International Business Machines Corp. (IBM) +11.51%
IBM reported another quarter of solid earnings and issued an outlook for 2009 that exceeds current estimates. Even after adjusting for special items such as lower tax rate and fewer shares, IBM’s profit beat expectations.
While revenues slipped across all geographic regions for a total decline of six percent year-over-year, IBM managed to improved gross margins by generating a larger share of its business from high-profit software and services. Even in its hardware business, solid sales of high-margin mainframe computers helped offset disappointing sales of commodity-type servers and a 34 percent sales drop in its semiconductor division.
IBM ended 2008 with $12.9 billion of cash on hand and generated free cash flow of $14.3 billion, up $1.9 billion year-over-year.
This positive earnings release comes as fellow tech-bellwether Intel’s CEO raises the possibility of a loss in the first quarter, ending its more than 21-year run of profitability.
United Technologies (UTX) -0.22%
United Technologies reported results that met expectations and reaffirmed its outlook for 2009. Earnings did include six cents per share in one-time gains, which are typically not included when comparing to the consensus.
Revenues fell 1.3 percent year-over-year to $14.5 billion (consensus called for revenues of $14.8 billion). The company said that solid margin expansion at its aerospace units and at UTC Fire & Security offset the impact of a sharp decline at its Carrier HVAC unit and declines in its Otis elevator unit.
Aggressive share buybacks (over $3 billion worth in 2008 alone) alleviate some of the 2008 headwinds. Looking into 2009, the company expects the global recession to continue through most of this year, but expects a “modest recovery” in the second half.
Wal-Mart Stores (WMT) -2.81%
Wal-Mart was downgraded by several analysts today in response to the company’s December same-store-sales release and guidance revision.
Wal-Mart’s sales fell short of expectations in all three business divisions, illustrating that even Wal-Mart is not immune to the economic slowdown. The company may not realize any benefits in 2009 from consumers trading down as they did in 2008. In addition, price increases drove the majority of Wal-Mart’s sales growth in 2008, not unit growth.
As CreditSuisse notes, Target is focusing on reducing prices to gain market share, which presents an added competitive threat to Wal-Mart. Longer term, Wal-Mart’s sheer size and fewer stores in peak productivity stage (3-5 years after opening) are likely to challenge sales growth expectations.
Bank of America (BAC) +30.98%, J.P. Morgan Chase (JPM) +25.1%
Bank shares soared after regulatory filings showed that Bank of America CEO Kenneth Lewis and five directors bought more than 500,000 shares yesterday. In addition, Bloomberg reported that JPMorgan CEO Dimon bought $11.5 Million of JPM shares last week. Some view this as an act of confidence, while others see this as no more than an expensive PR move.
Bank of America also announced more job cuts.
First Cash Financial Services (FCFS) -4.64%
First Cash reaffirmed its 2009 earnings guidance today, but still saw selling pressure after competitor Cash America International (CSH) reduced its 2009 earnings forecast citing the faltering economy and the effects of store closings.
First Cash has far greater economies of scale than their competitors, plus their growing exposure to Mexico is helping offset weakness in the U.S. First Cash also has a stronger balance sheet than its competitors, which is allowing them to buyback shares and open new stores in Mexico.
Quick Hits
Peter Lazaroff, Junior Analyst
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