Resultados trimestrales

3M Is Down ~8% After A Shocking Earnings Miss

Perhaps the most surprising story from this mornings’ earnings release is from 3M Company (MMM), the diversified industrial manufacturing giant that makes products ranging from Post-It Notes to safety equipment and seemingly everything in between.

In this morning’s earnings release, the company made a number of troubling announcements:

  • Sales of $7.9 billion declined 5% year-on-year
  • Sales declined by double-digits in the China, automotive, and electronics divisions
  • Adjusted earnings-per-share of $2.23 declined by 10.8% over the same period in fiscal 2018

Here’s what the company’s Chief Executive Officer, Mike Roman, had to say about 3M’s performance in the quarter:

“The first quarter was a disappointing start to the year for 3M. We continued to face slowing conditions in key end markets which impacted both organic growth and margins, and our operational execution also fell short of the expectations we have for ourselves. As a result, we have stepped up additional actions – including restructuring – to drive productivity, reduce costs, and increase cash flow as we manage through challenges in some of our end markets.”

The ‘restructuring’ mentioned in the quote above refers to a business group realignment from five to four business groups. In conjunction with this realignment, 3M announced an expectation reduction of 2,000 positions worldwide. For context, the company currently has approximately 93,000 employees.

Lastly, 3M announced revised guidance for the full fiscal year. The company now expects to generate adjusted earnings-per-share between $9.25 and $9.75 versus a prior expectation of $10.45 to $10.90. 3M also updated its organic local-currency sales growth guidance to be in the range of minus 1 percent to plus 2 percent versus a prior range of 1%-4%.

Overall, 3M’s performance in the first quarter of 2019 was shockingly bad. With that said, 3M remains one of the highest quality manufacturing stocks around; as well as one of the most shareholder friendly. 3M has paid increasing dividends for more than 50 consecutive years, making it a Dividend King. We don’t see this streak stopping any time soon.

Prior to this release, we had a hold rating on the company, but this may change to a buy if the company’s reaction to this earnings release causes the stock to fall enough that its valuation becomes attractive.

AbbVie: A Double Beat For This Pharma Giant

AbbVie (ABBV), the biopharmaceutical company that was spun off from Abbott Laboratories in 2013, also reported earnings this morning.

AbbVie’s business has performed remarkably well since the spinoff, but its stock has lagged because of fears surrounding the patent expiration of its flagship drug Humira – which contributed 57% of the company’s revenue in the first quarter and is he highest-grossing drug in the world . This drug’s patent expiration will increase the competition it experiences and make business much tougher for AbbVie.

But Abbvie continued to perform remarkably well in the first quarter. Here are the highlights:

  • Adjusted diluted earnings-per-share of $2.14 increased by 14.4%
  • Net revenues of $7.828 billion increased by 0.4% (excluding the impact of foreign exchange)
  • In the U.S., Humira revenues increased by 7.1%. Internationally, Humira revenues declined by 23.0% (excluding foreign exchange) due to increased biosimilar competition
  • Global net revenues from the hematologic oncology portfolio were $1.12 billion, an increase of 43.2% (excluding foreign exchange). Flagship drug Imbruvica net revenues were $1.0 billion, an increase of 34.0%

AbbVie beat consensus analyst expectations on both the top and bottom lines. Moreover, the company announced an increase to its 2019 financial guidance. AbbVie now expects to generate adjusted diluted earnings-per-share of $8.73-$8.83, which represents annual growth of 11.0% at the midpoint.

Overall, AbbVie’s performance was much better than we expected. The company’s high yield, shareholder-friendly capital allocation, and cheap valuation allows it to earn a strong buy recommendation from Sure Dividend at current prices.

Microsoft: A Cloud-Driven Earnings Beat

Yesterday after the market closed, Microsoft (MSFT) reported earnings for the third quarter of fiscal 2019. In the quarter, revenue of $30.6 billion increased by 14% while operating income of $10.3 billion increased by 25% and net income of $8.8 billion increased by 19%. The bottom line was similarly strong as diluted earnings-per-share of $1.14 increase by 20% over the third quarter of fiscal 2018.

Microsoft’s cloud business continues to be its best-performing segment. Server products and cloud services revenue increased by 27% (or 29% in constant currency) driven by Azure revenue growth of 73% (or 75% in constant currency).

Microsoft also returned $7.4 billion to shareholders through a combination of dividend payments and share repurchases in the quarter.

On Microsoft’s conference call, the company also provided guidance for both Q2 and the remainder of the fiscal year. For the twelve-month reporting period, Microsoft expects double-digit percentage growth in both revenue and operating income . While not explicitly stated, we believe Microsoft is also highly likely to grow earnings-per-share at a double-digit rate as well.

Microsoft’s recent financial performance has been very impressive; however, the company’s valuation is higher than we’re comfortable with. Accordingly, Microsoft earns a hold recommendation from Sure Dividend at current prices.

Visa: Following Microsoft To An Earnings Beat

At the same time that Microsoft was announcing its strong performance for the second quarter of fiscal 2019, Visa (V) reported results for the same time period.

Visa announced that net revenues of $5.5 billion increased by 8% year-on-year, net income of $3.0 billion increased by 14% year-on-year, and earnings-per-share of $1.31 rose by 17%.

Visa’s business drivers were diversified and the company appeared to perform well across its entire organization. The payments conglomerate reported that payment volume rose 8% year-on-year, cross-border volume increased by 4%, and processed transactions rose by 11% over the same period a year ago.

With the publication of its strong second quarter results, Visa modified its guidance for the full fiscal year. The company expects net revenues to grow at a low double-digits pace while earnings-per-share are expected to grow at a high-mid-teen percentage pace.

Overall, Visa’s performance continues to be among the best in the publicly-traded stock universe. However, the company is trading significantly above our fair value estimate, so it earns a hold recommendation from Sure Dividend at current prices.

Altria: Costs Weigh On Q1 Performance

Earlier this morning, Altria (MO) reported financial results for the first quarter of fiscal 2019.

On the surface, the quarter was not very strong. Net revenues declined by 7.9% while revenues net of excise taxes declined by 6.0%. Further down the income statement, GAAP diluted earnings-per-share declined by 40% while adjusted diluted earnings-per-share declined by 5.3%.

While the headline figures are disappointing, some color from the management team shows that Altria’s performance was actually in-line with expectations. Here’s what the company’s Chairman and Chief Executive Officer, Howard Willard, said about the company’s performance in the quarter:

“As expected, Altria’s first quarter adjusted diluted EPS declined in the mid-single digit range as we incurred higher interest expense as a result of our recently issued debt, without the full benefit of savings from our cost reduction program, which began to ramp up at the end of the quarter. We continue to expect full-year adjusted diluted EPS growth of 4% to 7%.”

Overall, we continue to believe that Altria looks attractive thanks to its high dividend yield and cheap valuation. The company currently earns a buy recommendation from Sure Dividend at current prices.

Ameriprise Financial: Strong Performance Led By Share Buybacks

Ameriprise Financial (AMP) also beat earnings estimates after announcing its results yesterday after the market close. The company’s revenue was roughly flat year-on-year, but its other metrics were better.

The company’s adjusted operating earnings per diluted share (its preferred metric for per-share performance) increased by 8%. Ameriprise Financial also operated with an adjusted operating ROE of 36.4%.

