogen’s CEO, stated, “Our pipeline has grown and is maturing, as we added 7 new clinical programs in 2019 and expect 11 mid- to late-stage data readouts by the end of 2021. We look forward to multiple near-term opportunities for value creation, including in Alzheimer’s disease, ALS, stroke, lupus, ophthalmology and biosimilars, as we aim to build a multi-franchise portfolio. Across all areas of investment, we remain focused on diligent capital allocation to maximize returns for our shareholders over the long term.”

Tractor Supply-TSCO reported fourth quarter sales rose 2.7% to $2.2 billion with net income up 5.3% to $144.2 million and EPS up 9% to $1.21. Comparable store sales in the fourth quarter inched up 0.1% with average ticket up 1.8% and traffic down 1.7%. This comp store sales growth was below management’s expectations with the weakness driven primarily by the effect of warmer than expected weather that impacted the sale of seasonal products and softness in several holiday discretionary categories. For the full 2019 year, sales increased 5.6% to $8.4 billion with comparable sales up 2.7% for the year. Full year net income increased 5.6% to $562 million with EPS growing 8.1% to $4.66. Return on shareholders’ equity for the year was a healthy 35.9%. Free cash flow increased a robust 43% during the year to $594 million with the company paying $163 million in dividends and repurchasing 5.4 million shares of common stock for $533.3 million at an average cost of $98.76 per share. Since inception of the share repurchase program in 2007, the company has repurchased $2 billion of its share with the share buyback in fiscal 2020 expected in the range of $450 million to $550 million. Fiscal 2020 sales are expected to increase 5%-6% in the range of $8.75 billion to $8.9 billion with comparable store sales expected to increase 1.5% to 3% in 2020. Operating margin is expected to approximate 8.9% leading to EPS in the range of $4.90-$5.10, representing growth of 5%-9%. During 2019, Tractor Supply opened 80 new Tractor Supply stores and eight new Petsense stores and closed one Tractor Supply store and three Petsense stores. In 2020, the company expects to open about 80 new Tractor Supply stores and 10-15 new Petsense stores with capital expenditure expected in the $225 million to $275 million range.

UPS-UPS reported fourth quarter revenue rose 4% to $20.6 billion with the company reporting a loss of $106 million or ($.12) per share due to pension, restructuring and legal charges. Excluding these charges, adjusted EPS increased 8.8% to $2.11. During the fourth quarter, UPS saw operating profit growth and margin expansion in all business segments.  These results reflected strong 9% daily volume growth in the U.S. Domestic segment thanks to a surge in demand for air products with Next Day Air volume up 26% and productivity improvements and positive operating leverage across all business segments. Average daily volume levels exceeded 26.6 million packages in the fourth quarter, an increase of 7.5% driven by high demand for air services in the U.S. during the peak holiday season. For the full year, revenues rose 3% to $74.1 billion with net income and EPS each down 7% to $4.4 billion and $5.11, respectively. On an adjusted basis, excluding charges, EPS increased 4% to $7.53. During the year, the company generated $8.6 billion in cash flow from operations and invested $6.4 billion in capital expenditures to support network enhancements. In addition, $3.3 billion was paid in dividends, a 5.5% per share increase, and $1 billion in share repurchases. While management expects consumer demand to remain healthy globally in 2020, industrial production is expected to continue to decline. Management expects to fast-track additional investments in 2020 to better position the company to capitalize on structural changes in the market and growth opportunities.  For 2020, UPS expects adjusted EPS in the range of $7.76-$8.06, representing 6%-10% growth. Operating cash flow is expected to increase 16% to $10 billion with the company planning to spend $6.7 billion on capital expenditures primarily to support global facility and automation expansions. Free cash flow is expected to be between $4.3 billion and $4.7 billion which will support further dividend payments  and share repurchases anticipated in the $1 billion range for 2020.

Wednesday, Jan. 29, 2020

Facebook-FB reported fourth quarter revenue increased a likable 25% to $21.1 billion with net income increasing 7% to $7.35 billion and EPS increasing 8% to $2.46. Facebook daily active users increased 9% to 1.66 billion while Facebook monthly active users increased 8% to 2.5 billion as of December 31, 2019. Daily active people for the Facebook family, which includes Facebook, Instagram, Messenger and/or WhatApp, increased 11% to 2.26 billion while family monthly active people increased 9% to 2.89 billion. Facebook average revenue per user increased nearly 16% to $8.52, consisting of 19% year-over-year growth in the U.S. & Canada to $41.41, 20% growth in Europe to $13.21, 21% growth in Asia-Pacific to $3.57 and 18% growth in the Rest of World to $2.48. Operating margin declined 400 basis points to 42% as the company continues to invest in safety, privacy and security. During the quarter, Facebook generated nearly $5 billion in free cash flow, up 50% from last year, with the company repurchasing $1.3 billion shares leaving $4.9 billion under the existing repurchase authorization. On the quarterly conference call, Facebook announced a new $10 billion share repurchase authorization.  Headcount increased 26% year-over-year, to 45,000, which includes 1,000 engineers working on privacy-related projects in response to increasing regulatory requirements from GDPR in Europe and CCPA in California. For the year, Facebook reported revenues increased 27% to $70 billion with net income declining 16% to $18,485 and EPS dropping 15% $6.43 on the heels of the $5 billion legal expense booked in 2019 related to Facebooks FTC settlement, which has not yet been paid.  During 2019, Facebook generated a solid 18.3% return on shareholders’ equity and free cash flow of $21.2 billion. The company returned $4 billion to shareholders in 2019 through share repurchases, ending the year with nearly $55 billion in cash and investments and no long-term debt. While management did not provide guidance for the 2020, on the conference call, the CFO said that first quarter revenues will decelerate by low- to mid-single digits over the fourth quarter due to the impact of privacy regulations and tighter privacy controls by the likes of Apple.  


