Cognizant Earns $1.06 per Share
Posted by Eddy Elfenbein on May 7th, 2018 at 7:43 am

This morning, Cognizant Technology (CTSH) reported fiscal Q1 earnings of $1.06 per share. They had been expecting at least $1.04 per share. Q1 was up from 84 cents per share one year ago. Quarterly revenue rose 18.4% to $3.91 billion. Their operating margin was just over 20%, which is nice to see.

“We achieved solid financial results in the first quarter and progressed our shift to digital services and solutions,” said Francisco D’Souza, Chief Executive Officer. “Cognizant has built the capabilities and scale to help clients digitize their offerings, create personalized customer experiences, instrument their operations, and modernize their IT infrastructure. This digital-at-scale value proposition is winning with clients and positioning us well to deliver a strong 2018.”

Now for guidance. Cognizant expects Q2 earnings of at least $1.09 per share and revenues between $4 and $4.04 billion. Wall Street had been expecting $1.12 per share. Cognizant is lowering its full-year forecast. Originally it was for earnings of at least $4.53 per share. Now they expect at least $4.47 per share.

“First quarter results demonstrate solid execution of our plan to drive sustainable revenue growth while increasing margins,” said Karen McLoughlin, Chief Financial Officer. “Our full year 2018 non-GAAP diluted EPS guidance reflects a higher than originally anticipated effective income tax rate due to the updated interpretation of the U.S. Tax Cuts and Jobs Act of 2017. Our strong balance sheet and cash flows continue to support both our capital return program and our investments in the business to drive future growth and continue our shift to digital services and solutions.”

Morning News: May 7, 2018
Posted by Eddy Elfenbein on May 7th, 2018 at 7:12 am

China’s ZTE Applies to Suspend Ban on Buying US Technology

What Europe’s Tough New Data Law Means for You, and the Internet

U.S. Oil Cracks $70, Dollar Heads Towards 2018 High

Nestle Pays $7.2 Billion to Sell Starbucks Coffee

Air France-KLM Shares Plunge After CEO Quits Amid Ongoing Labor Battle

Obama’s Calorie Rule Kicks in Thanks to Trump

YouTube Nerd Taunts Wall Street After Wild Tesla Call

The World’s Fifth Largest Economy Is About to Require Solar Panels for All New Homes

New MIT A.I. Could Send Self-Driving Cars Down Roads Less Traveled

Berkshire’s Annual Meeting: Buffett Approves of Apple’s Buyback Program

Blackstone to Buy Gramercy Property in $7.6 Billion Deal

VW CEO Given Rare U.S. Safe-Passage Deal

Ben Carlson: Bad Advice Can Be Expensive

Jeff Carter: Should The SEC and CFTC Regulate Cryptocurrency?

Jeff Miller: Why Are Stocks Stuck in Neutral?

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Q1 2018 Earnings Calendar
Posted by Eddy Elfenbein on May 6th, 2018 at 2:30 pm

Here’s a list of reporting dates, Wall Street’s consensus estimates and actual reported results.

The Flash Crash Eight Years On
Posted by Eddy Elfenbein on May 6th, 2018 at 10:01 am

Watch as the stock market completely unraveled eight years ago today.

Unemployment Rate Drops to 3.9%
Posted by Eddy Elfenbein on May 4th, 2018 at 8:47 am

This morning, the government reported that the U.S. economy created 164,000 net new jobs last month. The unemployment rate fell to 3.9%. That’s the lowest rate in 17 years. In fact, this is very close to the lowest rate since the 1960s.

Economists surveyed by Reuters had expected payroll growth of 192,000 and the jobless rate to drop by one-tenth of a percent to 4.0 percent. The official jobs tally initially showed an increase of an upwardly revised 135,000 in March.

Stock market futures moved lower following the release, while government bond yields also drifted downward.

“The expectations were a little bit elevated going into this probably just because last month’s report was a little bit weaker,” said Charlie Ripley, senior investment strategist at Allianz Investment Management. “Net-net this was a little bit softer than people were expecting. this goes into a lot of the other data that we’ve been seeing … a little bit of a soft patch.”

The closely watched average hourly earnings number rose by 4 cents, equating to a 2.6 percent annualized gain, a bit off the pace from the previous month. The average work week was unchanged at 34.1 hours.

