Short squeeze on GMCR's earnings

As I am writing, the shares price of Green Mountain Coffee (GMCR) soared by over 22%  to $65.81 following its earnings release yesterday.

The once enamored star had been brutally attacked, not the least, by a high profile bashing of the renowned hedge fund manager, David Einhorn in October, sending the shares plummet from over $100 to as low as $37.

Yesterday, the company's announcement of a 102% rise in sales and a stunning 526% increase in operating income seemed to have garnered some confidence. The call did sooth the nerves of investors who were worried about the growth potential of the Keurig system and K-cup pack sales.

The Keurig system and K-cup did not seem the least bit losing momentum. "Our brewer sales in the first quarter of fiscal year 2012 were above our expectations, with approximately 4.2 million brewers sold by the combination of GMCR and our licensed partners. That total is more than half of the 6.5 million brewers sold in all of our fiscal year 2011," said Blanford, the CEO of GMCR. Taking away the effect of the acquisition of Van Houtte that contributed 13% increase in K-Cup pack sales, the company managed to raise the price point of K-cup by as much as 21% (talk about pricing power) and brought in a whopping 81% rise in sales volume.

The inventory was cited by critics as an issue. According to the management, it was a deliberate effort to meet the increase in demand. In the quarter ended December 31, 2011, inventories were $606.7 million compared to $269.1 million at December 25, 2010. However, more than half of the increase was due to a 266% increase in raw materials, most notably from an increase in green coffee volume and a 44% average green coffee cost increase. Combined with the growth in sales, a $162.4 million increase in finished goods inventory was hardly a sign of slowing sales.

With a current market in the mode to chase "growth", GMCR, with "growth" written all over its head, is back to the game. This is not all without caveats though. The management guided a 60-65% growth in net sales for the fiscal year of 2012. Given a 102% growth in the first quarter, investors who was looking for super growth above the company's past 3 years (75% compound annual growth rate) could very well be disappointed.

Disclosure: I do not have any position of GMCR in our personal account.

Alcoa's earnings and the global economy

Alcoa (AA), the largest aluminium producer in the world is broadly viewed as one of the barometers of the global economy. Analysts often look at AA's earnings release for some hints of economic conditions.
The second quarter report was no exception. The shares price of AA fell about 2% preceding the release and did very little  after it.

Bulls on the global economy may have found assurance from AA's forecast. For the year, Alcoa projects aluminum demand to grow 12% on top of the 13% growth witnessed in 2010. What is better is that the optimism is broad based, including aerospace (7%), automotive (4-8%), commercial transportation (7-12%), packaging (2-3%), building and construction (1-3%), and industrial gas turbines (5-10%).  According to Alcoa, aluminum demand would double by 2020 from 2010 on 6.5% annual growth.

By segments,

Alumina - The shipments  increased 11.8% year over year to 2.4 million metric tons on production of 4.1 million metric tons.  The price of alumina jumped 7%.

Primary Metals - Shipments were 0.7 million metric tons, almost flat with the previous-year quarter. Pricing improved. Production increased by 5% year over year to 0.9 million metric tons.

Flat-Rolled Products - Shipments jumped 24.8% year over year to 0.4 million metric tons. Both Russia and China continued to see positive trends. Besides, third-party volumes were up 41% in Russia and 30% in China compared with the second quarter of 2010.

Engineered Products and Solutions - Shipments surged 23.9% year over year to 0.57 million metric tons. The segment’s strong results were marked by new product developments and productivity improvements.

Obviously all the above results were partially offset by higher energy and raw material prices.

Not everyone shared the optimism. Citigroup analyst, Brian Yu lowered his 2011 earnings estimate to $1.21 from $1.25 per share and his 2012 estimate to $1.35 from $1.43, citing higher-than-expected input prices. Yu estimates that cash costs in the company's primary metals group averaged $1.11 per pound in the second quarter. He notes that if other producers are seeing the same high prices, then current aluminum prices are too low to offset them. He believes these cost pressures are continuing in the third quarter.


My takes:
AA's earnings release echoed another economic bellweather Fedex (FDX)'s earnings release that indicated that impacts on profit margins were contained. However, if oil prices stay stubbornly above $80 for the rest of the year, smaller companies that do not have global presense may not be in the same shoes.

Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does not own any of the above positions in her personal account as of July 13, 2011

Take aways from Fedex's earnings

FedEx Corp.(FDX), the world's second-largest package delivery company painted a rather rosy economic picture on Wednesday as it reported a 33 percent increase in earnings for the quarter ended May 31 (its 4th quarter for the fiscal year 2011) in addition to a guidance of per-share earnings growth of 39 to 50 percent for the fiscal year 2012. The company expects the global economy to accelerate in the second half of the year as fuel prices retreat from three-year highs and the Japanese economy recovers. While much of the growth will be driven by China and other developing nations, FDX said the U.S. economy will improve as well.

The company serves as the barometer of the global economy as it transports a variety of goods. FDX expects the U.S. economy to grow 2.5 percent this year and 3 percent in 2012. The company expects U.S. industrial production to grow around 4.2 percent this year and another 4.3 percent next year.

However, as one digs deeper into the statement, FDX's good news may be more of its own growth story rather than a global economic growth story. FDX, after successfully squeezed its European competitor, DHL out of the US market, understandably should enjoy a signficant pricing power sharing a duopolistic market with UPS. FDX, in its last quarter, was able to raise revenue per package by 10%, including raising fuel surcharge. In other words, it was able to pass on higher costs to its customers.

If an increase in transportation cost is widespread , can this be good news to other companies and the economy?

