10:31 am Philadelphia Fed Index Points to Acceleration
Manufacturing activity in the Philadelphia region unexpectedly accelerated in December. The Philadelphia Fed's Business Outlook Survey increased to 7.0 in December from 6.5 in November. The Briefing.com consensus expected the index to fall to 5.0. New orders demand strengthened as the relative index increased to 15.4 in December from 11.8 in November. That gain helped production levels accelerate. The Shipments Index rose to 13.3 from 5.6. A disruption in new orders growth could have an outsized effect on future shipments. The level of unfilled orders contracted at a faster rate in December as the related index fell to -5.0 from -4.2 in November.
The employment numbers generally improved. The Number of Employees Index rose to 2.2 in December from 1.1 in November. Meanwhile, the Average Employee Workweek ended a contraction, increasing to 6.8 from -8.6. 10:22
7:53 am Facebook shares fall 3% following common stock offering
- Co announced that it is commencing an underwritten registered public offering of 70 mln shares of its Class A common stock. A total of 27,004,761 shares are being offered by Facebook, and a total of 42,995,239 shares are being offered by certain selling stockholders, including 41,350,000 shares offered by Mark Zuckerberg.
- Co intends to use the net proceeds of the offering for working capital and other general corporate purposes. Co will not receive any proceeds from the sale of shares by the selling stockholders. Co expects that the majority of the net proceeds Mr. Zuckerberg will receive upon the sale of shares in the offering will be used to satisfy taxes that he will incur in connection with his exercise, in full, of an outstanding stock option to purchase 60 mln shares of Class B common stock.
- J.P. Morgan, BofA Merrill Lynch, Morgan Stanley and Barclays are serving as joint bookrunners for the offering. BNP Paribas, Citigroup, RBC Capital Markets, Credit Suisse, HSBC, Standard Chartered and Piper Jaffray are serving as co-managers for the offering.
7:50 am Darden shares fall 2% following downside guidance; news of planned Red Lobster seperation
Darden Restaurants (DRI) reported second quarter earnings of $0.20 per share, excluding non-recurring items, which is line with expectations, while revenues rose 4.6% year/year to $2.05 billion which is line with estimates.
- U.S. same-restaurant sales increased 5.0% at LongHorn Steakhouse, declined 0.6% at Olive Garden and declined 4.5% at Red Lobster. The co estimates that a shift in the Thanksgiving holiday week favorably affected second quarter same-restaurants sales by approximately 90 basis points at its large brands. The Thanksgiving holiday week, traditionally a low sales period, was in the Company's fiscal second quarter last year but shifted to its fiscal third quarter this year.
- The company issued guidance for -15 to -20% to approximately $2.50-2.66 (from -3 to -5%) which is below estimates.
- These expectations reflect the Company's projection that combined U.S. same-restaurant sales growth for Red Lobster, Olive Garden and LongHorn Steakhouse this fiscal year will be -1% to -2% (down from flat). This is below the 0% to 2% the Company anticipated previously, with the change in expectations due largely to a meaningful downward adjustment in the forecast of same-restaurant sales results at Red Lobster. The co believes the adjustment is appropriate given Red Lobster's first and second quarter results and the potential effect of efforts during the second half of the year to complete the spin-off of the brand. Current earnings expectations for the year also reflect the opening of ~75 net new restaurants, five fewer restaurants than previously anticipated, the net impact of the Sept support expense reduction efforts, as well as the legal, financial advisory and other costs incurred in the second quarter in connection with the co's strategic review and related actions. The earnings forecast for fiscal year 2014 does not include costs the co is likely to incur in the third and fourth quarters in connection with the separation of Red Lobster and other strategic actions announced today.
- The company also announced that its Board of Directors has approved a comprehensive plan to enhance shareholder value, address changing industry dynamics in the casual dining sector and leverage the benefits of the co's position as the premier casual dining restaurant co. The elements of this comprehensive plan include the following: eparate the co's Red Lobster business: Although no final decision has been made on the form of the separation, the co expects to execute a tax-free spin-off of Red Lobster to its shareholders, but may also consider a sale of the Red Lobster business. Reduce unit growth, lower capital expenditures and forgo acquisitions: The reduction in new unit expansion will come primarily from suspending new unit growth at Olive Garden and more limited new unit growth at LongHorn Steakhouse, with new unit growth at the Specialty Restaurant Group continuing at a pace modestly below this year's level. The reduced unit growth will lower capital spending by at least $100 mln annually.
- In addition, the co has determined to forgo acquisitions of additional brands for the foreseeable future. Increase cost savings: Through aggressive operating support cost management, the co now expects the cost reduction efforts announced in Sep to result in savings of at least $60 mln annually beginning in its fiscal year 2015, which starts May 26, 2014. This represents a $10 mln increase over the $50 mln previously projected.
- The co will continue to focus on enhanced cost efficiencies as it moves through the separation process. Increase return of capital to shareholders: The increased cash flow from reductions in capital spending and operating support expenses will be redirected to support dividends, share repurchase and strengthening of the co's credit profile. Consistent with its long-standing commitment to return capital to shareholders, Darden has returned over $1.3 bln to shareholders through share repurchases and dividends over the past three years. The co expects to announce additional details on its share repurchase program as the separation plans are finalized.
- It is the co's intention that, on a combined basis, Darden and Red Lobster will maintain Darden's current quarterly dividend of $0.55 per share following the separation. Refine compensation and incentive programs: To ensure strong alignment behind the co's strategic direction, the co's Board of Directors intends to refine compensation and incentive programs for senior management to more directly emphasize same-restaurant sales growth and free cash flow.
