Visa Beats on Strong Top Line – Analyst Blog
Visa Inc.'s (V) fiscal third-quarter earnings of 97 cents per share were substantially ahead of the Zacks Consensus Estimate of 93 cents.
Visa's GAAP net income for the quarter came in at $716 million, marginally down 1.8% from $729 million in the year-ago quarter. However, operating income substantially increased 38.3% year over year to $1.14 billion. Total operating revenues for the reported quarter were $2.03 billion, up 23.3% from $1.65 billion in the year-ago quarter.
Service revenues increased 13.5% year over year to $873 million and are recognized based on payments volume in the prior quarter. All other revenue categories are recognized based on current quarter activity. Data processing revenues rose 30.9% over the prior year period to $792 million.
International transaction revenues, which are driven by cross-border payments volume, grew 25.3% over the prior year quarter to $574 million. Other revenues, which include the Visa Europe licensing fee, were $183 million, up 15.8% over the year-ago quarter. Volume and support incentives were $393 million, representing 16% of gross revenue.
On a constant dollar basis, payments volume increased 14% year over year to $803 billion. Total processed transactions carrying the Visa brand increased 14% year over year to 11.7 billion. Cross border volume, on a constant dollar basis, grew 17% year over year.
Total GAAP operating expenses for the reported quarter increased 8% year over year to $892 million. The increase was primarily a result of rising communication, marketing, depreciation and personnel expenses.
As of June 30, 2010, cash and equivalents, restricted cash and available-for-sale investment securities were $7.4 billion, which includes $1.9 billion of restricted cash for litigation escrow. Visa's operating cash flow substantially improved to $1.8 billion while total shareholders' equity was recorded at $24.68 billion.
Business Update
On July 21 2010, Visa closed the acquisition of CyberSource Corporation, a leading provider of electronic payment, risk management and payment security solutions to online merchants, for a cash payment of approximately $2.0 billion, valuing at $26 per share. With over 295,000 merchants and clients (including British Airways, Home Depot, Facebook, Google Inc. (GOOG)), CyberSource processes approximately 25% of all eCommerce dollars transacted in the U.S.
Guidance
For fiscal 2010, Visa reiterated its annual net revenue growth projections in the range of 11-15%; annual operating margin in the mid to high 50% range; the GAAP tax rate was revised to be in the range of 37-38%; and capital expenditures of about $200 million. Further, the company re-affirmed its volume and support incentives to be in the range of 16-17% of gross revenue; advertising, marketing and promotional expenses to be less than $1 billion; annual earnings per share growth of greater than 20% and annual free cash flow to exceed $2 billion in fiscal 2010.
For fiscal 2011, Visa continues to project that annual earnings per share growth will exceed 20% and annual free cash flow to surpass $2 billion.
Dividend Update
On July 22, the Board of Visa announced a quarterly dividend of $0.125 per share of class A common stock (determined in the case of class B and class C common stock on an as-converted basis), which will be paid on September 1, 2010 to all holders of record as of August 13, 2010.
Our Take
The results for the reported quarter primarily benefited from transaction growth, driven by Visa's payments network and processing capabilities. Also, the ongoing economic recovery and new U.S. regulations have led to increased use of debit cards along with the improvement in the credit card industry. As a result, revenue and operating income rose across all categories. Growth in data processing and international transaction revenues was significant during the reported quarter. In addition, Visa has delivered growth by generating strong cash flow and maintaining a healthy capital position.
However, Visa is being challenged by higher expenses and the new regulatory compliances for debit cards, compelling Visa to snip its debit processing fees, as a result of the ongoing financial overhaul reform in the U.S. The impact of the new regulation is expected to be more severe on Visa than its peers such as MasterCard Inc. (MA) since the former is more exposed to the debit processing market and generates a chunk of the revenue from there. Hence, it is likely to put Visa through a bumpy ride in the upcoming quarters.
Nevertheless, the recent CyberSource acquisition is a part of Visa's long-term growth strategy, which would provide greater exposure in the rapidly-developing eCommerce industry. This is not only expected to boost revenue growth but will also increase the company's merchant and clientele base across the globe, ensuring reduction in monetary loss from fraud. It would also provide them with fast and efficient connectivity to multiple payment networks. Hence, CyberSource is expected to be a feather in Visa's cap in the long run.
