Author: Julie Praline

Key Takeaways:

Current price: $71 Price target: $77 (NEW)

Position size: 1.8% 1 year performance: +7%

Colgate surprised to the upside with organic sales growth of 3% (the highest in the past 9 quarters), driven by improvement in North America, while China remained weak. The management team expects China to improve in 2H. Colgate is still losing market share globally but on the positive side, their Total brand gained back some shares in the US after its relaunch in February. EBIT margins contracted 180bps (raw material costs inflation was partially offset by cost savings and pricing; but negatively impacted by a rise in advertising). Advertising spend will remain ~11% of sales in 2019, an increase vs. last year, but necessary to relaunch its brands. We are increasing our price target after updating our model. Continue reading “Colgate 1Q19 earnings results”

Key Takeaways:

Current Price: $185 Price target: $201 NEW ($198 OLD)

Position size: 3.62% 1-year Performance: +12%

Stryker released results with organic sales up +7.3%. This quarter operating margin improved 10bps (including a 50bps negative impact from acquisition). Its Mako robot will see some competition in the near future as peer Zimmer is launching its own knee replacement robot (Rosa), but so far the order book remains strong for SYK, with 55% of the placements in accounts taken from competitors. A total of 35 robots were placed globally (27 in the US). Regarding the recent K2M acquisition, the combined sales organization is now in place, which will allow a revenue ramp up as the year progresses. We are raising our price target slightly to account for a continued good growth in the business.

Segments revenue growth:

· Orthopedics organic revenue growth of 5% was driven by 6.4% international growth and 6.6% growth in Knees which benefited from strong Mako TKA demand and strength in cementless

· MedSurg organic revenue growth of 8.9%, led by 17.5% U.S. Instruments growth and 7.5% Endoscopy growth (NOVADAQ and Sports Medicine). The Medical division grew 9.2% organically in the US, reflecting solid performance in the bed, stretcher, and Sage businesses

· Neurotech & Spine organic growth of 7.8%

2019 Guidance update:

Organic sales increased on the low end from 6.5-7.5% to 6.8%-7.5%

30-50bps EBIT margin improvement reiterated

Adjusted EPS raised on the low end from $8.00-$8.20 to $8.05-$8.20

SYK Thesis:

• Consistent top and bottom line growth in the mid and upper single digits respectively
• Continued operating leverage of current infrastructure
• Strong balance sheet and cash flow used in the best interest of shareholders

$SYK.US

[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

www.crestwoodadvisors.com

Key takeaways:

Current Price: $333 Price Target: $388

Position Size: 3.50% 1-year Performance: -12%

Lockheed’s 1Q19 earnings results were impressive with organic revenue growth of 23% (including an 8% boost from an extra work week). With bookings trend still positive (1.21X in the quarter), the revenue growth looks sustainable for the rest of the year (although not as high as 1Q). Margins expanded as well, and as new programs headwinds ease during the year, we should expect continued margin gains. This quarter, Lockheed delivered 26 F-35 jets (vs. 14 in 1Q18). During the call, management highlighted the increased international demand for the F-35, which will represent nearly half of the growth for this program in the future. LMT has facilities in place to ultimately produce over 180 aircrafts a year. The CFO noted some frustration with the US Air Force (discussions on driving down the price, as well as committing to 48 jets/year over the next 5 years vs. 60 jets initially projected). Overall 1Q19 earnings were much better than expected, explaining today’s positive stock reaction.

Continue reading “Lockheed Martin (LMT) 1Q19 earnings summary”

Key Takeaways:

Current Price: $178 Price Target: $177 (NEW)

Position Size: 1.94% 1-year Performance: +30%

UNP reported a revenue decline of -2% (but with an average price slight acceleration from last quarter to +2.75% – enough to offset some cost inflation), and an operating ratio that improved 100 bps y/y, despite weather related challenges (160bps impact including lost revenue and increased costs). Heavy snowfall and flooding resulted in track outages affecting train speed and network fluidity, but the implementation of the Unified Plan 2020 (focused on asset utilization) is having a positive impact on freight car velocity, terminal dwell time and train speed. UNP’s operations proved more resilient to weather disruptions than it did in the past (our fear heading into the quarter). The outlook for 2019 cost savings is positive, with a step-up in net cost savings in Q2-Q4. We are raising our price target to $177 to account for a better operating ratio than expected.

Continue reading “UNP earnings summary”

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”