Mutual funds focusing on the technology domain not only invest in companies operating in the sector but also bet on firms who seek to leverage advances in technology. This category emerged as a force to reckon with only about twenty years ago, but their subsequent slide has led many investors to eschew this class of funds. Subsequently, fund prices have been based on stronger fundamentals, substantially reducing the risk involved. With the advantages of professional management, mutual funds are the best option for investing in this category.
Below we will share with you 5 top rated technology mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all technology funds, then click here.
Wells Fargo Advantage Specialized Technology A (WFSTX) invests the majority of its assets in equity securities of companies in the technology domain. The fund may utilize up to half of its assets to purchase foreign securities. Not more than 25% of its assets may be invested in one country. The technology mutual fund returned 34.4% in the last one year period.
The fund manager is Walter C. Price, Jr. and he has managed this technology mutual fund since 2000.
Matthews Asia Science & Technology Investor (MATFX) seeks capital growth over the long term. The fund invests heavily in companies located in Asia which generate more than half of their revenues from product and services sales in technology related industries and services. The technology mutual fund has a five year annualized return of 10.12%.
As of December 2010, this technology mutual fund held 61 issues, with 5.73% of its total assets invested in Baidu, Inc. ADR.
Invesco Technology Investor (FTCHX) invests primarily in companies which leverage technology in product development or operations. More than half of the fund’s assets may be utilized to purchase foreign securities. The technology mutual fund returned 24.97% in the last one year period.
The technology mutual fund has a minimum initial investment of $1,000 and an expense ratio of 1.65% compared to a category average of 1.70%.
Kinetics Internet No Load (WWWFX) seeks capital appreciation over the long term with a secondary objective of current income. The fund primarily invests in common stocks, convertible securities, warrants and other equity securities. This technology mutual fund has a three year annualized return of 11.02%.
The fund manager is Peter B. Doyle and he has managed this technology mutual fund since 1999.
T. Rowe Price Global Technology (PRGTX) invests the majority of its assets in companies which expect to derive a large proportion of their revenues from the development and application of technology. The fund invests at least 30% of its assets in both mature and developing foreign markets. The technology mutual fund returned 30.08% in the last one year period.
The technology mutual fund has a minimum initial investment of $2,500 and an expense ratio of 1.04% compared to a category average of 1.70%.
To view the Zacks Rank and past performance of all technology mutual funds, then click here.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at http://www.zacks.com/funds/mutualfund/
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Tyco International Ltd (TYC) reported second quarter 2011 earnings per share from continuing operations of 66 cents, falling below the Zacks Consensus Estimate of 68 cents. Revenues were $4 billion slightly ahead of the Zacks Consensus Estimate of $3.98 billion.
Service revenue, which includes recurring revenue represented over 45% of total revenue and continues to grow. Systems installation and product revenue, which represents about 55% of total revenue, continued to see improved year-over-year order flow.
Overall revenue for the quarter grew 12% to $2.1 billion with organic growth of 5.5%. Recurring revenue increased from 55% of security's total revenue in the prior-year quarter to 58% in 2011, primarily due to the Broadview acquisition. Organic growth of 4.5% in recurring revenue was driven by North American residential and small business operations.
Growth in recurring revenue increased volume in the commercial business, and the continued benefits of restructuring and productivity initiatives drove the year-over-year operating margin improvement.
Overall revenue in the quarter was $1.1 billion with organic revenue growth of 4%. Service and systems installation business, which is the largest portion of fire protection, reported total revenue of $804 million.
Organic revenue growth of 4% in Service was partially offset by a decline in systems installation revenue of 1.5% as a result of project selectivity. The remaining portion of fire protection business, Fire Products, which includes the manufacturing arm of the fire business reported revenue of $305 million in the quarter with organic revenue growth of 11%.
Flow Control revenue was $804 million in the quarter, representing an organic revenue decline of 5%. Valves, which comprises about 60% of Flow Control's annualized revenue recovered from the trough and grew 1% organically in the quarter.
Severe weather conditions and flooding in Australia which persisted throughout the second quarter significantly impacted shipments to customers. In addition to the shipment impact, these external conditions also resulted in lost productivity in the Water business.
