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Zacks #1 Stocks on the Move 07/24/2014

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Analyst Blog

Starbucks Brews Positive Earnings While Dunkin' Brands Melts

Posted Thu Jul 24, 06:00 pm ET

by Brian Hamilton

Starbucks (SBUX) reported earnings after the bell today.  Earnings came in ahead of the Zacks Consensus Earnings Estimate of $0.66 per share by posting Q3 earnings of $0.67 per share.  Revenues came in above the Zacks Consensus Revenue Estimate of $4.158 billion, by posting revenues of $4.2 billion. 

Strong performances by Teavana teas, the continued rollout of La Boulange pastries and sandwiches, and the introduction of carbonated drinks helped increase SSS by 5.1%, beating the consensus estimate of 5%.  Further, China saw SSS grow by 7%, and overall operating margins grew 18.5%.  These positives caused management to raise full year EPS estimate from $2.65-$2.67 to $2.70-$2.72.

There had been concern that coffee bean prices would impact the top line due to fears around Brazil’s coffee crop this year.  But recent rains have help to alleviate those concerns.  Moreover, management has had the foresight to hedge their coffee prices by locking in (below FY14 levels) a large percentage of their FY 15 coffee needs.  This should create a strong tailwind into and through 2015, and or protect against any unforeseen issue with crops.  Further, it gives the company pricing power over their rivals. 

In May of 2013, Starbucks began their assault on their competition by discounting bags of coffee that are sold in grocery stores by $1.00 for eponymous beans and its more common brand Seattle’s Best.  This plan enabled the company to take a larger share of the market.   The discount was a direct attack upon the low end of the coffee market. 

According to Rita McGrath, professor at the Columbia Business School, “Cutting prices on its bags of coffee also takes a swing at the competition’s knees.  By committing to lower prices (and not using coupons or sales), Starbucks is sending a signal.  It’s serious about the low end of the market; Dunkin’ Donuts, Folgers, and other competitors can either trim their margins further, or give up volume.  Either way they lose.” 

Dunkin’ Brands (DNKN) reported earnings before the bell this morning, and the Starbucks impact is very evident.  Dunkin’ Brands met the Zacks Consensus Earnings Estimate of $0.47, but missed the Zacks Consensus Revenue Estimate by $7.6 million. 

The revenue miss was due to several factors; SSS growth did not meet expectations (U.S. Dunkin’ Donuts +1.8%, U.S. Baskin-Robbins +4.2%), SSS declines Internationally (Dunkin’ Donuts -3.1%, Baskin-Robbins -1.6%).  This caused management to lower its earnings and sales targets for the year.  According to Chief Executive Nigel Travis, “Second quarter sales growth was below our expectations, with Dunkin’ Donuts U.S. comparable store sales not accelerating as fast or to the degree that we anticipated after a difficult first quarter.”

Therefore, management reduced full year adjusted EPS from $1.79-$1.83 a share to $1.73-$1.77.  Further, the company trimmed revenue growth expectations from 6%-8% to 5%-7%.  And finally management reduced U.S. SSS expectations from 3%-4% to 2%-3%. 

In afterhours trading, SBUX is down less than 1% on mild volume, and DNKN saw a price decline after the earnings announcement, but was able to recapture some of those losses throughout the day, and ended the day down 4.6% from the previous day’s close. 

Tomorrow, Zacks will have a fully detailed earnings report for both DNKN, and SBUX.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Is Xerox (XRX) Likely to Disappoint on Q2 Earnings?

Posted Thu Jul 24, 05:30 pm ET

by Zacks Equity Research

Information technology services provider Xerox Corporation (XRX) is scheduled to report its second-quarter 2014 results before the opening bell on Jul 25. In the last reported quarter, Xerox’s adjusted earnings exceeded the Zacks Consensus Estimate by 4 cents. Let’s see how things are shaping up for this announcement.

