Schlumberger, Ltd. (NYSE: SLB – $63.01) posted a larger quarterly profit for the third quarter, as its North American business continues to be helped by strong shale drilling. Net profit attributable to the Houston-based oilfield services company rose to $545 million, and adjusted earnings per share before integration charges related to the Cameron acquisition was $0.42 per share from $0.13 per share last year and in line with Street views. Revenue rose to $7.91 billion from $7.02 billion in the same quarter last year. Growth in the third quarter was again led by the company’s North America Land GeoMarket, where it continued to gain market share in both hydraulic fracturing and drilling services despite the decelerating rig count growth. Schlumberger also saw strong sequential activity growth in Russia, the North Sea and Asia, while activity in the rest of the world was largely flat compared with the second quarter.
Management believes it will remain on track to achieve its cash flow generation target for the year. However, there is still pricing pressure in new bids from oil producers, but the downward trend of pricing is slowing significantly in international markets. In North America the company expects services to grow moderately, as energy companies increasingly have shied away from chasing higher production at the cost of financial returns. U.S. rig counts have been falling for several weeks and recently hit a four-month low, while production has grown at a slower rate than the U.S. Energy Information Administration’s estimate. For the year, SLB still may be able to earn $1.51 and $2.30 is tentative for 2018. The shares can continue to be held for recovery.
Shares of Danaher Corp. (NYSE: DHR – $89.75) are rising about 4.3% today as the company announced results for the third quarter of 2017. Adjusted earnings per share were $1.00, a 15.0% increase over the comparable 2016 period’s $0.87 and five cents above Street estimates. Revenues increased 9.5% year-over-year to $4.5 billion, with adjusted core revenue growth of 3.0%. Most estimates were for Danaher to show revenues of $4.46 billion. Looking ahead to the fourth quarter of 2017, the company anticipates that adjusted earnings per share will now be in the range of $1.12 to $1.16 and a full-year range of $3.96 to $4.00. Following last year’s spin-off of Fortive, the “new” Danaher manufactures and markets professional, medical diagnostic, dental, life science and environmental/filtration products and services worldwide.
CEO Thomas P. Joyce, Jr. stated, “We are pleased with our third quarter performance, with the team delivering mid-teens adjusted earnings per share growth, strong margin expansion and cash flow, and improving revenue growth. With the Danaher Business System as our foundation, the team’s commitment to continuous improvement was a key driver of our results.” Joyce continued, “Our performance in the quarter – combined with significant opportunities across the portfolio and our strong balance sheet – positions us to build on this momentum through the end of 2017 and into next year.” The shares of good-quality DHR are an above-average choice for price gains. Too, the small, but growing, dividend serves to sweeten the pot.
Conservative choice Verizon Communications, Inc. (NYSE: VZ – $49.53) reported third-quarter adjusted earnings of $0.98 a share, in line with estimates, but three cents shy of the year-ago figure, on a 2.5% top-line improvement. The company’s wireless segment posted a 2.4% drop in revenues, which may be attributed to more customers continuing to choose unsubsidized device payment plans, decreased overage revenues, lower postpaid customers and continued promotional activity. Wireless reported a net increase of 603,000 retail postpaid connections in the quarter, with much of the good news attributable to the recent launch of Verizon Unlimited. As a result, Verizon’s total number of retail postpaid connections now stands at 109.7 million. The percentage of phone activations on device payment plans was about 77% in the current period, on par with the second quarter figure. Management expects this metric to remain constant during the current quarter of this year. Separately, total revenues for the wireline division’s FiOS fiber-optic-based services were up 4.8% year-over-year, thanks to solid demand in both consumer and business markets.
Over the past six months, Verizon closed on the $4.48 billion purchase of Yahoo! on June 13th, and penned fiber purchase agreements with Corning and Prysmian to extend its network lead and position it to deliver new multiuse fiber services, including 5G, while complementing small-cell deployment. Verizon is on track to report 2017 earnings of about $3.76 a share, with a consensus estimate of $3.83 in the works for next year. This blue-chip stock remains a good choice for conservative portfolios, thanks to its impressive 4.85% dividend yield, 13 times next year’s earning’s valuation and attractive capital-appreciation potential through the early years of the coming decade.