Microsoft-MSFT reported fiscal second quarter revenues rose 14% to $36.7 billion with net income booting up a 38% increase to $11.6 billion with EPS up 40% to $1.51. This strong growth was broad-based across geographic segments and all business segments. Revenues in Productivity and Business Processes increased 17% to $11.8 billion with 24% growth in LinkedIn revenue, as someone is hired every 7 seconds on LinkedIn. Revenue in Intelligent Cloud increased 27% to $11.9 billion driven by Azure revenue growth of 62%. Microsoft has more datacenter regions than any other company with unmatched scale and security. Revenue in More Personal Computing increased 2% during the quarter to $13.2 billion driven by a 25% increase in Windows Commercial products and cloud services. Free cash flow increased 15% during the first half of fiscal 2020 to $17.6 billion with the company paying $7.4 billion in dividends and repurchasing $10.1 billion of common stock during the same time period. Microsoft’s balance sheet remains strong with $134 billion in cash and investments, $63 billion in long-term debt and $110 billion in shareholders’ equity as of 12/31/19. For the full fiscal 2020 year, Microsoft expects to report double-digit growth in revenues and operating income with operating margin expected to expand by 200 basis points thanks to the strength in its commercial business.

Starbucks-SBUX reported first fiscal quarter sales increased 7% to $7.1 billion with net earnings increasing 16% to $886 million and EPS jolting up 21% to $0.74. Global comparable store sales increased 5%, driven by a 3% increase in average ticket and a 2% increase in transactions. Americas comparable store sales increased 6% while International comparable store sales increased 1%, driven by a 3% increase in China’s same store sales. The company opened 539 net new stores during the quarter and ended the quarter with 31,795 stores, up 6% from last year. Operating margins increased 190 basis points year-over-year to 17.2% primarily due to sales leverage, supply chain efficiencies and lower restructuring and impairment charges, partially offset by growth in wages and benefits, as well as investments in store labor hours. During the quarter, Starbucks generated $1.44 billion in free cash flow and returned nearly $1.6 billion to shareholders through share repurchases of $1.1 billion and dividends of $484 million. Starbucks ended the quarter with $3.7 billion in cash and investments and $10.7 billion in long-term debt. Given the strong first quarter results, the company would have increased guidance, if not for the uncertainty surrounding the impact of the coronavirus. Thus far, Starbucks has closed half of its stores in China. Given the dynamic nature of the circumstances, the duration of the business disruption, reduced customer traffic and the related financial impact cannot be reasonably estimated, though the impact will likely be material to international results. The company will update its guidance as events unfold.


T. Rowe Price-TROW reported fourth quarter revenues rose 12.5% to $1.5 billion with net income jumping 55% to $545.3 million and EPS up 59% to $2.24 as margins expanded thanks to well controlled expenses. Ending assets under management increased 25% to end the year at $1.21 trillion, reflecting asset inflows and market capital appreciation. Net client inflows were $2.8 billion in the fourth quarter and $13.2 billion for 2019. For the full 2019 year, revenues rose 5% to $5.6 billion with net income up 16% to $2.1 billion and EPS up 20% to $8.70. Return on shareholders’ equity was an impressive 30% in 2019. In 2019, the firm spent $708.8 million to repurchase 7 million shares, or 2.9% of its outstanding common stock at an average price of $101.65 while also increasing its dividend 8.6%. The company invested $204.6 million in capital expenditures in 2019 and expects capital expenditures in 2020 to be up to $210 million. T. Rowe Price ended the year with a strong balance sheet with no long-term debt, $5.8 billion in cash and investments and $7.1 billion in shareholders’ equity.

General Dynamics - GD reported fourth quarter sales increased 3.8% to $10.8 billion with net income increasing 12.2% to $1.0 billion and EPS up 14.3% to $3.51. By business segment, Aerospace sales increased 8.4% to $2.9 billion, Combat Systems sales increased 13.1% to $2.0 billion, Information Technology sales decreased 15% to $2.0 billion, Mission Systems sales increased 2.5% to $1.3 billion and Marine Systems sales increased 11.7% to $2.6 billion. Backlog grew 28.1% to a record-high $86.9 billion, for a  book-to-bill of 1.5-to-1 for the year. For the full year, revenues increased 8.7% to $39.4 billion with net income up 4.2% to $3.5 billion and EPS up 7.2% to $11.98. Return on shareholders’ equity was 25.7%. Free cash flow declined 23% to $2.0 billion with the company paying $1.2 billion in dividends and repurchasing $231 million of its shares. For 2020, management expects sales of $40.7 billion with an operating margin of 11.9% and EPS in the range of $12.55 to $12.60.