Growth Factors in the Second Quarter

Xerox expects the Services segment to fetch 66% of its total revenues by 2017, up from 55% in 2013. To achieve this objective, Xerox is focusing more on vertical markets like healthcare. Xerox recently secured an estimated $500 million worth contract to reinstate New York's Medicaid management system, according to a Bloomberg report.

New York’s Medicaid program, worth $52 billion, is the biggest in the nation. Xerox’s selection as the vendor for the state may open doors to more lucrative opportunities for the document imaging giant, once the other states follow New York’s footsteps and revamp their Medicaid payment systems.

The company has already begun to reap huge benefits from the Medicaid Management Information System (MMIS) through its successful implementation and CMS (Centers for Medicare and Medicaid Services) Certification in all the 31-state Medicaid programs. Also, Xerox is looking forward to expand its offerings through inorganic measures to add more clients to its portfolio.

Additionally, during the quarter, Xerox was awarded a $51 million contract to provide South Carolina residents with debit cards to allow them access to food stamps or welfare benefits. Xerox provides card service programs to nearly 25 million people in 29 states, and continued contracts for such services offer a healthy revenue stream for top-line growth.  

Earnings Whispers

Despite focused attempts to restructure its business, our proven model does not conclusively show that Xerox is likely to beat earnings this quarter as it lacks the key ingredients for a success recipe.

Zero Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. This indicates a likely in line earnings for the shares.

Zacks Rank #4 (Sell): Xerox’s Zacks Rank #4 reduces the predictive power of ESP. Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement. When combined with 0.00% ESP, the Zacks Rank #4 fails to conclusively predict an earnings surprise for Xerox. Rather, the probability of an earnings miss in the soon-to-be-reported quarter is comparatively higher.

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

American Capital Agency Corp. (AGNC), earnings ESP of +6.06% and Zacks Rank #2 (Buy).

Credit Acceptance Corp. (CACC), earnings ESP of +2.39% and Zacks Rank #2 (Buy).

CH Robinson Worldwide Inc. (CHRW), earnings ESP of +2.60% and Zacks Rank #2 (Buy).

Will TCF Financial (TCB) Miss Q2 Earnings Estimates?

Posted Thu Jul 24, 05:20 pm ET

by Zacks Equity Research

TCF Financial Corporation (TCB) is scheduled to report its second-quarter 2014 results on Jul 25.

TCF Financial’s first-quarter 2014 earnings of 24 cents per share beat the Zacks Consensus Estimate. The figure also reflected a 50% year-over-year rise. Notably, results for the quarter included an amortization charge. Results reflected top-line growth and lower provision for credit losses. However, increase in non-interest expenses was on the downside.

Will TCF Financial miss earnings estimates this season? Let’s see how things have shaped up for this announcement.

Factors to Influence Q2 Results

TCF Financial has been facing challenges in controlling its non-interest expenses that have been escalating over the past few years as well as in first-quarter 2014. Though the company is focused on achieving optimized expenses through several initiatives including asset growth in lending business, branch consolidation and reduced foreclosed real estate and other credit costs, we are not confident about the extent of reflection of these factors in the second quarter.

TCF Financial’s card revenues form a significant component of total banking fee revenues. We observed that due to a decrease in the average interchange rate per transaction owing to new debit card interchange regulations, which took effect on Oct 2011, card revenues have been consistently declining since 2011. We expect continuation of such a trend to limit the company’s revenue expansion.

However, the company’s financials might get some support owing to an asset sensitive balance sheet and continuous benefit from balance sheet streamlining. Also, given the rise in home values in major markets and the ongoing recovery of the economic scenario, the company’s credit quality is expected to exhibit improvement in this quarter as well.

Activities of TCF Financial during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at 27 cents per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that TCF Financial is likely to beat the Zacks Consensus Estimate in the upcoming release. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP:  The Earnings ESP for TCF Financial is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 27 cents per share.

