Deere Posts Strong Results; Ups Guidance

 Deere & Co. (NYSE: DE – $122.04) reported a 62% jump in quarterly profit, helped by improving demand for its products, and the U.S. farm equipment maker raised its fiscal 2017 financial forecast. Net income rose to $802.4 million, or $2.49 cents per share, in the second quarter from $495.4 million, or $1.56 cents per share a year earlier and $0.26 above analysts’ estimates. Worldwide sales rose 5.2% to $8.29 billion. Agriculture & Turf revenue increased 1% for the quarter and the first six months, primarily due to price stabilization. Construction and Forestry segment sales increased 7% in the quarter and 1% for the first six months, mainly as a result of higher shipment volumes and price increases, partially offset by higher warranty costs. According to the company, market conditions showed signs of further stabilization and says it’s seeing modestly higher demand, especially in South America. Full-year 2017 revenue is now expected to increase 9%, compared with previous guidance for 4%. Moline, Illinois-based Deere also raised it income guidance by $500 million to $2 billion and now expects full-year earnings per share of $4.94 and revenue of $24.32 billion, a 9 percent increase over last year.

        The shares bounced over 8% in today’s trading to a new record and higher by 36% over the past year. However, the valuation is getting a bit stretched, and any unexpected weakness make the shares vulnerable. Nonetheless, I am holding on to the position in the conservative portfolio for the long-term. The high-quality shares also yield investors  2.1%.

Foot Locker Sales and Earnings Fall Short

  Shares of shoe and apparel retailer Foot Locker, Inc. (NYSE: FL – $70.45) are trading lower after the company reported net income of $180 million, or $1.36 a share, in the first quarter, down from $191 million, or $1.39 a share, in the year-earlier period. The Street was expecting closer to $1.38. Sales rose 0.7% to $2.00 billion, but also shy of expectations of $2.02 billion. Same-store sales rose only 0.5%. Although the first quarter was one of the most profitable quarters ever, it fell well short of the company’s original expectations. Stronger sales in March and April were not enough to offset the slow start experienced in February. Foot Locker’s gross margins decreased to 34% of sales from 35%.

        During the first quarter, the company opened 30 new stores, remodeled or relocated 61 stores and closed 39 stores. As of the end of the quarter, Foot Locker operated 3,354 stores in 23 countries in North America, Europe, Australia and New Zealand. In addition, 62 franchised Foot Locker stores were operating in the Middle East and South Korea, as well as 15 franchised Runners Point stores in Germany. Like many brick and mortar retail companies, FL is facing stiff competition from online shopping, but I believe to a lesser degree than other soft-line stores. Most buyers of athletic footwear like to try on shoes before purchasing. Nonetheless, the stock will be one to watch in the quarter ahead.

Applied Materials Beats Street; Guides Higher

Applied Materials, Inc.  (NASDAQ: AMAT – $43.91) a provider of semiconductor manufacturing equipment and display systems, reported higher-than-expected profit and sales for its fiscal second quarter. Adjusted earnings per share increased to $0.79 in the three months ended April 30, from $0.34, a year earlier. That topped the $0.76 average estimate of analysts. Sales for the period rose to $3.55 billion, from $2.5 billion, that also surpassed consensus of $3.54 billion. Revenue in the semiconductor systems group, applied global services and the display and adjacent markets divisions all contributed to higher sales.

       Looking ahead, the company anticipates third quarter sales to be in the range of $3.6 billion to $3.75 billion and adjusted earnings per share to be in the range of $0.79 to $0.87. Analysts had predicted revenue of $3.42 billion and earnings of $0.69. However, the expectation for AMAT shares – up 117% over the past 52-weeks – are very high at this juncture, and even the slightest miss by the company at this point would likely be met with negative investor sentiment. Nonetheless, I am holding the position for now as the positive trends for the industry, and Applied Materials in particular, remain strong.

 

Week in Review

The stock market finished the week on a generally soft note. Except for a small gain on Monday, the Dow Industrials fell in the next four trading sessions, giving up about 0.5% on the week. The S&P 500 didn’t fare much better, shedding about 0.4%, but the NASDAQ was able to find some support gaining 0.3%, thanks to strength in technology. Market breadth was negative with some 17 stocks down for every 13 up on the NYSE. A small bounce in oil prices, allowed the energy sector to eke out a small gain, but virtually all other sectors were in the red, led by basic materials, financials and industrials. The transportation average was hit with a 2% loss for the week.

       Brick and mortal retailers were in the headlines, with large price drops for the likes of Macy’s, Nordstrom’s and J.C. Penny. Consumers have been shopping more with their hands than feet, as online buying continues to outperform. Retail sales for April inched up a less-than-expected 0.4%. The multi-line retail sector has lost about 15% so far this year vs. a 7% gain in the S&P 500. Real estate investment trusts with large holdings in malls and shopping centers are trading negative for the year in sympathy. Retail behemoth Walmart Stores will release first quarter results on Thursday and will be a figure to watch.

