Global equities scorecard: Beating the street

Several more of our international stocks have reported better than expected results.


Top- and bottom-line results exceeded the top end of management’s previous guidance, costs are under control (finally) and the company issued 3Q15 guidance ahead of forecasts – a combination Amazon hasn’t delivered since 1Q10.

Results were driven by all three segments – Int’l Retail & Amazon Web Services (AWS) growth accelerated meaningfully, and both AWS and North American Retail operating margins expanded meaningfully. Management’s 3Q15 guidance suggests a continuation of the strong trends seen in 2Q predicting sales growth of 13-24 per cent against a consensus of 17 per cent.

Net sales increased 20 per cent to $US23.2 billion, or 27 per cent excluding the impact of FX. Net sales in North America increased 26 per cent to $US13.8bn, a sequential acceleration, including 31 per cent growth in Electronics and General merchandise (EGM), 16 per cent growth in “Other”, and 6 per cent growth in Media Y/Y. Net sales in the International segment increased a currency-affected 3 per cent to $US7.6bn in the quarter, with a 10 per cent gain in EGM partially offset by a 12 per cent decline in Media and a 6 per cent decline in Other.

Net income was $US92 million or $US0.19/share versus a consensus of a $US0.14 a share loss. Another significant beat. Operating expenses grew but 17 per cent, another key metric going in the right direction. Spending on marketing and fulfilment was flat Y/Y.

Amazon Web Services (AWS) revenue increased 81.5 per cent vs last year to $US1.8bn in the quarter. That’s a 49 per cent sequential (q-q) gain as the business sees more demand from customers such as Netflix and Pinterest. Operating margin was 21.4 per cent versus 16 per cent a quarter earlier.

Amazon shares surged 18 per cent the next trading day giving the company a market cap of $US266bn. That makes the online retailer larger than Wal-Mart.

Dow Chemical (NYSE: DOW)

Dow reported 2Q EPS of $US0.91, compared with the street consensus of $US0.82. A nice beat. In spite of pressure from a strong dollar, Dow's volumes are continuing to rise at a decent rate, up 3 per cent Y/Y, a similar pace with 1Q. Geographically, China was strong in 2Q, with volumes up 9 per cent Y/Y and 12 per cent q-q. Volumes in Europe and the US increased 6 per cent sequentially.

Dow’s plastics business reported its highest ever profit on lower input costs (oil and propane). EBITDA upside in 2Q came from margin expansion in intermediates and commodities, as well as cost control within Corporate. The beat suggests that Dow took full advantage of lower-cost position in US ethylene and propylene derivatives (cheap propane and propylene raw materials), as well as tightness in European ethylene/PE markets. While ethylene margins in Europe are likely to soften in 2H15, cheap propane and propylene should continue to bolster Dow’s US operations in coming quarters.

In terms of general guidance (that’s all Dow gives these days) CEO Andrew Liveris said in the conference call: "We see growing momentum in construction, packaging and automotive markets outweighing some softness in agriculture and energy-related markets, and we are geographically positioned to grow where growth exists."

Surprisingly shares fell 4.5 per cent after the result possibly due to some analysts’ concern that growth may falter in the second half of 2015. I disagree.

Our transformational thesis for Dow is intact. I believe that earnings growth should actually accelerate above "normal" levels as Dow begins to harvest the major capital investments in 2016-18. DOW's portfolio is improving as it sheds commodity and noncore assets and capex will decline after a 2015 peak, allowing ongoing share buybacks.

I would be an aggressive buyer of Dow’s shares at current prices.

Proofpoint (NASDAQ: PFPT)

Proofpoint, one of our most recent recommendations, had a great quarter. The company reported 2Q15 billings of $US75.5m, 14 per cent above the street consensus estimate of $US66m and up 51 per cent Y/Y. 2Q15 billings were aided by some $US5m in early renewals in the quarter. Excluding these renewals, Proofpoint billings would have been $US71m, growing 42 per cent Y/Y – still a very strong result.

 Additionally, Proofpoint posted total revenues of $US63.5m, representing 37 per cent Y/Y growth, well above consensus estimates of $US60.9m.

