Author Archive

  • Bed Bath & Beyond Beats and Guides Higher. Again.
    , September 21st, 2011 at 4:36 pm

    Wow! Bed Bath & Beyond ($BBBY) did it again.

    The company just reported fiscal Q2 earnings of 93 cents per share which was a full nine cents more than Wall Street was expecting. This was another outstanding quarter for them. Three months ago when the last earnings report came out, the company told us to expect Q2 earnings to range between 77 and 82 cents per share (I had expected a range of 80 to 85 cents per share).

    Well, they blew that forecast out of the water! For last year’s Q2, they earned 70 cents per share. For this year’s Q2, net sales rose 8.2% to $2.314 billion. The all-important comparable store sales figure was 5.6%. Those are solid numbers. Year-over-year operating and net margins increased for the 10th-straight quarter.

    For Q3, the current quarter, Bed Bath & Beyond projects earnings of 82 to 87 cents per share. The Street was at 86 cents. BBBY also raised their full-year guidance to earnings growth of 22% to 25%.

    If you’re keeping score at home, this is the second time that BBBY has raised their full-year growth forecast this year. They went from forecasting an earnings increase of 10% – 15% to a revised range of 15% – 20% to the current range of 22% – 25%.

    Let’s look at the numbers: For 2010, Bed Bath & Beyond earned $3.07 per share, so the updated forecast translates to a range of $3.74 – $3.84 per share.

    Just to give you an example of how strong business has been, let’s compare this past quarter’s numbers with the one from exactly two years ago. In two years, sales are up 20.8%. Net margins have increased from 7.1% to 9.9%. That turns a 20.8% sales increase into a 69.2% profit increase.

    Here’s a look at BBBY’s quarterly numbers for the past few years:

    Quarter Sales Gross Profit Operating Profit Net Profit EPS
    May-99 $356,633 $146,214 $28,015 $17,883 $0.06
    Aug-99 $451,715 $185,570 $53,580 $33,247 $0.12
    Nov-00 $480,145 $196,784 $50,607 $31,707 $0.11
    Feb-00 $569,012 $238,233 $77,138 $48,392 $0.17
    May-00 $459,163 $187,293 $36,339 $23,364 $0.08
    Aug-00 $589,381 $241,284 $70,009 $43,578 $0.15
    Nov-01 $602,004 $246,080 $64,592 $40,665 $0.14
    Feb-01 $746,107 $311,802 $101,898 $64,315 $0.22
    May-01 $575,833 $234,959 $45,602 $30,007 $0.10
    Aug-01 $713,636 $291,342 $84,672 $53,954 $0.18
    Nov-02 $759,438 $311,030 $83,749 $52,964 $0.18
    Feb-02 $879,055 $370,235 $132,077 $82,674 $0.28
    May-02 $776,798 $318,362 $72,701 $46,299 $0.15
    Aug-02 $903,044 $370,335 $119,687 $75,459 $0.25
    Nov-03 $936,030 $386,224 $119,228 $75,112 $0.25
    Feb-03 $1,049,292 $443,626 $168,441 $105,309 $0.35
    May-03 $893,868 $367,180 $90,450 $57,508 $0.19
    Aug-03 $1,111,445 $459,145 $155,867 $97,208 $0.32
    Nov-04 $1,174,740 $486,987 $161,459 $100,506 $0.33
    Feb-04 $1,297,928 $563,352 $231,567 $144,248 $0.47
    May-04 $1,100,917 $456,774 $128,707 $82,049 $0.27
    Aug-04 $1,273,960 $530,829 $189,108 $120,008 $0.39
    Nov-05 $1,305,155 $548,152 $190,978 $121,927 $0.40
    Feb-05 $1,467,646 $650,546 $283,621 $180,980 $0.59
    May-05 $1,244,421 $520,781 $150,884 $98,903 $0.33
    Aug-05 $1,431,182 $601,784 $217,877 $141,402 $0.47
    Nov-06 $1,448,680 $615,363 $205,493 $134,620 $0.45
    Feb-06 $1,685,279 $747,820 $304,917 $197,922 $0.67
    May-06 $1,395,963 $590,098 $148,750 $100,431 $0.35
    Aug-06 $1,607,239 $678,249 $219,622 $145,535 $0.51
    Nov-07 $1,619,240 $704,073 $211,134 $142,436 $0.50
    Feb-07 $1,994,987 $862,982 $309,895 $205,842 $0.72
    May-07 $1,553,293 $646,109 $154,391 $104,647 $0.38
    Aug-07 $1,767,716 $732,158 $211,037 $147,008 $0.55
    Nov-08 $1,794,747 $747,866 $203,152 $138,232 $0.52
    Feb-08 $1,933,186 $799,098 $259,442 $172,921 $0.66
    May-08 $1,648,491 $656,000 $118,819 $76,777 $0.30
    Aug-08 $1,853,892 $739,321 $187,421 $119,268 $0.46
    Nov-08 $1,782,683 $692,857 $136,374 $87,700 $0.34
    Feb-09 $1,923,274 $785,058 $231,282 $141,378 $0.55
    May-09 $1,694,340 $666,818 $142,304 $87,172 $0.34
    Aug-09 $1,914,909 $773,393 $222,031 $135,531 $0.52
    Nov-09 $1,975,465 $812,412 $245,611 $151,288 $0.58
    Feb-10 $2,244,079 $955,496 $370,741 $226,042 $0.86
    May-10 $1,923,051 $775,036 $225,394 $137,553 $0.52
    Aug-10 $2,136,730 $874,918 $296,902 $181,755 $0.70
    Nov-10 $2,193,755 $896,508 $305,110 $188,574 $0.74
    Feb-11 $2,504,967 $1,076,467 $461,052 $283,451 $1.12
    May-11 $2,109,951 $857,572 $288,948 $180,578 $0.72
    Aug-11 $2,314,064 $950,999 $371,636 $229,372 $0.93