       U.S. stock prices have been holding up relatively well so far in May, though it remains to be seen if the market, which is near high ground, can advance further. With earnings season for the first quarter in the rear-view mirror, investors are reassessing valuations. Technically, equities seem to be running into some resistance, as they attempt to move further north. Recent softness keeps the S&P 500 Index just below the 2,400 mark and the Dow under 21,000. However, we shall see what the week ahead holds on both the corporate and political fronts.

       To all the Mom’s out there ~ Have a great Mother’s Day.

Here is the answer to last week’s trivia question:The ticker symbol “ICE” belongs to what company? Reddy Ice Holdings, Icelandair Group, Intercontinental Exchange, Inc. or Friedrich Air Conditioning Co. Answer: Intercontinental Exchange, Inc.

Today’s Trivia Question: The largest “pure play” pharmaceutical company by revenue is? Pfizer Inc., Novartis International AG, Merck & Co. or Roche Holding AG.

Verizon to Acquire Straight Path Communications

  To scale and accelerate deployment of next-generation broadband services throughout the United States, Verizon Communications Inc. (NYSE: VZ – $45.99) announced it has signed an agreement to acquire Straight Path Communications Inc. Verizon, which outbid AT&T for the company, will purchase Straight Path for $184.00 per share, or a total consideration of $3.1 billion, in an all-stock transaction, which is expected to close within nine months, subject to FCC review. Based in Glen Allen, Va., Straight Path holds millimeter wave spectrum configured for 5G services, including 39 GHz licenses that serve the entire country and 28 GHz assets in major markets. Verizon will boost its deployment of 5G network technology, which it is starting to try in 11 cities. The super-high frequency spectrum used to be considered useless for wireless, but technological developments have made it highly valuable. The way to think about the spectrum is that it’s basically a wireless extension of fiber-optic cables. Verizon’s other moves have been to acquire and build more fiber-optic wires around cities, and the new spectrum will mesh nicely with those assets.

       High-quality Verizon stock remains a solid choice for conservative investors. At the recent quotation, the equity’s 3- to 5-year appreciation potential is above average based on its current valuation of 12 times estimated 2017 full-year earnings. And the total return for holdings is improved when adding in the company’s generous $2.31 per share dividend, yielding 5%.

Week in Review

 It was a lackluster first four days of trading on Wall Street, with equities moving in and out of positive territory throughout most of the week. A late day push on Friday moved the averages into more positive territory, with the S&P 500 and the NASDAQ hitting new all-time highs. The Dow couldn’t fully participate in Friday’s rally, held back by weakness in IBM. For the week, the Dow Industrials climbed by 66 points or 0.32% and the S&P moved higher by twice that and the NASDAQ by nearly one percent and most market sectors made progress. There were sizable gains in technology and transports, offset by some weakness in the telecom and energy areas. Oil stocks were mostly positive on Friday, but crude oil fell another $3.00/bbl. for the week to $46.22.

       The Federal Reserve, as expected, left short-term rates alone following their Wednesday meeting, but is still on track for a few more increases throughout the year. The economy added 211,000 new jobs in April, a nice bounce from a lackluster March report and the unemployment rate fell to a ten-year low at 4.4%. Looking out, it will be a mostly quiet week on the economic front with consumer prices and April retail sales on the calendar for Friday. And, except for retailers, earning’s season is coming to an end.

       Investors continue to hang in, encouraged by the constructive tone of early second-quarter business trends and the continued support from strong corporate earnings and full-year guidance. Progress on the legislative front would further inspire the bulls, thus the case for equities remains solid. But as averages strengthen, valuations and the attendant risks in the market also continue to rise.  

Here is the answer to last week’s trivia question:  Chase Manhattan Bank (now JPMorgan Chase & Co,) was acquired by what other bank in 1996? Manufacturers Hanover, New York Trust Co., Irving Bank Corp. or Chemical Bank. Answer: Chemical Bank. Although smaller Chemical was the nominal survivor, it took the better-known Chase name. The combined company later merged with J.P. Morgan & Co. in 2000 to form JPMorgan Chase.

Today’s Trivia Question: The ticker symbol “ICE” belongs to what company? Reddy Ice Holdings, Icelandair Group, Intercontinental Exchange, Inc. or Friedrich Air Conditioning Co.