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EQT Corp. Misses Zacks Estimates – Analyst Blog
EQT Corporation (EQT), an integrated energy company with an emphasis on natural gas supply activities, posted weaker-than-expected second-quarter 2010 earnings of 20 cents per share, lower than the Zacks Consensus Estimate of 25 cents. However, earnings were in line with the year-earlier results.Operating revenue in the quarter increased 8.2% year over year to $257.5 million, compared with the Zacks Consensus Estimate of $244 million. Operating income rose more than 16% year over year to $78.5 million.
Operational Performance
EQT Production's second-quarter operating revenue increased more than 12% year over year to $101 million, reflecting a spike in sales of produced natural gas, partially offset by a drop in wellhead natural gas prices.
Operating income fell 29.3% to $23.8 million. Total operating expense in the quarter soared 37.2% to $77.2 million. Exploration expense in the quarter dropped significantly to $1.1 million. During the quarter under review, 164 gross wells were drilled, of which 128 were horizontals.
EQT Midstream's operating income of $59 million was up 80% year over year on an increase of 37% registered in total net operating revenue of $111.4 million. Net processing revenue more than doubled to $25.6 million, driven by increased NGL (natural gas liquids) prices and volumes. Net gathering revenue and net transmission revenue increased 25% and 2% to $51 million and $18 million, respectively. Total operating expenses jumped 8.3% to $52.4 million.
EQT Distribution’s net operating revenue fell 9.7% to $29.2 million. The company earned operating income of $4.3 million, down considerably, while operating expenses climbed 8.4% to $24.9 million.
EQT generated operating cash flow of $112.6 million during the quarter.
The company expects 2010 sales of produced natural gas in the range of 129–131 Bcfe, representing approximately 30% growth over 2009.
Our Take
EQT Corporation continues to deliver consistent production growth on the back of its sizable acreage position in Huron Shale and Marcellus Shale plays. Further, an investment-grade balance sheet provides EQT with the financial flexibility to carry out this growth.
Low natural gas prices could challenge this pure gas producer and hinder production growth. A surge in operating expenses is also a threat to the company’s growth trajectory. Hence, we maintain our Neutral recommendation with the Zacks #3 Rank (Neutral).
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Cincinnati Financial Tops – Analyst Blog
Cincinnati Financial Corp.’s (CINF) second-quarter net income of 26 cents per share came ahead of the Zacks Consensus Estimate of 22 cents. Results were significantly better than the prior-year loss of 3 cents per share. Earnings were aided by an increase in investment income, coupled with a decline in property and casualty underwriting loss.Total revenue for the quarter remained almost unchanged at $878 million from $874 million in the prior year quarter, but lower than the Zacks Consensus Estimate of $898 million.
After-tax investment income increased 8% year over year to $98 million. Book value declined 2.4% from the prior-year quarter to $29.13 per share as of June 30, 2010. The value creation ratio, which factors in growth in book value as well as dividend contribution, deteriorated to -1.1% from 8.4% in the prior-year quarter. For the five-year period from 2010 through 2014, management continues to target an average value creation ratio of 12% to 15%.
Segment Results
Strong retention ratio coupled with modest pricing declines (1% during the first half of 2010) led to a 2% year-over-year increase in net premiums written to $532 million in the Commercial Insurance segment. There was a marked improvement in underwriting loss to $9 million from $61 million in the prior-year quarter. Combined ratio improved 920 basis points year over year to 101.7%, due to favorable prior-year reserve release and fairly stable current accident year results.
Strong new business and pricing increases led to a 7% year-over-year increase in net written premiums to $204 million in the Personal Lines segment. Combined ratio improved 980 basis points to 123.4% from 133.2% in the prior-year quarter, due to low catastrophe losses.
Earned premiums in the Life Insurance segment increased 8.0% from the prior-year quarter to $40 million. The growth was mainly derived from higher premiums from Universal Life Insurance products.
