Last week was a busy one for earnings and dividend increases. Our portfolios saw their share of both, and here’s a rundown on 8 of those companies to help guide you along in your investment decisions:
Amgen (AMGN) did not disappoint when it announced third-quarter results this week. Last quarter, more than a half dozen of its drugs posted double-digit annual sales growth. This includes Neupogen, a therapeutic which I’ll discuss later in this update. Overall revenue advanced 10% year-over-year to $4.75 billion, handily beating the $4.6 billion consensus estimate. Over the same period, net income advanced 24% to $1.37 billion, or $1.79 per share. Excluding special items, earnings came in at $1.94 per share, also trouncing the $1.76 consensus estimate by over 10%.
Management also announced that it is lifting the lower end of its 2013 profit forecast to a range of $7.35 to $7.45 per share. This is in line with the Street view, which calls for earnings of $7.43 per share. One thing that has helped boost 2013 EPS is the company’s ongoing stock buyback program. This year to date, the company has repurchased $800 million of its own shares.
In a separate release, Amgen also announced that it is buying the rights to two white blood cell boosting therapeutics from Swiss healthcare company Roche Holding (RHHBY). The therapeutics, filgrastim and pegfilgrastim, help reduce the risk of infection in patients undergoing chemotherapy. Amgen already markets the therapeutics in the U.S. and Europe as Neupogen and Neulasta, respectively. But this new deal allows Amgen to distribute and sell them in around 100 markets, effective on January 1. This is big news because the franchise generated $200 million in sales in 2012 and the transaction is expected to be accretive in 2014.
Biotech Celgene (CELG) reported strong third-quarter results, bolstered by impressive sales of its cancer drugs Revlimid and Abraxane, which grew 12% and 60% respectively over the year-ago period. So total sales advanced 18% to $1.674 billion, above the $1.64 billion consensus estimate.
At the same time, net income slid 12% to $372.5 million. I’m not worried about the contraction. In an effort to develop its pipeline, Celgene has ramped up spending on research and development and it has incurred higher selling and administrative expenses related to promoting recent approvals. In any event, adjusted earnings increased 21% to $1.56 per share, above the $1.54 consensus estimate.
Looking ahead to full year 2013, the company has revised its earnings forecast up to a range of $5.90 to $5.95. Earlier, the company had forecast earnings in a range of $5.80 to $5.90 per share and this is the third time it has hiked up its estimate.
Discover Financial Services
In the third quarter, Discover (DFS) set aside $333 million to cover future defaults, up from $136 million a year earlier. This larger reserve weighed on the credit card company’s bottom line; compared with Q3 2012, net profit declined 7% to $593 million, or $1.20 per share. Analysts had forecast earnings of $1.21 per share so Discover Financial posted a modest earnings miss.
However, the company reported solid sales growth as consumers ramped up credit card usage. Compared with the same quarter last year, credit card loans rose 4% and revenue advanced 3% to $2.06 billion. This was in line with analyst estimates.
While DFS shares opened down after the announcement, I am maintaining my hold recommendation for DFS. We would have all liked to have seen stronger results, but the stock is still a good hold for several reasons.
First, the company is in the middle of a multi-billion-dollar stock buyback program which should continue to support earnings. Second, Discover Financial is continuing to expand beyond the credit card business. Discover Home Equity Loans launched in August, allowing the company to profit from the housing recovery. The company is also benefitting from growing origination volumes in student and personal loans. Third, while the company is being conservative with its loan loss reserve, card charge-offs and overdue credit card loans improved last quarter.
During the third quarter, Hershey (HSY) saw lower commodity costs coupled with strong sales at home and abroad. This drove strong annual earnings growth that outperformed analyst estimates. Compared with Q3 2012, net income climbed 32% to $232.9 million, or $1.03 per share. Adjusted earnings weighed in at $1.04 per share, which topped the $1.01 consensus estimate by 3%. Over the same period, net sales advanced 6% to $1.85 billion, just missing the $1.88 billion consensus estimate. Investors reacted to the sales miss so HSY shares opened down following the announcement.
