Atlassian gains in the face of mixed guidance as Q2 results shine
Today, after reporting better than expected Q2 results last night, shares of IT firm Atlassian (TEAM 28.03, +0.61) trade 2.2% higher in reaction.
Specifically, TEAM reported better than expected earnings per share (EPS) and revenues for Q2 of $0.09 and $148.9 million, respectively. TEAM ended Q2 with a total customer count on an active subscription or maintenance agreement basis of 68,837, a 27% increase compared to last year. Therefore, TEAM added 3,164 net new customers during the quarter.
Breaking it down by segment, TEAM's subscription revenues were up about 66% in Q2 to $56.32 million. Maintenance revenues were up about 21.6% to $65.06 million, Perpetual licenses were up 16.4% to about $18.21 million. Lastly, revenues designated as 'Other' grew about 40.1% to $9.31 million.
TEAM also gave mixed guidance for Q3 and FY17. Specifically, TEAM sees Q3 EPS of $0.06 and revenues of $155-157 million. The company sees FY17 EPS of $0.32-0.33, from prior $0.33-0.34, and revenues of $611-615 million, from prior $597-603 million.
In sum, investors seem pleased as TEAM's stock makes fresh YTD highs in the limited action thus far in 2017. Q2 results alongside mixed guidance seem to be enough for investors to take the stock higher today in the face of a declining, yet still positive broader market.
Looking Ahead - January 23, 2017 - McDonald's Earnings Report
A lot of attention is being paid these days to the strengthening U.S. dollar -- and rightfully so. McDonald's is sure to have something to say about that trend when it reports its fourth quarter earnings results before the open on Monday.
McDonald's Fourth Quarter Earnings Report (Monday, January 23, before the open)
Kansas City Southern higher following Q4 report despite US trade policy uncertainty
Kansas City Southern (KSU) is up 4% after the company reported fourth quarter results this morning.
Earnings fell 5.5% year-over-year to $1.21/share while revenue and carload volumes were flat. Earnings were just above consensus including a $0.09/share net foreign exchange benefit during the quarter.
Kansas City Southern's rail system runs through the southern United States and into Mexico. On the call, management admitted to the irony that the company reported on the day Donald Trump was being inaugurated as the 45th President of the United States of America.
The uncertainty regarding US trade policy represents a headwind for KCS. Cross border volume accounts for ~30% of the company's revenue. Breaking that down further, 60% of cross border volume is southbound (exports to Mexico) while 40% is northbound (imported). KCS exports car parts, grain, food and industrial materials while it imports cars. The export business is growing faster than the import business. Corn and grain are biggest exports but refined energy products are seeing the most growth.
While KCS will benefit from higher growth in the US, changes to NAFTA and reduced Mexican imports are potential headwinds.
For 2017, KCS management said volume would be better than last year and core pricing would be at least 3%, in-line with the fourth quarter. Management also said the weak Mexican peso is not having an impact on overall pricing.
KSU trades at ~17x FY17 EPS -- a few turns lower than its Class 1 rail peers Union Pacific (UNP), Norfolk Southern (NSC) and CSX (CSX).
General Electric trades lower on Q4 earnings as revenue came up light; Oil & Gas still weak
General Electric (GE) is trading modestly lower (-2%) after reporting Q4 results this morning. Non-GAAP EPS came in at $0.46, which was right in-line with market expectations. However, revenue fell 2.4% year/year to $33.09 bln, which was below market expectations. The EPS number was in-line but after EPS beats in the five prior quarters perhaps investors are seeing this as a bit of a disappointment as well.
On the call, the company talked about how it executed well in a slow growth and volatile environment. With the optimism in the US, orders grew here by 23%. In addition, Europe is strengthening and GE sees positive momentum. Meanwhile the resource sector and related markets continue to have headwinds.
Some businesses had very strong years in 2016, including Aviation, Healthcare and Renewables. On the negative side, GE was unable to close a couple of big power deals in tough markets. In Aviation, GE says it had another solid quarter in Q4. From a demand perspective, global passenger air travel continued to grow strongly with strength in both domestic and international routes. Airfreight volumes grew 3.2% YTD. Orders in the quarter were $7.2 bln up 5% with equipment orders higher by 2%. Military service orders were down 18% at $480 million on tough comparisons.
In Oil & Gas, the environment continues to be challenging and activity levels remain muted. Market indicators appear to be stabilizing with an expected more balanced supply and demand fundamentals partly influenced by the recent OPEC production. US onshore rig count grew 33% sequentially from Q3 but was essentially flat relative to the beginning of the year. Forecasted E&P spending is expected to be flat to modestly up in 2017. However, the business had an encouraging orders number at $3.3 bln which was flat YoY.
In sum, the stock is trading modestly lower as investors are viewing the Q4 report, especially the revenue miss, as a bit of a disappointment. However, the stock is not down by a big amount. GE tends not to have big moves around earnings since it's so large and it's an industrial conglomerate so it has exposure to so many end markets. Some segments will be up and others will be down. With that said, investors would like to see its Oil & Gas segment improve.
American Express Disappoints as Expenses Hit Bottom Line
American Express (AXP 75.76 -0.93) is trading lower by 1% this morning after reporting disappointing Q4 results, as the company's marketing initiatives cut into the bottom line.
