Parcel delivery service UPS (UPS) is trading up by 1% today after reporting Q3 results this morning. EPS grew by 14% YoY to $1.32 while revenue rose 5.7% YoY to $14.29 bln. Both results were better than expectations. The company also reaffirmed EPS guidance for the full year at $4.90-5.00.
Breaking down the numbers a bit, daily packages in the US were 6.9% higher as demand from both B2C and B2B customers improved. International Export shipments increased 9.4% with strong growth in both Asia and Europe. UPS delivered 1.1 billion packages around the world, up 6.9% YoY.
Just as important as the Q3 results was UPS' outlook for the all-important Q4 holiday season as many consumers purchase items online. Management said it expects shipments delivered during the month of December to climb 11% YoY. "We expect another robust peak season and are confident our network is prepared to operate at the highest level." UPS had a difficult holiday season last year as it was not able to handle a surge in volume (mostly from online purchases) which caused many packages to be delivered late.
It's good to see that UPS sounds more confident this time around. They have taken concrete steps to improve their on-time performance this year. For example, in mid-September, the company announced that it would hire 90,000-95,000 seasonal employees to handle the expected rush. UPS has also been improving its forecasting, capacity, package tracking and customer communication to meet ongoing e-commerce and B2B shipping demands.
In sum, it was good to see that UPS reported a strong Q3 and they sounded positive about Q4. The stock probably would have been higher but with Amazon.com (AMZN) guiding a bit below expectations for Q4, that may be making some investors a bit more cautious. AMZN is the largest online retailer so if they are seeing any weakness, that's not good for UPS. Furthermore, if AMZN is seeing any sort of weakness, you can assume other online retailers may be feeling a pinch.
With that said, it's important to note that some of the rationale for AMZN's lowered guidance was currency-related as the dollar has been strengthening. It didn't sound like a reduction in volumes. In fact, volume will probably be robust this holiday season. UPS does not seem worried about a lack of packages being sent. It seems more worried about being able to handle the rush. On a final note, UPS shares jumped in the past week as the company announced a 4.9% average price increase, effective December 29. They would not do that if volumes were slipping.
Ford Hits The Brakes, Stock Down Almost 4% Following Earnings
Automaker Ford (F 13.91 -0.50) is trading 3.5% lower following its quarterly results, which were released this morning.
The company reported Q3 (Sep) adj. earnings of $0.21 per share, which came in better than expected. Meanwhile, auto sector revenue fell 3.2% year/year to $32.8 billion, which fell just slightly of expectations.
Total Automotive third quarter wholesale volume and revenue decreased by 3% from a year ago. The lower volume is more than explained by an unfavorable change in dealer stocks related to product launch effects and supplier parts shortages, as well as declining industry volume in South America. Higher industry volumes in other regions was a partial offset.
North America and Asia Pacific were profitable, but pre-tax results were lower than a year ago for all of Ford's Automotive business units except Middle East & Africa. Ford Credit delivered strong results that were better than a year ago.
Operating margin was 2.5%, a decrease of 4.5 percentage points from a year ago. Automotive pre-tax profit of $686 million was $1.5 billion lower than a year ago, mainly explained by higher warranty costs, including recalls, mainly in North America, and lower volumes in North and South America, as well as adverse balance sheet exchange effects, mainly in South America.
Guidance remains unchanged...
This year is a critical building block in the One Ford plan. Ford continues to expect its 2014 pre-tax profits to be about $6 billion, excluding special items. The co is on track with its record 23 global new product launches in preparation for a more profitable 2015.
Ford continues to expect its North America operating margin to be at the lower end of its 8 percent to 9 percent guidance range, and better results in Europe, Asia Pacific and Ford Credit compared with 2013. In 2015, Ford expects to realize the benefits of its global product investment and growth strategies, and will continue its strong product push with 16 global vehicle launches.
The company expects its pre-tax profit, excluding special items, to be significantly higher - in the $8.5 billion to $9.5 billion range - with all five Automotive regions improving on 2014 results, with auto sector revenue higher vs. +6% consensus.
Looking ahead, the company sees U.S. industry volume at 16.8-17.5 million, Europe 20 14.8-15.3 million and China at 24-26 million.
Ford's stock pulled below the 20-day moving average on a daily chart following today's losses. The stock was previously below the 50, 100 and 200-day moving averages.
Amazon.com Shares Weak in Early Trading Following Disappointing Q3 Results and Downside Guidance
Amazon.com (AMZN 290.80, -22.38) is trading 7.2% lower today following the company's Q3 miss on the top and bottom line. AMZN reported a net loss on the quarter of $0.95 per share. Investors were expecting a loss in Q3 but this was a wider loss than expected. Revenues rose 20.4% YoY to $20.58 billion which is good growth for such a large base but it was still short of expectations.
It was not just the Q3 miss, but AMZN guided below expectations for Q4 as well. Management now sees revenue for Q4 at $27.3-30.3 bln. In fairness, some of this lowered forecast is due to the rising dollar which reduces the revenue earned overseas once that money is converted into the US currency. That's not AMZN's fault.
Besides revenue, they also guided lower for operating income. And since Q4 is the all-important holiday selling season, that seems to have spooked investors. Our sense is that the stock is down as much for the Q4 guidance as for the Q3 miss. Overall, the outlook for the holiday season doesn't look quite as good for the world's largest online retailer.
