Author Archive

  • Wright Express Beats the Street Again
    , February 8th, 2012 at 8:37 am

    In last week’s CWS Market Review, I said to watch for good news from Wright Express’ ($WXS) earnings report. The stock has beaten earnings expectations handily for the past few quarters. Wright did it again today.

    Three months ago, Wright said that Q4 EPS would range between 88 cents and 94 cents. Instead, they earned 98 cents per share. Wall Street’s consensus had been for 92 cents per share. That’s earnings growth of 32%. For the quarter, revenue rose 22% to $139.8 million.

    Michael Dubyak, Chairman, President and Chief Executive Officer, commented, “2011 was another great year for Wright Express as we experienced continued strength across our business and considerably surpassed our expectations. These results demonstrate further progression against our multi-pronged strategy to grow our North American fleet business, diversify our revenue streams and build out our international presence. The fourth quarter was no exception as we experienced robust performance in our other payments solutions with our corporate charge card product, and steady growth in our core fleet business.”

    Mr. Dubyak continued, “As we enter 2012 and think about the year ahead, our strategy remains the same. We are committed to maintaining our investments in the business to accelerate the development of our new products, while also supporting sustainable future growth both domestically and internationally.”

    Fourth Quarter 2011 Performance Metrics

    • Average number of vehicles serviced worldwide was approximately 6.6 million, an increase of 14% from the fourth quarter of 2010.

    • Total fuel transactions processed increased 8% from the fourth quarter of 2010 to 80.0 million. Payment processing transactions increased 3% to 60.6 million; transaction processing transactions increased 31% to 19.4 million.

    • Average expenditure per domestic payment processing transaction increased 20% from the fourth quarter of 2010 to $70.10.

    • Domestic retail fuel price increased 19% to $3.53 per gallon from $2.96 per gallon in the fourth quarter of 2010.

    • Total corporate card purchase volume grew 66% to $2.0 billion, from $1.2 billion for the fourth quarter of 2010.

    Next comes the guidance. For Q1, Wright said it expects earnings between 87 and 93 cents per share and revenue between $134 and $139 million. For the year, the company expects earnings to range between $4.10 and $4.30 per share on revenue between $590 million and $610 million. It’s too early for me to get a feel for whether or not these projections are too conservative. Wright’s estimates are based on a few assumptions:

    First quarter 2012 guidance is based on an assumed average U.S.
    retail fuel price of $3.56 per gallon, and approximately 39 million shares outstanding. Full-year 2012 guidance is based on an assumed average U.S. retail fuel price of $3.59 per gallon and approximately 39 million shares outstanding. In addition, the fuel prices referenced above are based on the applicable NYMEX futures price. We are assuming the exchange rate of the Australian dollar will remain at a premium to the US dollar. The Company’s guidance also assumes that 2012 domestic credit loss for the first quarter and the full year will range between 13 and 18 basis points.

  • Morning News: February 8, 2012
    , February 8th, 2012 at 6:09 am

    Greek Premier Seeks Bailout Consensus Amid Political Quarrels

    Greece Puts Off Decision on Austerity Moves Amid a Strike Protesting Them

    A Contrarian Bets Ireland and Hungary Will Rebound

    As Growth Slows, India Awakens to Need for Foreign Investment

    Bernanke-Led Economy Proves Critics Clueless About Fed Policies

    Yahoo’s Shakeup as Bostock Departs Adds Pressure for Sale of Asian Assets

    Disney Profit Rises 12% on Growth at ESPN, Domestic Theme Parks

    Glencore to Buy Full Control of Xstrata for $41 Billion

    Illumina’s Board Rejects Roche’s $5.7 Billion Offer

    Nissan Sees Annual Profits Beating Toyota, Honda

    Sony Credit Rating Cut by S&P on Concerns About Earnings

    Walmart to Label Healthy Foods

    Airbus A380 Fleet Requires Wider Inspections

    Caesars Gets $1.13 Billion Market Value on IPO Pricing

    Roger Nusbaum: How and When to Sell

    Cullen Roche: Why I Don’t Believe the Eurozone Crisis is Over

    Be sure to follow me on Twitter.