Canadian National Railway-CNI reported record fourth quarter revenues declined 6% to C$3.6 billion with net income dropping 31% to C$873 million and EPS down 28% to C$1.22. The decrease in revenues was attributable to lower volumes, due to the weakening economic environment and the 8-day conductor strike. Revenue ton miles (RTM) declined by 13% with freight revenue per RTM increasing by 9%. The company’s operating ratio increased 4.1 points to 66%. For the full year, revenues increased 4% to C$14.9 billion with net income down 3% to C$4.2 billion and EPS down 1% to C$5.83. Return on shareholders’ equity was 23.4%. Free cash flow declined 16% to C$2.1 billion as the company continued to heavily invest in infrastructure expansion projects. During the year, the company paid C$1.5 billion in dividends and repurchased C$1.7 billion of its shares. For 2020, management expects adjusted earnings to grow in the low single-digit range with free cash flow in the range of C$3.0 billion to C$3.3 billion. The company also announced a 7% dividend increase, marking the 24th consecutive year of dividend increase, and a new 16 million share buyback over the next twelve months.

Automatic Data Processing-ADP reported fiscal second quarter revenues rose 5%, or 6% on an organic basis, to $3.7 billion with net income jumping 17% to $651.6 million as margins expanded with EPS up 18% to $1.50. Free cash flow increased 21% during the first half of fiscal 2020 to $1.0 billion with the company paying $686 million in dividends and repurchasing $615 million of common stock. ADP has increased their dividend for 45 consecutive years, one of only 30 companies with such a long dividend track record of record dividend increases. The dividend currently yields 2.0%. Margin expansion was driven by continued execution of transformation initiatives as well as operating efficiencies.  Employer Services New Business Bookings grew 3%. Interest on funds held for clients increased 7% to $138 million as the average client funds balance increased 6% to $25.1 billion with the average interest yield on client funds flat at 2.2%. For the full fiscal 2020 year, ADP anticipates interest on funds held for clients to approximate $570 to $580 million. Revenue for the full fiscal 2020 year is expected to increase about 6% with EPS growth of 14% to 16% expected. ADP management continues to see stable growth in the U.S. economy with wage growth driving increased consumer confidence. International wage growth is also stable.

Mastercard Incorporated-MA reported fourth quarter revenues increased 16% to $4.4 billion with net earnings charging ahead 134% to $2.1 billion and EPS increasing 138% to $2.07. Excluding gains on equity investments and litigation expenses in 2019 and 2018, adjusted net income increased 23% to $2 billion and adjusted EPS increased 26% to $1.96. For the full year, revenues increased 13% to $16.9 billion with net income up 39% to $8.1 billion and EPS up 42% to $7.94. Excluding investment gains and litigation expense, adjusted net earnings increased 17% to $7.9 billion and adjusted EPS increased 20% to $7.77. Revenue growth was driven by a 13% increase in gross dollar volume, on a local currency basis, to $6.5 trillion, an increase in cross-border volume of 16%, an increase in switched transactions of 19% plus an increase in other revenues of 23%, driven primarily by the company’s Cyber & Intelligence and Data & Services solutions. These increases were partially offset by an increase in rebates and incentives, primarily due to new and renewed agreements and increased volumes.  As of December 2019, the company’s customers had issued 2.6 billion Mastercard and Maestro-branded cards, up 5% from last year. For the year, Mastercard generated a stellar 137.8% return on shareholders’ equity and nearly $7.8 billion in free cash flow. The company returned $7.8 billion to shareholders during 2019 through dividend payments of $1.3 billion and share repurchases of $6.5 billion. Management expects the healthy consumer spending seen in 2019 to continue resulting in full year 2020 revenue growth in the low-teens with adjusted operating expenses in the high single digits.

Tuesday, Jan. 28, 2020

Stryker Corporation-SYK reported fourth quarter sales increased a healthy 9% to $4.1 billion with reported earnings and EPS declining 65% to $725 million and $1.90, respectively. Excluding a $1.5 billion, or $4.01 tax benefit in 2018 related to tax reform and tax items recorded in 2019, Stryker’s net income and EPS increased 44% year-over-year. During the quarter, Stryker installed 89 robots compared with 54 installed during the fourth quarter of 2018. Stryker ended the year with 860 installed MAKO robots, including 700 in the U.S. MAKO procedures during the fourth quarter increased 50% from 2018 to 36,600, bringing the total number of procedures in 2019 to 114,000. For 2019, Stryker’s sales increased 9% to $14.9 billion with net earnings and EPS falling 41% to $2 billion and $9.34, respectively.  Excluding discreet tax items in both 2019 and 2018, earnings increased 10.5% and EPS increased 8.8%. 2019 marked the 40th consecutive year of sales growth since Stryker went public in 1979. By segment, Orthopaedics sales increased 5.2% to $5.3 billion, boosted by 8% growth in knees as the company continued to take market share as 50% to 60% of MAKO installations are into competitive accounts. MedSurg sales increased nearly 9% to $6.5 billion powered by a 12% jump in instrument sales. Neurotechnology and Spine increased 19% to $3.1 billion, reflecting a full year of sales from the $1.4 billion acquisition of spinal surgery device maker K2M.  During 2019, Stryker generated a 16.3% return on shareholders’ equity and $1.5 billion in free cash flow, down 25% from 2018 as effective working capital management partially offset the decline in reported earnings. The company returned $1.1 billion in cash to shareholders in 2019 through dividends of $778 million and share repurchases of $307 million. Given the acquisition of trauma and extremity medical device maker Wright Medical Group for $4 billion in cash, which is expected to close in the second quarter, Stryker does not anticipate repurchasing shares in 2020. Stryker ended the year with $4.4 billion in cash and investments, $10 billion in long-term debt and $13 billion in shareholders’ equity. Looking ahead to 2020 management expects organic net sales growth of 6.5% to 7.5% and adjusted EPS of $9.00 to $9.20, up 10% from 2019 at the mid-point.  

