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Zacks #1 Stocks on the Move 07/30/2014

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Analyst Blog

ConocoPhillips Q2 Earnings Beat on Higher Prices and Volume

Posted Thu Jul 31, 09:16 am ET

by Zacks Equity Research

ConocoPhillips (COP) reported second-quarter 2014 adjusted earnings of $1.61 per share, surpassing the Zacks Consensus Estimate of $1.60 per share and increasing 14.2% from the year-earlier profit of $1.41. The year-over-year growth was mainly attributable to higher realized prices and volumes, partially offset by higher depreciation and operating costs.

Revenues in the reported quarter increased to $14,701 million from the year-ago level of $14,142 million and comfortably surpassed our projection of $14,404 million.

Exploration and Production

Daily production averaged 1.557 million barrels of oil equivalent (MMBOE) in the quarter, up from 1.510 MMBOE in the year-ago quarter. This increase was primarily attributable to new production from development programs and major projects, partially offset by normal field decline.

Price Realization

Overall price realization increased 5% to $70.17 per BOE from $66.82 per BOE in the second quarter of 2013.

Average realized price for oil was $103.53 per barrel compared with $100.14 in the year-earlier quarter. Natural gas liquids (NGL) were sold at $39.93 per barrel, reflecting an increase of 7.2% from the year-ago level of $37.24 per barrel. The price for natural gas was $6.66 per thousand cubic feet (Mcf) versus $6.15 in second quarter 2013, reflecting an increase of 8.3%. The company’s bitumen prices jumped 18.2% year over year to $65.82 per barrel.


At the end of the second quarter, ConocoPhillips generated $3.6 billion in cash from continuing operating activities (excluding working capital). As of Jun 30, 2014, the company had total cash and cash equivalents of $6.1 billion and $21.2 billion in debt, with a debt-to-capitalization ratio of 28%. ConocoPhillips also paid $1.7 billion in dividends and incurred $8.1 billion in capital expenditures during the quarter.


For the third quarter of 2014, daily production is expected in the band of 1,435–1,485 thousand barrels of oil equivalent (MBOE), excluding Libya. ConocoPhillips expects to deliver 3–5% production growth in 2014. Excluding Libya, the company’s 2014 full-year production is expected in the band of 1,525–1,550 MBOED.


With leading positions in both natural gas and heavy crude oil in North America, as well as a legacy position in the North Sea and growing exposure to lucrative international regions, ConocoPhillips expects to replace reserves and sustain production growth over the long term. ConocoPhillips' exploration initiatives toward liquids-rich plays are gaining momentum through the Eagle Ford, Bakken and North Barnett shale plays.

Again, ConocoPhillips completed the spin-off of its refining/sales business into a separate, independent and publicly traded company, Phillips 66 (PSX) in 2012. With this, ConocoPhillips shifted its total focus to upstream operations and thus oil and gas prices play a major role in determining its performance.

We believe that any downtrend in the global economy will affect the supply-demand fundamentals of oil and gas, hurting the sales prices of crude oil and natural gas.

ConocoPhillips currently carries a Zacks Rank #2 (Buy). One can also consider other energy sector stocks such as Newfield Exploration Co. (NFX) and Cameron International Corp. (CAM). Both these stocks currently sport a Zacks Rank #1 (Strong Buy).

Garmin (GRMN) Beats Q2 Earnings on Higher Revenues, Margins

Posted Thu Jul 31, 09:15 am ET

by Zacks Equity Research

GarminLtd. (GRMN) reported strong second-quarter 2014 earnings of $1.02 per share, comfortably beating the Zacks Consensus Estimate of 75 cents, on the back of strong growth in new products that are increasingly diversifying its business.


Garmin’s second-quarter revenues of $777.8 million were up 33.4% sequentially, up 11.7% year over year which also beat the Zacks Consensus Estimate of $702.0 million. Volumes increased 52% sequentially and 6% year over year. However, the blended average selling price (ASP) was down 13.2% sequentially but up 6% year over year to $203.0 per unit. The year-over-year increase was driven by mix changes and reduced revenue deferrals.

Revenues by Segment        

Garmin’s Auto/Mobile, Outdoor, Aviation, Fitness and Marine segments generated 45%, 19%, 14%, 13% and 9% of the quarterly revenues, respectively.

Seasonality typically results in considerable variations in quarterly revenues, with the most significant increase in the December quarter, followed by a major decline in the March quarter.

The Auto/Mobile segment was up 44.1% sequentially and 1.5% from the year-ago quarter. The personal navigation device (PND) market weakness continued in the last quarter but was less than expected, which was partially offset by growth in original equipment manufacturers (OEM) and amortization of previously deferred revenues.

