How this Q earnings are coming along

How this Q earnings are coming along

This was a lot of work for me so I hope you find it useful.

About a week ago I posted the results of the first three of my companies to report this quarter. I now have some more to add, and I’ll reprint those first three as well so you’ll have them all in one place.

As I did the first time, I’ll give you my take on the results, and I’ll start each discussion with an excerpt from the brief review of that company that I recently posted in my Brief Reviews post.

Mitek (MITK)
In my brief review a couple of weeks ago, I pointed out that this is a really small company, even smaller than PN. It has some great things going for it though and is expanding as fast as it can. In fact, they forecast that that expansion and the hiring of hiring new sales teams for cross selling would cut earnings growth to zero or less this year. The good news is that they keep signing up large new clients. The bad news is the expenses mentioned above, and the constant legal expenses that they are now subtracting out when figuring their adjusted earnings.

I bought at $4.10 up to $4.70, and to my amazement they were up to $6.12 at the time I wrote the review. This meant that their PE had grown to 24.5! I wrote, “Granted, they have a huge open field in front of them, but a PE of 24.5 with little or no earnings growth expected for this year, is a bunch”. My position was my 3rd smallest at 3.3% of my portfolio, but I wasn’t sure what to do with this position. I said that I was probably going to just hold for now and see how everything comes out.

Here’s what their March earnings looked like.

Contrary to expectations, Revenue up 50% to $8.5 million.
They signed 3 new Fortune 500 companies for their mobile ID offerings. They had hoped to sign 10 in the first year, and they already have 7 in the first six months.
Adj net income was up 45% to $2.4 million or 7 cents per share
Cash was $32 million, up from $28 million sequentially. No Debt.

The market liked these results a lot, and the stock price rose 17% in a day, from $6.25 to $7.31. That was Thursday. They finished yesterday up another 9 cents to $7.40, up about 68% for me in about three months (Thanks to Neil for bringing it to the board’s attention!). They are now a 4.0% position for me, and I will let my Mitek position grow on its own, as it is such a small company.

Amazon (AMZN)
My brief review a few weeks ago was really brief. I wrote: I love Amazon and think they have both online commerce and the cloud sewed up, as much as any one company can sew them up. I keep adding small amounts whenever I can, and am now up to about 8% of my portfolio. I’ll probably keep adding, only held back by the absence of significant earnings (which is a real lack).

Well they came out with an excellent quarterly report. Revenue was up 28%, which is not bad for such a large company. They surprised everyone by actually reporting real earnings. In fact, $1.07 of earnings, up from a loss of 12 cents the year before. I had been following cash flow and they reported:

Operating cash flow increased 44% to $11.3 billion for the trailing twelve months, compared with $7.8 billion for the trailing twelve months ended March 31, 2015.

While this was technically true, it was a bit deceptive, as they had $11.9 billion of trailing Op Cash Flow in December. Trailing Cash flow fell $0.6 million sequentially. That means that cash flow from this March’s quarter actually was down $0.6 million from last year’s March quarter.

It was the same for Free Cash Flow. Trailing was up 100%, but the quarter was down $0.7 million.

The key was Amazon Web Services where revenue grew 64% (!) to $2.6 billion! AWS segment operating income, was $604 million, more than triple the $195 million the year before, with a 23.5% operating margin. At any rate the market loved it and the stock price was up $58 (9.6%) after reporting.

Cambrex (CBM)
In my brief review I explained that they supply little pieces, finished compounds, and generic meds to big drug companies, especially Gilead, but also many others. They’ve just built out a large facility with plenty of empty space so they can “keep up with demand”. But at the same time they give very conservative guidance of maybe 15% revenue growth. On the other hand, earnings are up 135%, from 99 cents to $2.33, from 2013 to 2015.

I started to buy at $36 in February and, when I wrote the review, to my surprise the stock price was up to about $44, and it had grown up to a 6.5% position due to price appreciation and my adding a little here and there on the way up. They’re successful at supplying shovels to all the miners, but they will never be a company that moves the world. I said that I was expecting quite good earnings for the first quarter, but that I probably would only add minimally from here on and let it build by appreciation.

