12:36 pm Looking Ahead - June 26, 2017 - Durable Goods Orders Report (:ECONX)
Growth forecasts for the second quarter have been fading, which is one reason why economists and market participants will be keeping a close eye on the Durable Goods Orders Report on Monday.
Durable Goods Orders Report for May (Monday, June 26, at 8:30 a.m. ET)
- Why it's important
- It sheds light on business activity for U.S. manufacturers
- It enables economists and investors to develop a sense of business spending levels
- The relevant line item in the report is new orders for nondefense capital goods, excluding aircraft
- Durable orders can be volatile due to aircraft orders. Accordingly, the underlying impression of manufacturing activity flows out of the level of new durable goods orders, excluding transportation.
- This report will factor into second quarter GDP computations
- The relevant line item in the report pertaining to the GDP outlook is shipments of nondefense capital goods, excluding aircraft
- A positive surprise would help boost economic sentiment, whereas a negative surprise would pique concerns about the pace of business activity in the second quarter
- Durable goods orders will be a focal point for the Federal Reserve in its assessment of business investment activity
- A closer look
- Total orders declined 0.7% in April following four straight monthly increases. Excluding transportation, durable orders declined 0.4%
- Nondefense capital goods orders excluding aircraft -- a proxy for business spending -- were flat for the second straight month in April. Shipments of these goods were down 0.1%.
- What's in play?
11:01 am Synchronoss Tech shareholder Siris Capital Group conveys takeover interest at $18/share (SNCR)
In an amended filing from this morning, Synchronoss Tech (SNCR 16.63, +4.45 +36.5%) shareholder Siris Capital Group affirmed its 12.93% active stake in the company as well as delivering a letter to management indicating their belief that Siris could acquire SNCR for an all-cash deal at $18.00 per share.
The offer comes only a few months after Siris disclosed an active stake in SNCR. On May 5, 2017 Siris announced a 12.93% active stake in SNCR at the same time it was looking to engage in talks for a potential transaction.
Part of the aforementioned letter read, 'Based on meetings with management and certain confidential information received under NDA, we believe we could be in a position to deliver compelling and certain value to Synchronoss shareholders through an all-cash acquisition at $18.00 per share, which would represent an attractive 69% premium to the Company's closing stock price of $10.65 on June 21, 2017. Our proposal is subject to customary due diligence, including a review of outstanding shareholder litigation and Synchronoss's financial statements, as well as the negotiation and execution of a transaction agreement acceptable to you and us.'
Siris went on to say that it is prepared to make good on the intent in the letter within six weeks. Siris also mentioned it has engaged legal counsel, and gave indications it could engage financial and accounting advisors should the deal come to fruition.
Then, moments ago SNCR announced the company did in fact receive takeover interest from Siris and stated that it will review the offer.
The news of the deal comes a day after SNCR provided a corporate update on its business as well as proposing an amendment to its senior credit facility. Among the highlights of that presentation, management noted that the Q1 revenue miss was mostly due to new opportunity in the enterprise business with a core customer that did not develop in the period. The company still holds meaningful deals with the likes of Verizon (VZ) and AT&T (T).
9:46 am Bed Bath & Beyond under pressure on MayQ results; online competition hurting foot traffic (BBBY)
Bed Bath & Beyond (BBBY), the home furnishings giant, is trading down sharply this morning (-12%) after reporting Q1 (May) earnings results after the close yesterday.
Everyone is familiar with Bed Bath & Beyond (BBBY), but some details are probably not well known. The company operates a chain of retail stores under the names Bed Bath & Beyond in the US and Canada. It also operates other chains, including Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, Harmon, Harmon Face Values or Face Values, buybuy BABY and World Market, Cost Plus World Market or Cost Plus.
In addition, the company operates Of a Kind, an e-commerce website that features limited edition items from emerging fashion and home designers; One Kings Lane (acquired in June 2016), an authority in home dcor and design, offering a unique collection of select home goods, designer and vintage items; PersonalizationMall.com, an online retailer of personalized products; Chef Central, an online retailer catering to cooking enthusiasts; and Decorist, an online interior design platform that provides personalized home design services.