Apple-AAPL reported first fiscal quarter revenues rose 9% to $91.2 billion with net income up 11% to $22.2 billion and EPS climbing 19% to $4.99. These record results reflected strong demand for the iPhone 11 and iPhone 11 Pro models and all-time records for Services and Wearables. iPhone sales increased 8% during the quarter to $56 billion with Services revenues increasing 17% to $12.7 billion and Wearables sales jumping 37% to $10 billion thanks to strong demand for Apple Watches and AirPods, with both items capacity constrained.   During the holiday quarter, the company’s active installed base of devices grew in each geographic segment and has now reached over 1.5 billion. The company ended the quarter with 480 million paid subscribers to its Services, a 120 million increase year over year. Apple expects to exceed 500 million subscribers in the March quarter with a goal of 600 million subscribers by year end to its Services.  International sales accounted for 61% of the quarter’s revenues with double-digit growth generated both in the Americas and Europe during the quarter. Free cash flow increased 22% during the quarter to $28 billion with the company paying dividends of $3.5 billion during the quarter and repurchasing $20.7 billion of common stock. Apple ended the quarter with about $207 billion in cash and investments, $93 billion in long-term debt and $89.5 billion in shareholders’ equity. Apple provided second quarter guidance with revenue expected in the range of $63 billion to $67 billion, gross margin in the range of 38%-39%, operating expenses between $9.6 billion and $9.7 billion, other income of $250 million and a tax rate of about 16.5%. The coronavirus is creating uncertainty among the company’s supply chain with retail stores also being temporarily closed in China.

3M-MMM posted a 2% increase in fourth quarter sales to $8.1 billion with net income falling 28% to $969 million and EPS dropping 27% to $1.66. Continued softness in automotive and electronics end markets weighed on organic local-currency sales which declined 2.6% year-over-year. Fourth quarter earnings include a pre-tax restructuring charge of $134 million, or $0.20 per share, and a charge related to ongoing PFAS litigation of $214 million, or $0.29 per share. 3M’s fourth quarter restructuring includes the elimination of 1,500 jobs and is expected to generate savings of $110 million to $120 million annually, with $40 million to $50 million expected in 2020.  For the year, sales declined 1.9% to $32.1 billion on a 1.5% decline in organic local currency growth with net income falling 15% to $4.6 billion and EPS falling 12% to $7.81. These results include litigation expenses of $1.29 per share. The company generated a 17.5% return on invested capital and $5.4 billion in free cash flow, a record, that was up 10% year-over-year. During 2019, 3M returned $4.7 billion to shareholders through share repurchases of $1.4 billion and dividends of $3.3 billion. In 2019, 3M marked its 61st consecutive year of annual dividend increases. 3M ended the year with $2.5 billion in cash and investments, $17.5 billion in long-term debt and $10 billion in shareholders’ equity. Looking ahead to 2020, management expects organic local-currency growth to be flat to up 2% with EPS of $9.30 to $9.76, up 19% to 25% from 2019.


United Technologies-UTX reported fourth quarter revenues rose 8% to $19.6 billion with net income rocketing 67% higher to $1.1 billion and EPS up 59% to $1.32. On an adjusted basis, EPS declined 1% to $1.94 reflecting the impact of nonrecurring and restructuring charges. For the full year, revenues increased 16% to $77 billion including 5% organic growth with contributions from all business segments. Net income increased 5% to $5.5 billion with EPS down 1% to $6.41, which included $1.85 of net restructuring charges and $1.46 of one-time portfolio separation costs. On an adjusted basis, EPS increased 9% to $8.26. Free cash flow increased 50% to $6.6 billion during the year, with the company paying $2.4 billion in dividends. United Technologies delivered record sales, adjusted earnings and free cash flow in 2019 on continued aerospace strength and a return to profit growth at Otis. Operational separation activities of Otis and Carrier are substantially complete, and the spin-off of both businesses is expected to occur early in the second quarter of 2020. At the same time, United Technologies will merge its aerospace business with Raytheon to create Raytheon Technologies, which will be the premier aerospace and defense systems and services provider. Raytheon Technologies remains on target to reap $1 billion in cost synergies. For Pratt & Whitney, 2020 sales are expected to be up mid-single digits versus 2019 with operating profit expected to increase $225 million to $275 million. Collins Aerospace sales are expected to decline in the low single-digit range due to an estimated 5% headwind resulting from the suspension of the Boeing 737 MAX production, lower ADS-B mandate sales and the divestitures associated with the Raytheon merger. Collins Aerospace’s adjusted operating profit is expected to be down $275 million to $325 million in 2020 due to the same factors.