Divergence between high and low-end retailers

Mentioned in a previous post, many retailers suffered cost pinch. Rising raw materials costs have eaten into the profit margin of retailers. Higher gasoline prices have slowed shopping traffic. In addition, slow economic growth has rendered  it hard for retailers to pass on higher costs to customers. The hardest hit sofar have been low to mid end retailers including teenager apparels. However, high-end and luxury goods retailers have sofar dodged the bullets.

According to Associated Press,

High-end jewellers, Tiffany & Co (TIF) reported a 25% jumped in first quarter profits from a year ago across all regions, including even the calamity striken Japan.

According to Sales in Japan rose 7 percent to $123.4 million. However excluding the stronger yen, sales fell 3 percent. Still, that was better than Tiffany expected.

Revenue in the Americas, Tiffany's largest region, rose 19 percent to $374.7 million. The region includes the U.S., Canada and Latin America. Revenue from stores open at least one year rose 17 percent, including a 23 percent jump at Tiffany's flagship store in New York, a mecca for tourists.

Revenue in Asia-Pacific rose 37 percent to $167.2 million. In Europe, revenue rose by a quarter to $85.6 million.

While some had speculated results in Hawaii and Guam might suffer from fewer Japanese tourists, the six-store region's revenue in stores open at least one year actually rose 30 percent.

The company does not have problem passing on costs to customers.

High precious metal and diamond costs caused Tiffany to raise prices earlier this year, and Tiffany said it may raise prices again in various categories and regions to offset the higher costs. "But the rising prices have not deterred shoppers," Investor Relations Vice President Mark Aaron said.

..............."Customers are certainly aware of rising commodity costs and we have not experienced any meaningful resistance to higher prices," he said.

Interestingly, lower priced items such as silver jewelry's growth is constrained

The U.S. economic environment that is affecting spending by some of our silver jewelry customers at entry-level price points will likely remain challenging for a while," Aaron said.

Tiffany's results are echoed by other luxury retailers such as Coach (COH), Neiman Marcus that owns Neiman Marcus and Bergdolf Goodman, Signet (SIG) that operates Kay Jewelers.

Will the divergence persist through this difficult time for retailers or we will see convergence at the downside soon?

Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.


Disclosure: The blog author does not own any of the above mentioned positions in her personal account as of May 28, 2011.

DECK and UGG continue to rock

Deckers Outdoor Corporation (DECK) reported a stellar third quarter yesterday. 

Earnings Highlights

• Net sales increased 21.7% to $277.9 million versus $228.4 million last year.
• Gross margin improved 420 basis points to 47.1% versus 42.9% a year ago.
• Diluted EPS increased 24.4% to $1.07 compared to $0.86 a year ago. The Company completed a three-for-one stock split, in the form of a stock dividend paid on July 2, 2010. All share and per share data in this release and accompanying tables have been adjusted to reflect the impact of such split for all periods presented.
• UGG® brand sales increased 20.2 % to $255.8 million versus $212.8 million last year.
• Teva® brand sales increased 51.7% to $13.7 million compared to $9.0 million a year ago.
• International sales increased 48.2% to $73.2 million versus $49.4 million last year.
• Retail sales increased 63.3% to $20.2 million compared to $12.3 million last year; same store sales rose 17.9%.

Outlook
Based on better than expected third quarter results combined with higher projected sales for the UGG and Teva brands, the company is raising its full-year outlook.

• The company is expecting its full-year revenue to increase by 16% over 2009 level compared to 14% guided earlier. That comes up to $943.23 million. The average estimate by analysts is $941.41 million with a range from $931.34 to 977.7 million
• The company now expects its full-year diluted EPSto increase approximately 22% over the non-GAAP diluted EPS of $2.98 in 2009, compared to previous guidance of approximately 16%. That comes up to $3.64. As of 10/28/2010, the average estimate by analysts is $3.52 with a range from $3.46 to 3.60.
• A caveat lies in the 4th quarter guidance. The company does not change the 4th quarter guidance. It expects the 4th quarter revenue to be 8% over 2009 level. That comes up to $375.83. The average estimate by abalysts is $375.72 million with a range between $347.99 and 411.10 milion

 Source: Deckers Outdoor Corporation, finance.yahoo.com and author's own calculation

Is Netflix too expensive?

As high-speed internet becomes a household staple, Netflix has been stepping up its online-streaming video business. 66% of its subscribers watched streaming videos in the third quarter, up from 61% in the second quarter and 41% a year ago. Falling subscriber acquisition costs eased the earlier concern that it may become harder/costlier to get customers as competition emerged. Subscriber acquisition costs fell to $19.81 in the quarter, down from $24.37 in Q2, and $26.86 a year ago. Another important measure, the churn rate, which measures the percentage of customers dropping out was also very positive. Churn fell to 3.81%, from 4.0% in Q2, and 4.4% a year ago.

Guidance was upbeat. In the earnings result that was released today, the management raised the guidance of the number of subscriber this year to a range from 19 million to 19.7 million from a previous estimate of 17.7 million to 18.5 million. If this comes true, the company will have doubled its subscriber base in two years since its first streaming service. Revenue for the fourth quarter was also raised to $586 million to $598 million  from $580 million to $596 million. On the earnings side, the company continues to see the fourth quarter EPS of $0.59-0.74a share.