Despite having a similar unemployment rate as April 2000 (3.8% vs. 3.9%), in order to have a similar jobs-to-population ratio as 17 years ago, April 2018 would need 11.4 million more jobs, or 17.6 million fewer people.

In the last year, average hourly earnings are up 2.56%. Here’s the unemployment rate with a red line at 3.8%.

Here’s nonfarm payrolls along with the S&P 500.

CWS Market Review – May 4, 2018
Posted by Eddy Elfenbein on May 4th, 2018 at 7:08 am

“Economics is extremely useful as a form of employment for economists.”
– John Kenneth Galbraith

On Thursday, the S&P 500 closed at its level lowest in nearly a month. We’ve reached an important point for the stock market. For the last ten sessions, the S&P 500 has closed in a tight range between two key levels: the 50-day moving average on the high side, and the 200-day moving average on the low side.

This won’t last. The more a support level is tested, the greater the likelihood that it will fail, and the 200-DMA is looking shaky. In fact, the S&P 500 spent some of the day on Thursday below its 200-DMA even though it eventually closed above it.

Don’t stress out about these technical levels. I just want you to be aware that the market will be choppy for this spring. The storm that hit us in in February isn’t completely gone. Fortunately, we don’t have much to fear because our Buy List stocks are much better than the average stock. So far this earnings season, we’ve had 19 Buy List earnings reports. 17 of our stocks have beaten estimates, one matched and another missed by a penny (see our calendar). This is what our strategy is about.

In this week’s issue, I’ll run down our latest batch of earnings. I’ll also preview one more coming next week, which will be our final one for this cycle. But first, I wanted to say a few words about this week’s (*shudder*) Federal Reserve meeting.

The Federal Reserve Stays on Course

The Federal Reserve met again this week, and I’ll be honest—it was a snoozer. As expected, they didn’t raise rates. The central bank made a few minor tweaks to the last statement, but it was mostly a Xerox copy.

(Side note: Some traders were in a tizzy because the Fed deleted “near-term” from their standard boilerplate, “near-term risks to the outlook appear roughly balanced.” Please. They’re way overanalyzing things.)

The big story is that the Fed appears ready to stay on the path they said they wanted to be on. Let me summarize the outlook for rate hikes at the next few Fed meetings.

June: Yes
August: No
September: Yes
November: No
December: Maaaaaybe

I think it’s almost a certainty that the Fed will lift their target on the Fed funds rate to 1.75% – 2% at their June 13th meeting. Next week, we’ll get the CPI report for April. I think it will show that real short-term interest rates (meaning “adjusted for inflation”) are still negative. So as much as the Fed has moved, they’re still a long way from truly hurting the economy.

In fact, last Friday, we got our first look at Q1 GDP. The government said the economy expanded at a 2.3% rate during the first three months of the year. That’s not as strong as I’d like, but it’s about in line with how the economy has behaved during the current expansion. The jobs market is much better. In fact, we’re hearing stories of places like railroads offering hiring bonuses. Same with Disney. The important takeaway is that the economy is better and we’re not at risk of slipping into a recession soon. This is good for the market. Now let’s take a look at our earnings reports.

This Week’s Buy List Earnings Reports

It’s the busy season for earnings reports. Last Friday, shortly after I sent last week’s issue, Moody’s (MCO) released a very strong earnings report. For Q1, the credit-ratings agency earned $2.02 per share. That was well above Wall Street’s expectations of $1.80 per share. Quarterly revenue rose 16% to $1.1 billion.

As I looked at the details of the report, I could see that Moody’s business is humming along. I really like their Moody’s Analytics business as well. Moody’s also reaffirmed their full-year earnings forecast of $7.65 to $7.85 per share. Going by that, I can’t say the stock is exactly a bargain, but I’m willing to stick with Moody’s as long as the business is strong. It’s our second-biggest winner YTD. Moody’s remains a buy up to $172 per share.

We had seven more earnings reports this week. After the bell on Tuesday, it was Fiserv’s (FISV) turn to report. Wall Street was expecting 73 cents per share. In last week’s issue, I said I was expecting them to beat that. Well, I was right. For Q1, Fiserv made 76 cents per share. That’s an increase of 23% over last year.