Monday, Jan. 27, 2020

F5 Networks-FFIV reported first fiscal quarter revenues increased 5% to $569.3 million with net income and EPS falling 25% to $98.5 million and $1.62, respectively. Product revenues, of $234.5 million were flat with last year on an 11% decline in System sales (72% of product revenues) offset by a 50% increase in software sales, which now account for 28% of product revenues, up from 19% last year as the company continues its digital transformation. Service revenue, which accounted for 59% of total company revenue, increased 8% to $334.8 million, driven by the accelerating software sales and the NGINX acquisition. Gross margins increased slightly while operating margins fell 760 basis points on a jump in sales and administrative expenses. During the quarter, the company generated $122 million in free cash flow, down 31% from last year, on the lower income and working capital changes. No shares were repurchased during the quarter. Management expects to use future cash flow to pay down the $400 million term loan taken on in the $1 billion acquisition of Shape Security which closed last week. F5 ended the quarter with nearly $1.5 billion in cash and investments on its strong balance sheet. Looking ahead to second quarter, the company expects software sales to increase in the 60% to 70% range, driving total revenue growth of 6% to 8% in the $580 million to $590 million range with adjusted EPS expected in the $2.14 to $2.17 range, down 16% at the midpoint.  

Bank of Hawaii-BOH reported fourth quarter net interest income declined 1% to $123.9 million with net income and EPS each up 12% to $58.1 million and $1.45, respectively. For the full 2019 year, net interest income rose 2% to $497.7 million with net income up 3% to $225.9 million and EPS up 6% to $5.56. The net interest margin for the full year was 3.03%, a decrease of 2 basis points from the net interest margin of 3.05% in 2018. Return on shareholders’ equity for the year was 17.6%. The return on average assets for the year was 1.29% unchanged from 2018. The efficiency ratio for the full year improved to 55.68% compared with 56.71% in the prior year period. Loan balances grew 5.2% in 2019 while deposit balances grew 5% compared to 2018. The bank’s asset quality, capital and liquidity all remain strong.  During the fourth quarter, the bank repurchased 336,200 shares at a total cost of $30 million at an average cost of $89.11 per share. Since the inception of the repurchase program in July 2001 through 12/31/19, the bank has repurchased 56.9 million shares for $2.3 billion at an average cost of $40.38 per share. The Board of Directors increased the share repurchase authorization by an additional $100 million bringing the remaining buyback authority up to $120.4 million. The bank’s capital allocation strategy is to pay out 50% of earnings in dividends and use excess cash (generally another 30% of earnings) for share repurchases while retaining the remaining 20% of earnings to support future growth. General economic conditions in Hawaii remain stable due to low interest rates, a relatively healthy construction sector and growing visitor arrivals. The statewide unemployment rate in Hawaii continues to remain low at 2.6% at year end compared with 3.5% nationally. Real estate prices on Oahu remained steady during 2019.

Wednesday, Jan. 22, 2020

Johnson & Johnson-JNJ reported fourth quarter sales increased 1.4% to $10.8 billion with net earnings increasing 32% to $4 billion and EPS up 34% to $1.50. Adjusted earnings, which excludes litigation, amortization and other discrete expenses, declined by 6.4% to $5 billion and adjusted EPS dipped 3% to $1.88. For the full year, sales increased 0.6%, or 2.8% in constant currency, to $82.1 billion with net earnings dipping 1.2% to $15.1 billion and EPS edging up 0.4% to $5.63 thanks to share repurchases. Adjusted earnings increased 4.5% to $23.3 billion and adjusted EPS increased 6% to $8.68. By business segment, Pharmaceutical sales increased 3.6% to $42.2 billion driven by sales of Stelara, DARZALEX, IMBRUVICA, SYMTUZA and TREMFYA.  Medical Device sales dipped 3.8% to $26 billion and Consumer sales increased slightly to $13.9 billion driven by Neutrogena, Tylenol, Zarbee’s Imodium, ZYRTEC and the DR. CI:LABO acquisition. During 2019, Johnson & Johnson generated nearly $20 billion in free cash flow, up 7% from last year. The company returned $14 billion to shareholders through dividends of $9.9 billion and share repurchases of $4.1 billion. During the year, the company invested $7 billion in 11 acquisitions and 6 license agreements to fuel future growth. During the past four years, Johnson & Johnson’s robust cash flow enabled the company to invest $45 billion in R&D, $50 billion in value-creating acquisitions and $40 billion in shareholder distributions. Looking ahead to 2020, management expects sales to be in the $85.4 billion to $86.2 billion range, up 4% to 5%, with adjusted EPS expected in the $8.95 to $9.10 range, up 3.1% to 4.8%. The company does not anticipate repurchasing additional shares during 2020 as it continues to negotiate with state attorney generals to settle opioid lawsuits. While management is optimistic about the settlement, it cannot predict the timing or amount of the resolution.

Friday, Jan. 17, 2020

Fastenal-FAST reported fourth quarter revenues rose 4% to $1.3 billion with net income up 6% to $178.7 million and EPS up 5% to $.31. The increase was driven by higher unit sales related to industrial vending and Onsite locations. The general slowing in economic activity continued in the fourth quarter exacerbated by holiday timing and longer than usual year-end plant shutdowns. Industrial production remains weak going into 2020, notably in the heavy equipment, oil and gas, metals and transportation sectors.   Sales of fastener products grew 1.8% in the fourth quarter and represented 34% of total revenues as sales of non-fastener products grew 5.1% and represented 66% of total revenues. Gross margin declined in the fourth quarter due to customer and product mix. For the full 2019 year, revenues increased 7% to $5.3 billion with net income and EPS each up 5% to $791 million and $1.38, respectively. Return on shareholders’ equity was an impressive 29.7% for the year. Free cash flow increased 20% during the year to $596 million with the company paying $499 million in dividends during the year. Fastenal increased the quarterly dividend an additional 14% to $.25 per share for the first quarter of 2020.

