Sunday, October 30, 2016

TLH Market Review

This week we received our first estimate for Q3 GDP. According to government data the economy grew by 2.9% between July-September. That growth number is compared to the preceding 3 months, or Q2.  That's the best number we've seen since Q3 2014, but remember this number will be revised a couple more times so let's keep our fingers crossed.  Growth is nowhere near what our economy is capable of.  We have so many talented and smart individuals in this country and it seems our policies are preventing full blown utilization of this. 

We also received some damning news about HRC and her email scandal that won't go away. Apparently agents found some of the "deleted" emails during an unrelated political investigation from a congressman for underage child interactions.  This saga would make for an excellent movie. Maybe one day there will be. Considering the FBI issued it's letter to Congress means they will definitely have to back track on their previous stance regarding her mis-handling of classified information. I like to say where there is smoke there is fire, and I couldn't trust what looks like a criminal in the Oval Office. Traders didn't take to kindly to the news which made for an exciting Friday afternoon in the markets. The S&P 500 swooned 20 points, but ultimately ended down 10 points from when the news broke.

Portfolio Earnings

We received a batch of earnings this week so let's highlight the important stuff!

We started with Visa(V) which reported it's fiscal Q4 and year ending results.. For the quarter EPS came in at $0.79 and for the year $2.78. Revenue for the quarter came in at $4.3 billion, and 15.1 billion for the year. Q4 contained Visa Europe results. The company gave some metrics excluding the integration and payment volumes grew 10% over the prior year and service revenues were up 8% YoY.

That's a solid quarter and with the integration about to hit full throttle we'll start to see some cost savings come through in 2017.  We also received results from MasterCard and we'll see the payments sector is firing on all cylinders. Here is Visa's guidance for 2017.

Visa Inc. provides its financial outlook for the following GAAP metrics for fiscal full-year 2017: 

• Annual net revenue growth: 16% to 18% range on a nominal dollar basis, including 1.0 to 1.5 ppts of negative foreign currency impact; 
• Client incentives as a percent of gross revenues: 20.5% to 21.5% range; 
• Annual operating margin: Mid 60s; 
• Effective tax rate: Low 30s; and 
• Annual diluted class A common stock earnings per share growth: Low 30s on a GAAP nominal dollar basis and mid-teens on an adjusted, non-GAAP nominal dollar basis (see note below), both including 1.5 to 2.0 ppts of negative foreign currency impact.

MasterCard(MA) reported Q3 results with EPS of $1.08 up 26% on revenues up 14% to $2.9 billion.  Their worldwide purchasing volume was up 9% for the quarter. If you recall our PayPal results there is no doubt this has been a solid time for earnings with our companies. MasterCard has been quietly performing very well lately and is up around 21% since July.  Here is what the CEO had to say

“Our business continues to perform well, and we are pleased with our strong growth in revenue and earnings per share this quarter,” said Ajay Banga , Mastercard president and CEO. “We are executing on our strategy, deepening issuer relationships and delivering our customers and partners digital-first solutions. As a result, consumers benefit from seamless and secure purchase experiences everywhere and every way they shop.”

I'm expecting another solid dividend raise which I expect the company to announce in December.  I can really see another 19% raise, but I'm guessing it will be more like 12-16%.

It seems like a good time to transition to some bad news even though AB Inbev(BUD) reported later in the week.  The company announced Q3 results that were somewhat weak. EPS decreased to $0.83(USD) on revenues of $11.1 billion.  Volumes and costs both headed in the wrong direction. The company did note strength in it's 3 core brands - Budweiser, Stella Artois, and Corona. I do thoroughly enjoy each of those along with plenty of other beers I might add for an occasional drink. The company did announce it's interim dividend of $1.60 EUR. The company mentioned forward dividend growth will be modest as it looks to deleverage it's balance sheet instead for the coming years.

The company also completed it's SABMiller integration on October 10. The shares are starting to look attractive again, but I'm hesitant to add considering we also have exposure through Altria's 10% stake in the new company.

Speaking of the company they reported this week too.  Altria(MO) reported Q3 EPS of $0.56 on revenues on revenues of $6.9 billion. During the quarter the company also retired $993 million worth of high coupon debt and replaced it with $2 billion worth of debt financed at 2.625% and 3.875%. That to me shows the company is keenly aware of interest rate trends, and does a great job at managing it's' balance sheet. I'm also glad to see the company is looking to increase it's focus on reduced risk products, and working closer with PM on it's heated IQOS system.

