• Ross Stores Earned 91 Cents per Share for Q3
    Posted by on November 20th, 2018 at 9:00 am

    This morning, Ross Stores (ROST) reported fiscal Q3 earnings of 91 cents per share. Sales rose 7% to $3.5 billion. The important metric, same-store sales, rose by 3%. Going into this quarter, Ross told us to expect earnings between 84 and 88 cents per share, and same-store sales growth of 1% to 2%. Wall Street had been expecting 90 cents per share.

    Barbara Rentler, Chief Executive Officer, commented, “Both sales and earnings for the quarter were ahead of our forecast, despite being up against very strong multi-year comparisons. Though above plan, operating margin of 12.4% was down from last year as higher merchandise margin was more than offset by increases in freight costs and this year’s wage investments.”

    Ms. Rentler continued, “During the third quarter and first nine months of fiscal 2018, we repurchased 2.9 million and 9.4 million shares of common stock, respectively, for an aggregate price of $278 million in the quarter and $807 million year-to-date. We remain on track to buy back a total of $1.075 billion in common stock during fiscal 2018.”

    For Q4, which is the important holiday quarter, Ross projects same-store sales growth of 1% to 2%. For EPS, they see that ranging between $1.09 and $1.14 per share. That’s the same as the previous guidance but it now includes a gain of seven cents per share due to the resolution of a tax matter. For the entire year, Ross sees earnings of $4.15 to $4.20 per share.

    This is basically what I expected. Their Q3 guidance was low, but that’s what they often do. Wall Street wasn’t fooled. The outlook for Q4 is the same as before. Still, the stock gapped down more than 7% at the open. This was on top of a pronounced slide over the last seven days. At today’s low, Ross was down nearly 9%. From the low, the stock was off more than 20% from its high of just eight trading days ago. All of this happened, even though the company did exactly what they said they’d do.

    Update: Ross lost 9.38% today to close at $82.64 per share. The stock dropped at the open, then rallied, but gradually pulled back at the end of the day.

  • Hormel Foods Earns 51 Cents per Share
    Posted by on November 20th, 2018 at 8:16 am

    Hormel Foods (HRL), a leading global branded food company, today reported results for the fourth quarter of fiscal 2018. All comparisons are to the fourth quarter of fiscal 2017 unless otherwise noted.

    EXECUTIVE SUMMARY – FISCAL 2018

    Record diluted earnings per share of $1.86, up 18% from 2017 EPS of $1.57
    Excluding a non-cash impairment, adjusted diluted earnings per share1 of $1.89, up 20%
    Record cash flow from operations of $1.24 billion, up 20%
    Volume of 4.80 billion lbs., up 1%; organic volume1 down 1%
    Record net sales of $9.55 billion, up 4%; organic net sales1 down 1%
    Operating margin of 12.6% compared to 14.0% last year
    Effective tax rate of 14.3% compared to 33.7% last year

    EXECUTIVE SUMMARY – FOURTH QUARTER

    Record diluted earnings per share of $0.48, up 17% from 2017 EPS of $0.41
    Adjusted diluted earnings per share1 of $0.51, up 24%
    Volume of 1.27 billion lbs., down 1%; organic volume1 down 3%
    Net sales of $2.52 billion, up 1%; organic net sales1 down 3%
    Operating margin of 12.8% compared to 13.2% last year
    Effective tax rate of 18.7% compared to 33.8% last year

    FISCAL 2019 OUTLOOK

    “Fiscal 2019 is a continuation of our long-term evolution as a global branded food company,” said Jim Snee, chairman of the board, president, and chief executive officer. “Our focus on building brands, delivering meaningful innovation to the marketplace, making strategic acquisitions, and creating intentional balance will ensure we are able to meet our growth goals. We are confident in our plan to deliver growth in each business segment in 2019.”

    “We anticipate another year of strong cash flows. We plan to reinvest to expand capacity for branded value-added products while returning cash back to shareholders through a 12 percent dividend increase,” Snee said. “This coming year will require strong execution from every business unit in order to manage through commodity market volatility and global trade uncertainty. I know our team is up to the challenge.”

