Archive for October, 2012

  • Stryker Reports Q3 Earnings of 97 Cents Per Share
    , October 17th, 2012 at 4:07 pm

    After the close, Stryker ($SYK) reported Q3 earnings of 97 cents per share. That was one penny below Wall Street’s consensus. I said in last week’s CWS Market Review that I suspected the Street might be too high.

    Here are some key parts from today’s earnings report:

    Earnings Analysis

    Reported net earnings in the quarter include restructuring and related charges of $11 million (net of taxes), and acquisition and integration related charges of $6 million (net of taxes) related to acquisitions completed in 2011. These charges reduced reported gross profit margin from 68.2% to 68.1% and reported operating income margin from 22.9% to 21.9%.

    Excluding the charges described above, adjusted net earnings(2) of $370 million increased 5.1% in the quarter over the prior year. Adjusted diluted net earnings per share(1) of $0.97 increased 6.6% in the quarter over the prior year.

    Net earnings of $353 million increased 8.0% in the quarter over the prior year. Diluted net earnings per share of $0.92 increased 9.5% in the quarter over the prior year.

    During the quarter, Stryker repurchased approximately 0.4 million shares at a cost of $19 million.

    Outlook

    The financial forecast for 2012 includes a constant currency sales increase of 4% to 5.5%. If foreign currency exchange rates hold near current levels, we anticipate net sales will be negatively impacted by approximately 0% to 1.0% in the fourth quarter of 2012 and negatively impacted by approximately 0.5% to 1.5% for the full year of 2012. Excluding the impact of acquisitions, sales growth is projected to be 2.5% to 4% in constant currency over the prior year.

    The company now projects 2012 adjusted diluted net earnings per share to be in the range of $4.04 to $4.07, an increase of 9% over adjusted diluted net earnings per share of $3.72 in the prior year. The company also projects 2013 adjusted diluted net earnings per share to be in the range of $4.25 to $4.40.

    Stryker had been expecting full-year earnings of $4.09 per share. Now they say it will be between $4.04 and $4.07 per share. That’s disappointing but it’s a pretty small adjustment. Stryker also gave us a 2013 forecast of $4.25 to $4.40 per share. Wall Street had been expecting $4.45 per share.

    Styrker is currently down about 1.5% in the after-hours market.

  • Random Notes on the Market
    , October 17th, 2012 at 11:12 am

    Here are a few random notes about today’s market. Some commentators are acting like an earnings decline for Q3 is a done deal. That may not be the case. So far, results are trending above expectations.

    According to the latest numbers I have from S&P, earnings for this year’s Q3 are projected to come in 1.1% below the Q3 from one year ago. The dreaded earnings slowdown may not last very long. Analysts see earnings ramping up to 13.4% growth for Q4. As with Q3, earnings estimates for Q4 had been coming down but have recently stabilized around $27.

    I also noticed that Johnson & Johnson ($JNJ) broke $70 per share this morning. The stock hasn’t been over $70 in more than four years.

    The Commerce Department reported today that housing starts rose by 15% last month which is the fastest pace in four years. This is hopeful for the emerging trend of a housing recovery lending support to consumers. In fact, this could be the best holiday season in a long time. I think it’s interesting that Mattel ($MAT) is up close to 20% over the last three months. Hasbro ($HAS) has also done very well.

  • The S&P 500 Closes in on a Multi-Year High
    , October 17th, 2012 at 10:16 am

    Yesterday wound up being the market’s best day in a month. The S&P 500 finished the day just 0.75% from its highest close since 2007. Again, I’m not much of a chart reader but a lot of folks think this may be the final leg of a Triple Top.

    The S&P 500 is currently up about three points this morning. The Dow is down slightly but that’s due to weakness from IBM ($IBM) which reported after yesterday’s close. The 30-year Treasury is close to breaking through 3% for the first time since September 18th. So far, 53 of the 70 S&P 500 companies that have reported have beaten estimates.

