Archive for July, 2012

  • AFLAC Earns $1.61 Per Share for Q2
    , July 24th, 2012 at 4:32 pm

    Three months ago, AFLAC ($AFL) said it expected Q2 earnings of $1.53 to $1.59 per share if the yen averaged 80 to 85. The exchange rate was mostly in the range during Q2, but fell to 78 recently. Today we learned that AFLAC made $1.61 per share for the second quarter which matched Wall Street’s forecast. The company said the exchange rate added a penny per share to the bottom line. For the first half of the year, AFLAC earned $3.35 per share. Currency exchange added six cents per share.

    The bad news is that AFLAC took a bath on some Spanish investments gone very bad:

    After-tax realized investment losses from impairments in the quarter were $223 million, or $.48 per diluted share. These losses primarily resulted from impairments taken on securities issued by Bankia and Generalitat de Catalunya.

    The good news is that AFLAC said that it expects third-quarter earnings to range between $1.64 and $1.69 per share. The Street had been expecting $1.63 per share. AFLAC also narrowed its full-year guidance from $6.46 – $6.65 per share to $6.45 – $6.52 per share (assuming an average exchange rate of 80).

    Operating earnings in the second quarter were $755 million, compared with $727 million in the second quarter of 2011. Operating earnings per diluted share rose 3.9% to $1.61 in the quarter, compared with $1.55 a year ago.

    The stronger yen/dollar exchange rate increased operating earnings per diluted share by $.01 during the quarter. Excluding the impact from the stronger yen, operating earnings per share increased 3.2%.

    Results for the first six months of 2012 also benefited from a stronger yen. Total revenues were up 19.0% to $12.1 billion, compared with $10.2 billion in the first half of 2011. Net earnings were $1.3 billion, or $2.71 per diluted share, compared with $663 million, or $1.41 per diluted share, for the first six months of 2011. Operating earnings for the first half of 2012 were $1.6 billion, or $3.35 per diluted share, compared with $1.5 billion, or $3.17 per diluted share, in 2011. Excluding the benefit of $.06 per share from the stronger yen, operating earnings per diluted share rose 3.8% for the first six months of 2012.

    Reflecting the benefit from a stronger yen/dollar exchange rate, total investments and cash at the end of June 2012 were $109.3 billion, compared with $103.1 billion at March 31, 2012.

    Shareholders’ equity was $14.2 billion at June 30, 2012, compared with $13.6 billion at March 31, 2012. Shareholders’ equity at the end of the second quarter included a net unrealized gain on investment securities and derivatives of $1.5 billion, compared with a net unrealized gain of $1.4 billion at the end of March 2012. Shareholders’ equity per share was $30.37 at June 30, 2012, compared with $29.19 per share at March 31, 2012. The annualized return on average shareholders’ equity in the second quarter was 13.9%. On an operating basis (excluding realized investment losses and the impact of derivative gains/losses on net earnings, and unrealized investment and derivative gains/losses in shareholders’ equity), the annualized return on average shareholders’ equity was 24.0% for the second quarter.

    …

    “I want to reaffirm that in 2012, we expect operating earnings per diluted share to increase in the range of 3% to 6%, excluding the impact of foreign currency. If the yen averages 80 for the full year it’s likely operating earnings per diluted share will be $6.45 to $6.52 for the year, which is toward the lower end of the range, due to the continued low level of investment yields. Using that same exchange rate assumption, we would expect third quarter operating earnings to be $1.64 to $1.69 per diluted share. We believe that is reasonable and achievable. As I conveyed at our analyst meeting in May, for 2013, our target is to achieve growth in operating earnings per diluted share of 4% to 7%, excluding currency. This earnings objective assumes no significant impact on investment income from losses and no further meaningful decline in interest rates.

  • Relative Strength of Cyclicals Hits 3-Year Low
    , July 24th, 2012 at 10:41 am

    One of the metrics I like to follow is the ratio of the Morgan Stanley Cyclical Index (^CYC) to the S&P 500. This tells us how well economically cyclical stocks are doing. As a very general rule, cyclicals tend to move in…well, cycles — and these cycles often last for several years.

    The relative performance of cyclicals peaked in February of 2011. Since then, they’ve lagged the rest of the market. The CYC lost 19% over a five-day span last August. A recent relative performance low came last October, then cyclicals started outperforming again. That ended in February, and cyclicals again have been the stragglers.

    The last time the CYC-to-S&P 500 ratio was this low was exactly three years ago. What’s interesting is that even though the bull market continued to charge from February 2011 to April 2012, the nature of the rally has changed quite dramatically.

    I still think we may make a new bull market high soon, but now this is a defensive-led rally. That’s why staples and healthcare stocks have been so strong, and it’s also why the bond market continues to move higher.