Zacks Rank: TCF Financial’s Zacks Rank #3 increases the predictive power of ESP.  However, we also need to have a positive ESP to be confident of an earnings surprise call.

Stocks That Warrant a Look

Here are some stocks in the finance sector you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Affiliated Managers Group Inc. (AMG) has an earnings ESP of +1.16% and carries a Zacks Rank #2. It is scheduled to report its second-quarter results on Jul 29.

The Carlyle Group LP (CG) has an earnings ESP of +4.55% and holds a Zacks Rank #3. It is expected to report its results for the quarter ended June 2014 on Jul 30.

Fortress Investment Group LLC (FIG) has an earnings ESP of +17.65% and carries a Zacks Rank #3. It is scheduled to report its second-quarter results on Jul 31.

CMS Energy Beats Q2 Earnings Estimates on Higher Revenues

Posted Thu Jul 24, 05:10 pm ET

by Zacks Equity Research

CMS Energy Corporation (CMS) reported second-quarter 2014 earnings per share of 30 cents both on an adjusted and GAAP basis. Quarterly earnings surpassed the Zacks Consensus Estimate of 26 cents by 15.4% and the year-ago number by a penny on higher revenues.

 

Operational Performance

In the quarter under review, CMS Energy’s operating revenues came in at $1,468 million, beating the Zacks Consensus Estimate of $1,382 million by 6.2%. On a year- over-year basis, revenues climbed 4.4% from $1,406 million.

The company’s operating expenses in the second quarter were $1,233 million, up around 5% year over year.

Despite the rise in operating expenses, operating income edged up 1.3% to $235 million from $232 million a year ago.

In the reported quarter, CMS Energy’s interest charges declined roughly 1% year over year to $101 million.

Financial Condition

CMS Energy had cash and cash equivalents of $0.36 billion as of Jun 30, 2014, up from $0.17 billion as of Dec 31, 2013.

As of Jun 30, 2014, total debt, capital leases and financing obligations rose to $8.03 billion from $7.88 billion as of Dec 31, 2013.

During the first half of 2014, cash from operating activities was $0.94 billion versus $1.10 billion in the year-ago comparable period.

Guidance

CMS Energy narrowed its earnings forecast for 2014 to $1.76–$1.78 per share from the previous projection of $1.74–$1.78 per share, considering the strong first half results.

The company also increased the low end of its long-term adjusted earnings growth guidance to 6%–7% from prior estimate of 5%–7%.

At the Peers

American Electric Power Co., Inc. (AEP) is slated to release its second-quarter 2014 earnings on Jul 25. The Zacks Consensus Estimate is pegged at 75 cents.

Wisconsin Energy Corp. (WEC) is slated to release its second-quarter 2014 earnings on Jul 30. The Zacks Consensus Estimate is currently at 52 cents.

Our Take

CMS Energy continues to invest in utility infrastructure as well as renewable ventures besides pursuing an inorganic growth strategy.

In the last five years, the company invested over $400 million in its electricity operations. In addition, CMS Energy is currently investing $150 million to extend its gas utility systems.

Apart from infrastructure projects, CMS Energy intends to acquire a 540 megawatt clean-burning natural gas power plant. The transaction is expected to close in 2015.

As far as renewable projects are concerned, Cross Winds Energy Park is expected to come online by this year.

The aforesaid initiatives will enable CMS Energy to meet increasing power demand and provide reliable services, besides meeting the government’s environmental mandates.

CMS Energy currently has a Zacks Rank #3 (Hold). However, a better-ranked stock in the same sector is Westar Energy, Inc. (WR), carrying a Zacks Rank #1 (Strong Buy).

Bristol-Myers (BMY) Beats on Q2 Earnings, Maintains Outlook

Posted Thu Jul 24, 05:00 pm ET

by Zacks Equity Research

Bristol-Myers Squibb Company’s (BMY) second quarter 2014 earnings (excluding special items and the diabetes business divested earlier in the year) of 46 cents per share beat the Zacks Consensus Estimate by 2 cents. Adjusted earnings in the second quarter of 2014 were 12% above the year-ago figure due to lower costs.

