November 2019 – Page 3 – Crestwood Advisors

BKI Good Q3 results, stock down on lawsuit

BKI reported in-line revenue and better than expected EPS. Revenue guidance was lowered to the low end of original guidance but in-line with consensus. EPS guidance range was also lowered but the midpoint was still slightly ahead of the street. Revenues and adj. EPS were both +6%. The stock is down because of announced lawsuits between Black Knight and a client, PennyMac. PennyMac is making anti-trust claims against Black Knight and Black Knight is alleging breach of contract and misappropriation of trade secrets by PennyMac. PennyMac has been a customer of Black Knight’s mortgage software products since 2008 and claims that “due to limitations of BKI’s MSP product” they made some efforts to customize and enhance some modules of BKI’s software that they are now trying to claim as their own. Given BKI’s market share leading position, high retention rates and ability to replace the custom in-house solutions of large banks, the claims against them seem surprising and retaliatory. The lawsuit is concerning but does not suggest a change in thesis at this point. More details to come.

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

Colgate 3Q19 earnings summary

Current price: $66 Price target: $77

Position size: 1.67% 1 year performance: +14%

Key Takeaways:

Colgate’s 3Q19 organic sales growth of 4.5% (+1.5% pricing) was the highest in the last 3 years, although helped by easier comps (the truck drivers’ strike in Brazil last year had impacted them). Brazil and China saw a nice rebound from last year, but North America is slowing down, which is impacting gross margins, in addition to higher raw material and packaging costs. Colgate also spent more in advertising and marketing to help lift sales: competition remains tough, especially in toothpaste and manual toothbrushes. The segment that saw the best performance this quarter was Hill’s pet nutrition, up 10% y/y thanks to e-commerce and more natural ingredients. Their 2019 guidance was changed slightly, seeing sales growth between 3-4% (vs. 2-4% previously), but now expects a slight decline in gross margin (vs. slight expansion before). We remain confident the new CEO can continue to bring the company back to top line growth, and eventually margin expansion. Continue reading “Colgate 3Q19 earnings summary”

Google buying Fitbit

Google agreed to buy Fitbit Inc. for $2.1 billion in cash. This comes as they have increasingly talked about building their hardware business which includes smartphones, laptops, smart speakers and nest. They will pay $7.35/share – that represents a 71% premium to Fitbit’s stock price before Reuters first reported Google had made a bid for the company on Oct. 28.