11:44 am Looking Ahead - July 24, 2017 - Existing Home Sales (SPY)
The supply of existing homes for sale is low (at lower price points anyway) while the prices of existing homes for sale are high. On Monday, market participants will get another opportunity to see if there was any change in that dynamic when the Existing Home Sales Report for June is released.
Existing Home Sales Report for June (Monday, July 24, 10:00 a.m. ET)
- Why it's important
- Existing home sales account for roughly 90% of all home sales
- This report provides important insight on the health of the housing market by way of the information it provides on first-time buyers, inventory levels, median home prices, and regional sales activity
- Real estate broker sales commissions factor into GDP computations
- Market participants are interested to see the pace of existing home sales in the face of tight supply, rising home prices, and relatively low mortgage rates
- A closer look
- Existing home sales increased 1.1% month-over-month in May to a seasonally adjusted annual rate of 5.62 million
- Total housing inventory at the end of May decreased 8.4% year-over-year with unsold inventory at a 4.2-months' supply versus the 6-months' supply typically associated with a more balanced market
- The median existing home price for all housing types was up 5.8% year-over-year to $252,800 (the 63rd consecutive month of year-over-year gains)
- The median existing single-family home price was up 6.0% to $254,600
- What's in play?
- Homebuilding stocks and related ETFs as the pace and median price of existing home sales can influence the outlook for new home demand
- Home improvement retailers
- Other real estate-related companies
- Potential beneficiaries of a pickup in existing home sales
- Index ETFs
11:23 am eBay: Earnings maybe priced in as stock retreats modestly off yesterday's all-time highs (EBAY)
Online auction and e-commerce company eBay (EBAY 36.34, -0.84) trades about 2.3% lower today as last night's mostly in-line Q2 print, guidance reaffirm and news of a buyback addition failed to impress.
As is a commonly watched metric, investors were also eyeing gross merchandise value (:GMV) growth at EBAY this period. For the quarter ended June 30, GMC was $21.5 billion, increasing 3% on an as-reported basis and 5% on a foreign exchange (:FX) neutral basis.
Looking a bit more in-depth, EBAY's Marketplace platforms delivered $20.5 billion of GMV and $1.9 billion of revenue. Marketplace GMV was up 3% on an as-reported basis and 6% on an FX-Neutral basis as the continued expansion of new user experiences and marketing efforts aided results, leading to revenue growth of 4% on an as-reported basis and 7% on an FX-Neutral basis. StubHub drove GMV of $1.0 billion, down 5%, and revenue of $236 million, up 5%, driven by a softer U.S. events landscape compared to last year, but partially offset by strong international growth. Classifieds accelerated growth in the quarter, delivering revenue of $219 million, up 6% on an as-reported basis and 11% on an FX-Neutral basis, primarily driven by healthy traffic growth and strong user engagement.
Now getting back to the results, EBAY delivered in-line earnings and revenues of $0.45 and $2.33 billion, respectively. Revenue increased 4% on an as-reported basis and 7% on an FX-neutral basis this period. Operating margins dipped slightly, with non-GAAP operating margin down to 27.3% in Q2, compared to 29.1% for the same period last year.
In Q2 EBAY added two million active buyers across its platforms, for a total of 171 million global active buyers.
Looking ahead, EBAY sees mostly in-line EPS between $0.46-0.48 for Q3 on revenues in the range of $2.35-2.39 billion. For the full year 2017, the company continues to expect net revenues between $9.3-9.5 billion for Organic FX-Neutral growth of 6% - 8%. Additionally, the company sees earnings of $1.98-2.03 for the year.
Jointly, EBAY announced its Board authorized an additioanl $3.0 billion stock repurchase program. In Q2, EBAY repurchased about $507 million in common stock.
As marketplace results continue to accelerate and EBAY's marketing campaign continues to yield results, the company should keep steadily moving along. Should GMV growth slow or interest in new buyer experiences wane, then EBAY could be in trouble. The reaction to earnings seems to suggest investors at the very least expected this result as a modest decline from yesterday's all-time highs still has the stock +21% YTD.
9:56 am Skyworks Solutions trades slightly lower despite JunQ beat; long term trends look good (SWKS)
Skyworks Solutions (SWKS) is trading modestly lower despite reporting what it appears to be a solid Q3 (Jun) earnings report and dividend increase. In case you're not familiar, Skyworks is a supplier of wireless semiconductors. The company sees as its mission to connect everything, everywhere, all the time, and it does this with its wireless connectivity products.
SWKS says it's really at the heart and the center of the mobile economy, and the mobile economy is one of the fastest growing sectors in the global economy. Companies like Apple, Google, Twitter, Facebook, Snapchat, Uber, they are all driven by the mobile economy, and that is all driven by the wireless connectivity engines that SWKS puts in multiple devices. Apple (AAPL) is its largest customer at about 40% of revenue.