Praxair(PX) reported mixed Q3 results with EPS of $1.18 on revenues of $2.7 billion. The company noted "persisten weakness" in it's industrial and energy business which are cyclical, but noted resilience in it's healthcare and food/beverage business which are defensive.  I'm expecting the company to make it through this rough time, and I love the fact no one ever talks about investing in this solid company that provides essential operating components to other industries.

Procter & Gamble(PG) results were really not that great, but the market loved it as the stock jumped from $84 to $87.  Considering the company has been figthing stagnant sales for awhile, it seems to be good enough to see that business is continuing along just fine with no decreases.  It is one of the few remaining blue chips with a dividend yield around 3% too.  The stock has been on a nice upward path since June as it's rallied from $79.  I think we can see shares make a run towards $95 in the next 4-6 months which would be welcome!

Wabtech(WAB) gave us earnings that really disappointed, and their guidance made it feel even worse as that helped the shares fall from $83 earlier in the week to a low of $74. The company has narrowed guidance a couple times this year, and it's never been to the upside. I hope the company can beat the numbers they gave us. The company has performed so well for so long that I think they'll come through this just fine.  Their industry is in a bit of a rough patch as rail volumes and pricing isn't blowing it out of the water right now. The company also noted they'll be selling off Faiveley's rail brake business as part of their acquisition. I'll be patient with this one as rail roads are still an essential cog in our global economy.

Now to the sweet stuff! Hershey's(HSY) reported their Q3 results with EPS of $1.18 on revenues up 2.2% to $2 billion. The shares popped over 6% on the report. I think that has to do more with the fact the company has such a stable business, and despite the increased attacks we saw on sugary drinks during the quarter it really had minimal affect on their business. With Halloween here I'll be sure to indulge in my own fair share of Reese's and Almond Joy.  Overall this is not an exciting company to say the least. I mean they sell candy and cocoa powder. Still it's a proven industry that works well for shareholders. I'm looking forward to a full year with HSY in the portfolio.

Hershey's (HSY) reported

Thursday, October 27, 2016

Earnings Roll In - PG, MO, PX, WAB

This week is a heavier than normal week for earnings, and for me it's been a busy week too.  Here is a brief update for the stocks that have reported so far that I haven't either mentioned or tweeted about. I've included their press release for your leisurely review.

Procter & Gamble(PG) announced Q1'17 EPS of $0.96 on flat revenues of  $16.5 billion. Here is the company guidance for the year and Press Release

Fiscal Year 2017 Guidance

P&G said it is maintaining its projection for organic sales growth of approximately two percent for fiscal 2017. The Company expects the combined headwinds of foreign exchange and minor brand divestitures to reduce sales growth by about one percentage point. As a result, P&G continues to estimate all-in sales growth of about one percent for fiscal 2017.

The Company also maintains its expectation for core earnings per share growth of mid-single digits versus fiscal 2016 core EPS of $3.67. All-in GAAP earnings per share are expected to increase 45% to 50% versus fiscal year 2016 GAAP EPS of $3.69. The fiscal 2017 GAAP EPS estimate includes approximately $0.10 per share of non-core restructuring costs and $0.13 per share of charges related to early debt retirement that was initiated earlier this month. Also included in GAAP EPS is a significant gain from the divestiture of 41 beauty brands to Coty Inc. The exact earnings gain from the transaction with Coty, which closed October 1, 2016, will be reported in the second quarter results

Wabtech(WAB) announced Q3 EPS of $0.91 on revenues of $675 million.  The company also updated it's guidance where they lowered the top end from previous estimates. Not exactly what I'd like to see. Here is their earnings release

Based on its year-to-date results and outlook for the rest of the year, Wabtec updated its full-year 2016 guidance as follows: Revenues are now expected to be down about 12 percent compared to 2015, and earnings per diluted share are now expected to be between $4.00-$4.04. This guidance does not include costs for restructuring activities or expenses related to the Faiveley Transport acquisition. Faiveley Transport is a global supplier of high added value integrated systems for the railway industry with annual revenues of about $1.2 billion.