Garmin expects PND volumes to decline in 2014, in line with the 2013 rates but believes that niche categories, like dash cams and RV units, will help offset the decline, going forward. The company expects the OEM market to continue to generate good returns in the near future.

The Aviation segment revenues were up 1.4% sequentially and 10.5% year over year. The year-over-year increase was due to notable strength in the OEM segment. The aviation market recovery appears to be gathering momentum with three straight quarters of double-digit year-over-year growth.

New products, opportunities in the retrofit segment, opportunities in the military and government markets, and share gains in the helicopter market remain the positives for 2014. Management expects new revenue contribution from the Cessna Latitude, Bell 505 and the Bell 525.

The Outdoor segment revenues were up 26.3% sequentially but down 0.7% year over year. The year-over-year decline was due to weak demand for VIRB action cameras.

Management does not expect much improvement in this segment due to slower-than-expected uptake of VIRB action cameras. However, expansion into new categories and products will likely remain an important driver of segmental growth.

The Fitness segment increased 50.2% sequentially and 78.9% year over year, driven by the ramp up of new products across multiple fitness categories.

Management stated that the Vivofit product had a strong start in the rapidly growing activity-tracking category. The company also believes that the continued move toward higher-margin products, especially in the running category, will boost segment margins in the near term. GPS-enabled running and cycling products are gaining worldwide popularity, which is good news for Garmin, the market leader. Management also has several new products in the pipeline that are expected to drive growth in the second half of 2014.

The Marine segment increased 23% sequentially and 1.4% from the year-ago quarter. The year-over-year growth was driven by new products including autopilot solutions, chartplotters and radars. Management expects new products to drive sales in 2014.

Garmin is trying to build a solid product portfolio (including acquisitions) and the strengthening of strategic relationships with marine OEMs.

Operating Results

The gross margin for the quarter was 57.1%, up 40 basis points (bps) sequentially as well as 200 bps year over year. The increase was due to a favourable segment mix. Also, the amortization of previously deferred revenues aided margins. 

Operating expenses of $225.7 million were up 5.6% from $213.8 million in the year-ago quarter. As a percentage of sales, selling, general & administrative and research & development expense decreased year over year, while advertising expense increased. The net result was an operating margin of 28.1%, up 370 bps year over year.

On a pro-forma basis, Garmin reported a net income of $199.8 million compared with $149.6 million in the year-ago quarter. Pro-forma earnings per share were $1.02 compared with 76 cents in the comparable prior-year quarter.

One-time adjustments in the quarter included currency-related gains.

Balance Sheet

Inventories were down 2.9% sequentially to $429.7 million. The cash and short-term investments balance was approximately $1.40 billion versus $1.30 billion in the prior quarter, with operations contributing around $164.0 million.

Garmin spent approximately $21.0 million on capex, yielding free cash flow of around $143.0 million. The company has no long-term debt.

In the reported quarter, the company spent approximately $88 million on dividends and $129 million on share repurchases. The company has $79 million remaining in the share repurchase program authorized through Dec 31, 2014.


For full year 2014, management expects revenues in the range of $2.75–$2.85 billion (prior $2.6–$2.7 billion); gross margin of approximately 56% (prior 54–55%); operating income in the range of $650–$675 million (prior $530–$565 million); operating margin of approximately 24% (prior 21%); pro-forma tax rate of approximately 15% (prior 17%) and pro-forma earnings in the range of $2.95–$3.05 (prior $2.50–$2.60). The Zacks Consensus Estimate for earnings for 2014 is pegged at $2.73.


Garmin’s results indicate that it is successfully diversifying its business away from the shrinking PND market. Focused research and development efforts resulted in a steady flow of innovative higher-margin products which helped in the shift. The company is also increasingly collaborating with OEMs for product designing, which is leading to greater volumes, predictability and more stable pricing.

In the reported quarter, the traditional PND business shrank to less than 50% of its total business, although Garmin remains the market leader. On the other hand, Garmin is seeing good growth in its target markets, all of which carry higher margins. Additionally, Garmin increased its 2014 guidance, indicating a strong demand environment for its products, going forward.  

Moreover, Garmin’s acquisition of Fusion Electronics will broaden the company’s product portfolio, generating synergies for its customers in both OEM and after-market applications, expanding its share in the marine market.