It was a very good earnings release, to say the least. What now? One question that lingers on is whether the stock of the company is too expensive.The company at its closing price today, $153.15 is 55 times its 2010 EPS and 41 times its 2011 EPS. This is way higher than conventional standard of P/E ratio. That said, many would argue that P/E ratio is irrelevant when it comes to growth stocks, PEG which is P/E divided by growth rate is more relevant. At a P/E of 55, Netflix will have to sustain a 55% or higher growth rate in the relevant time frame into the future. So, is this growth sustainable? We will leave this question to the next post.

Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does not have any position of NFLX in her personal account as of October 20, 2010

Can Aeropostale sustain the momentum?

It is not an overstatement that Aeropostale (ARO) has weathered one of the biggest economic crisis in a century unscathed. While retailer peers fumbled to cut cost, slash inventory, raise cash, deleverage and avoid bankruptcy, ARO was not only surviving but also growing. Yes, you read it right, "growing" !

Its major competitors, Abercrombie and Fitch (ANF), American Eagles (AES), Hot Topics (HOTT) paled before ARO's same store sales, a common metric to measure how a store opened longer than a year fares compared to a year ago. Until recently, ARO stunned analysts with its streak of positive same store sales growth, something that one would be hard pressed to find in the last 12 months.

April 2009                 20%
May 2009                  19%
June 2009                  12%
July 2009                   6%
August 2009              9%
September 2009       19%
October 2009            3%
November 2009        7%
December 2009         10%
January 2010             6%
February 2010           7%
March 2010              19%
April 2010                 -5%

What makes Aerospotale so good?
Not only was ARO able to maintain traffic to its stores, it was also able to grow its operating margin, attributable as much to pricing power as cost control . The operating margin was 16% in the first quarter, 2010 compared to 13% in prior year.
 
The management pointed to nimble business models with the right mix of product at the right price. The company integrates designing, sourcing, distribution and marketing all in house, enabling very efficient response to change of fashion trend and demand. However, many analysts pointed to "trading down" among teenagers from higher profile brands like Abercrombie and Fitch as the unemployment rate teetered at almost 10% for the overall population and 25% among teens. Some doubt the sustainability of this success as competitors Abercrombie and Fitch and American Eagles lower prices. Some bet against ARO as teenagers return to brand pursuing as the economy recovers and unemployment pressure subsides, citing potential loss of market share and more need for marketing expenses.
 
My takes
1. I do not foresee a sharp and quick recovery in the global economy especially with the European debt crisis overshadowing an emerging recovery. Therefore, I believe teenagers will continue to "trade down" at least until 2011.
 
2. With its expansion of store front, additions of key items, cross selling efforts (e.g accessories) and enhanced marketing initiatives, it may be able to retain a majority of its "trading down" customers even if the economy returns to good times.
 
3. I was a little concerned by a sudden break of its streak of positive same store sales growth in April. That was the first negative figure in the last 12 months. The management attributed that to an earlier Easter this year that pushed sales forward to March. I generally do not like "calendar" excuse but I think this management deserves benefits of doubt after showing such consistency in delivering spectacular results in a very hard time.
 
In short, I believe ARO, given its unusually attractive valuation (P/E less than 10 with 2010 earnings estimates compared to its peer's average at 15) and a management that seems to do everything right, can continue to offer favorable risk/reward in the next 12 months.

That said, I am a big believer in the notion that first-hand experience gives best stock selection. I am neither a teenager nor do I have teenager friends. Therefore, I count on you, shoppers, to offer me feedbacks on the sustainability of its appeal to teenagers and kids.
 
 
Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does NOT own any position of ARO in her personal account as of May 20, 2010

CLF plunged despite good earnings

The stock of Mining company, Cliffs Natural Resources (CLF) took a beating (of about 10% in the day following the earnings report) despite beating analysts' earnings estimates and offering very upbeat outlook on demand for its main product, iron ore and metallurgical coal.

Revenue in the first quarter rose to $727.7 million from $464.8 million a year ago while net earnings were $93.5 million, or 69 cents per share, compared with a loss of $7.4 million, or 7 cents per share, in the same quarter of 2009.

Iron ore pellet sales volume rose 116 percent to 4.4 million tons due to the boost to more demand as the North American steel industry has increased capacity utilization to between 70 percent and 75 percent in recent months. Iron ore price per ton rose 24 percent to $94.97

As a result of the recovery in steel industry, metallurgical coal sales volume rose to 662,000 tons from 494,000 tons, with average revenue per ton at $104.38, up from $95.34 a year earlier.

The management expected strong demand to continue in 2010 and it increased its sales volume estimate to about 27 million tons in North American iron ore, from 25 million tons.

In its North American coal business, Cliffs said it is maintaining its sales and production volume expectations of about 3.4 million tons in 2010

Very good report card. So, what gives?

 First, it has to be the broader market. The Dow had 2 triple digits down days in 3 days which was quite rare since the market rally started in February this year. The civil and potential criminal probe of Goldman Sachs together with sovereign debt fear in Europe spooked investors.

Second, what I would think is more relevant is new measures to crack down on real estates in China. If Chinese government is determined to slow down its economy, the biggest engine of global growth since the financial meltdown, the renewed recovery in demand for basic materials may die prematurely.

My takes

Chinese government is not as determined  to cool down on its economy as it appears. International Monetary Fund, IMF, is still expecting China to grow 10% in 2010 and 9.9% in 2011. In addition, global economy, especially the US is recovering, albeit at a moderate space, thus contributing to upcoming demand for basic materials. Steel industry, for example, has increased its utilization significantly from last year to 70-75% year to date. With the auto industry recovering quickly this year and housing market slowly stabilizing and strengthening, steel industry is expected to strengthen further, adding to the demand for iron ore and metallurgical coal.

