ConAgra reports in-line Q4, plans to exit Private Brands operations
ConAgra (CAG 44.13, +0.69) is trading about 1.6% higher on today's session following the company's mostly in-line fourth quarter. In the period, CAG reported in-line earnings per share (EPS) of $0.59 on revenues which were also in-line at $4.1 billion. In addition, the company noted that it plans to exit the private label business.
In Q4, CAG reported revenues which rose 3.7% on a year-over-year basis to $4.1 billion. The Consumer Foods Segment posted sales of about $1.9 billion - up 4.5% year-over-year, including the benefit of an extra week, with volume up 5% and an unfavorable impact of 1% due to foreign exchange.
In the Commercial Foods segment, sales were $1.2 billion - up 6.6% year-over-year, with the extra week favorably impacting sales and volume to the tune of 7%. In the segment, the West Coast port dispute impacted Lamb Weston's international shipments, but that shipments at the brand have been gradually improving. Shipments at the Lamb Weston brand are expected to reach normal levels in the first half of fiscal 2016.
The Private Brands segment saw sales in Q4 of $1 billion - down 1.0% year-over-year, a slightly lower mark than a year ago. Management noted that sales were impacted by higher commodity costs and lower volumes. Management also noted that it plans to divest the segment as the time and resources it requires are not the ideal course at this time.
The only guidance CAG offered for the beginning of FY16 was that the company expects the Private Brands operations change is not expected to impact results. CAG sees EPS for the period to be roughly in-line with comparable amounts from the year-ago period.
As a measure to create long-term value, in addition to exiting the Private Brands business, CAG expects to be more aggressive toward cost reduction and balancing capital allocation. The company is expected to offer more detailed financial guidance to that end on a conference call later this year.
Investors are taking the exit from the Private Brands business as a positive this morning, and shares trade up accordingly. Management feels this is the best way forward, and as Private Brands was the only segment which reported a sales decline in Q4, it is not a bad place to start.
Schnitzer Steel (SCHN) is selling off (-13%) today after reporting some disappointing 3Q15 (May) earnings this morning. In case you're not familiar with Schnitzer Steel, the company is a bit different than most other steel producers. For one thing, it's based in Portland, OR while most steelmakers are in the Midwest, near the automotive manufacturers. The other thing is that SCHN is more of a metals recycler than a steel producer. It buys scrap steel and iron mostly from auto salvage yards, industrial manufacturers and metals brokers. It then processes the scrap and sells it to other steelmakers or it uses it in its own steelmaking operations.
Its Metals Recycling Business (MRB) is by far SCHN's largest segment at about 75% of revenue, which is described above. It also operates an Auto Parts business (12% of revenue) and a Steel Manufacturing business (13%). The auto parts business sells used auto parts through its self-service facilities in 16 states. Its Steel Manufacturing segment produces rebar and wire rod for construction purposes.
Turning to the MayQ results, adjusted EPS fell to breakeven from $0.19 in the prior year period. Breakeven was actually better than expected. However, in terms of revenue, it was a bit more disappointing as revenue fell 26% year/year to $467.3 mln, which was well below expectations. On the positive side, all three business segments generated positive adjusted operating income, largely due to benefits from productivity initiatives.
In Metals Recycling, ferrous volumes increased 29% and nonferrous sales volumes increased 21% relative to FebQ. However, the rapid decline in ferrous selling prices in February impacted shipments in MayQ. Also, average inventory costs did not decline as quickly as selling prices, which led to an estimated $14 per ton, or $13 million, adverse impact. In its Auto Parts Business, higher seasonal retail activity and early benefits achieved from productivity improvements led to significantly improved profitability. Its Steel Manufacturing Business generated higher sales volumes and increased operating income due to steadily improving demand in West Coast construction markets.
Looking ahead to AugQ, SCHN did not provide specific guidance but they expect the adverse inventory effects seen in MayQ to be substantially reduced in AugQ. Also, a wide range of cost savings and productivity initiatives contributed to improved sequential results in MayQ. The benefits from these initiatives, combined with more stable market conditions, should provide momentum for further improvements in its financial performance. In addition, SCHN expects to complete the consolidation of its Auto Parts and Metals Recycling Businesses during AugQ.
In sum, the stock has been quite weak over the past year although it had been making a nice move off its lows since late April. That suggests that investors were looking for a better result for MayQ. However, until ferrous prices recover, there is likely to be a good amount of volatility associated with this stock.
Dollar Index Trades Higher, Weighs On Metals. WTI Oil Higher
The dollar index is trading higher today, which is helping weigh on commodities.
However, WTI crude oil futures are trading higher this morning and are currently +1.1% at $58.97/barrel ahead of the API weekly storage data, which is due out after the close today.
Meanwhile, in other energy, natural gas futures are trading -1.3% at $2.77/MMBtu
Metals are lower this morning with Aug gold -0.8% at $1170.10/oz and Sept silver -1% at $15.54/oz. Copper just hit a new low for today and is now -1.4% at $2.60/lb.
Corn futures are +0.6% at $3.94/bushel following the USDA's weekly crop progress report, while wheat is +0.3% and soybeans are -0.4%.
After the close yesterday, Juno Therapeutics (JUNO 57.00, +10.70, +23.2%) and Celgene Corporation (CELG 115.60, +0.68, +0.6%) announced a global collaboration agreement for the development and commercialization of immunotherapies. Shares of JUNO spiked 75% to $80.87 in the wake of the announcement, and are still trading sharply higher this morning shortly after the open.
