Thursday, November 3, 2016

Earnings - FB, CHD, VGR

Yesterday after the close we received earnings from one of the markets hottest and most talked about stocks, Facebook(FB). The company reported Q3 results with EPS of $0.82 up 165% on revenues of $6.8 billion up 59%. The company noted it's DAU's were 1.18 billion up 17%. On top of that mobile advertising revenues reprsented an 84% share. Staggering.

Unfortunately the company mentioned on the call that Q4 and 2017 would see a "meaningfully" decline in ad revenue growth rates and a pickup in expenses. That seems to be what is causing the stock to have a World Series Hangover today. Although looking at the chart it seems the stock was losing steam before this announcement. I wouldn't be surprised to see the stock pullback 20-25% overall. It's had a historic run already. So far today the shares have traded as low as $119.  Here is the company guidance given by the CFO during the conference call.

Turning now to the outlook for the remainder of 2016.
First, some color on revenue. We continue to expect that revenue growth rates will decline in Q4 as we lap a strong fourth quarter in 2015. We also continue to expect that our total Payments & Other Fees revenue in Q4 will be lower than it was in the fourth quarter of last year. 

I also wanted to provide some brief comments on 2017. First on revenue. As I mentioned last quarter, we continue to expect that ad load will play a less significant role driving revenue growth after mid-2017. Over the past two years we have averaged about 50% compound revenue growth in advertising. Ad load has been one of the three primary factors fueling 9 that growth. With a much smaller contribution from this important factor going forward, we expect to see ad revenue growth rates come down meaningfully. Secondly on expenses. Though it is premature to provide specific expense guidance, as Mark mentioned, we anticipate 2017 will be an aggressive investment year. Adding top engineering talent remains one of our key investment priorities as we continue to execute on our 3-, 5- and 10-year roadmap. We will continue to invest in our ability to recruit top technology talent both in the Bay Area and beyond. In addition, we expect to grow capital expenditures substantially as we continue to fund the ongoing data center expansion efforts that we have underway. Finally I wanted to share some plans on the use of cash starting in 2017. Beginning in January, we intend to fund withholding taxes due on employee equity awards via net share settlement, rather than our current approach of requiring employees to sell shares of our common stock to cover taxes upon vesting of such awards. We expect this change will increase our cash outflows and correspondingly result in less dilution. If we had used this approach in 2016, our cash outflows would have increased by approximately $1.8 billion in the year through September.

Our quiet strong arm, Church & Dwight (CHD), also reported Q3 earnings with EPS of $0.47 up 4.4% on revenues up 1% to $870.7 million. The company's core products in it's Consumer segment saw steady growth, especially internationally. The company lowered it's Q4 just slightly as it tightened guidance for EPS growth to 14% and 8%(reported & adjusted) from 14-15% to 8-9%. In other words a point off the top end.

The company's operating cash flow was up 21% in the quarter, and they announced their 463rd consecutive dividend. I expect a raise is coming for next year and I can easily see 10%. Either way shares are taking a beating today as they are currently down 7.6%. Maybe this will give me a buying opportunity I've been looking for.  Here is the CEO comments.

Matthew T. Farrell, President and Chief Executive Officer, commented, “We are pleased with our Consumer organic sales and the company’s earnings growth as our business overcame continued headwinds faced by our Specialty Products business. Our continued gross margin expansion in the third quarter provided us flexibility with our marketing and promotional investments to protect and grow our brand equities.”

Vector Group Ltd(VGR) reported Q3 results with EPS of $0.18 on revenues of $459 million. There was nothing really special that caught my eye in this quarter, but nonetheless shares are up near 3% on the day.  The company is a steady performer, and the dividend is still a generous 7.4%.  Although I would have liked to see some more growth out of the real estate portion of the business. That might be temporary though.

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