Wednesday, Jan. 15, 2020

Unitedhealth Group-UNH reported fourth quarter revenues increased 4% to $61 billion with net income up 17% to $3.5 billion and EPS up 19% to $3.90. For the year, Unitedhealth Group reported revenues increased 7% to $242 billion with net earnings increasing 15% to $13.8 billion and EPS increasing 18% to $14.33.  By segment, Unitedhealthcare revenues of $194 billion increased 6%, primarily due to growth in the number of people served in Medicare Advantage and commercial benefits. As of December 31, 2019, Unitedhealthcare served 27.76 million commercial customers, 5.27 million Medicare Advantage customers, 4.5 million Medicare Supplement customers, 5.9 million Medicaid customers and 5.7 million international customers, with the total up slightly from last year. Optum’s full year revenues increased 12% to $113 billion, with notably strong growth in OptumHealth which grew revenues a healthy 26% to $30 billion.  OptumInsight revenue grew 11% to $10 billion while OptumRX revenues rose 7% to $74.3 billion. During the year, the company generated a vigorous 22.9% return on shareholders’ equity, operating cash flow of $18.5 billion and free cash flow of $16.4 billion, up 20% from last year. The company returned $9.4 billion to shareholders during 2019 through dividend payments of $3.9 billion, that were up 18.4% from last year, and share repurchases of $5.5 billion at an average cost per share of $245.53 per share.  Unitedhealth Group ended the year with $51.5 billion in cash and investments, $36.8 billion in long-term debt and $60.4 billion in shareholders’ equity. The company affirmed its recently issued full year earnings outlook for 2020 with net earnings of $15.45 to $15.75 per share, up about 9% at the mid-point.

Collins Aerospace Systems, a unit of United Technologies Corp-UTX, has signed a contract with Lockheed Martin to provide critical subsystems to support production of NASA's Orion spacecraft fleet for Artemis missions III through VIII. Valued at $320 million, the systems being provided by Collins Aerospace will play an important role in enabling NASA's goal of boots on the Moon by 2024, as well as establishing a sustained presence on and around the Moon to prepare for missions to Mars.

Monday, Jan. 13, 2020

T. Rowe Price Group, Inc.-TROW reported preliminary month-end assets under management of $1.21 trillion as of December 31, 2019, representing a 25.5% increase for the full 2019 year.

Wednesday, Jan. 8, 2020

MSC Industrial-MSM reported fiscal 2020 first quarter sales dipped 1% to $823.6 million with net earnings declining 12% to $65.4 million and EPS down 11% to $1.18. These results reflect broad-based softness in the industrial sector, especially in autos, heavy trucks, agriculture and oil & gas and management’s ongoing journey to reposition the company from a spot buy-only supplier to a mission critical partner on the plant floors of its manufacturing customers. During the quarter, MSC Industrial generated $72.4 million in free cash flow, up 11% from last year on working capital efficiencies. The company paid $42 million in dividends during the quarter, reflecting the regular quarterly dividend of $0.75 per share. Consistent with the company’s balanced allocation strategy of returning cash to shareholders, the Board declared a special dividend of $5.00 per share in addition to the regular dividend, both payable on February 5th. These dividends totaling almost $320 million will be paid from existing cash on hand and by tapping into the company’s revolving credit facility. MSC Industrial ended the quarter with $28 million in cash, $268 million in long-term debt and $1.5 billion in shareholders’ equity. Given weakness in December, which management attributes to holiday timing, shutdown schedules, and end of year purchasing decisions by customers; its anticipated mid-year price increase; and ongoing efforts to reposition the business, second quarter sales are expected in the $781 million to $798 million range, down 4% year-over-year at the mid-point. Gross margins are expected in the 41.8% to 42.2% range from 42.7% last year. Operating margins are expected in the 9.5% to 9.9% range from 11.7% last year. EPS are expected in the $0.97 to $1.03 range, down 19% from last year at the mid-point.

Walgreens Boots Alliance-WBA reported first fiscal sales increased 1.6% to $34.3 billion with net income dropping 25% to $845 million and EPS declining 20% to $.95. Earnings were adversely impacted by costs related to the acquisition of Rite Aid stores and to the implementation of the Transformational Cost Management Program, which is on track to deliver in excess of $1.8 billion in annual cost savings by fiscal 2022. The first fiscal quarter came in softer than expected with gross margin down due to lower than expected prescription drug volume, continued reimbursement pressure and a challenging competitive environment. Walgreen’s market share declined 55 basis points in the Retail Pharmacy USA to 20.9% reflecting in part the impact of store optimization. Retail Pharmacy International sales declined 5.4% during the quarter reflecting foreign currency headwinds and lower retail sales in Boots U.K. due to a soft economy and lower sales in Chile due to social unrest. Free cash flow improved significantly during the quarter to $674 million as operating income more than doubled thanks to working capital improvements. While the second fiscal quarter is expected to continue to be challenging, management expects the second half of the fiscal year to improve which enabled them to maintain their full year adjusted EPS guidance of roughly flat growth in fiscal 2020 at constant currency rates, with a range of plus or minus 3%.