 


Including one-time items, Bristol-Myers’ second quarter 2014 earnings came in at 18 cents, down 37.5%. Reported earnings declined primarily due to the sale of most of its diabetes business to AstraZeneca (AZN). The divesture, excluding China, was completed in Feb 2014.

Net sales in the second quarter of 2014 (excluding revenues from the divested diabetes business) climbed 7% to $3.9 billion, driven by strong sales of drugs targeting the oncology market. Strong sales of rheumatoid arthritis drug, Orencia, also boosted the top line in the reported quarter. Revenues (including the divested business) slipped 4% to $3.9 billion. Revenues were in line with the Zacks Consensus Estimate.

The Second Quarter in Details

The company posted disappointing sales in the U.S. and international markets, where net sales declined 7% to $1.9 billion and 1% to $2.0 billion respectively.

Key cancer drugs at Bristol-Myers however performed very well in the second quarter of 2014. Leukemia drug, Sprycel, registered sales of $368 million, up 18%. Skin-cancer drug Yervoy, approved in the U.S. and EU in 2011, contributed $321 million to total revenues during the reported quarter, up 38%. Sales of another oncology drug, Erbitux, also improved during the quarter. Erbitux sales climbed 9% to $186 million in the reported quarter.

The performance of key drugs in the virology unit was disappointing. Sales of Baraclude declined 1% to $369 million. Sales of HIV treatments Reyataz and Sustiva also dropped 16% and 12% to $362 million and $361 million, respectively.

Global sales of Abilify, approved for the treatment of schizophrenia and depression, declined 1% to $555 million. The drug however performed encouragingly in the U.S. with sales climbing 10%. Sales of Orencia stood at $402 million, up 14%.

Sales of anti-clotting drug Eliquis were $171 million during the reported quarter, up 61.3% sequentially. In Mar 2014, Eliquis was approved in the U.S. for an additional indication – to bring down the risk of blood clots in patients who have undergone hip or knee replacement surgery. The drug also received a positive opinion from the EU advisory committee for the treatment of deep vein thrombosis (DVT) and pulmonary embolism (PE) and the prevention of recurrent DVT and PE in adults. Successful label expansion will boost the sales potential of the drug. Bristol-Myers has a partnership with Pfizer (PFE) on Eliquis.

Adjusted gross margin, as a percentage of net sales (excluding the diabetes business) stood at 76% in the reported quarter as against 83.4% in the comparable quarter of 2013. Adjusted marketing, selling and administrative expenses in the reported quarter were 8.9% below the year-ago figure of $1 billion. Adjusted research and development expenses for the quarter remained flat at $958 million.

2014 Earnings Outlook Maintained

Bristol-Myers continues to expect 2014 adjusted earnings in the range of $1.70–$1.80 per share. The current Zacks Consensus Estimate of $1.77 is within the company’s guidance range. The company’s 2014 revenue guidance is also maintained in the range of $15.2–$15.8 billion. The Zacks Consensus Estimate for 2014 currently stands at $15.5 billion.

Other Updates

Bristol-Myers announced that it has entered into a strategic collaboration agreement with Ono Pharmaceutical to jointly develop and commercialize several immunotherapies to help address the unmet medical needs of patients suffering from cancer in Japan, South Korea and Taiwan. The companies will also jointly develop and commercialize Opdivo and Yervoy across a broad range of tumor types.

Our Take

We are impressed by the strong sales of key drugs like Yervoy, Sprycel, Erbitux and Orencia in the second quarter of 2014. Results were also aided by lower costs.