This is basically what I was expecting. Quarterly revenue rose 4% to $1.37 billion. Their operating margin was 32.5%. That’s very good. During the quarter, Fiserv bought back 5.7 million shares of stock for $398 million. They have another 15.8 million shares left in the current authorization.

Fiserv reiterated their full EPS forecast of $3.02 to $3.15 per share. That’s an increase of 22% to 27% over last year. (The previous guidance was a pre-split level of $6.05 to $6.30 per share.) Fiserv also expects internal revenue growth of at least 4.5% this year. The stock got dinged up in Wednesday’s trading, but it’s nothing too serious. I’m keeping our Buy Below at $72 per share.

On Wednesday, Cerner (CERN) became our first dud of this earnings season. This company has done so well for so long, so it’s a surprise to see any bad news. Actually, the numbers weren’t that bad, but traders didn’t like the poor guidance. For Q1, Cerner made 58 cents per share which matched expectations. The first quarter was okay, although revenue was a bit light. Bookings rose 12% to $1.4 billion. Operating cash flow was $409 million while revenue was up 3%.

Now for guidance. For Q2, the healthcare-IT firm sees earnings coming in between 59 and 61 cents per share. They also lowered their full-year earnings range. The old range was $2.57 to $2.73 per share. The new range is $2.45 to $2.55 per share. The company blamed the lower guidance on “the delay of a large contract and a less predictable end market.” I’m not sure what that means. The stock dropped about 5% on Thursday. At one point, CERN was down over 10%. This week, I’m dropping our Buy Below on Cerner to $61 per share.

Thursday was especially busy for us with five earnings reports. Let’s start off with Becton, Dickinson (BDX). For their fiscal Q2, the company earned $2.65 per share which was two cents better than expectations. I think the addition of CR Bard was a great move for them. Becton is also raising its full-year guidance by five cents per share at both ends. BDX now sees 2018 coming in between $10.90 and $11.05 per share. That’s growth of 15% to 16.5% over last year. The company was helped by exchange rates, but they expected 12% on a currency neutral basis. I’m going to lift my Buy Below to $235 per share.

Ingredion (INGR) reported Q1 earnings of $1.94 per share. That was five cents ahead of expectations. While the numbers looked good, the CEO noted that their business was impacted by higher freight costs. Ingredion cut their 2018 range to between $7.90 and $8.20 per share. The previous range was $8.10 to $8.50. The market wasn’t terribly upset by the lower guidance. On Thursday, shares of INGR pulled back 2.4%. I’m dropping our Buy Below to $128 per share.

Not much to say about Church & Dwight (CHD). The consumer-products outfit had Q1 earnings of 63 cents per share. That was two cents better than estimates. They reaffirmed full-year guidance of $2.24 to $2.28 per share. CHD increased their expected sales growth to 9%. For Q2, they expect earnings of 46 cents per share. I’ve been puzzled with CHD’s weakness this year, but this earnings report tells me things are fine. I’m lowering our Buy Below to $61 per share.

Intercontinental Exchange (ICE) earned 90 cents per share for Q1. Wall Street had been expecting 88 cents per share. In last week’s issue, I also told you to expect a beat here. Quarterly revenues rose 5% to $1.23 billion. Despite the beat, the stock pulled back $3.00 on Thursday. I’m not at all worried. I’m keeping my Buy Below at $73 per share.

Continental Building Products (CBPX) became our only miss this earnings season. For Q1, the wallboard company made 36 cents per share which was one penny below Wall Street’s estimates. Plus, I told you expect a beat in last week’s issue.

So what happened? Nothing really. Business is going well. Weather may have a played a role, but importantly, gross margins increased. Continental had announced a price increase for January 1. As a result, a lot of customers bought before that, so results in Q1 reflected the aftermath. The most important news is that they haven’t changed their 2018 outlook. CBPX remain a buy up to $29 per share.

We only have one Buy List earnings report left. Cognizant Technology Solutions (CTSH) is due to report on Monday. For Q1, they expect earnings of at least $1.04 per share. For all of 2018, they’re looking for earnings of at least $4.53. They should be able to hit those targets. This is a very good company, and it’s currently our top performer on the Buy List. In February, Cognizant raised its quarterly dividend by 33% to 20 cents per share.