  • Comments on Sysco and AFLAC
    , February 7th, 2012 at 5:32 pm

    I expressed surprise and confusion at the market’s poor reception of Sysco‘s ($SYY) earnings. One reader provided some valuable insight:

    Looking at the current quarter:

    1. The gross margin (-76 basis points) was much weaker than expected. Company now chasing volume with lower pricing. A company not being able to raise prices in line with inflation always a bad sign.

    2. 7.1% SG&A growth was too high, especially since Business Transformation costs were lower than expected.

    Looking to the future:

    1. Lowered business transformation cost estimates (but still increasing) for 2012 are not a true savings because it appears they are essentially just being pushed out to 2013.

    2. Here is the biggie: Likely stagnant EPS for both 2012 and 2013 around $1.90-$2.00 per share. This is a 15 P/E for a company in a low-growth industry (future organic case volume growth likely in 1% to 2% range). Contrast that with numerous companies with P/Es in 10 area and with reasonably predictable growth potential in the 12-15% range.

    I’m afraid the last point is probably correct. Outside of its dividend, Sysco doesn’t have much to offer investors right now. In fact, the dividend is probably what’s keeping a floor on the stock.

    One day after I criticized Seeking Alpha for running little more than stock screens in words as its articles on AFLAC ($AFL), there appeared a thoughtful piece on it. Here’s a sample:

    Aflac’s outsized portfolio of European financial hybrid securities is oddly a function of its exposure to the Japanese market. Given the absence of much Japanese government debt beyond the ten-year maturity, there is a limited long duration corporate bond market in Japan. Given the long duration liability profile of its Japanese business, and Aflac’s desire to match the duration of its assets and liabilities to immunize the portfolio against interest rate risk, Aflac flocked to yen-denominated perpetual preferred stock placed by financial institutions around the world. By hoping to reduce its risk profile through better asset-liability matching, Aflac unwittingly exposed itself to a potentially debilitating amount of credit risk.

    This exposure to European financials led Aflac to recently bring in Eric Kirsch from Goldman Sachs Asset Management to lead its investment process, functionally demoting former head Jerry Jeffery to head of fixed income. The insurer has also continued to pare down its European financial exposures as markets have come off their autumn lows, and indicated on its recent earnings call that it would continue to try and work through issues in its investment portfolio.

    While Aflac may prove to be cheap on the basis of its continued strong operating earnings, its low valuation relative to its book value or dividend stream, the dispersion of outcomes on the stock is too wide to know if the price is currently discounting this risk correctly. Aflac relies on dividends from its Japanese operating subsidiary to pay those shareholder dividends. Whether the Japanese regulators allow Aflac to continue to upstream capital from its Japanese operating company to the holding company will depend on the performance of its European financial hybrids.

    If you are concerned about the European situation, Aflac is not the investment for you, and despite its continued efforts to right-size these exposures, this will be an ongoing process and will lower future earnings as Aflac is forced to reinvest the proceeds in a low rate environment. If you think we are at an inflection point in the Eurozone crisis, and see markets stabilizing, then Aflac is likely to see its equity rebound. Just know that in an odd twist of fate, the European credit markets will be the central driver of AFL’s equity performance in 2012.

  • Is an Earnings Peak Coming?
    , February 7th, 2012 at 5:00 pm

    This earnings season is shaping up to be a disappointment. The “beat rate” will most likely be one of the worst of the past decade. Overall, the earnings outlook is still decent. The S&P 500 is on track to earn 96.67 for 2011.

    For 2012, however, I think earnings may not be as strong as some people expect. The chart below shows that earnings for the S&P 500 are expected to rise throughout this year.

    What concerns me is that large jump expected in the fourth quarter. Trailing fourth-quarter earnings are expect to rise from $101.08 to $105.37 during the final three months of the year. I just don’t see what could cause a jump like that.

    I think it’s more realistic to expected a rounded earnings top. Beginning the third quarter of this year, I expect earnings to range between $100 and $105 for a few quarters. The problem is that earnings already represent a large portion of GDP. That’s probably not going to grow much from here. Instead of rising profit margins, earnings will have to rely on economic growth — and that will be harder to come by in 2012 and 2013.

  • Remembrance of Buy List Stocks Past
    , February 7th, 2012 at 4:31 pm

    I’ve often cautioned investors not to worry over what happens to a stock after you’ve sold it. Just because it continues to rise doesn’t necessarily mean you made the wrong the decision. Our goal is be good investors, not perfect investors.