Garmin’s shares carry a Zacks Rank #3 (Hold). Other stocks that have been performing well and are worth a look include Broadcom Corp. (BRCM), Mistras Group, Inc. (MG) and Agilent Technologies (A). While Broadcom sports a Zacks Rank #1 (Strong Buy),  Mistras Group and Agilent have a Zacks Rank #2 (Buy).

Murphy Oil Corp. (MUR) Misses on Q2 Earnings, Guides Down

Posted Thu Jul 31, 09:10 am ET

by Zacks Equity Research

Murphy Oil Corporation (MUR) reported second-quarter 2014 adjusted earnings of 90 cents per share, missing the Zacks Consensus Estimate of $1.13 by 20.4%. Quarterly earnings decreased 34.8% from $1.38 per share in the prior-year quarter.

The underperformance was primarily due to increases in exploration as well as depreciation expenses, a rise in extraction costs in Malaysia, higher expenses for financing, lower realized sales prices of oil and natural gas for production at Sarawak and unfavorable commodity contracts in the U.S.


On a GAAP basis, the company’s earnings per share were 72 cents compared with the prior-year figure of $2.12. The difference of 18 cents between GAAP and adjusted earnings was due to the combined impact of a loss from discontinued operations, mark-to-market loss on crude oil derivative contracts and foreign exchange loss.

Total Revenue

In the second quarter, Murphy Oil’s total revenue came in at $1,349 million, lagging the Zacks Consensus Estimate of $1,408 million by 4.2%. However, the top line rose 1.3% from $1,332 million a year ago, mainly due to higher revenues from exploration and production activities.

Quarterly Highlights

In the quarter under review, Murphy Oil's total net hydrocarbons production volume increased 1.3% year over year to 210,191 barrels of oil equivalent per day (BOE/d), primarily on the back of higher production from the Eagle Ford Shale, the Gulf of Mexico (GoM) and Sarawak.

Total net hydrocarbons sales volume was 216,596 BOE/d in the quarter, up 3.6% from 208,990 BOE/d a year ago mainly due to higher net crude oil and condensate as well as net natural gas liquids sales volumes.

Total costs and expenses were $1,044.4 million, up 19% year over year mainly due to higher lease operating and exploration expenses, severance and ad valorem taxes, selling and general, and depreciation expenses.

In the reported quarter, the company’s exploration expenses were $134.8 million, up 51.8% year over year mainly due to an increase in geological and geophysical expenses.

Interest expenses increased 14.2% to $33.8 million from $29.6 million a year ago.

Financial Condition

As of Jun 30, 2014, Murphy Oil had cash and cash equivalents of $661.1 million versus $750.2 million as of Dec 31, 2013.

Long-term debt was $3,786.5 million as of Jun 30, 2014 versus $2,936.6 million as of Dec 31, 2013.

Net cash from operating activities during the second quarter was $723.8 million, lower than $747.9 million in the year-ago period.

In the reported quarter, the company’s total capital expenditure (continuing operations) was $969.1 million versus $997.3 million in the year-ago quarter.

Business Update

In the second quarter, Murphy Oil achieved first production at the Dalmatian project in the GoM. The company added 100 million barrels of oil equivalent of proved reserves in the first half of 2014 with a reserve replacement of over 150%.

Murphy Oil initiated a share repurchase program, worth $125 million, of the company’s common stock.


Murphy Oil expects third-quarter 2014 total net production and sales volume of 225,000 BOE/d and 218,000 BOE/d, respectively. The company estimates total exploration expense in the range of $65–$125 million for the third quarter of 2014.

Murphy Oil reduced its 2014 total production projection to 220,000–225,000 BOE/d from the previous estimate of 225,000–230,000 BOE/d, considering the slower-than-expected recovery of the unplanned maintenance downtime at Syncrude Canada, and an unplanned short-term outage at the Kikeh production facility in Malaysia and adjustments for additional risking of production through third-party controlled facilities.

Other Company Releases

Anadarko Petroleum Corporation (APC) reported second-quarter 2014 adjusted earnings of $1.32 per share, missing the Zacks Consensus Estimate of $1.34 by 1.5%.

Encana Corporation’s (ECA) second-quarter 2014 adjusted earnings were 23 cents per share, lagging the Zacks Consensus Estimate of 28 cents by 17.9%.

Hess Corporation (HES) reported adjusted second-quarter 2014 earnings of $1.38 per share, surpassing the Zacks Consensus Estimate of $1.20.

Our Take

Murphy Oil continues to invest in exploration and production activities in the Eagle Ford Shale area, GoM, Malaysia and several other regions. These initiatives enable the company to expand its reserve base.

In addition, the company’s effective share repurchase program will boost shareholder value and provide bottom-line support.