Here’s what the company’s Chairman and Chief Executive Officer, Jim Cracchiolo, said about the company’s performance in the quarter:

“Ameriprise delivered a solid quarter led by double-digit earnings growth in our Advice and Wealth Management business. Overall, I’m pleased with our results given at the beginning of the year markets drove lower fee levels and muted client activity. As volatility settled, client activity returned to historical levels in line with what we expected. We ended the quarter with strong Ameriprise client net inflows and steady growth in advisor productivity.”

Ameriprise Financial continues to allocate capital in a very shareholder-friendly manner. Through an aggressive buyback program, the company reduced its shares outstanding by a remarkable 7.9% year-on-year in the most recent quarter.

The company’s dividend history is also indicative of a shareholder-friendly management team. With the publication of its first quarter earnings release, Ameriprise Financial increased its quarterly dividend by 8%. This represents the company’s twelfth dividend increase during the last ten years.

Ameriprise Financial’s combination of a cheap valuation, strong growth prospects, and reasonable safety metrics (it earns an A rating for Dividend Risk) causes it to earn a strong buy recommendation from Sure Dividend at current prices.


Resultados de Iberdrola

Starbucks Serves Up A ‘Grande’ Earnings Beat

Starbucks (SBUX) reported second quarter financial results yesterday after the market closed. While the company slightly missed consensus revenue expectations, earnings came in better than expected and drove the coffeemaker’s stock to all-time highs.

Let’s start by discussing Starbucks’ sales trends. Second quarter comparable store sales increased by 3% globally, driven by 4% comparable store sales growth in the United States and 3% growth in China.

Starbucks also aggressively expanded its store count in the quarter. The company’s global net store count grew by 7% in the quarter versus the same quarter a year ago, led by 17% net store count growth in China.

Starbucks’ global retail business surpassed 30000 stores in the three-month reporting period. Overall, this combination of same-store sales growth and net locations growth allowed for 9% growth in consolidated net revenues (after adjusting for ‘approximately 3% of net reduction from Streamline-driven activities and a 1% headwind from unfavorable currency translation’).

On the bottom line, Starbucks’ adjusted earnings-per-share of $0.60 increased by 13% over the same period a year ago. For context, analysts were expecting earnings of $0.57.

Starbucks also updated its 2019 financial guidance with the publication o its second-quarter earnings release. The company now expects to generate adjusted earnings-per-share in the range of $2.75 to $2.79, up from previous guidance of $2.68 to $2.73. At the midpoint, this guidance implies growth of 14.5% over fiscal 2018.

Starbucks’ performance in the most recent quarter was very strong. With that said, the company is trading at a price-to-earnings ratio in the high twenties – much higher than we’re comfortable with. Accordingly, Starbucks earns a hold recommendation from Sure Dividend at current prices.

Aflac Beats On The Top & Bottom Lines

Yesterday, Aflac (AFL) reported financial results for the first quarter of fiscal 2019. The company surpassed consensus expectations on both the top and bottom lines.

More specifically, Aflac’s total revenue of $5.7 billion expanded by 3.6% over the $5.5 billion reported in the same period a year ago, while earnings-per-share of $1.23 increased by 35.2% year-on-year.

What drove Aflac’s impressive earnings performance? The company realized net investment gains of $103 million, which compares very favorably to last year’s net investment losses of $98 million. Excluding such non-recurring charges, Aflac’s performance was still solid. The company generated adjusted earnings-per-share of $1.12, which increased by 6.7% year-on-year. Aflac’s core business growth was primarily driven by Aflac Japan’s favorable benefit ratios.

Aflac also allocated capital in a very shareholder-friendly manner in the quarter. The company repurchased $90 million of stock in Q1, which represents approximately 1.3% of the company’s current market capitalization. Aflac also issued new financial guidance for the full fiscal year, expecting to generate adjusted earnings-per-share of $4.10 to $4.30 in the twelve-month reporting period. The midpoint of this guidance band implies growth of 10% over fiscal 2018.

Aflac’s first quarter performance was better than expected. With that said, the company is trading above our fair value target currently and thus fails to earn a buy recommendation from Sure Dividend at current prices.

UPS Fails To Deliver

UPS (UPS) reported 1st quarter fiscal 2019 results yesterday. The company generated adjusted earnings-per-share of $1.39, versus $1.55 for the same quarter a year ago for a 10.3% decline.

The poor results were largely due to the company’s U.S. Domestic segment, which saw adjusted operating profit fall 8.2% versus the same quarter a year ago. The company blamed ‘poor weather’, but the segment generated higher revenue than the same quarter a year ago. The decline was due to falling margins at UPS.

Despite poor results, the company maintained its earnings guidance for fiscal 2019. And, UPS is in the midst of a restructuring program to reduce costs and create greater efficiency, which should boost margins over time.

The market did not respond positively to UPS’ quarterly results, sending the stock down 8.1% yesterday.

Despite poor recent results, we view UPS as a buy at current prices. The security appears significantly undervalued. And, we believe the company will continue to grow over the long run. The fact that management did not reduce guidance for fiscal 2019 points to stronger growth the remainder of this year as well.

Ford Trucks Through Earnings

On April 24th, Ford (F) reported financial results for the fist quarter of fiscal 2019. The company blew past analyst estimates on the bottom line, but slightly missed consensus revenue estimates.

Here’s what the numbers look like. Revenue of $40.3 billion declined by $1.6 billion over last year’s comparable figure, while adjusted earnings before interest and taxes (EBIT) increased by $0.3 billion to $2.4 billion. Cash flow from operations was flat at $3.5 billion while adjusted earnings-per-share of $0.44 expanded by a penny over the same period a year ago.

Here’s what Ford’s President and Chief Executive Officer, Jim Hackett, said about the company’s performance in the quarter:

“With a solid plan in place, we promised 2019 would be a year of action and execution for Ford, and that’s what we delivered in the first quarter. We’re pleased with the progress and the optimism that it brings. Our global team continues to restlessly strive to improve our operational fitness, delight customers with ever-improving vehicles and services, and prepare Ford to win in the future. Our goal remains to become the world’s most trusted company, designing smart vehicles for a smart world.”

For investors worried about the cyclicality of Ford’s business model, it is important to note that Ford’s balance sheet remains strong. The company finished the first quarter with $24.2 billion in cash and $35.2 billion in liquidity, both above the company’s targets of $20 billion and $30 billion, respectively. The company also closed on a new $3.5 billion supplemental credit facility on April 23rd.

Ford does not generally provide financial guidance for shareholders. With that said, the company’s 2019 is on pace to be a touch stronger than last fiscal year, and the company appears priced to deliver low double-digit returns from its current price. Ford earns a buy recommendation from Sure Dividend at current prices with the caveat that investors must be willing to stomach the potentially high volatility inherent in its business model.


Resultados Colgate.

Resultados WPP 1er trimestre. Guidance for 2019 unchanged. Cotización sube un 5%

Exxon & Chevron: Shockingly Different Results

Chevron (CVX) and Exxon Mobil (XOM) are two of the world’s largest energy companies with market capitalizations of $223 billion and $341 billion, respectively. They are also the only 2 energy sector Dividend Aristocrats.

They both reported earnings recently, with surprisingly different results.

To begin, let’s discuss Exxon’s performance. Exxon Mobil reported first quarter financial results on Friday and the company seriously missed expectations on both the top and bottom lines.

Exxon’s earnings-per-share of $0.55 missed estimates by $0.13 while revenues of $63.63 billion missed expectations by $3.72 billion. The company’s earnings-per-share also declined by 50% over the same period a year ago. Exon’s Chairman and CEO, Darren Woods, stated that:

The change in Canadian crude differentials, as well as heavy scheduled maintenance, similar to the fourth quarter of 2018, affected our quarterly results .”

