Archive for October, 2018

• Carriage Services Earns 14 Cents per Share
  Eddy Elfenbein, October 31st, 2018 at 8:06 pm

  Carriage Services (CSV) said they made 14 cents per share for Q3. This is not a good report. Revenue rose 5.2% to $64.1 million.

  Mel Payne, Chief Executive Officer, stated, “The following quotes by me are from our second quarter earnings release:

  ‘We view the disappointing second quarter as a temporary performance aberration related to challenging revenue and margin vagaries in our funeral portfolio which is not historically symptomatic of long term operating trends…We have complete confidence that our operating leadership is effectively dealing with the revenue and margin challenges in our funeral portfolio and that we will experience broadly higher performance during the latter part of the second half of the year compared to our second quarter.’

  Everything I said in the above quote I believed at the time, but after continued operating performance weakness in July and August I led a comprehensive analysis by our operating leadership and support teams of each of our businesses since 2011 using both operating and financial data trends as well as the corresponding Standards Achievement trends in each case.

  On October 1st I wrote a Memorandum to all of our Managing Partners, Sales Managers, Field Operating Leadership Teams, as well as Houston Support Center Leaders explaining that our many long term high performance winners were subsidizing “too many” businesses with underperformance trends. Our Board of Directors is also fully informed and supportive of our analysis of the underperformance challenges and issues (85% – 90% self-inflicted) and of the plans we have developed and are executing to quickly restore the GAAP Earnings and Free Cash Flow Value Creation Power to our company.

  We have developed detailed plans of action for each underperforming business that are being executed weekly, a program that began on October 2nd and will continue through the end of this year but will be essentially complete by the end of November. The simple goal of the underperformance turnaround plans on a case by case business basis is to have each business in our portfolio positioned for High and Sustainable Standards Achievement success in 2019 and thereafter. In other words, we fully expect to head into next year with our operating and financial performance substantially higher than the recent past and to have performance trends again being our friend.

  We have also completed an outreach program to our Standards Council Members, Field Operating Leaders and members of our Operations and Strategic Growth Leadership Team and Operations Analysis and Planning Group. I have confidentially asked each for feedback on how best to reorganize our operating leadership and update our Funeral and Cemetery Performance Standards to achieve and sustain high operating and financial performance for a five year timeframe beginning January 1, 2019 and ending December 31, 2023.

  I’ll give them points for frankness, but this report is very troubling.

• Fiserv Misses By Two Cents
  Eddy Elfenbein, October 31st, 2018 at 4:17 pm

  After the closing bell, Fiserv (FISV), “a leading global provider of financial services technology solutions,” reported third-quarter earnings of 75 cents per share. That was two cents below estimates. The stock is down in the after-hours market.

  “We delivered another quarter of strong financial results in line with our expectation for internal revenue growth acceleration and excellent bottom-line performance,” said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. “We completed the acquisition of the debit payment assets of Elan Financial Services which expands our reach and further enhances our growth profile.”

  Fiserv made $2.26 per share for the first nine months of this year. Operating margin dipped to 31.6%, but that’s still quite good.

  The company repurchased 5.6 million shares of common stock for $438 million in the third quarter, and 16.6 million shares of common stock for $1.23 billion in the first nine months of 2018.
  The company announced a new 30 million share repurchase authorization in the quarter and had 34.9 million remaining shares authorized for repurchase as of September 30, 2018.

  Fiserv also raised the lower end of its full-year guidance. The range had been $3.02 to $3.15 per share. Now it’s $3.10 to $3.15 per share. That represents growth of 25% to 27%. That also translates to a Q4 range of 84 to 89 cents per share. Wall Street had been expecting 86 cents per share. This year will be Fiserv’s 33rd year in a row of double-digit earnings growth.

• ICE Earns 85 Cents per Share
  Eddy Elfenbein, October 31st, 2018 at 9:13 am

  Still more Buy List earnings reports. We have three more today. This morning, Intercontinental Exchange (ICE) reported Q3 earnings of 85 cents per share. That’s five cents more than expectations. Total revenue, excluding transaction-based expenses, rose 4.7% to $1.2 billion. Also, the board of directors authorized a new share buyback program of $2 billion.

  “Our third quarter performance reflected strength across our futures, cash equities, listings and data services businesses, marking the 22nd consecutive quarter of year-over-year revenue growth,” said ICE Chairman & Chief Executive Officer, Jeffrey C. Sprecher. “Against an uncertain regulatory and political backdrop, we are focused on driving innovation, delivering growth and helping to serve our customers’ risk management needs.”