Cincinnati Financial remains well capitalized at the insurance company level with reference to the minimum risk-based capital requirement. Its reliance on debt as a source of capital has been low. It targets a debt-to-total-capital ratio of less than 20%. During the quarter, debt-to-capital ratio stood at 15.0%, unchanged from the 2009 year-end levels.
Cincinnati Financial’s Commercial Lines' prime premium contributor has been suffering from soft market conditions. Not much improvement is expected here in 2010. However, its Personal Lines segment is expected to clock a modest positive growth with strong business retention and rate increases evidenced.
We remain cautious on the investment portfolio with an above-average equity concentration. However, new agency appointments and increased footprint will win new business. Low leverage, solid capital and consistent cash flow generation are other positives. Although value creation through business growth will remain subdued, shareholders will benefit by dividend increases and share repurchases over the near term.
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The Reason for the Market Comeback – Voice of the People
Zacks' Voice of the People Highlights user inthemoneystocks: "The Reason for the Market Comeback" from the People & Picks community.For more Voice of the People, visit http://at.zacks.com/?id=5851
Featured Post
The Reason for the Market Comeback
This morning the major indexes all reversed lower from a gap higher open. However, one stock was strong during the morning selling assault and it was Goldman Sachs Group Inc (GS). Goldman Sachs is now trading higher on the session by over 4.00 points to $151.57.
When Goldman trades higher many traders and investors feel confident that this stock knows something that nobody else does. Therefore, others traders and investors will buy other stocks and often cause a rally.
Since Goldman Sachs Group settled with the SEC over fraud charges the stock has rallied sharply higher. In early July Goldman Sachs Group Inc was trading as low as $130.00 a share. The stock will have intra-day resistance around the $152.00 - $152.50 levels.
About the Zacks Community
In 2008, Zacks Investment Research launched PeopleAndPicks.com, a stock-picking website where members of the Zacks community can test their strategies and share ideas with other members. Each user is scored on the accuracy of his or her picks, and top users are rewarded with free products from Zacks. Registration is free. To learn more visit http://www.PeopleAndPicks.com
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Xcel Energy Beats by a Penny – Analyst Blog
Electricity and natural gas company Xcel Energy Inc. (XEL) announced its operating earnings for the second-quarter 2010 of 29 cents per share versus 25 cents per share in the year-ago quarter, reflecting a growth of 16%. The results of the company were higher than the Zacks Consensus Estimate of 28 cents per share by a penny.Xcel Energy’s GAAP earnings for the second quarter of 2010 were 30 cents per share versus 25 cents per share recorded in the year-ago period. The difference between GAAP and operating earnings during the second quarter was owing to one-time gain of 1 cent per share from discontinued operations.
Total Revenue
Xcel Energy reported total revenue of $2,307.8 million for the second-quarter 2010 versus $2,016.1 million in the year-ago period, reflecting a growth of 14.5%. The year-over-year growth was driven by higher contributions from Electric and Other segments; the results were marginally impacted by lower revenues from the Natural Gas segment.
The second-quarter results of the company came in ahead of the Zacks Consensus Estimate of $2,140 million by $167.8 million.
Segment-wise Revenue
Electric: The revenue contribution from this segment during the second-quarter 2010 increased 17.7% to $2,040.7 million from $1,733.7 million in the year-ago period.
Other: Segment revenue in the reported quarter was $17.7 million versus $16.5 million in the year-ago period, reflecting a growth of 7.0%.
Natural Gas: Revenue at this segment dipped 6.2% to $249.4 million from $265.9 million a year ago.
Operational Update
Total operating expenses of Excel Energy climbed 14.2% during the second-quarter 2010 to $1,982.5 million from $1,736.7 million in the year-ago quarter. However, operating expenses, as a percentage of total revenue, declined year over year, which benefited the operating results of the company.
Operating income of the company during the second-quarter 2010 was $325.3 million versus $279.4 million in the year-ago period, manifesting an improvement of 16.5%.