Overall, total Flow orders in the quarter increased 8% year-over-year; Valves were up 11%, Thermal increased 8% and Water orders remained flat. Order backlog of $1.65 billion increased 5% on a quarter sequential basis.
The company exited the quarter with $1.84 billion in cash and cash equivalents. Cash from operating activities was $667 million and free cash outflow of $30 million primarily related to restructuring activities.
The company expects revenue for the third quarter to increase to approximately $4.2 billion, a 5% sequential increase over the second quarter of 2011. In terms of bottom-line results, improving business conditions are expected to result in a sequential improvement in third quarter operating results in all three businesses.
The company announced the acquisition of a 75% stake in Dubai-based KEF Holdings for $300 million. The Middle East is a key emerging market and this acquisition provides it with a strategic presence in this growing region.
KEF is the region's only fully integrated valve business with local manufacturing. This will allow the company to better serve both local and global customers predominantly in the oil and gas industry.
Tyco fills a wide range of the diversified needs of businesses and governments, educational and medical institutions, and commercial industries, ranging from food to automobiles. It also boasts of leading brand names for products and services under Flow Control, Fire Protection Services, Safety Products and Electrical & Metal Products.
We are bullish on the company’s fortunes based on the relative stability of global security and fire markets, high and predictable cash generation, limited balance sheet risk, and easy cost-out opportunities. There is a potential catalyst in the company’s solid balance sheet and healthy liquidity position.
The company’s positive and high quality operating performance is commendable despite accelerating weakness in global non-residential construction and project-related end markets.
The company’s business strategy includes acquiring companies and making investments that complement its existing businesses. These acquisitions and investments could be unsuccessful or consume significant resources, which would adversely affect its operating results.
The company continues to be subject to a number of lawsuits stemming from the actions of its prior senior management. Adverse outcomes of these matters could impact its financial condition, results of operations or cash flows. Material adverse legal judgments, fines, penalties or settlements could adversely affect its financial health and prevent it from fulfilling obligations under its outstanding indebtedness.
Based in Pembroke, Bermuda, Tyco International Ltd. operates in 60 countries and manufactures security products and services, fire protection and detection products and services, valves and controls, and other industrial products. Major competitors of Tyco are General Electric Co. (GE), Honeywell International Inc. (HON) and United Technologies Corp. (UTX).
We currently have a Neutral recommendation on Tyco International Ltd.
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Zacks Investment Research
Diagnostic products maker Gen-Probe Inc (GPRO) posted better-than-expected first-quarter fiscal 2011 results with adjusted (excluding one-time charges) earnings of 54 cents beating the Zacks Consensus Estimate of 52 cents while exceeding the year-ago adjusted earnings of 48 cents. However, profit (as reported) slipped 4% year over year to $23.3 million (or 48 cents a share) as higher costs offset an increase in sales.
Revenues for the quarter rose 6% year over year to $143 million, boosted by higher product sales, also surpassing the Zacks Consensus Estimate of $141 million. Product sales climbed 6% year over year to $138.1 million riding on record clinical diagnostic revenues, which cruised 15% year over year to $88.3 million. The growth more than offset the declines across the California-based company’s blood screening and research products and services businesses.
The healthy growth in clinical diagnostic sales was driven by higher sales of GTI Diagnostics (acquired in late 2010) products, APTIMA Combo 2 assay and the PRODESSE influenza assay. Revenues from blood screening products dipped 6% year over year to $46.7 million on account of lower sales of TIGRIS systems to the company’s partner Novartis (NVS) and unfavorable foreign exchange movements.
Revenues from research products and services toppled 24% year over year to $3.1 million, due to sustained weakness in pharmaceutical outsourcing.
Collaborative research sales jumped 9% to $3.6 million, mainly driven by increased funding from Novartis for the development of the fully automated PANTHER instrument and the PROCLEIX ULTRIO Plus assay. Royalty and license revenues slid 13% to $1.4 million.
Margins & Expenses
Gross margin on product sales increased to 69.6% from 67.3% a year-ago, helped by favorable sales mix. Total operating expenses rose 4% year over year to $108.4 million. Research and development expenses fell 2% year over year to $29 million.