Raymond T. Betler, Wabtec’s president and chief executive officer, said: “Our transit business continues to perform well, while the freight markets remain challenging due to overall rail industry conditions and the sluggish global economy. We have continued to focus on controlling what we can by aggressively reducing costs, generating cash and investing in our growth opportunities, including acquisitions. At the same time, we are progressing toward completion of the Faiveley Transport acquisition and remain excited by its growth and improvement opportunities.”

 Praxair(PX) announced Q3 EPS of $1.18 on revenues of $2.7 billion. Guidance for Q4 is $1.36-$1.43, and full year results should come in at $5.17-5.24. Here is the Press Release. 

Altria(MO) announced Q3 EPS of $0.56 on revenues on revenues of $6.9 billion. Here is the Press Release.

Here is the company guidance.

Altria reaffirms its most recent guidance for 2016 full-year adjusted diluted EPS, which reflects the reporting lag, to be in a range of $2.98 to $3.04. This represents a growth rate of 6.5% to 8.5% from a 2015 adjusted diluted EPS base of $2.80


Monday, October 24, 2016

Who Crudes The Most?

Visit to see more great charts.
I was actually having a discussion this weekend about the proposed Saudi Aramco IPO which would value the company at about $1 trillion. With oil having an amazing run from the August low of $39 to $50/brl on better than expected inventory reports, and general fear in the Middle East I decided to take a look at who leads the world in crude oil production.  After all it's considered common knowledge that Saudi Arabia is the worlds oil juggernaut in production and reserves.  If you asked most people which country is the oil king I bet Saudi Arabia would be the first country to come out of their mouths.

So who really does produce the most crude? Or as I'd like to say "Who Crudes the Most"?

Saturday, October 22, 2016

TLH Market Review 10/22/16

I decided this week to rename the weekly review to the "Market Review" to better reflect what we talk about here.  You can subscribe to receive new blog posts directly in your inbox by using the email signup tool on the right side of the web page.  I'm not going to discuss much about economics this week, and instead I'm going to focus on the portfolio holdings and earnings.

The S&P 500 continues to meander around it's all time highs. In fact the stronger dollar doesn't seem to be

Friday, October 21, 2016

PayPal & Boston Beer Earnings

Today PayPal(PYPL) reported Q3 results with EPS up 8% to $0.27 on revenues up 18% to $2.6 billion. The company increased it's active users to 192 million and TPV was up 25% to $87 billion. The company increased mobile payments by 56%(29% of TPV), and it's Venmo increased TPV by 131% to $4.9 billion. This is another solid quarter of growth for the company. I think the company will beat it's full year EPS guidance of $1.13-$1.15. My guess is it will actually come in at $1.17-$1.18. The company also upped it's 3 year revenue growth projections to 16-17% from 15%. One of the few discouraging signs are it's 5 quarter slide in transaction margins to 58.7%, down from 62.3% last year. The shares are up nicely today with a 9% gain. Here is what the CEO had to say.

British American Tobacco Bids for Reynolds American

Really big news today I'm sure you've heard by now. British American Tobacco(BTI) has proposed to purchase Reynolds American(RAI) for $47 billion dollars or a roughly 19% premium to yesterdays price. Both are members of The Long Haul Portfolio©.

That offer values the shares at $56.50 each, and the transaction would entail $24.13 in cash for each share, and .5502 of BTI shares for each share of RAI held. In other words if you own 100 shares you'll get 55 shares of BTI, and $2,413 in exchange.

What a crazy week for RAI as it fell below $44 the other day after disappointing earnings results. I think this deal makes a lot of sense for BTI.  They already own 42% of RAI, and it gives them larger access to the US market, and the accompanying strong dollar that should help boost results. Additionally with rates still low the company can still access debt cheaply to help finance the acquisition.

This will make the company potentially the largest publicly traded tobacco name in the world. Shares of Altria, Phillip Morris, and Vector Group are also up today.  This is the big boost to the portfolio I was just mentioning about with our tobacco shares. This will certainly help results for Q4 if momentum can be maintained.

I'll also add this is the second name on our list that has received a buyout offer this year as WhiteWave(WWAV) food is scheduled to be merged with Danone at the end of this year.

