Archive for July, 2015

• Qualcomm Earns 99 Cents per Share
  Eddy Elfenbein, July 22nd, 2015 at 4:31 pm

  It was an ugly quarter for Qualcomm (QCOM). Still, they made 99 cents per share which was four cents better than very low estimates. The company also announced major job cuts and the possibility of a break-up. It’s tough news but not unexpected.

  Qualcomm Corp. said Wednesday that it would consider changes to its corporate structure and cut $1.4 billion in spending, moving to appease investors amid problems that triggered a 47% drop in its fiscal third-quarter profit.

  The company said the review would include possibilities such as separating its businesses, capital return opportunities and other alternatives.

  Qualcomm has studied a breakup before and rejected the idea, but the possibility re-emerged after activist investor Jana Partners in April bought a major stake in the company.

  Qualcomm said it also has reached an agreement with Jana to add Mark McLaughlin, chief executive of Palo Alto Network, and Tony Vinciquerra, a senior adviser to TPG, to its board.

  For the current quarter, which is their fiscal Q4, QCOM sees earnings ranging between 75 and 95 cents per share. That comes to full-year earnings of $4.50 to $4.70 per share. Wall Street had been expecting $1.08 for the quarter and $4.79 for the year.

• Morning News: July 22, 2015
  Eddy Elfenbein, July 22nd, 2015 at 7:13 am

  Greek Prime Minister Alexis Tsipras Remains Popular Despite Tough Bailout Deal

  Awkward Alliance Running Germany Exposed by Greek Crisis

  Russia Braces for Longest Recession in Decades With $50 Oil

  What’s Behind the Falling Prices of Oil, Gold and Copper

  Oil Futures Slip on Early U.S. Supply Data, as Rising Dollar Exerts Pressure

  Stocks Drop as Apple Drags Techs Lower, Commodities Resume Slide

  Apple Faces Old Question of What’s Next After Record Profit

  Yahoo Posts Loss, Despite Rise in Its Display Ad Business

  A $7 Billion Charge at Microsoft Leads to Its Largest Loss Ever

  Amazon’s Handyman Service Expands to New Cities

  Coke Profit Jumps, Helped By Price Increases

  Whirlpool Profit Lags on Weak Latin American Markets

  Chipotle: Still No Pork at 40 Percent of Restaurants

  Cullen Roche: Could We Still be In The Middle of the Business Cycle?

  Joshua Brown: Barry Ritholttz Interviews Howard Marks

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• Microsoft Earns 62 Cents per Share
  Eddy Elfenbein, July 21st, 2015 at 5:46 pm

  Technically, Microsoft (MSFT) posted a massive loss but that’s due to Nokia. Adjusting for that, MSFT earned 62 cents per share. That was six cents better than estimates.

  While revenue from Microsoft’s cloud-computing business rose on growth in the Azure and Office 365 programs, the gains were overshadowed by the writedown, an acknowledgment that the Nokia deal had lost almost all its value after a little more than a year. Chief Executive Officer Satya Nadella announced 7,800 job cuts and said he plans to narrow the focus of the mobile business to try to win customers in specific markets.

  “Phones continue to struggle and it was pretty much in line in the cloud initiatives,” said Dan Morgan, a senior portfolio manager at Synovus Securities Inc., which owns Microsoft shares. “They’re still progressing but people would like them to move faster.”

  The strength of the U.S. dollar hurt revenue and earnings in the recent quarter, Microsoft said. Excluding the effect of currency fluctuations, revenue would have declined 2 percent.

  For the year, the company made $2.63 per share. The stock is currently down 2.5% in the after-hours market. There’s nothing to worry about. This was a fine report.

• Gold Drops to Five-Year Low
  Eddy Elfenbein, July 21st, 2015 at 1:11 pm

  The pain in the gold pits is something to behold. Every rally has failed. Gold recently broke down to a five-year low. Check out this chart:

  Four years ago, gold was over $1,900 per ounce. Monday’s low was $1,080.

• Signature Banks Earns $1.77 per Share
  Eddy Elfenbein, July 21st, 2015 at 7:27 am

  Nice earnings beat from Signature Bank (SBNY) this morning. The bank earned $1.77 per share. That’s eight cents more than estimates.

  From briefing.com:

  Net interest margin for the 2015 second quarter was 3.27 percent versus 3.31 percent reported in the same period a year ago.

  On a linked quarter basis, net interest margin increased one basis point. Excluding loan prepayment penalties in both quarters, linked quarter core margin remained unchanged at 3.17 percent for both periods.

  Provision for Loan Losses – The Bank’s provision for loan losses for the second quarter of 2015 was $9.0 million, compared with $7.9 million for the 2015 first quarter and $7.6 million for the 2014 second quarter. The increase was largely due to an increase in net charge-offs.

  Net charge-offs for the 2015 second quarter were $2.6 million, or 0.05 percent of average loans on an annualized basis, versus $1.5 million, or 0.03 percent, for the 2015 first quarter and $718,000, or 0.02 percent, for the 2014 second quarter.

• Qualcomm Is Considering a Breakup
  Eddy Elfenbein, July 21st, 2015 at 7:10 am

  Big news from Qualcomm (QCOM). The WSJ is reporting that the company is conducting a strategic review and is considering a breakup:

  Qualcomm Inc. is expected to conduct a sweeping strategic review that will look at the possibility of a breakup, among other options, after an activist investor pushed for change at the chip maker.

  Qualcomm, the world’s largest maker of chips used in mobile phones, may announce it is considering that and other options—including returning more cash to shareholders—when it reports fiscal third-quarter results Wednesday, according to people familiar with the matter. The company’s plans are in flux and there is no guarantee it will make any such announcement then, the people cautioned.