The company also operates Linen Holdings, a provider of a variety of textile products serving the hospitality, cruise line, healthcare and other industries. Additionally, the company is a partner in a joint venture which operates retail stores in Mexico under the name Bed Bath & Beyond. BBBY currently has a total of 1,546 stores, including 1,022 Bed Bath & Beyond stores, 276 stores under the names of World Market, Cost Plus World Market or Cost Plus, 113 buybuy BABY stores, 80 stores under Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, and 55 stores under the names Harmon, Harmon Face Values or Face Values.
Just a word on One Kings Lane, which is an online retailer of furniture, home goods, designer and vintage items. One Kings Lane operates using a flash sales model where items on heavily discounted for a limited time. They also offer complimentary interior design services at two design studios located in San Francisco and New York. BBBY sees One Kings Lane as serving as a cornerstone for Bed Bath & Beyond's growing offerings in furniture and home dcor.
Turning to the AugQ results, Bed Bath & Beyond reported non-GAAP EPS of $0.58, which was a good bit below expectations while revenue was roughly flat, up 0.1% YoY to $2.74 bln, which was also a bit shy of expectations. MayQ same store comps came in at -2.0% vs -0.5% last year and vs +0.4% in Q4 (Feb). Comps from customer-facing digital channels were in excess of 20%, while comps from stores declined in the mid-single-digit percentage range during MayQ.
In terms of guidance, the company said that, at this time, it's not updating its full year modeling assumptions provided during its April 5 conference call. Although Q1 (May) is typically the least impactful quarter in terms of annual sales and earnings, and while the company continued to have strong growth in its customer-facing-digital channels this quarter, the company says it did experience increased softness in transactions in stores, as well as higher net-direct-to-customer shipping expense, coupon expense, and advertising costs during the quarter.
BBBY says it remains to be seen whether these challenges were more pronounced in, or unique to, Q1 (May) due to the smaller sales base in this period, and/or a later start to the summer selling period. After Q2 (Aug), co believes it will have better visibility to the full-year and, if necessary, will update its full-year modeling assumptions at that time.
On the call, management talked about its challenges in terms of declining foot traffic in stores and the opportunities presented by omni-channel retailing. In terms of BBBY's efforts to boost its digital/online channels, both web and mobile, results continue to grow at a very healthy pace, driven in part by a customer experience that keeps getting better. BBBY has been adding to its online product assortment and service offerings, improving its content to be more inspirational, making enhancements to search and navigation, and creating a more frictionless check-out experience.
In terms of its brick-and-mortar stores, BBBY is always working to optimize the profitability of its real estate portfolio. The pace of its store openings has slowed, and BBBY has increased the number of store closings over the past several years. And as leases come up for renewal, if the company cannot reach acceptable terms with landlords, it would expect the pace of store closings to increase. At the same time, BBBY is making investments to evolve and improve existing store formats, enhance omni-channel services, integrate technology tools, and create a more experiential shopping environment in its physical stores.
In merchandising, BBBY has many initiatives underway that support its objective to be viewed as the expert for the home and heartfelt life events. For example, it's increasing its online offering on the Bed Bath & Beyond website, and specifically increased its offering of personalized products by leveraging its recently acquired capabilities from PMall. These newer items are resonating well with customers and BBBY will continue to add to the mix of product it offers. Other merchandising initiatives include an expanded window room offering, a tabletop makeover, a virtual bedding initiative, and a life-stage focus on college. The idea is to create differentiation for BBBY from other retailers.
In sum, investors are not too happy with BBBY's MayQ results/comps and they are probably a little concerned that management decided not to update its full year modeling assumptions. Online competition is a real conundrum for BBBY and its stock price has suffered. After trading near $80 in early 2015, the stock is now in the $30 range and has been steadily declining for months. It's good to see the company beefing up its online offering but they are still being greatly impacted by online competition and BBBY will remain primarily brick-and-mortar. It's not clear how much they can do to stem this tide.