    “Growth from leading brands such as Wholly Guacamole®, Applegate®, Jennie-O®, and SPAM® will be important to our success in 2019,” Snee said. “We expect continued growth from our many new innovative items such as Herdez® guacamole salsa, Hormel® Bacon 1™ fully cooked bacon, Hormel® Natural Choice® products, and Hormel® Fire Braised™ meats.”

    Fiscal 2019 Outlook

    Net Sales Guidance (in billions)

    $9.70 – $10.20

    Earnings per Share Guidance

    $1.77 – $1.91

    The following items are included in the company’s guidance range. The company plans to deliver $75 million in cost reductions in 2019 which excludes any planned synergies from recent acquisitions. The company will use the savings to help offset inflation, reinvest into key brands, and contribute to earnings growth. The company also expects to complete the Fremont divestiture in December 2018, incurring approximately $12 million in expenses. This transaction reduces earnings volatility and decreases the company’s reliance on commodity profits.

    DIVIDENDS

    “This morning we announced a 12 percent increase to our annual dividend, making the new dividend $0.84 per share,” Snee said. “This is the 53rd consecutive year in which we’ve increased our dividend and the 10th consecutive year of double-digit increases. This demonstrates the confidence we have in our business going forward.”

    Effective November 15, 2018, the company paid its 361st consecutive quarterly dividend at the annual rate of $0.75 per share.

    COMMENTARY – FOURTH QUARTER

    “Our team delivered a record quarter of earnings,” Snee said. “Refrigerated Foods had a particularly solid quarter led by value-added growth in retail, deli, and foodservice channels which offset a continued decline in commodity profits.”

    “We reached many milestones this quarter including the startup of two new lines to support growth of Hormel® Fire Braised™ products and Hormel® Bacon 1™ fully cooked bacon,” Snee said. “We also announced expansions at our Burke manufacturing facility in Nevada, Iowa, and our Fontanini plant in McCook, Ill. These expansions will allow us to continue growing our pizza toppings business as well as our line of authentic premium Italian meats and sausages. These strategic investments reinforce the strength we are seeing in our value-added businesses.”

  • Morning News: November 20, 2018
    Posted by on November 20th, 2018 at 7:12 am

    Oil Prices Slide As Russia Says Wait And See on Production Cuts

    No End in Sight for Crypto Sell-Off as Bitcoin Breaches $4,500

    Bitcoin-Rigging Criminal Probe Focused on Tie to Tether

    FAANG Stocks Drop a Combined $728 Billion — More Than Saudi Arabia’s GDP — in 6-Week Pummeling

    Goldman Says It’s Time for Equity Investors to Boost Their Cash

    Walmart’s Black Friday 2018 Sale Has A New Nasty Surprise

    Societe Generale to Pay $1.4 Billion to Settle Cases in the U.S.

    Founder’s Big Idea to Revive BuzzFeed’s Fortunes? A Merger With Rivals

    Lowe’s to Get Rid of Mexico Stores in Further Restructuring

    David’s Bridal Files For Bankruptcy But Brides Will Get Their Dresses

    Ghosn Downfall Ripples From Tokyo to Paris as Allegations Grow

    Facebook Deserves Criticism. The Country Deserves Solutions.

    Roger Nusbaum: Cryptopocalypse 2018!

    Joshua Brown: Okay Here’s What’s Going On

    Jeff Carter: Projections Are Never Right

    Be sure to follow me on Twitter.

  • Ross Drops Ahead of Earnings
    Posted by on November 19th, 2018 at 7:12 pm

    Ross Stores (ROST) has fallen for seven days in a row. The total loss is nearly 12%. The deep-discounter reports fiscal Q3 tomorrow morning. This move may reflect fears of a bad report (or it may be overdone).

    In the last earnings report, Ross gave guidance for both Q3 and Q4. For Q3, Ross expects same-store sales growth of 1% to 2% and earnings between 84 and 88 cents per share. Wall Street expects 90 cents per share.

    For Q4, which is the all-important holiday-shopping quarter, Ross again expects same-store sales growth of 1 to 2%. For earnings, Ross is looking for $1.02 to $1.07 per share. That translates to full-year earnings of $4.01 to $4.10 per share. For Q4, Wall Street expects $1.08 per share.

