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   January 26, 2015 @ 7:23 AM EST
TODAY'S REPORTS
Investment Grade
Telefonica  (with Analyst's Data Sheet) Hutchison Whampoa and Telefonica have entered into exclusive discussions regarding the possible purchase of Telefonica's O2 unit. The proposed price is roughly...
Three Plus O2 by Dave Novosel, CFA
High Yield
United Rentals  (with Analyst's Data Sheet) United Rentals closed out yet another record year with fourth quarter results released last Thursday, including net income up 35% to nearly $200 million on...
Still Holding That Sweet Spot by Vicki Bryan
AES  AES Corporation recently announced the sale of a 30% interest in one of its most valuable subsidiaries Indianapolis Power & Light (IPL)? and then doubled its shareholder...
Policy Shift by Kim Noland
FRIDAY'S COMMENTS (1/23/2015)
4:30pm Smithfield Foods Smithfield Foods has announced a tender offer for roughly 11% each of its outstanding 7.75%...
Tender Offer by Vicki Bryan
Smithfield Foods has announced a tender offer for roughly 11% each of its outstanding 7.75% notes due 2017, 5.875% notes due 2021, and 6.625% notes due 2022, spending up to a total aggregated purchase price of $275 million. Offer prices plus the 3% consent fee indicate flat to slightly lower total consideration versus recent trading levels on the targeted bonds, so it's not assured that Smithfield will get full acceptance. Moreover Smithfield keeps cash on hand lean so tendered principal plus accrued interest and fees will likely be funded completely with borrowing on its bank revolver. This will modestly lower interest annual costs overall, but at the same time total debt and leverage also will be nudged higher to cover tendered principle plus accrued interest and fees. The alternative is that new parent WH Group (formerly Shuanghui International) kicks in equity cash, but we don't see that happening given its own greater than expected financial stresses following its disappointing IPO. Overall the transaction seems credit neutral to slightly negative. Maintain "underperform."
12:27pm United Parcel Service UPS pre-announced expected Q4 adjusted EPS about 14% lower than the average of equity...
New Guidance by Philip C. Adams, CFA
UPS pre-announced expected Q4 adjusted EPS about 14% lower than the average of equity analyst estimates (which translates into a delta of about $149 million.) When earnings are released February 3, UPS expects adjusted EPS to be approximately $1.25, flat relative to a year ago, and $.21 lower than consensus. Full year adjusted EPS is expected to be $4.57, up 3.9% from 2013, but below the $4.90-5.00 guidance range the company provided in late July. "Higher than expected peak-related expenses" were to blame, consistent with the concerns we expressed in our Q3 earnings Intraday Comment. UPS geared up for a surge in business between Thanksgiving and Christmas, only to have volumes extremely lumpy -- heavy on "Cyber Monday" and December 22, but below expectations on other days. UPS also announced that GAAP results will reflect an after-tax non-cash charge of $670 million pertaining to lower discount rates for calculating end of year pension and postretirement liabilities, plus an additional $22 million relating to the transfer of healthcare liabilities. UPS also said 2015 will face headwinds, in the form of $180 million of greater pension expense and about $50 million of adverse FX changes. Consequently 2015 diluted EPS growth will be "slightly less" than UPS's long-term target of 9-13%. UPS stock is down about 9%. Bonds: UPS 2021s are wider, with the largest trade at T+59 (Z=33). +8 bps on the day.
12:02pm Celanese Corporation Celanese's (CE) fourth quarter operating EBITDA was in line with consensus...
Earnings by Evan Mann, CFA
Celanese's (CE) fourth quarter operating EBITDA was in line with consensus expectations, but the company lowered its 2015 outlook. Fourth quarter revenues were down 3.5% to $1.6 billion. The EBITDA margin improved 300 basis points reflecting operating gains for Advanced Engineered Materials and Acetyl Intermediates as well as higher equity earnings and joint venture dividends. As a result, operating EBITDA was up 11% to $354 million and in line with the $353 million consensus forecast. For 2014, operating EBITDA of $1.1 billion covered interest 10.6x and leverage was 1.8x, improvement from 7.9x and 2.3x in 2013. For the year, CE generated $284 million of free cash flow (cash flow from operations less capital spending), using these funds and cash on hand to buy back $250 million shares and pay $144 million of dividends. During the quarter, the company redeemed $600 million of its 6.625% senior notes due 2018 using cash on hand and proceeds from the recent issuance of EUR 300 million 3.250% senior notes due 2019. Guidance for 2015 was for lower earnings from 2014 citing "volatility and uncertainty in the global macroeconomic environment." We will update our projections and review our rating shortly.
FRIDAY'S REPORTS (1/23/2015)
Investment Grade
Kinder Morgan  (with Analyst's Data Sheet) Wednesday afternoon, Kinder Morgan announced Q4 and 2014 results, an acquisition for cash, and management succession. We cover the highlights and update our...
Kindled Opportunity by Philip C. Adams, CFA
American Express  (with Analyst's Data Sheet) The first few weeks of the New Year have been rocky for the bank and finance sector in the equity markets. Shares of American Express are down 9%, even...
High Hurdles by Kathleen Shanley, CFA
High Yield
Linn Energy, LLC  (with Analyst's Data Sheet) Earlier this month, Linn Energy (LINE) significantly reduced its 2015 capital spending and dividend distribution forecast.
Cutting Outflows  by Evan Mann, CFA
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