Wednesday, January 30, 2013


Proctor & Gamble (PG) released their fiscal second quarter results today, reporting revenue and earnings that beat out analysts’ estimates.  The company reported second quarter revenue of $22.2 billion compared to forecasts of $21.91 billion and core earnings per share of $1.22, compared to analyst forecasts of $1.11 per share.  Revenue increased 6.95% from $20.74 billion in the previous quarter. Net income increased 44.28% from $2.81 billion in the previous quarter.  Trading opened at $71.75 and quickly set a new 52 week high of $73.25.  This is good news for the world’s largest consumer products manufacturer, maker of household products including Tide and Pampers. 

According to Wall Street Cheat Sheet, “Our second quarter results were at the high end of our expectations on the top-line and well ahead of forecast on operating profit, earnings per share and cash flow,” said Chairman, President, and Chief Executive Officer, Bob McDonald. “Global market share trends improved as we continued to implement our growth strategy and made very good progress against our productivity and cost savings goals. Our strong first half results have enabled us to raise our sales, earnings and share repurchase outlook for the fiscal year, while we strengthen investments in our innovation and marketing programs.”
Summary and Guidance from MarketWatch
  • Organic sales increased three percent for the quarter, at the top end of the guidance range.
  • Organic sales growth was broad-based, with all business segments increasing by two percent or more versus the prior year.
  • Core net earnings per share increased by 12 percent to $1.22.
  • Core gross margin increased 110 basis points due to the impact of higher pricing and manufacturing cost savings, partially offset by unfavorable geographic and product mix. Reported gross margin, including non-core restructuring charges, increased 80 basis points.
  • Core and reported selling, general and administrative expenses (SG&A) as a percentage of net sales was unchanged, as enrollment reductions and productivity savings were offset by higher pension and employee benefit costs. Non-core charges in SG&A were in line with the prior year level.
  • Core operating profit increased seven percent. Reported operating profit, including non-core charges, increased 68 percent.
  • Operating cash flow was $3.8 billion for the quarter. The Company repurchased $1.4 billion of shares during the quarter and returned $1.6 billion of cash to shareholders as dividends. 
P&G is estimating net and organic sales growth in the range of three percent to four percent for the January - March quarter. Foreign exchange is expected to be neutral to sales growth. 
The Company expects March quarter core EPS in the range of $0.91 to $0.97, down three percent to up three percent compared to prior year core EPS of $0.94. On an all-in basis, P&G is forecasting earnings per share in the range of $0.90 to $0.96, an increase of 10 percent to 17 percent versus prior year diluted EPS of $0.82. Prior year all-in results included $0.13 of non-core costs, primarily related to restructuring charges. Current year all-in EPS guidance includes non-core restructuring charges of $0.01 per share.

Wednesday, January 16, 2013


Apple Inc. (AAPL) stock dropped sharply Monday closing at $501.75, down $18.55.  Tuesday morning opening was $$498.30 and as of 11am EDT it is currently trading around $489 per share.  Shares hit a record high of $705.07 on September 19, 2012.

The Wall Street Journal reported Sunday evening that Apple had cut orders for iPhone 5 parts last month by roughly 50 percent, signaling a lower demand in the device than they had predicted.  This comes at a time when the company is facing increased competition from other smartphone makers who have eroded Apple’s market share.  In the last quarter of 2011 Apple held 23 percent of the worldwide smartphone market share.  During third quarter 2012 Apple’s market share had dropped to 14.6 percent.  Samsung Electronics has overtaken Apple as the dominant smartphone manufacturer with 31.3 percent market share in the third quarter 2012, up from 8.8 percent in 2010.