Marketing and sales expenses increased 12% to $16.5 million, partly due to sales force expansion in Europe and market development initiatives. General and administrative expenses bumped up 24% to $18.2 million owing to the addition of GTI Diagnostics and legal expenses related to the company's patent infringement case with Becton Dickinson (BDX).
Balance Sheet, Cash flow & Share Repurchases
Gen-Probe ended the quarter with cash and cash equivalents and marketable securities of $491.3 million, down 8% year over year, and short-term debt of $250 million (up 4% year over year). The company generated $40.1 million in cash flows from operations during the quarter and invested $10.8 million in capital expenditure, resulting in a free cash flow of $29.3 million. The company repurchased 756,000 shares for $48 million in the quarter.
Gen-Probe has backed its financial forecast for fiscal 2011. The company continues to envision high single-digit growth in product revenues and expects improving margins to drive healthy earnings growth, despite higher litigation expanses.
Revenue target for fiscal 2011 remain in the range of $570 million to $595 million. Adjusted earnings per share for the year have been projected in the range of $2.28 to $2.40, unchanged vis-à-vis prior guidance.
Gen-Probe still expects adjusted operating margin between 27% and 29% and product gross margin between 68% and 69.5%. The current Zacks Consensus Estimates for 2011 revenue and EPS are $581 million and $2.34, respectively.
Gen-Probe is a dominant player in the rapidly expanding nucleic acid test (“NAT”) market, the fastest growing segment of the clinical diagnostic market. It is a market leader in domestic gonorrhea and chlamydia testing with its PACE and APTIMA assay product lines.
Gen-Probe has a strong pipeline of novel assay products that are expected to drive future growth. Moreover, the ongoing market shift away from traditional diagnostic methods towards molecular testing represents a tailwind for the company.
However, Gen-Probe competes with more established firms such as Roche (RHHBY), Becton, Dickinson and Abbott Labs (ABT) in the maturing molecular diagnostic industry. Moreover, the company’s clinical diagnostics products are susceptible to reimbursement risk and its international sales are subject to foreign exchange swings. Currently, we have a Neutral recommendation on Gen-Probe.
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Zacks Investment Research
Eastman Chemical Company (EMN) reported first-quarter earnings of $3.04 per share, compared with $1.37 per share, a year earlier and beat the Zacks Consensus estimate of $1.97 per share.
Earnings from continuing operations were $2.52 per diluted share in the first quarter versus $1.43 per share in first quarter 2010.
With sales improving across all product lines, revenues climbed 28% year over year to $1.8 billion, driven by higher sales volume and increased selling prices and outpacing the Zacks Consensus estimate of $1.5 billion.
The higher sales volume was attributed primarily to strong end-use demand in packaging, transportation, and other markets and the positive impact of growth initiatives. The increase in selling prices was in response to higher raw material and energy costs.
Costs and Income
Operating earnings in the first quarter 2011 increased by $95 million to $284 million driven by higher selling prices and higher sales volume and offset by higher raw material and energy costs.
First-quarter 2010 operating earnings included $12 million in sales revenue from an acetyl license and were negatively impacted by approximately $20 million by an outage at the company’s Longview, Texas, manufacturing facility.
Performance Chemicals and Intermediates: Eastman’s core business segment, contributed largely to total revenue and margins. Sales soared 44% to $694 million on higher volumes and prices.
Sales volumes rose in the quarter due to the restart of a previously idled cracking unit at the company’s Texas facility and growth in plasticizer product lines, which include the acquired Genovique Specialties plasticizer product lines.
Selling prices increased due to higher raw material and energy costs and also due to strong demand in the U.S. and tight industry supply, particularly for olefin-derivative product lines. Operating earnings were $88 million compared with $35 million in the year-earlier quarter.
The year-over-year growth was primarily driven by higher selling prices, higher sales volumes and the increased benefits from cracking propane to produce low-cost propylene, more than offsetting increased raw material and energy costs.
Coatings, Adhesives, Specialty Polymers and Inks: The segment’s revenues were $467 million, up 25% year on year driven by growth in volumes and a rise in prices. Operating earnings were $98 million versus $65 million in the prior-year quarter. The increase was due to higher selling prices, higher sales volume and increased benefits from cracking propane to produce low-cost propylene, which more than offset higher raw material and energy costs.