The company reported Q4 (Dec) earnings of $0.91 per share, down from $1.23 in the prior-year period and below analyst expectations. Revenues fell 4.4% year/year to $8.02 billion, although the revenue figure was slightly ahead of analyst expectations.
American Express has been fighting for market share in a competitive environment, and the weaker bottom-line was the result of higher spending on growth initiatives, largely reflected in marketing and promotion expenses.
This was evident in the company's card-related businesses. Its U.S. Consumer Services segment, the largest segment by revenue, saw Q4 net income fall 35% year/year to $351 million. The year-ago period included Costco-related revenues and expenses. However, the revenue hit from the Costco loss was not met with a similar decline in expenses, as the current quarter included substantially higher investment spending on growth initiatives. AXP's International Consumer and Network Services saw a similar decline in net income, which was down 40% year/year due to higher investment spending on growth initiatives.
The company's Global Commercial Services, which extends commercial credit, saw net income decline 22% year/year, reflecting similar investment spending on growth initiatives, as well as an increase in rewards expenses.
Finally its Global Merchant Services, which processes card transactions, was the only segment that saw bottom-line growth with Q4 net income of $369 million, up 1% from $364 million a year ago.
While the Costco loss has been a well-known factor, there are concerns about whether the amount of spending to fight for market share will turn into revenue growth down the road. Management has indicated that earnings should improve as 2017 progresses, with the lowest earnings in the beginning of the year.
AXP shares were trading at 52-week highs heading into the report and at a premium valuation of around 13.5x forward earnings, compared to card-issuing peers Discover (DFS) at 11.7x and Capital One (COF) at 11.2x.
Procter & Gamble Dials Up Q2 Earnings Surprise and Full-Year Sales Outlook
Procter & Gamble (PG 86.80, +2.10, +2.5%) isn't one of those stocks that saw a huge gain after the election. On the contrary, it lost ground, declining 3.2% between November 8 and its close on Thursday. Today, though, it is making up for some lost time and ground after the Dow component reported better-than-expected fiscal second quarter earnings results and increased its full-year organic sales growth guidance.
The specifics won't be exciting for growth-oriented investors. PG is growing, but it isn't a growth company. It's a blue chip company with powerful brands, impressive cash flow, modest, but fairly dependable, earnings growth, and an attractive dividend yield of 3.09%.
For its fiscal second quarter, PG's net sales were flat at $16.9 billion, its organic sales were up 2% on a 2% increase in organic shipment volume, and its core earnings per share of $1.08 were up 4% year-over-year, topping analysts' average expectation. The latter growth was aided by a 70 basis point improvement in its core gross margin.
Notably, organic sales and organic volume increased across all five business segments, led by the Health Care segment, which registered a 4% increase in organic volume and a 7% increase in organic sales.
PG labeled the second quarter as a "difficult operating environment," yet it was nonetheless compelled by its first half performance to raise its organic sales growth outlook for fiscal 2017 from approximately 2% to a range of 2-3%. All-in sales, the company said, are anticipated to be in-line with fiscal 2016 as minor brand divestitures and the headwinds of foreign exchange reduce sales growth by two to three percentage points.
The consumer products giant maintained its expectation that core earnings per share will be up mid-single digits versus fiscal 2016 core EPS of $3.67. That would translate approximately to $3.85, which is in-line with analysts' average expectation.
With today's early gain, PG is a smidgen below its closing price on November 8, which belies the fact that it has risen 15% over the last 52 weeks. While that is comfortably behind the 22% gain for the S&P 500 over the same period, it makes PG a relative strength leader in the S&P 500 Consumer Staples sector, which is up just 9.2%.
IBM Down 1.1% Despite Earnings Beat
Dow component IBM (IBM 165.00, -1.81) reported above-consensus earnings for the fourth quarter and issued positive guidance, but its stock has retreated 1.1% in pre-market nonetheless.
Big Blue reported fourth-quarter earnings of $5.01 per share on a 1.3% year-over-year decline in revenue to $21.77 billion, which was just ahead of market expectations.
IBM's earnings report was released after yesterday's closing bell and it was met with an initial bid. However, the stock has retraced that move as participants got more time to digest the report, which showed that the company's core business is improving, but not as fast as some investors had hoped. The company has taken steps to streamline its operations and align its product and service offerings with those of its competitors, but due to IBM's size, that transition has been a lengthy process.
IBM management noted that strategic imperatives made up more than 40.0% of total revenue in 2016, which underscores the company's change in approach.
The earnings beat was aided by a lower effective tax rate, which declined to 9.6% from 12.5% one year ago. Gross margin declined to 50.0% from 51.7% one year ago.
The company saw its 19th consecutive quarterly decline in total revenue, but Strategic Imperatives and Cloud revenue grew at a solid rate. Strategic Imperatives revenue grew 11.0% to $9.50 billion while Cloud revenue spiked 33.0% to $4.20 billion.
Cognitive Solutions revenue grew 1.4% to $5.30 billion due to growth in cloud, analytics, and security.
Technology Services & Cloud Platforms revenue increased 1.7% to $9.30 billion, thanks to strong hybrid cloud services, analytics, and security performance.
Global Business Services revenue declined 4.1% to $4.10 billion and Systems Revenue fell 12.5% to $2.50 billion. Global Financing revenue declined 1.5% to $447 million.
Looking ahead, IBM expects fiscal-year 2017 earnings will be at least $13.80 per share, which is ahead of current market expectations.