Murphy Oil currently has a Zacks Rank #2 (Buy).

Maxim Integrated Products Down on Q4 Earnings & Revenue Miss

Posted Thu Jul 31, 09:05 am ET

by Zacks Equity Research

Maxim Integrated Products, Inc. (MXIM) shares have declined nearly 10% since the company reported fourth quarter fiscal 2014 earnings and provided a tepid guidance on Jul 24. Earnings excluding special items of 43 cents per share missed the Zacks Consensus Estimate by 5 cents. Moreover, it was down 1.9% from the year-ago quarter. The decline was primarily due to lower revenues at the Consumer, Industrial and Computing end markets and inventory reserves.



Revenues in the reported quarter were $642.5 million, up 6.1% sequentially and 5.6% on a year-over-year basis. The sequential increase in revenues was primarily attributable to growth across all its main businesses and solid strength in its balanced portfolio, despite softness in the mobility business. However, revenues missed the Zacks Consensus Estimate of $650.0 million.

Revenues by End Market

The Consumer end market remained the largest revenue contributor, accounting for approximately 35% of revenues compared with 38% in the prior quarter. The sequential decline was due to weakness in smartphones and tablets, mainly at its biggest customer.

Mobility consumers are rapidly shifting toward the latest generation devices, while demand for prior generation products is falling at an increasing rate. Decline in previous generation smart devices at company’s leading customer adversely affected the business. Older mobility products, specifically tablets, generated lower-than expected revenues.

Maxim’s expansion intopower management sensors, motion control, MEMS, audio amplifier and other areas of smartphones, tablets and hybrid devices is proving to be beneficial as it secured design wins for its sensor technology.

Industrial, Maxim’s second largest segment, generated 27% of revenues compared with 31% in the prior quarter and grew 10% on a year-over-year basis. The year-over-year rise was attributable to persistent growth in the core industrial end market and support from vertical industrial markets. In the core industrial end market, the company has introduced distributed control in the factory by allowing solid and effective designs that are heat efficient in the industrial atmosphere.

The Automotive end market generated 10% of revenues. The company experienced broad-based rise in infotainment as mobility user experience shifted to the Automotive market. Moreover, the segment also witnessed an increase in new design wins across numerous applications and customers.

The Communications and data center end market accounted for 23% of revenues compared with 17% in the prior quarter and up 30% from the year-ago quarter. The sequential increase was driven by continued strength due to the release of China 4G LTE and better demand from a number of OEMs. The year-over-year increase is attributable to organic growth in server applications, driven by positive synergies from the acquisition of Volterra technology. Moreover, its cable infrastructure business continues to witness growth due to the adoption of the company’s highly developed data converter products.

The Computing business contributed 5% of revenues compared with 14% in the prior quarter.


Non-GAAP gross margin was 60.4%, up 31 basis points (bps) sequentially but down 194 bps year over year. The sequential increase was attributed to higher utilization at fabs, partially offset by higher inventory reserves. Inventory charge for the older generation mobility products, especially tablets, negatively impacted margins.

Non-GAAP operating expenses of $226.9 million were up 2.2% sequentially and 6.0% from the year-ago quarter.

Net Income

Pro forma net income was $123.9 million compared with $123.1 million in the prior quarter and $129.5 million in the year-ago quarter. Our pro forma calculation excludes restructuring, intangibles amortization, asset impairments and other one-time charges on a tax-adjusted basis.

Balance Sheet & Cash Flow

During the quarter, cash flow from operations was $234.0 million or 36.4% of revenue, up from $211.7 million in the prior quarter. Inventory was 103 days, a drop of 6 days from the previous quarter.

Total cash, cash equivalents and short-term investments increased $141.0 million in the fourth quarter to $1.37 billion.

Net capex was $22.0 million compared with $26.0 million in the prior quarter. Maxim has $1.0 billion of long-term debt flat compared with the prior quarter.

Share Repurchase & Dividend

Maxim spent $74.0 million on cash dividends and $41.0 million on share repurchase of 1.2 million shares in the reported quarter. The company declared a cash dividend of 28 cents per share to be paid to shareholders, representing an 8% sequential increase in dividend.


For the first quarter of fiscal 2015, Maxim expects revenues in a range of $580–$620 million based on a quarter-end backlog of $377.0 million. Management’s revenue guidance reflects a cautious outlook toward smartphone and tablet shipments at its largest customer. Moreover, shipments into other Mobility opportunities can be delayed.

