Category Archives: earnings conference calls

TIF’s 1Q12: surprising slowdown by US customers

May 25, 2012 By in earnings conference calls, Industry Analysis, Luxury goods, Retail, Stock ideas Tags: , , , , , , , Leave a comment

the report

TIF reported 1Q12 (ended April 30th) results prior to the opening of equity trading in New York yesterday morning.

Revenues were up 8% year on year, at $819.2 million.  The company earned $.64 a share for the three months, down a bit less than 5% from  results–but substantially below the Wall Street consensus of $.69.

Tif also lowered its full-year guidance by $.25 a share, to a range of $3.70-$3.80.  Worldwide sales are now expected to grow at a 7%-8% rate, down from the prior expectation of +10%.  Eps comparisons will likely be negative in 2Q12 and 3Q12.

The stock dropped sharply on the news.

As I’m writing this on Friday morning, TIF shares are somewhat lower again, in a choppy but flattish market.

the details

sales

Americas           up 3% at $386 million

Asia Pacific         up 17% at $195 million

Japan          up 15% at $142 million

Europe     up 3% at $88 million.

Business was much better than I had expected in Japan.  Analysis is complicated by the fact of the Fukushima nuclear disaster in mid-March 2011.  Still, same store sales growth is up more than 10% from two years ago, in a land that had been turning decidedly cool toward luxury goods.

I think any gain in Europe, now the epicenter of world economic woes, is just short of miraculous.

Asia Pacific performed as expected–no better, no worse.  The company says Chinese business has cooled a bit from the torrid pace of last year.  I don’t consider this a worry.  But it does suggest that Asia won’t be a source of significant upside surprise for a while.

It’s the Americas, and specifically the US, where the falloff versus expectations lies.  Sales to foreign tourists are up, with weakness in European buying more than offset by a step-up in purchases by Asian visitors.  So it looks like the problem is with sales in the US to Americans.

TIF pointed out in its conference call that the softness:

–occurred in April

–is not focussed in any one region of the country (so it isn’t just laid-off NY bankers), and

–is consistent with MasterCard data for high-end jewelry in general (so it isn’t a Tiffany-specific issue).

my thoughts

Some portion of the poor US performance may be attributed to a later date for Mother’s Day this year.  But everyone who has access to a calendar already knew that.  Certainly management had factored this into its earlier guidance.

The downward revision comes after TIF has seen Mother’s Day sales.  I think this means that–unlike the case with more mass-market jewelers like Signet–Mother’s Day didn’t counteract April weakness for TIF.  It confirmed the slowdown.

Elsa Peretti

TIF has an exclusive license to sell Elsa Peretti jewelry, which makes up about 10% of company revenues.

The company filed an 8-K with the SEC on May 23rd in which it says that Ms. Peretti, 72, wants to retire and to sell her brand name and designs.  Negotiations between her and TIF are now in progress.  The Peretti intellectual property should have more value to TIF than to anyone else, so in a completely rational world TIF would end up obtaining it.  Earnings would be affected by, say, +/- 7%-8%, depending on whether negotiations result in purchase or not.

the stock

A short while ago, I sold the last of the TIF I held while I was doing a portfolio housecleaning.  My position was small and–as I’ve written elsewhere–I think the stock market is moving toward playing recovery of the average American rather than the continuing prosperity of the affluent.

I don’t feel a huge urge to buy back the stock I sold.

On the other hand, the stock looks cheap to me at 15x earnings.

15x was the place where I became interested in the stock–which I had owned in my portfolios, off and on, for many years–during the bounceback from Great Recession lows.  There’s always the possibility that the company could be acquired by a luxury goods conglomerate or a sovereign wealth fund.  We also know TIF management, which should know the value of the firm better than anyone else, has been buying the stock at above $60 a share.

I guess I’d like to watch the price for a while-and possibly get a better understanding of the current dynamics of the US customer.