That’s it for Buy List stocks with quarters ending in March. Later this month and in early June, we’ll get earnings reports from our three Buy List stocks with quarters that end in April: Ross Stores (ROST), Hormel Foods (HRL) and Smucker (SJM).

That’s all for now. Earnings season will start to wind down next week. There’s not a lot on tap in the way of economic news. However, I’ll be very curious to see the next CPI report which comes out Thursday morning. Inflation has been largely contained, but there could be evidence of some price increases, and that will have an impact on future Fed decisions. 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

Morning News: May 4, 2018
Posted by Eddy Elfenbein on May 4th, 2018 at 7:05 am

U.S. Wants $200 Billion Cut in China Trade Imbalance by End of 2020

Jobs Report on Friday: What to Watch For

In Birthplace of Junk, Investors See Risks After Decade of Debt

Buffett’s Berkshire Braces for ‘Wild’ Swings From New Accounting

Xerox Says CEO, Board to Stay After Agreement With Icahn, Deason Expires

Ex-Volkswagen CEO Charged With Fraud Over Diesel Emissions

Activision Blizzard Results Get Boost From In-Game Spending

Walmart Beats Amazon in $15 Billion Flipkart Battle

AT&T Says Selling DirectTV, Turner Would ‘Destroy’ Value of Time Warner Merger

CBS Flexes Its Muscles

Nike CEO Apologizes for Corporate Culture That Excluded Some Staff

Spotify’s Guidance Does Little to Calm Fears About Its Pricing Power

Blue Harbinger: 3 Anomalies That Beat The Market

Joshua Brown: “Active management really shines in a bear market.”

Cullen Roche: Three Things I Think I Think – China, Tesla And Weird Stuff

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Continental Building Products Earned 36 Cents per Share
Posted by Eddy Elfenbein on May 3rd, 2018 at 4:11 pm

Continental Building Products, Inc. (NYSE:CPBX) (the “Company”), a leading manufacturer of gypsum wallboard and complementary finishing products, announced today results for the first quarter ended March 31, 2018.

Highlights of First Quarter 2018 as Compared to First Quarter 2017

Net income increased 11.6% to $13.6 million
Earnings per share increased 16.1% to $0.36
Net sales decreased 3.2% to $116.8 million on wallboard volumes down 5.4%
Gross margin increased to 25.8% compared to 25.7%
EBITDA1 decreased to $31.3 million down 4.9% compared to $33.0 million
Deployed $6.4 million in capital investments
Deployed $14.6 million to repurchase 530,600 shares of common stock
Outlook for full year 2018 unchanged

“We delivered higher gross margins in the first quarter while facing a challenging operating environment, including lower volumes as expected given strong pre-buy activity in advance of our January 1, 2018 price increase and poor weather for our regions. Our ability to improve gross margins while overcoming a tightening freight and labor market reflects our sharp focus on operating discipline and our low cost highly efficient assets” stated Jay Bachmann, President and Chief Executive Officer.

Mr. Bachmann continued, “We delivered strong quarterly earnings of $0.36 per share. In addition to the benefits of tax reform and the accretive benefit of our stock repurchase plan, we believe this is a direct result of our Bison Way continuous improvement efforts and the payback we are already receiving from high-return capital projects. As we look forward to the balance of the year, we are encouraged by the pace of wallboard demand in our markets, which supports our unchanged outlook for full year 2018. At the same time, we remain focused on deploying our strong cash flow to improve our cost position through further investments in high-return capital projects while continuing to repurchase shares as a key avenue to return value to shareholders.”

First Quarter 2018 Results vs. First Quarter 2017

Wallboard sales volumes decreased to 615 million square feet (MMSF) for the first quarter 2018, compared to 650 MMSF in the prior year quarter. Net sales were down 3.2% to $116.8 million, compared to $120.6 million in the prior year quarter, primarily due to a 5.4% decrease in wallboard volumes attributable to strong customer pre-buy activity during the fourth quarter 2017 in anticipation of a previously announced January 1, 2018 price increase, partially offset by an increase in average mill net price compared to the prior year quarter.

Operating income was $20.8 million, compared to $21.7 million in the prior year quarter. This decrease was primarily attributable to lower wallboard volumes. SG&A expense was $9.4 million compared to $9.3 million in the prior year quarter, or 8.1% of net sales compared to 7.7% in the prior year quarter.