  • Reynolds American Earns 79 Cents Per Share
    , July 24th, 2012 at 10:22 am

    Good news for Reynolds American ($RAI). The tobacco company earned 79 cents per share for their second quarter. That topped Wall Street’s forecast by three cents per share.

    Cigarette maker Reynolds American’s profit grew more than 35 percent in the second quarter as higher prices and cost-cutting helped offset a decline in the number of cigarettes it sold.

    The nation’s second-biggest tobacco company on Tuesday reported net income of $443 million, or 78 cents per share, for the three-month period ended June 30. That’s up from $327 million, or 56 cents per share, a year ago, when the company recorded charges related to a legal case that hurt its results.

    Adjusted earnings were 79 cents per share, beating analysts’ expectations of 76 cents per share.

    The maker of Camel, Pall Mall and Natural American Spirit brand cigarettes said revenue excluding excise taxes fell 4 percent to $2.18 billion from $2.27 billion a year ago. Analysts polled by FactSet expected revenue of $2.24 billion.

    The Winston-Salem, N.C., company said heavy promotional activity by its competitors drove its cigarette volumes down nearly 7 percent to 18.1 billion cigarettes, compared with an estimated total industry volume decline of 1.7 percent.

    Its R.J. Reynolds Tobacco subsidiary sold 4 percent less of its Camel brand and volumes of Pall Mall fell 3.6 percent.

    Camel’s market share fell slightly to 8.3 percent of the U.S. market, while Pall Mall’s market share fell 0.2 percentage points to 8.4 percent.

    The company has promoted Pall Mall as a longer-lasting and more affordable cigarette as smokers weather the weak economy and high unemployment, and has said half the people who try the brand continue using it.

    Reynolds American and other tobacco companies are also focusing on cigarette alternatives such as snuff and chewing tobacco for future sales growth as tax hikes, smoking bans, health concerns and social stigma make the cigarette business tougher.

    Volume for its smokeless tobacco brands that include Grizzly and Kodiak rose nearly 11 percent compared with a year ago. Its share of the U.S. retail market grew 1.7 percentage points to 32.4 percent.

    The most important news is that RAI reaffirmed its full-year forecast of $2.91 to $3.01 per share. RAI is on-track toward hitting that guidance.

  • Earnings Season So Far
    , July 24th, 2012 at 7:48 am

    Wendy Soong of Bloomberg has some of the early numbers for this earnings season. Of the 500 stocks in the S&P 500, 123 have reported so far, 82 have beaten expectations (66.7%), 14 were inline and 27 missed. Share-weighted earnings growth is 1.2%. Excluding financials, it’s 2.9%.

  • Morning News: July 24, 2012
    , July 24th, 2012 at 6:32 am

    Germany Pushes Back After Moody’s Lowers Rating Outlook

    Emerging Stocks Fall for Third Day on Worsening Europe Crisis

    Samaras Seeks Greek Budget Cuts as Troika Arrives for Inspection

    Spanish T-Bill Sale Goes Through But Doubts Remain

    In Euro Zone, Debt Pressure Tightens Grip

    Chinese Oil Company Bids $15 Billion for Canadian Producer

    Congress Presses New York Fed for More Details on Rate-Rigging Scandal

    Rocketdyne Sold To Gencorp For $550 Million

    Volvo Q2 Orders Hit As Slowdown Spreads

    Man Group Rises After Doubling Cost Cuts in Wake of Outflows

    Dupont Quarterly Profit Slips 3 Percent On Higher Costs

    SAP Took ’Strong Market Share’ as Industry Growth Slows

    McDonald’s Profit Declines as World Economy Weakens

    Jeff Carter: Trickle Down Wealth

    Joshua Brown: Junk Bond Investors are DTF

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  • More on the Importance of Stock-Picking
    , July 23rd, 2012 at 10:37 am

    Investors aren’t well-served when the media discusses the stock market as if it were one giant stock. In reality, there are thousands of stocks and they all have minds of their own. Understanding this point is crucial to good stock-picking.

    Here’s a good example of how divergent the stock market can be. Last Tuesday, the Consumer Staples Sector reached an all-time high. Bear in mind that the S&P 500 is still about 13% below its all-time high. The next day, the Healthcare Sector also hit an all-time high. It took healthcare more than eleven-and-a-half years to take out its old high. Back in early May, the Consumer Discretionary Sector made an all-time high, although its been down since.

    How are the other sectors doing compared with their all-time highs? Tech and Telecom are still down more than half, and Financials are off more than 60%. Energy, Materials and Industrials are all about 20% below their highs.

    It’s not one market — it’s several thousand different ones.

  • Shareholder Buybacks Aren’t Effective
    , July 23rd, 2012 at 9:06 am

    As regular readers of this blog know, I’m not a fan of share buybacks. I’d prefer that companies pass along the profits to me in the form of dividends. I realize, of course, there are different tax implications so I also wish the tax code were neutral on this issue. I also think that too many companies use share buybacks to mask the generous stock option grants that are given to senior management.