Fibers: Sales from the segment grew 8% to $290 million on an increase in volumes mainly due to higher utilization of the recently completed Korean acetate tow manufacturing facility. First-quarter 2011 operating earnings, were $81 million compared with $78 million in the prior year quarter. The increase was primarily due to higher sales volume partially offset by higher raw material and energy costs.
Specialty Plastics: Revenues jumped 24% to $307 million on increased selling price and higher sales volume.
Operating earnings in first quarter 2011, rose 57.9% to $30 million due to higher sales volume and increased capacity utilization, particularly for the new Eastman Tritan copolyester resin manufacturing facility, which led to lower unit costs and increased selling prices, partially offset by higher raw material and energy costs.
Regionally, first quarter revenues grew 32.9% in the United States and Canada to $918 million and 18% to $397 million in the Asia Pacific. Europe, Middle East and Africa revenues increased 28.6% to $355 million and Latin American revenues increased 27.5% to $88 million.
Cash and cash equivalents stood at $640 million at the end of the first quarter of 2011 versus $483 million at the end of the comparable quarter of 2010. First-quarter 2011 cash flows also included the receipt of approximately $615 million from the sale of the PET business of the Performance Polymers segment which is reflected in cash flows from investing activities.
During first quarter 2011, share repurchases totaled $74 million.
The company completed the sale of the polyethylene terephthalate (PET) business, related assets at the Columbia, South Carolina site, and technology of its Performance Polymers segment on January 31, 2011. The divested assets and technology of the PET business were all part of the Performance Polymers segment.
Operating results from the Performance Polymers segment are presented as discontinued operations and are therefore not included in results from continuing operations under generally accepted accounting principles.
Based on the strong first quarter results, the company expects second quarter 2011 earnings per share to be slightly higher than first quarter 2011 and full year 2011 earnings per share to be slightly higher than $9. The results of the first quarter were driven by strong sales volumes and higher prices and Eastman expects the trend to continue into the second quarter as well.
Eastman Chemical’s diversified chemical portfolio, along with its integrated and diverse downstream businesses, is driving earnings. Eastman benefits from business restructuring and cost-cutting measures. The company has sold unprofitable units and closed down poorly performing ones.
The company, however, faces volatility in raw material and energy costs, higher pension expenses and other growth-related costs.
Currently, Eastman has a short-term (1 to 3 months) Zacks #3 Rank (Hold) and a long-term (6 months and higher) Outperform recommendation.
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The announcement of Quest Diagnostics’ (DGX) first quarter of fiscal 2011 results as on April 20, 2011, has triggered analysts to revise estimates downwards.
Previous quarter highlights
Quest Diagnostics reported an adjusted EPS of $1.00 during the first quarter of fiscal 2011, a penny above the Zacks Consensus Estimate and the year-ago quarter. Revenues for the quarter increased 1% year over year to $1.8 billion, in line with the Zacks Consensus Estimate. A 10.5% decline in the number of outstanding shares had a favorable impact on earnings.
The adjusted earnings in the reported quarter excludes the impact of severe weather (7 cents), costs associated with workforce reduction (5 cents) and recent transactions (2 cents) related to Athena Diagnostics and Celera Corporation (CRA). The year-ago period also witnessed the impact of severe weather (5 cents) and restructuring charges (6 cents).
Clinical testing revenues, which account for most of Quest’s sales, increased 0.3% compared to the prior year. While clinical testing volume (measured by the number of requisitions) during the quarter increased by 2% compared with the year-ago period, revenue per requisition was lower by 1.7%. The impact of a severe weather during the quarter reduced revenues and volume by 1.4%
Quest updated its outlook for 2011. The company expects to report an adjusted EPS of $4.25-$4.45 banking on a 2% growth in revenues (1% growth as per previous guidance). This reflects a 1% increase based on the Athena acquisition. The company expects operating margin to be around 17.5%−18% (adjusted) and to generate $1.1 billion in cash from operations.
For a full coverage on the earnings, read: Quest Diagnostics Beats by a Penny
Agreement of Analysts
Following the release of first quarter results, estimate revision trends among analysts depict a negative bias for the company’s earnings in the forthcoming periods. Over the last 7 days, 4 of the 21 analysts covering the stock have lowered their revisions for the second quarter of fiscal 2011, with no revision in the opposite direction.