    The financials continue to perform well. The Financial Sector ETF ($XLF) got as high as $16.24 today and it’s not far from $16.44 which is its 52-week high. On our Buy List, AFLAC ($AFL) has been as high as $49.98 today. Also, JPMorgan Chase (JPM) has been as high as $43.35 which is another post-Whale high. The big winner is Hudson City ($HCBK) which is up nearly 5% thanks to a huge earnings beat from M&T Bank ($MTB).

    Stryker ($SYK) is due to report after today’s close. Wall Street expects earnings of 98 cents per share.

  • Morning News: October 17, 2012
    , October 17th, 2012 at 5:47 am

    Relief As Spain Avoids Being Downgraded On Eve Of EU Summit

    RBS Exits Government Insurance Plan

    BoE Officials Split On Likely Need For Further QE

    Crude Oil Trades Near One-Week High in New York

    Strong Earnings Reports at Bellwether Companies Bolster Shares

    What Happened to Vikram Pandit?

    Electric Car Battery Maker A123 Systems Files Bankruptcy

    Softbank’s Son Seeks to Skirt Cross-Border Failure History

    ASML to Buy Cymer for $2.6 Billion to Boost Chip Technology

    J&J’s Third-Quarter Profit Beats Estimates on Drug Sales

    I.B.M. Squeezes Out a Profit as Its Revenue Declines

    Coca-Cola Third-Quarter Profit Advances as Europe Improves

    Goldman Sachs Swings to Profit as Revenue Surges

    Roger Nusbaum: Bill Miller Update

    Howard Lindzon: The Stocktwits Blog Network, Citibank and Pandit on LinkedIN

    Be sure to follow me on Twitter.

  • The Dow-to-Gold Ratio Since 1968
    , October 16th, 2012 at 2:00 pm

    I usually caution investors from looking at these types of charts, so you’ll have to excuse me, but here’s a look at how the Dow has performed in terms of gold since 1968.

    The difference is that I think this chart is interesting for its own sake. I don’t think there’s any useful analysis here. For one, it leaves out dividends which add up over the decades.

    The trend of gold’s out-performance over the past several years is remarkable. If the Dow had kept pace with gold since August 25, 1999, it would be at 77,800 today instead of 13,500.

    On January 21, 1980, the ratio got down to 1, but by August 1999, it had risen to 44. Since then, it’s been down, down, down. In August of last year, the ratio fell below 5.8. By this past August, the ratio got back over 8.2, and today we’re right around 7.75.

  • September Industrial Production = +0.4%
    , October 16th, 2012 at 10:49 am

    The government reported this morning that industrial production rose by 0.4% last month which was above Wall Street’s consensus of 0.2%. This was an interesting report to watch because industrial production took a big hit in August when it dropped by 1.4%. That may have just been a blip instead of the beginning of a long-term trend. This also confirms the strength we’re seeing from consumers. Retail sales just had their biggest two-month gain in nearly two years. The Commerce Department said that retail sales rose by 1.1% in September which comes after a 1.2% increase in August.

    The government also reported that the CPI rose by 0.6% in September. But the core rate, which excludes food and energy, rose by just 0.1%.

    Goldman Sachs ($GS) reported third-quarter earnings of $2.85 per share. That was 73 cents per share above forecasts. The company also raised its quarterly dividend by four cents to 5 cents per share. In the same quarter one year ago, Goldman lost 84 cents per share.

    Perhaps the biggest news today is that Vikram Pandit resigned as CEO of Citigroup ($C). This was a big surprise. Apparently Pandit and the board clashed over how to lead the business. Citigroup aside, I’d like to see more instances of a board winning conflicts with CEOs. The stock has lost 88.4% since Pandit took over in 2007.

    So far, 48 companies in the S&P 500 have reported earnings and 35 have topped estimates.

  • Johnson & Johnson Earns $1.25 Per Share
    , October 16th, 2012 at 9:43 am

    Good news for Johnson & Johnson ($JNJ). The company reported third-quarter earnings of $1.25 per share which was four cents more than expectations. JNJ also raised full-year guidance from a range of $5.00 to $5.07 per share, to a new range of $5.05 to $5.10 per share.