CVS Health (NYSE: CVS – $74.00) announced a five-year agreement with managed care provider Anthem, Inc. to provide services to support IngenioRx, a new pharmacy benefit manager formed by Anthem. As part of the agreement, CVS’ Caremark unit will manage certain services for IngenioRx, including claims processing and prescription fulfillment. In addition, CVS Health’s bundled suite of assets, including CVS Pharmacy and MinuteClinic, allow the company to apply its expertise in patient messaging and engagement at the point-of-sale to support IngenioRx, broadening the scope of clinical services offered at the pharmacy counter to drive better outcomes. The new agreement, which goes into effect on January 1, 2020, runs through December 31, 2024.
Finally some good news for CVS, as it has been a market laggard for most of the year. Amazon.com’s announcement that it is going to be entering the pharmacy fulfillment space has been partly to blame along with some contract losses for the company’s Caremark segment and slowing traffic at its retail outlets. The company’s size and healthy cash flow, however, should help it maintain market share regardless of the competition and at current levels, the shares offer wide appreciation potential.
CSX Corp. (NYSE: CSX – $53.39) announced third quarter 2017 net earnings of $459 million up from $455 million, in the same period last year. Excluding a $1 million restructuring charge in this year’s results, the east-coast rail’s adjusted earnings per share settled at $0.51 vs. $.048 a year ago and in line with consensus. Revenue increased 1% to $2.74 billion, compared with the Street estimates of $2.78 billion. The company said it expects 2017 adjusted earnings per share to rise 20% to 25% from 2016’s $1.81, while the consensus of $2.22 implies growth of 22.7%. On the post-earnings conference call with analysts, Chief Executive H. Hunter Harrison said “several markets continue to be impacted by specific headwinds, most notably the anticipated decline in North America light vehicle production, the evaporation of unit train shipments of crude oil and the secular challenges of domestic utilities”.
Long-term success will depend on the company’s ability to grow its intermodal franchise. Management is on record saying that it should continue to grow the business by 5%-10% a year, largely thanks to its ability to poach volume from truckers. Tighter on-highway capacity should also help in that regard as well as more compelling service offerings. That said, the company recently conceded that steam coal volumes are likely to continue to decline, as power plants increasingly turn to cleaner-burning natural gas. The shares are not cheap at current levels, but I am holding on to the position for now.
Johnson & Johnson (NYSE: JNJ – $139.74), the world’s largest maker of health care products, reported third-quarter adjusted earnings of $1.90, compared with the prior year’s $1.68 and ten cents better than analysts’ estimates. Total revenue rose a solid 3.8%. The star performer was the Pharmaceutical sector, which now accounts for almost 50% of total sales, as revenues rose a healthy 6.7%. With Actelion acquisition figures being included for the first time, the number climbs to 14.6%. New products contributed to the strong showing, specifically, Darzalex, used for the treatment of patients with multiple myeloma and Imbruvica, an oral once-daily therapy approved for fighting certain B-cell malignancies, a type of blood or lymph node cancer. Responsible for about a third of total revenues, Medical Device segment sales rose 7.1% in the period. Deducting the part attributable to the Abbott Medical Optics acquisition, the figure declines to 1.9%. Improvement in the Cardiovascular business, Acuvue contact lenses in the Vision care unit and wound closure products in the General Surgery division, were partly offset by a sub par showing in the Diabetes Care business. The Consumer segment (about 17% of total sales), continued to experience relatively weak demand. As an owner of some of the world’s most iconic brands, including Listerine, Tylenol and Neutrogena, this operation has struggled mostly as a result of lower demand for baby care products. Indeed, domestic sales fell 0.5% in the quarter, while international sales rose 3.0%.
