Palm Inc. reported earnings after the close today, and what they reported wasn’t pretty. Expectations were for a loss of $.42 per share on revenue of $316.19 mm. Reported numbers were $366 mm, which was actually higher than expectation, and a loss of $.61 per share, which was not. After being up by about 5% during the day on a lot of short covering, the stock tumbled on the news in after hours by over 13%.
Adding to the woes are increasing inventories at the carriers. This is an issue because Palm records sales when the products are shipped to the carriers, not when they are actually sold to consumers. Thus, large stocks of unsold inventory will prevent Palm from recording much in the way of sales until that backlog is cleared. Thus, Palm issued revenue guidance for the upcoming quarter that is half of the $305.77 mm that analysts were expecting.
My Palm article in September hypothesized that the stock (then at 17.40) would drop as consumer adoption of the new operating system would lag. Back then, Palm was shipping over 800,000 units per quarter, that number has since increased to over 900,000 but sell through to customers has decreased to 400,000 units. The stock in after hours dropped to below $5 as the long term survivability of Palm remains in doubt while they try to compete against the mighty Apple, Google and RIMM.
Disclosure: Long GOOG, no position in any other stock mentioned
Here comes another big day!
Before Market Hours:
3M Company (MMM): 3M Company is a diversified conglomerate like General Electric (GE), but without the added risk of a capital arm that almost fells the company. 3M seems well managed but it is still hard to get a clear picture of the company because of all the different business segments. Wall St. Analysts are looking for Q3 earnings of $1.17 per share on $5.75 billion in revenues and $1.06 EPS on $5.55 billion in revenue for Q4.
YTD: +33% One Month: +3%
AT&T (T): The Telecommunications giant is expected to post EPS of $0.5 on revenues of $30.88 bn, a decrease of about a percent over the year ago quarter. There are a couple things at play here, but traders will be looking closely at the top line as a proxy for consumer and business spending. Decline in the land-line sector is well-documented, but analysts will be looking for continued signs the company is reducing its exposure, and in the wireless sphere AAPL’s earnings have created high hopes that iPhone revenue will contribute strongly to the bottom line. The expectations are reasonable for this reporting period, so traders and investors alike will be looking for the company to beat EPS and especially Revenue estimates.
YTD: -9% One Month:- 3.5%
McDonalds (MCD): The world biggest fast food chain is expected to post earnings of $1.11 EPS on $6.1 billion of revenue according to consensus estimates by Thompson Reuters. Q4 estimates are pegged at $.99 EPS on $5.89 billion. Key items for investors to watch will be 1.) same store sales growth which slightly dissapointed last quarter, 2.) Growth trends for McCafe and 3.) currency impacts. Effective corporate tax rate could also be interesting to watch. McDonalds has so far lagged the market over much of the year along with other defensive stocks but I think investors may begin to warm to them as the market continues its high-wire balancing act.
YTD: -6% One Month: +4%
Merck (MRK): Merck is the last big pharma/drug stock to report. I don’t feel that the bar has been set particularly low or high in this sector by previous reports so this should be good to watch, especially after the cautious tone that Pfizer (PFE) was echoing in their report. Thompson Reuters estimates for Q3 are currently for $0.82 EPS on $6 billion in revenues with Q4 estimates coming in at $0.84 EPS on $6.16 billion in revenues. Fiscal 2009 ending in December is expected to be $3.23 EPS and $23.44 billion in revenues.
YTD: +8.5% One Month: +3.5%
After Market Hours
American Express (AXP): The banking giant is expected to produce EPS of $0.37 on Revenue of $5.91 bn, a $17.5% decline from a year ago. Probably the most important earnings of the day, at least for the overall market, traders will be looking for, and hoping that, AXP blows out its earnings. Enough at least to justify the strong recovery the stock has put on so far this year. Recent rumblings have suggested that the company will post strong numbers on the back of a recovery in spending from higher-net-worth individuals, but the street will look at the numbers across American Express’ clientele to try to gauge the mood of the average shopper before this important holiday season. Management’s discussion of the new CARD law, and its effects on industry profitability, will be interesting although my guess is that it is already priced in to the stock.