This statement is difficult to stomach when juxtaposed against Chevron’s performance (which also reported earnings on Friday).

Chevron’s revenue also missed expectations (by $3.2 billion at that), and yet the company’s earnings-per-share of $1.39 beat expectations by $0.16. Chevron’s earnings-per-share declined by 27% year-on-year (compared to Exxon’s 50% decline).

While both energy companies were impacted by lower crude oil prices as well as weaker margins in both the downstream and chemicals segments, Chevron’s superior performance was driven by the upstream segment, which saw production volumes grow 7% from the first quarter of 2018.

Exxon Mobil and Chevron both offer appealing combinations of high expected returns and solid safety scores. While their performance in the most recent quarter was very different, they do have one commonality: both securities earn buy recommendations from Sure Dividend at current prices.

Colgate-Palmolive: Hurt By Foreign Exchange

Colgate-Palmolive (CL) reported first quarter earnings last Friday. Results were better than expected, but the company’s performance was negatively impacted by foreign exchange fluctuations.

Colgate-Palmolive’s revenue decreased by 3.0%, which was comprised of gross unit volume growth of 1.0%, pricing increases of 2.0%, and a whopping 6.0% negative impact from foreign exchange.

On the bottom line, net income decreased by 11% while diluted earnings-per-share decreased by 9%, with the per-share figure being boosted by the company’s share repurchase efforts.

Colgate-Palmolive’s President and CEO, Noel Wallace, made the following statement in conjunction with the earnings release:

We are pleased with the improvement in organic sales growth this quarter and that the growth was broad based, with emerging markets and developed markets each growing 3.0%. We believe our plans to accelerate growth are beginning to pay off, as the stronger organic sales growth we delivered in the quarter had a better balance between pricing and volume growth than we saw in the fourth quarter of 2018. This growth was led by our toothpaste and Hill’s businesses. Advertising investment increased in absolute dollars and as a percent to sales versus first quarter 2018, with increases as a percent to sales in every division. Colgate’s leadership of the global toothpaste market continued during the quarter with our global market share at 41.7% year to date. Our global leadership in manual toothbrushes also continued with Colgate’s global market share in that category at 31.6% year to date.”

Colgate-Palmolive also provided new guidance with the publication of its first quarter earnings release. The company expects net sales to be flat to up low-single-digits, with organic sales growth of 2% to 4%. Colgate-Palmolive also expects a low-single-digit decline in earnings-per-share.

While Colgate-Palmolive’s headline figures are not necessarily impressive, the company beat consensus estimates for both earnings and revenues.

Looking ahead, we believe that the company’s irrationally high valuation makes it extremely unattractive for investors today. Colgate-Palmolive earns a sell recommendation from Sure Dividend at current prices.

Archer-Daniels-Midland Stock Wilts On Earnings Announcement

Archer-Daniels-Midland (ADM) reported first quarter 2019 earnings on April 26th.

The company’s stock fell 1.9% the day of the announcement, while the S&P 500 was up 0.5%.

First quarter earnings revealed that ADM’s adjusted earnings-per-share in the quarter were down 32%, falling from $0.68 in the same quarter a year ago to $0.46 in the most recent quarter.

ADM’s CEO Juan Luciano had the following to say about the company’s results:

“The first quarter proved more challenging than initially expected. Impacts from severe weather in North America were on the high side of our initial estimates, and the ethanol industry environment limited margins and opportunities."

While first quarter results certainly left much to be desired, it’s important to note that ADM’s profits do fluctuate significantly based on commodity prices which are affected by the weather. There’s no cause for alarm with ADM’s weaker earnings-per-share this quarter.

On the positive side, ADM announced the following items, which should boost shareholder returns ahead:

  1. ADM is creating an independent subsidiary for its ethanol operations. Importantly, the company may spin off its ethanol operations to shareholders in the future . Spin-offs in general are beneficial for shareholders as they show the company is more interested in shareholder returns than building a larger business empire.

  2. The company is undertaking a project to centralize and standardize its business activities and processes to assimilate recent acquisitions. The plan is already bearing fruit, with the capital expenditure budget for fiscal 2019 falling 10%.

We view ADM as a buy at current prices. The company’s stock appears a bit undervalued. And its status as a Dividend Aristocrat (25+ years of rising dividends) coupled with its above-average 3.4% dividend yield should appeal to dividend growth investors.


General Electric Stock Surges After Better-Than-Expected First Quarter

There has not been much to celebrate lately for General Electric’s (GE) shareholders. The company’s recent performance has included multiple dividend cuts and a bevy of earnings disappointments. This changed in the company’s first quarter earnings release.

More specifically, General Electric significantly beat consensus estimates, causing the stock to surge by more than 10% in this morning’s premarket trading.

The industrial conglomerate generated revenues of $27.3 billion, which was in-line with analyst expectations, and adjusted earnings-per-share of $0.14, which beat estimates of $0.09 by a whopping 56% .

What caused the company’s better-than-expected performance in the first quarter?

It was largely due to the timing of ‘certain business items’. Here is some commentary from the firm’s Chairman and CEO, H. Lawrence Culp Jr.:

“We saw progress in the first quarter as we continued to execute on our priorities to improve our financial position and strengthen our businesses. We announced the sale of BioPharma, closed the Wabtec merger, settled WMC, and improved our operating performance. We delivered strong industrial orders in the quarter, up 9 percent organically, with backlog closing at $374 billion, up 6 percent year over year. Our quarterly results were better than our expectations, largely driven by timing of certain items, which should balance out over the course of the year. Therefore, we expect our performance for the year to be in line with our previous commentary.”

The previous guidance that General Electric’s CEO refers to in the quote above came in the company’s March Outlook Call with analysts. The guidance includes:

  • GE Industrial segment organic revenue growth in the low-to-mid-single-digit range.

  • Adjusted GE Industrial margin to expand in a range from flat to 100 basis points.

  • Adjusted GE Industrial free cash flows of -$2 billion to $0 billion. This is expected to be positive in 2020 with the pace of improvement accelerating in 2021.

  • Financial targets that include a credit rating in the Single A range, an Industrial leverage ratio of less than 2.5x net debt to EBITDA, and a GE Capital debt-to-equity ratio of less than 4x.

General Electric’s performance was better than the markets expected. With that said, the company’s total return outlook looks poor – and that was before the 10% surge in stock price. Accordingly, General Electric earns a sell recommendation from Sure Dividend at current prices.

GM Trucks Through First Quarter Results (Literally)

General Motors (GM) reported first quarter financial results early this morning. The performance of the company’s new full-size truck launch was the headline item in its earnings release. The second sentence of the company’s press release is contained below:

“The company’s full-size truck launch is ahead of plan and drove strong pricing for the quarter in North America. Average transaction prices for GM’s all-new full-size crew cab pickup trucks are up $5,800 over the outgoing models.”

Separately, the company’s actual financial performance was not exceptionally strong. Net revenue of $34.9 billion decreased by 3.4% over the first quarter of fiscal 2018 while the company generated negative $3.9 billion of adjusted automotive free cash flow. Adjusted diluted earnings-per-share decreased by 1.4% year-on-year.