Management expects industrial market revenues to be down due to seasonally lower core industrial sales. Automotive is expected to be slightly up as the company continues to deliver on its pipeline of design wins. Management has a cautious stance for the consumer segment as it expects consumer to be down significantly due to softness in smartphones at its largest customer, partly offset by a number of new Mobility products. Communications and data center is forecast to be flat from a strong June, with continued support from the fiber optic infrastructure build-out and base station consumption. Lastly, computing is expected to be flat with the June quarter.

Gross margin is expected be in the 56%–59% range on a GAAP basis and 59%–62% on an adjusted basis (excluding special items). Operating expenditure is expected to decline roughly 1% to 2%.

Earnings per share are expected to be 27 cents – 33 cents on a GAAP basis and 34 cents-40 cents on an adjusted basis (excluding special items). The tax rate, excluding special items, is expected to be within the range of 18%-20% of revenues. Capex is expected to be at 3-5% of revenue.


Maxim reported disappointing first quarter results with the top and bottom lines missing the Zacks Consensus Estimate.

Maxim’s business has a well-diversified portfolio of products and abilities. It has increased its focus on the faster-growing consumer and computing end markets.

Maxim’s long-term fiscal strategy of growth, leverage and return is on the right track. Of late, Maxim has been attempting to diversify its exposure within the Mobility market in several ways such as expanding its tech offerings for mobile devices, growing revenue and content.

The consumer market is also moving towards more innovation with new content prospects across new smart devices platforms and the fast growing wearables and portable devices space. All these efforts are aimed at extending its foothold in various spheres. Moreover, diversification of customer base, beyond its existing leading customer, to Chinese producers and other important OEMs indicate healthy growth prospects for the company.

The company aims to integrate simpler device design, higher performance, power and space efficiency in its different businesses including Automotive, Industrial, Communications and Datacenter. This integration will benefit the company with more secular growth in the analog industry.

Moreover, its margins are expected to improve with better inventory controls and stringent cost control methods. While Maxim’s portfolio and pipeline remain solid and its end-market diversity commendable, we believe its exposure to the consumer and computing markets increases risks. Moreover, its strong business model coupled with strong profitability allows it to return a significant portion of its free cash flow to shareholders.

Currently, Maxim’s shares carry a Zacks Rank #5 (Strong Sell). Better-ranked semiconductor stocks include Fairchild Semiconductor International Inc. (FCS) and ON Semiconductor Corp. (ONNN) and Analog Devices (ADI), all carrying a Zacks Rank #2 (Buy).

Western Digital Down Despite Q4 Earnings & Revenue Beat

Posted Thu Jul 31, 09:00 am ET

by Zacks Equity Research

Western Digital Corp. (WDC) reported fourth-quarter fiscal 2014 non-GAAP earnings per share (excluding amortization of intangibles, restructuring charges and other one-time items) of $1.85, which beat the Zacks Consensus Estimate of $1.74.

Despite being down 5.9% from the year-ago quarter, reported earnings surpassed management’s guidance range of $1.65 to $1.75 per share.

Shares of Western Digital went down 2.6% in after-hours trading on Wednesday as the year-over-year comparisons of both earnings and revenues were unfavorable.

Quarter Details

Western Digital reported revenues of $3.65 billion for the fourth quarter, which decreased 2.1% from the year-ago quarter but came ahead of the Zacks Consensus Estimate of $3.59 billion. Reported revenues also came ahead of management’s guided range of $3.5–$3.6 billion.

Revenues declined on a year-over-year basis primarily due to a drop in hard disk drive (HDD) average selling price coupled with seasonally lower demand for notebook and desktop PC units and soft demand from the enterprise segment.

During the quarter, Western Digital shipped 63.1 million hard drives at an average selling price (ASP) of $56. ASP for the quarter was down from $60.0 in the year-ago quarter and $58.0 reported in the previous quarter. However, reported shipment was up from 59.9 million in the year-ago quarter and 60.4 million HDDs shipped in the previous quarter.

Western Digital’s market share in the total addressable market (TAM) increased from 43.8% in the previous quarter to 45.7%. Market share also expanded from 44.9% reported in the year-ago quarter.

Western Digital’s contribution from its non-PC segment (branded consumer electronics and enterprise HDD and SSD businesses) remained consistent at 53% of total revenue on a quarterly basis.

Moreover, the company reported $113.0 million in revenue contribution from the Enterprise Solid State Drive (SSD) segment, which increased from $104.0 million in the year-ago quarter, primarily due to higher adoption of its product range.

Western Digital’s top 10 customers contributed 45% to revenues compared with 48% in the year-ago quarter and 44% in the previous quarter.

