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Encana 07-21 21:15 GMT
(Comment)
Encana reported second quarter earnings well above expectations, assisted by a strong hedging program,...
Earnings by Philip C. Adams, CFA
Encana reported second quarter earnings well above expectations, assisted by a strong hedging program, good expense control, and a favorable production mix featuring core asset production growth. Second quarter net income was $331 million, including $110 million of pre-tax unrealized risk management gains, and $63 million of FX gains. Net operating earnings of $180 million were up from $89 million a year earlier. Production averaged 316,000 BOE/d, including 124,900 BOE/d of liquids (39.5%, up about 5 points sequentially). Core assets accounted for 80% of production. Encana's realized liquids price averaged $41.97 per barrel (87% of WTI), up from $38.47 (84% of WTI) a year earlier. Encana's realized natural gas price averaged $2.56 per Mcf (81% of NYMEX), up from $1.86 (95.4%) a year earlier. These figures include realized gains/losses on risk management activities. Excluding hedging, Encana's total operations Q2 price averaged $25.29 per BOE, an $8.00 improvement YOY. Production, mineral, and other taxes averaged $.85, a $.04 improvement, while Transportation and processing ("T&P") costs declined $.41 (6%) to $6.39 per BOE and operating expenses were $.05 lower at $3.58. This resulted in an average unhedged Netback of $14.47 per BOE, up $8.50 YOY. ECA's YTD corporate margin is $10.96 per BOE, and it expects to deliver $11 per BOE at prices less than $50 per barrel WTI for 2017. Encana modified its full year guidance, lowering total production by 10 MBOE/d to 310-320, but stating core production growth (Q4 over Q4) will be up 25-30%, versus previous guidance of >20%. Liquids production guidance was increased 2 Mbbls/d to 127-132 Mbbls/d. Capital expenditure guidance is unchanged at $1.6-1.8 billion. Total operating cost guidance was lowered $.40 per BOE, with T&P reduced $.25 to $6.25-$6.50 per BOE and Operating expenses $.15 lower to $3.60-$4.00 per BOE. Encana has fairly strong hedges on for the balance of 2017, with 88 Mbbls/d of liquids production hedged at $49.73, and 865 MMcf/d of natural gas hedges at $3.10 per Mcf. For 2018, 31 Mbbls/d of liquids production is hedged at $55.45, and 650 MMcf/d of natural gas production is hedged at $3.07. By YE2017, Encana expects to have over $5 billion of liquidity, with a net debt/EBITDA ratio of 2.0x.
Schlumberger 07-21 16:33 GMT
(Comment)
Schlumberger reported a strong second quarter, excluding a charge related to a Venezuelan note...
Earnings by Philip C. Adams, CFA
Schlumberger reported a strong second quarter, excluding a charge related to a Venezuelan note receivable ($498 million) and Cameron merger and integration costs ($64 million, A.T.) GAAP net loss was $74 million, while adjusted net income of $488 million was up 41% sequentially and 54% from a year ago. Second quarter revenue was $7.5 billion, up 8% sequentially and 4% YOY, with North American revenue up 18% sequentially on the rapid redeployment of U.S. land based hydraulic fracturing equipment. (U.S. land revenue was up 42% sequentially.) Six month cash flow summary: CFO of $1.5 billion, net of working capital consumption of $1.3 billion (reflecting the cost of returning idled equipment to service). So call FFO $2.85 billion, less capex/investments/seismic data capitalization of $1.40 billion and dividends of $1.39 billion, for essentially break-even free cash flow. Subtract share repurchases of $770 million, business acquisitions of $364 million and the working capital consumption, and the overall use of cash was about $2.4 billion. SLB ended the quarter with $6.2 billion of cash, down $3.1 billion from YE2016, with total debt of $18.8 billion, down about $0.8 billion. SLB affirmed full year capex guidance of $2.2 billion, excluding acquisitions and investment in its Schlumberger Production Management ("SPM") enterprise (in which SLB takes over production management for the client, with compensation partly based on a share in production proceeds). On the topic of SPM, SLB noted that it can earn an overall ROIC about 700 bps higher than on similar returns for unbundled services. SPM assets currently total about $2.6 billion, with large projects in Argentina and Nigeria, but also projects in the Powder River Basin and Western Canada. SLB tends to extend the initiative through the use of outsourced/syndicated funding. SLB also announced the acquisition of a 51% interest in a Russian services company, Eurasia Drilling for an undisclosed amount. SLB provided detailed commentary on the state of the energy markets by region/group, noting that U.S. land-based drillers are probably the least disciplined about long-term returns, focusing on short-term production growth driven by short-term equity expectation. Overall, SLB sees continuing global underinvestment, which it believes will result in a "supply challenge" as new supplies fail to keep up with depletion rates. SLB believes more significant inventory draws and a more positive market sentiment will still occur in 2H 2017. SLB also noted that it is seeing increasing activity in offshore projects, including deepwater, albeit primarily for shorter-cycled tie-in activity.
