Earnings galore

S&P 500: +17.69 (+2.13%)

International Business Machines (IBM) +1.87%
Revenues fell 11 percent due to a stronger dollar (down only 4 percent when adjusting for currency), but net income was down less than 1 percent thanks to improving margins in services and software. $1.8 billion in share repurchases helped earnings per share rise 4 percent.

Software held up the best of IBM’s key businesses, with revenue down 6 percent and pretax income up 5 percent. Services revenue was down 10 percent but would have been down only 2 percent without currency fluctuations. Services contract signings, down 1 percent, would have been up 10 percent at constant currency, with longer-term contracts growing. Hardware revenue fell 23 percent from a year earlier, hurt by a 36 percent decline in semiconductor sales.

Regarding the Oracle acquisition of Sun Microsystems, management said they see no practical change in the competitive landscape as a result of the deal. With $12.3 billion of cash on hand and free cash flow in the first quarter of $1 billion, up $450 million year-over-year, IBM will remain active on the acquisition front.


Lockheed Martin (LMT) +0.41%
The world’s largest defense company said first-quarter profit fell 8.8 percent as higher pension costs weighed on results that were otherwise relatively positive. Net income came in at $1.68 a share, with pension costs resulting in a negative impact of 19 cents a share. Pension problems will be evident with several of the defense firms that report this week including Boeing and Northrop Grumman.

Sales and operating profit gained at three of Lockheed’s four business units led by strong performance in computer services and defense electronics. The only segment with a decrease in sales was Lockheed’s aeronautics unit, with sales declining less than 1 percent.

The 2010 Pentagon budget will likely terminate and wind down some Lockheed projects like VH-71 presidential helicopters and the F-22 Raptor fighter jet. Still, those budget dollars are being reallocated to areas like the F-35, which is the Defense Department’s biggest contract and stands to be a cornerstone of Lockheed’s future sales. Lockheed also stands to benefit from being the largest supplier of information technology and electronics to the U.S. government.

The company raised full-year profit guidance because of share repurchases.


Quest Diagnostics (DGX) +5.80%
Quest’s first-quarter net income jumped 20 percent on strong demand for healthcare tests, and the company boosted its 2009 earnings forecast while reaffirming its revenue growth target of 3 percent.

Quest said demand for cancer diagnostics and other tests has made them more recession-resistant than most healthcare providers who have been squeezed as increased unemployment and rising costs sap demand.

Clinical-testing revenue rose 2.2 percent despite a 1.7 percent decline in volume as drug-abuse testing, which is sensitive to job-hiring volume, dropped 25 percent.

Quest also mentioned their joint venture with Walgreen (WAG) last month to provide free healthcare services to patients who lost their jobs on or after March 31 and have no health insurance. Quest is providing free lab testing for common respiratory ailments, allergies, infections and skin conditions that are ordered through Walgreen clinics.


United Technologies (UTX) +4.76%
United Technologies reported a 26 percent drop in first-quarter profit on restructuring charges and weak demand across most of its businesses, but expects earnings growth to resume in 2010.

Profit and sales declined in five of six units, the exception being the Sikorsky helicopter unit. In response to lower demand, United Technologies plans to spend $750 million this year to reduce costs so that they are positioned to resume earnings growth in 2010.

Although the company no longer expects an economic recovery this year, they reaffirmed its full-year outlook and highlighted profit-margin expansion from improved productivity as well as a slowdown in demand erosion.


Caterpillar (CAT) +2.99%
Caterpillar beat its earnings target of 6 cents a share, but cut its earnings forecast for the year in half to $1.25 a share. The heavy-machinery maker expects the global economy to contract 1.3 percent and remain in recession for most of the year, amid continued tight credit.

The company cited the pullback in commodities prices as a primary cause for waning global demand for their heavy machinery. Caterpillar is responding to conditions by eliminating nearly 25.000 jobs while also cutting pay, closing plants, and shortening workweeks. A dividend cut could be the next move if more cost-cutting is required or sales continue to deteriorate.

The disappointing results were not surprising since the company had reduced its quarterly guidance from $1.02 a share to $0.06 a share just a little more than a week ago. Some had projected losses of more than $0.20 a share. Judging by today’s activity, it seems that investors took comfort in the fact that the earnings weren’t as ugly as some expected.


First Cash Financial Services (FCFS) +1.13%
First Cash beat expectations, helped by higher revenue from its Mexico pawn operations. The company plans to open 55 to 60 new stores in Mexico and a limited number of new pawn stores in the U.S.

U.S. payday lenders, who make small, short-term loans against the borrower’s next pay check, are investing more in their pawn operations as stricter regulations and rising unemployment make their primary business less attractive.

First Cash said its objective is to become substantially debt free under its bank credit facility in 2010. It also reaffirmed its 2009 outlook and expects to generate “significant” free cash flow.


Johnson Controls (JCI) +8.55%
Weak auto production and hefty restructuring charges caused Johnson Controls to post a quarterly loss, but the company expects its core auto parts unit to break even by year-end. Investors also seemed please to know that Johnson Controls will participate in a government payment guarantee program. (Program details in paragraph 7)

Revenue fell 47 percent in the automotive segment, which supplies parts for almost every major automaker, including General Motors, Toyota, Honda, BMW, and Hyundai. The auto segment makes up nearly half of the company’s revenues. Sales for its power-solutions unit, which sells car batteries, fell 38 percent. The building efficiency unit’s revenue declined 10 percent due to weakness in the global new construction market.

CEO Steve Roell said they haven’t seen a bottom in the auto and housing sectors, and the company will continue slashing jobs and closing plants to control costs.


UnitedHealth Group (UNH) -5.82%
UnitedHealth’s profit beat estimates and sales reaffirmed its 2009 earnings forecast, but shares declined as the company said growing unemployment would keep stripping Americans of health coverage this year.

Management said better results were partly because of a mild flu season and revenue from prescription-drug refills that are likely to decline. Higher revenue growth was also a result of price increases as well as an increase in enrollees in government-funded plans. Although better than expected, commercial sales were down as the recession has reduced the number of people obtaining coverage through employers.

UnitedHealth’s medical-loss ratio (the percentage of premium revenue used to pay patient bills) remained at 82.4 percent, which is particularly encouraging since costs were expected to rise as they picked up more expensive Medicare patients.


Other notable earnings releases:
Merck (MRK) -6.66%
DuPont (DD) +4.94%


Quick Hits

• U.S. Regulators Put Emphasis on Loan Quality in Tests
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• A Backdoor Nationalization
  

Peter Lazaroff, Junior Analyst