But hang onto those shares because as CNBC is reporting, Jefferies’ senior technology analyst Peter Misek puts the situation into perspective.  "We look at it as a little bit of a letdown obviously. It's not great that this happened. We thought this device would be the biggest seller of all time and in fact we think around 50 million units sold in Q4, which would make it the biggest selling electronics product of all time in a quarter," Misek said. "But there were hopes that it would be better than that. There were hopes that in Q1 that sales would be flat and instead what we're getting is a seasonally type decline in Q1." Misek expects first quarter iPhone builds to be between 35 million and 40 million.  Jefferies is expecting Apple’s stock to reach $800 per share, in part due to their substantial cash reserves. "If we look at the full year out, we think that the company can do somewhere around $50 of earnings, remember they have $100 per share of cash. By the end of next year they'll have somewhere around $150 per share of cash," Misek said. "So what you are doing is you are actually buying a stock that effectively is $400 and we think at $50 earnings for the year that it is a cheap valuation."  Apple also has new product launches planned for this year and may be making a deal with China’s largest cellular phone carrier, China Mobile.

What all of this shows us is that Apple simply overestimated demand for the iPhone 5 and is now adjusting their component purchases.  However they still reached a milestone sales number for fourth quarter 2012.  Therefore the drop in price is most likely due to skittish and uninformed investors dumping their shares at the slightest hint of trouble.  We do not believe that now the time to sell Apple stock; on the contrary it looks to be a good time to buy.

Thursday, January 10, 2013


When the United States government rescued the world’s largest insurance conglomerate from bankruptcy in September 2008 to the tune of $182 billion in public taxpayer funds no one foresaw the possibility that anyone with a financial interest in American International Group (AIG) would consider it anything other than a blessing.  However as the saying goes, no good deed goes unpunished.

Former AIG Chairman and CEO Hank Greenburg whose Star International company owned roughly 12 percent of AIG prior to the bailout and now holds an approximately 9 percent stake has filed multiple lawsuits against the government alleging that the bailout was unfair to the company’s shareholders and that the 14 percent interest rate charged by the Federal Reserve was punitive and unfair.  Greenburg also alleges that the 2008 deal which furnished the government with a sizable percentage of ownership in the company equates to unlawful seizure without just compensation in violation of the constitution.  His lawsuit is seeking approximately $25 billion in damages.

Had the government sat back and watched AIG go bankrupt, it’s highly likely that their shareholders would have lost most or all of their financial interest in the company so it’s hard to see how the bailout was unfair to them.  A 14 percent interest rate can hardly be considered excessive or punitive when many American’s pay higher rates on their credit cards each month.  In addition, it is also very hard to conceive how $182 billion and avoidance of bankruptcy can be considered unjust compensation for the ownership stake the government received.  Lastly, it’s not like the government forced the company into this deal.  AIG was given the option and they accepted, plain and simple.   

In what has become a PR nightmare for AIG, Greenburg has been attempting to convince the company’s board of directors to join his lawsuit.  This idea has caused renewed outcries across traditional and social media outlets including everything from political cartoons satirizing the idea, comparing it to the possibility of a drowning victim suing the lifeguard who rescued him, to much more vulgar and personal attacks against current AIG CEO Robert Benmosche.  For AIG to accept the bailout and then turn around and sue their rescuer is the epitome of looking a gift horse in the mouth.

To AIG’s credit however they have reportedly declined Greenburg’s demands to join his lawsuits and they appear to be genuinely grateful for their continued existence as a result of the bailout.  On Wednesday January 9 2013, CEO Robert Benmosche stated that they had declined Greenburg’s demands but that the company had a legal and fiduciary duty to at least review the proposal.  The fact that they have declined to be a party to the suit and have refused to allow Greenburg to prosecute the claims on their behalf is an indication that the company may truly be on the right track.

When all was said and done, the United States Treasury ended up with a 92 percent stake in AIG, the last of which was sold in mid-December.  AIG now again rests completely in the hands of private investors.  AIG has completely paid back their debt to the government, with interest amounting to $22.7 billion in profits, and has been running television ads publicly thanking the American people for their trust and support.  AIG’s stock lost half of its value during 2011 but gained more than 50 percent during 2012.  On Wednesday AIG stock closed at $35.76