Mosaic Company 07-21 15:55 GMT
(Comment)
Following the Uralkali agreement by a week, today Canpotex, the joint venture that markets and...
News by Carol Levenson, CFA
Following the Uralkali agreement by a week, today Canpotex, the joint venture that markets and exports Canadian potash, announced that it has concluded an agreement with its Chinese customers to ship them 1.4 million metric tons through the end of the year. The good news, besides the added certainty, is that the contract represents a price increase of $11/metric ton over the previous contract. That's about a 7% increase over Mosaic's average realized price for international product last year. It's not much but it's a step in the right direction.
Potash Corporation of Saskatchewan 07-21 15:43 GMT
(Comment)
Following the Uralkali agreement by a week, today Canpotex, the...
News by Carol Levenson, CFA
Following the Uralkali agreement by a week, today Canpotex, the joint venture that markets and exports Canadian potash, announced that it has concluded an agreement with its Chinese customers to ship them 1.4 million metric tons through the end of the year. The good news, besides the added certainty, is that the contract represents a price increase of $11/metric ton over the previous contract. That's about a 7% increase over PotashCorp's average realized price for offshore product last year. It's not much but it's a step in the right direction.
Tesoro 07-21 14:01 GMT
(Comment)
Moody's has upgraded Tesoro's senior unsecured debt to its lowest investment grade rating, changing the...
Ratings Action by Philip C. Adams, CFA
Moody's has upgraded Tesoro's senior unsecured debt to its lowest investment grade rating, changing the outlook to stable. In doing so, Moody's joined S&P (6/2/17) and Fitch (2/6/17). The ratings action follows the June 1 completion of the Western Refining/Northern Tier Energy acquisition (90% stock) and the geographic diversification accompanying that deal. Moody's expects TSO's consolidated debt to EBITDA to remain under 2.75x in 2017, despite continuing weakness in crack spreads. TSO's mid-cycle target is 2.5x. Moody's notes TSO liquidity is strong, with pro forma cash (excluding midstream MLPs) of $2.4 billion as of March 31, with full availability of its $3 billion revolver. But Moody's cited TSO's desire to increase its return of cash to shareholders (via a likely dividend hike and a $2 billion share repurchase authorization) as potential limits on accelerated debt reduction, despite free cash flow (which is expected to be used for share repurchases). TSO has a $450 million maturity on 10/1/17.
Steel Dynamics 07-21 12:22 GMT
(Comment)
While Steel Dynamics (STLD) reported second quarter earnings in line with last month's...
Earnings by Evan Mann, CFA
While Steel Dynamics (STLD) reported second quarter earnings in line with last month's guidance, adjusted EBITDA was moderately ahead of the consensus forecast and up year over year on increases in Steel average price per ton. The second quarter adjusted EBITDA, however, includes incremental expenses and reduced shipments related to the previously disclosed upgraded and expanded galvanizing lines at Butler Flat Roll Division and start-up issues for a Columbus Flat Roll Division paint line which reduced pre-tax income by $30 million. Second quarter sales were up 18% year over year to $2.4 billion as a significant increase in the average steel selling price was partly offset by moderately lower shipments. The adjusted EBITDA margin decreased as the increase in average scarp cost exceeded the gains in the average steel selling price. With higher sales mostly offset by the margin contraction, second quarter adjusted EBITDA rose a modest 3% to $350 million, ahead of the $345 million consensus estimate. For the LTM, leverage was 1.7x, a decrease from 2x in 2016, liquidity remained solid and free cash flow was healthy. We will update our projections and review our rating shortly.