    Here’s a look at the company’s recent trailing four-quarter earnings-per-share trend. As you can see, BBBY has bounced back very well since the recession.

    The red lines represents the high and low ends of the company’s forecast. Judging by the trend, today’s forecast seems rather conservative. Earnings for the first half are up 35% so a forecast of 22% – 25% for the entire year seems very doable.

    I’m growing slightly cautious about BBBY’s outlook. Not that things are about to go bad. Instead, I think it’s prudent to assume that the company is closer to the top of its business cycle than the bottom. For example, here’s a look at BBBY’s trailing four-quarter net profit margin:

    The net margins seem to top off around 10% or so and we’re getting close to that. This means that the enormous tailwind the earnings get from smaller sales increases will start to fade. Also, the company’s sales growth rate, while still healthy, has noticeably decelerated.

    Don’t be too afraid of a downturn in the earnings cycle. Bear in mind that the earnings peaked in the last cycle 15 quarters ago. Since then, BBBY’s earnings are up close to 62% which is 13.7% annualized. That’s pretty darn good.

    Here’s a key section from the earnings call, courtesy of Seeking Alpha.

    The following are our major planning assumptions for the remainder of fiscal 2011: one, including the 24 stores opened so far this year, we anticipate that the total number of new store openings will now be approximately 40 stores across all of our concepts. Currently, we believe our fiscal 2011’s store openings by concept will be substantially similar to fiscal 2010, with a slight shift to several more buybuy BABY stores and slightly fewer Bed Bath & Beyond stores.

    As the year progresses, and we gain greater visibility, the total number of stores that we will open may be updated. We will continue to place Harmon Face Values health and beauty care offerings in stores across all of our concepts. As always, we remain flexible to take advantage of real estate opportunities that may arise; two, we expect to continue our program of expanding, renovating and/or relocating a number of our stores in fiscal 2011; three, we are modeling a 2 to 4 percentage increase in comparable store sales for the third and fourth quarters of fiscal 2011; four, based on these comparable store sales assumptions, we are modeling consolidated net sales to increase by 5% to 7% in the third quarter and by 4% to 6% in the fourth quarter; five, assuming these sales levels, in addition to planning the continuation of the shift and the mix of merchandise sold to lower margin categories, we are modeling our operating profit margin to slightly leverage for the fiscal third and fourth quarters; six, the third and fourth quarter tax provisions are estimated in the mid-to high 30s percent range — percentage range, with expected variability as taxable events occur; seven, capital expenditures for fiscal 2011, principally for new stores, existing store refurbishment, information technology enhancements, including increased spending on our interactive platforms and other projects, continue to be planned at approximately $250 million, but may reach as high as $300 million, depending on the composition and ultimate timing of projects; eight, depreciation for fiscal 2011 is now estimated to be in the range of approximately $180 million to $190 million; nine, we expect to generate positive operating cash flow in fiscal 2011 and continue to fund operations entirely from internally-generated sources; 10, we expect to continue our share repurchase program, which may be influenced by several factors, including business and market conditions and continue to model completion of the current authorization to early fiscal 2013.