Tuesday, October 18, 2016

Earnings - IBM & PM

International Business Machines(IBM) reported Q3 results with EPS(GAAP) of $2.98 on revenues of $19.2 billion. Overall Strategic Imperatives Revenues were up 16% YoY, and now represent 40% of company revenues. I was looking to see how revenues in their Watson unit would be this quarter. I must say I'm a little disappointed as Cognitive Solutions revenue only grew by 4.5%, although cloud sales within that segment grew by 75% which is a small bright spot.  It's clear the transition the company is unfolding can't still quite keep up with their declines in other former core areas. I'm still pleased overall with the results as they continue to make strong gains in areas that are pertinent for future success. The shares are taking it on the chin today trading as low as $147. Here is what the CEO had to say.

Saturday, October 15, 2016

TLH Weekly Review 10/14/16

"It ain't over til it's over"  Anonymous

It seems the party is over. No I'm not talking about Hilary Clinton and the damning WikiLeak email release. Though it is quite entertaining to see all the dirt come out on her. The next debate will be all the more unpredictable, and that is probably one of the few guarantees in life.

I'm talking about the interest rate plays that were favorites among investors for so long.  I should be more specific though. The party isn't completely over for

Friday, October 14, 2016

Retail Sales Rise

Today we received a pretty decent Retail Sales Report from the Census Bureau. The report cited sales were up 0.6% in September from August, and up 2.2% from September 2015 to September 2016.

There were some interesting trends we can see in greater detail from this report. Here is an excerpt from IBD

The retail sales report reflected and shed light on evolving industry dynamics.

Auto sales hit the gas in September, rising to a 17.76 million annual rate from

Wednesday, October 12, 2016

Twitter Back to Reality

I'm not sure what it feels like to be an employee of Twitter(TWTR), but it must be dis-heartening. You have a cool little piece of technology with millions of loyal users(The Long Haul Investor included). Yet the company struggles to make profits, and gain traction. Then when it turns out no one is even interested in buying the company that must feel like the bottom falls out of your efforts. 

I think long term the platform Twitter has created really has a  ton of untapped potential.  You can now live stream NFL Football games, and the Presidential Debates.  It's also turning into

Saturday, October 8, 2016

TLH Weekly Review - 10/8/16

It was a busy week for sure with plenty of data and mischief afoot in the market.  It appears for sure the market is preparing for a rate hike. According to the CME Group participants are expecting 65% chances the Fed will raise rates in December.  And this time market internals are really displaying that probability.

For one Gold has taken it on the chin this week. The "yella" metal  dropped roughly 5% making it one of the worst weekly losses in years.

Gold fluctuates on a few things.

Happy Anniversary!

Actually it was the blogs 1 Year Anniversary yesterday, but I'm human and had a lot of personal obligations this week so I forgot myself to put up a post about it. We could debate the first day as I started tracking on October 7, but didn't post an article until October 9. So maybe posting this on the 8th is a compromise I guess.

Here are some of my favorite articles from the last year.

Is That a Conflict?


Sell Your Stocks!

The Self Driving Investment

Rough Tides Ahead? 

Monday, October 3, 2016

Portfolio Results - Q3

What a wild end we've had to Q3 this year. July and August were very mundane. They were so boring in fact many people wondered what happened to the markets.  Then right after Labor Day, and seemingly on cue, the markets started springing back to life, but not always in the way we enjoy. You can view the Google spreadsheet here

I had mentioned last week I was concerned the portfolio would probably not outperform the benchmark S&P 500 ETF SPY for the quarter. A few reasons being the sudden down move in Cognizant Technology Solutions, headwinds from tobacco stocks lagging, and Boston Beer representing such a large portion of the portfolio on a weighted basis.

Since the portfolio was started

Saturday, October 1, 2016

TLH Weekly Review 10/1/2016

Well it's the end of another quarter. Crazy to think this year is 3/4 done, and in a few days this site turns 1 year old. I'm busy getting everything together for the portfolio results which I'll put out on Monday morning.

The week was filled with some important economic reports, bank talk, and rate hike expectations. Let's start with the latter. Rate hike expectations for December actually rose this week(mostly Friday) to 61.7% up from last weeks 54.2%. That's really solid odds right now especially compared to the historical odds we've seen for most meetings.  There was even some rumbling about the Fed looking to buy stocks like the BOJ is.