RadioShack reversed almost two years of severe comparable-sales declines with a modest same-store sales bump (up 1.4%) in the second quarter. However, management indicated RadioShack experimented with promotion and clearance sales events to drive customer transactions, and analysts don’t think the firm can sustainably maintain this strategy without impairing profitability. Gross margins continued to decline steeply, falling 290 basis points year over year to 37.2%, while selling, general, and administrative expenses were flat on an absolute basis but increased 20 basis points as a percentage of sales (to 39.9%). As a result, operating margins fell 320 basis points to negative…
Author: Ryan Wallace
Walt Disney generated strong sales and profitability in its fiscal third quarter. The shares are fairly valued, trading just 17 times our fiscal 2014 earnings per share estimate, as the stock has run from $48 to $65 so far in 2013. The Lone Ranger movie write-down of $160 million-$190 million is getting headlines today, but for investors it just shows the hit-or-miss nature of the film business. Overall sales increased 4% and segment operating margins declined 80 basis points to 26.9% versus the year-ago quarter, as a drop in profitability at the movie and consumer products segments offset margin expansion…
HCA Holdings reported preliminary second-quarter results that were slightly ahead of our forecast following weaker-than-expected results in the first quarter. Management also maintained its year-end outlook, and we’ll probably increase our fair value estimate since the company should ultimately surpass our year-end expectations. While initial indications suggest insurance exchange pricing is somewhat better than our earlier guess, we think ongoing Medicare reimbursement pressure and government oversight will sustain HCA’s inability to earn an economic moat. We’re also still concerned how the net effect of declining disproportionate share payments for uninsured individuals may play out in some of HCA’s key markets…
Texas Instruments reported solid second-quarter earnings and gave investors a bright third-quarter outlook that was in line with expectations. TI’s June-quarter revenue was $3.05 billion, at the midpoint of the firm’s revised forecasted revenue range of $2.99 billion to 3.11 billion put forth in mid-June. Revenue was up 6% sequentially, but down 9% from the year-ago quarter. Sales from TI’s core analog and embedded chip segments were up 6% and 10% sequentially, respectively, thanks to strong demand from industrial and automotive customers. Chip sales to these customers continued to rebound from a cyclical downturn in the second half of 2012,…
Analysts are maintaining the fair value estimate for UCB of EUR 37 per share after reviewing the progress of the firm’s pipeline. Highlights of the firm’s central nervous system program include efforts to broaden Vimpat’s label and expansion of Neupro into new geographies. UCB plans to submit regulatory filings for Vimpat, which is currently approved as an adjunctive seizure therapy, as a monotherapy in the second half of this year. Vimpat brought in EUR 334 million in 2012 (a fraction of the firm’s leading seizure medicine Keppra’s sales), but we think label expansion activities for Vimpat could ultimately help sales…
Tesco reported fourth-quarter results that were below our expectations, as pressures in Europe, regulatory changes regarding store operating hours in Korea, and several write-downs had a greater impact on profitability than we anticipated. For the full year, like-for-like sales declined in the U.K. (down 0.5%, excluding VAT and petrol), Europe (down 2.3%), and Asia (down 1.7%), although the sequential improvement in the U.K. between the third (down 0.6%) and fourth quarter (up 0.5%) may again suggest that Tesco’s price investments are yielding results. These investments have come at an expense, though, as fiscal 2012 U.K. trading margin declined to 5.2%…
Roche’s chairman Franz Humer has been quoted by a Swiss newspaper as saying that a deal with Illumina is “off the table”. Roche’s competitive position in sequencing remains weak, and we still see logic in the deal. However, we don’t think it is critical to Roche’s core strategy in the near term, and we do not expect a deal to happen at recently rumored (and exorbitant) prices. Roche’s last official offer of $51 per share expired in April 2012 after the firm failed to make any headway with reconfiguring Illumina’s board. However, rumors resurfaced in December 2012 that the two…
Boston Beer reported decent first-quarter results, as strong depletion trends continued to drive top-line growth in excess of 20%, although demand generation investments weighed on profitability. Boston Beer’s leading Sam Adams brand has enough brand equity to warrant a narrow economic moat, in our view, and this leading brand will support strong volume growth over the near term. Boston Beer has benefited from nearly two decades of the craft beer category gaining share of stomach, and the company will continue to gain share as craft beers grow in popularity and the Sam Adams brand remains at the forefront of the…
Starboard Value, a hedge fund that owns approximately 15% of Office Depot’s ODP equity, publicized a letter on Monday agitating for change in the company’s board and executive team. Starboard had already proposed six of its own board nominees earlier in March, citing the 10 current board members’ lack of retail experience. However, this letter was notable for its conspicuously harsher tone. In addition to saying that it was “uncomfortable” with the board’s execution and experience, Starboard also singled out Chairman and CEO Neil Austrian for his lack of “relevant retail experience” outside of Office Depot and emphasized the firm’s…
Gentex reported first-quarter results that beat consensus ($0.32 EPS versus $0.30 expected). However, guidance for second-quarter revenue, of a year-over-year change that is flat to down 5%, came in below consensus. Analysts see excellent expense management thanks to Gentex’s previously announced initiatives to stop outsourcing some R&D work as well as purchasing cost reductions. The depression in European auto volume eventually will improve and these cost reductions, along with SG&A cuts in overseas offices, should help Gentex modestly expand its margins over our five-year forecast period. Europe, Gentex’s largest market, is not likely to improve this year, so this weakness…
Sonoco Products reported generally disappointing first-quarter results. Following a difficult 2012, in which base earnings per share ended 7% below the midpoint of management’s initial full-year guidance, we expected the company to easily outperform its conservative 2013 outlook. That, however, may not be the case. Though Sonoco did raise its full-year free cash flow projection to $150 million from $130 million, it also trimmed the top end of its base EPS guidance to $2.32 from $2.34. We have reduced our full-year EPS estimate to $2.29, but are maintaining our fair value estimate of $33 per share and do not expect…
Occidental CEO Stephen Chazen scored a split decision from two proxy advisor firms Thursday. Without explicitly commenting on the status of Chazen, Institutional Shareholder Services recommended shareholders vote against the re-election of executive chairman Ray Irani and lead independent director Aziz Syriani at the May 3 annual meeting. Egan-Jones Proxy Services recommended the reelection of all board members. Meanwhile, Chazen received public support from a second, albeit small, shareholder this week. ISS’ report is certainly supportive of Chazen; however, its effect remains uncertain. The firm previously recommended voting against Irani and Syriani in 2009-11 with no success. Regardless, we could…