Bristol-Myers has been trying to offset the declining sales of some of its important products by bringing in new products through in-licensing deals. We are also impressed by the company’s efforts to develop its pipeline. The company announced that it intends to file Biologics License Application for Opdivo for the previously treated advanced melanoma indication in the U.S. by Sep 30, 2014. Bristol-Myers also achieved an important regulatory milestone when the company’s Daklinza and Sunvepra dual regimen was approved in Japan for hepatitis C.

Bristol-Myers carries a Zacks Rank # 3 (Hold). A better-ranked stock in the healthcare space is Allergan Inc. (AGN) with a Zacks Rank #2 (Buy).

AmerisourceBergen Beats on Q3 Earnings & Revenues, Ups View

Posted Thu Jul 24, 04:45 pm ET

by Zacks Equity Research

AmerisourceBergen Corp. (ABC) posted earnings (excluding employee severance, LIFO expense, warrants, litigation, restructuring and acquisition costs) of $1.01 per share in the third quarter of fiscal 2014 (ended Jun  30, 2014), which beat the Zacks Consensus Estimate of 92 cents and were above the year-ago figure of 78 cents per share.

 

 

However, earnings plunged 122.2% on a reported basis due to expenses related to issuance of warrants to Walgreens (WAG) and Alliance Boots.

Revenues grew 38.5% to $30.3 billion in the third quarter of fiscal 2014. Reported revenues easily surpassed the Zacks Consensus Estimate of $29.2 billion.

Fiscal Third Quarter in Detail

The company reports results of the AmerisourceBergen Drug Corp. (ABDC) and AmerisourceBergen Specialty Group (ABSG) units under the Pharmaceutical Distribution segment. Results of the World Courier Group and AmerisourceBergen Consulting Services (ABCS) have been clubbed under the Other segment.

Revenues from the Pharmaceutical Distribution segment surged 39.0% to $29.8 billion during fiscal third quarter. Within this segment, revenues from the ABDC business increased 45.0% primarily due to the onboarding of the new branded pharmaceuticals business from Walgreens and a substantial portion of their generic pharmaceuticals business along with increased branded pharmaceutical sales to other large customers.

The ABSG unit also performed well during the quarter with revenues increasing 13% y/y. Results of the segment were driven by solid performance in blood products, vaccine and physician office distribution business.

Revenues from the Other segment were $620.3 million, up 13.0% y/y.

Gross profit (adjusted) for the quarter increased 21.2% y/y to $822.7 million. Gross profit benefited from strong revenue growth and strong performance of generic pharmaceuticals in the ABDC segment.

Operating expenses (adjusted) during the quarter grew 17.2% to $429.2 million due to the onboarding of the new business from Walgreens.

2014 Guidance Increased

AmerisourceBergen now expects earnings from continuing operations in the range of $3.89–$3.94 per share in fiscal 2014, up from the earlier estimate of $3.64–$3.74 and an increase of 21.0%–23.0% from fiscal 2013. The pre-earnings Zacks Consensus Estimate of $3.72 per share is way short of the low end of the new guidance.

AmerisourceBergen now expects revenues to grow around 35.0% y/y, up from the earlier projected range of 30.0%–34.0%. Operating margins, however, are expected to decline in high teens basis points due to the onboarding of a new lower margin business and growth in brand pharmaceutical business with some large customers.

Our Take

We are encouraged by the solid third quarter results, which beat the Zacks Consensus Estimate on both fronts driven by the onboarding of substantial new business.  The subsequent increase in guidance was impressive as well. Given the strong performance of the company so far in fiscal 2014, we believe AmerisourceBergen is all set to achieve its increased guidance. 

We remind investors that AmerisourceBergen entered into a strategic agreement with Walgreen and Alliance Boots GmbH in fiscal 2013. The agreement includes a 10-year pharmaceutical distribution contract with Walgreens and access to generic drugs and related pharmaceutical products through the Walgreens & Alliance Boots Development joint venture. We believe the distribution deal with Walgreens will positively impact results in the upcoming quarters.