  Scott A. Hill, ICE Chief Financial Officer, added, “Through the end of the third quarter, we have grown revenues and earnings, generated record operating cash flows and returned nearly $1.5 billion dollars to stockholders – more than any full year in our history. As we approach the end of 2018, we remain focused on our growth initiatives and value creation.”

  The company didn’t offer any financial guidance.

• Morning News: October 31, 2018
  Eddy Elfenbein, October 31st, 2018 at 7:09 am

  China Feels Trade War Pain as Export Gauge Signals Worse to Come

  The Number 7 Could Make China’s Currency a Trade-War Weapon

  These Are the Charts That Scare Wall Street

  Facebook Expects Rising Costs to Combat Scandals to Moderate After 2019

  Facebook’s Vision For the Future: Less News Feed, More Stories

  Job No. 1 For GE’s New Chief: Fix Its Ailing Power Business

  Samsung Reaps Record Profit, But Tougher Times Could Come

  Carlyle Reports 25 Cents For Third-Quarter Earnings Per Unit, Misses Forecast

  Coca-Cola Gets Lift From a Perennial Laggard: Diet Coke

  Disney World’s Top Foe Is Ready to Punch Back

  Reese’s Created a Machine to Swap Out All the Halloween Treats You Hate

  The Get-Rich-Quick Scheme That Almost Killed a German Soccer Team

  Nick Maggiulli: You Have No Competition

  Michael Batnick: A Top or The Top?

  Roger Nusbaum: Taking Control Of Adverse Financial Situations

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• Assorted News Items
  Eddy Elfenbein, October 30th, 2018 at 12:34 pm

  I don’t have a theme for this but I wanted to pass along a few items of note.

  Today’s report on consumer confidence shows that it rose to an 18-year high in October. (I prefer to say that consumer humility dropped to an 18-year low. But that’s me.)

  The results, coming amid a rout in U.S. stocks, bode well for continued gains in consumer spending, which accelerated in the third quarter to the best pace since 2014. A solid job market is helping to support household confidence as well as Americans’ purchases, which account for about 70 percent of the economy. The figures add to signs of contentment with the economy ahead of next week’s U.S. midterm elections that will decide control of both houses of Congress.

  The shares saying current business conditions are good and jobs are plentiful increased from the prior month. The outlooks improved for the economy and incomes, while a slightly smaller share said more jobs would be available in the next six months.

  Bespoke Investment Group notes that since the market peak, the Russell 3000 has lost $3.5 trillion. The 50 largest stocks in the index have lost $1.25 trillion while the 2,000 smallest have lost $350 billion.

  USA Today writes that 62% of new jobs don’t support a middle class life. I’m usually skeptical when this is given a precise number. Still, it’s worth attention.

  Yesterday’s report on consumer spending showed that it increased by 0.4% in September. August was revised up from 0.3% to 0.5%. Personal income rose 0.2%.

  

  This headline “House price gains lurch to a 20-month low, Case-Shiller says” is about the second derivative. House prices aren’t falling, but the rate of increase has.

• Earnings from Cognizant and Wabtec
  Eddy Elfenbein, October 30th, 2018 at 8:43 am

  We got two more Buy List earnings reports this morning. First up is Cognizant Technology Solutions (CTSH). For Q3, the IT outsourcer earned $1.19 per share. That beat estimates by six cents per share. The company had told us to expect earnings of at least $1.13 per share. Revenue rose 8.3% to $4.88 billion.

  “Cognizant delivered strong third-quarter results in three of our four business segments,” said Francisco D’Souza, Chief Executive Officer and Vice Chairman of the Board. “We made continued progress in our shift to digital by building new capabilities and helping our clients excel with digital services and solutions. We’re speeding clients along their journey to create more engaging customer experiences, automate their processes, and modernize their technology foundations, a three-layer transformation we call digital at scale. Our performance this year demonstrates our ability to both invest for growth and achieve our financial targets.”

  For Q4, Cognizant sees earnings of at least $1.05 per share, and full-year earnings of at least $4.50 per share. That’s a bit light. The Street had been expecting $1.14 for Q3 and $4.53 for the year. Cognizant expects Q4 revenue between $4.09 billion and $4.13 billion.

  “We delivered solid performance in the third quarter as we continued to focus on sustainable revenue growth while increasing margins,” said Karen McLoughlin, Chief Financial Officer. “The strength of our balance sheet allows the company to maintain financial flexibility while driving a substantial return of capital to shareholders.”

