Key Takeaways:
· COVID-19 had a limited impact on their business in Q1, but impact should be greater in Q2 as US and Europe are in lockdown
· China seeing a rebound, and seeing an improvement in US and Europe clinic visits recently
· Expect Q3 and Q4 to be better, business back to normal
· Guidance for the year reduced to reflect potential impact of a recession
· Share repurchase put on hold temporarily to conserve cash
Key takeaways:
· Weak organic sales due to COVID-19: few cancellations in projects but delay of orders
· China showing signs of early recovery
· Europe and US experiencing steeper declines than initially expected
· Due to operational pressure, XYL is seeing new inquiries from the Utility sector about remote sensing and automated operations
Key Takeaways:
· Organic sales boosted by pantry loading in the US
o EM sales +3%: negative impact from China and India lockdowns
o Developed markets: +11.5%
o Hill’s pet nutrition +21%
· 2020 guidance removed due to uncertainties on government measures to contain the pandemic
Key Takeaways:
· Slow-down in all geographies due to COVID-19, but China recovering
· Margins held well due to restructuring actions (not likely to continue in Q2 with large drop in sales expected)
· Vontier IPO on hold until market conditions improve
· Guidance for the year removed
Key Takeaways:
· While sales growth was as expected in the early part of the quarter, the business was impacted by the COVID-19 crisis in March 2020
· Last week of March, sales were down 30%
· Expect a recovery in China in Q2 while other countries will get worse in early Q2, before recovery takes place in US and abroad
· Forecast a sales decline in April of 35-40%
Current Price: $186 Price target: $232 (NEW)
Position size: 2.63% 1-year Performance: -1%
Stryker released their 1Q20 results with organic sales up +2.4%, operating margins declined 110bps and EPS -2%. While only a few months ago Stryker was not seeing any impact from COVID-19 on its business, things have turned quite the opposite way towards the end of the quarter with global delays in elective surgeries. SYK withdrew its guidance for the year due to the uncertain scope and timing of COVID-19 and return to “normal”. About 40-50% of SYK’s revenue base includes procedures that are elective or can be deferred for some time. The stay-at-home orders have also caused a reduction in its trauma segment (reduction in construction and reduced activities). 15% of sales are “capital equipment” that have seen an increase in demand (you have probably seen the Stryker beds in the news covering the crisis in hospitals). In response to the drop in sales, SYK is lowering expenses by reducing travel, furloughing employees if/when needed. During the call, the management team noted that their sales people are doing well engaging virtually with doctors (for training purposes for example), and this could become a new normal. The price target is reduced to $232 to reflect 2020 lower numbers. Overall we still believe SYK will do well in the long-term as demand recovers, and remain positive on the stock.
SYK Thesis:
$SYK.US
[category earnings] [tag SYK]
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109
Key Takeaways:
· Revenue up 17%, operating profits up 31% from mix and manufacturing/procurement efficiencies
· Rapidly pivoted their business to produce more ventilators (life-support and non-invasive)
· SaaS growth of 12%
· Dividends maintained
Current price: $155 Price target: $168
Position size: 3.77% 1-year performance: +49%
Resmed reported sales and profit results above expectations, helped in part by the increased demand for ventilators. Results were good worldwide: the US/Canada/Latam saw a 12% growth, Europe/Asia/Row grew 27%, and SaaS +12%. Profits increased thanks to mix and operational efficiencies. The company highlighted in its presentation its efforts to help with the COVID-19 crisis, seeking a fair and ethical allocation of products globally, as well as transitioning its production lines to support the need for ventilators:
o ventilators production tripled to meet demand
o ventilation masks up 10x
The management team believe this crisis will accelerate the need to monitor patients remotely (a big part of RMD’s growth strategy prior to the virus pandemic). See the chart below on how they are offering digital health solutions:
Thesis on RMD:
$RMD.US
[category earnings] [category equity research] [tag RMD]
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109
Key Takeaways:
· Q1 saw large end-markets decline globally, with Sensata doing better thanks to content growth
· Q2 to be more challenging (already priced in the stock)
· China pointing to a recovery
· Could see people using more individual cars rather than public transportation due to COVID-19 change in habits
Key takeaways:
· Sales growth higher than expected in Q1 due to pantry loading – Q2 sales to be slightly negative
· Acquisition of Rockstar Energy Beverages closed, and entered exclusive distribution agreement of Bang Energy drinks – progressing on its efforts to capitalize on the rising demand for functional/energy drinks (high growth/high margins category)
· 2020 guidance withdrawn given COVID-19 uncertainties
· Dividends and share repurchases remain
Current price: $136 Price target: $153
Position size: 2.48% 1-year performance: +6%
Pepsi released their 1Q2020 earnings results this morning: +7.9% organic sales was above consensus of 3% (thanks to pantry loading) and EPS of $1.07 was roughly in line with consensus of $1.03. Profits were slightly better as well. Guidance for the year was withdrawn due to the virus impact being hard to measure. However the management team is expecting a low single digits decline in sales in 2Q: slower EM channels and weakness in immediate consumption channels (convenience stores/bars). The management team continues to expect large-format/e-commerce channels to benefit from recent trends, with a gradual improvement in convenience stores as people return to work. Regarding costs, labor, logistics and service costs are higher to meet consumer needs. To reduce the impact of these costs, the company is reducing discretionary and non-essential marketing expenses. As for liquidity, PEP has ample flexibility and plans to return cash to shareholder through dividends and continue share repurchases. Regarding its energy drinks strategy, PEP plans to accelerate Rockstar’s market share gains, improve Bang’s distribution and unlock potential at Mountain Dew that was previously limited by the Rockstar agreement.