AmerisourceBergen currently carries a Zacks Rank #2 (Buy).  Other stocks that look equally attractive in the broader healthcare sector include McKesson Corp. (MCK) and Pfizer (PFE), both carrying a Zacks Rank #2.

Noble Energy Beats on Q2 Earnings, Projects Modest Volumes

Posted Thu Jul 24, 04:30 pm ET

by Zacks Equity Research

Noble Energy Inc. (NBL) reported operating earnings of 87 cents per share for the second quarter of 2014, surpassing the Zacks Consensus Estimate by 10.1%. Earnings also increased 26.1% from 69 cents per share in the year-ago quarter.

The out performance reflects better sales volume and higher realized prices of products sold.
 

 

On a GAAP basis, Noble Energy's earnings were 52 cents per share versus $1.04 per share in the prior-year quarter. The variance between GAAP and pro forma earnings was due to a 52 cent loss from commodity derivatives, a 9 cent loss from asset impairments, a 12 cent gain from divestures and a 14 cent gain from income tax adjustments.

Total Revenue

Noble Energy's total revenues shot up 20.4% year over year to $1.38 billion in the second quarter. Quarterly revenues however lagged the Zacks Consensus Estimate by 1.5%.

The year-over-year upswing was attributable to a 18.9% and 17.4% increase in crude oil and condensate and natural gas sales, respectively.

Operational Results

Sales volumes in the second quarter averaged 290 thousand barrels of oil equivalent per day (MBoe/d), an increase of 14% compared to the second quarter of 2013, after adjusting for divested assets. U.S. sales volume constituted 57% of the total, while international volumes accounted for the balance.

In the U.S., Marcellus and Denver/Julesburg ("DJ") basins were yet again the prime volume drivers. Total domestic volumes in the second quarter 2014 expanded 25% year over year to 166 MBoe/d.

Noble Energy's total operating expenses during the quarter increased 8.4% year over year to $854 million due to a substantial 22.1% rise in general and administrative expenses. Operating income increased 46.5% year over year to $529 million on the back strong revenue growth.

Realized Prices

Realized oil prices in the quarter increased to $102.53 per barrel from $96.84 per barrel in the year-ago period owing to higher prices in domestic and international markets.

Natural gas realizations increased 10.1% year over year to $3.50 per thousand cubic feet (Mcf) due to strong gas prices in the U.S. and Israel.

Realized prices for natural gas liquids upped 15.3% to $34.66 per barrel from the year-ago quarter.

Financial Highlights

Noble Energy's cash and cash equivalents as of Jun 30, 2014 were $958 million versus $1,117 million as of Dec 31, 2013.

Long-term debts as of Jun 30, 2014 were $5,160 million versus $4,566 million as of Dec 31, 2013.

Discretionary cash flow for the second quarter was $887 million versus $765 million in the prior-year quarter.

Guidance

Noble Energy projects third quarter volumes in the band of 290 to 305 MBoe/d and fourth quarter volumes in the 310 to 330 MBoe/d range. The company expects second half volumes to be lower primarily due to more conservative assumptions in the DJ Basin for infrastructure capacity and timing of well tie-ins. In addition, underlifting in Equatorial Guinea and assets divesture in China will also lead to lower volumes.

Upcoming Releases

Devon Energy Corporation (DVN) is slated to release its second-quarter 2014 earnings on Aug 6. The Zacks Consensus Estimate is $1.40.

Pioneer Natural Resources Co. (PXD) is slated to release its second-quarter 2014 earnings on Aug 4. The Zacks Consensus Estimate is $1.25.

EOG Resources, Inc. (EOG) is slated to release its second-quarter 2014 results on Aug 5. The Zacks Consensus Estimate is $1.33.

Our View

We believe the long-term agreement signed by Noble Energy during the reported quarter to supply natural gas from its Leviathan and Tamar fields will further strengthen its position in the Eastern Mediterranean region.