    Sales of recently approved drugs, including Zytiga for prostate cancer, Xarelto for stroke prevention and Stelara for psoriasis helped push revenue 6.5 percent to $17.1 billion for the quarter, from $16 billion a year earlier. The June purchase of Synthes Inc. with novel financing that used cash that had accumulated outside the U.S. also bolstered the company’s quarterly earnings.

    “We continue to see improving fundamentals at J&J across all of its segments,” Derrick Sung, an analyst at Sanford C. Bernstein & Co. in New York, said in an Oct. 12 note to investors. “In pharma, J&J will start seeing contributions this year” from products that could generate nearly $7 billion annually by 2015, he said. “J&J’s competitive position and growth prospects are now strengthened by the closing of the Synthes acquisition.”

    For the first nine months of this year, JNJ has earned $3.91 per share. That means they see Q4 coming in between $1.14 and $1.19 per share. The stock has a very good shot of making a new 52-week high today, and then making a run at the all-time high set four years ago.

    In July, JNJ lowered their full-year guidance from $5.07 to $5.17 per share to $5.00 to $5.07 per share. So they’re taking back a good deal of that lowering.

    The Street currently expects JNJ to earn $5.47 per share for 2013. With today’s earnings report, I think that will be bumped up a few pennies. JNJ remains a very good buy.

  • What I’m Watching this Earnings Season
    , October 16th, 2012 at 9:24 am

    Outside of pure bottom line numbers, here are eight things I’m looking for this earnings season.

    1. How much has the dollar hurt revenues? This was a big factor during Q2. It shouldn’t be as much for Q3, but let’s see the details.

    2. Are companies raising dividends? This has been a big year for dividends. Goldman just raised its payout. Will this trend continue?

    3. Where are the strong areas? So far, there were impressive beats from ConAgra and Lennar. Does this mean that housing is continuing to lift the consumer?

    4. What kind of guidance are we seeing for Q4 and 2012? J&J just bumped up guidance after lowering it before.

    5. What are expansion plans like? A few retailers recently announced quite large hiring plans over the holidays. Walmart’s stock is at an all-time high.

    6. Do we have any clues what the holiday season will be like? We haven’t had a blow-out holiday season in a few years.

    7. Margin pressure. We stretched profit margins about as far as they can go. What kind of pricing pressure do firms have, especially at the high end?

    8. What’s the damage from Europe? This was another major theme during Q2. Do U.S.-based firms still have large exposure to the economic chaos there?

  • Morning News: October 16, 2012
    , October 16th, 2012 at 5:57 am

    Spain Considers EU Credit Line

    German Investor Sentiment Rose in October on ECB Plan

    U.K. Inflation Cools to 2.2%, Least in Almost Three Years

    China Credit Card Romney Assails Gives Way to Japan

    Soybeans Fall Below $15 for First Time Since July on Demand Drop

    Wall Street Rallies On Citigroup’s Earnings, Retail Sales

    Retail Sales Rise 1.1% In September, Beating Expectations

    5 Huge Myths About Social Security

    Japanese Firm Softbank To Buy 70% Of Sprint For $20.1 Billion

    Citigroup Profit Beats Estimate on Gains From Bond Trading

    There Will Be a Factory Skills Shortage. Just Not Yet

    Inside Yahoo! How Marissa Mayer Can Turn it All Around

    The BlackBerry as Black Sheep

    2 From U.S. Win Nobel in Economics

    Credit Writedowns: Switzerland And The Euro Zone: An Overlooked Currency War In Europe

    Jeff Carter: F%^$ You Money

    Be sure to follow me on Twitter.

  • The 50-DMA Holds Again
    , October 15th, 2012 at 6:00 pm

    The biggest difference between theory and practice on Wall Street is technical analysis. Every academic dismisses it as voodoo, but nearly everyone who follows the market regularly gives it at least some credibility.

    Personally, I’m in the doubter camp but I do have to concede that the market seems to take moving average points seriously. Perhaps it’s just a coincidence — yet another attempt to find logic in a random pattern — but the S&P 500 just made a near perfect bounce off its 50-DMA.