Moreover, in the past 30 days, 15 analysts have lowered their estimates for the second quarter with only one moving in the reverse direction. However, the situation improves a bit in the second half of 2011.
For the third quarter, 5 analysts lowered their estimates with 4 in the opposite direction in the last 30 days. For fiscal 2011, out of 19 analysts, 14 have reduced their estimates in the last 30 days with no upward revisions.
After several quarters of declining clinical testing volume, Quest recorded a positive 0.1% volume growth during the fourth quarter of 2010. It is encouraging to note that volume growth improved further to 2% during the first quarter of 2011. Moreover, physician office visits (Quest derives 80% of its business from physician office visits), though down, is showing some improvement and is not expected to change significantly from the current level thereby resulting in some stability going forward.
Revenue per requisition continues to be under pressure ever since the contracts were renewed during the second quarter of 2010. However, with the completion of one year of this event, the company expects stability in revenue per requisition in the second half of 2011. The situation of the company reflects the estimate revision trends by the analysts that improve as the year progresses.
Adjusted operating margin in the reported quarter declined to 16.3% compared to 18.1% in the year-ago period. Higher operating costs and expenses related to salaries and wages resulted in lower operating margin. However, the company is striving to better manage its cost structure, evaluate a number of new opportunities and bring about quality improvements.
To meet these objectives, Quest has made investments in the recent past in sales and service, which are temporarily pressurizing margins. However, over a longer time period, these investments should result in accelerated revenue growth and margin expansion.
To benefit in the long term, Quest is focusing on areas with high potential such as gene-based, esoteric and anatomic pathology testing, which accounted for approximately 36% of the company’s total revenue in 2010.
Quest continues to face challenges as its anatomic pathology still sees a drop in revenues. This is significant as this high-margin business contributes about 14% of the company’s total sales. Moreover, low-margin drugs-of-abuse testing recorded an 11% growth during the quarter, though the contribution to the volume was modest (0.5%).
Magnitude of Estimate Revisions
The magnitude of revisions is modest following the first quarter results. Overall, estimates for the next quarter have gone down by 4 cents to $1.14 while third-quarter estimate remained unchanged at $1.17. Estimates for fiscal 2011 also witnessed a decline of 8 cents to $4.36 over the last 30 days.
We appreciate Quest’s move of repurchasing shares and paying dividends to drive shareholder value. Besides, the company is adopting strategies such as suitable acquisitions, increased sales force and targeting additional geographies to drive its top line.
With positive volume growth during the quarter coupled with expected stability in pricing from the second half of 2011, the company is gearing for a gradual recovery. We are encouraged by Quest’s strong portfolio of tests, many of which are finding greater acceptance with time.
We have a ‘Neutral’ recommendation on the stock which corresponds to the Zacks # 3 Rank (Hold).
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard" articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
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Williams Partners L.P. (WPZ) registered fourth-quarter 2010 earnings of 76 cents per limited-partner unit, beating the Zacks Consensus Estimate of 72 cents on higher natural gas liquid (NGL) margins in its midstream business.
However, quarterly earnings were below the year-earlier earnings of 99 cents. Full-year 2010 earnings also dropped 7.6% year over year to $2.66 per unit but was well ahead of the Zacks Consensus Estimate of $2.56.
Total revenue increased 14% year over year to $1,498 million, but missed the Zacks Consensus Estimate of $1,505 million. Full-year 2010 revenue came in at $5,715 million, up 24% on an annualized basis and ahead of the Zacks Consensus Estimate of $5,545 million.
Notably, Williams Partners' distributable cash flow (DCF) in the quarter was $335 million, compared with $68 million in the year-ago period. Importantly, the partnership’s 2010 DCF increased substantially to $1,164 million from $191 million in 2009. The improvement in DCF was largely on the back of first-quarter 2010 asset contribution transactions that led to a growth in the partnership.
The partnership increased its quarterly cash distribution 11% year over year to 70.25 cents per unit. Williams Partners also expects to increase distributions to its limited-partner unitholders by approximately 6% to 10% annually.
On a comparative note, yesterday, the partnership’s peer group, Enterprise Products Partners LP (EPD) reported lower-than-expected fourth quarter 2010 earnings. However, Enterprise increased its quarterly distribution 5.4% year over year to 59 cents per common unit, or $2.36 per unit on an annualized basis.
