Apple's earnings report is nothing short of astonishing; revenue up 27%, net income up 33%, and eps up 40%. The most surprising thing in the report to me is free cash flow per share up 46%! How is this possible? During calendar Q1 (fiscal Q2), Apple generated $16.7B in free cash flow compared to $12.1B in 2014. But wait a second, how can Apple generate $16.7B in free cash flow while its net earnings were $13.6B. The answer lies in continued reduction in working capital. Apple is simply wringing cash out of all aspects of its business. This company is being management supremely. Normally, a company has to increase working capital to increase sales. The last year Apple had an increase in working capital was in 2012. Working capital was down $6.5B in 2013, and down another $7.0B in 2014. Although I am shocked and amazed at Apple's performance, a continued draw down of working capital should not be extrapolated into the future. As a result, I expect forward free cash flow per share to be lower than ttm free cash flow. Forward free cash flow per share is forecast to be $11.42 vs $12.92 during the ttm, even while eps is going to increase to $8.97 from $7.97. This is hardly a nit, but Apple is actually more expense using forward fcf than ttm, 11.9x vs 9.8x (ex-$25.65 net cash per share). Still one of the cheapest stocks, particularly compared to growth.
Not seeing a lot of positives in INTC earnings. Not sure why the stock is up after-hours. Q2 revenue guided down and Q3 & Q4 up on windows refresh? Guided margins down. Cut capex. 88 days of inventory... highest in several years. Q2 utilization cut. Wouldn't touch this one.
See full INTC earnings release here.
The S&P initially opened up with a good bid led by the energy sector off on the RDS - BG deal only to weak up after a higher than expected build in U.S. oil inventories. Not to worry, MYL announced a bid for PRGO and the health care sector and S&P headed back up. MYL and PRGO are up 13% and 26% respectively. Trading will probably cool until the FOMC minutes are released later this afternoon.
Although the stock and bond markets are not open today, the futures market is open, and its not looking pretty for Monday. S&P futures are currently down 1% on the much weaker than expected NFP. Treasury futures are up significantly as well. The USD is weaker at 1.10 EUR and 119 JPY.
Micron (MU) gave weak guidance during the conference call yesterday. The revenue guidance was for only 1% grow over the same quarter last year, and margin guidance was also lower. This disappointment in revenue and margin guidance put a lid on the entire semiconductor sector today.
RAI and LO might get approval to merge. Tobacco is the leading sector today. Not an indication of bullish sentiment when tobacco stocks are leading the rally.
I am a fan of healthy and organic food... for people, not pets. Organic food is good for the body and for the environment since no fertilizers or pesticides can leak into ground water, rivers or oceans and negatively effect natural ecosystems. At first thought, it seems logical that healthy and organic food for pets would also sell well. This is the hope of Freshpet, FRPT, who sells healthy and organic pet food. But wait a minute! Is this a good business plan? Apparently so, after coming public in November, the stock dropped from $19 to $14, but has now rebounded to $20. Are people really going to buy healthy and organic food for their pets?
It is a sad reflection on today's society that so many people around the world are hungry, but pet owners spend extra money on healthy and organic pet food. Shows the propensity of people to spend on their pets who have literally taken a set at the dinner table. Is this what makes people happy? To feed their pets healthy and organic food? Where are we headed as a society? Think of how ridiculous this looks with 24% of Sub-Saharan Africans undernourished. 805 million people, 11% of the world's population, are undernourished. These people might be able to make scientific or cultural advancements for humanity, if it weren't for being held back because they cannot get 3 square meals a day. What can a pet do? Make one person happy? Or a few people? I am not suggesting that pets are insignificant, but this is ridiculous. A sad reflection on the state of society. I couldn't buy this stock and sleep at night knowing I am investing in organic pet food when so people don't have food at all. FRPT will probably end up being a great investment to further insult and injury to many who will never know a thing about FRPT or organic pet food.
Michael Grove, CFA