For General Motors, one of the numbers that is cited most widely by the firm’s management team is adjusted EBIT (earnings before interest and taxes). Adjusted EBIT declined from $2.6 billion in Q1 2018 to $2.3 billion in Q1 2019

Still, there were some positive components to the company’s earnings release. General Motors’ high selling mix (above 80%) of trucks, SUVs, and crossovers allowed the corporation to book its highest average transaction price for any first quarter in the company’s history. As mentioned, trucks were also a noticeable strong point, as first quarter sales of the 2019 Chevrolet Silverado and GMC Sierra were up 20% year-on-year.

In addition, while General Motors’ performance declined over last year, the company actually materially beat analyst expectations. General Motors’ adjusted diluted earnings-per-share of $1.41 came in well above consensus estimates of $1.12, but revenue of $34.9 billion missed estimates by $660 million.

Overall, General Motors’ first quarter was mixed on several fronts. Still, the company has high-single-digit expected returns and earns a cautious buy recommendation from Sure Dividend at current prices. We do note that prospective GM investors should have the willingness to stomach the inherent volatility of the automotive manufacturing sector - and elevated potential for a dividend cut during recessions.

McDonald’s: 15 Straight Quarters Of Comparable Store Sales Growth

McDonald’s (MCD) reported its first quarter results for fiscal 2019 this morning. The company’s stock was up more than 3% in pre-market trading following the announcement.

Highlights from the quarter are below:

  • Global comparable sales increased 5.4%

  • Constant-currency system-wide sales increased 6.0%

  • Earnings-per-share were flat (up 5% using constant currencies)

The company’s CEO Steve Easterbrook had the following to say about the company’s results:

"We started the year strong with our 15th consecutive quarter of positive global comparable sales, reflecting continued broad-based momentum across each of our global segments. We remain focused on running better restaurants and elevating the experience for our customers by providing convenience on their terms through delivery, Experience of the Future, and our evolving digital channels.

Two years into the Velocity Growth Plan, our sustained performance gives us confidence that our strategy is working, as more customers are experiencing a better McDonald’s every day. We remain focused on optimizing execution of the Plan, and our recent acquisition of Dynamic Yield further demonstrates our relentless determination to seize opportunities to unlock greater potential and position McDonald’s for long-term sustainable growth."

The aforementioned Dynamic Yield acquisition (which was reportedly for more than $300 million) is an interesting one for a restaurant. Dynamic Yield works with brands to create an ‘Amazon style’ personalized online experience.

McDonald’s plan is to use Dynamic Yield to create menus that respond to weather changes, trending items, and current restaurant traffic, and suggest what to order next based on what you’ve already added to your order.

Comparable store sales growth was strong at McDonald’s, and 15 straight quarters of comparable store sales growth is incredible. But with that said, earnings-per-share were flat.

McDonald’s is the largest restaurant business in the world. But it appears overvalued at current prices. We rate the security as a hold. Investors looking to add shares or initiate a position are best suited to wait until the price-to-earnings ratio dips to a more reasonable level of around 20. The price-to-earnings ratio is currently ~24x expected 2019 earnings.

Mastercard: The Remarkable Growth Continues

Mastercard also reported first quarter financial results this morning. We are unsurprised to see that the firm’s remarkable growth continues unabated.

More specifically, Mastercard’s revenues grew 9% on a reported basis and 13% on a constant-currency basis as the global trend to a cashless society means more people are using its cards each year.

Further down the income statement, Mastercard actually reduced its operating expenses from $1.8 billion last year to $1.7 billion this year, which resulted in 21% operating profit growth (27% on a constant-currency basis).

On the bottom line, Mastercard’s net income grew 25% (or 31% ex-currency) and diluted earnings-per-share increased by 28% (or 33% ex-currency). On an adjusted basis (which excludes one-time charges), net income increased 19% and diluted earnings-per-share increased by 24%.

Mastercard also continued to be a very shareholder-friendly allocator of capital in the quarter. The company repurchased 8.7 million shares at a cost of $1.8 billion and also distributed $340 million in dividend payments to stockholders.

Mastercard’s CEO, Ajay Banga, made the following statement in conjunction with the earnings release:

“We’re off to a very good start this year with strong revenue and earnings growth. We continue to make significant progress, developing innovative new products with partners like Apple and Goldman Sachs, expanding the geographic footprint of our real-time payment solutions, and announcing several acquisitions to advance our cross-border payments, safety and security, and merchant engagement strategies.”

Mastercard continues to perform exceptionally well as a business. We expect the company to generate high-single-digit returns moving forward, which allows it to earn a buy recommendation from Sure Dividend at current prices

Cummins Powers Forward With Strong First Quarter Results

Cummins (CMI) announced results for its first quarter of fiscal 2019 this morning.

The diesel engine manufacturing company saw revenue grow 8% versus the same quarter a year ago. This is a favorable result from an established industrial company. Cummins was especially dominant in North America were sales grew 13%. International sales were up just 1%.

Better yet, the company’s margins improved significantly . EBITDA grew to 17.2% of sales versus 12.6% of sales in the same quarter a year ago.

Margin gains caused earnings-per-share to jump as well; adjusted earnings-per-share came in at $3.97 versus $2.43 in the same quarter a year ago for growth of 63%.

Better-than-expected results allowed Cummins’ management to issue an improved guidance for fiscal 2019. EBITDA as a percentage of sales guidance was increased from 16.0% at the midpoint to 16.5% at the midpoint. The company’s sales growth guidance of 0% to 4% remained in line with previously issued guidance.

We view Cummins as somewhat undervalued at current prices. It retains its buy ranking from us, especially after today’s results.

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Apple Beats Sales & Earnings Expectations

Apple (AAPL) reported financial results for the second quarter of 2019 yesterday after the markets closed.

The company’s financial results were strong. Apple generated quarterly revenue of $58 billion, which beat consensus estimates by $620 million and declined by 5.1% over the same period last year. Revenue breakdown by product category is shown below:

  • iPhone: $31.0 billion
  • iPad: $4.9 billion
  • Mac: $5.5 billion
  • Services: $11.5 billion
  • Wearables and Home: $5.1 billion

Diluted earnings-per-share of $2.46 declined by 10% year-on-year. While a 10% decline on earnings may seem like poor performance on the surface, this figure actually beat analyst estimates by $0.10.

Here’s what the company’s CEO, Tim Cook, said about Apple’s performance in the quarter:

“Our March quarter results show the continued strength of our installed base of over 1.4 billion active devices, as we set an all-time record for Services, and the strong momentum of our Wearables, Home and Accessories category, which set a new March quarter record. We delivered our strongest iPad growth in six years, and we are as excited as ever about our pipeline of innovative hardware, software and services. We’re looking forward to sharing more with developers and customers at Apple’s 30th annual Worldwide Developers Conference in June.”

Apple also continued its remarkable capital return program. The company returned over $27 billion to shareholders through share repurchases and dividends, and also authorized an additional $75 billion for share repurchases. These efforts caused Apple’s diluted share count declined by 7.3% year-on-year.

Apple also announced a 5% increase to its quarterly dividend and better-than-expected guidance for the current quarter. All these factors caused the company’s stock to rise by nearly 6% in after-hours trading following the earnings release.

Overall, we were delighted to see Apple beat expectations for the second quarter of fiscal 2019. The company appears fairly priced today and earns a hold recommendation from Sure Dividend at current prices…

CVS Health Corporation Surges On Earnings Beat

CVS Health Corporation (CVS) reported earnings this morning before the market opened. The company’s results were remarkably strong:

  • Revenue of $61.6 billion increased by 34.8% and beat expectations by $1.26 billion

  • Adjusted diluted earnings-per-share of $1.62 increased by 9.5% and beat expectations by $0.11.