CLF stands to take advantage of this recovery. Once the stock price finds its footing, it offers a good buy.

Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does not own any position of CLF in her portfolio as of May 2, 2010

Ford's upbeat results and cautious outlook

While the auto giant swung to a $2.1 billion profit for the first quarter of 2010  from a loss of $1.43 billion for the same period last year, the stock price of company took a hit together with the rest of the market today.

Underneath the upbeat results is a toned down outlook by both the management and analysts.

As written in "Ford delivers $2.1bn net profit" of Financial Times,

Alan Mulally, chief executive, said that 2010 was “off to a more encouraging start than anticipated”. But he added that “while we are pleased with our momentum, the outlook remains challenging”.

Mr Mulally pointed to excess capacity in key markets and uncertainty surrounding the termination of car-scrappage incentive schemes, especially in Europe.

Lewis Booth, chief financial officer, indicated that quarterly profits were likely to be lower for the rest of the year, partly due to a lower contribution from Ford Credit. But Mr Booth said he was confident of positive operating cash flow.

Although Ford’s bottom line far exceeded analysts’ forecasts, Credit Suisse’s Chris Ceraso expressed disappointment at the $107m pre-tax profit in Europe and the $203m from South America. The first-quarter cash flow of $200m, before subvention payments to Ford Credit, was also weaker than expected.

Despite all the good news, the company remains very debt ridden with $34.3 bn of debt on March 31

Mr Booth told the Financial Times that “we’ve made no secret of the fact we’ve got too much debt.”


But he said that Ford was “making progress”, including a $3bn payment on its revolving credit facility earlier this month. “From here on in, our principal strategy is to improve the business and generate positive operating cash flow,” Mr Booth said

Updates on TRIT

Third Quarter 2009 Earnings Highlights

• Revenue for Q3 2009 increased 131% to $4.9 million from $2.1 million in Q3 2008.
• Gross profit (exclusive of depreciation and amortization) increased 112% to $1.9 million for Q3 2009 from $0.9 million in Q3 2008.
• Q3 2009 gross margins decreased slightly at 39.1%, vs. 42.6% for Q3 2008.
• Income from operations increased 150% to $1.3 million from $536,000 in Q3 2008.
• Net income increased 112% to $1.1 million from $506,000 in Q3 2008.
• Diluted earnings per share increased to $0.27, from $0.14 in Q3 2008.
• Weighted average number of diluted shares outstanding was 3.95 million as of September 30, 2009, compared to 3.56 million as of September 30, 2008.
• Completed an initial public offering of 1,700,000 ordinary shares at a price of $6.75 per share, traded on NASDAQ Capital Market on September 10, 2009.

New Contracts:

• Awarded $960,000 in Mountain Torrent Forecasting contracts covering eight projects in four provinces.
• Awarded $1.6 million Municipal Sewage Treatment contract in Kuancheng County of Hebei Province.
• Awarded $1M Phase One Contract for Wastewater Treatment Plant in Jinjing Newtown in Baodi District of Tianjin Municipality in Northern China.

You may find related articles in
http://cocacolabuffet.blogspot.com/2009/10/no-drought-for-trit.html
http://cocacolabuffet.blogspot.com/search/label/Green%20Technology

Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.

Disclosure: The blog author owns TRIT in her personal account as of November 18,2009

DGW-China Water Play

As risk aversion among investors subsides, growth stocks may be in fashion. Duoyuan Global Water Inc. (DGW) could be one of the niche plays amidst increased government spending and regulations on the standard of water in China.

The company reported a earnings result that epitomizes a growth company for the third quarter 2009

• Revenue increased 30.9% to RMB255.2 million ($37.4 million) from RMB195.0 million in the prior year period.
• Gross margin increased to 49.5% from 46.8% in the prior year period.
• Operating income increased 31.1% to RMB95.7 million ($14.0 million) from RMB73.0 million in the prior year period.
• Net income increased 23.1% to RMB73.4 million ($10.8 million) from RMB59.6 million in the comparable period of 2008.
• Diluted earnings per ADS was $0.49. Each ADS represents two of the Company's ordinary shares.

While all three segments of the business grew fast , the wastewater segment outpaced circulating water treatment and water purification.

• Revenue from wastewater treatment equipment increased 42.3%, to RMB100.1 million ($14.7 million) in the third quarter of 2009 compared to RMB70.3 million in the third quarter of 2008, due to increased demand for Duoyuan's belt filter press machines, sludge screw, online testing equipment, ultraviolet shelving disinfection systems and microporous aerators.
• Revenue from circulating water treatment increased by 20.0% to RMB96.1 million ($14.1 million) in the third quarter of 2009 compared to RMB80.1 million in the third quarter of 2008, driven by increased demand for the Company's new fully automatic filters, electronic water conditioners and circulating water central processors.
• Revenue from water purification equipment increased by 28.4% to RMB55.0 million ($8.1 million) in the third quarter of 2009 compared to RMB42.8 million in the prior year period, as the Company's newly introduced models for central water purifiers, industry pure water equipment and ultraviolet water purifiers continued to be well-received by the marketplace.

While the growth is good, Chinese water market is a highly fragmented one. DGW carries only about 1% of the market share, facing large rivals such as Zhejiang Omex Environmental Engineering, is a subsidiary of Dow Chemical, General Electric and Ashland that are also players in the Chinese market.

As a strategic plan, I would expect the company to acquire smaller companies to consolidate long-term growth. The company has cash and bank deposits of RMB937.2 million ($137.3 million), compared to RMB198.5 million as of December 31, 2008, mostly reflecting net proceeds from the Company's initial public offering.

