EARNING UPDATE $PAYX Paychex, Inc. for quarter ending q_Aug18 – Revenue fell but Margins expanded

[s2If !current_user_can(access_s2member_level0)]Please login to read the earning update on PAYX [lwa][/s2If][s2If current_user_can(access_s2member_level0)]Paychex, Inc. reported earnings (EPS) of 0.67 per share for the quarter ending q_Aug18. This is vis-vis 0.63 per share for the previous quarter ending q_May18, a growth of 6.3 %. Compared to last year same quarter (q_Aug17), earnings grew from…

#PAYX Earning declared EPS = 0.67 vs estimate= 0.65 for Q1/19 #sym #spy #earnings #markets

Earning released for PAYX: Actual EPS = 0.67 per share Estimate = 0.65 per share

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PAYX report:

The mean EPS over the last 16 releases is 0.5 per share. The current EPS at 0.67 per share is above the average EPS of the last 16 quarterly earning releases.

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PAYX Fundamental Score = Click…

EARNING UPDATE $PAYX Paychex, Inc. for quarter ending q_May18 – Revenue rose but Margins contracted

[s2If !current_user_can(access_s2member_level0)]Please login to read the earning update on PAYX [lwa][/s2If][s2If current_user_can(access_s2member_level0)]Paychex, Inc. reported earnings (EPS) of 0.63 per share for the quarter ending q_May18. This is vis-vis 0.72 per share for the previous quarter ending q_Feb18, a decline of 12.5 %. Compared to last year same quarter (q_May17), earnings grew…

It’s a light week with the holiday season approaching, but these four S&P 500 names are still reporting their latest quarterly results!

Paychex Inc. (PAYX)

Information Technology - IT Services | Reports December 22, before the open

Similar to last quarter, we head into Paychex’s report with both Estimize and Wall Street expecting EPS of $0.51. Revenues estimates from the Estimize community are only slightly higher at $726.2M as compared to the Street’s $724.2M.

What to watch: Paychex is a provider of payroll and human resource solutions and is often seen as a proxy for the health of small and mid-sized businesses as those are their biggest customers. Small businesses make up 95% of all US businesses, and the road back from the great recession has been rough, with growth trends still slow but gradually improving. A stronger labor market has no doubt helped the company as has their move into cloud-based solutions. The success of their services that help clients understand the Patient Protection and Affordable Care Act should also give a boost to quarterly earnings. However, massive competition still remains from smaller, cloud-based applications such as those offered by Trinet and Zenefits. Another headwind could be interest rates which are now above zero for the first time since 2008. The impact rate tightening has on small businesses could negatively affect Paychex’s sales.

ConAgra Foods (CAG)

Consumer Staples - Food Products | Reports December 22, before the open

The Estimize consensus calls for EPS of $0.59, in-line with Wall Street. However, the Estimize community is expecting slightly higher revenues of $3.42B as compared to the Street’s $3.39B.

What to watch: Earlier in the year ConAgra faced issues with their product mix and as a result has been taking actions to streamline their portfolio of offerings, especially as products such as cereals and snacks have begun to wane in popularity. Like many of their competitors, ConAgra is introducing new products, typically in the natural and organic food categories in order to keep up with customer demand for healthier options.The food products company has also been focused on reducing expenses and diversifying their mix of prices to drive profits. General Mills has been undertaking similar cost cutting endeavors, including a large workforce reduction, but the benefits of those efforts haven’t been seen yet as the company missed estimates both on the top and bottom-line when they reported last week. ConAgra’s stock has done markedly better than General Mill’s in 2015, up 12% YTD as compared to 5% for GIS.

Nike (NKE)

Consumer Discretionary - Textiles, Apparel & Luxury Goods | Reports December 22, after the close

The Estimize consensus calls for EPS of $0.89, a decent clip higher than Wall Street’s estimate of $0.85. Revenues are expected to come in at $7.84B above the Street’s estimate of $7.79B.

What to watch: Despite its size and market share, Nike still manages to post above average growth rates, driven by a strong global reach, ongoing product innovation and an expanding direct to consumer (DTC) business. International markets have consistently generated more than half of all Nike’s sales in any year. While many American companies have suffered in 2015 due to the strong U.S., robust demand for Nike’s products have helped them overcome any currency headwinds. Global margins remain unaffected, offset by rising average shoe prices, Nike’s direct to consumer strategy and greater operational efficiencies. In China, Nike is expected to revitalize growth supported by a greater demand for active wear. Despite China’s economic woes, Nike has performed remarkably well and saw revenue increase 30% last quarter. That being said, Nike also expects to remain strong in Europe amidst a deceleration in soccer sales. Key sectors such as running, cross-training and basketball are expected to keep the company modest as they amplify their direct to consumer and merchandising. Given how well Nike performs on the global stage, the upcoming Eurocup and summer Olympics will help propel the company amid concerns of slowing growth.