 

 

 

 

WYNN’s 1Q12: good gaming revenue, bad gaming luck

May 17, 2012 By in Casinos, earnings conference calls, Entertainment, Industry Analysis, Stock ideas Tags: , , , , , , , , , Leave a comment

the report

WYNN reported 1Q12 earnings results after the close of stock trading in New York on May 7th.  Adjusted earning per share were $1.33 ($152.0 million) for the period, down by about 4% from the $1.38 ($173.4 million) the company earned in the opening quarter of 2011.  Actual net was down by $21.4 million, or 12% yoy.  The forced redemption of Aruze USA’s 22.5 million shares in February explains the smaller decline in the per share figures.

Wall Street was not impressed.  The stock had been declining somewhat already from the intraday high of $138+ it achieved early in the month, on the announcement that Wynn Macau had received a government go-ahead for its new Cotai casino.  The apparently weak earnings kicked the decline into overdrive.

The report even prompted a comment from the normally reliable Financial Times–which appears not to like the gambling industry much– to the effect that it might be the canary signalling bad times ahead in the Las Vegas casino coal mine.

The reported earnings don’t tell the whole story, however.  The reality is that WYNN had a good quarter, not a bad one.

drop vs. take:  i.e., gross revenue vs. net

What casinos count as revenue is not the amount wagered by customers.  Rather, it’s the portion of total wagering “held” or “won” by the casino.  That is, revenue is the amount customers lose on their wagers. This means casino revenue is not only a function of the amount bet but also of “luck,” or random variation away from theoretical or historical winning percentages.

Such variations–plus or minus–rarely show up in slot machine results, since there are so many transactions in a quarter.  But they often do with table games, especially in the high-roller segment that WYNN specializes in.

WYNN’s 1Q12 earnings comparisons in both Las Vegas and in Macau are skewed unfavorably because of such random factors.

Las Vegas

EBITDA was $100.9 million in 1Q12 vs. $132.1 million in 1Q11.

Table games drop was $654.4 million in 1Q12 vs. $634.0 million in 1Q11.  Win percentage was 22.8% in 1Q12 vs. 30.4% (historically, win has been between 21%-24%; on the 1Q12 conference call, Steve Wynn said he’d never seen a win percentage this high in his casinos).  because of this difference, win was $149.2 million in 1Q12 vs. $192.7 million in 1Q11.

At a 30.4% win percentage, this year’s results would have been $198.9 million.  So the comparison would have been $49.7 million more favorable had WYNN been able to repeat the same extraordinary luck it had last year.

Macau

VIP gamblers bet $33.5 billion (!!) at Wynn Macau’s tables during 1Q12.  This is up 14.6% year on year (partly due to Wynn Macau converting some mass market tables to higher-profit VIP use). Win percentage this year was 2.59%, down 10 basis points from 1Q11′s 2.69% (the normal range is 2.7%-3.0%).  Slightly worse luck in 2012 than in 2011 clipped $33.5 million from the subsidiary’s win.

together

Had WYNN had identical luck during the first quarter this year as last, revenue–and EBITDA–would have been $83.2 million higher.  On such an apples-to-apples basis, EBITDA for WYNN as a whole would have been up 17% instead of down by 3.5%.

Other stuff: hotels

Macau continues to boom.  Hotel occupancy is up to an extraordinary 91.3% vs. 88.6% a year ago.  Room rates are up 5.5% to $324 a night.

In contrast, in Las Vegas, a city drowning in empty hotel rooms, WYNN’s push to higher room rates seems to me to have met serious resistance.  The company achieved a room rate of $255 a night in 1Q12, up $5 from 4Q11 and $15 from 1Q11.  But customers balked.  Occupancy dropped from 85% or so, to 79.3%, yoy.  Greater spending on food and entertainment by less price-sensitive customers made up for this.  But my guess is that WYNN won’t be raising rates again for a while.

my thoughts

The stock is very close to its 52-week low.  The PE multiple is now a reasonable 18x this year’s earnings, with, say, 15%-20% growth in prospect for 2013.  In addition, about 90% of the market cap of WYNN is explained by its interest in Wynn Macau, despite the recent selloff in that equity in Hong Kong (by panicky Europeans, I think).  This leaves the company’s slowly recovering Las Vegas holdings–plus its big management fees from Macau–substantially undervalued, in my view.