    Having said that, I’m going to break that rule (hey, it’s my blog) and take a quick peek at how the five stocks we ditched at the beginning of the year are doing. Technically, I should say that I didn’t (and don’t) regard them as Sells. Instead, I thought the new additions were better buys.

    As it turns out, the five stocks that got cut from the Buy List are doing very well.

    The leader so far is Gilead Sciences ($GILD) which is up over 34% for the year. As I’ve said, I’m not a fan of the Pharmasset acquisition. It’s far too expensive for what they’re getting. Gilead also badly missed earnings the other day. The stock, however, jumped 11% in thanks to promising news of its Hep C treatment.

    The second-best performer is Leucadia National ($LUK) which is up 29% in 2012. Much of Leucadia’s success is undoubtedly due to its holding of Jefferies ($JEF). While I believe that Jefferies had become undervalued, I think it’s fairly valued at $16 give or take. Now that it’s there, I don’t see much room for dramatic upside.

    Deluxe ($DLX) continues to chug along. The stock is already up 14% for the year. Deluxe is almost a pure value play. I liked it last year because it was cheap and it paid a very nice dividend. We did OK with the stock but I had hopes for more.

    Pulling up the rear are Becton Dickinson ($BDX) and Abbott Labs ($ABT). Becton is up 3.8% for the year while Abbott is down 1.4%. Becton had been doing well, but investors soured on today’s lowered guidance.

  • Morning News: February 7, 2012
    , February 7th, 2012 at 5:20 am

    German Workers Demand 6.5% Raise as Siemens Sees Recession

    Europe’s Banks Reluctant to Lend to Companies in Need of Cash

    Greek Talks Resume Amid Strike

    Dollar’s China Conundrum

    IMF Urges Beijing to Prepare Stimulus

    Japan Adopts Stealth Intervention as Yen Gains Threaten Exporter Earnings

    Crude Oil Trades Near Six-Week Low on Forecast of Rising U.S. Stockpiles

    Global Steel Giant ArcelorMittal Sees H1 Pick Up, Concern on Europe

    UBS Profit Drops 76% on Investment Bank Loss

    Toyota Shows Optimism Despite Gloom

    Yum! Brands Profit Climbs 30% On China Growth

    Glencore and Xstrata Agree $90 Billion Deal

    Standard Life to Vote Against Xstrata-Glencore Merger

    Verizon, Redbox Plan Netflix Challenge

    BP Set for First Post-Spill Dividend Increase

    Those Millions on Facebook? Some May Not Actually Visit

    Paul Kedrosky: Stopping the Brain Drain

    Howard Lindzon: StockTwits…The Month of January in Tickers

    Be sure to follow me on Twitter.

  • Sysco Earns 46 Cents Per Share
    , February 6th, 2012 at 1:10 pm

    I don’t get why Sysco ($SYY) is down so much today. The restaurant supplier reported fiscal second-quarter earnings of 46 cents per share which was two cents better than Wall Street’s forecast. Revenue also was a little better than expectations. The company said that it squeezed by higher food inflation. Still, Sysco’s stock is off about 5% today.

    Here are some details on their second quarter. It looks good to me:

    Sales for the second quarter were $10.2 billion, an increase of 9.2% compared to sales in the same period last year. Food cost inflation, as measured by the estimated change in Sysco’s product costs, was 6.3%. Inflation continued to be broad-based, but was impacted most significantly by increased prices for meat, canned/dry and frozen products. This compares to inflation of 4.5% in the prior year period, and 7.3% in the first quarter of fiscal 2012. In addition, sales from acquisitions (within the last 12 months) increased sales by 0.7%, and the impact of changes in foreign exchange rates for the second quarter decreased sales by 0.1%. Case volume for the company’s Broadline and SYGMA operations combined grew 3.6% during the quarter including acquisitions, and 2.8% excluding acquisitions.

    Gross profit for the second quarter was $1.8 billion, an increase of 4.8%, compared to the prior year. Operating expenses in the second quarter increased $94 million, or 7.1%, compared to operating expenses in the prior year period. This was due mainly to a $58 million increase in payroll expense, a $12 million increase in gross business transformation expenses, a $10 million increase in fuel expense and a $9 million lower benefit from COLI, partially offset by a $7 million decline in expenses for the corporate-sponsored pension plan. Excluding gross business transformation expenses and the impact of COLI, adjusted operating expenses increased 5.5%. Management believes that excluding these items better represents the company’s underlying business performance.