  The potential moves Qualcomm is expected to flag largely track suggestions the activist, Jana Partners LLC, has made since it revealed a stake of more than $2 billion in the San Diego company in April. Jana, an $11 billion New York hedge fund, has urged Qualcomm to explore a breakup, cut costs, repurchase shares faster and bring new blood to its board.

  (…)

  Any breakup of the company would likely separate Qualcomm’s chip-production business from its patent-licensing operation. The company, which has a market capitalization of $104 billion, gets about two-thirds of its roughly $26 billion in annual revenue from the chip business. But about two-thirds of its roughly $8 billion in yearly profit comes from royalties from the sale of smartphones that use technology it pioneered.

  (…)

  The company has forecast its per-share earnings for the quarter at 85 cents to $1, down from $1.44 a year earlier, and revenue between $5.4 billion and $6.2 billion, down from $6.8 billion—both below Wall Street expectations at the time.

  The move to explore a wide range of options will likely be viewed as another successful activist push for Jana. Just weeks ago, food company ConAgra Inc. agreed to exit its struggling private-brands business, a move the hedge fund had advocated.

  Qualcomm has seriously considered splitting into two for years, according to people familiar with the matter. About 15 years ago, the company announced a split and filed securities documents for the plan before scrapping it after signing several large licensing deals that eased concerns customers were growing wary of competing against both sides of Qualcomm.

  While defending its current corporate structure, Qualcomm executives have said they regularly evaluate whether it makes sense to keep the chip and patent-licensing businesses together.

  (…)

  Analysts at Arete Research Services LLP earlier this year said that a broken-up Qualcomm could enter the deal-making boom. The analysts estimated the chip-making business could have a market valuation of $74 billion, while the patent division could be valued at $87 billion and suggested an independent chip business could be attractive to suitors such as Intel.

  This is very good news. The shares are up 3% in the pre-market. However, if I were a cynical person, I’d say this is a pre-emptive strike against poor earnings news. Stay tuned!

• Morning News: July 21, 2015
  Eddy Elfenbein, July 21st, 2015 at 3:16 am

  Greece’s Euro Exit Back on the Agenda Next Year, Economists Say

  Fed Rate Increase View Underpins Dollar as Aussie Falls on RBA

  Fixing the Fed’s Liquidity Mess

  Federal Reserve Approves Capital Restraints For Big Banks

  Obama Adviser Obstfeld Appointed IMF’s Next Chief Economist

  Gold, Silver Near Five-Year Lows in Asia Trade

  Oil Guru Who Called 2014 Slump Sees Return to $100 Crude by 2020

  Morgan Stanley Shares Rise As Trading Profits Surge Nearly 70% In Second Quarter

  SunEdison Acquires Mark Group, a Leading UK Energy Solutions Provider

  IBM Continues to Decline But Analysts Say Writing It Off Too Premature

  Lockheed Martin Swoops on Black Hawk As It Buys Sikorsky for $8 Billion

  KKR’s First Data Files to Go Public

  Toshiba CEO to Step Down Over Accounting Scandal

  Roger Nusbaum: Greece Is In Troub…Oh Wait, No It’s Not

  Frances Coppola: The Coming Greek Bank Nationalization, Bail-in and Privatization

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• Buy List Updates
  Eddy Elfenbein, July 20th, 2015 at 6:58 pm

  Today was a good day for our Buy List. PayPal (PYPL) closed more than 5.4% above its Friday spinoff-adjusted close. That’s a great start. In fact, using the spinoff adjustment, it’s our best stock this year so far. eBay (EBAY) also had a good day as it rose 2.4%.

  Some other news.

  Ball Corp. (BLL) fell 2% today. The EU said it’s looking into Ball’s merger with Rexam.

  Ross Stores (ROST) said it’s opening 27 new stores.

  Qualcomm (QCOM) is reportedly looking to layoff several thousand employees.

  Ford (F) is offering big discounts for its new F-150s.

  The New York Times on Microsoft (MSFT): “Windows 10 Signifies Microsoft’s Shift in Strategy.”

• Early Trading Today
  Eddy Elfenbein, July 20th, 2015 at 10:27 am

  PayPal seems to be doing very well in its debut. The stock is currently over $40 per share.

  Gold has been hit hard recently. The metal just hit a five-year low.

  Gold traded down 1.5%, or $16.60, at $1,115.30 a troy ounce, a level last seen in early 2010. The precious metal dropped sharply earlier in the day, falling below $1,090 in a matter of minutes, before quickly recovering some of the losses.

  I’m guessing that’s due to a belief that the Fed will raise rates soon. James Bullard, the top dog at the St. Louis Fed, said that a rate hike could come in September. He said it’s 50-50. That’s far more aggressive than the market expects.

  I doubt they’ll raise rates then, but I’m not strong in that opinion. The gold market, at least, is taking it seriously.

  Hold on to your hats; 25% of the S&P 500 is due to report this week. Analysts are slightly more optimistic. The projected earnings decline is now 5.3% where it had been 6.4% last week.

• PayPal is Trading!
  Eddy Elfenbein, July 20th, 2015 at 9:38 am

  Shares of PayPal (PYPL) are now trading! The stock opened at $41.63 while eBay (EBAY) is at $26.93. That combined price is far higher than where united company had been.

  You may notice that the YTD numbers on our Buy List page are off because we don’t have the tax basis figures yet. Once we get them, I’ll plug them in.

  Short version: The cost of eBay and PayPal will be distributed, I’m assuming, about 57% for PYPL and 43% for EBAY. Give or take.

  For this year’s Buy List, the cost basis for the untied eBay was $56.12. So the cost basis will probably be about $32 for PayPal and $24.12 for eBay.

  Update: See here for the accounting for the spinoff.