Private sector employment increased by 202,000 jobs from November to December according to the December ADP National Employment Report®.  "As 2019 came to a close, we saw expanded payrolls in December," said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. "The service providers posted the largest gain since April, driven mainly by professional and business services. Job creation was strong across companies of all sizes, led predominantly by midsized companies." Mark Zandi, chief economist of Moody's Analytics, said, "Looking through the monthly vagaries of the data, job gains continue to moderate. Manufacturers, energy producers and small companies have been shedding jobs. Unemployment is low, but will begin to rise if job growth slows much further."

 

Monday, Dec. 30, 2019

Raytheon Missile Systems Co., a unit of Raytheon-RTN, has been awarded a $768,283,907 non-competitive fixed-price incentive (firm) contract for Advanced Medium Range Air-to-Air Missile (AMRAAM) Production Lot 33. This contract provides for the production of the AMRAAM missiles, captive air training missiles, guidance sections, AMRAAM telemetry system, spares and other production engineering support hardware. 

Friday, Dec. 20, 2019

 

F5 Networks-FFIV will acquire privately held Shape for a total enterprise value of about $1 billion, financed with F5 Networks’ balance sheet cash and a $400 million senior unsecured term loan. Shape, a leader in fraud and abuse prevention, adds protection from automated attacks, botnets and targeted fraud to F5’s world-class portfolio of application services, protecting customers’ digital experiences. This strategic acquisition accelerates F5’s growth momentum and more than doubles F5’s addressable market in security to $8 billion. With $60 million in mostly subscription revenues and growing 50% year-over-year, Shape improves F5’s software revenue growth rate from mid-single-digits to mid-to-high single-digits and boosts software revenue growth from 35-40% to 60-70%. F5’s fiscal 2020 gross margins are expected to be about 85%, in line with prior guidance, while non-GAAP operating margins are expected to be 30-32%, down from 33-35%, reflecting investments to drive future growth. The transaction is expected to be dilutive to fiscal year 2020 non-GAAP EPS in the mid-to-high single-digit range and accretive to cash flow within 12 months of closing, which is expected in the first calendar quarter of 2020.


Thursday, Dec. 19, 2019

NIKE-NKE reported fiscal 2020 second quarter sales increased 10% to $10.3 billion with net earnings increasing jumping 32% to $1.1 billion and EPS increasing 35% to $0.70. By geography, North America sales increased 5% to $4 billion, Europe, Middle East & Africa sales increased 10% to $2.5 billion, Greater China sales increased 20% to $1.8 billion and Asia Pacific & Latin America sales increased 13% to $1.5 billion. Gross margins increased 20 basis points as strong pricing more than offset a 40 to 50 basis point headwind from tariffs and increased supply chain investments including RFID technology and new distribution centers to accommodate the growth in Nike Direct. SG&A expenses declined by 130 basis points in the wake of management’s decision to defer a portion of demand creation expense to the second half to capitalize on the Olympics and other major global sporting events even as the company continues to invest in its digital transformation to accelerate future growth.  During the second quarter, NIKE, Inc. repurchased 10.1 million shares for about $922 million, or $91.29 per average share, as part of the four-year, $15 billion program approved by the Board of Directors in June 2018. As of November 30, 2019, a total of 33.6 million shares had been repurchased under this program for approximately $2.9 billion, or $86.31 per average share. Nike ended the quarter with more than $3.5 billion in cash and investments and $3.5 billion in long-term debt. Looking ahead to the full year, Nike expects sales to grow in the high-single digits range with foreign currency headwinds of 2% to 3%.                                                                             

FactSet-FDS reported fiscal first quarter revenues increased 4% to $366.7 million with net income up 12% to $94 million and EPS up 12% to $2.43. The increase in sales was primarily due to higher sales of analytics, content and technology solutions and wealth management solutions. Annual Subscription Value (ASV) plus professional services was $1.48 billion. Operating margin increased to 30.9% compared to 28.6% in the prior year period as a result of improved operating results. Client count increased by 27 to 5,601 driven by an increase in corporate clients and wealth management. User count decreased by 37 to 126,785 due to a decrease in sell side users. Annual  ASV retention was greater than 95%. When expressed as a percentage of clients, annual retention was 89%. Employee count increased 2.8% to 9,865. Free cash flow increased 88% during the first quarter  to $69 million due to higher earnings and favorable working capital changes. During the past quarter, the company paid $27 million in dividends and repurchased 343,000 shares for $84.4 million at an average cost of $246.13 per share. FactSet has $154.2 million remaining authorized for future share repurchases. FactSet maintained their guidance for the full fiscal 2020 year with revenue expected in the range of $1.49 billion and $1.5 billion and EPS in the range of $8.70 and $9.00.