However, I still consider this a solid report. Looking ahead, Hershey management expects to end the year with 7% sales growth and 14% adjusted earnings growth. Next year, Hershey plans to continue its aggressive global expansion strategy. The company is investing $250 million in a new chocolate plant in Malaysia, which will give it easy distribution to more than 25 markets across Asia. At home, the company launched the Lancaster brand, a line of caramel soft crèmes that previously debuted in China. This is its first completely new candy brand in over 30 years.
Kimberly-Clark (KMB) reported strong third-quarter sales and earnings before Tuesday’s open. Compared with Q3 2012, net income jumped 6% to $546 million. Adjusted earnings weighed in at $1.44 per share, which topped the $1.40 consensus estimate by 3%. Over the same period, net sales ticked up from $5.25 billion to $5.26 billion. Analysts forecast sales of $5.23 billion, so Kimberly-Clark also posted a modest sales surprise.
Stripping the impact of acquisitions, divestitures and foreign exchange rates, organic sales rose 5% over last year. While Kimberly-Clark lost some sales by exiting much of its personal care business in Europe, the company benefited from sales increases in Consumer Tissue, K-C Professional and Health Care segments. The company also lifted its 2013 full-year earnings outlook to a range of $5.65 to $5.75 per share. Earlier, the company had forecast earnings in a range of $5.60 to $5.75 per share.
I currently have KMB down as a hold because the stock did get caught up in some of the general choppiness hitting high-yield stocks this fall. Even so, my hope is that these earnings results help boost the stock’s Quantitative and Fundamental Grades. These strong quarterly results, compounded with a weak dollar that will boost the company’s results going forward, should help lift KMB’s ratings for sales growth, operating margin growth, earnings growth and earnings surprises.
Southwest Airlines (LUV) announced record earnings performance for the third quarter on Thursday. Last quarter, the company benefitted from a drop in fuel costs and increased fuel efficiency. This combined with higher fares and more tickets sold, drove nearly a 150% year-on-year jump in adjusted earnings.
Excluding special items, adjusted earnings weighed in at $241 million, or 34 cents per share. Analysts had forecast earnings of 33 cents per share so Southwest posted a 3% earnings surprise. Meanwhile, total operating revenues improved nearly 6% to $4.545 billion. This also topped the $4.53 billion Street view.
LUV shares rose after the announcement and given that the company plans to fully integrate AirTran into its operations by the end of 2014, I expect more strong earnings announcements in the following quarters.
Sherwin-Williams (SHW) may have been the last Blue Chip Growth company to report earnings last week, but it certainly wasn’t least. In the third quarter, Sherwin-Williams saw increased sales at its namesake paint stores. The company also reported increased net sales from recent acquisitions integrated into its paint stores, consumer and global finishes segments.
Net income advanced 12% year-over-year to $262.97 million; adjusted earnings came in at $2.68 per share. This beat the $2.62 consensus estimate by 2%. Consolidated net sales climbed 10% to $2.85 billion, also topping the $2.78 billion consensus estimate.
For the fourth quarter, management expects between 5% to 7% consolidated sales growth and between $1.29 to $1.39 EPS. For 2013, Sherwin-Williams expects net sales growth in the mid-single-digits and earnings in the range of $7.00 to $7.30 per share.
Thermo Fisher Scientific
In the third quarter, Thermo Fisher Scientific (TMO) saw increased demand for its diagnostic devices and its analytical technologies—particularly its mass spectrometry systems—from customers in the life sciences and applied markets. This drove solid sales and earnings growth for the quarter.
Compared with the same quarter last year, net profit advanced 9% to $317.6 million, or 86 cents per share. Excluding special items, adjusted earnings came in at $1.30 per share, besting the consensus estimate by 2 cents per share. Meanwhile, revenue climbed 3% year-on-year to $3.19 billion. With the analyst community calling for $3.17 billion in sales, Thermo Fisher posted a modest sales surprise.
Thermo Fisher lifted up the lower end of its 2013 sales and earnings forecasts. The company now expects adjusted earnings in the range of $5.31 to $5.39 per share and between $12.87 billion and $12.95 billion in sales.