  • Hormel Foods Raises Dividend by 12%
    Posted by on November 19th, 2018 at 5:03 pm

    For the 53rd year in a row, Hormel Foods (HRL) has increased its dividend. The quarterly payout will rise from 18.75 cents to 21 cents per share. That’s a 12% increase. (I had predicted 20 cents per share.)

    The annual dividend on the common stock of the corporation was raised to $0.84 per share from $0.75 per share.

    The Board of Directors authorized the first quarterly dividend of 21 cents ($0.21) a share to be paid on Feb. 15, 2019, to stockholders of record at the close of business on Jan. 14, 2019.

    The Feb. 15 payment will be the 362nd consecutive quarterly dividend paid by the company. Since becoming a public company in 1928, Hormel Foods Corporation has paid a regular quarterly dividend without interruption.

  • The Panic Low Was Ten Years Ago
    Posted by on November 19th, 2018 at 12:10 pm

    One of the important aspects of financial markets is that they tend to be very boring and positive most of the time. Then, very suddenly, they’re very, very exciting and very, very bad for a very, very short period of time. It happens fast.

    The market crash of 2008 is a good example. It was ten years ago tomorrow that the stock market reached what I call its “panic low.” I have to explain that I follow a slightly different chronology from convention.

    I think it’s better to see the market blowup of 2008-2009 in three segments.

    There was the “initial selloff” from October 9, 2007 to August 28, 2008. Then came the “panic phase” from August 29 to November 20, 2008. Finally, there was the “retest phase” from November 20 until March 9, 2009.

    The initial selloff lasted 224 days and the S&P 500 lost 16.90% (in blue).

    The panic phase lasted 59 days and the market lost 42.15% (in red)

    The retest phase was 72 days and the market lost 10.09% (in green)

    Others can quibble about precise starting and ending points, but I think my divisions are reasonable.

    Officially, the bear market lasted exactly 17 months and the S&P 500 dropped 56.78%.

    My point is that even within the parameters of a bear market, there was a much larger and more severe bear market. While the initial phase and retest phases were quite unpleasant, they’re a normal kind of unpleasant.

    It’s the panic phase that’s so disquieting (note those performance figures I listed above). The panic phase saw a much bigger drop than the other two combined even though it lasted one-fifth the amount of time.

    If you want to try and time the market, you need to be exceedingly precise because the window doesn’t last long. The crash often starts before it’s a news story, and it often ends before people are debating when it will all end.

    Things were pretty dicey ten years ago, but it wasn’t a terrible time to go back into the market. Yes — even with another nasty drawdown at the start of 2009. In fact, the entirety of the loss during the retest phase came on its final seven days.

  • Morning News: November 19, 2018
    Posted by on November 19th, 2018 at 7:06 am

    APEC Fails to Live Up To Its Name Amid U.S., China Acrimony

    An Accountant Stirs Debate as India Central Bank Board Meets

    The Great Promise of China

    The Trade War Whisperer Battling Trump – One Factory at a Time

    Bitcoin Tumbles Toward $5,000

    Apple Suppliers Suffer as It Struggles to Forecast iPhone Demand

    Amazon’s Black Friday 2018 Sale Has Nasty Surprises

    Conoco Enters Into Exclusive Talks to Sell U.K. Assets to Ineos

    Needing Growth, Uber Returns to Germany. This Time on Best Behavior.

    Ghosn Arrested After Icon Is Probed for Financial Violations

    Danske’s Cast of Characters Steps Into the Limelight

    Yalies Lampert and Freidheim Square Off in Bankruptcy Court

    Cullen Roche: Pop Quiz, Hotshot

    Michael Batnick: How to Read Performance

    Ben Carlson: How the American Consumer Got Addicted to Choice

    Be sure to follow me on Twitter.

  • Industrial Production +0.1% in October
    Posted by on November 16th, 2018 at 10:45 am

    This morning, the Federal Reserve reported that industrial production rose 0.1% for October. Wall Street had been expecting 0.2%. In the past year, IP is up 4.1%.