Micron Technology (MU)

Information Technology - Semiconductors | Reports December 22, after the close

The Estimize consensus calls for EPS of $0.32, much higher than Wall Street’s estimate of $0.23. Revenues are expected to come in at $3.63B above the Street’s estimate of $3.49B. Micron has provided revenue guidance for the past quarters, but has ceased to do so for FQ1 2016, perhaps because they missed expectations in each of those quarters.

What to watch: Semiconductors have struggled this year with the strength of the US dollar and the freefall of the PC market eating into the bottom-line. However, Micron was surprisingly able to keep EPS figures afloat in the first and second quarter of their fiscal 2015, a trend that all came crashing down in the second half of the year. Both the top and bottom-line recorded substantial misses in Q3 and Q4, and YoY growth was negative. Competitors such as Intel and SanDisk also posted big misses in the second calendar quarter, but were able to rebound in CQ3. Micron has done a monstrously poor job in the past with its Japanese yen hedging, and after lacking an official CFO in the beginning of the year, appointed Ernie Maddock to the position in May to lead the charge on protecting foreign sales from currency swings. While the strength of the US dollar remains a concern, as does the decline in PC sales. Micron remains very exposed to PCs as DRAM is its largest business with about 70% of the consolidated revenue, and PC is about 35% of that. Micron's largest market on the NAND side is also PC centric, it supplies 20-30% of those bits to its consumer solid state drives. Year-to-date the stock is down 60%.

Before you head off for the holidays, get you estimates in for these companies here!

Tuesday, September 29

Wednesday, September 30

Thursday, October 1

Costco Wholesale (COST)

Consumer Staples - Food & Staples Retailing | Reports September 29, before the open

The Estimize consensus calls for EPS of $1.67, a penny higher than Wall Street. The Estimize community is also expecting higher revenues of $36.64B vs. the Street’s expectation for $36.28B.

What to watch: Same store sales (SSS), while initially immune to the stronger dollar, has taken a dip in the last couple of months. During the Costco’s second fiscal quarter (December - February) SSS came in at 2%, then falling to -1% for Q3 and Q4, with August numbers reported last week coming in at -2%. The negative impact of the stronger dollar has caught up to Costco, and declining oil prices has affected their gasoline sales. Despite these weak spots, there are still a few positives for the company. Costco announced earlier in the year that they were ending their exclusive credit card partnership with American Express in favor of a new deal with Visa. Credit card fees will now decline to nearly 0% from 0.6% under the Amex agreement. It’s also likely the company will increase membership fees in the near future, as the last raise was in 2011 and they tend to up prices by $5 on a 5 year cycle. The rate of expansion has also kept its pace, with Costco opening approximately 30 new warehouses a year. The company has recently come under fire for selling counterfeit Tiffany & Co. rings and was ruled by a federal judge to pay damages which will certainly impact next quarter’s bottom-line.

Diamond Foods (DMND)

Consumer Staples - Food Products| Reports September 29, after the close

The Estimize consensus calls for EPS of $0.23, a penny higher than Wall Street. In contrast, the Estimize community is expecting revenues of $204.88M, slightly lower than the Street’s prediction of $205.40M.

What to watch: Diamond Foods has been growing at an incredible rate, with YoY EPS increasing by triple digits in fiscal Q3 and Q4 2014, and again in Q2 and Q3 in 2015. Revenues on the other hand have been lagging in the low single digits, and even turning negative last quarter. On the brightside, the food manufacturer has benefitted from offering healthy snacking options such as its Emerald and Diamond of California brand nuts at a time when consumer tastes are shifting towards these items. The company also bought a majority stake in Yellow Chips last  month, a Netherlands-based company that makes vegetable and organic chips. Investors will be looking for comments on tomorrow’s call regarding the effect the California drought has had on nut production. Add to that that the company is still trying to mend relations with nut growers after being accused of making irregular payments to them in 2011. The company has a good partner in Wal-Mart, however, which remains its largest customer with 10% of sales.

Paychex Inc. (PAYX)

Information Technology - IT Services | Reports September 30, before the open

Both Estimize and Wall Street are looking for PAYX to report EPS of $0.51. The revenue consensus is slightly higher at $719.7M vs. the Street’s $717.2M.