Western Digital’s non-GAAP gross margin expanded 43 basis points (bps) to 29.5% aided by strong demand in gaming and notebook PCs and efficient operations.

Lower operating expenses (down 46.7% year over year) positively impacted Western Digital’s operating results. Income from operations came in at $352.0 million, which increased from an operating loss of $221.0 million reported in the year-ago period.

Non-GAAP net income came in at $445.0 million or $1.85 per share compared with $477.0 million or $1.96 per share in the year-ago quarter.

Cash and cash equivalents were $4.80 billion compared with $4.57 billion in the previous quarter. During the quarter, Western Digital generated $713.0 million in cash from operations compared with $697.0 million in the previous quarter. The company generated free cash flow of $552.0 million.

The company repurchased stocks worth $272.0 million and paid dividends of $70.0 million during the quarter.


For the first quarter of fiscal 2015, revenues are expected in the range of $3.8 to $3.9 billion. The Zacks Consensus Estimate is pegged at $3.82 billion.

Gross margin is expected to be approximately 29.5%. Total operating expenses are expected to be approximately $625.0 million. Management expects non-GAAP earnings per share to be between $1.95 and $2.05 for the September quarter. The Zacks Consensus Estimate is pegged at $2.06 per share.

Our Take

Western Digital reported better-than-expected fourth-quarter fiscal 2014 results. However, year-over-year comparisons were unfavorable primarily due to a fall in hard disk drive (HDD) average selling price and soft demand from the enterprise segment. The company provided a tepid revenue and earnings guidance citing seasonal factors.

Nonetheless, shift toward non-PC applications, secular growth of digital data and growing exposure to the small and medium business space are long-term positives. Additionally, modest growth in TAM and higher demand for storage are expected to lead to a positive earnings surprise in the upcoming quarter.

We remain encouraged by the company’s launch of a string of storage devices under the mobile and cloud segment. Continued investment in product innovation could result in flattish margins in the near term.

Moreover, strategic acquisitions to expand its offerings in the SSD segment are expected to place Western Digital in a better position compared to its peers such as Seagate Technology (STX) and SanDisk Corp. (SNDK).

Western Digital currently holds a Zacks Rank #2 (Buy). Investors can also consider NVIDIA Corporation (NVDA) which sports a Zacks Rank #1 (Strong Buy) and is worth buying.

SodaStream Q2 Earnings Trump Estimates, U.S. Remains Weak

Posted Thu Jul 31, 08:30 am ET

by Zacks Equity Research

Shares of SodaStream International Ltd. (SODA) surged 10% after it announced better-than-expected second quarter 2014 results.

In-fact, shares of SodaStream have been going strong since last week on the news that it plans to divest itself for $40 per share to a private buyer. The market seems to have overlooked the fact that the company lowered its outlook for the year.

Adjusted earnings of 43 cents per share beat the Zacks Consensus Estimate of 32 cents by 34.4%, which we believe was due to strong international performance.

Earnings of the Israel-based manufacturer of household soda machines, however, declined around 28.3% year over year due to soft U.S. sales, currency headwinds, and weak margin.


In line with the company’s expectation of a mid-single digit increase, total revenue of $141.2 million increased 6.6% year over year and surpassed the Zacks Consensus Estimate of $140 million as robust international sales were offset by challenges in the U.S.

Geographically, revenues decreased 14% in the Americas but increased 14% in Western Europe, 13% in Asia/Pacific and 71% in Central and Eastern Europe, Middle East and Africa (CEMEA).

Sales were weak in the Americas due to elevated inventory levels at retail customers due to weak holiday sellout in December. Also, efforts to create demand were not very effective. Even the launch of hotspots in about 1,500 Wal-Mart Stores Inc. (WMT) stores during the quarter did not have the desired effect on demand.

Management is looking to reinvigorate the U.S. business with a focus on reaccelerating the soda maker’s growth by improving marketing execution and increasing retail presence.

The solid performance in Western Europe was driven by strong gains in several markets, like Germany and Finland. In Asia Pacific, Australia continued to exhibit strong gains. Improvement in the Czech Republic and strong performance in new markets like Poland led to the improvement in the CEMEA region.

Among the product categories, while soda maker sales declined around 8%, consumables (like gas refills and flavors) increased 15% and other product sales increased 27%.


Gross margins declined 380 basis points (bps) year over year and 180 bps sequentially to 50.5%. An unfavorable product mix due to increased share of lower margin soda makers, inventory write offs and currency headwinds hurt gross margin performance.