Accenture-ACN reported fiscal first quarter revenues increased 7%, or 9% in constant currency, to $11.4 billion with net income increasing 6% to $1.4 billion and EPS up 7% to $2.09. Accenture’s first quarter revenue growth was broad-based across industries and geographic markets, reflecting the diversity and scale of the company’s business around the world. By operating group, Communications, Media & Technology revenues increased 7% to $2.2 billion, Financial Services revenues increased 6% to $2.2 billion, Health & Public Service revenues increased 13% to $2 billion, Products revenues increased 12% to $3.2 billion and Resources revenues increased 7% to $1.7 billion. North America revenues increased 9% to $5.3 billion, Europe grew by 7% in local currency and growth markets increased 13% to $2.3 billion. New bookings were $10.3 billion, up slightly from last year. The New, Accenture’s digital transformation business, accounted for more than 65% of the company’s bookings during the quarter. Accenture generated $692 million in free cash flow during the quarter, down 27% from last year, on working capital changes and a 22% jump in capital expenditures as the company continues to invest in the business to support growth. The company returned $1.2 billion to shareholders during the quarter through share repurchases of $729 million at an average cost per share of $189.65 and dividends of $508 million, or $0.80 per share, up 10% from last year. Management raised the bottom range of its guidance for fiscal 2020 with revenue growth now expected in the range of 6% to 8% in local currency, compared to prior guidance of 5% to 8%. Management expects fiscal 2020 EPS in the $7.66 to $7.84 range, compared to $7.62 to $7.84 previously guided. During fiscal 2020, the company expects to generate free cash flow in the range of $5.7 billion to $6.1 billion and return $4.8 billion to shareholders through share repurchases and dividends.

Wednesday, Dec. 18, 2019

Paychex-PAYX reported fiscal second quarter revenues rose 15% to $990.7 million with net income up 10% to $258.7 million and EPS climbing 11% to $.72. The acquisition of Oasis Outsourcing contributed about 9% to the growth in total revenue. Solid growth was delivered across the major business lines during the quarter, particularly in human resource outsourcing services, time and attendance solutions and retirement services. Interest on funds held for clients increased 9% during the quarter to $19.9 million due to higher realized gains, average investment balances and average interest rates. Return on shareholders’ equity over the trailing 12 months was a stellar 42%. Free cash flow increased a robust 16% during the first half of the year to $505 million thanks to higher earnings and working capital changes. During the first half, the company paid $444.3 million in dividends and repurchased 2.0 million shares for $171.9 million at an average cost of $85.95 per share. For the full fiscal 2020-year, management raised their financial outlook with Management Solutions revenue expected to grow in the range of 5% to 5.5%, PEO and Insurance Services revenue expected to grow in the range of 25% to 30% and EPS expected to increase in the range of 9% to 10%. Paychex sees continued growth for small businesses in the year ahead as strong demand is leading to higher wages and hours worked for employees of small businesses.

Tuesday, Dec. 17, 2019

MSC Industrial-MSM announced that its Board of Directors has declared a special cash dividend of $5.00 per share. The special cash dividend is payable on February 5, 2020 to shareholders of record at the close of business on January 22, 2020. The company will initially fund the approximately $277 million required for the special cash dividend from cash on hand and its revolving credit facility. The company also announced that its Board of Directors has declared the regular quarterly cash dividend of $0.75 per share.

Thursday, Dec. 12, 2019

Oracle-ORCL reported fiscal 2020 second quarter revenues increased 1% to $9.6 billion with net income dipping 1% to $2.3 billion and EPS up 13%, on fewer shares outstanding, to $0.69. Cloud Services and License Support revenues were $6.8 billion, up 3% from last year, while Cloud License and On-Premise License revenues were $1.1 billion, down 7%, as the company continues to transition its business to cloud-based offerings. Cloud and License revenues by ecosystem included applications revenues of $2.9 billion, up 4% from last year and infrastructure revenues of $5 billion, which were flat when compared to last year. Fusion and NetSuite drove growth in cloud applications with Fusion ERP revenues growing 37% and NetSuite ERP revenues growing 29%. While still in its early days, the Oracle Autonomous Database has thousands of customers running in the company’s Gen2 Public Cloud with growth rates exceeding 100%. During the quarter, Oracle repurchased 91 million shares for $5 billion ($54.95 per average share), bringing the total repurchases during the past twelve months to $26 billion. Over the past five years, Oracle has reduced its share count by 25%. During the first half of the fiscal year, Oracle generated $5.7 billion in free cash flow, down 11% from last year, with the company returning $11.6 billion to shareholders through share repurchases of $10 billion and dividends of $1.6 billion. Oracle ended the quarter with $26 billion in cash, $52 billion in long-term debt and $16 billion in shareholder equity. During the quarterly conference call, Larry Ellison, Oracle’s founder and CTO, stated that the company has no plans to replace its recently deceased co-CEO, Mark Hurd, that he has complete confidence in Safra Catz as Oracle’s sole CEO. Looking ahead to the third quarter, Ms. Catz expects revenues to grow by 1% to 3%.

Tuesday, Dec. 10, 2019

T. Rowe Price Group-TROW reported preliminary month-end assets under management of $1.18 trillion as of November 30, 2019, which represents a 22.8% increase since year end. 

Monday, Dec. 9, 2019

UnitedHealth Group-UNH announced that OptumRx, the pharmacy care services business of Optum, and Diplomat, a provider of specialty pharmacy and infusion services, are combining. The agreement calls for the acquisition of Diplomat’s outstanding common stock for $4.00 per share through a cash tender offer and assumption of outstanding debt worth approximately $300 million.

Thursday, Dec. 5, 2019

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


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

Wednesday, Dec. 4, 2019

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

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

Tuesday, Dec. 3, 2019

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

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

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

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

 

Monday, Dec. 2, 2019

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


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


Tuesday, Nov. 26, 2019

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