What to watch: Paychex is a provider of payroll and human resource solutions and is often seen as a proxy for the health of small and mid-sized businesses as those are their biggest customers. Small businesses make up 95% of all US businesses, and the road back from the great recession has been rough, with growth trends still slow but gradually improving. A stronger labor market has no doubt helped the company as has their move into cloud-based solutions. The success of their services that help clients understand the Patient Protection and Affordable Care Act should also give a boost to quarterly earnings. However, massive competition still remains from smaller, cloud-based applications such as those offered by Trinet and Zenefits. Another headwind could be the impending interest rate increase, which many Fed watchers believe will happen this year. The impact rate tightening has on small businesses could negatively affect Paychex’s sales.

Micron Technology (MU)

Information Technology - Semiconductors | Reports October 1, after the close

The Estimize consensus calls for EPS of $0.45, much higher than Wall Street’s estimate of $0.37. Revenues are expected to come in at $3.65B above the Street’s estimate of $3.60B and guidance of $3.57B.

What to watch: Semiconductors have struggled this year with the strength of the US dollar and the freefall of the PC market eating into the bottom-line. However, Micron was surprisingly able to persevere in the first and second quarters, a trend that all came crashing down in Q3 when YoY EPS growth fell 32% and revenues declined 3%. Competitors such as Intel and SanDisk also posted big misses in the latest quarter. Micron has done a monstrously poor job in the past with its Japanese yen hedging, and after lacking an official CFO in the beginning of the year, appointed Ernie Maddock to the position in May to lead the charge on protecting foreign sales from currency swings. While the strength of the US dollar remains a concern, as does the decline in PC sales. Micron remains very exposed to PCs as DRAM is its largest business with about 70% of the consolidated revenue, and PC is about 35% of that. Micron's largest market on the NAND side is also PC centric, it supplies 20-30% of those bits to its consumer solid state drives. Thus far, the company’s stock is down 56% this year.

McCormick & Co. (MKC)

Consumer Staples - Food Products | Reports October 1, before the open

The Estimize consensus calls for EPS of $0.88, one cent above Wall Street and company guidance. Revenue estimates are roughly in-line at $1.05B.  

What to watch: Like others in the space, McCormick is aggressively taking on the natural foods space as the demand for healthy products reaches a fever pitch. The company is beginning to offer several organic and non-GMO products as a result, mainly in their herbs and spices portfolio as it is a leader in that category. Demand for these herbs and spices is quickly replacing demand for unhealthier flavorings such as salt, sugar and fat. McCormick has committed to making 70% of its herbs, spices and extracts non-GMO by 2016. The company has also been investing heavily in brand marketing, and is banking on several of its recent acquisitions to boost sales in the second half of the year. The company has acquired three companies this year including Drogheria & Alimentari, One World Foods and Brand Aromatics. McCormick has also amped up its innovation around new products including slow cooker sauces that will be released in time for the fall, as well as gluten free recipes. Higher pricing may soon come into effect as the company battles higher material costs.

Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

It was a light week, but here are some quotes we picked up.  Happy 4th!

The Macro Outlook:

To the extent that Greece drives the Euro lower, Greece is a tragedy for Greece but not for Europe

“Currencies are making exports much more attractive in those currencies, particularly in agriculture and manufactured products…increased geopolitical stresses…create upward pressure in the value of fungible commodities. While Greece is a tragedy for the Greece, it is not for Europe.” —Greenbrier (Railroad Equipment)

Currency fluctuations have a real effect on foreign trade

“Currencies do matter. Currencies are one of the major drivers for reduction in agricultural, the demand exports for coal and so on. That in turn has affected velocity. But oil prices are settled in U.S. dollars and U.S. dollars are stronger while other currencies are weaker.” —Greenbrier (Railroad Equipment)

International:

On McCormick’s call one analyst noted that the e-commerce trend has accelerated in China

“The shift to e-commerce in China, it’s hurt a lot of consumer companies lately. McCormick seems to be bucking the trend…I’m just curious for your thoughts here because it does seem to be a little bit of an anomaly versus what we’re seeing elsewhere.” —McCormick (Spices)

Consumer:

General Mills said that it will be spending less on media advertising and more on direct consumer marketing

“Media is down and what I said is our total consumer will be up. And just let me parcel that out. So media is obviously what you see on air, what you see in digital or in print. It will be slightly down…And then total consumer will be up low-single digit. So when I talk about total consumer, that takes into things like in-store events…And then sampling falls into it as well.” —General Mills (Packaged Foods)

Product samples have become increasingly effective

“Sampling is perhaps the most powerful penetration driver that we have and many of our natural and organic businesses are not really driven in the traditional media. They are in fact driven almost entirely by getting the products into people’s mouths. So that’s a growing part of our marketing mix and one that is not really counted in the media thing. So that’s an important highlight for you.” —General Mills(Packaged Foods)

Constellation Brands is increasing ad spend to maintain “out of the ballpark” growth