Interest expenses at the end of second-quarter 2010 increased by $2.2 million to $141.5 million from $139.3 million in the year-ago period. The increase in expense was mainly due to higher long-term debt levels to fund investment in utility operations, partially mitigated by lower interest rates.
Financial Update
Xcel Energy ended the quarter with a total debt of $9.1 billion and total debt-to-capitalization of 55%, compared with $8.9 billion of total debt in the year-ago period.
In May 2010, Xcel Energy issued 4.7%, $500 million of unsecured debt with a 10-year maturity. During the remaining period of 2010, the company and its subsidiaries plan to raise $975 million of long-term debt and might issue $400 million of equity either in 2010 or in 2011.
Dividend
On May 19, 2010, the board of directors of Xcel Energy raised the quarterly dividend rate of the company to 25.25 cents per share from 24.50 cents. The dividend was paid on July 15, 2010, to shareholders of record on June 24, 2010.
Guidance
Xcel Energy reaffirmed its earnings guidance for 2010 in the range of $1.55–$1.65 per share. The guidance assumes normal weather pattern for the rest of the year. The guidance also anticipates the revenue to increase in 2010 due to the full year impact of 2009 electric rate increases in Colorado, Texas and New Mexico, along with the 2010 electric rate increase in Colorado.
Xcel Energy guides weather-adjusted retail electric utility sales to grow approximately 1% in 2010. The company also expects weather-adjusted retail firm natural gas sales to increase in the 0–1% range.
Xcel Energy projects operating and maintenance expenses in 2010 to increase in the $115–$135 million range. Depreciation expense is projected to increase in a range of $35 million to $45 million in 2010. Interest expense is likewise projected to increase in the $20 million to $30 million range.
Our View
We appreciate the initiatives taken by Xcel Energy to increase shareholder value through consistently increasing dividend payments rates. We believe the quarterly dividend increment is in sync with the company’s long-term policy of an annualized 2% to 4% dividend spike.
We retain a short-term Zacks #3 Rank (Hold) and a longer-term Neutral recommendation on the stock.
Based in Minneapolis, Minnesota, Xcel Energy is a U.S. electricity and natural gas company, with operations in eight Western and Midwestern states.
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Ball Corp. Beats on Volumes – Analyst Blog
Ball Corporation (BLL) reported second-quarter 2010 income from continuing operations of $1.38 per share, beating the Zacks Consensus Estimate of $1.29 by 9 cents. The results were ahead of $1.14 per share reported in the prior-year quarter. Net income from continuing operations was $128.8 million, compared with $108.6 million in second-quarter 2009.Better-than-expected results were largely driven by volume increases across its packaging businesses, a strong Aerospace segment and accretive acquisitions of four U.S. metal beverage packaging plants.
The second-quarter results were affected by certain one-time items. Including discontinued operations of $75.6 million or 80 cents per share, business consolidation activities of $1.4 million or 1 cent per share, gains and equity earnings related to acquisitions of $22.1 million or 24 cents per share, and debt refinancing costs of $4.9 million or 5 cents per share, Ball Corporation reported net income of $69.0 million or 74 cents per share. Results lagged net income of $133.3 million or $1.40 per share in the prior-year quarter.
The prior-year quarter included discontinued operations of $1.6 million or 2 cents per share, business consolidation activities of $4.4 million or 5 cents per share and gain on disposal of assets of $30.7 million or 32 cents per share.
Net sales of Ball Corporation in second-quarter 2010 was $2 billion, up 15% from $1.7 billion in second-quarter 2009. The increase was primarily driven by strong performance at Metal Beverage Packaging, Americas & Asia segment. Net sales of the company were almost in line with the Zacks Consensus estimate.
Cost of sales of Ball Corporation increased 14% year over year to $1.6 billion, while selling, general and administrative expenses increased 6.5% year over year to $77.6 million in the quarter under review.
Earnings before interest and taxes of Ball Corporation were $222.1 million in the quarter, comparing favorably with $204.6 million in the prior-year quarter.
Interest expense of Ball Corporation totaled $44.7 million, a substantial increase of 81% over the prior-year quarter.
Segment Update
Metal Beverage Packaging, Americas & Asia: Sales increased 38.3% year over year to $1.04 billion in the quarter.