The good news is that, during the Q&A on the call, management said that the first three weeks of Q2 (Aug) is tracking better or slightly better than last quarter. Sales in AugQ have been generally in-line with what the company had anticipated when it provided guidance back in April. But it's still very early in the quarter, so don't read too much into it. Also, keep in mind that Q1 (May) is always BBBY's weakest, and probably least important, quarter for the year. Hopefully, there are signs of improvement in Q2 (Aug). On a final note, keep an eye on home dcor peers: HOME, PIR, WSM, KIRK, W, ETH, RH, TCS, SHOS, HOFT.
9:26 am Granite Point Mortgage Prices IPO Slightly Below Expectations (GPMT)
Earlier this morning, Granite Point Mortgage (GPMT) priced its 10.0 million share IPO at $19.50, which is below the $20-$21 expected price range. In total, the deal generated $195.0 million in gross proceeds, which it plans to use to originate senior commercial loans and other debt for commercial real estate investments. Shortly after the open, shares of GPMT are set to open for trading on the NYSE.
GPMT is a REIT that focuses primarily on directly originating, investing in and managing senior floating-rate commercial mortgage loans and other debt and debt-like commercial real estate investments. It was formed to continue and expand the commercial real estate lending business established by Two Harbors Investment Corp (TWO), a publicly traded hybrid mortgage real estate investment trust. In 1Q15, Two Harbors established its commercial real estate lending business, which it conducts through TH Commercial Holdings and its subsidiaries, which, collectively, is GPMT's predecessor.
GPMT will be externally managed by Pine River Capital Management, or PRCM, by the team that currently manages the commercial real estate lending business for Two Harbors. PRCM is an asset management firm and SEC registered investment adviser with approximately $9 billion of assets under management as of June 1, 2017.
Its initial portfolio consists of its Predecessor's portfolio, that as of March 31, 2017 consisted of 41 commercial real estate debt investments with a principal balance of $1.6 billion, with an additional $181.9 million of potential future funding obligations. Also, its initial portfolio consists of five additional floating-rate senior commercial mortgage loans with a principal balance of approximately $177 million, with an additional $50 million of potential future funding obligations that it has closed since March 31, 2017.
Its primary target investments are directly originated floating-rate performing senior commercial real estate loans, typically with terms of three to five years, usually ranging in size from $25-$150 million. GPMT typically provides intermediate-term bridge or transitional financing for a variety of purposes, including acquisitions, recapitalizations, refinancings and a range of business plans, including lease-up, renovation, repositioning and repurposing of the property. Also, it generally targets the top 25, and up to the top 50, metropolitan statistical areas in the United States.
For the three months ended March 31, 2017, GPMT generated $17.7 million in net interest income, up about 78% year/year. This was largely driven by interest income generated from commercial real estate assets, which more than doubled to $23.6 million. Net income surged by 128% year/year to $13.5 million. Looking at the balance sheet, GPMT held $1.55 billion in commercial real estate assets as of March 31, 2017. It carries long term notes payable of $609.7 million.
As a REIT, GPMT is required to distribute at least 90% of its taxable income each year. The company states in its prospectus that it generally intends to pay quarterly distributions in an amount equal to its taxable income.
9:16 am Finish Line Little Changed After In-Line Quarter (FINL)
Finish Line (FINL 12.79, +0.06) has added 0.5% after reporting in-line results and reaffirming its guidance.
The footwear retailer reported in-line first quarter earnings of $0.23 per share on revenue of $429.80 million, which was unchanged year-over-year.
Comparable store sales declined 1.1% year-over-year while sales at Macy's (M 22.09) jumped 13.6% year-over-year.
Finish Line CEO Sam Sato said the company ran into some unanticipated headwinds towards the end of the quarter. Comparable sales during March and April increased in the low single digits, but weak traffic trends and a difficult product launch comparison in May reduced the comparable sales growth rate for the quarter. Looking to offset the pressure, the company engaged in disciplined expense management.
