Adobe Systems (ADBE), the well-known provider of design & publishing software, is set to open modestly lower this morning after issuing FY16 guidance that was below expectations.
For much of its history, Adobe sold its products on a perpetual license basis -- i.e. users would buy the current version of a product and could use it as long as they needed, but then if they wanted to upgrade to the newest version they would have to purchase the product again. A few years ago, Adobe dropped that business model and now offers its products as cloud-based subscription services. While this caused significant disruption to Adobe's business at the time, the company now has a more steady, predictable revenue stream and continues to see a tailwind from migrating users of the old Creative Suite to the subscription-based Creative Cloud.
While the company has now migrated the majority of its customers to its new subscription-based products, some investors may find it curious that the company keeps lowering the bar when it comes to guidance. As mentioned above, last night ADBE again issued guidance that was below expectations. Specifically, the company sees FY16 total revenues of $5.7 billion and EPS of $2.70. The company also issued the following segment projections: Digital Media sales growth of approximately +20%, Digital Media Annualized Recurring Revenue (ARR) growth of approximately +25%, Adobe Marketing Cloud revenue growth of approximately +20%, and Adobe Marketing Cloud bookings growth of approximately +30%.
Aside from its FY16 guidance, the company also provided its longer-term FY15-18 financial targets, which include: total revenue compound annual growth rate (CAGR) of approximately +20%, non-GAAP EPS CAGR of approximately +30%, operating cash flow CAGR of approximately +25%, Digital Media sales CAGR of approximately +20%, Digital Media ARR CAGR of approximately +20%, Adobe Marketing Cloud revenue CAGR of approximately +20%, and Adobe Marketing Cloud bookings CAGR of approximately +30%.
Last night, ADBE shares experienced a sharp decline immediately after the company issued the downside guidance, but the stock has since recovered much of those after-hours losses and looks set to open down a modest -3.3% as we approach the open.
Capesize Shipping Rates Fall 8% Overnight
Monsanto Drops Following Earnings/Initial Fiscal Year 2016 Guidance
Shares of seed giant Monsanto (MON 88.10) dropped pre-market after reporting fiscal fourth quarter results and new fiscal year 2016 guidance. Looking ahead, the company notes that industry headwinds continue.
In the quarter, the company reported a fiscal fourth quarter loss of loss of $0.19 per share, excluding non-recurring items, which easily missed expectations. Gross margin as a percentage of sales fell slightly to 46.5%, down from 46.9%.
On the top line, revenues fell 10.5% year/year to $2.36 billion, which also fell short of expectations.
However, Monsanto did also reiterate its commitment to its capital allocation strategy. The company plans to enter into a new $3 billion accelerated share repurchase program under its current share repurchase authorization, as it progresses toward its targeted capital structure. The company plans to begin the new accelerated share repurchase program in the near-term and complete it sometime in the next six months.
Full-year net sales results were driven by the performance of the company's Seeds and Genomics segment and licensing agreements, but this was more than offset by foreign currency headwinds, declining corn acres and declines in glyphosate pricing.
The performance of its global seeds and traits business, licensing agreements, and strong cost discipline were the biggest drivers of performance for the year.
For the fiscal year, Monsanto realized Seeds and Genomics segment sales of $10.2 billion, which made up 68.3% of total sales for the year.
This was led by another significant year for its global soybean portfolio, including the record-setting adoption of Intacta RR2 PRO on 15 million acres in South America. Within corn, farmers continued to choose the newest classes of genetics, which resulted in a positive global germplasm mix lift in local currency for fiscal year 2015.
The company also confirmed it held or grew share in every major corn market in 2015. Within cotton, despite the pullback in cotton acres, the company sold out of Bollgard II XtendFlex cotton in the United States as part of its limited commercial introduction on more than 750,000 acres.
Looking ahead to fiscal year 2016, with continuing industry headwinds, the company expects to see earnings in the range of $5.10-5.60, which falls far short of expectations.
Growth from Core Seeds and Genomics Segment: The company expects mid-to-high single digit growth in gross profit, before estimated restructuring charges, from its core Seeds and Genomics segment in fiscal year 2016.
This will be led by new global corn hybrid portfolio introductions, continued significant Intacta RR2 PRO adoption and additional licensing opportunities.
Pre-market, shares of MON are down 4.6% at $84.00/share.
Yum! Brands (YUM), which is among the largest fast food operators, is trading sharply lower today (-16% in the pre-market) after reporting Q3 results last night. In case you're not familiar, YUM owns several fast food chains, including KFC, Pizza Hut and Taco Bell. In 2011, Yum! Brands sold its Long John Silver's seafood chain to LJS Partners and it sold its A&W All-American Food chain to A Great American Brand for undisclosed prices. The rationale for the sale was so that YUM could focus on its core brands and to focus on expansion in China.