    Based on these and the other planning assumptions, we are now modeling net earnings per diluted share to be in the range of approximately $0.82 to $0.87 for the fiscal third quarter of 2011. For all of fiscal 2011, we are modeling net earnings per diluted share to increase in the range of approximately 22% to 25%, up from the previous model of approximately 15% to 20%.

    Before concluding this afternoon’s call, a few additional comments relative to our recently concluded fiscal second quarter. Our balance sheet and cash flows remain strong. We ended the fiscal second quarter with cash and cash equivalents and investment securities of approximately $1.9 billion.

  • Today’s Fed Statement
    , September 21st, 2011 at 2:23 pm

    Eight minutes late:

    Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles as supply-chain disruptions eased. Investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.

    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect some pickup in the pace of recovery over coming quarters but anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

    To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

    To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction.

    The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

    The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate.

    Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action were Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who did not support additional policy accommodation at this time.

  • GOP Letter to Bernanke
    , September 21st, 2011 at 1:01 pm

    Here’s the text of the letter sent by top Republicans to Ben Bernanke:

    Dear Chairman Bernanke,

    It is our understanding that the Board Members of the Federal Reserve will meet later this week to consider additional monetary stimulus proposals. We write to express our reservations about any such measures. Respectfully, we submit that the board should resist further extraordinary intervention in the U.S. economy, particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people.

    It is not clear that the recent round of quantitative easing undertaken by the Federal Reserve has facilitated economic growth or reduced the unemployment rate. To the contrary, there has been significant concern expressed by Federal Reserve Board Members, academics, business leaders, Members of Congress and the public. Although the goal of quantitative easing was, in part, to stabilize the price level against deflationary fears, the Federal Reserve’s actions have likely led to more fluctuations and uncertainty in our already weak economy.

    We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy. Such steps may erode the already weakened U.S. dollar or promote more borrowing by overleveraged consumers. To date, we have seen no evidence that further monetary stimulus will create jobs or provide a sustainable path towards economic recovery.

    Ultimately, the American economy is driven by the confidence of consumers and investors and the innovations of its workers. The American people have reason to be skeptical of the Federal Reserve vastly increasing its role in the economy if measurable outcomes cannot be demonstrated.

    We respectfully request that a copy of this letter be shared with each Member of the Board.

    Sincerely,

    Sen. Mitch McConnell, Rep. John Boehner, Sen. Jon Kyl, Rep. Eric Cantor

    That’s actually far more modest than some folks are making it out to be. Naturally, we’re hearing that this kind of thing is a threat to the Fed’s independence.

    Personally, I think too much is made of the Fed’s “independence.” The Fed isn’t independent — it’s a creation of Congress. The Federal Reserve Act is an act of Congress. As such, I think Congress is free to interfere as much as they want. Basically, if the American people want 20% inflation, they should get it (good and hard).

    What the Fed needs is latitude to carry out its goals, but the goals should unquestionably be from Congress. Another idea of asserting Congressional control is Rep. Barney Frank’s idea to strip voting power from the regional bank presidents.

    The Federal Reserve has seven governors, but the Federal Open Market Committee, which is the interest rate policy group, has 12 members. Those 12 members consist of the seven Fed governors plus five of the 12 regional bank presidents. The head of the New York Fed is always a member but the remaining four slots rotate among the other regional bank presidents.

    As you might expect, since the bank presidents represent their banks, they have historically been in favor of sound money — at least compared with the governors who are appointed by the president.

  • Oracle Breaks $30
    , September 21st, 2011 at 10:34 am

    Despite my over-optimism, shares of Oracle ($ORCL) are having a good morning so far. The stock opened at $29.84 and has been as high as $30.63. Currently, the stock is at $30.21 which is a 6.56% gain from yesterday’s close. I’m still keeping my buy price at $30 per share.