Consolidated adjusted segment profit was $426 million in the quarter, up 9.5% from the year-ago level of $389 million.
Gas Pipeline: The segment reported profits of $159 million in the fourth quarter and $637 million in the full year, compared with year-earlier levels of $160 million and $635 million, respectively. Higher transportation revenues from the Transco expansion projects were offset by lower other service revenues and higher operating costs.
Midstream Gas & Liquids: The segment’s profits declined almost 2% year over year to $259 million in the reported quarter. However, on a full-year basis, the segment’s profit grew 37% year over year to $937 million in 2010, owing to higher per-unit NGL margins.
We believe William Partners is well positioned for future growth owing to its geographically diverse assets, a sizable project backlog as well as its sound distribution history. Moreover, its midstream business continues to progress on a number of ongoing organic expansion projects and tracks several growth opportunities within its onshore and Gulf of Mexico businesses.
On average, William Partners expects its total capex to be around $1.7 billion and $1.3 billion for 2011 and 2012, respectively.
Williams Partners’ recently concluded consolidation program will allow it to simplify its structure, pay down debt and drive growth. Moreover, the partnership’s broad exposure to the high-return Marcellus Shale play is expected to be accretive in the long run.
However, we believe these favorable attributes are already reflected in the partnership’s valuation. Hence, we maintain our long-term Neutral recommendation for Williams Partners, which is supported by a Zacks #3 Rank (short-term Hold rating).
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Deckers Outdoor Corporation (DECK), the maker of sheepskin boots and slippers, recently delivered better-than-expected first-quarter 2011 results on the heels of strong demand for the product lines under the UGG and Teva brands. Consequently, the company raised its full year outlook but hinted at delivering a loss in the second quarter.
The quarterly earnings of 49 cents a share beat the Zacks Consensus Estimate of 47 cents, and rose 6.5% from 46 cents earned in the prior-year quarter.
Let’s Dig Deep
Deckers said that total net sales jumped to $204.9 million, up 31.4% from the prior-year quarter, and came ahead of the Zacks Consensus Estimate of $201 million. The company’s sustained focus on new product introductions and geographic expansion have helped achieve robust growth.
Domestic sales for the quarter surged 26.6% to $148.1 million, whereas international sales soared 45.8% to $56.7 million. International sales now represent 27.7% of total sales up from 25% in the year-ago quarter.
The international markets provide a significant growth opportunity, and we remain optimistic about the company’s incremental sales and earnings potential. Internationally, the company distributes its products throughout Europe, Asia Pacific, Canada and Latin America.
UGG brand net sales surged 42.2% to $148.4 million and Teva brand net sales grew 16.8% to $50.4 million. Combined net sales of Deckers’ other brands for the quarter dropped 28.3% to $6 million.
Sales for the retail store business jumped 52.8% to $35.4 million, propelled by same-store sales growth of 2.6%, and the opening of 9 new stores. Deckers plans to open 15 new full-priced stores in fiscal 2011 with the majority outside the U.S.
Sales for the company’s eCommerce business climbed 27.3% to $23.5 million, reflecting a rise in demand for the UGG brand.
Despite a 31.2% increase in cost of goods sold, gross profit jumped 31.5% to $102.5 million during the quarter, reflecting double-digit growth registered in the top-line, whereas gross profit margin remained flat at 50%.
With the transition to a wholesale model Deckers now manages the distribution of UGG, Teva and Simple brands in the U.K. and the UGG and Simple brands in the Benelux region. This will help capture incremental sales by selling directly to wholesale customers.
Other Financial Aspects
Deckers also portrays a healthy debt-free balance sheet with a significant cash and cash equivalents balance of $437.9 million and shareholders’ equity of $671.9 million, excluding a non-controlling interest of $3.3 million. This provides ample liquidity to capitalize on future growth opportunities.
During the quarter, Deckers did not buy back any shares. The company still has approximately $20 million at its disposal under its $50 million share repurchase authorization announced in June 2009. Capital expenditures for the quarter were $5 million.
Walking through Guidance
Management now forecasts a total revenue growth of 21% and earnings per share increase of 13% in fiscal 2011. Earlier, Deckers had projected total revenue to increase by 20% and earnings per share to rise by 10%.