I’m content to hold the WYNN shares I have.  At today’s prices I’d purchase LVS, 1128 or 1928 before I’d buy more.

a quick look at DIS

May 15, 2012 By in earnings conference calls, economics, Stock ideas, Strategy Tags: , , , , , Leave a comment

a little history

I became reacquainted with DIS in late 2009 when the company bid for Marvel Entertainment, which I had been a shareholder of for a couple of years.  Several things struck me about DIS that made the investment case more compelling than I expected:

1.  A new chairman, Bob Iger, was steadily reenergizing a company that had suffered for years under complacent and bureaucratic management, as happens with many mature firms.

2.  Although the price being paid, $4 billion, seemed pretty full to me, I knew Marvel would benefit from DIS’s stronger distribution.  And I also saw that Mr. Iger wanted to build the attractiveness of the Disney brand to boys, so Marvel had an “extra” value to DIS.

3.  The theme parks were suffering from the Great Recession.  I thought results would gradually improve as the economy recovered, first through an increase in foreign tourists, then through a return of US vacationers.

4.  Wall Street didn’t like the Marvel deal, which made DIS even cheaper.  So I bought some more.

I ended up selling most of my DIS stock about a year ago, soon after it popped above $40 a share.  Two reasons:  the stock was up a lot, and I worried that possible strikes by the NFL and/or NBA players would dent the profits of ESPN, which is DIS’s dominant business.

I’ve still kept my eye on DIS, which has been a market outperformer even after my sale.  The media reports of strong theme park business in 2Q12 (ended March 31st) when the company reported results last week caught my eye.  So I thought I’d take a closer look.

Here’s what I found.

DIS’s 2Q12 results

Excluding unusual items, earning per share were up 18% year on year, at $.58 vs. $.49 in 2Q11.

parks and resorts

Disney cruise line bookings were up 30% yoy.

Domestic theme park attendance was up 7% yoy, with spending per person up 5% in addition.

Occupancy in park hotels was up 2% yoy at 82%.  Room rates were up by about 5% as well.

Disneyland set a new 2Q attendance record.

The strength in the domestic theme park business comes from two sources:

–foreign tourists, especially from Latin America and Asia, and

–reviving interest from in-state residents in California and Florida.

Out of state domestic visitation to the parks was about flat, yoy.

Operating income from the worldwide Parks and Resorts business was up 53% yoy at $222 million.  The comparison is skewed by the closing of Tokyo Disneyland last year after the mid-March nuclear reactor accident in Japan, combined with a $15 million business interruption insurance payment made in the current quarter.  Ex these factors, the theme park business was probably up a bit over 20%.

To me, the most encouraging news is that residents of two of the areas hardest hit by the domestic housing crisis–southern California and Florida–are starting to come back to the Disney parks.

studio entertainment

Currently, this business is a tale of two movies.  John Carter, which may have made a $100 million loss, is certainly the main reason Studio Entertainment operating results dipped into the red by $84 million in 2Q12.  The other is The Avengers, which reportedly cost $220 million to make but which has had box office of over $1 billion in the first three weeks.  So 3Q12′s results in this segment will doubtless be eye-popping.

consumer products

Avengers-related merchandise sales are going much better than DIS had planned for.  A change of actors appears to have even breathed back life into the Hulk.

media networks

This segment is two-thirds of DIS’s operating income and is driven mostly by ESPN.  Changes in affiliate contracts and the differences in  timing/number of sporting events make year-on-year comparisons particularly hard for an outsider to interpret.  The reported you gain in operating income is 13%.  DIS says an apples-to-apples comparison would be more like half of that.

my thoughts

I find the implications for the US economy in DIS’s results to be encouraging–and consistent with what other companies who appeal to a broad range of Americans are saying.

DIS shares aren’t expensive.  They’re trading at 15x the Wall Street earnings consensus of $3.00 a share for fiscal 2012.  Trend growth is probably around 15% a year.  My guess is that they’ll be mild outperformers over the year ahead, with their best relative showing coming in uncertain days like these.