Consolidated merchandise inventories grew 5.1% year-over-year to $341.4 million. Finish Like repurchased 250,000 shares of its common stock during the quarter and it is authorized to repurchase 4.5 million more shares under the current authorization.
Looking ahead, Finish Line expects that earnings for the full year will be between $1.12 and $1.23 per share. The company expects that comparable store sales will be up in the low single digits.
Despite today's pre-market uptick, shares of Finish Line are set to begin the day not far above this year's low of $12.25, which was recorded on Wednesday.
8:46 am BlackBerry Pulls Back After Mixed Results (BBRY)
BlackBerry (BBRY 10.43, -0.63) has slid 5.7% after reporting mixed results for the first quarter.
The Canadian technology company reported above-consensus first quarter earnings of $0.02 per share on a 42.5% year-over-year drop in revenue to $244 million, which was shy of market expectations. Hoping to offset the impact of the revenue miss, BlackBerry announced it will repurchase up to 31 million shares of its common stock, which amounts to about 6.4% of the outstanding public float.
While BlackBerry's revenue miss has weighed on shares, it is worth pointing out that the company has now beat bottom-line expectations for seven consecutive quarters. During this stretch, shares of BlackBerry have bounced around a narrow range just above their 2013 low of $5.44.
The stock has had a strong showing so far this year, having jumped more than 50.0% since the end of 2016. The rally has been supported by BlackBerry's turnaround efforts, which have included the ongoing development of autonomous driving software.
BlackBerry had more than 3,000 orders from enterprise customers during the first quarter. Software and services revenue totaled $169 million, and 79.0% of that total was recurring. Enterprise software and services revenue grew 12.2% year-over-year to $92 million.
BlackBerry's geographical revenue breakdown showed a continued shift towards more sales in the Asia-Pacific region, where sales amounted to $34 million, representing 14.5% of total sales. This was up from 11.2% of sales during the previous quarter and 11.8% of sales one year ago.
Looking ahead, the company has not made any changes to its outlook for the full year, expecting software and services revenue will at least keep up with the market growth rate. The company expects to be profitable on a non-GAAP basis for the full year, when excluding the benefit of the Qualcomm arbitration award.
8:16 am No Sonic Boom in Fiscal Third Quarter Results and Outlook (SONC)
Sonic (SONC 27.50) is the nation's largest drive-in restaurant chain and the objective facts of its fiscal third quarter earnings report indicate customers aren't driving in as much as the company would like. To wit, system same-store sales declined 1.2%, driven by a 1.1% same-store sales decrease at franchise drive-ins and a 3.2% decrease at company drive-ins.
The company's performance was improved from the first half of the fiscal year, Sonic said, as it was able to benefit from a more balanced promotional calendar. Company drive-in margins increased by 40 basis points; nonetheless, its adjusted net income decreased 13%.
Sonic was active with its share buyback program during the period, which helps explain why its adjusted net income per diluted share of $0.43 was flat in the face of a 13% drop in adjusted net income.
There was an acknowledgment in the press release that traffic continues to be sluggish, and while Sonic is striving to improve its same-store sales, it doesn't sound as if the company is anticipating a sea-change in traffic patterns anytime soon. Increased competition from the likes of McDonald's (MCD 154.80) could be playing a part there, yet the sum effects of its operational challenges are reflected in its same-store sales outlook.
For fiscal 2017, Sonic expects an approximate 2.5% same-store sales decline for the system, which is a reduction from the prior guidance provided in March for system same-store sales to be flat to down 2.0%. Sonic reiterated that it expects adjusted earnings per share for fiscal 2017 to decline 2% to 5% year-over-year.
At its current price, SONC trades at roughly 20x estimated fiscal 2018 earnings. The stock has declined 9.4% over the last 52 weeks, although it is up 3.7% year-to-date, compared to MCD, which is up 28% over the last 52 weeks and up 27.2% year-to-date.