    Manufacturing production, which accounts for three-quarters of the overall index, continued to grow at a solid pace for the fifth straight month, advancing 0.3% in October from the prior month. Meanwhile, output in the utilities and mining industries fell for the second month in a row in October, declining 0.5% and 0.3%, respectively.

    Low unemployment and ramped up wage growth have helped spur consumer demand. At the same time, the late-2017 tax cuts helped stoke business investment, and the U.S. government has increased its defense spending. Rising crude prices in recent years helped the manufacturing industry too, though oil prices have declined in recent weeks.

    Capacity utilization, which reflects how much industries are producing compared with what they could potentially produce, fell by 0.1 percentage point to 78.4% in October. Economists had expected 78.2%. Utilization has trended up in recent years, but remains 1.4 percentage points below its long-run average recorded from 1972 to 2017.

  • CWS Market Review – November 16, 2018
    Posted by on November 16th, 2018 at 7:08 am

    “In a roaring bull market, knowledge is superfluous and experience is a handicap.”
    – Benjamin Graham

    Last week, I urged caution on the stock market’s rebound. Sure enough, the S&P 500 lost ground five days in a row. The index rebounded on Thursday, but that was after it dropped to its lowest intra-day point this month. The S&P 500 is still below its 200-day moving average, and that’s often a sign that the bears still are in charge.

    Don’t worry. I’ll explain what this all means for us and our portfolios. Interestingly, the big news recently hasn’t been coming from the stock market. Instead, the oil traders have been making headlines.

    The price of crude fell for eleven days in a row. Then on day 12, it had its worst plunge in three years! At one point, West Texas Crude was going for less than $55 per barrel. That’s down from nearly $77 per barrel in early October. The falloff is due to fears of oversupply. Production in the U.S. has been hitting new highs, and the Trump administration granted waivers that are keeping Iran’s oil on the market. (The Saudis are not exactly pleased about that!)

    In this week’s CWS Market Review, I’ll break down what it means. I’ll also highlight the performance of our Buy List which has perked up lately. Later on, I’ll preview three Buy List earnings reports coming our way. But first, let’s look at this week’s economic news.

    What’s Behind the Plunge in Oil?

    On Wednesday, the government reported that consumer inflation had its largest increase in nine months. In last week’s issue, I told you that I suspected that the CPI would run on the high side and might cause the market some drama. For October, consumer prices rose by 0.3%, and over the past year, the CPI is up 2.5%. I also like to look at the “core rate,” which excludes food and energy. Last month, core inflation was 0.2%, and in the past year, it’s been running at 2.2%. That’s quite tame.

    The numbers for November will likely be quite different. As I touched on before, oil prices have been tumbling. The Oil Services ETF (OIH) is at a 15-year low. The latest numbers show that domestic crude production rose for the eighth week in a row. OPEC would love to cut production, but it’s not so easy to get everyone on board for that.

    Other commodities are down as well. Gold isn’t doing much, and silver recently dropped to a three-year low. This phase might not pass so quickly. With the Fed raising rates, the dollar is now at a 16-month high. The British pound just got hammered due to the chaotic nature of the Brexit drama. Heck, even Bitcoin has been in the dumps.

    I don’t believe these recent events will be enough to cause the Fed to pause on rate hikes. There’s a very good chance—though not a rock solid one—that we’ll get another rate hike next month, but after that…well, things get dicey. There’s a decent chance the Fed may take a six-month break to give the economy some breathing room.

    The drop in commodities may signal that the world economy isn’t as strong as previously thought. The concern is more about Europe and Asia rather than the United States. As far as America goes, this week’s retail sales report was pretty good, and that could mean we’re in for a strong Q4.

    I’m happy to say that our Buy List has been acting better lately. Since November 1, the Buy List is up 2.14% while the S&P 500 is down -0.37%. For the year, we have a slight lead over the S&P 500: +2.65 compared to +2.12% (those figures don’t include dividends; the final numbers will).

