Archive: July, 2007

SPN: Quick Take on Superior Energy Earnings

Large Cap Watch List (Track at Marketocracy) member Superior Energy Services, Inc. (SPN) today announced record net income of $70.1 million and diluted earnings per share of $0.85 on revenues of $396.8 million, as compared to analyst estimates of $0.80 on $377 million in revenue.

The company managed the growth without adding too significantly to the balance sheet. This suggests that cash flow from operations likely improved significantly, as did return on capital measures. Despite these improvements, however, the stock has stayed relatively flat for several months.

With a single-digit forward P/E multiple, I wouldn’t expect that to last much longer.

Topics: Energy, Oil Well Services and Equipment, Superior Energy Services (SPN) | No Comments

RCII: Rent-a-Center Warns Again

Mid Cap Watch List (Track at Marketocracy) member Rent-A-Center, Inc. (RCII) announced revenues and earnings for the quarter ended June 30, 2007. Total revenues of $724.2 million marked a $140.6 million increase from the same period in the prior year but were slightly below the consensus estimate. Diluted earnings per share were $0.58, an increase of 3.6% from the same period in the prior year but below the $0.60 consensus. According to management:

“Although our second quarter financial results for revenue and earnings per diluted share were within our guidance range and our same store sales increased 2.7%, the business environment has been very challenging as of late,” commented Mark E. Speese, the Company’s Chairman and Chief Executive Officer. “We believe that the financial challenges facing our customers have increased recently, resulting in a softer outlook for the balance of this year. As a result, we are lowering our guidance for the remainder of 2007.”

This is becoming a habit for Rent-a-center, which lowered guidance the last time they reported as well.  The new guidance of $2.905 – $2.935 billion in revenue and $2.06-$2.14 in EPS compare to the prior lowered EPS target of $2.24-$2.32 and a consensus estimate of $2.31.

As a general rule, I prefer companies who keep revising guidance in the other direction.

Topics: Rent-A-Center (RCII), Rental and Leasing, Services | No Comments

GDP: A Study in Contrast

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 3.4 percent in the second quarter of 2007, according to advance estimates released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.6 percent.

As I have discussed in the past, the estimates get revised several times, including up to several years later. According to the BEA:

The estimates released today reflect the annual revision to the national income and product accounts (NIPAs), beginning with the estimates for the first quarter of 2004. Annual revisions, which are usually released in July, incorporate source data that are more complete, more detailed, and otherwise more reliable than those previously available. This release includes the revised quarterly estimates of GDP, corporate profits, and personal income and provides an overview of the effects of the revision.

In other words, it is time to go back and revisit everything that has been written about GDP over the past three years because it was based on incomplete information. Or at least base new observations on the newly updated tables.

Today’s report has been billed as strong. Said Reuters:

Economic growth rebounded during the second quarter to its strongest pace since the beginning of last year on a surge in business investment, more government spending and a better trade performance.

But keep in mind, the headline report is the earliest (and least reliable) data, is adjusted for seasonal impacts and annualized, all of which require assumptions from the same officials who will spend the next three years revising them. As usual, I prefer to look at the data without seasonal adjustments and compare it to the previous year to eliminate at least some of these assumptions. And on that basis, while the quarter looked a bit stronger than last, it is far from looking like the strongest in anything more than one quarter.

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Looking at how the GDP figures were generated is also interesting. Personal consumption finally slowed, as many have been predicting. The traditional story is that it would be replaced by business investment (private direct investment in the chart.) While PDI was at least positive this time, it didn’t make up for even half the decline in consumption. Instead, government spending accounted for 0.82% of the reported rise in GDP. The change in net exports contributed more than a percent – due in part to increased exports but also to decreased imports (which is also reflected in personal consumption.)

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As expected, residential investment continues to be weak.

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However, it is acting as less of a drag on GDP, at least directly.