Interest expense decreased 6.7% to $2.7 million, compared to $2.9 million in the prior year quarter, reflecting higher investment income and capitalized interest partially offset by the rise in LIBOR.

Net income for the first quarter 2018 increased 11.6% to $13.6 million, or $0.36 per share, compared to $12.2 million, or $0.31 per share, in the prior year quarter. The $1.4 million increase in net income is primarily a result of the decrease in provision for income taxes under the new tax rates effective for 2018.

Balance Sheet and Cash Flow

As of March 31, 2018, the Company had cash on hand of $63.8 million and total outstanding borrowing under the term loan agreement of $270.9 million. During the first quarter 2018, the Company generated cash flows from operations of $13.7 million and deployed $6.4 million in capital investments.

In February 2018, the Company’s Board of Directors authorized an expansion of its stock repurchase program from up to $200 million to up to $300 million. The program’s expiration date was also extended from the end of 2018 to the end of 2019. During the first quarter 2018, the Company repurchased 530,600 shares of its common stock under its repurchase program at an aggregate purchase price of $14.6 million, representing 1.4% of its outstanding shares as of December 31, 2017. As of March 31, 2018, against the expanded program, the Company has repurchased $117.9 million of our common stock at an average price of $21.84 per share and had a remaining capacity of $182.1 million for future repurchases.

Forward-Looking Outlook For the Full Year 2018

SG&A is expected to be in the range of $39 – $40 million
Cost of goods sold inflation per unit is expected to be at 3% to 5% partly offset by approximately $5 million of savings from high return capital projects
Total capital expenditures are expected to be in the range of $30 – $35 million
Maintenance capital spending is expected to be approximately $15 million
High-return capital spending is expected to be in the range of $15 – $20 million
Depreciation and amortization is expected to be in the range of $43 – $46 million
Effective tax rate is expected to be in the range of 22% – 24%

Four More Earnings Reports this Morning
Posted by Eddy Elfenbein on May 3rd, 2018 at 8:52 am

We have five Buy List earnings reports today, and four of them came this morning.

Becton, Dickinson (BDX) earned $2.65 per share for Q1 which was two cents better than expectations. The company is also raising its full-year guidance by five cents per share at both ends. BDX now sees 2018 coming in between $10.90 and $11.05 per share.

Ingredion (INGR) reported $1.94 per share for Q1. That was five cents ahead of expectations. They cut their 2018 range to between $7.90 and $8.20 per share. The previous range was $8.10 to $8.50.

Church & Dwight (CHD) had earnings of 63 cents per share. That was two cents better than estimates. They reaffirmed full-year guidance of $2.24 to $2.28 per share. CHD increased their expected sales growth to 9%.

Intercontinental Exchange (ICE) earned 90 cents per share. Wall Street had been expecting 88 cents per share.

Continental Building Products (CBPX) will report after the close.

Morning News: May 3, 2018
Posted by Eddy Elfenbein on May 3rd, 2018 at 7:07 am

U.S. Weighs Curbs on Chinese Telecom Firms Over National-Security Concerns

Fed Holds Rates Steady, but Indicates Increases Will Continue

Amazon Threatens Seattle Over New Tax That Would Help the Homeless

Tesla’s Elon Musk Turns Conference Call Into Sparring Session

In IPO Letter, Xiaomi CEO Explains Innovation at `Honest’ Prices

Coming to a Yard Sign Near You: Warren Buffett’s Berkshire Hathaway

Fitbit Earnings: ‘Stepped Up Our Game,’ Says CFO

Apple CEO Tim Cook Is ‘Very Optimistic’ About U.S.-China Relations

Spotify’s Loss Narrows but Misses Expectations

Bitcoin Will Hit $20K in 2018. Here’s Why Ethereum Is a Better Bet, Says Reddit Cofounder

China Shunning U.S. Soybeans on Trade Tensions, Bunge CEO Says

The Cautionary Tale of Zynga’s Founder and His Potential Redemption

Michael Batnick: $100,000,000,000

Jeff Carter: The State of Private Investing

Ben Carlson: Larry Kudlow’s Strong Dollar is Easier Said Than Done & Micro Bubbles

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