On the top line, CVS Health’s revenue surged as this was the company’s first full quarter after its seminal merger with health insurer Aetna. On the bottom line, the company was able to offset the dilution associated with the Aetna transaction (shares outstanding increased by 27.8% year-on-year) by generating strong revenue synergies and reasonable cost management.

CVS Health’s President and Chief Executive Officer, Larry Merlo, made the following statement in conjunction with the earnings release:

“We generated strong first quarter results, providing positive momentum to start the year. Following the close of our Aetna acquisition in late November, our first full quarter of combined operations was a success in many ways. In the quarter we continued to advance our integration efforts while beginning to launch new innovations such as our HealthHUB® concept stores. With our differentiated collection of health care assets we are uniquely positioned to lead the transformation of the U.S. health care system. We remain relentlessly focused on creating value for clients and customers while driving both near and longer-term returns for our shareholders.”

CVS Health also revised its full-year financial guidance with the publication of its first quarter earnings release. More specifically, the company’s new guidance is listed below with prior guidance in parentheses:

  • Adjusted operating income of $15.0 billion to $15.2 billion
    ($14.8 billion to $15.2 billion)

  • Adjusted earnings-per-share of $6.75 to $6.90
    ($6.68 to $6.88)

Overall, CVS’s first quarter earnings release was much better than the markets anticipated. Shares are up nearly 6% in this morning’s premarket trading.

Despite this rise, the company continues to look attractive thanks to its cheap valuation, 3.7% dividend yield, and growth prospects. CVS Health earns a buy recommendation from Sure Dividend at current prices.

Southern Company’s Q1 Results Come IN South Of Expectations

Southern Company’s (SO) first quarter earnings release came in slightly below expectations this morning. More specifically, the company’s revenue of $5.41 billion missed expectations by $250 million while adjusted earnings-per-share of $0.70 missed expectations by $0.02.

Southern Company has experienced plenty of change over the last year. The company’s revenue of $5.41 billion declined significantly from the $6.37 billion reported in the same period last year. This decrease was primarily related to a reduction in revenue related to the sale of Gulf Power and other assets.

Separately, the company’s Chairman, President, and CEO, Thomas A. Fanning, provided an update on Southern Company’s Plant Vogtle project, which will be the largest nuclear power station in the United States upon completion:

“I am extremely pleased with our performance year-to-date, and believe we are well-positioned to achieve our financial targets for 2019. In addition, we just completed a review of the Plant Vogtle project and I’m pleased to report that we still expect to meet our targets for cost and the regulatory-approved schedule for the completion of the new nuclear units.”

To rewind, the project has experienced many setbacks and difficulties after Westinghouse Electric Company filed for Chapter 11 bankruptcy in March of 2017 due to losses from its two U.S. nuclear construction projects. Later that year, Southern Company’s division Southern Nuclear officially took over construction from Westinghouse.

Overall, Southern Company’s results came in slightly worse than expectations, but we do not believe there is any reason to be concerned about this utility business in the long run.

At the security level, Southern Company is trading above our fair value estimate and thus earns a hold recommendation from Sure Dividend at current prices.

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Caterpillar Hikes Its Dividend & Sets New Financial Targets

This morning, Caterpillar (CAT) published a press release containing various important pieces of information for self-directed investors. The announcements included:

  • A 20% increase to its quarterly dividend

  • The expectation to double Machine, Energy & Transportation sales to $28 billion by 2026 and deliver higher adjusted operating margins through the cycles of three to six percentage points above historical performance.

  • The plan to “ return substantially all Machine, Energy & Transportation free cash flow to shareholders through continued dividend growth and more consistent share repurchases.”

We view this announcement as quite positive for Caterpillar’s shareholders.

The company appears capable of delivering low double-digit returns from its current price and earns a buy recommendation from Sure Dividend today.

AmerisourceBergen: Pharma Distributor On Pace For All-Time Earnings-Per- Share Highs

AmerisourceBergen (ABC) is one of the 3 large pharmaceutical distributors in the U.S. that together have ~90% market share.

AmerisourceBergen reported its fiscal 2019 second quarter results this morning. Highlights from the release are below:

  • Revenue up 5.6% versus the same quarter last year
  • Adjusted earnings-per-share up 8.8% versus the same quarter last year

Revenue was very slightly below analyst expectations. Adjusted earnings-per-share came in 7.7% higher than analyst expectations.

The company also raised its guidance from a range of $6.65 - $6.85 to a range of $$6.70 - $6.90; a 2.1% increase.

Steve Collins, AmerisourceBergen’s president, chairman, and CEO said the following about the companies results:

“AmerisourceBergen continues to execute and deliver strong performance with good growth in customer volumes, double-digit Specialty distribution growth and overall strong execution across both the Pharmaceutical Distribution Services and Global Commercialization Services & Animal Health groups this quarter. As we move into the second half of the year, our fiscal 2019 outlook remains strong. AmerisourceBergen continues to be well positioned for long-term growth and we have the utmost confidence that our differentiated strategy and focus on providing innovative services and solutions for our partners will continue to drive sustainable value for all of our stakeholders.”

We continue to be bullish on AmerisourceBergen. The company’s stock looks undervalued as it is trading at just 10.8 times expected 2019 earnings. We believe a fair P/E ratio for the stock is around 15.

And, the company is on pace to hit all-time earnings-per-share highs this year. Overall, we expect earnings-per-share growth of around 8% annually from AmerisourceBergen. Finally, the security offers investors a dividend yield of 2.2% which is slightly higher than the S&P 500’s yield.

We view AmerisourceBergen as a compelling buy at current prices. The company’s newest earnings only further reinforce our buy recommendation.

S&P Global: Slightly Misses Expectations

S&P Global (SPGI), the provider of credit ratings and financial data, reported first quarter financial results this morning before the market opened. The company’s performance was slightly worse than expected but still relatively solid.

Here’s what the figures look like. Revenue of $1.6 billion was essentially unchanged compared to the same period a year ago.

Excluding acquisitions, divestitures, and the impact of foreign exchange, S&P Global’s revenue would have increased 1% over the first quarter of fiscal 2018.

On the bottom line, adjusted diluted earnings-per-share of $2.11 increased by 5% year-on-year.

Here’s what the company’s President and Chief Executive Officer, Douglas Peterson, had to say about the company’s performance in the quarter:

“The markets have come a long way since the depths of December as they began to stabilize in the second week of January. We don’t let market disruptions interfere with our business plans. During the quarter we continued to execute on our strategic investments – fueling new product launches, technology projects, and improved productivity across the Company as we continue to Power the Markets of the Future.”

S&P Global also reaffirmed its 2019 financial guidance with the publication of its first quarter earnings release. The company continues to expect to generate adjusted diluted earnings-per-share between $8.95 and $9.15 in the full fiscal year. At the midpoint, this implies growth of 6.5% over fiscal 2018’s comparable figure.

S&P Global’s performance in the first quarter was worse than both analyst estimates and our long-run expectations for the company. With mid-single-digit total return potential at current prices, the company’s common equity earns a hold recommendation from Sure Dividend at current prices.

Kellogg: Earnings Beat & CFO Change

Kellogg (K) had two newsworthy press releases this morning.