Beside earnings, the Amazon Fire phone has been a bit of a letdown. The company noted it still has an $83 million stockpile of unsold inventory. The company also said that the unsold Fire inventory negatively impacted results to the tune of $170 million. Also, AMZN has seen a slow-down in its media growth as a result of students renting textbooks more often than buying them.
In sum, while this was a tough quarter for AMZN, management has said it's dealing with short-term losses in order to realize long-term gains. For example, back in 2012, Jeff Bezos commented that the company is comfortable waiting for "seeds" to grow into "trees." As such, the company has been branching out into new areas, from brick-and-mortar stores to introducing a phone with varied success. Time will tell if some of these endeavors bear fruit.
From a broader perspective, with AMZN being the largest online retailer, we'd be cautious about holding any online retailer in the near term. Stocks like Overstock.com (OSTK) and eBay (EBAY) might see some action on this as a result, but only time will tell. AMZN is currently trading 7.2% lower vs. the 0.3% gain in the broader market.
Procter & Gamble Spikes Following Quarterly Earnings Results
Consumer goods giant Procter & Gamble (PG $83.18) spiked higher this morning following earnings results/guidance and is currently just above $85/share.
The company reported its first quarter earnings of $1.07 per share, excluding non-recurring items, which came in about in-line compared to expectations.
On the top line, revenues declined 0.2% year/year to $20.79 billion, which was also in-line with expectations, and included a negative two percentage point impact from the combination of foreign exchange and minor divestitures.
Organic sales grew 2%, in line or higher versus the prior year in all reporting segments. Organic volume was unchanged versus the prior year in both developed and developing regions. Pricing added one percentage point to sales growth, and geographic and product mix was also positive.
P&G reiterated its organic sales growth and core earnings per share growth guidance ranges for fiscal year 2015.
KLAC Clicks with Leveraged Recapitalization Plan
Chip equipment maker KLA-Tencor (KLAC 71.00) reported its fiscal first quarter results after the close on Thursday and issued second quarter guidance that fell below analysts' expectations. That, however, has almost been an afterthought given the company's additional news that it is going to pursue a leveraged recapitalization that features a special cash dividend of $16.50 per share.
Shares of KLAC traded up nearly 20% following the announcement and are now indicated 10% higher in pre-market action.
The recapitalization news helped distract investors from the fact that KLAC put out a pretty ugly second quarter warning following an in-line first quarter report.
Specifically, KLAC said it sees second quarter revenues between $620 million and $700 million and EPS ranging from $0.46 to $0.70 per share. The midpoint of those ranges are well below analysts' current expectations and would represent year-over-year declines of 6% and 32%, respectively.
The special cash dividend represents approximately 23% of the company's common stock price as of October 22 or an aggregate value of approximately $2.75 billion. The board intends to declare and pay the special cash dividend before December 31, 2014, in addition to its regular $0.50 per share quarterly dividend But, wait, there's more.
The Board of Directors also said it will add $250 million to its existing $1 billion stock repurchase program announced in July. Total capital directed to shareholders, therefore, would be roughly $4 billion in aggregate.
KLAC noted the special cash dividend will be funded in part with a portion of cash on its balance sheet and in part with incremental debt. To that end, KLAC intends to add up to $2.5 billion of incremental debt, consisting of a combination of investment grade senior notes and a pre-payable term loan facility.
KLA-Tencor ended its first quarter with $2.9 billion in cash on its balance sheet and $748 million in long-term debt. Its net cash position equates to approximately $13.00 per share. The large net cash position was one factor the board took into account when considering the proposed recapitalization.
Pfizer Announces New $11 Billion Buyback Authorization
Dow component and leading pharmaceutical company Pfizer (PFE 28.60) is trading up 3.5% in pre-market action and it has nothing to do with the report that a doctor in New York has tested positive for Ebola after returning from aid work in Guinea. Rather, it is related to a capital return initiative.
After Thursday's close, Pfizer announced that its Board of Directors approved a new $11 billion share repurchase program. That will be added to the $1.3 billion the company has remaining under its current buyback authorization.
There isn't a specific expiration date to the new buyback plan. All Pfizer said was that it will be "utilized over time." At its current stock price, Pfizer could technically repurchase nearly 7% of its outstanding stock.
Separately, the board declared a $0.26 fourth quarter dividend. That is unchanged from the prior quarter, yet it marks the 304th consecutive quarterly dividend that Pfizer will pay. That track record and a juicy 3.70% dividend yield are key reasons why the drug maker holds added appeal for income-oriented investors.
The latter points notwithstanding, the interest from income-oriented investors has not been enough to drive the stock higher this year. It is down 6.6% year-to-date with growth concerns and valuation concerns factoring into its weakness.
Those concerns hit home when Pfizer was unable to acquire British drug maker AstraZeneca (AZN 69.35) earlier this year. Some investors thought Pfizer might take another run at AstraZeneca, yet new proposals subsequently introduced by the U.S. Treasury Department that make it harder for a U.S. company to shift its tax base have diminished that potential.
The announcement of the new, big buyback plan is also being viewed by some as a tacit indication that Pfizer won't be pursuing a big takeover deal. Time will of course reveal the company's plans, but right now the plan that is out there for everyone to see has garnered some favor as a shareholder-friendly plan.
Microsoft shares trading higher by 3% following beat on earnings