No Hair Cut for Mohawk Industries after Its Fine Earnings Report
When industry conditions are challenging, it pays to have good management. Investors in Mohawk Industries (MHK 141.86, +6.12), a leading global flooring manufacturer, can appreciate that point today after the company reported its third quarter earnings results.
Net sales during the period increased just 1.5% to $1.99 billion, yet what really jumps out is that operating income increased 21.5% to $213.7 million.
Adjusted net earnings increased 21.8% to $179 million and adjusted EPS rose 21% to $2.44 -- the highest quarterly adjusted EPS in the company's history.
Mohawk's adjusted operating margin of 11.9% was the highest in eight years. The long and short of things is that management did a masterful job of controlling expenses and boosting productivity in a tough sales environment.
To that end, carpet segment net sales were up 1% to $779 million, ceramic segment net sales were up 2% to $780 million, and wood and laminate net sales were up 3% to $463 million.
Mohawk's results were not only better than expected, they were better than feared after a spate of disappointing results from other flooring companies like Lumber Liquidators (LL 54.08, +1.58), Armstrong World Wide Industries (AWI 47.70, +0.77), and Interface (TILE 16.14, -0.01).
The company isn't pounding the table -- er, the floor -- with its industry outlook. It anticipates the U.S. economy and the flooring category will remain unchanged during the fourth quarter, with residential remaining slow and commercial growing.
Even so, Mohawk expects its sales and operating margins to improve versus last year. Foreign currency translation, though, will reduce sales and profits as reported. The company is projecting adjusted fourth quarter earnings to be between $2.18 and $2.27 per diluted share, the midpoint of which is in-line with analysts' average expectations.
It will certainly be nice to see stronger sales growth, yet the ability to control what it can control directly -- and to do that effectively -- has given Mohawk's stock a nice boost today.
At 15.3x next twelve months estimated earnings, MHK is trading at roughly a 14% discount to its five-year average.
Spirit Aerosystems (SPR) is trading up about 3% today after reporting its third straight large EPS beat. A recent change at the CEO post has led to much better cost controls while at the same time Boeing is increasing production rates for some key programs.
In case you're not familiar, SPR is a major tier-1 supplier of aircraft aerostructures (fuselage, propulsion systems, wing systems) for commercial and military aircraft. SPR was spun-off from Boeing in 2005 and today it's the largest non-OEM supplier of commercial aircraft structures. It's the largest supplier of aerostructures to Boeing and one of the largest to Airbus.
The stock took a huge hit in late October 2012, losing about a third of its value, when SPR guided lower and cited cost overruns and production problems as SPR struggled to simultaneously develop parts for both its core/mature (B737, B777, A320) and developmental (B787, A350 XWB) programs. However, a new CEO was hired in April 2013 and he has done a good job turning SPR around. Changes made in 2013 are starting to bear fruit with huge back-to-back beats in Q1 and Q2. And this morning's Q3 beat continues that trend.
Turning to the Q3 numbers, GAAP EPS jumped 85% YoY to $1.20, which was way above expectations. Revenue rose 12.6% YoY to $1.69 bln which was in-line with consensus. SPR also raised guidance. They now expect FY14 non-GAAP EPS of $3.35-3.45, up from prior guidance of $2.90-3.05. They also tightened up the bottom part of their FY14 revenue guidance as they now expects FY14 revs of $6.80-6.90 bln, up from prior guidance of $6.70-6.90 bln. Spirit's backlog grew to a new record of approximately $44 bln at the end of Q3 vs $41 bln at the end of Q2.
Breaking it down a bit by segment. Fuselage Systems is by far SPR's largest segment at nearly half of sales. Segment revenue grew 13.2% YoY to $804 mln due to higher production deliveries. Operating margin jumped to 17.7% from 4.2% in the year ago period. Propulsion Systems revenue rose 13.5% YoY to $442 mln although operating margin was relatively flat YoY at 18.5%. Wing Systems segment revenue rose 12.2% YoY to $446 mln with a nice bump in operating margin to 14.1% from 9.5% a year ago.
SPR says it was a good quarter for the industry as aerospace has seen a number of significant milestones. Boeing announced an increase in the 737 production rate to an all-time high of 52 per month beginning in 2018 following a previous announcement of 47 per month in 2017. Another significant highlight this quarter was Airbus' achievement of two important milestones. These milestones include type certification of the Airbus A350 by EASA and first flight of the Airbus A320neo.
Overall, it was another good quarter for SPR. The results in recent quarters suggest the new CEO has made some progress on getting costs under control.
Exxon Mobil Shows Modest Gains Following Earnings
Exxon Mobil (XOM 94.95 +0.52) is trading modestly higher following third quarter earnings results. The company reported earnings of $1.89/share this morning, which came in better than expected.
From the prior year's quarter, revenue fell 4.3% to $107.49 billion, which also came in above expectations.
Upstream earnings fell during the quarter, while its downstream segment made a tidy profit. Upstream earnings were $6,416 million in the third quarter of 2014, down $297 million from the third quarter of 2013. Lower realizations decreased earnings by $670 million. Favorable volume mix effects increased earnings by $340 million. On an oil-equivalent basis, production decreased 4.7 percent from the third quarter of 2013. Excluding the impact of the expiry of the Abu Dhabi onshore concession, production decreased 1%.