Operating income was $114.5 million or 11% of sales, compared with $74.8 million or 10% of sales a year earlier.
The segment’s performance was aided by volume increase due to addition of the four U.S. metal beverage packaging plants, as well as double-digit volume growth in China and Brazil.
Metal Beverage Packaging, Europe: Sales declined 2.3% year over year to $479.3 million in the quarter.
Operating income was $72.5 million or 15% of sales, compared with $64.8 million or 13% of sales. Volume increases, growth in specialty cans and better operating performance led to the year-over-year growth. However, unfavorable currency exchange rates were a partial offset.
Metal Food & Household Packaging, Americas: Sales declined 3.5% over the prior-year quarter to $312 million.
Operating income was $33.4 million or 11% of sales, compared with $35.1 million or 11% of sales.
Absence of inventory holding gains in the second quarter of 2009 weighed on the benefits from demand increase and a better price/cost mix in the quarter.
Aerospace & Technologies: Sales declined marginally by 0.7% over the prior-year quarter to $180.2 million in the quarter.
Operating income was $18.6 million or 10% of sales compared with $14.8 million or 8% of sales.
Financial Update
Ball Corporation’s cash provided by operating activities was $8.8 million in the quarter, compared with $39.6 million in the prior-year quarter.
Capital expenditures of Ball Corporation in the quarter totaled $69.1 million, lower than $91.7 million in second-quarter 2009.
Cash and cash equivalent balance of Ball Corporation at the end of the quarter was $75.0 million, up from $59.5 million at the end of second quarter 2009.
Long-term debt of Ball Corporation increased to $2.2 billion at quarter end from $2.0 billion at the end of the prior-year quarter.
Full-Year 2010 Guidance
Management expects free cash flows to be $500 million. It also expects to spend more than $400 million to buy back its shares.
Volume increase experienced by Ball Corporation in the quarter is expected to continue in the upcoming quarters as well. Also the acquisition of metal beverage packaging plants will aid volume improvement. Management initiatives to focus on core businesses, strategic acquisition and exiting the plastic packaging business bode well for future operating performance. Also increase in share repurchases will enhance shareholder value.
However, the defense department’s plans of cutting down on the defense budget could affect the performance of the Aerospace and Technologies segment. This, coupled with the competitive environment in which the company operates, keeps us on the sidelines. We maintain our Neutral recommendation on Ball Corporation. The quantitative Zacks #3 Rank (Hold) for the company indicates no clear directional pressure on the shares over the near term.
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DENTSPLY Shy by a Penny – Analyst Blog
Leading dental product maker DENTSPLY International (XRAY) reported tepid second-quarter fiscal 2010 results with adjusted earnings per share of 50 cents coming in a penny below the Zacks Consensus Estimate and a cent above the year-ago adjusted earnings. Adjusted earnings exclude one-time items such as restructuring charges and tax-related adjustments. Net income edged up 3% year-over-year to $72.4 million (or 49 cents a share).
Revenues
Net sales increased 2.2% year-over-year to $565.1 million, but trailed the Zacks Consensus Estimate of $568 million. Sales were supported by the resurgent global dental market with several product segments and geographies showing signs of growth. Not being a life-sustaining product, the dental market was badly affected in the height of the economic downturn, which resulted in patients deferring their adoption.
Excluding the precious metal content, net sales increased 1.5% to $519.3 million. Growth ebbed due to unfavorable foreign exchange translation (stemming from a stronger U.S. dollar compared to other currencies).
Margins & Expenses
Gross margin fell to 50.9% from 51.7% a year-ago on account of higher cost of sales (up 4%). Operating margin improved to 18.6% from 17.9% a year-ago, helped by higher sales and lower restructuring and other expenses. Selling, general and administrative expenses dipped marginally to $182.4 million.
Financial Condition
The company exited the first-half fiscal 2010 with cash and cash equivalents of $340.3 million, up 35% year-over-year. However, long-term debt increased more than three-fold year-over-year to roughly $463 million.