Noble Energy currently has a Zacks Rank #3 (Hold).

Amazon (AMZN), Pandora (P) Disappoint on Q2 Earnings

Posted Thu Jul 24, 04:29 pm ET

by Mark Vickery

Both Amazon (AMZN) and Pandora (P) reported earnings after the bell Thursday, and both innovative tech firms disappointed so badly that after-market trading is taking a big chunk out of both AMZN and P shares: Amazon is trading 7.5% lower as of now, Pandora down 12%. Amazon beat the Zacks consensus estimate on the revenue side, but missed badly on the bottom line. Pandora reported in-line earnings and sales, but guidance for Q3 was below expectations.

Amazon CEO Jeff Bezos' methods of growing his company have literally nothing to do with quarterly earnings results, of course; his goal, as always, is larger and larger volume in more and more industries. Thus, 23% year-over-year growth in sales depicts the Amazon ship steady as she goes, and the company's operating cash flow reached $5.33 billion in the quarter, up 18%. However, favorable foreign exchange rates may have tweaked Amazon's revenue number higher, and analysts had been looking for 24-25% growth from Q2-13.

Beyond this, Amazon now has a plethora of tools and gadgets it's working into the marketplace, not the least of which is the Fire smartphone, which begins shipping today. It contains a host of other proprietary sensor systems like Firefly and Dynamic Perspective. If the Fire phone "gets hot" in Q3 and beyond (apologies), then perhaps Amazon might demonstrate a turnaround from its current hemorrhaging on its bottom line.

Amazon seems to be trying investors' patience right now, in fact. This earnings miss was likely the biggest we'll see this entire earnings season from one of the top stocks in the market. Currently, Amazon carries a Zacks Rank #5 (Strong Sell) on downwardly revised analyst estimates for 2014 and 2015.

Pandora upped its mobile ad revenue to 76%, but this was not enough to keep the stock from giving away all of its 4.25% gain at the close of regular Thursday trading, and then some. The company has plenty of competition in streaming music, and finding ways to more efficiently monetize has proven tough sledding for the company.

StanCorp Q2 Earnings Miss Estimates on Less Favorable Claims

Posted Thu Jul 24, 04:20 pm ET

by Zacks Equity Research

StanCorp Financial Group Inc.’s (SFG) second-quarter 2014 operating net earnings of 97 cents per share missed the Zacks Consensus Estimate by 19.2%. Earnings also declined 27.6% year over year.

Less favorable claims experience in Employee Benefits and Individual Disability largely perpetuated the underperformance.
 

 

Including after-tax net capital losses of 1 cent a share, net earnings of StanCorp came in at 96 cents per share in the second quarter, down 26.2% year over year.

Operational Update

StanCorp’s total revenue in the second quarter amounted to $701.6 million, down 2.5% year over year. This was due to lower premiums (down 3% year over year) and lower net investment income (down 2.8% year over year) that were significantly offset by higher administrative fees (up 7.2% year over year). The top line however outperformed the Zacks Consensus Estimate of $698 million.

Total benefits and expenses of StanCorp came in at $649.8 million, 1.8% higher year over year. An increase in benefits to policy holders (up 0.5%) and higher interest credited were responsible for the increase.

Segment Update

The Insurance Services business reported a pre-tax income of $32.7 million for the second quarter of 2014, down 30% year over year. The downside was due to less favorable claims experience, lower net investment income and lower premiums.

Employee Benefits premiums declined 4% year over year to $467.3 million due to lower Employee Benefits sales. However, Individual Disability insurance premiums increased 4.7% year over year to $48.9 million.

Sales from Employee Benefits decreased 36% year over year to $62.5 million in the quarter owing to competition in the large case market.

Employee Benefits benefit ratio increased 160 basis points to 80.8% while the same for Individual Disability increased 1,590 basis points to 79.3%.