Until the company gains reasonably larger market share, I would view this as a tactical speculative play that works well in a market that is less risk averse rather than a long-term growth value play.

You may also be interested in the following articles:
http://cocacolabuffet.blogspot.com/2009/10/tap-into-chinese-water.html
http://cocacolabuffet.blogspot.com/2009/10/no-drought-for-trit.html


Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does not have positions of DGW as of November 9, 2009

Simon: Ready to Shop?

Simon (SPG), the largest U.S. real estate investment trust (REIT) that developed and operated shopping centers shed some lights on better retail atmosphere toward the end of this year.

The people that we’ve been talking to, their inventories are down anywhere from 15% to 22% from last year. So while that is not going to drive top line sales, they are much more optimistic because they have less inventory they have to push out the door, they’re going to be able to be much more disciplined on their pricing and drive a lot more margin improvement and most importantly, cash flow.


......based on talking to the retailers, which David and I are doing a whole lot of everyday that they’re feeling better and we have absolutely seen several instances of retailers that were in here in the second quarter asking for rent relief and modifications and then came back in the third quarter and said, “Looks like, we’re okay.” We don’t need anything. We’re going to make it.

“as I read all of the retail analysts and all of their ratings and their movements virtually all of the retailers are getting upgrades and more positive outlooks based on the expectation that there’s going to be a more profitable Christmas, which may or may not be related to more sales.”

Retailers have started to gain their footing and certain retailers are growing store counts including Aeropostale, Gachi, Apple, the Buckle, California Pizza Kitchen, Fresh, Forever 21, H&M, Michael Kors and Red Robin, to name a few. In a number of predominantly outlet ,tenants are also increasing their store counts. We have a significant amount of leasing volume in our pipeline over 500 deals and 8 million square feet of leases in process across all of our domestic platforms.


In particular, it is good to note the volume of big box activity has significantly increased in the second half of the year. Since mid July we have completed 20 big box deals across the four platforms and discussions are underway on 20 to 30 more retailers will include Forever 21, H&M Dave & Buster’s, Bed Bath & Beyond. We are seeing a slight quality of the big box retailers they want to be in malls, outlets, mills or strip centers where they benefit from shopper quality and traffic.

Preliminary reports from retailers regarding October have been encouraging. We believe our retailers will have a decent holiday season.

Sales Per Square Foot

Occupancy in all of the four platforms was up sequentially from 6/30/09, Mills was up a 150 basis points and Regional Mall and Premium Outlet Centers increased 50 basis point and Community, Center, Lifestyle platforms increased 40 basis points.


Regional Mall retail sales in the third quarter were $430. The decline in sales for September over September was much lower than any month year-to-date. Mall leasing spreads were $4.04 for the first nine months of 2009, average base rent was at 9/30/09 was $40.05, up 2% for the year earlier period.


Premium Outlet comparable sales were relatively stable in the third quarter at $492 per square foot, down only $1 from 6/30/09, and actually were up in September on a comparable sales per square foot. Premium outlet releasing spread continues to be strong at $9.25 per square foot for the first nine months of ‘09. Average base rent for the outlets at 9/30/09 was $32.95 per square foot up from the year earlier period.
 
My Takes
 
SPG's remark on retailers was consistent with most of the "stabilizing" and "getting better" pictures. However, the multi-billion question at this stage is: How much better?
 
 

Mr Coal Optimist vs Pessimist?

Two large coal miners, Patriot Coal (PCX) and Massey (MEE) reported earnings this week. The media has portrayed PCX;s earnings report as being good while MEE's earnings report being bad. The optimist was rewarded with a jump in the stock price after the release while the pessimist was punished. Reading between lines, they both are telling the same story. Just in different tones.

At PCX,
in an article of Miningweekly,

The CEO Richard Whiting said on Tuesday that markets for both coal segments remain "challenging", but that the company expects to see improvements during 2010. The demand for its steelmaking and thermal coal will recover strongly in the “near term” according to Whiting.

“We believe the markets are at an inflection point, poised to see a substantial improvement in demand in 2010, in both metallurgical and thermal coals,” Whiting said on a conference call.

“While we don't expect the market recovery to be in full swing by early 2010, we are optimistic that the timeline for recovery is more within our sights than it seemed just a quarter ago,” said CFO Mark Schroeder.

He said there is no doubt that metallurgical coal demand around the world is rebounding.

“And because of the limited availability of high quality met coal in the world, our forecasts show demand outstripping supply, and therefore driving up met pricing as we move into and through 2010.”

Patriot is also expecting to see domestic demand for thermal coal improve “significantly” in the next six to nine months.

Demand will likely exceed supply for US thermal coal, especially for central Appalachia, around the end of 2010, he said.

“And the change from oversupply to undersupply may be abrupt, taking place over a very short period of time.

“With upward pressure on demand and downward pressure on supply, we believe the effect on pricing will be meaningful.”

Although inventories remain high, customer sentiment is showing signs of improvement.


At MEE,
in a report at Yahoo Finance,

The CEO Blankenship said worldwide production and use of coal will likely increase by more than 120 million tons per year during each of the next five years.

But "the macroeconomic factors facing all businesses and particularly the coal industry have never been more
challenging," he said.

He expected domestic thermal coal demand to remain weak for the next several quarters and perhaps through 2010. Utility stockpiles remain very high and the amount of coal being burned was low.

"We continue to be encouraged by the positive news we are hearing from the seaborne metallurgical coal export markets," he said, noting steel production in China was up 22 percent in August and 5 percent for the first eight months of the year.