Proofpoint raised its FY15 revenue guidance to $US255.5-257.5m, from $US250-252m previously, above the prior street estimate of $US253m at the midpoint. This is made even more positive by the fact that the company raised guidance in the face of an FX headwind that increased in the quarter due to a stronger US dollar (currently a 5-6 per cent headwind in FY15).

Proofpoint continues to win market share from legacy vendors such as Symantec, Cisco and McAfee in its core email security market. I see no change to this competitive dynamic in the medium term, providing a significant growth trajectory going forward.

Proofpoint’s earnings report was well received by the market with shares gaining 5 per cent in aftermarket trading.                                                                                                                                                                                                                       

Gilead  (NASDAQ: GILD)

Gilead Sciences posted strong earnings and revenue growth that beat estimates by a wide margin. 2Q EPS of $US3.15 ( 33 per cent Y/Y) was $US0.45 ahead of the consensus estimate of $US2.70 while revenues of $US8.24bn ( 26.2 per cent Y/Y) beat street estimates by a whopping $US660m. Impressive “beats”, even more impressive Y/Y growth.

Gilead also raised its forecast for the year saying product sales for the year will be $US29 billion to $US30 billion up from its previous guidance in April of $US28 billion to $US29 billion. Not a lot but Gilead is extremely conservative in guidance.

As usual Gilead’s Hepatitis C drugs provided the impressive earnings and revenue growth in the quarter. Sovaldi sales were $US1.29 billion, beating analysts’ estimates of $US969 million. Sales of Harvoni, a combination of Sovaldi and another drug called ledipasvir, were $US3.61 billion, compared with analysts’ estimates of $3.5 billion.

Gilead shares rose as much as 4.2 per cent to $US117.80 in late trading after the results were released. 

Pfizer (NYSE: PFE)

Pfizer’s earnings and revenues handily beat consensus estimates and the company raised guidance for 2H 2015.Pfizer posted Q2 EPS of $US0.56 which beat consensus by $US0.04. Revenues of $US11.9bn (-6.3 per cent Y/Y) beat by $US480m – a considerable amount.

Most of Pfizer’s main business groups all reported significant Y/Y momentum. Standouts were Global Vaccines up 44 per cent Y/Y and Global Oncology 25.1 per cent Y/Y. Consumer Healthcare was off 7.9 per cent, however.

Key products did well with Eliquis revenues nearly tripling on a global basis, and Xeljanz revenues nearly doubled. PREVNAR 13 revenue in the US increased 87 per cent, primarily due to continued strong uptake in PREVNAR 13 for adult pneumonia.

The company also said that Ibrance “continues to be well received by oncologists treating post-menopausal women with ER-positive HER2-negative advanced breast cancer. There are approximately 3,000 healthcare practitioners already prescribing Ibrance. This is up from 800 at the end of the first quarter.” Ibrance generated $US140m in the quarter.

In the giant Consumer OTC business core products like CENTRUM, ADVIL, ROBITUSSIN, EMERGEN-C, and Nexium OTC recorded strong sequential q-q growth.

Pfizer also raised guidance with total revenues now seen in a range of $US45bn -46bn from $US44bn previously and raised the forecast EPS range to $US1.38-2.07 from $US1.32-1.47. Pfizer’s shares gained 3 per cent in aftermarket trading.

Cummins (NYSE: CMI)

Cummins reported Q2 EPS of $US2.62 which beat consensus by $US0.07. Revenue of $US5.02bn ( 3.7 per cent Y/Y) beat by some $US80m. Gross margins also improved by 170bp Y/Y on ongoing supply chain initiatives and stringent cost controls.

Net income grew 6 per cent to $US471m versus $US446m in last year’s quarter.

Revenues by segment: Engines 2 per cent; Distribution 21 per cent; Components 9 per cent; Power Generation 1 per cent.

North American revenues were strong, up 12 per cent Y/Y driven by solid demand for heavy trucks and buses. Shipments to the North American heavy duty truck market exceeded 28,000 units in the second quarter. That’s an increase of 18 per cent Y/Y. Cummins also increased market share from 33 per cent to 34.5 per cent in the US market.

International sales were a currency affected -6 per cent Y/Y. As expected, Brazil sales were weak on faltering heavy truck demand but China and India managed a 6 per cent Y/Y gain.

