CSCO reported fiscal 1Q earnings after yesterday’s closing bell that were slightly lower than the average Bloomberg estimates and forecast the first revenue drop in five years because of the financial crisis. CEO John Chambers said the challenges in the U.S. have spread to Europe, emerging markets, and Asia. CSCO anticipates 2Q revenues will decline 5 to 10 percent versus a year ago. The forecast is based on a 9 percent drop in orders in October versus a year ago.
Although gross margins improved slightly in the quarter, the firm increased its R&D and selling expenses. This trend is likely to continue over the near term, as CSCO looks to gain market share at the expense of weaker competitors. The company generated $2.4 billion in free cash flow during the quarter, which gives them $19.9 billion in net cash. CSCO offered some details regarding its customer financing via its Cisco Capital unit, with the message that Cisco Capital represents a competitive advantage as opposed to a source of risk.
CSCO reiterated its target for long term revenue growth of 12 to 17 percent. In addition, the company plans to reduce capital spending by about $1 billion in fiscal 2009. Investors view CSCO as a technology industry barometer because it dominates the market for routers and switches, equipment that directs the flow of data over networks.
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RIG, the world’s largest offshore driller, reported earnings yesterday that just missed Bloomberg’s average estimates. We have reviewed a lot of drillers and RIG confirms a lot of what we already know at this point about the industry. Dayrates (the amount the company charges its customers who use their rigs) have held up nicely despite plunging oil prices and global economic turmoil because these deepwater projects (many of which have been planned out for years) will still be profitable with oil prices at their current levels. If oil were to drop below $50 a barrel, then we would likely see dayrates come down and an increase in producer cancelations.
RIG shareholders will vote next month on a proposal to move corporate headquarters to Geneva, which would allow the company to take advantage of a more stable tax regime and Switzerland’s broader network of tax treaties with countries where RIG has operations.
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Wal-Mart (WMT) -1.18%
WMT reported October sales numbers that topped forecasts thanks to growth in their grocery division. Same-store sales (stores open at least a year) increased 2.4 percent as WMT is reducing prices weekly with an emphasis on “items families want and need most.” WMT has been more aggressive than ever with pricing, and it is starting to show that competitors can’t keep up. Other discount retailer results today include Costco (COST) who reported same-store sales decreased 1 percent, well below estimates of a 3.6 percent increase; and Target (TGT) said same-store sales fell 4.8 percent, worse than the estimate of a 2.8 percent decline.
WMT earnings are to be announced Nov. 13. It is possible WMT is definitely picking up market share in groceries, but may also being gaining share in clothing, home furnishing, and consumer electronics.
WMT is somewhat of a backdoor dollar play because most of its merchandise is purchased outside the country and then sold in the U.S. I would expect the WMT’s quarterly results to benefit from this since the dollar strengthened considerably during the quarter.
WMT reported October sales numbers that topped forecasts thanks to growth in their grocery division. Same-store sales (stores open at least a year) increased 2.4 percent as WMT is reducing prices weekly with an emphasis on “items families want and need most.” WMT has been more aggressive than ever with pricing, and it is starting to show that competitors can’t keep up. Other discount retailer results today include Costco (COST) who reported same-store sales decreased 1 percent, well below estimates of a 3.6 percent increase; and Target (TGT) said same-store sales fell 4.8 percent, worse than the estimate of a 2.8 percent decline.
WMT earnings are to be announced Nov. 13. It is possible WMT is definitely picking up market share in groceries, but may also being gaining share in clothing, home furnishing, and consumer electronics.
WMT is somewhat of a backdoor dollar play because most of its merchandise is purchased outside the country and then sold in the U.S. I would expect the WMT’s quarterly results to benefit from this since the dollar strengthened considerably during the quarter.
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InBev confirmed its takeover of Anheuser-Busch is still on track to close by the year’s end. BUD closed today at $64.58
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Whole Foods Market (WFMI) +1.65%
WFMI, the largest U.S. natural-foods grocer, received a $425 million equity investment from Leonard Green & Partners LP after reporting its eighth straight drop in profit and lowering its 2009 sales forecast. WFMI predicted sales would increase four percent in 2009, down from their previous sales forecast of six to ten percent sales growth. Increasing competition from mainstream supermarket chains that now carry organic products as well as pricing pressures on products are the main reasons for lower guidance.
United Natural Foods (UNFI), the largest U.S. distributor of natural and specialty foods, gained 1.5 percent today.
WFMI, the largest U.S. natural-foods grocer, received a $425 million equity investment from Leonard Green & Partners LP after reporting its eighth straight drop in profit and lowering its 2009 sales forecast. WFMI predicted sales would increase four percent in 2009, down from their previous sales forecast of six to ten percent sales growth. Increasing competition from mainstream supermarket chains that now carry organic products as well as pricing pressures on products are the main reasons for lower guidance.
United Natural Foods (UNFI), the largest U.S. distributor of natural and specialty foods, gained 1.5 percent today.
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Barr Pharmaceuticals (BRL) -0.03%
BRL, the generic drug maker being bought by Teva Pharmaceutical (TEVA), reported 3Q profit that beat analysts’ estimates on high sales of generic and name-brand contraceptives. BRL sees low risks to the deal closing by the end of the year. TEVA will control 23 percent of the generics market, according to research from IMS Health Inc.
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Dell (DELL) -5.79%
DELL’s restructuring efforts continue as they announced they will freeze hiring and offer workers one to five days of time off without pay. DELL has trimmed at least 8,800 jobs since last year, part of a program to eliminate $3 billion in annual costs by 2010.
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Peter Lazaroff, Junior Analyst
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