YTD: 93.5% One Month: 6.5%
-Lucid Markets Team
Disclosure: Collectively long T, MCD, GE, ABT and JNJ
They say that good investing shouldn’t feel good when you do it….
By that logic, Andrew and myself must have made an absolutely amazing investing decision when we wrote our post last week explaining our reasoning behind him selling all of his Apple and me selling 66% of my position. Not only did we get contacted by Apple’s lawyers about that story, but they decided to rub it in by posting record profitability and having their stock rocket up in after-hours.
Analysts were expecting EPS of $1.42 on average with the whisper number closer to $1.70. Apple destroyed both numbers with earnings of $1.82. They also trounced the sales numbers across the board; beating on Mac’s, iPhones and even the iPod. Their gross margins actually expanded during the quarter thanks to people upgrading to Leopard (Microsoft might be able to surprise next quarter for similar reasons related to Windows 7).
The one caveat to Apple’s earnings is that their guidance for next quarter was below consensus estimates, however, Apple is known for sandbagging.
This amazing quarter was in line with our thinking that Apple is an exceptional company with impeccable execution. However, I still feel that there is very little or no negativity priced in to the stock and it is reminiscent of Akamai (AKAM) a couple years ago when everyone “knew” how great of an investment it was (it fell ~30% following an earnings report was only “very good”).
I think 2010 earnings will be between $6-8 and the stock should be fetching a P/E of 20-30. These estimates would imply a price of $120 to $240 with the average being $175. I’d love to make another 20% on Apple but even my average estimate would put me at a 12.5% loss while the low end would represent a 40% drop. The risk/reward ratio is nowhere near as appealing as when Apple was trading below $100 where I was buying and I still feel there are other investments with better ROI at current levels.
I will add to my position if we get to ~$180 and I will be selling the rest of my shares if we approach $225.
Disclosure: Long AAPL, RIMM, MSFT
Some big names, including 5 of the 30 Dow components, will be reporting earnings tomorrow. What follows here is a rundown of what to expect:
Before Market Open:
United Technologies Corp (UTX): Analysts are expecting EPS of $1.12 on revenue of $13.31B, which would be a 10% decline from the year ago quarter. EPS estimates have remained stable over the last 90 days, so I doubt the market is expecting any less than a beat of those numbers. GE’s numbers did not paint a great picture for conglomerates, but unlike the General, United Technologies is not burdened by a dismally performing capital arm so there is probably little comparison there.
YTD: +22% One Month: +4%
Coca-Cola (KO): Analysts are expecting EPS of $0.82 on revenue of $8.12 bn, equating to a 3.2% decline compared to the year ago quarter. EPS estimates have risen slightly, compared to 60 days ago, so it is hard to know what the street expects. Closely watched will be the revenue numbers to see if the company can grow out of the recession, and provide investors with good numbers made without resorting to drastic cost cutting. A wildcard here is the declining dollar; since Coca-Cola has a strong presence abroad their numbers could be helped by favorable currency conversion rates relative to previous quarters.
YTD: +21% One Month: +1%
Caterpillar (CAT): The provider of heavy-machinery is expected to report EPS of $0.06 on revenue of $7.49 bn, a drastic 42% decline from the year ago quarter. The standard deviation of EPS estimates is high, so clearly the street has no coherent strategy in mind for these earnings. Caterpillar has obviously been hit hard by the decline in construction spending, both residential and commercial, and their earnings will give some indication whether the tangible economy is actually improving. It is my belief that Caterpillar is one of the key stocks to watch tomorrow for market direction.
YTD: +29% One Month: +8%
EI DuPont de Nemours & Co. (DD): Analysts are expecting EPS of $0.33 on revenue of $6.14 bn, which would be a 15% decline from a year ago. Wall Street has published cautious earnings for the chemical giant, following the company’s own reserved guidance. Revenue will be the keenly watch figure, as investors will look to see if the decreased fear about the construction sector is well founded. DuPont will also provide some clarity over DOW’s earnings later in the week, and as both stocks have performed admirably this year, these numbers will be watched intensely. On the docket will be the dividend, and traders will be interested if there is to be any cut, because their dividend of $0.41 per quarter will not be covered by earnings should they come in at expectations.
