UTX has sufficient resources and balance to withstand a significant slowdown in its markets. Boosted its quarterly dividend 20 percent to 38.5 cents a share saying its liquidity and free cash flow remain strong. Current discretionary cash flow of about $5 billion could retire its net debt in under two years. UTX is spending more on buybacks and less on acquisitions as the stock has declined to very attractive levels.
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UnitedHealth Group (UNH) barely beat expectations and reported a 28 percent decline in profit because the company priced some commercial plans too low and lost money on certain policies backed by Medicare.
The biggest risk for UNH is economic conditions that push employers to choose lower-priced insurers, abandon coverage, or trim benefits. Also dampening their outlook is job reductions and health-plan dropouts. On the bright side, risk-based commercial membership grew by 5,000 people in the quarter, reversing the trend of the second quarter, while self-insured membership was down by 25,000 people, most likely a result of rising unemployment. UNH was also hurt by growing medical costs. The medical loss ratio – the percentage of premium revenue paid to health providers – was 81.7 percent in 3Q compared with 79.5 percent a year earlier.
UNH shares have been beaten down this year because of pricing errors, possible future payment cuts from the U.S. Medicare program for the elderly, and the effects of the economic decline and the global credit crisis.
The biggest risk for UNH is economic conditions that push employers to choose lower-priced insurers, abandon coverage, or trim benefits. Also dampening their outlook is job reductions and health-plan dropouts. On the bright side, risk-based commercial membership grew by 5,000 people in the quarter, reversing the trend of the second quarter, while self-insured membership was down by 25,000 people, most likely a result of rising unemployment. UNH was also hurt by growing medical costs. The medical loss ratio – the percentage of premium revenue paid to health providers – was 81.7 percent in 3Q compared with 79.5 percent a year earlier.
UNH shares have been beaten down this year because of pricing errors, possible future payment cuts from the U.S. Medicare program for the elderly, and the effects of the economic decline and the global credit crisis.
UNH’s financial health is clearly a strong point. The company’s $20 billion investment portfolio only generated about $25 million of capital losses, or $0.02 a share. (You may remember that WellPoint recently estimated a $214 million charge on its holdings in Fannie Mae and Freddie Mac) Today, UNH reported that more than $6 billion of the company’s $20 billion portfolio is cash, with the balance diversified in “investment grade” government and corporate obligations. UNH could afford to write down over $7 billion in assets, or 36 percent of its total cash and investments, and still be in compliance with minimum state requirements.
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Peabody Energy’s (BTU) 3Q profit rose more than 11-fold on increased output and higher prices and boosted expectations citing higher volumes and pricing increases as demand continues to rise. The company increased its 2008 earnings per share target to $3 and $3.25 from a previous range of $2.50 to $3 a share.
From CCO Richard Navarre: “While there is uncertainty in today’s economy, any easing of demand growth is likely to be offset by diminished global coal supply…Supply challenges around the world and lack of capital to respond to market shortages will continue to drive a tight global supply-demand balance for coal.”
From CCO Richard Navarre: “While there is uncertainty in today’s economy, any easing of demand growth is likely to be offset by diminished global coal supply…Supply challenges around the world and lack of capital to respond to market shortages will continue to drive a tight global supply-demand balance for coal.”
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Last week, ITW reduced profit estimates citing a slowdown in industrial production (especially in the U.S.). North American construction base revenue declined 6.2 percent while construction international base revenue fell 3.2 percent. North American automotive base revenue declined 18.1 percent and international base revenue fell 7.3 percent. A 6 percent decline in the number of shares outstanding helped raise the EPS number.
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Citigroup (C) reported a fourth consecutive quarterly loss after at least $13.2 billion of loan losses and securities writedowns. C has now had $61 billion of losses tied to the slumping housing market. C’s Tier 1 ratio fell this quarter from 8.7 percent to 8.2 percent, but it should be noted that the ratio has improved from 7.1 percent at the end of 2007. CEO Vikram Pandit expects the capital ratio to be strengthened more in 4Q with the sale of their German retail banking operations and the investment by the U.S. Treasury. The reserve building was slightly higher than most had expected, which could be a signal for greater loan losses ahead.
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Johnson Controls (JCI) held its annual investors on Tuesday to lay out details of its 2009 financial guidance. JCI’s EPS 2009 forecast range works out to a profit decline of 10 percent to 16 percent versus 2008, on sales that are expected to contract by about 3 percent. The company is estimating a 12 percent decline in light vehicle production in North America and a 10 percent decline in Europe. JCI’s outlook for construction spending was a bit more optimistic, expecting international non-residential construction to be up 5 percent in its fiscal 2009, with growth in China and the Middle East offsetting declines in Europe. JCI thinks its diversified business portfolio and ability to improve its cost structure will partially offset the difficult economic environment.
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There was, in fact, other equities news outside of earnings today…
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Wal-Mart (WMT) investors cheered the company’s decision to close a unionized Quebec tire and lubrication shop because of costs tied to the first labor agreement imposed at any of its North American locations. WMT is essentially telling employees that if you join an union, they are going to close your shop.
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Grupo Modelo, the Mexican company that makes Corona and is half-owned by Anheuser-Busch (BUD), said early today that it has filed a notice of arbitration against Anheuser over the InBev deal. Grupo Modelo is arguing that the proposed sale violates a 1993 agreement between Modelo and Anheuser. The agreement includes certain restrictions on when Anheuser’s stake can be transferred to a competing beer maker. Modelo appears to have little leverage in the situation, but the agreement is subject to Mexican law and requires arbitration if there’s a dispute between the two parties. BUD closed the day more than $10 below the deal price is $70.
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In case you missed it, Coca-Cola agreed to distribute Hansen Natural’s (HANS) Monster Energy drink (the largest selling energy drink the U.S., Europe, and Canada). Coca-Cola will expand Monster internationally and boost sales of the drink beyond the more than a quarter of the U.S. energy drink market Hansen already controls. About 50 to 60 percent of Monster’s U.S. distribution is currently handled by Anheuser-Busch.
The agreement states that Coca-Cola will distribute Monster Energy in Great Britain, France, Belgium, the Netherlands, Luxembourg, Monaco, Canada and the U.S. for 20 years. Hansen will record between $110 million and $130 million in pretax expenses for termination fees to distributors that are losing its business. Most of the costs will come in 4Q. Coca-Cola will repay Hansen for the termination fees related to its territory, which Hansen said it will record as revenue over 20 years.
The agreement states that Coca-Cola will distribute Monster Energy in Great Britain, France, Belgium, the Netherlands, Luxembourg, Monaco, Canada and the U.S. for 20 years. Hansen will record between $110 million and $130 million in pretax expenses for termination fees to distributors that are losing its business. Most of the costs will come in 4Q. Coca-Cola will repay Hansen for the termination fees related to its territory, which Hansen said it will record as revenue over 20 years.
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Medtronic (MDT) was down 2.03 percent after a study linked its drug-coated Endeavor heart stent to more complications than rival devices and found it didn’t reduce the need for future treatment.
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