Outlook
Factoring in the currency exchange headwinds, DENTSPLY has trimmed its earnings guidance for fiscal 2010. The company now expects adjusted earnings in the range of $1.86 to $1.94, down from the earlier view of $1.90 to $2.00.
DENTSPLY's diverse product range, significant international presence, new product introductions and acquisition initiatives are expected to boost operating metrics over the forthcoming quarters. However, the company's international operations are exposed to foreign exchange translation risk. We currently have a Neutral recommendation on the stock.
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Teradyne: Another Blow-Out Quarter – Analyst Blog
Teradyne (TER) reported second-quarter earnings that beat the Zacks Consensus Estimate by 13 cents, or 22.0%. Analysts were clearly expecting much weaker results, since there were no changes to estimates over the last 60 days. This was in spite of the fact that the company has a very good surprise history, with the average positive surprise at 23.4% in the preceding four quarters. Management attributed the increase to solid revenue growth.
Revenue
Revenue of $454.8 million was also very strong, beating the Zacks Consensus by 11.7% and representing sequential and year-over-year increases of 38.0% and 168.2%, respectively. Revenues have been growing strongly over the past five quarters, with the triple-digit year-over-year growth the second in this cycle.
Around 88% of revenue in the last quarter came from semiconductor testing platforms, while the balance came from system testing. The 42.4% sequential increase in the semiconductor business was fueled by very strong demand in the system-on-a-chip (SoC) segment, where the company has been gaining share over the past few quarters. Management stated that the recovery in the memory segment lagged that of the SoCs, although the company was seeing growing demand in this segment as well. The System Testing segment experienced a turnaround in the last quarter, increasing 6.2% sequentially, following two quarters of double-digit decline.
Orders
Orders were a disappointment, declining 4.2% sequentially, although they were still up 125.6% from a year ago. Though the business is definitely much stronger this year than last, the company appears to be seeing slightly softer markets, as pent-up demand gets increasingly fulfilled. Particularly, the semiconductor test segment managed to hold its own, increasing 1.4% sequentially and 237.7% from the year-ago quarter. However, this was offset by the 38.5% and 48.3% sequential and year-over-year declines in the systems test segment. Net-net, the book-to-bill ratio dropped from 1.62 in the March 2010 quarter to 1.13 in the June 2010 quarter.
Margins
The pro forma gross margin was 57.0%, up 435 basis points (bps) sequentially and 2,071 bps year over year. The gross margin expansion is attributable to higher volumes.
The operating expenses were $108.7 million, up 3.6% sequentially. However, the operating margin expanded 1,277 bps sequentially and 4,734 bps year over year to 33.1%. This was possible because of the benefits of restructuring actions taken by management that resulted in significant declines in COGS, engineering & development and selling & administrative expenses as a percentage of sales. The leaner cost structure enabled significant margin expansion, as revenue increased substantially in the last quarter.
Net Income
The pro forma net income was $136.1 million, resulting in a 29.9% net income margin compared with $58.7 million, or 17.8% net income margin in the March 2010 quarter and a net loss of $31.8 million, or 18.7% net loss margin in the June quarter of 2009. Our pro forma estimate excludes inventory adjustments, restructuring charges and amortization of intangibles in the last quarter. Our pro forma estimate may not match management’s presentation due to the inclusion/exclusion of some items not considered by management.
Including the special items, the GAAP net income was $132.0 million, or $0.57 per share compared with income of $50.1 million, or $0.22 per share in the previous quarter and a loss of $66.8 million, or $0.39 per share in the year-ago quarter.
Balance Sheet
The company has a fairly strong balance sheet, with cash and short term investments of $408.0 million, which increased by $105.3 million in the last quarter. The net cash balance was $420.3 million ($2.33 a share).
Inventories at quarter end were flattish (down 0.4%) sequentially, with inventory turns jumping up from 7.4X to 9.3X. DSOs were flat at over 49 days, mostly due to the continued momentum in sales.