YTD: +37% One Month: +2.5%
BlackRock (BLK): Analysts expect earnings of $1.90, on revenue of $1.12 bn which is nearly 15% below last year. BlackRock has had a stellar year, and is currently pushing new 52 week highs. Tomorrow will be the test to see whether they deserved it. Certainly, the relentless rebound from market lows will have benefited the company, although traders will be interested in whether funds under management have increased and where those funds are flowing too. The conference call should be of great interest to the street, to hear first hand what the company is seeing from the people who invest through it. Estimates have increased dramatically over the last year as the market rose, however, investors will still be looking for the company to beat those estimates to justify the approximately 150% gain since market lows.
YTD: +72% One Month: +11%
Coach, Inc. (COH): Analysts expect EPS of $0.39 on $748.73 mm of revenue, equating to a small drop compared to the year ago quarter. For this company, closely watched will be same store sales and ASPs as traders try to get a handle on retail sales. Certainly the street expects the company to beat these estimates, as expectations have not risen in the past 90 days, and the dollar decline should help this company which gets a large portion of its sales from its strong international presence.
YTD: +66% One Month: +2.5%
UAL Corporation (UAUA): The holding company for United Airlines is expected to report a loss of $0.94 per share on revenue of $4.34 bn, or a 22% decline from the year ago quarter. Analysts will be looking for the company to beat those numbers, and will be interested in fuel hedging strategies as the price of crude inches up again.
YTD: -34% One Month: -15%
During Market Hours:
Pfizer (PFE): The pharmaceutical giant is expected to post earnings of $0.48 on $11.42 bn of revenue, a decline of 6% compared to last year. Now that the Wyeth deal has been closed, investors will be interested to see the effects on the bottom line, and to hear management’s report of how things are going with the integration and how any cost savings are panning out. Earnings estimates have been flat for the past 90 days, and traders will expect earnings to come in above expectations.
YTD: +1.5% One Month: +9%
After Market Close:
Canadian National Railway (CNI): The railroad company is expected to post EPS of $0.82 on revenues of $1.86 bn, a decline of 14% over last years equivalent quarter. These earnings will show people whether consumer and business spending is picking up, as the railroad traffic will increase if the economy is improving. An interesting point is whether energy transportation will increase, given the increased price of oil, CNI will give another data point showing whether or not the oil sands mining operations have picked back up. The declining dollar may hurt CNI as 19% of their revenue comes from U.S. domestic traffic.
YTD: +44.5% One Month: +4%
Intuitive Surgical (ISRG): This once high-flying manufacturer of surgical instrument has produced some schizophrenic earnings in the past, but is expected to post an EPS of $1.46 on revenue of $256.44 mm. Analysts have increased their EPS expectations drastically over the past 90 days, and the stock has responded by rising dramatically. With such a highly valued PE, traders are always looking for the company to beat earnings, but probably never before as much as now. The street has widely missed the company’s earnings the past two quarters, and will be looking for some more stability this time around.
YTD: +108% One Month: +6.5%
Yahoo! Inc. (YHOO) – The internet giant is expected to post $0.07 EPS on revenues of $1.12 bn, a decline of 15% from a year ago. Believe it or not, rumors are still swirling about a more formal tie-up with Microsoft, especially in light of Microsoft’s Bing which got off to a great start but has tapered since then. Look for questions about this in the conference call, and my guess is that the response will be a sharp negative. Carol Bartz has had a few quarters at the helm of Yahoo, and the company isn’t looking as weak as it did during the crazy Jerry Yang-playing-CEO period, but eventually the company will have to produce some good numbers to back up the tough talk.
YTD: +41% One Month: -1%
Disclosure: Long Microsoft