Steel producers have restarted or announced plans to restart more than 40 blast furnaces that have previously been idled, Blankenship said, adding that Massey has the capacity to produce more than 12 million tons of metallurgical coal per year.

Supply will be constrained by permits

At PCX, in a report by Miningweekly,
"Supply will be constrained by the delays that miners face getting new surface mining permits, and a lot of production that has been taken off line may actually leave the market permanently," Whiting speculated.

At MEE, in a report by Reuters,
"The demand for coal to generate power and make steel is growing, but environmental bureaucracy is making it more difficult to mine the fuel," Blankenship  said on Wednesday

Last month, the EPA ruled that all 79 pending mine permits in Appalachia must undergo additional evaluation, because they pose a potential hazard to water in parts of Kentucky, West Virginia and Ohio.

In a nutshell,
No significant recovery is expected before the end of 2009. The demand for metallurgical coal is looking good, expected to come around in early 2010.The demand for thermal/steam coal is expected to come around only in later part of 2010.

Is it just me or it's the tone of Mr. Whiting and Blankenship? Had Mr Blankenship colored his speech with more adjectives like "significant", "substantial", "optimistic", "near term", the stock price probably would have received "significantly" more generous treatment from the Wall Street.


Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author has no positions of PCX and MEE in her personal account as of October 29,2009

Steelmakers don't have Xmas

U.S. steelmakers reported better-than-expected third-quarter results on Tuesday but offer gloomy short-term views for the industry and the economy.

As pointed out in September post, over production of steel in China continued to pressure steel prices. Despite fairly upbeat 2010 forecast by the World Steel Association on the ground of Chinese stimuli, U.S steelmakers have generally expected the end of "Cash-and-Clunker" to slow down demand for steel toward the end of the year. US steelmakers also expect lower prices for the fourth quarter.

U.S. Steel expects to report a fourth-quarter operating loss and idle two blast furnaces to lower production.
AK Steel, which has been operating at less than 60-percent capacity, said that while it expects to post an operating profit in the fourth quarter, it anticipates a decline in average selling prices.

"Technically speaking, we may be out of the recession, but it certainly doesn't feel that way," James Wainscott, AK Steel's chairman, president and chief executive told analysts. 

"Suffice to say we've bounced off the bottom, but we've got a long way to go from here."

According to Reuters,

Wainscott said AK Steel expects to ship more steel in the fourth quarter as it increases its capacity rate to around 65 percent from 55-60 percent in the third quarter.Wainscott said he was optimistic that auto build rates would increase since carmakers currently had low inventories, due to the business generated by the clunker program.

U.S. Steel's third-quarter net loss was $303 million, or $2.11 per share, compared with a year-earlier profit of $919 million, or $7.79 per share. Revenue dropped 61 percent to $2.82 billion, but was 32 percent higher than in the second quarter, the Pittsburgh-based company said.

Excluding a one-time currency gain, the loss was $2.43 per share versus analysts' average forecast of a loss of $2.87 and revenue of $2.72 billion, said Thomson Reuters I/B/E/S.

AK Steel's third-quarter net earnings were $6.2 million, or 6 cents per share, compared with earnings of $188.3 million, or $1.67 per share, in the same quarter last year.

Revenue fell more than half to $1.04 billion, the West Chester, Ohio-based company reported. Analysts on average were expected a profit of 1 cent per share.

These forecasts are consistent with the peers that have recently announced their earnings.

POT Saw a Dry Season

The largest potash fertilizer producer in the world, Potash Corp of Saskatchewan (POT) announced that its net income dropped to $248.8 million, or 82 cents a share, in the three months ended Sept. 30, a very shartp decline from $1.24 billion, or $3.93, a year earlier. Analysts on average expected earnings of 81 cents a share, according to Thomson Reuters I/B/E/S. The company expects fourth-quarter earnings of 65 cents to 85 cents a share. Analysts are expecting $1.24, according to Thomson Reuters I/B/E/S. The company also expects full-year 2009 earnings to be at the low end of its previously forecast range of $3.25 to $3.75 a share.

This was obviously a very dismal result however very few people were surprised as potash prices dropped from as high as $1000 a ton last year to barely $500 this year. Most kept their eyes focused on what the management had to say about the future.

Outlook
POT currently expects 2009 potash shipments of 3 million to 3.2 million tonnes. In 2008, the company produced 8.7 million tonnes of potash. The company expects global potash demand of about 50 million tonnes in 2010, which is at the low end of the 50 million to 55 million tonnes range forecast in September. In July, the company saw 2010 demand at between 55 million and 60 million tonnes.

Agricultural market is expected to be tight going forward.

"We’re in the midst of the slowest harvest since 1985, as of October 18, 17% of the crop have been harvested versus the five year average of 46%. The crop is only 83% mature and right now certain consultants believe with the freeze that we had earlier this month that are around 215 million bushels have been lost, maybe up to a billion bushels have been affected......In terms of the corn price, December corn was 304 in early September, $4 yesterday. .." said Bill Doyle, the CEO of Potash Corp.

The contract with China remains to be the key catalyst in the remaining of the year. Closing the deal is expected to eliminate uncertainty among smaller buys regarding the future price of potash fertilizer and starts replenishing the stock. Bill Doyle said that the inventory of China is about 2.5 million to 3 million tonnes now. "When they get to 2 million, they will buy," said Doyle. He expects the deal to be closed by the end of this year.