  The shares are down about 3% this morning.

  Also this morning, Wabtec (WAB) said they made 95 cents per share for Q3, which matched estimates. This is a crucial time for WAB with the big merger coming. Frankly, any merger news probably outweighs earnings news at this point.

  Wabtec said they now expect full-year 2018 earnings of $3.85 per share which excludes merger costs. The company is aiming for 13% operating margin and $200 million in cash flow.

  Raymond T. Betler, Wabtec’s president and chief executive officer, said: “With a solid backlog and positive trends in our markets, we expect to finish the year with a strong fourth quarter, both in earnings and cash flow, to position the company for growth in 2019. Our freight business continues to show strong growth in revenues and income from operations, with good market indicators for the foreseeable future. In transit, we have a near-record backlog and strong bidding activity, as we take actions to drive sustainable profitability improvements in the business. We are making progress toward combining with GE Transportation and are excited about our strategic opportunities to accelerate innovation for our customers, while delivering improved earnings, margins and cash flow for our shareholders.”

  The merger with GE Transportation is expected to happen in early 2019. There will be a special shareholder meeting to vote on the deal on November 14.

• Morning News: October 30, 2018
  Eddy Elfenbein, October 30th, 2018 at 7:05 am

  China’s Aversion to Big Bang Stimulus Tested by Trump Tariffs

  China Has a Big Weapon That It Hasn’t Used in the Trade War — Yet. Tourists.

  Euro-Area Economy Cools, Italy Stagnates as Negative Signs Mount

  U.S. Futures Hold Gains as Europe Stocks Struggle

  Powell’s Most Powerful Protector From Trump May Be Wall Street

  No, Social Security Isn’t Congress’ Piggy Bank

  BlackRock’s October Plunge Leads Selloff in Asset-Manager Stocks

  Campbell Soup and Executive `Accelerate’ His Exit After George Soros Tweet

  Justices Weigh Class-Action Limit in Arbitration Contract

  BP Swimming in Cash as Earnings Soar on High Oil Prices

  GE Cuts Dividend, Splits Power Business

  Pfizer Third-Quarter Profit Jumps 45%

  Lawrence Hamtil: The Perils of Sector Bias

  Joshua Brown: Is Amazon Still Invincible?

  Jeff Carter: Berkshire Enters FinTech

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• Morning News: October 29, 2018
  Eddy Elfenbein, October 29th, 2018 at 7:03 am

  Australia Is the Latest Country Whose Banks are Planning to Abandon London as Brexit Looms

  China Regulator Proposes 50% Cut to Car Purchase Tax

  Many U.S. Firms in China Eyeing Relocation as Trade War Bites

  IBM and Red Hat Are Much Better Together

  Walmart’s Warehouse Chain Tries to Get High-Tech With Test Store

  Another Crisis At GE?

  Chinese Liquor Maker’s Earnings Make Investors Queasy

  Guess What? Everyone Was Wrong About Tesla

  Sunrun Gives Tesla a Fight in the Home Solar Business

  To Make More Ram Trucks, Fiat Chrysler Reconsiders Mexico

  China’s OnePlus, Backed by Qualcomm and T-Mobile, Launches Smartphone in U.S.

  The Selfish Social Security Decision You Shouldn’t Make

  Ben Carlson: The Psychology of Sitting in Cash, Part Deux

  Jeff Miller: What do the Mid-Term Elections Mean for Financial Markets?

  Howard Lindzon: Mood Matters, Cloud Wars and Overshoots

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• Bloomberg Appearance
  Eddy Elfenbein, October 26th, 2018 at 7:33 pm

• Q3 GDP Growth = 3.5%
  Eddy Elfenbein, October 26th, 2018 at 10:18 am

  The first estimate of third-quarter GDP growth is out this morning. The government estimates that the economy grew, in real terms, at an annualized rate of 3.5%.

  The U.S. economy grew at a faster-than-expected rate in the third quarter as inflation was kept in check and consumer spending surged, according to data released by the Commerce Department on Friday.

  Gross domestic product expanded by a 3.5 percent annual rate. Economists polled by Dow Jones expected the economy to expand by a 3.4 percent annual rate.

  The department said the PCE price index, a key measure of inflation, increased by 1.6 percent last quarter, much less than the 2.2 percent increase expected by economists polled by StreetAccount.

  This is only the second time in the last 13 years that we’ve had back-to-back quarters of at least 3.5% growth.