Segment details:
Thesis on Pepsi:
Tag: PEP
category: earnings
$PEP.US
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109
Key takeaways:
· Company is seeing little impact from COVID-19 on its business
· 2020 guidance mostly unchanged (top line reduced by <1%)
· LMT continues to be best-in-class defense company with high cash generation and ROIC
Current Price: $373 Price Target: $469
Position Size: 4.35% 1-year Performance: +22%
Lockheed released its 1Q20 earnings results this morning, with organic sales +9%, segment operating margins -100bps, and EPS +1.4%. The business has been insulated from the COVID-19 crisis in Q1, although the rest of the year should see some impact such as supply chain issues due to distancing at facilities, supplier tier hierarchy disruptions and some shipping constraints. While the F-35 contributed to most of the quarterly growth in Aeronautics (contributed 12 points of the 14% segment growth), some delays in deliveries in Q2 and beyond is possible. Cash from operations was up 40% y/y. Lockheed’s current backlog ($144B, up 8% y/y) supports near-term growth.
2020 sales guidance was decreased slightly by ~1% due to reduced production and supply chain delays highlighted above, but profitability, EPS and cash from operations were maintained. With interest rates lower, pension expenses will be a greater headwind to profitability than initially guided earlier this year (~30bps).
Regarding LMT’s quality, its best in class ROIC still holds true, with a lower P/E than peers:
LMT Thesis:
· Lockheed Martin is a primary beneficiary from the replacement cycle for aging military aircraft and ships
· Excellent management team focused on returning capital to shareholders
· Strong cash flow and financial position
[category earnings] [tag LMT] $LMT.US
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109
Key takeaways:
· Guidance for the year lowered (note that it was not withdrawn!) due to the COVID-19 impact on its medical devices business (as expected):
o Operational sales growth of -3.0% to +0.5% (down from +5.0-6.0%)
o EPS of $7.50-$7.90 (vs prior $8.95-$9.10).
· The 6.3% dividend increase is welcomed as we see many companies suspending theirs
· Quarterly sales upside was driven by:
o stronger-than expected pharma results
o High over-the-counter drugs sales, as consumers stocked up on cold & flu medicine, and competitive supply disruptions
Overall JNJ had a good quarter, showing its true defensive qualities in a volatile, uncertain environment.
Segment details:
Pharma sales: +10.2% organic and broad-based outperformance (Stelara, Darzalex, Imbruvica, Remicade). We believe drug sales will remain steady given patients’ high need and accessibility to pharmacies. The possible exception is slower new patient starts (less doctors/hospitals visits for non-COVID diseases). J&J is still working on developing a coronavirus vaccine, likely ready by early 2021. But company profitability will not move higher from this given the desire to offer the vaccine on a nonprofit basis.
Medical devices -4.8% organic growth, as procedures are being delayed. We think a rebound in late 2020 is possible as people catch up on necessary procedures
Consumer +11% organic growth almost entirely driven by OTC with strength due to COVID-19 (stocking up and treating symptoms)
Thesis on JNJ:
[category Equity Earnings]
[tag JNJ]
$JNJ.US
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109