My Takes
Echoeing the recent Mosaic (MOS) ' s earnings release and the recent rally of fertilizer, the near term catalysts of fertilizers are:
1. China negotiation
2. Crop prices
3. Inventory
4. Merger& Acquisition (M&A)

While the timing of negotiations with China is uncertain, an end of the negotiation given the current inventory of China is highly likely. As far as crop prices are concerned, according to the Organisation for Economic Co-operation and Development (OECD), FAO and the Food and Agricultural Policy Research Institute (FAPRI), world stocks of most crops are not seen as evolving much during the next five years and prices are likely to remain strong. In addition, International Fertilizer Association (IFA) expects the demand for fertilizer in 2009/2010 to increase modestly by 2.6% to 165.4 MT. IFA also forecasts the demand to recover in 2011. However, this is likely to be offset by new production capacity that will come into operation in 2011.
While I don't speculate on M&A myself, having a speculation on a stock serves as a positive catalyst.

All in all, while it is too early to get aggressive on fertilizers as the economic recovery is unclear and the market may be in danger of a correction after rallying more than 6 months, I do see modestly favorable return/risk profile to accumulate these stocks on dips during market corrections.

Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does not own any positions of MOS or POT in her personal account as of October 25,2009






 

PLD Sees Light in Commercial Real Estates

Things are getting better
The world's biggest industrial REIT, Prologis (PLD) on Thursday shed some lights on the struggling commercial property market. While many argued that commercial real estate market is the next shoe to drop in the economy, PLD CEO's statement hinted that at least in the industrial area, things are getting better.

"Looking ahead, we see a global market that’s beginning to show signs of stability. Perhaps growth and expansion will come sooner than we thought. We'll see..................

Globally, industrial demand is still soft, but we are seeing signs of increased customer activity. We recently polled our top customers and not surprisingly, about two-thirds of those who we spoke with, expect a more positive outlook on their business by some time in 2010, although many of them felt that it may not occur until later in the year.........................................

Importantly, several of them mentioned supply chain reconfiguration, which sometimes means expansion and sometimes simply a search of greater efficiencies. Either way, it's good for us because there is likely to be movement in the higher-quality, well-located and in many cases, newly-built facilities and that’s our business."

Occupancy increases
The company's core occupancies trended up by 20 basis points in the third quarter, as the overall leasing activity was up 13% from the second quarter. During the quarter, PLD increased the lease percentage in its static 12/31/2008 development portfolio to 61.7%, up substantially from 54.1% in the second quarter and 41.4% at the beginning of the year. As a result, the company has reached the low-end of our 60% to 70% year-end goal for leasing in this portfolio.

"I never thought I would say this in 2009, but it seems like there are more buyers then sellers in the market right now. Market rents are still of course lower than a year ago, and we expect this to remain the case for the foreseeable future. Our rents on lease is turning, we're down 14.7% in Q3, versus down 12.6% in the second quarter...............................................

However, we believe this situation will reverse itself, when market occupancies trend upward, and as we’ve mentioned in our second quarter call, rental rates today make no sense relative to replacement cost, values and will certainly need to rise substantially to justify new developments spurred by any growth in the global economy..........................................

Remember, most markets did not get substantially overbuilt in this downturn and there is no new supply on the Horizon. As a result, we're clearly seeing an increase in request for build-to-suit proposals."

Cap rates decline

"Yields have declined by 75 basis points in the UK, with anecdotal evidence of them declining in other 50 basis points on deals not yet closed.

We’ve also seen a recent 50 to 100 basis points decline in cap rates on our assets dispositions in the US. There is capital on the side lines and we’re seeing evidence of this in the number of solicited offers and unsolicited increase we’re now receiving. "

My Takes
There are a few things that I look at to gauge the progress of commercial real estates (CRE) from going-on-bankruptcy to near-bankruptcy to stabilizing and then to getting better, and eventually to grow:
1. Occupancy
2. Cap rates or the credit market
3. Funds from operations (FFO)

Per the CEO of Prologis, we do get the vibe of "getting better" with occupancy and cap rates although this may just be limited to industrial CRE instead of CRE as a whole according to "Headlines on CRE" . As far as FFO is concerned, the 2009 guidance of PLD is $1.39-1.43 per share, doubled that of 2008 at $0.68 per share but disastrous if compared to the peak period of 2007 that generated $4.61 per share. It is getting better!

By looking at how these metrics evolve over the last 12 months, I do buy the "getting-better" story. How about you?




Related articles:
http://cocacolabuffet.blogspot.com/search/label/REIT


Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does not have positions in PLD in her personal account as of October 23,2009

Steel ER Series-STLD

A streak of earnings releases of steel companies unfolds this week, with the 6th largest in the US, Steel Dynamics (STLD), being the first. In the coming weeks, I will cover most of these earning releases.

Nothing out of ordinary here. the company announced a net profit of $69 million, or 30 cents a share for the quarter ended on September 30, 2009, a sharp decline from with $193 million, or 98 cents a share, a year ago. Revenue for the quarter more than halved to $1.17 billion from the year-ago period, when steel prices were at their peak.

The results beat analysts' estimates that , on average were looking for earnings 23 cents a share, before items, on revenue of $1.06 billion, according to Thomson Reuters I/B/E/S.

"Cash-and-Clunker Effects"

After the $500 billion steel industry witnessed a slow recovery from one of the worst downturns ever, the business  was boosted by a government-sponsored discount scheme for new motor vehicle purchases "cash for clunkers," which ended in August. Shipments at the company's flat-rolled steel segment, used by vehicle manufacturers, accounted for about 73 percent of the total shipments at its steel operations.