First, the company reported its fiscal 2019 first quarter results. Highlights from the quarter are below:

  • Organic net sales grew 0.3% year-over-year
  • Adjusted earnings-per-share fell 15.4%

Despite weak results, the company actually reported adjusted earnings-per-share 6.3% higher than what analysts were expecting. Still, we find a 15.4% decline in adjusted earnings-per-share to be somewhat troubling. The earnings-per-share decline was due to:

  • Higher tax rate
  • Negative currency effects
  • Higher interest expenses
  • Lower returns on pension assets

All of the above are not central to Kellogg’s core business, which actually saw revenue grow slightly in the quarter.

Also, Kellogg is in the process of divesting its Keebler cookie and related brands to Ferrero for $1.3 billion. The transaction is expected to close in July. The move is being made to help Kellogg focus on its “core brands” to spur growth.

The divestiture will reduce adjusted earnings-per-share this year. As a result, management has lowered its guidance and expects adjusted earnings-per-share to fall 10% to 11% this year.

And finally, Kellogg announced that current CFO Fareed Khan is stepping down and being replaced by Amit Banati, who is currently Kellogg’s president of AMEA (Asia, Middle East, Africa) operations.

The change was unexpected, but we are happy to see someone who has been with Kellogg for an extended period of time take the role of CFO. Fareed Khan joined Kellogg in February of 2017, while Amit Banati joined the company in 2012.

We view Kellogg as undervalued by 10% to 15% at current pre-market open prices (the stock is down 5% to ~$56/share as of this writing). We expect Kellogg to return to growth of around 5% annually over the long run after this year. This growth plus the company’s robust dividend yield of nearly 4% makes the company a buy at current prices.


Newell Brands: The Turnaround Shows Signs Of Progress

Newell Brands (NWL) posted better-than-expected first quarter 2019 earnings results this morning.

The company generated $0.14 in adjusted earnings-per-share. Analysts were expecting $0.06 in adjusted earnings-per-share. Newell more than doubled analyst expectations for adjusted earnings-per-share. Revenue was very slightly ahead of expectations as well.

Newell stock was up over 3% in pre-market trading as a result. The company’s President and CEO Michael Polk said the following about quarterly results:

“We have had a good start to the year and are encouraged by the improvement in results in the first quarter. Sales were at the higher-end of our expectations, operating margins increased as a result of disciplined cost management, normalized EPS was well ahead of our expectations, and operating cash flow was significantly improved versus last year. We have taken decisive action to strengthen performance and those actions are beginning to yield results. As expected, U.S. retailer headwinds associated with the Toys ‘R’ Us bankruptcy and the Writing industry retailer landscape have begun to moderate as we exit the first quarter, setting up what we believe will be a more constructive environment for the balance of 2019.”

While Newell did show improvement this quarter versus expectations, the company is still going through a difficult period as it offloads “non-core” brands and focuses on its best opportunities.

Sales fell 5.5%, with core sales (currency adjusted) declining 2.4%. And while adjusted earnings-per-share beat estimates, they were down to $0.14 from $0.28 a year ago.

But with that said, the company did generate $200 million in operating cash flow versus negate $402 million in the same quarter a year ago. Strong operating cash flows bode well for the company going forward.

And with revenue down somewhat, the strong earnings beat was due primarily to reducing overhead . With Newell able to materially reduce its operating expenses. Selling, general, and administrative expense declined 17.3% versus the same quarter a year ago for savings of $108.4 million in the quarter alone.

Newell reaffirmed its guidance for fiscal 2019. Details for the company’s guidance are below:

  • Net sales of $8.2 billion to $8.4 billion
  • Core sales: low single digit decline
  • 20 to 60 basis point improvement in normalized operating margin
  • $1.50 to $1.65 in normalized earnings-per-share
  • $300 million to $500 million in operating cash flows

Newell shares are currently for around $15. This means they are trading for around 10x expected adjusted earnings-per-share this year. And this is off a lower earnings base; earnings-per-share are likely to improve significantly in the years ahead as Newell cotninues to streamlline its operations.

We view Newell as a buy at current prices. The company’s earnings beat and significant cost reductions show that management is executing its plan to improve shareholder value.

3M Goes Shopping: Industrial Conglomerate Buys Acelity For $6.7 Billion

On May 2nd, 3M Company (MMM) announced that it is acquiring Acelity Inc. and its KCI subsidiaries from its current owners – a consortium comprised of Apax Partners, the Canadian Pension Plan Investment Board, and the Public Sector Pension Investment Board. The purchase price is an enterprise value of approximately $6.7 billion, including the assumption of debt and subject to closing and other adjustments.

This purchase price is difficult to evaluate without understanding the earnings power of the Acelity business. Fortunately, 3M provided some color on this topic in the acquisition announcement. The acquired company generated revenue of $1.5 billion in 2018 and the purchase price implies an EB/EBITDA multiple of approximately 11 after including “expected run rate cost synergies.” For context, 3M is trading at a current EV/EBITDA multiple of approximately 13.3.

Here’s what 3M’s Chief Executive Officer, Mike Roman, stated about the transaction in the company’s press release:

“Acelity is a recognized leading provider of advanced wound care technologies and solutions and an excellent complement to our Health Care business. This acquisition bolsters our Medical Solutions business and supports our growth strategy to offer comprehensive advanced and surgical wound care solutions to improve outcomes and enhance the patient and provider experience. We are excited to bring Acelity’s technologies and dedicated employees to our team. Together, we will apply 3M science to bring differentiated offerings to key wound and operative care solutions worldwide.”

The company’s press release also included some important information about the impact of this acquisition on the company’s near-term financial results.

More specifically, 3M stated that the acquisition should subtract $0.35 from GAAP earnings-per-share in the next twelve months. On an adjusted basis, the impact will be much more positive. The acquisition is expected to add $0.25 to earnings-per-share after excluding purchase accounting adjustments and anticipated one-time expenses related to acquisition and integration.

For context, we previously expected 3M to generate earnings-per-share of around $9.50 in fiscal 2019.

Lastly, 3M reduced its share repurchase guidance as a result of this transaction. The company now expects 2019 stock buybacks to be in the range of $1.0 billion to $1.5 billion versus $2.0 billion to $4.0 billion previously.

Overall, this acquisition looks to be a modestly positive event for 3M’s shareholders. The company’s stock continues to trade above our fair value estimate and earns a hold recommendation from Sure Dividend at current prices.

Shell: Earnings Beat Despite Lower Oil Prices

Yesterday, Royal Dutch Shell PLC (RDS.B) reported financial results for the first quarter of fiscal 2019. The company beat expectations despite persistently lower oil prices thanks to strong performance from its trading segment and higher prices in the liquid natural gas (LNG) market.

Shell’s income attributable to common shareholders increased by 2% in the quarter. However, the company prefers to measure its performance on a “current cost of supplies” (CCS) basis, which it describes as: “ the earnings measure used by the Chief Executive Officer for the purposes of making decisions about allocating resources and assessing performance. On this basis, the purchase price of volumes sold during the period is based on the current cost of supplies during the same period after making allowance for the tax effect. CCS earnings therefore exclude the effect of changes in the oil price on inventory carrying amounts. Sales between segments are based on prices generally equivalent to commercially available prices.”

On a CCS basis, Shell’s adjusted earnings decreased by 2% year-on-year. GAAP earnings-per-share increased by 4%, while CCS adjusted earnings-per-share declined by 6%. The company’s performance by segment (measured using CCS earnings) is listed below:

  • Integrated Gas: 5.3% growth

  • Upstream: 11.2% growth

  • Downstream: 3.2% growth

  • Corporate: Net loss increased by 192%
    (These are likely unallocated expenses with no associated revenue)

Shell’s interim dividend was maintained at $0.47 per share.