Guidance
Management provided revenue and EPS guidance for the third quarter of fiscal 2010. Accordingly, revenue is expected to come in at around $490–$520 million (up 7.7% to 14.3% sequentially). The company expects non-GAAP EPS of 75–83 cents and GAAP EPS of 60–67 cents. Teradyne reported GAAP EPS of just 4 cents in the third quarter of 2009. The Zacks Consensus Estimate is currently 44 cents, well below the guided range.
Reiterate Neutral
Although Teradyne reported another strong quarter, the decline in orders is something to look out for. The company appears to be seeing a slowdown in end demand, which will probably soften results next quarter. Moreover, management mentioned the fact that the memory test segment had dropped off somewhat, which further supports this theory.
Given these factors, we remain positive about the company’s overall business and the strong comeback after recession-hit 2009. We believe the longer-term outlook remains positive. Consequently, we are reiterating our Neutral/short-term Hold recommendation on Teradyne shares, as indicated by the Zacks #3 Rank.
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Record Revenues Don’t Help CONSOL – Analyst Blog
Coal producer CONSOL Energy Inc. (CNX) posted earnings from continuing operations of 45 cents per share in the second quarter of 2010, which was way below the Zacks Consensus Estimate of 67 cents. The lower earnings in the quarter were a result of increased interest expense related to the acquisition of the Dominion Appalachian E&P assets.
The company boasted record revenue growth of 20%, which propelled revenues to $1.289 billion, driven by increased contribution from the Coal Division. Compared to the Zacks Consensus Estimate, CONSOL's revenue fell 4% (negative surprise) from $1.343 billion.
Segment Performance
Coal Division
Revenue at the Coal Division improved 19% from the year-ago quarter to $1.002 billion.
In the quarter, CONSOL produced 1.0 million tons of low-volatile metallurgical coal, 0.7 million tons of high-volatility and 13.2 million tons of thermal coal; a total of 14.9 million tons. Of the thermal coal production, 11.6 million tons were in Northern Appalachia, 1.3 million tons in Central Appalachia, and 0.3 million tons in Western Bituminous. The company also successfully reduced thermal coal inventory during the quarter by about 900,000 tons.
The average realized price for low-volatile metallurgical coal was $151.34 per ton, while realized prices for high-volatile metallurgical coal were $75.52 per ton. Realized prices for the company's thermal coal production declined 6.1% to $53.97 per ton in the quarter.
Gas Division
During the quarter, CONSOL completed the $3.475 billion acquisition of Dominion's Appalachian gas assets and the subsequent take-in of CNX Gas Corporation, becoming the largest fossil fuel producer in Appalachia.
The company's Gas Division posted a revenue increase of 29% year over year, a total of $208.5 million. Total production at the Gas Division, which includes CNX Gas and Dominion E&P assets, shot up 42% year over year to 31.9 billion cubic feet (Bcf) in the quarter, while average realized gas price declined 10% to $6.03 per Mcf. Production from the newly acquired Dominion assets was 6.2 Bcf in the quarter (for two months).
Liquidity
As of June 30, 2010, CONSOL's total liquidity was $973.1 million, with cash of $33.3 million and $939.8 million available under its credit facility. CONSOL Energy had $292.2 million drawn under its credit facility. CNX Gas had $66.4 million of short-term debt and $619.7 million in liquidity, with $1.0 million of cash and $618.7 million of available credit facility. CNX Gas also had outstanding letters of credit of $14.9 million.
Guidance
Based on expectations of accelerated drilling in the second half of 2010, CONSOL Energy reaffirmed its previously-announced production guidance of 127 Bcf for 2010 and initiated a 2011 production guidance of 170 Bcf, which represents a 21% increase over the 2010 annualized run rate of 141 Bcf (expected production from 12-month operation of Dominion assets). Furthermore, the company targets production to grow to 350 Bcf by 2015.
The company has a total gas production of 12.7 Bcf hedged for the third quarter of 2010 at an average price of $7.56.
CONSOL Energy is contracted to sell 4.8 million tons of low-volatile metallurgical coal from Buchanan Mine at an average price of $146.72 per ton in 2010. For 2011, the company's Coal Division has 1.1 million tons of low-volatile metallurgical coal priced at $160 per ton.