The sales and marketing (S&M) expense ratio increased 30 bps in the quarter to 33.3% due to higher selling expenses. Higher selling expenses are related to the recently acquired Italian and Japanese distribution channels.

General and administrative expense ratio declined 100 bps in the quarter to 9.3% of revenues due to decline in share-based compensation expenses.

Adjusted operating margin declined 310 bps year over year to 8% due to weak gross margins and higher costs.

2014 Outlook

Management updated the previously provided financial guidance for 2014 and kept the outlook conservative.

Full-year 2014 revenues are expected to increase about 5%, compared to the prior guidance of approximately 15% over 2013 revenues of $562.7 million.

The company expects Americas to decline in the low teen range, while the other three regions are expected to increase in the mid teen range.  

Gross margin is still expected to be approximately 51%, flat with 2013 levels.

Owing to a decline in revenue projection, 2014 EBITDA is expected to increase approximately 5% year over year, down from the prior expectation of about 11. Excluding currency headwinds, EBITDA is likely to grow 17%, lower than than prior guidance of 25% increase.

Full-year 2014 net income is expected to decrease approximately 5% year over year, worse than the prior guidance of about 3% decline.

SodaStream carries a Zacks Rank #4 (Sell).

Key Picks from the Sector

Better-ranked stocks in the consumer goods industry include The WhiteWave Foods Company (WWAV) and Cott Corporation (COT). Both companies carry a Zacks Rank #2 (Buy).

Calgon Carbon Signs Pact with Goltens for Hyde GUARDIAN

Posted Wed Jul 30, 07:30 pm ET

by Zacks Equity Research

Calgon Carbon’s (CCC) fully-owned subsidiary – Hyde Marine, Inc. – has entered into an agreement with Netherland-Based Goltens Green Technologies to help shipowners avail a chemical free Hyde GUARDIAN Gold Ballast Water Treatment System (BWTS) in their existing ships.

This partnership will benefit shipowners with precision 3D laser scanning and modeling, which helps remove complications during the BWTS installation process on existing ships. Laser scanning reduces risks involved with manual measurement and fabrication onboard by giving an accurate rate and efficient solution for fitting BWT systems.

Hyde Marine is one of the fastest growing ballast water treatment (BWT) technology companies globally. It will work with six green stations of Goltens for the engineering of Hyde GUARDIAN Gold ballast water treatment process.

The Hyde GUARDIAN Gold ballast water treatment relies on an efficient two-step treatment system of physical solid-liquid separation through surface filtration and physical disinfection through ultraviolet technology. Basically water is used as ballast to stabilize ships at sea. While it is essential for shipping operations, it poses serious environmental threats to marine life thus requiring ballast water management.

Hyde Marine’s move will help shipowners to evaluate the space for installation of the ballast water treatment system. It is also in accordance with the International Convention for the Control and Management of Ships' Ballast Water and Sediments (BWMC) of IMO, which requires ships to discharge ballast water free of any living organisms or pathogens.

Calgon Carbon, which is among the prominent pollution control companies along with CECO Environmental Corp. (CECE) and Donaldson Company, Inc. (DCI), ventured into the global market for ballast water treatment with its acquisition of Hyde Marine in 2010. The company’s ballast water treatment business is rapidly evolving into one of the most exciting longer-term market opportunities.

Calgon Carbon currently holds a Zacks Rank #3 (Hold).

A better-ranked company in the pollution control industry is Metalico Inc. (MEA). It sports a Zacks Rank #2 (Buy).

JPMorgan to Slash Tech Support Jobs Amid Trading Worries

Posted Wed Jul 30, 07:20 pm ET

by Zacks Equity Research

In a bid to streamline its technology platform, JPMorgan Chase & Co. (JPM) has decided to cut hundreds of technology support jobs in its corporate and investment bank (CIB) division, per a Wall Street Journal report. As part of the downsizing process, jobs will be cut in New York, Chicago, Tampa and Dubai operations.

Notably, the New York-based bank has been pruning its technology systems for quite some time. The acquisitions of Bear Stearns and Washington Mutual Inc. during the financial crisis period had put the bank in a spot of trouble and might have forced it to this unsavory move. Further, the sustained lull in the trading business has added to the woes.

Over the past few quarters, net revenues of JPMorgan have declined on a year over year basis. In second-quarter 2014 ended on Jun 30, net revenues declined 3% year over year to $24.5 billion. Again, net revenue from the corporate and investment bank unit slipped 9% year over year to $9.0 billion. This decline in revenues might have paved the way for JPMorgan’s decision to curtail its workforce.