With the end of "cash-and-clunker" and a seasonal factor, the company expected the profit of fourth quarter to be lower than the third quarter. It will provide guidance later.

You may also be interested in articles in similar categories:
http://cocacolabuffet.blogspot.com/search/label/Steel

Disclaimer: Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does not own STLD in her personal account as of October 19,2009

Google Signals Economic Recovery?

It is said that online advertising is one of the earliest to feel economic recovery as companies can literally increase their online advertising spending overnight. If companies are confident enough to add more discretionary expenses such as advertising, it is safe to say that the heart of the economy may be starting to beat again.

The largest online advertiser in the world, Google felt the heartbeat good on Friday. It not only posted higher-than-expected third-quarter profits and revenues, but also said it was looking for major acquisitions and could buy a large company "maybe every year or two."


Google's CEO Eric Schmidt said large advertisers were more eager to spend on search ads in the third quarter and consumers shopped more online, helping the Internet company notch its strongest quarter-on-quarter revenue growth since 2007's final quarter, underscoring improving economic conditions.It said both the amount of money that advertisers pay for the text ads that appear alongside search results as well as the number of clicks on those ads by Web surfers increased quarter-over-quarter.
 
Google's net revenue in the third quarter -- excluding traffic acquisition costs, or the money that Google shares with partners -- rose 8.5 percent from a year earlier to $4.38 billion, beating the $4.24 billion expected by analysts.


Net revenue also grew quarter-on-quarter for the first time this year, after being roughly flat in the second quarter and falling for the first time ever in the first quarter.

Net income was $1.64 billion, or $5.13 a share, compared with $1.29 billion, or $4.06 per share, a year earlier, thanks in part to ongoing cost controls at the Mountain View, California company.

Excluding special items, profit per share was $5.89, beating the $5.42 expected by analysts, according to Thomson Reuters I/B/E/S.

Like almost every other business these days, things are "getting better" but still not good enough.Google's revenue growth had slowed to just 3% in the second quarter from a year ago, compared with 31% growth in all of 2008. Google said cost per click, the amount advertisers pay when people click on an ad, fell 6% from a year ago but rose 5% from the second quarter. Analysts took that as a positive sign.


.

Things That We Get Out Of JP Morgan's ER

the Dow closed at the all-too-important 10,000 mark after JP Morgan (JPM)'s earnings release beat analysts' estimates by a wide margin.The bank reported a profit of 82 cents per share and $28.78 billion in revenue during the third quarter. Analysts forecast a profit of 52 cents per share and  $24.96 billion revenue.

• Fixed income in the investment banking division drove the results

JPMorgan said its investment bank net income came to $1.92 billion, up $1 billion from a year earlier as fixed income trading thrived.

Fixed income markets accounted for two-thirds of the investment bank's $7.51 billion in revenue. While the company's trading operations were strong, JPMorgan was also able to write up the value of some investments that have started to recover after souring during the peak of the credit crisis.

• Credit card and home loan losses increased.

The bank's loss provision to cover current and future home loan defaults jumped to $3.99 billion, while its provision for credit card losses surged to $4.97 billion.

JPMorgan said the percentage of credit card loans it wrote off as not being repayable in the third quarter reached 10.3 percent of its total portfolio. CFO Cavanagh said during a separate call with analysts that the card loss rate is expected to reach 10.5 percent in the first half of 2010 and could go higher depending on the unemployment rate.

"Credit costs remain high and are expected to stay elevated for the foreseeable future in the consumer lending and card services loan portfolios," Dimon said.

My Takes
Fixed income trading will be the bright spot of financials in the near future and more write-ups of assets will be seen as the credit market eases. Off the top of my head, let's just toss a few names that might benefit from the trend. Among them BLK, BX,IVZ, JEF,GLG,KFN,RJF.



Disclaimer: Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author owns KFN but NOT other stocks mentioned above in her personal account as of October 14,2009

CSX Beat

Dow Theory claims that Railroad companies can serve as leading indicators of the economy and consequently the stock market. That is why the earnings release of CSX Corp (CSX), the third largest U.S. railroad company, has drawn a lot of attention on October 13, 2009

Lower Fuel Costs and Expenses Slowed Declines

CSX reported a 23% drop in earnings year over year. However, the after-market trading welcomed the stronger-than-expected quarterly profit and the statement of the CEO on "the worst of the recession is likely behind us"

The net income from continuing operations was $293 million, or 74 cents a share compared with $380 million, or 93 cents a share, a year earlier. Analysts had expected the company to report a profit of 71 cents a share, according to Thomson Reuters I/B/E/S. Revenue in the quarter fell 23 percent to $2.3billion, in line with analysts' expectations, while operating expenses fell by 24 percent, or $537 million, helped by dramatically lower fuel costs. The company said it spent on average about $1.88 a gallon on fuel in the quarter, down from $3.57 a gallon last year.

The largest decline in volume came in metals shipments, largely due to weak demand from the automotive and construction industries. But the decline in demand slowed during the quarter due to low inventories and "an improvement in automotive production" thanks to the "cash for clunkers" program, a part of the Obama administration's economic stimulus plan. 

My takes

Many may find in the earnings release signs of economic recovery but some analysts were skeptical that factors such as "cash-for-clunker" and restocking inventory that contributed to the "better-than-expected" results would cease to be in effect in coming quarters.

I am also concerned with the rising trend of oil prices in the second half of 2009. We may have to wait for a few more releases of pro-cyclical companies to draw inferences on sustainability and strength of this recovery.

Disclaimer: Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.



Disclosure: The blog author does not own CSX in her personal account as of October 13,2009