Month: April 2019

JNJ 1Q19 earnings results

Key Takeaways:

Current Price: $139 Price Target: $150

Position size: 2.74% 1-Year Performance: +3.6%

JNJ reported 1Q19 earnings results yesterday. Total organic sales were up 5.5% and adjusted EPS up +5.8% ex-FX. Top line was helped by high growth in Pharma (+7.9%) where pick up in new drugs demand is offsetting Remicade’s erosion. In Consumer, we were not surprised to see its baby care division suffer a decline in sales, partially due to destocking ahead of a relaunch outside of the US but also channel shift difficulties (most likely related to the online channel) and market softness in the US… The recovery we were expecting in Consumer has not found its footing quite yet. The Medical Devices segment growth profile has improved following the sale of its lower growth assets (Diabetes, ASP). During the call, the head of JNJ’s Pharma division commented on the change in the rebate rule being a positive for patients and thinks JNJ is in good position to succeed in the new environment. We have often times discussed the multiple lawsuits facing JNJ recently, but noticed the litigation costs dropping to $423M this quarter versus $ 1.3B in 4Q18, but still much higher than a year ago ($0). Overall we were pleased with the quarter.

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Pepsi 1Q19 earnings results

Key takeaways:

Current price: $126 Price target: $139 NEW ($123 OLD)

Position size: 2.30% 1-year performance: +15%

Pepsi reported +5.2% of organic revenue growth, helped by an “extraordinary” Super Bowl season. Core EPS increased 3% y/y ex-FX. Its snacks and soda segments had good sales growth, and the CFO noted an improvement in their competitiveness. However volume expansion did not last for its North America beverages segment (price increases drove the sales up), and overall growth will slow during the rest of the year. We should not expect operating margins to expand throughout the year either, as the company pursues investments to streamline its operations, combined with higher raw material costs. On the positive side, Pepsi reiterated its 2019 guidance. Overall this was a good quarter for the company. Continue reading “Pepsi 1Q19 earnings results”

Performance of large cap and core bond funds

Pete and I created performance charts for our US large cap funds as a group compared to iShares 500 index ETF (IVV) and for Core US Bond funds as a group against the iShares Barclays US Aggregate Bond ETF (AGG).  In our quarterly performance presentation we show performance of each vehicle and it was not clear that these funds as a group has performed well.

Here is a chart of performance of our US large cap funds against IVV going back to beginning of 2017:

US Large Cap Funds
A few observations from this chart:
1. Performance has been good especially considering only 22% of active managers beat the S&P 500 over the past 3 years.
2. Tracking error prior to the change in funds (9/28/18) was really low and was a main reason for the change
3. The funds as a group picked up 200 bips during the end of year downturn! The larger allocation to low vol has really helped.

I ran the same chart for our active bond managers against AGG – iShares Barclay US Aggregate ETF.

US Core Bond Funds

As you can see our collection of active bond managers has added value over iShares US Aggregate ETF.

Hopefully these charts help you explain the positive results to clients!

Thanks,

John

Fun Fact on IPO’s

While the number of IPO’s hitting the market is not close to the levels of the dot-com era, the share of current IPO’s that are losing money is approaching levels last seen in the late 90’s.

Thought this was interesting given the series of high profile IPOs expected this year. Lyft recently went public (losing money and trading below offering). Other potential IPOs this year include: Uber, Airbnb, Slack, Palantir Technologies, Robinhood, Beyond Meat, Zoom, Pinterest, Postmates, WeWork.

Sarah Kanwal

Equity Analyst, Director

Direct: 617.226.0022

Fax: 617.523.8118

Crestwood Advisors

One Liberty Square, Suite 500

Boston, MA 02109

www.crestwoodadvisors.com

Income inequality

Ray Dalio, head of Bridgewater Associates, published a great article on income inequality.  The article links inequality to education and shows that the US lags developed countries in many categories.  Dalio shows that high rates of workers earning less than than their parents and falling standards of living have lead to voter mistrust and disenfranchised populations, which has clearly been themes that Trump has tapped. He concludes that American capitalism is at risk.

Why-and-How-Capitalism-Needs-To-Be-Reformed

Thanks,

John

Constellation Brands (STZ) 4Q19 earnings summary

Key takeaways:

Current Price: $190 Price Target: $233

Position Size: 1.82% 1-Year Performance: +14% (since inception 12/20/2018)

STZ reported its 4Q 2019 earnings results this morning. Beer shipment remains high at +8%, and total beer sales grew +9.3%. During the call, management highlighted the strength Corona and Modelo, in addition to their product innovation capabilities, as driving continued market share gains in North America. It was highlighted that 1Q20 will reflect some inventory destocking, so a slowdown in growth rate should be expected in 1Q20. Beer EBIT margin was above last year at 40.5% vs. 37.9%. Better price/mix and lower marketing spend helped expand margins.

In addition to today’s good results, last night they announced the sale of lower-tier wines (30 brands out of the 64 lower price owned by STZ) to E&J Gallo for $1.7B, allowing STZ to focus on premium, higher growth/higher margins brands. Those brands were $1.1b in sales in FY19 (38% of wine sales). This had been talked about by management but the deal is closing sooner than what we had anticipated. Overall we are pleased with the results and look forward to future announcement around the use of cash from the wine sale.

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