“we continue to increase our spends in advertising and marketing because we think that it’s critical to continue to drive the kind of success that we’ve had…we can’t just take our current growth and be penny wise and dollar foolish for the future. We have to make sure that we are taking all of the right steps to ensure that we are able to maintain this kind of hit it out of the ballpark growth that we’ve been enjoying.” —Constellation Brands (Alcoholic Beverages)

Conagra’s new CEO laid out a vision of cutting SG&A to grow

“On SG&A, we are well into mobilizing an intensive SG&A reduction effort that is aimed not only at offsetting stranded cost associated with a Private Brands divesture, but moving ConAgra into the top quartile of SG&A efficiency in our space over time.” —Conagra (Packaged Foods)

Technology:

PC demand is even weaker than people expected

“PC builds declined well below seasonally slow demand in the first half of the year…I think it’s fair to say that probably nobody expected the PC segment to be as slow as it’s been.” —Micron (Semiconductors)

Micron’s other end markets were stable though. They expect demand to pick up in the back half of the year, even in PCs

“we saw relative stability in other end markets…we believe that demand is going to be higher in the back half of the year…Even PCs I think, our view is that by the time we get to the end of the year notwithstanding the decrease in unit sales, there will be a small net growth in bits into the PC segment.” —Micron (Semiconductors)

Healthcare:

Many businesses are just starting to pay more attention to ACA requirements

“I think as clients started to really pay attention to it and I do think now we’ll probably see another resurgence of interest in it…I think when you get to the end of the year and those first filings have to be done and the penalty start to come into the 100 plus employee clients, I think they are really going to get a lot of attention at that point. And so the 50 or up, below a 100 will have to file, or the 50 to 100 will have to file. So that will be an awakening, I think for them that well this is a lot more difficult. And I think this is going to be another good year for the ESR product that we have, that helps them with Affordable Care Act.” —Paychex (Payroll Processing)

Materials, Industrials, Energy:

Dry Bulk shippers are finally canceling orders and scrapping ships. These are the ingredients to a lasting recovery

“During the first months of 2015 we have experienced record high levels of demolition and significant delays in scheduled deliveries. Furthermore orders have been running at record low level since October ‘14. In fact also after we adjust for conversions and cancellations we can say with confidence that we have practically experienced negative contracting of vessels. The above adjustments have put a ceiling for medium term fit growth and as a consequence the fundamental requirements for a sustainable recovery are slowly being built.” —Star Bulk Carriers (Dry Bulk Shipping)

Almost 3x as many ships have been scrapped in 2015 vs 2014

“During the first five months of 2015, we have identified more than 20 million deadweights that has already been scraped and/or committed for demolition. This compares with 16.2 million deadweight demolished throughout 2014 and 7 million deadweight demolished during the first five months of 2014.” —Star Bulk Carriers (Dry Bulk Shipping)

Of course, if the market improves people may not scrap ships as quickly

“I agree with you if the market goes up in the next couple of months it has already started improving actually…it’s possible that we might see a better market during the second half of this year. Unfortunately this will probably have an effect on scrapping so it is possible that scrapping will slow down and if that happens we’ll probably see again a slow beginning of next year.” —Star Bulk Carriers (Dry Bulk Shipping)

Miscellaneous Nuggets of Wisdom:

Don’t worry about the market, just focus on earnings and cash flow

“I don’t fully understand what our stock is trading on…we have got a strong backlog, we have got improving margins, it’s not seeming to trade on that, it seem that professional investors are trying to time the market here or predicting a peak. I personally don’t get it…But hey, life isn’t fair so we are not complaining, we are just going to do our very best to continue to pound out very strong earnings and cash flow.” —Greenbrier (Railroad Equipment)

When the market is pulling back in an uptrend it makes sense to find stocks that are exhibiting relative strength to the market. These stocks should be your targets for when the pullback ends and reverses. Relative strength can mean that the stock is not falling as much or at all or it is rising. One of those that showed up on my radar this week was Paychex, $PAYX.

A quick look at the chart of the stock price shows that since the beginning of November it has moved sideways in less than a 2 point range. The S&P 500 for comparison is also about flat for that period, but the last week has shown a notable change in relative strength. Where the S&P is down over 1.6%, Paychex is flat. That is what I mean by relative strength.

So it is a strong stock right now, but that is not enough. What then makes it interesting is that it continues to set up for a move higher. After completed an extended AB=CD pattern (to 138.2%) the consolidation allowed the momentum indicators to work off the overbought conditions. Now the MACD is crossed up again and rising while the RSI is moving higher after touching at 40. A move over 47.70 would trigger a trade, and look for a move to 50 on the first step and then 53.50 above that.