JPMorgan had already indicated a job slash nearly a month and a half ago. In case of a persistent lull in the trading business, the bank had hinted, a large-scale pink-slip handout might take place in the Investment Banking division, with compensation levels going down as well.

JPMorgan currently holds a Zacks Rank #3 (Hold). Some better-ranked banks include Comerica Inc. (CMA), Associated Banc-Corp. (ASBC) and PrivateBancorp, Inc. (PVTB). All these stocks hold a Zacks Rank #2 (Buy).

Will Clorox (CLX) Beat Q2 Earnings on Sound Fundamentals?

Posted Wed Jul 30, 07:10 pm ET

by Zacks Equity Research

The Clorox Company (CLX) will release fourth-quarter fiscal 2014 financial results on Aug 1, before the market opens. Last quarter, this consumer products company posted an earnings surprise of approximately 9.26%. Let's see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Clorox is likely to beat earnings because it has the right combination of key factors.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +1.49%. This is a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Clorox carries a Zacks Rank #3 (Hold). The stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of Clorox’s Zacks Rank #3 and +1.49% ESP makes us confident of earnings beat this release.

What is Driving Better-than-Expected Earnings?

Although, Clorox concluded its last reported quarter on a strong note, it projected a bleak fiscal 2014 and 2015 due to pressure from unfavorable foreign currency exchange rates and rising commodity costs. However, we are constructive about the stock’s performance given its unique strategy of expanding global footprint and brand management.

Where other competitors are investing in the rapidly emerging markets of Brazil, Russia, India and China, Clorox has decided to tap the opportunities available in the Middle East and other booming Asian economies. We believe that with less competition and penetration, along with healthy population sizes and rising incomes, these countries provide huge growth potential.

Further, Clorox's diversified brand portfolio positions it well above its peers to generate above-average industry growth and sustain itself in the currently challenging environment in the quarter to be reported. The company’s approach to brand management allows each of its brands to develop further, through rigorous research and development, marketing strategies, financial control and operating leverage. Given the strength of many of its brands coupled with opportunities in distribution, we believe that the company is set for significant growth.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows that these have the right combination of elements:

Kirby Corporation (KEX) has an Earnings ESP of +3.08% and a Zacks Rank #1 (Strong Buy).

Avis Budget Group, Inc. (CAR) has an Earnings ESP of +3.18% and a Zacks Rank #2 (Buy).

Anheuser-Busch InBev SA/NV (BUD) has an Earnings ESP of +2.22% and a Zacks Rank #2.

Regeneron's Eylea Gets FDA Nod for Diabetic Macular Edema

Posted Wed Jul 30, 07:00 pm ET

by Zacks Equity Research

Regeneron Pharmaceuticals, Inc.’s (REGN) eye drug Eylea received FDA approval for a third indication − the treatment of diabetic macular edema (DME).

Eylea is already approved for the treatment of neovascular age-related macular degeneration (wet AMD) and macular edema following central retinal vein occlusion.

DME (also known as swelling of the macula) is one of the primary causes of vision loss among the working-age group of the U.S. population and commonly affects patients suffering from diabetes. According to the press release issued by Regeneron, out of 29.1 million diabetic adults in the U.S., approximately 1.5 million have been diagnosed with DME, while nearly 1 million cases remain undiagnosed.

Regeneron has an agreement with Bayer (BAYRY) for the development and commercialization of Eylea. While Regeneron holds exclusive rights to sell Eylea within the U.S., Bayer has exclusive commercialization rights to the product in the ex-U.S. markets. Both companies equally share the profits from Eylea sales, excepting Japan, where Regeneron receives royalties on Eylea’s net sales.

We remind investors that Eylea is currently under review in the EU for the DME indication. With the European Committee for Medicinal Products for Human Use (CHMP) recommending the approval of Eylea for the treatment of DME, we expect Eylea to gain EU approval in the second half of 2014.

Although Eylea’s U.S. approval for DME is based on one-year data from two phase III studies (VISTA-DME and VIVID-DME), Regeneron will continue these studies for a total of three years. Eylea is also in another phase III study (VIVID-EAST-DME).

We are encouraged by Eylea’s label expansion which should boost sales further. In 2013, U.S. revenues for Eylea amounted to $1.4 billion (out of global revenues of $1.9 billion), up 68% year over year.

Regeneron carries a Zack Rank #3 (Hold). Some better-ranked stocks in the biotech sector are Actelion Ltd. (ALIOF) and Aegerion Pharmaceuticals, Inc. (AEGR). While Actelion carries a Zacks Rank #1 (Strong Buy), Aegerion holds a Zacks Rank #2 (Buy).

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