    Now there’s another reason to disfavor share buybacks, they don’t work:

    In a report released today, Credit Suisse analyzed $2.7 trillion worth of stock buybacks by companies in the Standard & Poor’s 500 Index between 2004 and 2011. The conclusion: “it looks like most of the buybacks for the S&P 500 over the past eight years have not yet added much value for the remaining shareholders.”

    The study, first reported by CNBC’s Herb Greenberg, found many buybacks are done for the wrong reasons. Many companies initiate buybacks because they’re offsetting the dilution from executive compensation that awards stock grants or options. In other cases, they’re simply looking to deploy excess cash or boost earnings per share results.

    “The problem for many companies is bad timing, instead of buy low sell high, it appears share buybacks ramp up when things are going well and stock prices are higher . . . and are dialed down when times are tough and stock prices are lower,” Credit Suisse analyst David Zion writes in the report.

    Companies, of course, ought to be doing the opposite — buying their shares when the price falls below the stock’s intrinsic value. If companies were really focused on returning value to shareholders, the amount of buybacks would trail the amount of dividends, which puts cash directly in the hands of shareholders.

    Instead, Credit Suisse found the $2.7 trillion in buybacks overshadowed the $1.8 trillion in dividends paid over the same time.

  • DigitalGlobe and GeoEye Agree to Merge
    , July 23rd, 2012 at 8:28 am

    In March 2010, I highlighted two companies in the satellite image sector — GeoEye ($GEOY) and DigitalGlobe ($DGI). These companies provide satellite images for customers like Google Earth. The two stocks have performed very poorly since I first wrote about them. Today, both companies announced that they’re going to merge:

    Under the terms of the agreement, GeoEye shareowners will have the right to elect either 1.137 shares of DigitalGlobe common stock and $4.10 per share in cash, 100% of the consideration in cash ($20.27) or 100% of the consideration in stock (1.425 shares of DigitalGlobe common stock), for each share of GeoEye stock they own, with the amount of cash and stock subject to proration depending upon the elections of GeoEye shareholders, such that aggregate consideration mix reflects the ratio of 1.137 shares of DigitalGlobe common stock and $4.10 per share in cash. Based upon the closing prices of DigitalGlobe and GeoEye as of July 20, 2012, the transaction delivers a premium of 34% to GeoEye’s July 20, 2012 closing price of $15.17 per share. Upon completion of the transaction, DigitalGlobe shareowners are expected to own approximately 64% and GeoEye shareowners are expected to own approximately 36% of the combined company. The transaction structure will allow both DigitalGlobe and GeoEye shareowners to participate in the substantial value creation opportunity resulting from this combination.

    I don’t think the stock is an attractive buy but this is a good one to watch.

  • Morning News: July 23, 2012
    , July 23rd, 2012 at 6:42 am

    IMF to Stop Further Aid Tranches to Greece, Spiegel Says

    Greece Back at Center of Euro Crisis as Spain Yields Soar

    Greece’s EFG Eurobank To Split From EFG Group

    Bank of Japan Head Keeps To Easy Stance, Strong Yen Blurs Outlook

    CNOOC to Buy Canada’s Nexen for $15.1 Billion to Expand Overseas

    ThaiBev Move Forces Heineken Hand

    The Stylish Side of China

    Facebook Efforts on Advertising Face a Day of Judgment

    Apple Growth Seen Pausing as IPhone Buyers Await Model

    Peugeot to Make European Light Commercial Vans for Toyota

    Kodak Loses Patent Suit Against Apple and RIM

    Philips Profit Beats Estimates as CEO Reviews Future of Unit

    Julius Baer Profit Gains 19% Amid Pressure on Gross Margin

    Credit Writedowns: Stafglation is Becoming Entrenched in Argentina’s Economy

    Jeff Miller: Weighing the Week Ahead: How Big is the Economic Slowdown?

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  • Viacom and DirecTV Reach Deal
    , July 20th, 2012 at 12:32 pm

    From WSJ:

    Viacom Inc. and DirecTV settled a program-fee dispute early Friday morning, restoring Viacom channels like Nickelodeon, Comedy Central and MTV to the satellite TV service’s 20 million subscribers after a nine day blackout.

    Precise financial details of the new seven-year agreement weren’t disclosed. But people familiar with the situation said Viacom won an increase of more than 20% in the fees paid by DirecTV, which previously had totaled around $500 million annually, raising the amount to above $600 million.

    That lifted the rate paid by DirecTV to near or in line with the prevailing market rate Viacom received from other distributors, analysts said. DirecTV had previously said that Viacom was asking for a 30% increase in fees, though Viacom said its existing agreement paid it below-market rates and it was just asking for a fair deal. In midmorning trading, Viacom shares were up three cents to $46.68 while DirecTV stock was down nine cents to $48.86.