Sunday, August 6, 2017

TLH Market Review - 8/5/2017

This week was extremely busy with earnings, and the usual economic reports. Because of that I'll only be recapping earnings I haven't address yet from Church & Dwight(CHD), Global Payments(GPN), Cognizant Technology(CTSH), and Universal Corp(UVV).

If you were on Twitter this week(surely following me) you most likely heard that Donald Trump is responsible for all the job growth, and equity market highs.  Ummm no.  Truth is, as many long time readers of this blog know, is that job growth, the economy, and markets have been going up for some time now. Sure equity markets jumped post-election in anticipation of better times ahead.


But jobs?  I'm not even going to point out the many times I've said we are seeing decent enough job growth to keep this economy quietly humming along. Sure we aren't hitting 400-500k new jobs like we did in the 90's, but we've come to a moment in time when winning a thousand jobs here, or 4k there, are actually big wins. Last month the economy added 209k net new jobs, and we have an unemployment rate around 4.3%.


We might have had a bad construction spending number this week, down 1.3%, but overall this country has seen the economy improve all the way past it's pre-recession highs. As Montgomery Gentry would say "That's Something To Be Proud Of". I've even noticed  in my hometown of Chicago a strong uptick in construction in the downtown and nearby areas with high rises popping up at a pace I can't recall in awhile.  And let me tell you this city hasn't exactly been a pillar of economic growth.


  So yeah things got better, but of course with the Dow hitting new all time highs this week you'd think I'd be a happy camper. I love it when I see new highs in an index.  The problem is when I see new highs in an index, but it's not confirmed in another. Sure that happens quite often.  But when a rally has been long in the tooth, and only 30 stocks in a price weighted index hit new highs while small caps start to suffer I take note.
 A lot of people want a pullback, and as much as I love a rally, I want a pullback too. It's natural, and really not the end of the world. 

Portfolio

This week we had earnings Church & Dwight(CHD) which reported Q2 EPS of $0.29 on revenues of $898 million. EPS took a hit from a $0.12 charge related to it's UK pensions, and the company acquired WaterPik for $1 billion during the quarter.  Shares took a dive on the news as they fell to near $50 after trading around $53 pre-release.  I can see why. The company was aggressive with coupons, and marketing during the quarter. That caused gross margin to decrease 0.8%, but the company is standing by it's guidance that gross margin will actually increase 0.4-0.5% for the year. I think a lot of the decline is attributed to people seeing the big EPS miss and not realizing it's more of a one time thing, and nothing to do with long term business trends.  Here is what the CEO had to say. 

Matthew Farrell, Chief Executive Officer, commented, “We are pleased with our organic sales growth. In the domestic business, market share gains and volume growth reflect the investments made in the quarter. Our targeted investment spending translated into significant share growth with 6 out of 10 power brands exceeding or meeting category growth. We continue to invest in our growing International business. In particular, we are establishing a new subsidiary in Germany in the third quarter. We have delivered strong first half results and are on track to achieve our full year revenue and earnings goals.”

Cognizant Technology Solutions(CTSH) reported Q2 results with EPS of $0.80 on revenues of $3.67 billion. Share of Cognizant have done well for us this year, and the stock is trading at a new 52-week high.  The company upped guidance for 2017 too.  Revenues are expected to be in the range of $14.70-$14.84 billion , and non-GAAP EPS of at least $3.67. Here is what management had to say. 

"Cognizant delivered strong second-quarter results, which reflect our continued progress in helping clients achieve the value of digitizing their entire enterprises, or what we call being digital at scale," said Francisco D'Souza, Chief Executive Officer. "We remain dedicated to accelerating our shift to digital services and solutions as we continue to invest in our core business and execute our margin improvement and capital return programs."

Global Payments(GPN) reported Q2 results with EPS of $0.44 on revenues of $962 million. The company is acquiring Active Networks communities and sports division for $1.2 billion in a split cash/stock deal. The company is a leader in cloud based software solutions for event organizers. The company also updated it's outlook for 2017. Revenues are expected to be in the range of $3.4-$3.475 billion and adjusted EPS of $3.85-$4.00. Shares are trading at a new all time high. Here is what management had to say. 

"We delivered another outstanding quarter highlighted by double digit organic net revenue growth across our markets, building on the momentum of the last several quarters," said Jeff Sloan, Chief Executive Officer. "Our results reflect strong execution worldwide and our strategy of continuing to invest in and grow our technology-enabled businesses. Today's agreement to acquire the communities and sports divisions of ACTIVE Network adds complementary vertical-specific solutions to our portfolio and positions us well to continue to gain share going forward."

Universal Corp(UVV) reported Q1 2018 results with EPS of $.14 on revenues of $284 million.  The company saw decreased volumes, especially in North America, which dragged on results. The stock has struggled in 2017 after hitting a high of $83.35 earlier in the year. Shares dipped below $60 this week.  Here is what management had to say. 

"...Crop purchases are essentially completed in Brazil and are progressing well in Africa. Overall crop qualities are good. We expect increased volumes in Brazil to continue to positively affect earnings throughout this fiscal year. At the same time, greater reductions than expected in burley crop sizes in Africa and continued challenging market conditions in Tanzania will reduce our volumes sold from that region. We are currently forecasting worldwide burley tobacco production levels for fiscal year 2018 of about 510 million kilos, a reduction of approximately 13% from fiscal year 2017 levels. As a result, we believe that demand for burley tobacco may slightly exceed supply...

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