For second-quarter 2011, Deckers projected revenue growth of 4% but expects to post a loss per share of 25 cents due to a shift in incremental sales of $50 million to the third quarter from the second quarter on account of transition to a wholesale business model from a distributor business model, and higher fixed overhead expenses.
The current Zacks Consensus Estimate for second-quarter 2011 is 6 cents a share. Following the company’s recent guidance of loss per share, a negative sentiment may be palpable among the analysts following the stock, and we could witness a fall in the Zacks Consensus Estimate in the coming days with analysts tweaking their estimates to better align with the company’s projection.
Management predicts capital expenditures between $55 million and $60 million for the year.
Currently, we have a long-term Outperform rating on the stock. However, Deckers, which competes with Nike Inc. (NKE) and Timberland Co. (TBL), holds a Zacks #3 Rank, which translates into a short-term Hold recommendation.
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Reliance Steel & Aluminum Co. (RS) reported net income of $92.3 million or $1.23 per share in the first quarter of 2011 compared with $44.7 million or 60 cents per share in the prior-year quarter. Results surpassed the Zacks Consensus Estimate of $1.07.
The first-quarter results included a pre-tax accounting charge of $20.0 million compared with $5.0 million in the first quarter of 2010.
Quarterly sales were $1.91 billion, up 32% year over year. Results were above the Zacks Consensus Estimate of $1.84 billion. The increase was driven by price increase for all products during the quarter.
In first quarter of 2011, Reliance’s tons sold were up 12% and the average price per ton sold was up 18% compared with the prior-year quarter. Carbon steel sales were 53% of revenues; aluminum sales were 17%; stainless steel sales were 16%; alloy sales were 8%; toll processing sales were 2% and other sales were 4%.
Cash and cash equivalents was $76.8 at the end of March 31, 2011 versus $72.9 at the end of December 31, 2010. Net debt-to-total capital ratio was only 25.7% as of March 31, 2011; up from 23.5% as of December 31, 2010. Reliance Steel has about $715 million available on its $1.1 billion credit facility.
Cash flow from operations was $101.4 million in the first quarter of 2011 versus $54.3 million in the prior-year quarter. Capital expenditure was $34.9 million versus $22.4 million in the prior-year quarter.
On April 26, 2011, the board of directors declared a regular quarterly cash dividend of $.12 per share of common stock, increasing 20% from $.10 per share at the beginning of the quarter.
The second quarter dividend is payable on June 24, 2011 to shareholders of record as of June 3, 2011. The company has increased its dividend 16 times since the IPO in 1994 and has paid regular quarterly dividends for 52 consecutive years.
For second-quarter 2011, Reliance Steel expects pricing to remain at strong levels. Earnings per diluted share are expected to be in the range of $1.20 to $1.30.
We maintain our Outperform recommendation on Reliance Steel. Currently, it holds a Zacks #2 Rank (Buy) on the stock.
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China Unicom (CHU), China's second largest mobile operator, announced its first quarter 2011 earnings per share of RMB 0.01 (1 cents per share), which missed the Zacks Consensus Estimate of 5 cents. Earnings per share plummeted 80% from the year-ago quarter.
Adjusted net income plunged 86% year over year to RMB 166 million ($25.2 million). This massive year-over-year decline in profitability can be traced back to heavy handset subsidies as well as high costs associated with 3G service deployments and network expansion.
Total revenue climbed 21% year over year to RMB 49.03 billion ($7.45 billion) in the first quarter, surpassing the Zacks Consensus Estimate of $6.91 billion. Telecommunication service revenues were RMB 43.22 billion ($6.57 billion), representing approximately 88% of total revenue.
Excluding deferred fixed-line upfront connection fees, total revenue and telecommunication service revenues increased 21.2% and 11.9% year over year, respectively.
Total revenue from the mobile business shot up 42% year over year to RMB 28.42 billion ($4.32 billion) in the reported quarter. A large contributor to this was telecommunication service with revenues of RMB 23.29 billion ($3.54 billion), up 25% from the year-ago quarter. 3G business telecommunication service revenues were RMB 5.68 billion ($0.86 billion) in the reported quarter.