    Bear in mind that six months ago, our Buy List was trailing the market by more than 3% YTD. This hasn’t been a good climate for stock-pickers, but we’ve held up well. Fourteen of our 25 stocks are beating the market this year. The problem is that the laggards have been pretty bad. Carriage Services (CSV) is down 36% this year which dinged the whole portfolio by 1.6%.

    Overall, I’m pleased with our performance. Remember that next month we make our annual changes. According to the rules of the Buy List, we can’t touch our stocks for the entire year. Only at the end of the year are we allowed to break the seal. We’ll add five new stocks, and delete five current stocks. Stay tuned for more details. Now let’s look at three of our stocks that are due to report earnings soon.

    Three Upcoming Buy List Earnings Reports

    There are three stocks on our Buy List with quarters ending in October. That means they’re due to report earnings soon. Ross Stores and Hormel Foods will report on November 20, while JM Smucker will report on November 28. Let’s run down what to expect.

    Ross Stores (ROST) is set to report its fiscal Q3 earnings on Tuesday, November 20. Business has been going well for the deep-discounter, and the share price reflects that. Just last week, ROST hit another new 52-week high, although the shares have pulled back a bit in the last few days due to some weakness in the retail sector.

    In the last earnings report, Ross gave guidance for both Q3 and Q4. For Q3, Ross expects same-store sales growth of 1% to 2% and earnings between 84 and 88 cents per share. That sounds about right. For Q4, which is the all-important holiday-shopping quarter, Ross again expects same-store sales growth of 1 to 2%. For earnings, Ross is looking for $1.02 to $1.07 per share. That translates to full-year earnings of $4.01 to $4.10 per share.

    The company has bold plans for the future. They’re aiming to buy back more than $1 billion of stock. Ross also plans to open 3,000 stores which is up from the previous goal of 2,500. Fifteen months ago, I said that Ross looks to be “a good value here.” The stock is up 54.80% since then. Let me caution you that the stock has taken near-term hits after the last few earnings reports even though results have been good. The stock eventually shook off all the hits.

    In August, Hormel Foods (HRL) had an OK earnings report, but not a great one. The Spam people said they made 39 cents per share for their fiscal Q3. That matched Wall Street’s expectations. Net sales were up 7% while organic sales were flat. The company said it’s feeling the squeeze from tariffs on U.S. agricultural products. Lean hog prices have been slammed this year, and as a result, Hormel has had to cut prices.

    In August, Hormel trimmed its full-year sales range to $9.4 – $9.6 billion but stood by its EPS forecast of $1.81 to $1.95 per share. Since they’ve already made $1.38 per share for the first three quarters of their fiscal year, that implies Q4 earnings of 43 to 57 cents per share. Wall Street expects 49 cents per share.

    The stock has been holding up very well this autumn. Since September 27, shares of HRL are up 16.9%. The stock made a new high earlier this week. I also predict that Hormel will increase its dividend. I make this claim based on a detailed analysis of the company’s financial statements. Also, they’ve raised their dividend every year for the last 52 years. Expect #53 soon. The current quarterly dividend is 18.75 cents per share. My guess is that they’ll raise it to 20 cents per share.

    JM Smucker (SJM) will report its fiscal Q2 earnings on November 28. In August, the jelly people reported fiscal Q1 earnings of $1.78 per share. That was two cents better than estimates. However, that total included a charge of seven cents due to “a purchase accounting adjustment attributable to acquired Ainsworth inventory.”

    Let me explain what’s going on with Smucker and some other big food companies. Basically, this is a fine company. At the moment, however, they’re caught by falling prices. The cost for a lot of the things they make is dropping, and that means they have to pass on the lower prices to consumers. As a result, dollar sales are flat even though sales by volume are doing fine.

    Smucker knows what the problem is, and they’re working to address it. That’s why they recently sold off Pillsbury for a cool $375 million and picked up Ainsworth. Of course, it will take a few quarters to see the results of this strategy.

    In August, Smucker updated its financial guidance. Importantly, they didn’t alter their full-year EPS range which is still $8.40 to $8.65 per share. They did pare back their revenue estimate from $8.3 billion to $8.0 billion. Smucker also lowered their free-cash range from between $800 million and $850 million to between $770 million and $820 million. The guidance reflects “the anticipated impact from the pending divestiture of its U.S. baking business.”

