Month: January 2019

MMM 4Q18 earnings summary

Key Takeaways:

Current Price: $197.6 Price Target: $215

Position Size: 2.37% 1-year Performance: -24%

MMM released its 4Q18 earnings results this morning, with organic growth standing at 3%, and EPS up 10% y/y. Latam/Canada had the strongest growth at +5%, followed by the US +4.4%. No business stood out as outperforming or struggling this quarter but 3M cited weak customer demand for its auto and electronics business in China having dampened revenue in 4Q18. On the positive side, the company lowered its estimate of the Trade impact on earnings from $100M to $70M. Overall tariffs and raw materials costs impact should be lower in 2019 than in 2018. The current CEO has been cutting forecasts pretty consistently since he took over as CEO in July 2018. Looks like he needs to manage expectations a bit better!

Continue reading “MMM 4Q18 earnings summary”

HLMEX – Q4 2018 Commentary

HLMEX – Q4 2018 Commentary

Emerging market equities sold off during the fourth quarter but actually outpaced developed markets on a relative basis. The Harding Loevner Emerging Markets Equity fund underperformed its benchmark for the year driven mostly by sector selection as they faced a significant style headwind. Harding sees long term opportunity in EM, however, as there are new growth opportunities with companies that have taken advantage of research and technology to become multinational and less dependent on their domestic economies.

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Eaton Vance on 2019 Implications of Tax Cuts and Jobs Act

Attached is a piece put out by Eaton Vance that looks at the effects of the tax cuts enacted at the end of 2017 as it pertains to 2019. Specifically, it looks at what individuals and corporations filing their 2019 tax returns should be aware of.

[Category Market Themes}

Peter Malone, CFA

Research Analyst

Direct: 617.226.0030

Fax: 617.523.8118

Crestwood Advisors

One Liberty Square

Suite 500

Boston, MA 02109

www.crestwoodadvisors.com

Eaton Vance 2019 Tax Implications.pdf

LISIX – Q4 2018 Commentary

LISIX – Q4 2018 Commentary

Along with nearly all global equity markets in Q4, international developed sold off significantly. During the period, the Lazard Strategic International Equity portfolio did outperform its EAFE benchmark, which is to be expected in periods of extreme volatility. The team is monitoring geopolitical concerns in Europe and Asia but believes that softening policy in the U.S. and the start of Chinese stimulus should help global equity markets.

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Colgate 4Q18 earnings summary

Key Takeaways:

Current price: $62.8 Price target: $67

Position size: 1.8% 1 year performance: -18.7%

Colgate released its 4Q18 and 2019 initial guidance today. While 4Q18 sales results were slightly better than expected, margins and the initial 2019 guidance were below. Organic sales were sequentially accelerating reaching +2%. Emerging markets are improving, even with China’s continued de-stocking. Two markets had specific issues this past quarter though:

· France: yellow vest impact on consumption -40bps on growth

· US: shift of major promotional activity from 2018 to 2019. This had a 120bps impact on organic growth pushed from 4Q18 into 1Q19

Gross margins declined 100bps and expenses increased, causing a 220bps operating margin contraction. In 2019, the company is planning to reinvest behind its brands to push organic sales growth. As the management team recognizes prior errors (mostly thinking its portfolio was good enough to win), we can now expect portfolio evolution, as well as a push towards different distribution channels. We think expectations have been lowered enough now and are attainable. Continue reading “Colgate 4Q18 earnings summary”

Wells Fargo (WFC) Q4 results

Last week, Wells Fargo (WFC) reported Q4 EPS of $1.21 roughly in-line with estimates. Earnings were pulled down a bit by the market’s Q4 weakness as was the case for peers. In the call, management pushed back the expected asset cap release date from mid-2019 to end of 2019. On the plus side, Wells continues to improve its culture and is aggressively buying shares, having reduced shares by 3% in the past quarter.

Current Price: $50.29 Price Target: $56

Position Size: 2.8% Trailing 12-month return: -20.7%

Highlights:

· Wells is a return of capital story with over $20b in excess capital.

o Dividend yield of 3.7% ~ 50 bips above peers

o Last quarter purchased 3% of shares spending $6.8B

o For 2018, WFC has a shareholder yield of 9.7% (3.2% dividend and 6.5% share buyback)