Morgan Stanley 07-21 03:07 GMT  
(Report with Analyst's Data Sheet) 
Concerns about fixed income trading results didn't deter the largest U.S. banks from tapping the corporate bond market once earnings were out of the way...
Summer Sales by Kathleen Shanley, CFA
Revlon 07-21 03:02 GMT  
(Report with Analyst's Data Sheet) 
Revlon (REV) management attributes its recent weak financial results to a promotional industry environment. But bond prices are touching new lows and there could be...
Promotional Game  by Kim Noland
ESKOM Holdings SOC Ltd. 07-21 00:49 GMT  
(Report with Analyst's Data Sheet) 
ESKOM Holdings SOC Ltd. (ESKOM) released its results for the fiscal year ended March 31, 2017. With higher electricity prices and a moderate...
Stuck With High Leverage by Alexandre Dray
Abbott Laboratories 07-21 00:39 GMT
(Comment)
Abbott reported a complicated second quarter, and unless otherwise noted all sales...
Earnings by Carol Levenson, CFA
Abbott reported a complicated second quarter, and unless otherwise noted all sales references are to "comparable operational" sales, which includes the acquired St. Jude Medical in the prior period and excludes the divested Abbott Medical Optics as well as the impact of currency. On this basis sales rose only 2.9%, down sequentially. Sales growth by product line ranged widely, led by phenomenal growth in neuromodulation (up 49%) and diabetes care (up 21.3%), with strong results in structural heart (9.1%), and electrophysiology (10%) as well. Note all these high growth product lines are in the Medical Devices segment. Other segments fared less well, with continued weakness in nutrition and established pharmaceuticals in key emerging markets seeing growth slow meaningfully to 4.6%, owing in part to a new tax system in India. New products in diagnostics and diabetes continue to make strong contributions. The company saw good gross margin expansion (220 basis points) and with a lower SG&A rate the adjusted operating margin expanded by 270 basis points to 22.2%. Adjusted earnings soared by 35%, but even with a higher share count from the St. Jude acquisition E.P.S. rose by 13% and beat guidance. Abbott raised its full year E.P.S. forecast slightly in recognition of a good first half and hopes for a robust second half. But this does not yet reflect the impact of the Alere acquisition, expected to close (finally) this quarter. No balance sheet or cash flow information was disclosed.
Sherwin-Williams 07-20 22:03 GMT
(Comment)
We knew SHW's second quarter results would be a mess, and indeed they were. With the...
Earnings by Carol Levenson, CFA
We knew SHW's second quarter results would be a mess, and indeed they were. With the Valspar acquisition closing in early June, the company has changed its segment reporting and redefined adjusted earnings to exclude intangible amortization and acquisition charges. Typically only healthcare companies exclude intangible amortization from adjusted earnings, but because of the lofty price paid for Valspar SHW's goodwill and intangibles soared from $1.4 billion to $13.2 billion with this acquisition, so we're not too surprised at the exclusion of what is expected to be nearly $300 million in amortization expense annually. So there are various ways to slice and dice second quarter results. Reported sales rose 16% but but only 2% excluding Valspar and a change in revenue classification. In the new segment The Americas Group, which is not affected by Valspar as it contains the paint stores and SHW's Latin American operations, sales rose 8.7% on volume and price, with comparable store sales rising 4.9%, down substantially from the first quarter on softer DIY sales in an important season. The new Consumer Brands Group saw sales plunge by 11.9% excluding Valspar, with lower volume sales to most retail and commercial customers. Adjusted operating margin fell in every segment, with the worst decline being in the Consumer Group, from lower volume and higher raw materials costs. We estimate adjusted EBITDA (excluding substantial acquisition charges) for the trailing twelve months rose 11%, not nearly enough to offset the $9 billion increase in debt, leading to a towering leverage ratio of 5.0x (before leases), as we had originally projected. No cash flow statement, of course, upon which the entire deleveraging story depends, but we estimate free cash flow in the quarter fell sharply to less than $200 million, while share repurchases continued to be halted, bringing cash available to pay down debt to a puny $210 million. It's not a great start to what is supposed to be a great deleveraging story.