    This is from the Wall Street Journal:

    Divesting the baking line, which makes Pillsbury cake mixes, and acquiring pet-snack maker Ainsworth were appropriate moves to adjust Smucker’s portfolio. Ainsworth sales were up 28% from a year earlier in the July quarter, and the company said it expects this growth to be sustained for the full year.

    But what Smucker really needs, like fellow struggling food giant Campbell, is a convincing plan to turn around its core brands. With respect to Folgers, Chief Executive Mark Smucker said the company is working on “longer-term initiatives to reinvigorate coffee rituals for this iconic brand.” It was unclear what he meant.

    I know what he meant. Smucker will continue to jettison older businesses while concentrating on niche areas. That’s the smart play. This is a company that generates a lot of cash and can easily put those dollars to use.

    Let’s look at some numbers: SJM is now going for just 13.2 to 13.6 times this year’s guidance range, plus the dividend yields 3%. In September, Smucker raised its dividend by 9%. That is SJM’s 17th annual dividend hike in a row. Wall Street is expecting earnings of $2.33 per share.

    Buy List Updates

    On Wednesday, Shareholders of Wabtec (WAB) approved the combination with GE Transportation. At the meeting, 99% of the shares that were voted approved the deal. That’s nice to see. The stock got taken to the woodshed last month, but it seems to have found a base. The GE deal is expected to close in early 2019.

    Last month, Sherwin-Williams (SHW) got caught up in the great housing panic of October 2018. In a few weeks, the stock lost one-quarter of its value. On October 25, Sherwin missed earnings and lowered the upper end of its guidance range. Interestingly, that marked the low point for shares of SHW. Since then, the stock has rebounded smartly. At one point, SHW closed higher for eight days in a row. I’m going to cautiously raise my Buy Below on Sherwin to $420 per share (no, that’s not an homage to Elon).

    Intercontinental Exchange (ICE) had a good earnings report two weeks ago. The exchange operator beat earnings by five cents per share, and the board announced a $2 billion share buyback. Last quarter was ICE’s 22nd quarter in a row of year-over-year revenue growth. The stock hit a new high on Thursday. This week, I’m hiking my Buy Below on Intercontinental Exchange to $85 per share.

    That’s all for now. There will be no newsletter next week. I’m taking my traditional Thanksgiving break. The U.S. stock market will be closed on Thursday for Thanksgiving, and it will close at 1 p.m. on Friday, November 23. There’s not much in the way of economic news scheduled for next week. The housing-starts report will come out on Tuesday, following by the durable-goods report on Wednesday. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

    P.S. I’ve recently started a premium Twitter feed where I discuss the markets and investing in greater detail (and without any trolls or stock promoters). This is a great resource for investors. Check it out!

  • Morning News: November 16, 2018
    Posted by on November 16th, 2018 at 7:04 am

    Chip Stock Carnage Seeps Into Asia With $11 Billion Lost

    Two Words That Sent the Oil Market Plunging: Negative Gamma

    F.D.A. Seeks Restrictions on Teens’ Access to Flavored E-Cigarettes and a Ban on Menthol Cigarettes

    The Best Shopping Holiday for Travelers May Not Be Black Friday (But It’s Close)

    Deutsche Bank, BofA, JPM Are Drawn Into Danske Probe

    Mark Zuckerberg Defends Facebook as Furor Over Its Tactics Grows

    Why Amazon Chose the Wrong Locations For Its HQ2

    T-Mobile Says Sprint Deal May Close as Early as First-Quarter Next Year

    Bankrupt Sears Wins Court Approval for Plans to Sell Stores

    Tractor Maker Deere Aims to Ride Green Revolution in Africa

    Cryptocurrency Hangover Weighs on Nvidia

    PG&E Shares Surge 40% on Report Regulator Wants to Avoid Bankruptcy From Wildfire

    Ben Carlson: Revisiting the 4% Rule

    Jeff Carter: Eloquence and Bluntness

    Jeff Miller: Boost Your JM Smuckers Dividend Yield

    Be sure to follow me on Twitter.