Here’s what Shell’s CEO, Ben van Beurdan, had to say about the company’s performance in the quarter:

“Shell has made a strong start to 2019, with the first quarter financial performance demonstrating the strength of our strategy and the quality of our portfolio of assets. The power of our brand, serving millions of customers every day, continues to be a differentiator. Our integrated value chain enabled our Downstream business to deliver robust results despite challenging market conditions. The consistent financial performance across all our businesses provides confidence in meeting our 2020 outlook.”

Shell’s first quarter was much better than the markets anticipated. Moreover, the company’s stock appears capable of delivering excellent returns from current prices, and shares earn a buy recommendation from Sure Dividend.


Emerson Electric: Lowered Guidance Causes The Stock To Drop

This morning, industrial conglomerate Emerson Electric (EMR) reported financial results for the second quarter of fiscal 2019. The company met earnings expectations, missed revenue expectations, and lowered its guidance range, which caused the company’s stock to dip in this morning’s premarket trading.

Here are what the numbers look like. Emerson Electric generated revenue of $4.57 billion, which fell short of consensus analyst expectations by $70 million. Still, Emerson Electric’s revenue improved meaningfully over last years period. GAAP net sales increased by 8% while underlying net sales increased 4% (which excludes unfavorable currency translations of 2% and a positive impact from acquisitions of 6%).

Moving down the income statement, Emerson Electric’s gross profit margin of 42.1% contracted by 70 basis points while operating profit margin of 15.8% contracted by 50 basis pints and pretax margin of 14.8% contracted by 70 basis points.

Margins contracted due to a combination of unfavorable product mix, cost inflation from recent acquisitions and a $7 million charge related to the acquisition of General Electric’s Intelligent Platforms business.

On the bottom line, GAAP earnings-per-share of $0.84 increased by 11% versus the same period a year ago – a strong showing, to be sure.

However, Emerson Electric’s guidance dampened any strength from to its performance in the most recent quarter. The company reduced its GAAP earnings-per-share guidance to $3.60 to $3.70, down slightly on the top end from previous guidance of $3.60 to $3.75.

Emerson Electric scores extremely well on our two proprietary safety scores. With that said, the company appears priced to deliver mid-single-digit returns moving forward. Accordingly, Emerson Electric earns a hold recommendation from Sure Dividend at current prices.

Anheuser-Busch Inbev Falls On Earnings Miss

Anheuser-Busch recently reported financial results for the first quarter of fiscal 2019. The company’s results disappointed the market and shares have fallen in this morning’s pre-market trading.

With that said, the company’s financial results were strong in some respects. Anheuser-Busch reported volume growth of 1.3%, revenue growth of 5.9%, and EBITDA growth of 8.2% with EBITDA margin expanding by 86 basis points in the quarter.

Brazil was a source of strength for the company, as the country experienced double-digit volume growth in both the beer and non-beer businesses (which outperformed the regional industry in both categories). In addition, the company’s “Global Brands” – Budweiser, Stella Artois, and Corona – grew by 8.5% globally and 14.0% outside of their home markets.

On the bottom line, results were weaker. Adjusted earnings of $1.572 billion decreased by 6.7% from the $1.685 billion of earnings generated last year. Adjusted earnings-per-share of $0.79 also decreased by 7.1% over the $0.85 generated last year. The company attributes its earnings weakness to foreign exchange impacts, stating “ our strong performance was more than offset by the negative impact of unfavorable currency translation effects.”

Lastly, Anheuser-Busch provided an update on its outlook for fiscal 2019. The company expects to deliver “strong” growth in revenue and EBITDA, while maintaining its $3.2 billion cost synergy target related to the acquisition of SAB in 2016. The company did not provide earnings-per-share guidance.

Anheuser-Busch appears positioned to deliver mid-single-digit expected returns moving forward. In addition, the company recently cut its dividend and continues to score poorly on our safety scores. Accordingly, the company earns a sell recommendation from Sure Dividend at current prices.


Omega Healthcare Investors Shows Signs Of A Turnaround

Yesterday evening, Omega Healthcare Investors (OHI) – a past recommendation of the Sure Retirement Newsletter – reported financial results for the first quarter of fiscal 2019.

In the quarter, the company generated funds from operations of $0.67 per share, representing a decrease of 5.6% year-on-year, and adjusted funds from operations per share of $0.76, which represents a decline of 2.6%. Omega’s AFFO per share beat consensus analyst expectations, which called for AFFO of $0.73 per share.

Perhaps more importantly, Omega Healthcare Investors’ management team included some statements in the earnings release that indicate that the company’s operating environment should improve moving forward. More specifically, the trust’s Chief Executive Officer, Taylor Pickett, said:

“While our operators continue to battle a challenging operating environment, a number of positive factors lead us to believe this environment will improve in the near future. The implementation of the Patient Driven Payment Model (“PDPM”) and the recently announced 2.5% increase in Medicare reimbursement, both starting in October, will augment the improving census driven by a multi-decade demographic tailwind.”

Omega also made progress a number of troubling tenant issues. More specifically, in the first quarter the trust resolved the sale and transition of its legacy Orianna assets (recall that Orianna is a tenant of Omega Healthcare that defaulted on its lease obligations).

Omega Healthcare also said that it “ began to see our general and administrative expenses tick down as legal costs began to moderate.”

Lastly, Omega Healthcare Investors announced that it had provided one of its operators, Daybreak, near-team liquidity relief in the form of a $2.5 million rent deferral in each of the first two quarters of 2019.

Looking ahead, Omega Healthcare Investors reaffirmed its 2019 guidance for AFFO. The trust expects to generate AFFO per diluted share between $3.00 and $3.12 in the twelve-month reporting period. For context, Omega Healthcare Investors currently pays a quarterly dividend of $0.66, which implies a full-year payout ratio of 88% using the bottom of management’s guidance band.

Omega Healthcare Investors currently earns D and B ratings for Dividend Risk and Retirement Suitability. With that said, the company seems capable of delivering mid-teens total returns if management can execute and resolve all current tenant issues. With that in mind, the company earns a buy recommendation from Sure Dividend, but only for investors that can stomach this risk tolerance.

Western Union: Divestitures, Repurchases, & Growth Difficulties

Western Union (WU) – a past recommendation of the Sure Retirement Newsletter – announced its first quarter results yesterday. The security was down more than 3% in pre-market trading today as the market did not respond favorably to the company’s results.

The company reported EPS of $0.39, which missed analyst estimates of $0.43 by $0.04. Revenue of $1.34 billion also missed analyst estimates, which called for $1.36 billion in revenue on the quarter.

Revenue did increase 2% on an adjusted constant-currency basis. And the $0.39 in EPS were 13.3% lower than adjusted EPS in the same quarter a year ago. Poor EPS results were due to lower revenues, an increase in acquisition and divestiture expense, and a higher tax rate.

On the bright side, Western Union spent $175 million om share repurchases during the quarter, around 2% of the company’s market cap at current prices.

In more big news for Western Union, the company expects to divest its Speedpay business this month for $750 million. The bulk of proceeds will go to more share repurchases and paying down the company’s sizeable ~$3 billion debt load. This divestiture (and the much smaller Paymap divestiture) is expected to reduce EPS by $0.10 this fiscal year and next fiscal year, but will focus the company further on cross border transactions.