  • Ongoing transformation of culture – Wells has made a lot of progress
    • Replaced former Chairman, John Stumpf with CEO, Tim Sloan, and added CFO Elizabeth Duke, a former Fed member, as independent chairman.
    • Named 6 new independent directors
    • Expecting the Federal Reserve to lift balance sheet asset cap restriction at end of 2019
    • On 4/20/18 Wells reported a $1b settlement with OCC and CFPD relating to forced car insurance and mortgage fees.
    • Recent moves to improve firm’s standing with employees
      • Increased base minimum hourly wage to $15.00 an increase of 11%
      • Increased 401k and profit sharing programs
      • Increased stock incentive compensation
    • Recent improvements to help customers
      • Overdraft rewind, zero-balance alerts, debit card on/off capability, and P2P payments
    • Wells still needs to settle with DOJ over residential mortgage policies dating back to the financial crises. Estimates place the settlement at $2b, but Wells has already set aside reserves of $3.2b
    • Additional lawsuits exist for overdraft fees, foreign exchange, mortgage fees, improper account closing and other smaller suits. Wells is not out of the woods, yet.
    • Plans to spend 2% of earning to philanthropy (up from 1.3%)
  • Strong capital position
    • Common Equity Tier 1 Ratio of 11.7%
    • ROE 12.9% (Return on tangible equity 15.4%)
    • Returned $8.8b to shareholders through dividends and share repurchases for a shareholder yield of over 6.3%!
    • Solid credit quality – Nonperforming assets down from $8.3b in 4Q17 to $7.0b in 4Q18 as company continues to improve the balance sheet.
  • Operational results
    • Noninterest revenue down -14% YoY hurt by Q4 market downturn and weak results in mortgage banking. Quarter results showed modest gains from sale of securities.
    • Noninterest expense down -21% in good cost control. Wells expect costs to fall 11% over the next 2 years.
    • Net interest income up 3% YoY loans up $6.9b
      • Deposits down 3% yielding 55 bips with low beta (33) to rising rates
      • Net interest margin stable at 2.94%
  • Valuation
    • Valuation is below 5-year average at 12.1 P/E and 1.3 P/B, having bounced off a 5-year low in December of 11 P/E and 1.2 P/B
    • Yield and share buybacks provide strong support

WFC Thesis

  • Best franchise in banking due to disciplined loan writing and quality mortgage underwriting
  • Large deposit base that provides low cost funding
  • Strong capital ratios put WFC in a good position to be opportunistic, invest for the long-term and return capital to shareholders
  • Company is working hard to improve culture and repair image

($WFC.US)

John R. Ingram CFA

Managing Director

Asset Allocation and Research

Direct: 617.226.0021

Fax: 617.523.8118

Crestwood Advisors

One Liberty Square

Suite 500

Boston, MA 02109

www.crestwoodadvisors.com

RMD 2Q19 results summary

Key Takeaways:

Current price: $117 (pre-market) Price target: $109

Position size: 3% 1-year performance: +15%

Resmed released its 2Q19 earnings last night. The company missed on sales by 3% vs. consensus mostly in its Rest-of-World devices segment. They beat on the EPS line helped by better margins (+90bps GM expansion due to increasing production in Singapore and product mix) and taxes. We think devices sales will soften a bit, phasing out of the #2 and #4 markets (Japan & France) reimbursement changes that boosted their sales last quarter. However their core US business performance (masks and flow generators) is still strong with sales growth +9% y/y and EBIT +15%, taking shares from competitors. Their SaaS investment through the Brightree acquisition in early 2016 is being questioned this quarter as sales are slowing down. Due to the end customers in home/durable equipment consolidating, there is currently some pricing pressure in this SaaS business category. If this trend continues, we think Resmed could be forced to recognize goodwill impairment on this acquisition. We had highlighted last quarter that the shares appeared fully valued, so we are not surprised by today’s stock reaction following a sales miss. However the long-term thesis is still intact, and we believe the stock will recover over time. Continue reading “RMD 2Q19 results summary”

Crown Castle International ($CCI.US) Q4 2018: Finishing off strong 2018

Crown Castle International Corp. (CCI) had another strong quarter, finishing off a successful 2018. While FFO was lower than expected by the market, site rental revenues came in higher than firm and street estimates. CCI slightly increased its 2019 estiamtes for site rental revenues and adjusted EBITDA, leaving AFFO estimates unchanged. Growth in the towers space continues to be driven by consumer demand for data which leads to investment by mobile carriers. Within the space, CCI is best positioned to take care of carrier needs across towers and small cell/fiber. CCI’s investment in small cells and fiber are performing better than expected and the company’s margins should continue to improve as they increase colocation on their newly developed small cells.

Current Price: $112 TTM Return: 2.2%

Target Price: $125 Position Size: 2%

Continue reading “Crown Castle International ($CCI.US) Q4 2018: Finishing off strong 2018”

MKC 4Q18 earnings summary: long-term thesis intact, 4Q impacted by one-time event

Key Takeaways:

Current Price: $123.8 Price Target: $129 NEW (from $131 in September)

Position size: 2.96% 1-Year Performance: +23.7%

McCormick released its 4Q18 results and 2019 guidance that are both disappointing vs. consensus. 4Q18 sales ended up 3% below expectations as they were impacted by two events causing a 3% hit to sales in its Consumer Americas business: 1/ some key customers reduced their inventory levels during the quarter, an odd timing per McCormick as the Holiday season usually sees good demand; 2/ a large customer had a change in its internal store replenishment system that caused re-ordering issues. On the positive side, the management team insisted during the call that consumption trends are still strong. Operating margins declined 70bps, were below as well impacted by lower sales and higher raw material costs. Free cash flow was favorably impacted by better working capital management (see chart below) and lower capex.

We are updating our price target slightly down to $129 after including the new 2019 guidance numbers in our model. Our long-term view on MKC is unchanged and we maintain it as a core holding in our consumer staples portfolio. Continue reading “MKC 4Q18 earnings summary: long-term thesis intact, 4Q impacted by one-time event”