S&P 500: +8.37 (+0.99%)
Goodrich Corp (GR) +10.02%
Goodrich beat expectations with first-quarter net income rising 6.7 percent despite weak demand from aircraft makers. Management cited increased productivity and cost containment initiatives as reasons for strong results.
Goodrich lowered the top end of its earnings guidance to reflect lower commercial equipment sales due to less travel as well as production delays at Boeing (BA). Still, shares rallied sharply since some analysts were expecting a worse outlook.
Although commercial demand is slowing, Goodrich’s defense and space business is growing sales faster than expected. Management expects this trend to continue and believes the defense budget will continue to emphasize investments in areas which benefit Goodrich.
Noble Corp (NE) +3.07%
Noble easily surpassed consensus estimates as explorations contracts went into effect that were signed before the economic downturn. Earnings quality was strong with the bulk of the positive earnings surprise coming from higher contract drilling margins.
Companies like Noble or Transocean (RIG) are less affected by sharp declines in oil and natural gas prices because they depend on long-range contracts with exploration giants such as Petrobras, which limits their downside even as commodity prices decline.
EMC Corp (EMC) -4.17%
EMC became the latest technology company to call a bottom in demand for information technology, saying customers would start spending more in the second half of 2009.
Storage remains an essential component of the IT infrastructure where purchases can be delayed, but rarely avoided – which explains why everyone (IBM, HPQ, CSCO, DELL) is clamoring to gain a bigger presence in this market.
EMC’s first-quarter results were hurt by more stringent corporate procedures for IT purchases as well as willingness by its customers to trade down to inferior products – EMC’s storage products and services are considered to be the best, but are also the most expensive.
United Parcel Service (UPS) -2.59%
The report didn’t contain any surprises. Lower volume led to lower margins, and revenues declined as pricing trended lower due to lower shipping weights and reduced fuel surcharges. UPS did note that the exit of rival-shipper DHL from the U.S. market helped improve revenues from their premium domestic next-day-air service.
UPS hesitantly suggested an economic recovery might begin late this year, but felt more confident that a rebound wouldn’t occur until next year. UPS is considered a barometer for the U.S. economy because it transports from mortgage and banking documents to auto parts and building materials to pharmaceuticals and consumer electronics.
Harsco Corp (HSC) +0.06%
Harsco’s results topped expectations, but the company slashed its full-year earnings guidance in light of unfavorable exchange rates, the global credit squeeze, and unprecedented weakness in the steel market.
The stronger U.S. dollar accounted for almost half of the sales decline and it also accounted for a substantial reduction in operating income and margins – about 70 percent of Harsco’s sales are outside the U.S.
Harsco will benefit from global stimulus- related infrastructure spending, but will continue to struggle until the global economy rebounds. However, a healthy balance sheet along with strong cash flow generation is allowing Harsco to invest for the future and we expect them to emerge from this economic downturn stronger than before.
L-3 Communications (LLL) +1.73%
L-3’s first-quarter profit beat estimates and lifted the low end of its full-year outlook. Like Lockheed Martin and Northrop Grumman, which both raised guidance this week, L-3 appears to be well-positioned for changes in the defense budget.
Higher sales and orders drove first-quarter profit 5.3 percent higher, led by increased sales of military communications gear. L-3’s funded backlog finished the quarter at a record $11.7 billion.
The company continued to deploy its increasing cash flow to increase shareholder value by acquiring Chesapeake Sciences Corporation for $87 million, repurchasing $232 million of common stock, and paying $42 million in dividends. L-3 also increased their dividend payment 17 percent.
Quick Hits
Peter Lazaroff, Junior Analyst
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