The company’s guidance calls for a low single-digit increase in adjusted constant-currency revenue. Western Union’s EPS guidance, excluding proceeds from the aforementioned divestitures was reduced from a range of $1.83 to $1.95 to a new range of $1.82 to $1.92.

The company expects to spend $500 to $600 million on share repurchases in each of the next 2 fiscal years. These repurchases will decrease the company’s share count by ~10% from now through 2020 if done near current prices.

We expect total returns nearing 10% annually for Western Union, largely because we see the security as undervalued. But there are certainly risks here. Namely, the company existing in an extremely competitive space which is reflected in Western Union’s difficulty in achieving meaningful growth. We rate the company as a hold at current prices.


Cardinal Health’s “Earnings Beat” Is Surprisingly Disappointing

This morning, Dividend Aristocrats Cardinal Health (CAH) reported financial results for the third quarter of fiscal year 2019. The company “beat” expectations on both the top and bottom lines. With that said, the company’s core performance was not nearly as strong as financial media would suggest.

On the top line, Cardinal Health generated revenues of $35.2 billion, which represents an increase of 5% from the same period a year ago. Further down the income statement, the company reported adjusted earnings-per-share of $1.59, growth of 14% year-on-year. The company’s Chief Executive Officer, Mike Kaufmann, made the following statement on the company’s performance in the quarter:

“We are pleased that Cardinal Health again delivered overall operating results that were consistent with our expectations for the quarter. Solid progress on our strategic initiatives, the recent renewal of our largest customer and our ability to navigate evolving market dynamics give us confidence over the long term.”

Despite these strong headline figures, Cardinal Health’s operating performance was not as robust. The company’s GAAP operating earnings decreased by 21% in the quarter while adjusted operating earnings fell by 15%.

What caused the tremendous difference between Cardinal Health’s operating earnings and earnings-per-share?

While share repurchases played a role (diluted shares outstanding declined from 315 last year to 299 this year, a drop of 5.1%), the more important factor was a reduction in the company’s tax rate. Cardinal Health’s GAAP tax rate fell from 45.1% last year to 20.0% this year, while its adjusted tax rate fell from 37.5% last year to 21.6% this year.

To understand how the company’s tax rate was so high last year, consider the following statement made by CEO Mike Kaufmann in last year’s third quarter earnings release:

“Our non-GAAP operating earnings came in largely as expected this quarter. However, our non-GAAP EPS was adversely affected by a significant negative change in our effective tax rate primarily associated with our Cordis business. Our team is moving aggressively to address our operational and supply chain issues at Cordis. Under the leadership of our new Medical Segment CEO, Jon Giacomin, we are implementing a series of initiatives to improve those operations and drive greater efficiencies. While these initiatives will take some time, we remain confident in the potential of this business and the value it provides to cardiovascular patients.”

Unfortunately, we believe that Cardinal Health’s “earnings beat” announced this morning was largely a result of a terrible quarter last year, not strong performance this year. The company’s revenue continues to grow at a mid-single-digit pace, yet costs are a problem: gross profit declined by 8% and operating performance declined by 21% in the quarter. Net income increased solely because of a significant, one-time decrease in its tax rate.

Despite Cardinal Health’s margin troubles, the company saw fit to increase its guidance with the publication of its third quarter earnings release. Cardinal Health now expects to generate adjusted earnings-per-share between $5.02 and $5.17 in fiscal 2019. The company generated $5.00 of adjusted earnings-per-share in fiscal 2018.

Overall, we were disappointed by Cardinal Health’s declining operating profits in the most recent quarter, particularly after media outlets began labeling the release as an “earnings beat” immediately after publication. With that said, the company remains tremendously undervalued (a price-to-earnings ratio below 10) and has a long history of steadily increasing dividend payments. Accordingly, Cardinal Health continues to earn a buy recommendation from Sure Dividend at current prices. Any material amount of good news from this company has the potential to cause the valuation to re-rate meaningfully higher.

Disney Beats Expectations Thanks To Parks, Fox, & Direct-To-Consumer

The Walt Disney Company (DIS) reported financial results for the second quarter of fiscal 2019 yesterday after the market closed. It was a strong report overall and shares are slightly higher in this morning’s pre-market trading.

On the top line, Disney’s revenue of $14.9 billion increased by 3% year-on-year, while operating income declined by 10% and adjusted earnings-per-share declined by 13%.

The disparity between Disney’s revenue growth and its profit growth was driven by a mix of factors. While Disney’s revenue actually grew year-on-year, this included a decline in high-margin Studio Entertainment revenue (which saw sales fall due to the strong performance of Black Panther and Star Wars: The Last Jedi in the year-ago quarter) and a large increase in the Direct-to-Consumer & International segment, which is currently unprofitable.

While the company’s profitability declined from last year’s comparable quarter, the company beat analyst expectations on both the top and bottom lines. Disney’s Chairman and Chief Executive Officer, Robert A. Iger, made the following statement in conjunction with the earnings release:

“We’re very pleased with our Q2 results and thrilled with the record-breaking success of Avengers: Endgame, which is now the second-highest grossing film of all time and will stream exclusively on Disney+ starting December 11th. The positive response to our direct-to-consumer strategy has been gratifying, and the integration of the businesses we acquired from 21st Century Fox only increases our confidence in our ability to leverage decades of iconic storytelling and the powerful creative engines across the entire company to deliver an extraordinary value proposition to consumers.”

In the quarter, Disney also benefited from 11 days of contribution from Twenty-First Century Fox, which was acquired on March 20th, 2019 for cash as well as the issuance of 307 million common shares. This added $373 million of revenue and $25 million of operating income to Disney’s consolidated financial results.

Overall, Disney’s performance in the second quarter was better than expected. With that said, shares trade modestly above our fair value estimate, so Disney earns a hold recommendation from Sure Dividend at current prices.

Energy Transfer: Excellent Results In Q1 2019

Yesterday after the market closed, Energy Transfer LP (ET) reported financial results for the first quarter of fiscal 2019.

Results were better than expected and it was a record quarter for the master limited partnership. Key statistics from the quarter are below:

  • Revenue increased by 10.4% to $13.1 billion.

  • Adjusted EBITDA of $2.80 billion increased by 40% from the first quarter of 2018.

  • Distributable cash flow of $1.66 billion increased by 39% from the first quarter of 2018.

  • Energy Transfer operated with a distribution coverage ratio of 2.07x, yielding excess coverage of $856 million of distributable cash flow, equivalent to a payout ratio of 48% using distributable cash flow as the denominator.

  • Energy Transfer reaffirmed its 2019 outlook for Adjusted EBITDA, which calls for full-year Adjusted EBITDA of about $10.7 billion and capital expenditures of approximately $5 billion.

And most importantly, the company’s distributable cash flow per unit surged 34.1% to $0.63 versus $0.47 in the same quarter a year ago.

Energy Transfer’s strong results were driven by gains in all five of its operating segments. The partnership is performing better than expected.

Looking ahead, Energy Transfer seems capable of delivering mid-teens total returns from its current price. Accordingly, Energy Transfer earns a buy recommendation from Sure Dividend today.


Resultados Enbridge

Muy buenos resultados, mejorando las previsiones y los resultados del año pasado.
Mantienen el guidance para este año

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Mantienen incremento del 10% del dividendo en 2020 despues de subirlo este 2019 otro 10%.