Cummins returned $US517m to shareholders in the form of dividends and share repurchases during the quarter.

As for guidance the company still expects full year 2015 revenues to grow between 2 and 4 per cent.     

The earnings report was well received with Cummins shares advancing 3.5 per cent in regular trading to $US127.95.


LVMH reported a strong result. In fact the company reported its strongest earnings increase in three years as sales of fashion and leather goods accelerated and its drinks unit returned to growth.

Total revenue rose 19 per cent to €16.7bn ($US18.46bn) in 1H. Organic growth for the company was 6 per cent.Profit from recurring operations increased 15 per cent to €2.576bn ($US2.85bn) to top consensus estimates.

Geographically US sales were up 11 per cent, while European sales grew 12 per cent. Asia revenue fell 6 per cent hurt by sales declines in China, Macau and Hong Kong.

Revenue by business group was led by watches and jewellery ( 23 per cent) and selective retailing ( 21 per cent). The Bvlgari, Tag Heuer, and Sephora brands performed well during the period.

Fashion and leather goods sales increased at twice the pace analysts had predicted and accelerated from a 1 per cent gain in the first three months. Louis Vuitton, Celine, and Fendi were the outperforming brands.

Perfumes and cosmetics grew 6 per cent Y/Y driven in part by Dior.

Second-quarter wine and spirits sales rose 5 per cent Y/Y, rebounding from a 1 per cent drop, as US demand for Hennessy cognac compensated for weakness in China.

Guidance was positive throughout the call and profiled numerous product launches in most major areas in 2H 2015.

In concluding the conference call the CFO stated: “Our important businesses are enjoying a strong momentum. Secondly most of our markets are also showing a good momentum. This is true for the US and Europe but also for Japan which is strongly benefiting from inbound tourist flows.”

LVMH shares traded up 3 per cent to €165.80 in regular market trading on the result.

Facebook (NASDAQ: FB)

Facebook continues to deliver, posting a 39 per cent rise in second-quarter revenue.

The company reported revenue of $US4.04bn for the three-month period ended June 30, compared with $US2.91bn a year earlier. That’s slightly above consensus with analysts expecting revenue of nearly $US4bn for the quarter.

As with many “Growth now, Profits later” companies, expenses growth ( 82 per cent in 2Q) outpaced revenue growth, sending Facebook’s net income down 9.1 per cent, to $US719m, or $US0.25 per share, compared with $US791m, or $US0.30 a share, in the year-ago period. No surprise.

Still, Facebook beat on earnings excluding certain expenses, stating that it would have earned $0.50 per share. Analysts had projected earnings of $US0.47/share. That’s the ninth consecutive quarter that Facebook has beaten earnings expectations.

Facebook said the number of users who check their account at least once a month (MAU) grew to 1.49 billion ( 13 per cent Y/Y), from 1.44 billion as of March 31. Of those, Facebook said 968 million ( 17 per cent Y/Y) check in daily (DAU), up from 936 million in the first quarter.

Mobile MAUs rose 23 per cent Y/Y to 1.31 billion. Mobile-only MAUs rose 13 per cent Q/Q and 64 per cent Y/Y to 655 million (now 44 per cent of total MAUs).

Ad revenue (affected by forex) rose 43 per cent Y/Y to $US3.83bn, after growing 46 per cent in Q1. Payments/other fees revenue (hurt by lower PC gaming activity) fell 8 per cent to $US215m.

Mobile is now 76 per cent of ad revenue vs 73 per cent in Q1 and 62 per cent a year ago. North America accounted for 49 per cent of revenue. Global average revenue per user or ARPU rose to $US2.76 from $US2.50 in Q1 and $US2.24 a year ago; North American ARPU was much higher at $US9.30.

Capex remains elevated with $US549m spent. Free cash flow was $US1.33bn (slightly below net income of $US1.44bn). Facebook ended Q2 with $US14.1bn in cash/investments, and no debt.

Overall, an excellent result and shows a continuation of positive trends experienced in previous quarters. Expectations were very high going into the quarter, so the shares traded off some 2.7 per cent in aftermarket trading to $US94.27. Nevertheless, 22 analysts raised their price target on the company’s shares. Of the 52 analysts who follow Facebook the average price target now stands at $US107.32.

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