  • Morning News: September 21, 2011
    , September 21st, 2011 at 7:02 am

    Talks End in Greece With No Deal, but Progress Is Reported

    BOE Leans Toward Stimulus

    Russia Faces Recession for Two Years With $50 Oil, IMF Says

    German 2-Year Yields Below 0.5% a Third Day on Greek Loan Talks

    Japan Unveils Measures on Yen Strength

    Lloyd’s of London Pulls Euro Bank Deposits

    Treasury 30-Year Bonds Drop as Investors Cut Holdings Before Fed Statement

    Bernanke Has Few Tools to Heal Economy

    G.O.P. Urges No Further Fed Stimulus

    SABMiller To Buy Foster’s For A$9.9 Billion

    G.M. Plans to Develop Electric Cars With China

    UBS Board to Focus on Postscandal Plan

    Capital One Denies ING Deal Would Make It ‘Too Big to Fail’

    A Banker’s Secret Wealth

    Poker Web Site Cheated Users, U.S. Suit Says

    Paul Kedrosky: Satyajit Das on SocioFinancial Inflections

    Markets CANNOT be Tamed, Only Managed

    Be sure to follow me on Twitter.

  • Brent Thill on Oracle
    , September 20th, 2011 at 7:55 pm

    Here’s a good discussion on Oracle‘s ($ORCL) earnings report. The stock is up to $29.29 after hours.

  • Oracle Earns 48 Cents Per Share
    , September 20th, 2011 at 4:06 pm

    Oracle ($ORCL) just reported its fiscal Q1 earnings of 48 cents per share. In my eyes, this was a disappointment. I was expecting earnings of at least 51 cents per share. The Street’s consensus was for 46 cents per share.

    The next event will be the company’s earnings call which will contain the forecast for the current quarter. Three months ago, Oracle told us to expect earnings to range between 45 cents and 48 cents per share.

    Revenue rose to $8.4 billion which was ahead of the Street’s forecast of $8.35 billion. In the past 12 months, Oracle’s cash flow is up 46%.

    While Oracle fell short of my very optimistic forecast, the company still delivered solid results. In the after-hours market, the stock is slightly above today’s close (although the stock dropped 2.3% during the day).

    Here are more details from today’s press release:

    REDWOOD SHORES, CA–(Marketwire -09/20/11)- Oracle Corporation (NASDAQ: ORCL – News) today announced fiscal 2012 Q1 GAAP total revenues were up 12% to $8.4 billion, while non-GAAP total revenues were up 11% to $8.4 billion. Both GAAP and non-GAAP new software license revenues were up 17% to $1.5 billion. GAAP software license updates and product support revenues were up 17% to $4.0 billion, while non-GAAP software license updates and product support revenues were up 16% to $4.0 billion. Both GAAP and non-GAAP hardware systems products revenues were down 5% to $1.0 billion. GAAP operating income was up 40% to $2.7 billion, and GAAP operating margin was 32%. Non-GAAP operating income was up 21% to $3.6 billion, and non-GAAP operating margin was 42%. GAAP net income was up 36% to $1.8 billion, while non-GAAP net income was up 16% to $2.5 billion. GAAP earnings per share were $0.36, up 34% compared to last year while non-GAAP earnings per share were up 14% to $0.48. GAAP operating cash flow on a trailing twelve month basis was $12.8 billion, up 46% from last year.

    “New software license sales grew 17%,” said Oracle President and CFO, Safra Catz. “This strong organic growth coupled with disciplined business management enabled yet another increase in our operating margin in Q1. Operating cash flow increased this quarter to $5.4 billion, up $1.6 billion from $3.8 billion in Q1 of last year.”

    “Our high-end server business — Exadata, Exalogic, and SPARC M-Series — delivered solid double digit revenue growth in Q1,” said Oracle President, Mark Hurd. “In contrast, revenue declined in our low-end server business. By moving away from low-margin commodity hardware and focusing on high-end servers, we increased our hardware gross margins from 48% to 54%. Our strategy to grow the profitable parts of our hardware business is paying off.”

    “Next week Oracle will announce a new high-performance SPARC microprocessor, and a new high-end server called a SPARC SuperCluster,” said Oracle CEO, Larry Ellison. “The new SPARC T4 microprocessor is up to 5 times faster than the T3 microprocessor it replaces. The new SuperCluster is engineered to use the SPARC T4 microprocessor and the Exadata flash and disk storage system to deliver extreme record-breaking performance.”