Obviously, smartphones are the major part of the mobile economy, but there are billions and billions of other devices that are also connected to the Internet or that are connected through wireless engines. It's called IoT (Internet of Things) devices. SWKS uses the example when you're at the airport and watching the NBA Finals on your phone, you don't like is to see the buffering. It's all really driven by higher data speeds, more bands, stitching together bands, better single conditioning etc. SWKS provides the wireless connectivity technology via its IP and technology portfolio. It has 3G, 4G, and now is moving into 5G LTE products. It also has Wi-Fi chips, ZigBee, Bluetooth and other connectivity plays including GPS.
SWKS is very successful in mobile/smartphones, which is roughly 75% of revenue. The other 25% of its business is what it calls Broad Market and the vast majority (roughly 70%) of this segment is IoT although other areas include defense, infrastructure etc. Its Broad Market segment has grown nicely in the past few years and it's now at a $1 bln annual run rate.
The company concedes that FY16 (Sep) was a little bit of a challenging year, but it's back to double-digit top-line growth this year (FY17). SWKS has been able to expand its gross margins. A couple years ago, they were in the mid-30s, and now they are in the low 50s. SWKS is driving towards an operating margin of 40% and it's getting quite close.
As you can imagine, SWKS generates a lot of cash and has huge margins. It currently has a sustainable 30-plus percent free cash flow margin. In FY16, SWKS generated approximately $1 bln, and this year will be more than $1 bln. SWKS returns roughly 40-50% of that cash back to shareholders in terms of dividends and share buybacks. Finally, the balance sheet is in great shape with a lot of cash ($1.44 bln or $7.74/sh) and no long term debt.
Turning to the Q3 (Jun) results, non-GAAP EPS rose 27% YoY to $1.57, which was above prior guidance of approx. $1.52. Revenue rose 19.8% year/year to $900.8 mln vs prior guidance of $890 mln. In terms of guidance for Q4 (Sep), SWKS sees non-GAAP EPS of $1.75 and revenue of $980 mln. Both are above market expectations. Non-GAAP Operating margin improved to 37.0% in JunQ from 36.5% last year. In addition, SWKS upped its quarterly dividend by 14% to $0.32/sh, which computes to an annual yield of 1.2%.
On the call, SWKS said it is still in the early innings of a massive sea change as data explodes; global data usage is expected to grow 7x from 2016 to 2021. Over 3 bln people are still not connected worldwide. An analyst noted that industry sales data out of China has been a little soft and wanted management's take on that. SWKS said that China has spots of weakness, but more in 3G, the high end where SWKS operates is solid. In MarQ it was more of a challenge for SWKS but they saw improvement in JunQ. SWKS said on the call that, in Q4 (Sep), it expects broad market revenue of $250 mln, or a $1 bln annual run rate.
In sum, the stock is trading modestly lower despite the earnings beat and dividend increase. It may be that the stock had run $10 in the past month or so. So perhaps there had been hopes for a larger beat. However, the longer term drivers for the stock appear to remain in place. The upcoming iPhone 8 launch this fall could be a nice catalyst for SWKS if it's a big seller.
9:21 am Kansas City Southern Dips Despite Beating Expectations (KSU)
Kansas City Southern (KSU 103.30, -0.77) is down 0.7% in pre-market despite beating second quarter expectations.
The rail carrier reported above-consensus second quarter earnings of $1.33 per share on a 15.5% year-over-year jump in revenue to $656.40 million, which was also ahead of estimates.
The increase in revenue was driven by 6.0% growth in carload volumes to 567,100. Operating ratio increased to 63.5% from 61.3% one year ago. Operating income increased 9.0% to $239 million, which represented a quarterly record.
Looking at the revenue breakdown by commodity, Chemical & Petroleum revenue grew 13.0% to $138.80 million with carloads increasing 6.0% to 71,500. Revenue per Carload/Unit increased 7.0% to $1,941. Petroleum revenue per Carload/Unit grew 12.0% to $1,992 while Plastics revenue per Carload/Unit dipped 1.0% to $1,758.
Industrial & Consumer Products total revenue grew 9.0% to $148.60 million with carloads increasing 4.0% to 82,700. Revenue per Carload/Unit rose 5.0% to $1,797, driven by 11.0% growth in Carload/Unit revenue from Metals & Scrap.
Agriculture & Minerals revenue increased 7.0% to $123.40 million even though carloads declined 3.0% to 62,300. Revenue per Carload/Unit grew 10.0% to $1,981.
Energy revenue jumped 90.0% to $70.50 million with carloads jumping 41.0% to 69,600. Revenue per Carload/Unit spiked 35.0% to $1,013, driven by 38.0% growth in Revenue per Carload/Unit from Utility Coal.
Intermodal revenue declined 1.0% to $90.60 million while Automotive revenue rose 29.0% to $57.50 million. Automotive carloads rose 23.0% and Revenue per Carload/Unit rose 4.0% to $1,517.
9:09 am Investors See PetIQ's IPO as "The Cat's Meow" (:PETQ)
After the close last night, PetIQ's (:PETQ) up-sized 6.25 million share IPO priced at $16, the high end of the $14-$16 expected price range, raising total gross proceeds of $100 million. IPO pricings of late have been a little less firm than earlier in the year, so, the fact that PETQ was both able to increase the size of the deal and price it well is encouraging. The deal was originally expected to consist of 5.7 million shares. So, in total, the deal raised about 17% more in proceeds than expected. Shares are set to open for trading on the Nasdaq later this morning.