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All in all, the report was not as strong as the headlines suggest. There were some improvements from last quarter, but it looks far too early to be calling a bottom.

Topics: Economy, GDP | 3 Comments

IM: Ingram Micro Reports and the Tech Spending Outlook Remains Fuzzy

Ingram Micro Inc. (NYSE: IM), the world’s largest technology distributor, announced financial results for the second quarter, which ended June 30, 2007. Worldwide sales for the quarter were $8.19 billion, an 11 percent increase from $7.40 billion in the prior-year period and an all-time record for a second quarter. The translation impact of the relatively stronger European currencies had an approximate three percentage-point effect on comparisons to the prior year.

8% growth ex currency is the type of fairly bland result we have been seeing from tech companies for a long time.  I had been turning hopeful as CDW Corp.’s (CDWC) sales growth accelerated, and some of the economic indicators suggested a bottoming out. But EMC’s  (EMC - Annual Report) results and the durable goods report are throwing cold water on the thesis. Ingram didn’t make things worse, but it didn’t make them better either.

Topics: CDW Corp (CDWC), Computer Hardware, Computer Storage Devices, EMC Corp. (EMC), Ingram Micro (IM), Retail (Catalog and Mail Order) | No Comments

WDC: Quick Take on Western Digital Earnings

Large Cap Watch List (Track at Marketocracy) member Western Digital Corp. (WDC) reported its financial results for its fiscal year 2007 and fourth quarter ended June 29, 2007. The company’s results for the fiscal year reflected strong year-over-year performance, with revenue of $5.5 billion compared to consensus estimates of $5.43 billion. Net income was $585 million, or $2.59 per share, compared to $395 million, or $1.76 per share for the prior year. The 2007 and 2006 net income amounts included income tax benefits of $147 million and $22 million, respectively, related to adjustments to the value of the company’s deferred tax assets. Adjusted net income of $1.93 narrowly edged the $1.92 consensus.

Part of the success reflected efforts to focus on more profitable lines of business. On a year-over-year basis, the company
expanded its share of revenue from newer markets from 29 percent to 43 percent. The company’s newer market revenue includes hard drives for notebook PCs, consumer electronics, enterprise applications and WD branded products.

Despite the impact of tax benefits, the company was able to control working capital. This resulted in full year cash flow from operating activities rising from $368 million to $618 million.

The company also announced that the acquisition of Komag (KOMG) is progressing on schedule.

Topics: Computer Storage Devices, KOMG, Technology, WDC | No Comments

YRCW: Quick Take on YRC Worldwide Earnings

Large Cap Watch List (Track at Marketocracy) member YRC Worldwide Inc. (YRCW) today announced reported diluted earnings per share (”EPS”) for the second quarter 2007 of $0.95 compared to $1.58 in the second quarter last year. Adjusted diluted EPS was $0.91, compared to $1.62 for the second quarter 2006.

Although the results looked awful, the signs of a poor environment for transportation had been building. The shares actually rallied in after-hours trading, suggesting that investors may have feared worse or even think that the bottom has been reached. I doubt that latter point, but of course I’ve been wrong before.

YRC management, however seems to agree with me on this one. They offered guidance for a litany of line items  ranging from interest expense to tax rate to shares outstanding. As far as revenue and earnings, however, your guess is apparently as good as theirs. At least whatever number you come up with, you’ll have a decent idea how much interest to expense, how much tax to reduce it by and how many shares to divide it by to arrive at EPS.

The company managed to increase its cash flow from operating activities slightly, but also managed to spend more than it generated buying new trucks.  Which is one more reason to prefer Landstar (LSTR - Annual Report) and CH Robinson (CHRW - Annual Report).

Topics: CH Robinson Worldwide (CHRW), Landstar Systems (LSTR), Miscellaneous Transportation, Transportation, Trucking, YRC Worldwide (YRCW) | No Comments

Durable Goods

About the only thing that can be said in favor of June’s overall durable goods orders is that they weren’t as bad as they were in February.