 


 

 

1Q12 for Las Vegas Sands/Sands China: record quarters again

April 30, 2012 By in Casinos, China, earnings conference calls, emerging markets, Entertainment, Hong Kong, Industry Analysis, Portfolio management, Stock ideas Tags: , , , , , , , , , , , , Leave a comment

the results

After the New York close last Wednesday, LVS reported results for 1Q12.  Revenues came in at $2.77 billion, up 30.8% year on year.  Adjusted Earnings Before Interest Taxes and Depreciation/Amortization (EBITDA) was $1.07 billion, up 42% yoy.  Adjusted EPS were $.70.  That was a gain of 89.2% over results in the year-ago quarter.  The figure also came in $.01/share above the highest Wall Street estimate, and $.07/share ahead of the consensus.

the details

EBITDA breaks out into:

$456.4 million in Macau, up 20.6% yoy

$472.5 million in Singapore, up 66.1% yoy

$115.8 million in Las Vegas, up 77.9% yoy

$27.5 million in Bethlehem, Pa., up 24.4% yoy.

three unusual items (all in Macau)

The ” adjusted” figures exclude two of the items:

–$51.5 million in pre-opening expenses for the Sands Cotai Central which opened earlier this month, and

–a $42.9 million writeoff of costs linked to the closing of the Zaia show at the Venetian Macau.

Results did, however, include $13 million of costs associated with retailing–management declined to provide any detail.

market reaction

1928 and LVS have dropped about 5% each on the results announcement, despite the obvious strength in the numbers.  I don’t see why.

True, there are some nits to pick, namely:

–LVS is currently keeping 3¢ of every dollar high rollers are betting in Singapore and in Macau.  History says that should be more like 2.85¢, or 5% less.  at some point the company will have a sub-par quarter or two to make up for the current largesse.  But that’s the nature of the casino business.

–There is the mystery $13 million loss in Macau.  But that’s more like a rounding error than a serious dent in operating income.

–EBITDA margins fell qoq in Macau in March.

On the other hand,

–management wasn’t much more incoherent than usual on the conference call that accompanied the announcement

–US operations are much healthier than they were a year ago

–1928 appears to be gaining market share in Macau, even before the new casino opening. Revenues were up 9% qoq, in a basically flat market.

–the mysterious $13 million shortfall in Macau seems to explain all the EBITDA margin deterioration in the SAR vs. 4Q11.  If management is correct in its diagnosis, this is a non-recurring item.  In addition,

LVS is deleveraging   …fast

At December 31, 2010, LVS had $10.1 billion in debt on its balance sheet plus $710.7 million in preferred stock.  Against that, the company had $3.04 billion in unrestricted cash.

As of March 31st, 2012, LVS has accumulated an extra $1 billion in cash.  All the preferred stock has been redeemed and debt is $200 million lower.

That’s about a $2 billion shrinkage in net borrowings.  At the current level of $1 billion in cash generation from operations per quarter, LVS could be completely debt free by June 2013.  (LVS points out that it could be completely debt free today, if it wanted to be, by selling a chunk of its retail space in Macau.)

next stop Spain?

LVS confirmed that it is deep in negotiations with Madrid and Barcelona to develop a huge casino/resort complex in Spain over a decade.  No details as yet.  I wrote about the possible Spanish expansion a little over a year ago.

investment arithmetic

I think that LVS will earn about $3 a share this year.  So at Friday’s closing price, LVS is trading at 18.6x this year’s earnings and yielding 1.7%.

That’s not the right way to value the company, however, in my opinion.  I prefer sum-of-the-parts.

Based on its current market cap in Hong Kong, LVS’s share of 1928 is worth roughly $22.5 billion.  If we think the Marina Bay Sands in Singapore should trade at 80% of 1928′s EBITDA multiple, then it’s worth about $25 billion ($31 billion if MBS were to trade at parity with 1928).

LVS’s market cap (even though it’s up over 30% ytd) is $41 billion.  Therefore, LVS’s US operations are still trading at a value of negative $6.5 billion.

What should the value of Las Vegas + Bethlehem be?

There are, of course, two parts to US profits for LVS–casino operations and management fees collected from Asia.  For simplicity’s sake, lump them together.  Say they’ll generate $600 million in cash from operations this year.  Let’s cut that down to $400 million after taxes.  Now, let’s assume this business never recovers and should be evaluated as if it were a junk bond.  If we assume a that the cash represents a yield of 7.5%, then the principal value of the “bond” should be $5.3 billion.  Subtract $2 billion in debt (that may be excessive, but…) and we’re left with $3.3 billion.