Additionally, the company plans to sell 3 million tons of high-volatile metallurgical coal in 2010, of which 2.1 million tons are currently under contract at an average price of $76.61 per ton. For 2011, CONSOL expects to sell 600,000 tons of high- volatile coal priced at $77 per ton.
CONSOL plans to invest nearly $1.1 billion in 2010, with about $500 million slated for its Coal and Gas Divisions each and $100 million for other (non-gas) activities.
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Colgate Cautions, Stock Takes Hit – Analyst Blog
Colgate-Palmolive Company (CL), one of the leading consumer products companies, recently posted second-quarter 2010 results. The quarterly earnings of $1.17 per share beat the Zacks Consensus Estimate by a penny and rose 9.3% from $1.07 posted in the prior-year quarter on the heels of increase in volume and pricing, and a gain in market share.However, the world's largest toothpaste maker cautioned that the weakening of the Venezuelan currency would hurt its fiscal 2010 earnings by 10 cents to 15 cents a share, up from 6 cents to 10 cents previously anticipated. Consequently, shares have fallen 6.5% in morning trading.
Global net sales grew 1.8% year-over-year to $3,814 million as unit volume increased 3%, and pricing rose 0.5%, countered by a negative foreign exchange impact of 1.5%. On an organic basis (excluding foreign exchange, acquisitions and divestitures), sales increased 3.5% in the quarter. Colgate's sales improved as consumers loosened their purse strings for branded goods.
However, the global net sales were weaker-than-expected and fell short of the Zacks Consensus Revenue Estimate of $3,949 million.
Gross profit climbed 1.9% to $2,242 million. However, gross profit margin of 58.8% remained flat compared to the prior-year quarter, reflecting cost-containment initiatives, offset by adverse foreign exchange translation.
Colgate-Palmolive notified that its share of the global toothpaste market has increased to 44.4% year-to-date, led by better performance across Brazil, China, India, Russia, Venezuela, France and the United Kingdom. Colgate’s market share in manual toothbrushes has increased to 31.6%.
Segment Discussion
North America sales (20% of the total sales) climbed 4.5% in the quarter, driven by a 5% unit volume growth and 1% favorable foreign exchange, partially offset by 1.5% on account of lower pricing. On an organic basis, sales rose by 3.5%. Operating profit jumped 14%.
Latin America sales (28% of the total sales) grew marginally by 0.5% as unit volume increased 1% driven by gains in Mexico, Colombia, Argentina, Dominican Republic and Central America, offset by a volume decline in Venezuela. Volume climbed 5%, excluding Venezuela. In addition, pricing contributed 7% to the top-line, countered by a negative foreign exchange impact of 7.5%. On an organic basis, sales soared 8%, whereas operating profit slipped 10% during the quarter.
Europe/South Pacific sales (20% of the total sales) dropped 2.5% as pricing was down 2.5% and foreign currency translation made a negative contribution of 1.5%. Unit volume rose 1.5% driven by GABA business, the United Kingdom and Italy Adria, partially offset volume declines across Belgium, Spain and Greece. On an organic basis, sales fell 1%, whereas operating profit climbed 4% in the quarter.
Greater Asia/Africa sales (19% of the total sales) climbed 14%, while unit volume surged 11.5%, led by volume gains in India, the Greater China region, Thailand, Russia and South Africa. Pricing dropped marginally by 1.5% but foreign currency translation made a positive contribution of 4%. On an organic basis, sales grew 10%, whereas operating profit rose 31%.
Hill’s sales (13% of the total sales) tumbled 7.5%. Unit volume fell 4%, due to volume declines across U.S., France, the United Kingdom, Japan and Russia, offset by gain in Canada, Mexico and South Africa. Pricing dropped 4%, but foreign currency translation made a positive contribution of 0.5% to the top-line. On an organic basis, sales slipped 8%, whereas operating profit dipped 4%.
Other Financial Details
Colgate-Palmolive ended the quarter with cash and cash equivalents of $555 million, total debt of $3,373 million and shareholders’ equity of $2,632 million. Year-to-date, net cash provided by operating activities rose 7.5% to $1,302 million, due to efficient working capital management.
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