Turning to the Q3 results, non-GAAP EPS rose 14% YoY to $1.00, which was worse than expected. Revenue rose 2.2% year/year to $3.43 bln, which also was below expectations. Breaking down the numbers a bit, China Division system sales increased 8%, driven by 7% unit growth and 2% same-store sales growth. Restaurant margin increased 4.7 percentage points to 19.6%. YUM's China Division is comprised of 4,889 KFC locations in China and 1,705 Pizza Hut locations in China.
KFC Division system sales increased 6%, driven by 3% unit growth and 3% same-store sales growth. Operating margin decreased 0.2 percentage points to 21.7%. Pizza Hut Division system sales increased 2%, driven by 2% unit growth and 1% same-store sales growth. Operating margin decreased 0.7 percentage points to 25.4%. Taco Bell Division system sales increased 7%, driven by 3% unit growth and 4% same-store sales growth. Operating margin decreased 0.1 percentage points to 28.0%.
YUM was pleased it achieved restaurant margins of nearly 20% in its China business. However, the pace of recovery in its China Division was below expectations. Outside of China, its Taco Bell and KFC Divisions continued to sustain their positive sales momentum while Pizza Hut was relatively flat. Given its lower full-year expectations in China, combined with additional foreign exchange impact, YUM now expects 2015 EPS growth will be well below its target of at least 10%.
YUM says its growth fundamentals in China, including new-unit development, remain intact. However, the company is experiencing unexpected headwinds, making the second half of the year more challenging than anticipated. Its new China Division CEO, Micky Pant is taking significant actions to get sales, traffic and profits back to historic levels.
Outside of China, KFC continued its solid growth across both emerging and developed markets. Taco Bell's same-store sales growth was boosted by an innovative menu and YUM remains confident in the actions underway at Pizza Hut to turn this business around longer term. Pizza Hut has been a drag on results.
In sum, investors are clearly disappointed in YUM's Q3 results. China is the focal point of YUM's growth plans and it accounts for more than half of total revenue so it's very important. YUM is clearly struggling in China, in large part due to a slowing economy. If you recall in our story stock following the Q2 results in July, we noted that management sounded pretty positive about its 2H15 outlook for China. Investors basically gave YUM a pass on a weak Q2 China number on the expectation that this segment would show improvement in Q3 and Q4. However, another weak quarter in Q3 is taking investors by surprise and causing them to sell the stock.
There have been calls in the past by some large investors to spin-off the China operations. Letting the various divisions trade independently may allow them to unlock value and garner better valuations. If YUM posts another weak result in Q4, the calls to split the company up will likely get louder.
Nu Skin Stock Getting Wrinkled by Revenue Warning
Skin care and nutrition company Nu Skin Enterprises (NUS 46.57) bills itself as the premier anti-aging company. Today investors are billing it as a premier disappointment after the company tempered its third quarter revenue guidance, citing foreign currency headwinds and lower-than-expected sales of its new cosmetic oils in China.
Shares of NUS traded down as much as 18% in Tuesday's after-hours session and are now indicated to open about 16% lower.
Recall that Nu Skin said in August when it reported its second quarter earnings results that it expected third quarter revenue in the range of $600 million to $620 million. The high end of that range was about 4% below analysts' average estimate at the time. Now the company is expecting revenues to be in the range of $570 million to $573 million, with the high end of the range being about 8% below analysts' lowered expectations.
The company said the strengthening U.S. dollar negatively impacted revenue by more than $60 million versus the prior-year period. On a constant-currency basis, which removes the effects of exchange rate fluctuations, third quarter revenues will be about even with last year and up from $560.2 million in the second quarter.
Reportedly, revenue growth was "particularly strong" in South Asia/Pacific, where there was a favorable response to the first introduction of the company's ageLOC Youth product. The soft sales of the company's new cosmetic oils in China in August and September, however, put a wrinkle in things. Nu Skin thinks the sales disappointment there could be a reflection of economic conditions in China.
Time will tell. At the moment, Nu Skin is optimistic about its fourth quarter potential, saying it expects constant-currency revenue growth to be between 7% and 10% year-over-year. Investors and analysts will undoubtedly be anxious to hear more when the company reports its third quarter results after the close on November 5.
Stifel for one didn't like what it heard in the aforementioned revenue warning. The analyst there downgraded Nu Skin to Sell from Hold and set a $35 price target for the stock, citing concerns about what appear to be worsening trends in Greater China, which was Nu Skin's largest market at 36% of second quarter revenue.