Revlon 07-20 20:26 GMT
(Comment)
Revlon senior unsecured notes were downgraded by both major agencies in the last several days, with one...
Ratings Action by Kim Noland
Revlon senior unsecured notes were downgraded by both major agencies in the last several days, with one agency putting them in the C catergory. This is not surprising given the high leverage over 7x and large amount of bank debt with priority over the unsecured notes. There is also execution risk given Revlon's acquisition of Elizabeth Arden about 10 months ago and the company's plan to reduce leverage through the achievement of a large amount of synergies., Stay tuned for more details and an updated bond opinion.
Omnicom Group Inc. 07-20 12:13 GMT
(Comment)
As suggested by management and expected by us, momentum slowed at Omnicom Group in the...
Earnings by Dave Novosel, CFA
As suggested by management and expected by us, momentum slowed at Omnicom Group in the second quarter. Organic revenue rose 3.5%, slower than the 4.4% pace of Q1, but right in line with overall growth in 2016. Adjusting for the foreign exchange impact (-1.5%) and dispositions (-4.4%), reported revenue dropped 2.4%. OMC disposed of several agencies, including those in the field marketing and events area, and its specialty print media business. Management indicated that it does not expect to complete any significant dispositions in the second half of the year. Organic growth was strong in every region, except North America, which was only up 0.2%.The UK was up 9.3%, the Euro markets rose 7.8%, and Asia Pacific increased 7.1%. Operating margins improved by 40 basis points, after rising 20 basis points in Q1. As usual, the major drivers were savings in real estate, back office services, and procurement. Margins have risen fairly steadily over the last seven years, and the company confirmed guidance for a 50 basis point improvement in 2017. As is often the case, free cash flow was negative in Q2. Nevertheless, we expect free cash flow for the full year to exceed $1 billion. OMC repurchased $236 million of its shares in Q2 and is on pace to buy back more than $900 million for the full year. That leaves very little for acquisitions unless the company decides to add some debt. But with leverage of only 2.1x, a modest increase in debt is not troubling. Typically, OMC accelerates share repurchases in periods where acquisition spending is not material. Conversely, if the company boosts its spending on acquisitions, we would expect stock buybacks to recede.
Lockheed Martin 07-20 03:45 GMT  
(Report with Analyst's Data Sheet) 
Lockheed's future (especially with regard to the F-35 program) stands to benefit from the President's latest Department of Defense budget proposal, but...
Up In The Air by Carol Levenson, CFA
Novelis Inc. 07-20 03:21 GMT  
(Report with Analyst's Data Sheet) 
Novelis (HNDLIN) ended fiscal 2017 on a high note, posting strong fourth quarter sales and adjusted EBITDA gains on a double-digit shipment increase for...
Automotive Mix  by Evan Mann, CFA
Discovery Communications 07-20 03:02 GMT  
(Report with Analyst's Data Sheet) 
According to widespread rumors, Discovery Communications and Scripps have held talks regarding a potential merger, while Viacom may also be...
Following A New Scripps? by Dave Novosel, CFA
Tesoro 07-21 
Transnet 07-17 
Israel Chemical 07-13 
Halliburton 06-28 
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Jul 17, 2017 | Barron's
CL on Krogers is Selling Bonds to Fund Pension, Refinance Q-She thinks the pension contribution could be as much as $1 billion --the amount its defined benefit plans were underfunded by at the end of the year.
Jul 17, 2017 | Business Courier Cincinnati
CL on Kroger to pump up to $1 billion into underfunded pension plan Q - "We think this is a prudent use of debt and a credit-neutral development. We believe the credit profile will remain stable in the medium term barring a major acquisition."
Jul 13, 2017 | Bloomberg
Frontier Debt Falls as Holders Fear Weak 2Q - Q-"Unless it can show some progress in terms of operating profits, it's going to be tough for the co. to get anywhere close to where they were in terms of credit profile."
Jul 3, 2017 | WSJ Pro Bankruptcy
KN on What Now Q - Rite Aid Report Featured
Jun 30, 2017 | Bloomberg
CL on Weird Paul Singer Showdown Was Just Start of Arconic's Troubles Q - "The way Arconic handled the Grenfell situation seems to have been with classic Arconic (and Alcoa) arrogance."
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