    Operating income was $427 million in the second quarter, decreasing $10 million, or 2.3% compared to operating income in the prior year. Excluding gross business transformation expenses and the impact of COLI, adjusted operating income increased 2.5%.

    Net earnings for the second quarter were $250 million, a decrease of $8 million, or 3.1%, compared to net earnings in the prior year. Diluted EPS in the second quarter of fiscal 2012 was $0.43 which included a $0.03 negative impact from gross business transformation expenses. Last year’s second quarter EPS was $0.44, which also included a $0.03 negative impact from gross business transformation expenses, partially offset by a $0.02 benefit from COLI. Excluding gross business transformation expenses and the impact of COLI, second quarter fiscal 2012 adjusted EPS was $0.46, an increase of 2.2% compared to the prior year.

  • The Genetics of Wall Street
    , February 6th, 2012 at 12:07 pm

    Two researchers looked at the DNA of Wall Street traders:

    So what did the scientists find? It turned out that successful traders—Drs. Zak and Sapra measured success in terms of longevity on Wall Street—tended to hit a sweet spot of dopamine activity; their genes kept them from experiencing either very high or very low levels of the molecule. These prosperous professionals were much more likely to have so-called Goldilocks genes, placing them solidly in the middle of the dopamine distribution.

    “The best traders are willing to take risks,” Dr. Zak says. “They definitely want to make lots of money. But they’re also able to take a long-term perspective and check their impulses. Being able to balance these competing interests seems to require a balanced dopamine system.”

    Dr. Zak notes that it’s far too soon to use his genetic assay as a hiring tool—the results still need to be replicated. Still, it’s possible to imagine a future in which the financial sector requires less oversight because firms have found a way to hire more prudent employees.

    Given the massive amounts of money at stake, spending a few hundred dollars on a DNA kit might strike Wall Street as a particularly wise investment.

  • Markets Surges on January Jobs Report
    , February 6th, 2012 at 10:51 am

    The market was thrilled with the news from the Labor Department on Friday. Nonfarm payrolls rose by 243,000 in the month of January. The unemployment rate dropped to 8.3% which is a three-year low. The private sector led the way, adding 257,000 jobs.

    This was very good news even though the overall picture remains grim. In the last two years, 3.1 million jobs have been created. The problem is that in the two years prior to that, 8.7 million jobs were lost. At the current rate of job creation, we’ll still need a few more years to get back to normal.

    Stock prices, however, responded very positively. The Dow jumped to its highest level since 2008. The Nasdaq Composite hit an 11-year high. Our Buy List had an exceptionally strong day on Friday. While the S&P 500 gained an impressive 1.46%, our Buy List was up by 2.01%. By the close, we were up just 10.01% for the year compared with 6.94% for the S&P 500.

    Thanks to its strong earnings report, Fiserv ($FISV) jumped by 4.39% to $65.88. Ford ($F) added 4.32%. AFLAC ($AFL) briefly broke through $50 per share. Nicholas Financial ($NICK) rose by 3.81% to close at $13.90. Hudson City ($HCBK) also climbed by more than 4%.

  • Morning News: February 6, 2012
    , February 6th, 2012 at 5:23 am

    Europe Leaders Maintain Pressure on Greece to Complete Deal

    Strike Looms As Greek Party Leaders Push For Deal on Reforms

    Hedge Funds Underestimating Policymakers’ Will to Impose Greek Bond Losses

    China Risks Growth-Rate Cut if Europe Worsens

    China Bans Airlines From EU Carbon Scheme

    Citigroup Gets Approval for China Credit Cards

    Eni Nigeria Pipeline Struck by Delta Militants in ‘Sign of Things to Come’

    Foreclosure Deal Deadline Arrives as States Must Choose Whether to Sign On

    Facebook’s Mobility Challenge

    Randgold Profit Rises Fourfold on Increased Output, Price Gain

    Vodafone Abandons Greek Merger on European Union Opposition

    Korean KT Corp’s Net Profit Rises

    A Mortgage Tornado Warning, Unheeded

    Blankfein to Speak Out for Same-Sex Marriage

    Jeff Carter: Teaching Entrepreneurship

    Epicurean Dealmaker: Apocalypse, Ciao!

    Be sure to follow me on Twitter.