Thursday, April 20, 2017

Earnings - IBM, PM

As most of you know by now IBM(IBM) reported Q1 earnings that showed the company struggling with lower revenues for 20 quarters in a row.  That sent shares reeling back to $160 on heavy volume.  This has been tough stock for many investors. Especially those that bought back in 2012-2013 when shares were trading at highs. I was fortunate enough to add some to my personal portfolio, which was accounted for under the old tracking method, back in November 2015 when shares were trading near lows.  At that time I bought at $133.93/share.  Still it's hard to own a stock that sees falling revenues year after year.

The bright side is the company has been increasing it's dividend and reducing it's share count.Since Q1 2012 the dividend is up over 86%. Back then the quarterly payout was $0.75 and now stands at $1.40, but I think we can expect a bump for Q2.  Here is the total shares outstanding since 2012.

Share count(in millions)
2012 - 1,155
2013 - 1,103
2014 - 1,010
2015 - 983
2016 - 959

As you can see the share count has been reduced by 17%. That helps keep EPS propped up in the face of falling revenues.  Still it's not how you want to see your company survive. With the most recent quarter coming in with EPS of $1.85 on revenues of $18.1 billion it's not exactly looking to be another bumper year with full year EPS forecast at $11.95. I still believe in their Watson program, and I'm impressed with how well they ramped up strategic imperatives which now represent 42% of company sales. Most other companies would have failed by now.  I'll be patient for the remainder of the year, but patience runs thin eventually. 

Phillip Morris International(PM) reported Q1 2017 results this AM. Q1 EPS came in at $1.02 on revenues of $16.6 billion which is down 1.4%.  The shares have been rocked so far today, and at one point were down more than 4%. The reason is the large decline in their traditional cigarette business which saw volumes shrink by 11.5%. That's an acceleration from recent quarters, and the growth in their Reduced Risk Products including HEETS and Heatsticks has not been enough to offset the fall.  The company guided full year results at $4.84-$4.99. I'll admit I'm slightly worried about that falloff. Fellow portfolio member Altria(MO) has also taken a hit today.  Here is what the CEO had to say.

“Our results were in line with our previously communicated expectation of a relatively weak first quarter, due to lower cigarette volume -- primarily related to low-price brands in specific markets where the impact on our profitability was limited -- and certain timing factors," said AndrĂ© Calantzopoulos, Chief Executive Officer.

"We are fully on track to deliver our full-year EPS guidance, driven by robust pricing and accelerating IQOS volume growth. We anticipate a combined cigarette and heated tobacco unit volume decline of 3% to 4% for the full year.

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