Sunday, October 29, 2017

TLH Market Review + Earnings from Visa, Altria, Wabtec, Praxair, Hersheys, & Boston Beer 10/29/17

There is seemingly no stopping this bull market from continuing to hit new highs. The S&P 500 is closing in on 2,600 & the Nasdaq is fast approaching 7k with a lot of help from big hitters in the tech field this week when Alphabet(GOOGL), Amazon(AMZN), & Microsoft(MSFT) reported earnings that helped boost confidence in the tech sector aiding a 2.20% move for the index Friday.  Over the last l2 months the Nasdaq is up a HEFTY 28%. That's huge performance, and definitely reflects the risk on mentality of this market.

The crazy thing is despite the Nasdaq hitting new highs regularly I wouldn't say the index is anywhere near overvalued like it was just before the dotcom crash.  Many of the companies that are still around, and were part of the index then, are now big profit producers.  Back then making money on the internet was actually really tough.  Sure growth was big(off a small base), and the potential was seemingly huge. Unfortunately too many people paid upfront for earnings that didn't materialize for years to come.

 Speaking of earnings we had a bunch of reports from The Long Haul Portfolio members this week.  They include Visa(V), Altria(MO), Hershey(HSY), Praxair(PX), Wabtec(WAB), and Boston Beer(SAM).

But before that I'll touch on GDP.  We found out that Q3 GDP came in up 3% from the prior quarter. Now this will be subject to plenty of revisions in the next couple months, but it's encouraging to see a headline number above 2%.  Steady and dependable growth has been tough to come by so this is a welcome sign.

Earnings definitely started off strong this week when we got good results from Wabtec, and great results from Visa. However the market treated the rest of our stocks with mixed results overall as the weak wore on.

Wabtec(WAB) reported Q3 earnings with EPS of $0.70 on revenues of $957 million, and net income of $68.5 million.  The company reported a record backlog of $4.5 billion along with a 12 month backlog of $2.24 billion, and has been showing some signs that operating results are stabilizing.The company expects full year revenue of $3.8 billion and expects EPS between $3.45-$3.50, which is down from $3.55-$3.70 as the company is expecting some charges.  Overall these are OK numbers, but not fantastic.  Shares initially popped close to $82, but have since drifted down to $76. I'd say the company is very fairly valued right now.  

Visa(V) reported Q4 and fiscal year 2017 results with EPS of $0.90 on revenues of $4.9 billion, and net income of $2.1 billion. Fiscal 2017 saw EPS of $2.80 on revenues of $18.4 billion, and net income of $6.7 billion. The purchase of Visa Europe continues to look extremely savvy as total revenue grew 22% for the year, and a 30% increase in payment volume(11% without). I was expecting a blow out(per twitter), and I think we got it.  Shares perked up to a new all time high just over $110 on the news.  The company provided the following guidance for 2018:

• Annual net revenue growth of high single digits on a nominal dollar basis, with approximately 0.5 to 1 ppt of positive foreign currency impact;
• Client incentives as a percentage of gross revenues: 21.5% to 22.5% range;
• Annual operating expense growth: Mid-single digits adjusted for special items in fiscal 2017 (see note below);
 • Annual operating margin: High 60s;
 • Effective tax rate: About 29%; and
• Annual diluted class A common stock earnings per share growth: Mid-40's on a GAAP nominal dollar basis and high end of mid-teens on an adjusted, non-GAAP nominal dollar basis (see note below), both including approximately 1 to 1.5 ppts of positive foreign currency impact.

Altria(MO) reported Q3 earnings of $.90 on revenues of $6.7 billion, and net income of  $1.8 billion. The company reported some extra tax benefits this quarter as a result from an IRS audit. But the downside is smokeable products volume were down 6.1%. I've stated this before that the tobacco industry is struggling to deal with accelerating volume declines. I don't expect the stock price to head higher, but the dividend should continue to be bumped. Just back in August the company approved an 8.2% increase to $2.64 annualized, which comes to a 4% yield at current prices.  The company still expects EPS growth of 7.5-9.5%, again nothing exciting, but still respectable.

Hershey's(HSY), America's favorite candy maker, reported Q3 earnings with EPS of $1.28 on revenues of $2 billion, and net income of $273 million. The company also announced a new $100 million stock buyback, but that's a small program considering the company has a market cap of $22 billion.  The company reported some small updates to it's outlook including net sales growth of 1.25% up from a negative .25% estimate, and adjusted gross margin will increase .25% from .50%. The company has a gross margin of approximately 46%. Halloween is just around the corner and store shelves have been stocked with company product for weeks now.  It's sure to be a favorite among consumers again this year.  I'll personally be looking to snag a few bags if I can find them on the discount shelf. Hey what can I say I like getting a bargain!

Praxair(PX) reported Q3 results with EPS of $1.45 on revenues of $2.9 billion, and net income of $419 million.  The company also reported a record FCF of $474 million while reducing debt by $202 million, and paying out $225 million in dividends. The company also reported a backlog increase, saw little impact from the hurricanes, and realized 15% sales growth in it's Asia business primarily due to increased electronic and metal manufacturing. Furthermore the merger with Linde AG was finalized during the quarter. The company also upped their adjusted EPS guidance and expect 2017 to finish $5.78-$5.83 up from $5.63-$5.75. Shares surged 3.5% to land just shy of $150 on the news. Overall it's a very good quarter in the air business.

Boston Beer Co(SAM) reported Q3 results with EPS of $2.78 on revenues of 247 million, and net income of $33.7 million.  The company saw shipment volumes decrease by 4% from the previous year as the company continues to deal with increased competition in the craft market.  Overall an OK quarter, but nothing exciting.  The market agreed as the stock which had a nice run to $180 took a 5% hit on the chin to $167 as investors sold on the news.  Here is what management had to say:

Jim Koch, Chairman and Founder of the Company, commented, "Total Company depletion trends showed continued improvement during the last quarter while still remaining slightly negative.  We remain challenged by the general softening of the craft beer and cider categories and a competitive retail environment with a lot of options for our drinkers. Our leadership team continues to make strides to address these challenges. During the quarter, we have had better focus and execution at retail around our fall seasonal program, which appear to have helped our Samuel Adams Octoberfest trends.  We are excited by the introduction in the coming weeks of new media campaigns for both our Samuel Adams and Angry Orchard brands and by the early reception to our key innovations that we are planning to launch nationally in the first quarter of 2018.  These innovations include Samuel Adams Sam '76, a uniquely flavorful and refreshing lager ale union. The Sam '76 launch will be supported by new media, launch events and other marketing programs to drive awareness of this revolutionary beer.  Other innovations that we are planning to launch nationally in the first quarter of 2018 include Samuel Adams New England IPA and Angry Orchard Rosé.

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