7:33 am Alimera Sciences soar 84% following news that company and FDA entered into labeling discussions
Alimera Sciences (ALIM $4.70 +2.15) announced that it has entered into labeling discussions with the FDA for ILUVIEN and, as a result, reached an agreement with the FDA that Alimera's participation in the January 2014 Dermatologic and Ophthalmic Advisory Committee meeting was no longer necessary.
Alimera will focus instead on drafting its response to the Complete Response Letter (CRL) received from the FDA in Oct 2013 with a goal of submitting the response in the first quarter of 2014. In its response, Alimera intends to address concerns the FDA raised regarding the facility at which ILUVIEN is manufactured.
In addition, Alimera expects to provide a safety update on ILUVIEN, which will include data from ILUVIEN patients and from physician experience with the applicator in the United Kingdom (U.K.) and Germany, where ILUVIEN is currently commercially available. The FDA has indicated that Alimera will not be required to conduct any new clinical trials in connection with the FDA's review of ILUVIEN prior to approval.
7:31 am AK Steel shares rise 7% following upside EPS guidance
AK Steel (AKS $6.78 +0.46) provided guidance for Q4 of 2013 financial results. AK Steel said it expects to realize net income of $0.02-0.06 per diluted share of common stock, excluding the effects of a potential non-cash income tax benefit related to pension and other post-retirement benefit gains, which are ahead of estimates. Shipment AK Steel expects shipments of ~1,400,000 tons in Q4 of 2013 compared to shipments of 1,242,400 tons in Q3 of 2013, an increase of ~13%.
- AK Steel said that the co has seen stronger demand in Q4 compared to Q3, particularly in carbon sales to the spot market. Additionally, the expected increase in shipments from Q3 reflects the co's recovery from the previously disclosed unplanned Middletown Works blast furnace outage. Pricing: The company expects its average selling price for Q4 of 2013 to decrease ~4% from its average selling price of $1,071 per ton for Q3 of 2013.
- The expected decrease in average selling price from Q3 is primarily due to a lower proportion of value-added shipments to the spot market in Q4. Production Costs: The company said that it expects to incur lower production costs in Q4 primarily as a result of lower costs for iron ore pellets.
- Additionally, the co expects total planned maintenance outage costs to be about $2 mln in Q4, compared to $4.2 mln incurred in Q3. Unplanned Blast Furnace Outage Effect and Insurance Recovery The company projects expense for Q4 of ~$5 mln related to the Middletown Works unplanned blast furnace outage, net of insurance recoveries.
- As previously disclosed, the co's losses attributable to the unplanned blast furnace outage are partially covered by property damage and business interruption insurance. The co continues to work with its insurance underwriters on the claim.
7:30 am Oracle shares rise 2% following beat on earnings
Oracle (ORCL $35.25 +0.63) reported second quarter earnings of $0.69 per share, excluding non-recurring items, which is better than expected, while revenues rose 1.9% year/year to $9.28 billion which is higher than expected.
New software licenses revenue -1% to $2.4 billion. Non-GAAP software license updates and product support revenues were up 6% to $4.5 billion. Hardware revenue of $714 million,. Hardware Systems revenues, including hardware systems products and hardware systems support, were unchanged at $1.3 billion. Non-GAAP operating income was down 1% at $4.2 billion, and the non-GAAP operating margin was 46%.
"We're very pleased with our results as new software license and cloud software subscription revenue grew 1% in constant currency over the 18% growth reported last year. Software revenue grew 5% helping drive our tremendous cash flow and for the first time ever, we generated more than $15 billion in operating cash flow over four quarters. Our hardware business, including support, grew 2% in constant currency this quarter driven by double-digit revenue growth in Exadata, Exalogic and Exalytics.
The SPARC SuperCluster and Big Data Appliance were even better, with triple-digit growth and we expect hardware products will show growth next quarter. Our billion dollar SaaS business delivered overall bookings growth of 35% in the quarter."
Guidance on call: The company sees Q3 EPS of $0.68-0.73 which is line with estimates. The company also sees total revenue growth of 2-6% which is line with estimates. It sees Q3 new software license and cloud rev growth of +1% to +11% in reported dollars. It finally sees Q3 hardware product rev growth -2% to +8% in reported dollars.
7:28 am Paychex shares rise 2% following higher than expected earnings
Paychex (PAYX $44.40 +0.88) reported second quarter of $0.43 per share, which is higher than expected, while revenues rose 7.2% year/year to $610.5 million which is higher than expected. Payroll service revenue was $395.7 mln for the second quarter, an increase of 5% compared to the same period last year. This increase was driven by growth in checks per payroll and revenue per check. "We are pleased with our progress in the second quarter of fiscal 2014.
The rate of growth in our Payroll service revenue accelerated to 5% and Human Resource Services revenue growth continued to advance at a double-digit rate. Sales execution remained strong, particularly in core payroll and in Human Resource Services. We continue to deliver client satisfaction and client retention at record levels."
The company sees net income growth of 8-9% for FY14. Operating income, net of certain items, as a percent of total service revenue is expected to be approximately 38% for fiscal 2014.
The effective income tax rate for fiscal 2014 is expected to be in the range of 36% to 37%. Net income growth for fiscal 2014 is expected to benefit from a strong comparison in the fourth quarter as a result of the impact of the settlement of a state income tax matter in fiscal 2013, which reduced diluted earnings per share by ~$0.04 per share. This settlement is not expected to have an impact on the effective income tax rate for fiscal 2014.
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