    In the earnings call, Oracle said it expects fiscal Q2 earnings (ending in November) of 56 to 58 cents. Wall Street was expecting 57 cents per share.

    Oracle notes that the comparisons are very tough. The Q2 from last year was very strong. They earned 51 cents per share which was five cents better than expectations.

  • HFT Breaks Speed-of-Light Barrier
    , September 20th, 2011 at 1:12 pm

    From Zerohedge:

    On September 15, 2011, beginning at 12:48:54.600, there was a time warp in the trading of Yahoo! (YHOO) stock. HFT has reached speeds faster than time itself. Up to 190 milliseconds into the future, or 0.19 fantaseconds is the record so far. It all happened in just over one second of trading, the evidence buried under an avalanche of about 19,000 quotations and 3,000 individual trade executions. The facts of the matter are indisputable. Based on official exchange timestamps, there is unmistakable proof that YHOO trades were executed on quotes that didn’t exist until 190 milliseconds later!

    Millions of traders depend on the accuracy of exchange timestamps — especially after bad timestamps were found to be a key factor in the disastrous market crash known as the flash crash of May 2010. We are confident the exchange timestamp problem has been completely addressed by now: the SEC would have made sure of it. It’s not like adding accurate timestamps is rocket science, or even considered a difficult problem. Based on recent marketing materials, the exchanges are practically experts on measuring time. And with hundreds of millions in annual data feed subscriptions paid by the same subscribers expecting quotes with accurate timestamps, there is no shortage of funds to make it happen.

  • Mastercard Fights the Financial Slump
    , September 20th, 2011 at 12:40 pm

    Here’s another point in the case for good stock-picking. While the financial sector has been getting clobbered in recent years, not all financials are in trouble.

    Here’s a look at Mastercard‘s ($MA) performance against the Financial Sector ETF ($XLF).

    The stock is up 60% for the year and at a new 52-week high. However, it may be getting too pricey. Mastercard is now going for more than 20 times this year’s estimated earnings.

  • How Did Europe Get Into Such a Mess?
    , September 20th, 2011 at 12:01 pm

    Reuters has a good Q&A on how Europe got into the mess that it’s in. Here’s a sample:

    HOW DID EUROPE END UP IN SUCH A MESS?

    With the euro’s introduction in 1999, unified interest rates allowed members to borrow heavily. Bonds issued by southern European nations were taken to be as safe as German ones. Money flowed into Greece. Spain and Ireland had real estate booms.

    The bursting of the housing bubble in the United States and Europe in late 2007 dealt the first blow to the euro zone’s aura of invincibility. Then in late 2009, when a new Greek government found that its predecessor lied about its borrowings and had run up huge debts, the revelation provoked a drastic loss in investor confidence that spread across the currency bloc.

    In a recurring theme of the debt crisis, euro zone politicians were slow to react, calling for an investigation into Greece’s financial dishonesty rather than trying to reassure nervous investors who began pulling their money out of the country and demanding punitive interest rates on its debt.

    Larger euro zone economies and the International Monetary Fund extended Athens an emergency credit line in May 2010, but by then Greece’s finances had destroyed the illusion that all euro zone members were equal. Investors quickly turned on the weaker economies of Portugal and Spain, driving up their borrowing costs.

    Massive losses at Irish banks stemming from the housing bubble forced Ireland to take a bailout six months after Greece; uncompetitive Portugal then followed in May this year.

    Still, euro zone leaders missed another chance to reassure markets. Reluctance in Germany, the region’s biggest economy, to fully commit to helping wayward member states meant the rescues did not constitute an effective firewall — markets continue to be difficult for Spain and Italy, which have a combined debt of about 2.5 trillion euros.

    Meanwhile, the strict austerity measures imposed on Greece in return for its financial aid have led to a deep contraction in growth, and debilitating spending cuts and tax increases, further undermining confidence.

    Adding to the difficulty, Athens is dragging its feet over privatizations and reforms it promised in return for help, putting its next aid disbursement at risk and possibly leaving the government without money for salaries and pensions next month. The liquidity of the sovereign is now in question.