Downstream earnings were $1,024 million, up $432 million from the third quarter of 2013. Stronger margins, primarily refining, increased earnings by $820 million. Volume and mix effects increased earnings by $100 million
ExxonMobil's quarterly results demonstrate the strength of our integrated business model. Integration across Upstream, Downstream and Chemical gives us competitive advantages in scale, efficiency, technical and commercial capabilities, regardless of market fluctuations over the business cycle. We can't argue with that.
Liquids production of 2,087 kbd decreased 105 kbd compared to 2013. The Abu Dhabi onshore concession expiry reduced volumes by 137 kbd. Excluding this impact, liquids production was up 1.5%, driven by project ramp-up and work programs.
Natural gas production of 11,115 mcfd decreased 703 mcfd from 2013, as expected U.S. field decline and lower European demand were partially offset by project ramp-up and work programs.
The stock is trading 0.3% higher this morning and is currently sitting between its 20 and 50-day moving averages, on a daily chart.
LinkedIn Reports Strong Q3 Results; Hiring Business and International Revenues Grow
LinkedIn (LNKD 226.76, +23.86) is trading roughly 11.8% higher this morning after the company reported better than expected top and bottom-line results for Q3. LNKD saw earnings per share of $0.52 in the quarter, on revenues which rose 44.6% year-over-year to $568.3 million. In spite of the promising Q3 numbers, the company issued downside guidance for Q4, with EPS of ~$0.49, excluding non-recurring items on revenues of $600-605 million. However, it appears that investors and analysts are viewing the guidance as conservative in nature.
Where LNKD saw strength this quarter was most prominently from overseas. International revenues represented 40% of total revenues, up a bit from 38% in the year ago period. In the quarter, 75% of new members came from outside the U.S., with China accounting for most of the strength. In China, this comes after the company launched the "beta" site of its main website in February.
LNKD also saw strength in their hiring business. As a segment of the hiring business, Talent Solutions, which provides access to LinkedIn Recruiter product and job postings, saw revenues of $345 million in the quarter, an increase of 45% compared to the prior year's period.
For LNKD, "Premium" subscriptions are where the company allows for more in-depth job hunting and reference connections. The revenue from the segment also saw strong growth in the quarter, posting revenues of $114 million, a 43% increase over the prior year's period. However, the company said that General subscriptions still account for most of the company's revenues.
LNKD is now roughly 11.8% higher since last quarter's earnings, which also was a beat on the top and bottom-line of expectations.
Citigroup Revises Q3 Earnings on Increased Legal Accruals
On October 14, Citigroup (C 53.15) impressed investors with its better than expected third quarter earnings results. After the close yesterday, Citigroup shocked investors with the news that it is adjusting its third quarter results lower by $600 million due to an increase in legal accruals.
The revision was attributed to "rapidly-evolving regulatory inquiries and investigations, including very recent communications with certain regulatory agencies related to previously-disclosed matters."
With the change, Citigroup said its third quarter net income is actually $2.84 billion versus the $3.44 billion it previously reported.
Citigroup saw a knee-jerk sell-off in after hours action that dropped its stock price below $52. It has rebounded some, but is still indicated to open about 1.0% lower.
It is worth noting that Citigroup said on its third quarter earnings conference call that legal costs will remain elevated and episodic.
While the increased legal accrual is disappointing, it doesn't have the same sting that, for instance, a revision tied to an improper accounting for trading activity might have had.
Be that as it may, it has forced Citigroup to lower its income from continuing operations to $0.88 per diluted share from $1.08, its return on average assets to 0.59% from 0.72%, its return on average common stockholders' equity to 5.3% from 6.5%, and its tangible book value per common share to $57.53 from $57.73.
Conversely, Citigroup marked up its efficiency ratio to 66% from 63%.
Citigroup's stock is apt to incur a penalty for the downward revision, yet the residual belief that it still represents a good long-term value with improving business and capital return prospects should offer some offsetting support.
Bank of Japan Ups Stimulus
The Land of the Rising Sun was the land of the rising stock market on Friday after the Bank of Japan surprised investors with a big increase to its monetary stimulus package. The positive effect of that news was clear to see in the Nikkei Average, which soared 4.8%.
Most of the gain came in the final few hours of the Japanese trading session, yet buying efforts have carried over to markets in Europe and the U.S., which are trading noticeably higher or are indicated to open noticeably higher.
In a 5-4 majority vote, the Bank of Japan agreed to the following:
GoPro shares soar 16% following beat on earnings and upside guidance
GoPro (GPRO $79.75 +11.60) shares are soaring higher by 16% after the company reported third quarter EPS of $0.12 which is higher than expected, while revenues rose 45.8% YoY to $280 million which was higher than expected.
Non-GAAP gross margin in the third quarter of 2014 was 44.5%, compared to 33.5% in the third quarter of 2013 and 42.2% in the second quarter of 2014.
On the conference call, the company guided for the all important holiday quarter. GPRO sees EPS of $0.65-0.69 and revenues of $550-580 million, both of which are higher than expected.
GPRO shares are trading higher by 117% YTD. Look for resistance near the $81.00 vicinity if the uptrend continues.