Under the terms of the agreement, Celgene has the option to be the commercialization partner for Juno's oncology and cell therapy auto-immune product candidates, including Juno's CD19 and CD22 directed CAR-T product candidates. Juno will be responsible for research and development in North America and will retain commercialization rights in those territories, while Celgene will be responsible for development and commercialization in the rest of the world, and will pay Juno a royalty on sales in those territories.
Additionally, Celgene will initially be eligible to select two programs, and potentially a third later on, excluding CD19 and CD22, to be subject to a global profit sharing agreement under which the companies will share worldwide expenses and profits equally, except in China.
Upon closing, Juno will receive an upfront payment of approximately $150 million, and in addition Celgene will purchase 9,137,672 shares of Juno's common stock at $93.00 per share.
In combination with this investment, Celgene will receive the right to nominate a member to Juno's board of directors, and will have the right to purchase additional equity in Juno.
Celgene and Juno currently expect to complete the transaction during the third quarter of 2015
Apollo Education Group Down 16% Following Earnings/Guidance
Apollo Education Group (APOL 13.05 -2.49) is trading sharply lower this morning following quarterly earnings/guidance.
The company reported fiscal third quarter earnings of $0.53 per share, excluding non-recurring items, which topped expectations. On the top line, revenues fell 14.1% year/year to $681.5 million, which fell short of expectations.
Third quarter 2015 University of Phoenix New Degreed Enrollment was 29,400 and Degreed Enrollment was 206,900, compared to New Degreed Enrollment of 33,900 and Degreed Enrollment of 241,900 for the prior year third quarter.
Looking ahead for the full fiscal year 2015, the company lowered its revenue outlook to $2.60-2.62 billion, down from $2.63-2.68 billion, which now comes in below current expectations. The company also lowered operating income to $190-200 million, down from $200-230 million.
The stock immediately dropped following earnings after the close yesterday and has continued to slide lower. It just hit a new low for the day and is now down 16%.
ConforMIS (CFMS), a medical technology company that develops joint replacement implants, is expected to price its 9.0 million share IPO within the range of $14-16. The offering, which is scheduled to open for trading tomorrow, will raise $135 million in gross proceeds for the company if priced at the midpoint of the expected range. Lead underwriters on the deal were JP Morgan and Deutsche Bank.
The company's implants are individually shaped and sized to fit a patient's distinctive anatomy. They sell their products to orthopedic surgeons, hospitals, and additional medical facilities and patients in the US, Germany, and the UK. ConforMIS says that the global market for joint replacement products tops $15 billion.
CFMS has ~470 patents and patent pending applications that cover customized implants and patient-specific instrumentation. Additionally, its four main products, have all been cleared by the FDA under the premarket notification process, 510(K), and have also received certification to CE Mark. To date, it has sold more than 30,000 knee implants in the US and Europe.
In clinical studies, the company's iTotal CR demonstrated superior clinical outcomes, offering better function and patient satisfaction when compared to traditional implants. The company cites that at least one in five patients is not satisfied with the results of their total knee replacement using traditional products.
In Q1 of this year, the company reported revenues of $14.7 million, up 36% y/y. Net loss however also increased, jumping 12.7% to $14.26 million as operating expenses surged almost 22%. In 2014, the company reported revenues of $48.19 million, up 39% y/y. Since 2012, the company has experienced a CAGR of ~40%. As of March 31, the company reported almost $23 million in cash and cash equivalents and ~$10.56 million in long-term debt. Since inception in 2004, the company has an accumulated deficit of $282 million.
Willis Group and Towers Watson to Combine in Merger of Equals
There will be a buzz across the insurance brokerage industry today after Willis Group Holdings (WSH 45.40) and Towers Watson (TW 137.98) announced they will be combining in a merger of equals. It will be an all-stock merger with an implied equity value of approximately $18 billion.
This union has been unanimously approved by each company's Board of Directors and has been heralded as an opportunity to bring together two highly compatible companies which, when combined, will have approximately 39,000 employees in over 120 countries and pro forma revenue of approximately $8.2 billion.
In fiscal 2014, Willis Group derived 42% of its revenue from the U.S., 27% from the United Kingdom, and 30% from other regions. Towers Watson, meanwhile, derived roughly 59% of its revenue from North America and 33% from Europe.
The merger has been oriented around five key strategic and financial benefits that include the following, as described by the companies: (1) having a powerful global platform for profitable growth (2) accelerating growth in the exchange market (3) expanding the combined entities' international profile (4) having a strong financial profile and (5) and being able to generate highly achievable cost synergies.
The combination of the two companies is expected to result in $120-125 million in cost savings that will be fully realized within three years of closing. On that note, the transaction is expected to close by December 31, 2015. The combined company will be called Willis Towers Watson.
Under the terms of the deal, TW shareholders will receive 2.6490 Willis shares for each TW share they own, and they will also receive a one-time cash dividend of $4.87 per TW share pre-closing. Willis aims to implement a 2.6490 for one reverse stock split. If approved, TW shareholders will receive one share of Willis Towers Watson for each TW share.
After completion of the merger, Willis shareholders will own approximately 50.1% of the of the combined company with Towers Watson shareholders owning the remaining 49.9%.
As of Monday's close, WSH was up 1.3% year-to-date while TW was up 21.9%.