The Asset Management business reported a pre-tax income of $22 million, up 6.3% year over year driven by higher administrative fees resulting from increase in assets under administration.

Assets under administration were $26.03 billion as of Jun 30, 2014, up 14% from $22.83 billion as of Jun 30, 2013. It largely reflected higher equity values and favorable cash flows for retirement plan assets under administration.

During the quarter, StanCorp Mortgage Investors actualized $372 million of commercial mortgage loans, higher than $364 million in the comparable year-ago quarter.

The Other segment registered a pre-tax loss of $10.4 million in second quarter, wider than $3.6 million loss incurred in the year-ago quarter.

Financial Update

As of Jun 30, 2014, StanCorp’s investment portfolio comprised approximately 55.3% fixed maturity securities, 40.4% commercial mortgage loans, 1.8% cash and cash equivalents, and 2.5%  real estate and other invested assets. The overall weighted-average credit rating of the fixed maturity securities portfolio assigned by Standard and Poor’s was “A-”.

As of Jun 30, 2014, cash and cash equivalents for StanCorp were $237.7 million, 37% lower than $379.3 million as of Dec 31, 2013. Long-term debt of StanCorp was $504.3 million as of Jun 30, 2014, improving from $551.9 million as of 2013 end.  

Book value per share of StanCorp as of Jun 30, 2014 was $52.66, up 11.9% from $47.04 as of Jun 30, 2013.

Share Repurchase Update

In the second quarter, StanCorp purchased 0.52 million shares for $51.3 million. This brings the year-to-date tally to 1.4 million shares repurchased for $85.9 million.

Zacks Rank

StanCorp currently carries a Zacks Rank #4 (Sell). Some better-ranked insurers include Lincoln National Corporation (LNC), MetLife, Inc. (MET) and Prudential Financial, Inc. (PRU). All these stocks carrying a Zacks Rank #2 (Buy) are scheduled to report their results in the upcoming week.

Will FEMSA (FMX) Post Disappointing Earnings This Quarter?

Posted Thu Jul 24, 04:12 pm ET

by Zacks Equity Research

Fomento Economico Mexicano, S.A.B. de C.V. (FMX), also known as FEMSA, is set to report second-quarter 2014 results on Jul 25. Last quarter, it posted a positive surprise of 66.67%. Let us see how things are shaping up for this announcement.

Factors Influencing the Upcoming Quarter

We believe FEMSA’s robust performance and initiatives to diversify its portfolio constitute its strengths. Going forward, we perceive the company’s divestment of Quimiproductos has provided it with greater financial and strategic flexibility to pursue opportunities in its core businesses. Further, the company’s efforts to diversify its product portfolio along with expansion of its convenience store chain bode well for future operating performance.

However, the company’s results could be impacted by the imposition of tax on sugary beverages by the Mexican government in order to tackle the rising obese population of the country. This may lead to significant attrition in the Mexican soda market affecting the company’s top and bottom lines.

Earnings Whispers?

Our proven model does not conclusively project FEMSA as likely to beat earnings this quarter. A stock needs to have both positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimates. However, that is not the case here due to the following factors:

Zacks ESP: ESP for FEMSA is 0.00% since the Most Accurate Estimate stands at 76 cents per share, which is in line with the Zacks Consensus Estimate.

Zacks #3 Rank (Hold): FEMSA’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings surprise call. We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into earnings announcement, especially when the company is undergoing negative estimate revisions.

Other Stocks to Consider

FEMSA is not the only firm looking up this earnings season. Our model shows that the following stocks have the right combination of elements to post an earnings beat:

Avis Budget Group Inc. (CAR) with an Earnings ESP of +3.18% and a Zacks Rank #1 (Strong Buy)

Archer Daniels Midland Co. (ADM) with an Earnings ESP of +9.33% and a Zacks Rank #2 (Buy)

Colgate-Palmolive Co. (CL) with an Earnings ESP of +1.37% and a Zacks Rank #2

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