Management raised sales and earnings guidance for the full-year 2017. The top line is expected to come in between $76.1 billion-$76.5 billion. This is $400 million higher than the company’s last forecast. And the adjusted share-net estimate was hiked to $7.25-$7.30 from $7.12-$7.22 per share. Conservative income investors may want to hold onto this blue chip as a core holding. Besides having one of the best balance sheets of any publicly traded company, shares of JNJ, at new all-time high, have a generous 2.5% yield and well-defined earnings. Additionally, the shift toward the Pharmaceutical sector is a major positive, due to its promising pipeline of new drugs.
The Dow Industrials Average was up .43% this week, followed by the S&P 500 – higher by .15% – and the NASDAQ, which moved ahead by .24%, as technology stocks advanced 1.3%, taking a back seat to REITS and consumer staples, up 1.8% and 1.5%, respectively. Telecoms faltered by 4.5%. With the economy chugging along, the Federal Reserve is still on track to move short term rates higher by another .25% by year end.
Apologies for the late and abbreviated post. Still traveling on the West Coast. All should return to normal as the week moves ahead.
September-period reported earnings for JPMorgan Chase & Co. (NYSE: JPM – $95.99) of $1.76 a share exceeded both the $1.58 logged in the comparable quarter of 2016 and the consensus estimate of $1.65. Total revenues of $25.33 billion were up 3% from the same period a year ago and topped the Street projection of $24.91 billion. Meanwhile, expenses in the quarter were mostly flat. By business segment . . .
. . . JPMorgan’s Consumer & Community Banking segment drove most of the earnings advance. Although mortgage revenues fell 17%, increases in net interest income, credit card and loan and deposit fees more than offset the shortfall. The company’s Corporate & Investment Banking division was its weak link. Segment profits declined 13%. Fixed-income markets revenues fell 27% compared to a very strong year-earlier performance, reflecting lower market volatility and tighter credit spreads. There were some bright spots, however, including strong advisory, treasury and lending revenues. The nation’s largest bank’s other two business groups, Commercial Banking and Asset & Wealth Management, posted profit increases of 13% and 21%, respectively. Commercial banking continues to benefit from investments in recent years in bankers, support staff and technology. Asset management revenues were driven by strong equity market levels and wider deposit spreads.
Looking ahead, I expect the earnings outlook to remain mostly positive. Loan growth, which has exceeded industry rates recently, might moderate but, like most banks, Chase’s net interest income should benefit as interest rates rise. And while origination costs related to its popular Sapphire credit card may slip further, asset management and commercial banking profits ought to continue to grow nicely. Mortgage revenues may remain soft and the outlook for fixed-income markets revenues are uncertain since they are influenced by market volatility. The fourth quarter is looking like a $1.68 per share figure and the full year at $6.83. Next year Street views average $7.57/share. The shares, yielding 2.3%, can continue to be held for long-term total returns.
Delta Air Lines (NYSE: DAL – $53.07) beat the consensus forecast in its third-quarter earnings and guided expectations for passenger unit revenue in the current period higher than a year earlier. The company reported third quarter adjusted earnings of $1.57 per share, ahead of the $1.53 average estimate from analysts. although lower than the year earlier $1.70. Total revenue rose 5.5% from a year ago to $11.06 billion, also coming in above the $11.03 billion consensus. Pre-tax income included a $120 million reduction from disruptions following Hurricane Irma that hit the Caribbean, Florida, Georgia and, specifically, Delta’s hub in Atlanta. The airline indicated that all four geographic regions served are expected to show positive year-over-year passenger revenue per available seat by the end of the year. For the fourth quarter, Delta expects a 2% to 4% increase in passenger unit revenue year-on-year.
Delta’s relatively low price-to-earnings multiple and the company’s business model changes over the past five years have made it more insulated from a drop in demand. Also, Delta’s fare structure is appealing and could further attract corporate customers. For patient investors willing to venture into this competitive and cyclical industry, the long-term rewards for DAL out way the risks.
International Paper Co. (NYSE: IP – $57.52) a producer of renewable fiber-based packaging, said that it raised its annual dividend by 2.7% to $1.90 a share. The quarterly dividend was set at $0.475 per share. A dividend for the period from Oct. 1, to Dec. 31, will be paid on Dec. 15, to holders of record at the close of business on Nov. 15.