PETQ is a distributor and manufacturer of veterinarian-grade pet prescription medications, over-the-counter flea and tick preventatives, and health and wellness products for cats and dogs. Some of the brands it distributes include Heartgard, Frontline, and Rimadyl. Its proprietary brands include Heart Shield, PetLock, vetGuard, and PetAction.
The company has launched its products into all major retail channels, including mass, food and drug, clubs, pet specialty, online, and pharmacies. Some of its most prominent customers include Walmart (WMT), Sam's Club, Costco (COST), PetSmart, Petco, Kroger (KR), and Target (TGT). Its products are also sold at more than 40,000 retail pharmacy locations.
A key advantage that PETQ has is that pet owners can typically buy its distributed products from retailers at a 20-30% savings compared to the prices charged by veterinarians, and can save as much as 50% on its proprietary value-branded products, which contain the same active ingredients as distributed products and are subject to the same FDA and EPA approval process.
The pet industry has been strong as people are quite willing to spend handsomely on their pets. Here are some numbers that bare that out. In 2016, approximately 63.4 million U.S. households (52%) owned a cat or a dog, compared to 50% in 2008. And, according to a report by American Pet Products Association, Americans spent $81.4 billion on pet products and services in 2016, nearly triple from 2001. As for pet medications specifically, U.S. sales are projected to grow by a CAGR of 6% between 2016 and 2019.
Another tailwind for PETQ's business is that the ongoing migration of pet medication purchases from veterinarians to retail. This migration away from the veterinary channel has already begun as the estimated mass market share of the U.S. pet medication industry increased from 12% in 2011 to 21% in 2015 while the estimated veterinarian share declined from 63% in 2011 to 59% in 2015.
Taking a look at the financials, PETQ provided some preliminary Q2 results in its IPO prospectus. Net sales are expected to be $85-$87 million, representing year/year growth of 40%. The increase in sales was due primarily to sales to new customers, growing sales to existing customers and the launch of new products.
For Q2, Adjusted EBITDA is expected to be $7.1-$7.6 million, up about 80% year/year, driven by the increase in sales as well as lower G&A costs as a percentage of sales. PETQ is projecting Net Income to soar from $600K to $5.6-$6.0 million, due to the reasons stated above, in addition to improved gross margin from product mix.
As of June 30, 2017, it had approximately $1.1 million of cash and cash equivalents and approximately $37.7 million of debt outstanding.
8:26 am Visa Posts Impressive Fiscal Q3 Growth; Raises Outlook (V)
There is an understandable tendency to think Dow component Visa (V 98.11) is a financial company. After all, its name is emblazoned on billions of credit and debit cards used daily around the world. The fact of the matter, though, is that Visa is a technology company, and, like many highflying technology stocks, it is enjoying strong growth.
The company's fiscal third quarter results speak to the latter point.
For the three months ended June 30, 2017, Visa reported a 26% increase in net operating revenue of $4.6 billion, including Visa Europe which it acquired in June 2016. On a constant dollar basis, its payments volume growth was up 38% while its cross-border volume growth was up 147% or 11% inclusive of Europe in the same period a year ago.
Total Visa processed transactions surged 44% to 28.5 billion, or 13% including Europe in the prior-year results.
The increase in processed transactions is a reflection of the increased use of electronic payments, instead of cash and checks, for goods and services, as well as what the company described as economic tailwinds in the U.S. and globally.
It doesn't sound as if Visa is expecting those tailwinds to abate soon either. Its revised outlook for fiscal 2017 calls for annual net revenue growth of approximately 20% on a nominal basis, including approximately 2.0 percentage points of negative foreign currency impact, versus its prior guidance calling for the high end of the 16% to 18% range, including 2.0 to 2.5 percentage points of negative foreign currency impact.
Visa culled its guidance for client incentives as a percent of gross revenue to the 20.0% to 20.5% range from the low end of the 20.5% to 21.5% range. It expects to leverage that improvement into higher earnings per share growth.
Specifically, Visa anticipates diluted class A common stock earnings per share growth to be low double-digits on a GAAP nominal dollar basis for fiscal 2017 and approximately 20% on an adjusted, non-GAAP nominal dollar basis, both including approximately 2.5 percentage points of foreign currency impact, versus prior guidance for high single-digits on a GAAP basis and the high end of mid-teens on a non-GAAP basis, including 2.5 to 3.0 percentage points of negative foreign currency impact.
The non-GAAP guidance, Visa said, is derived from adjusted full-year 2016 earnings per diluted share of $2.84.
In its fiscal third quarter, Visa reported earnings per diluted share of $0.86 on a GAAP basis.
Shares of Visa, which are up 25.8% year-to-date, are up 0.5% in pre-market trading. That's a modest response to strong results and encouraging guidance, yet it belies the fact that this technology growth stock has increased 5.2% over the last 10 sessions, suggesting its investors had been expecting to hear such good news.