Harris Reports Above Estimates; Lowers Earning’s Guidance

  Harris Corp. (NYSE: HRS- $108.92) reported financial results for fiscal third quarter 2017, with earnings and revenue that topped analysts’ expectations; but it narrowed its earnings guidance range for fiscal 2017 in line with Street estimates. The Melbourne, Florida-based company now expects fiscal 2017 adjusted earnings of $5.50 – $5.55/share versus the Street view of $5.54. The previous guidance was for $5.40 – $5.60. For the quarter, the provider of products, systems and services that have domestic and international defense and civil government applications posted adjusted earnings of $1.38 per share, compared with the prior-year period’s $1.34 per share and seven cents ahead of expectations. Revenue was $1.49 billion, down from $1.55 billion in the same quarter last year. The Street view was for revenue of $1.46 billion. Communication Systems revenue was down by 5% from a year ago; Space and Intelligent Systems negative by 3%; and Electronic Systems revenue was flat.

       Harris expects fiscal 2017 revenue on an organic basis to be down about 1% from prior year, compared to previous guidance of flat to down 2%, excluding $60 million of prior-year revenue from the divested Aerostructures business. The shares, up 35% over the past 52-weeks, can be considered for a well-diversified aggressive account.

 

Gilead Sciences Misses Earnings

  Biopharmaceutical firm Gilead Sciences (NASDAQ: GILD – $66.81) reported total revenue of $6.5 billion in the first quarter compared to $7.8 billion last year, but in line with consensus.  Adjusted income was $2.9 billion or $2.23 per share, compared to $4.3 billion or $3.03 per share in 2016 and five cents lower than Street estimates. Antiviral product sales, which include sales of HIV, chronic hepatitis B and hepatitis C products, were $5.8 billion vs. $7.2 billion for the same period in 2016. Other product sales, such as Letairis, Ranexa and AmBisome, were $536 million, compared to $498 million for the same period in 2016. As of March 31, Gilead had $34.0 billion of cash, cash equivalents and marketable securities on hand compared to $32.4 billion as of December 31, 2016. Cash flow was $2.9 billion for the quarter, of which the company utilized $565 million on stock repurchases and paid cash dividends of $687 million.

       Investors were disappointed in the earning’s miss and the company failed to provide assurances of any acquisitions that can drive revenue higher, as hepatitis drug sales decline from pricing pressures and competition. An acquisition of any kind would probably raise the price of this stock. The dividend should continue to be raised, giving investors a decent income stream with a 3% yield. The low valuation of 8 times 2017 expected earnings, provides some relief to investors and the share price did not breach its 52-week low on the news. Long-term holdings for eventual recovery are still warranted.

CVS Reports Lower Profits; Confirms Guidance

  Drug store chain and pharmacy benefits manager CVS Health (NYSE: CVS – $78.97)10 reported sales in the pharmacy services segment strengthened, increasing 8.5% to $31.2 billion, in part driven by an 11% jump in network claims. CVS said it had won net new pharmacy benefits business of about $5.4 billion in the quarter. Brand inflation and growth in specialty pharmacy also helped, partly offset by more generics, leading to lower prices. Sales in CVS’s retail segment, meanwhile, slipped 3.8% to $19.3 billion, dragged by a decline in same-store sales, as well as pressure from reimbursements and generics. Softer traffic and changes to promotions contributed to a 4.9% decline in same-store sales at the front of the store, where CVS sells everyday non-pharmacy items. Prescription same-store sales fell 4.7%, hurt by recent generic drug introductions. The company said it closed 60 retail stores in the period and expects to close about 10 additional stores during the rest of 2017.

       Over all, CVS reported a profit of $952 million, and adjusted earnings per share of $1.17, a penny below last year’s results. The company had forecast $1.07 to $1.13 and the consensus estimate was $1.16 per share. Revenue rose 3% to $44.5 billion, above expectations of $44.2 billion, according to analysts. Looking ahead, management said profit for its current quarter could land on the low-end of Wall Street’s estimates, coming in at $1.29 to $1.33 a share. For the full year, management is guiding adjusted earnings per share of $5.77 to $5.93. Current valuations are pegged on CVS earning $5.86 per share.

       Traders were looking for more positive results, sending the shares down 2.5% in early trading. I still think that the stock holds considerable investment merit for those looking further out, especially after the price weakness this past year. Along with completion of its $5 billion share buyback plan, strong balance sheet and a growing dividend yielding 2.4%, the shares can be held in a well-diversified conservative account for above-average total returns.

Johnson & Johnson Boosts Payout

  Pharmaceutical and health care products giant, Johnson & Johnson (NYSE: JNJ – $123.47) announced that it will be increasing its quarterly dividend rate to $0.84 per share from $0.80, a 5% increase. The new dividend is payable on June 13 to holders of record on May 30 with an ex-dividend date of May 25. The annualized $3.36 distribution will yield inventors 2.7%, at current levels. The company said it made the change “in recognition of our 2016 results, strong financial position and confidence in the future of Johnson & Johnson”. The company reported first quarter results on April 19. Shares of J&J have moved higher by 8.9% over the last three months, compared with a 3.9% rise in the S&P 500.