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So that’s all I’m going to say.

Topics: Durable Goods, Economy | 1 Comment

AAPL: Attention Apple Investors – iPhone schmyPhone!

Apple (AAPL) investors have lately been worked up over the introduction of iPhone, which is yet another great product from Apple and expected to sell 10 million units in 2008. It sold 270,000 in the first two days of its introduction, which makes the 730,000 they are guiding to for the next three months seem conservative laughably low.

But with all the focus on iPhone, everyone seems to forget about the iPod.  As I noted yesterday, 21% growth for iPods was also borderline spectacular for a product many have all but forgotten and if anything expected to be cannibalized by iPhone. Oh, and who needs 10 million units in a year when the outdated, cannibalized iPod sold nearly that many in a quarter? Imagine what might happen if they actually came out with a new model.

You might not have to stretch your imagination for long. Think Secret thinks there is an iPod update on the horizon

Apple’s full-size iPod is being primed for an update that could arrive as early as the first-half of August, sources report. The revision will feature neither a touch-screen nor will run a scaled down version of Mac OS X like the iPhone, however—those updates are not scheduled until 2008.

Apple has been an amazing stock and the company continues to produce amazing products. With the stock performing as it has it is easy to see how investors may feel nervous. But it is also easy to see that with global handset units topping a billion per year Apple can grow for a long time before gaining even the meager 3% share it holds in the PC market.

Topics: Apple (AAPL), Computer Hardware | 2 Comments

RCL: Quick Comments on Royal Caribbean Earnings

Royal Caribbean Cruises Ltd. (RCL) announced net income for the second quarter 2007 of $128.7 million, or $0.60 per share, compared to net income of $122.4 million, or $0.57 per share in 2006. The results were consistent with previous guidance of $0.58 to $0.63 per share and the $0.59 consensus. Revenues for the second quarter 2007 increased to $1.5 billion from revenues of $1.3 billion in the second quarter 2006 and well ahead of the $1.42 billion consensus. The company also announced that the full year earnings guidance is substantially unchanged except for the impact of higher fuel prices. The company does not forecast fuel prices, and, adjusting for current spot pricing, full year 2007 earnings are expected to be $2.75 to $2.85 per share, compared with a consensus estimate of $2.95.

So we see revenue ahead of estimates but earnings at the low end of guidance, and this is supposed to be fuel costs? Seems a little excessive. The significantly lower earnings for the next couple of quarters also is supposed to be on fuel, but could it be lower load factors affecting the fixed cost structure?

RCL was a long-term holding of mine, but I sold it nearly a year ago due to premature consumer slowdown fears.  The stock is up modestly from where I sold it, though it has been essentially flat for much of that time. Cruise companies tend to trade poorly during consumer recessions even though their fundamentals generally hold up well. If the current market jitters continue I might be tempted to get back in.

Topics: RCL, Recreational Services | No Comments

NIHD: Quick Comment on NII Holdings Earnings

Large Cap Watch List (Track at Marketocracy) member NII Holdings, Inc. (NIHD) announced financial results for the second quarter of 2007. For the second quarter, the Company added over 331,000 net subscribers, a new quarterly record and a 51% increase compared to net subscriber additions for the same period last year, resulting in an ending subscriber base of nearly 4.1 million subscribers. Operating revenues of $786 million, grew 41% over the same period last year and were ahead of the $762 million consensus estimate. Operating income of $134 million was a 20% increase over the prior year period, and net income of $84 million, or $0.52 per basic share, exceeded the $0.50 consensus.

The company also raised its guidance for the full year to $3.2 billion in revenue but the consensus was already there. Furthermore, given that any increased earnings are likely to be somewhat offset by increased capital expenditures, investors are selling the stock in a generally weak market.

Topics: Communications Services, NII Holdings (NIHD), Services | No Comments