Fair value for LVS, then, should be $3.3 billion + $22.5 billion + $25 billion  =  $50.8 billion, or 24% higher than where the stock is currently trading.

WYNN may be the highest quality casino company, but this analysis means for me that LVS is the most attractive casino stock (remember, I own both LVS and WYNN–more WYNN than LVS, though).

AAPL’s 2Q12: deja vu all over again

April 25, 2012 By in China, earnings conference calls, emerging markets, Hong Kong, Industry Analysis, Stock ideas, Technology, Wireless Tags: , , , , , , Leave a comment

the results

After the close of New York trading yesterday, AAPL reported results for its second fiscal quarter (the company’s fiscal year ends in October).

It was–contrary to highly publicized negative analyst expectations–another litany of record performances.

Revenue was $39.2 billion, up 58.7% year on year.

Net income was $11.6 billion, up 93.3%.

EPS was $12.30, a 92% yoy gain.  Of 42 analyst estimates for the quarter, the lowest was $8.46, the highest $11.80, the median $9.81.  So, once again, AAPL blew away the consensus.

details

The company sold 35.1 million iPhones during the quarter, up 88%.  This compares with 46% growth in the overall smartphone market.

iPad sales were 11.8 million, a 151% yoy increase.

4 million Macs went out the door, up 7% yoy (in a PC market that was up 2%).

iPod unit volume was 7.7 million units, down by 15%.  The music player–which was once half the company–now represents only 3% of sales, however.

what caught my eye

AAPL continues to be capacity constrained with the new iPad.  The huge tablet sales gain this quarter appears to have been driven by demand–especially from schools–for iPad2, once AAPL dropped the price to $399.  I don’t see any reason to think that this new-found new source of tablet demand will go away any time soon.  And it could turn out to be very big.

Greater China was the geographical star.  Sales in the region, which made up 20% of the AAPL total for the quarter, tripled yoy.  iPhone sales were 5x the year-ago level.

Mac sales barely outpaced the market for the quarter.  But that’s comparing a newly refreshed product line a year ago with the same lineup today–now a little long in the tooth.  So I don’t think the weaker than usual comparison means anything.

Management gave its usual song and dance to “justify” its low-ball earnings estimate for the June quarter–$8.68/ share.  The company did make two reasonable points, though.  It expects to sell a lot of iPads, which carry lower margins than other AAPL products.  Also, 2+ million of the iPhones sold to telephone companies during the period went to replenish store inventories depleted during the holiday season.  This extra demand won’t be present in the current quarter.  Neither is that significant, in my opinion.  Together, they may just mean that yoy gains in 3Q12 won’t be quite as impressive as in 2Q12.

pre-announcement analyst panic

AAPL sold off by about 15% in the days before the earnings release.

I was struck by the number of analysts who rushed to publicly validate the price decline by offering negative assessments (now proven to have been wildly incorrect) of the company’s 2Q12 prospects.  One can only imagine what they were saying in private meetings with institutional clients.  I was also struck by the dearth of AAPL defenders–although it’s possible their comments were edited out.

For instance,:

–one analyst I read predicted Mac sales would be down, year on year, in the quarter–without mentioning either how difficult the comparison was or that Macs only make up a bit more than 10% of AAPL’s business.

–another said in a recent TV interview that he was lowering his forecast of iPhone sales from 33 million to 30 million–and intimated he thought that figure might still be too high.

I have four observations:

1.  I think the analysts in question extrapolated from what they knew about the US and Europe to the rest of the world.  When you think about it, that seems kind of loony.  Why would you think China, which is growing at 7%+ and where people are just starting to buy smartphones, would look like the US?

2.  More generally, the incident says something about the quality of research on Wall Street.  APPL isn’t the only case.  Analysts did the same sort of extrapolation with INTC last year.

3.  It says something admirable about AAPL that they don’t have one standard of information dissemination for ordinary people like you and me, and another one for Wall Street analysts.

4.  This shows how a rumor-driven market works.  Once a story starts, information sources rush to repeat and amplify the rumors, mostly because they’re worried that otherwise they’ll be thought to be out of touch.

AAPL’s stock?  It still looks cheap to me.

 

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