Excluding deferred fixed-line upfront connection fees, revenue from the fixed-line business was RMB 20.36 billion ($3.09 billion) and telecommunications service revenue was RMB 19.92 billion ($3.03 billion). Telecommunications services revenue from the fixed-line business inched up 0.1% year over year.
Telecommunications service revenue from the broadband business was RMB 8.44 billion ($1.28 billion), up 18.4% year over year.
Total expenses in the first quarter increased 25.3% year over year to RMB 48.79 billion ($7.42 billion) due to higher selling expenses, network deployment costs and depreciation charges. Selling and marketing expenses rose 19.3% year over year, mostly due to higher promotional spending on 3G services.
China Unicom exited the first quarter with cash and cash equivalents of RMB 24.6 billion compared with RMB 8.9 billion in the year-ago quarter.
We believe China Unicom will continue to make significant progress in expanding economies of scale in 3G, broadband and other businesses that will likely improve its overall revenue and profitability. 3G remains a compelling opportunity and represents the sole driver of the company’s long-term growth.
However, the company remains significantly challenged by aggressive nationwide 3G service rollouts by its peers China Mobile (CHL) and China Telecom Corp. (CHA). China Unicom’sGSM average revenue per user remains under pressure due to aggressive price competition while the monthly average churn continues to be high.
Further, the companyis aggressively involved in marketing and promotional activities since the launch of its 3G services, resulting in higher marketing expenses. Increased expenses coupled with higher depreciation and amortizations will have an adverse effect on the company’s profitability, free cash flow and margins.
Based on the disappointing first quarter profit level as well as higher costs expectation, we are downgrading our long-term rating to Underperform on China Unicom with the Zacks #5 (Strong Sell) Rank.
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Resuscitation devices maker ZOLL Medical (ZOLL) reported second-quarter fiscal 2011 (ended April 3) earnings of 27 cents per share, beating the Zacks Consensus Estimate of 21 cents and surpassing the year-ago earnings of 17 cents. Profit rocketed 65% year over year to $6 million as revenues grew at a double-digit clip.
Revenues climbed 14% year over year to $122.5 million, ahead of the Zacks Consensus Estimate of $121 million. Sales were driven by strong revenues from the company’s LifeVest wearable defibrillator and temperature management businesses, supported by healthy international growth. Total order backlog at the end of the quarter was roughly $29 million, up 32% year over year.
Sales in the North American hospital market dipped 2% year over year to $63.2 million as revenues from the company’s U.S. Military business clipped 17.5% year over year to $3.3 million.
Revenues from North American pre-hospital market fell 4% year over year to $32.7 million while International sales surged 25% to $32.7 million. The North American pre-hospital market is expected to remain soft through fiscal 2011, partly due to a still weak capital spending backdrop.
The company’s LifeVest business remains on a solid growth track with revenues catapulting 60% year over year to $26.6 million. Revenues from the AutoPulse cardiac support pump, however, tumbled 34% to $3 million. Temperature Management sales zoomed 52% of $6.1 million.
Gross margin improved to 58% in the quarter from 55% a year-ago, reflecting a better mix of higher margin LifeVest sales. Total expenses surged roughly 17% year over year to $62.2 million. ZOLL Medical exited the quarter with cash and cash equivalents and short-term investments of roughly $57.4 million, up 11% year over year, with no debt.
ZOLL Medical is a leading player in the global market for external defibrillators, which is worth more than $1 billion. The company has innovated a wide range of product features that have become the standard of care in the external defibrillator industry.
It remains committed to expanding its product range to sustain growth in this market. Moreover, ZOLL Medical is expanding its footprint in the international markets.
We remain impressed by ZOLL Medical’s solid fundamentals, broad product range, strong international presence, healthy revenue/margin mix and upbeat prospect for LifeVest. The company has completed multiple acquisitions in the past and is seeking more such lucrative transactions to aid growth.
However, ZOLL Medical operates in a highly competitive defibrillation market In the U.S. The company competes with Physio-Control, a wholly-owned unit of Medtronic (MDT) and Philips (PHG) in this market. Moreover, the North American emergency medical services (“EMS”) market remains sluggish, in part, due to budget constraints. Currently, we have a Neutral recommendation on ZOLL Medical.
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