Well they reported a great quarter:
Sales up 20%, to $94 million from $78 million
Adj EBITDA up 52% to $27.2 million from $18.0 million.
Adj Earnings up 72% to 50 cents from 29 cents.

Amazingly, they kept full year guidance unchanged at:

Sales up between 8% and 12%,
Adj EBITDA up 10% to 15%, and
Adj earnings to be between $2.46 and $2.58 million, up 8% at the midpoint.

This was ridiculously low guidance when earnings were up 72% in the first quarter, and trailing earnings were already above the midpoint at $2.54 after the first quarter.

They were up 8.4% the day after announcing results. They are now over $48 with a PE at 19. They have now grown to 7.15% of my portfolio.

Skyworks (SWKS)
I wrote that although I really like the company, its prospects, and the management, I decided I had had too much in SWKS so I reduced the size of my SWKS position by a third from 21% to 14%. I said that I planned to just hold it. The price was only $72, and the PE was 13.

They had a great earnings report and the market didn’t recognize it and sold off reflexly. The quarter before they said exactly what revenues and earnings would be. They explained the unusually-large decline in revenues is largely due to Apple, in spite of the rest of their business growing strongly, but that despite the revenue shortfall, they expect strong gross margin and plan to exercise a disciplined approach with expenses to maintain earnings momentum. They explained that it would contine in the June quarter but the second half of the year would have large growth comparisons. Well that’s just what they said again this quarter but the market acted as if no one had ever heard it before.

Let’s look at the quarter:

Revenue for the second fiscal quarter was $775 million, up 2% and consistent with their guidance.
Adj Earnings were $1.25, one cent better than guidance, and up 10 cents from a year ago.

Adj Gross Margin of 50.8%, up from 46.7% a year ago. Think about that. They were impacted by Apple but still grew gross margins by over 4% (!). Most companies brag if they can boost margins by a half a percent.

Adj Op Margin was 36.8%. That’s 36.8% operating income! For a tech company!

Here are some of the accomplishments I was especially impressed by:
16 Skyworks devices in Cisco’s latest large enterprise access point system.
• Unveiled SkyBlue™, a revolutionary technology enhancing RF power capability and efficiency in front-end solutions
• Powered Huawei’s flagship LTE platform with 10 solutions and over $9 of content
• Expanded list of OEMs leveraging SkyOne® integrated platform
Increased content by 20% in Samsung’s Galaxy S7 smartphones
• Supported next generation launches at Lenovo, OPPO, Vivo, Xiaomi and ZTE

In this quarter alone, they landed
• a vehicle-to-vehicle communication system with Cadillac’s 2017 platform,
GPS-based industrial tracking devices for Iotera,
• a new connected home hub for a leading online retailer,
• Cat-M solutions for machine-to-machine applications in a variety of end markets, with the world’s first front-end solution for LTE Cat-M
• connectivity modules in set-top boxes,
temperature control systems for multiple smart home solutions,
• analog IC supporting new smartwatch platforms,

In the first half of fiscal 2016, we generated roughly $383 million in free cash flow, redistributing over 60% or $234 million to shareholders through our dividend plan and our share repurchase activity.

We have roughly $1.2 billion in cash on hand and no debt. We also repurchased 2 million shares of our common stock during the quarter at an average price of just over $67.50 a share.

Outlook for June quarter: At this revenue level, we suggest modeling gross margin at 51% with operating expenses flat to Q2 at approximately $108.5 million. It is worth noting that our gross margin guidance implies a 200 basis point improvement from the prior year. Our strong gross margin outlook in the face of current market conditions highlights the benefits of our higher value integrated systems, along with our scale and flexible manufacturing operations.
Looking ahead, we see opportunity for additional margin improvement, as we continue to ramp our custom solutions and leverage our recent capital investments. As a guideline, we recommend modeling a 60% incremental gross margin off of the third quarter baseline. We continue to target a goal of at least 53% gross margin for the company and have a number of initiatives in place to accelerate our progress towards achieving this goal. Our addressable content per device is rising, driving TAM growth well in excess of the broader semiconductor space.

At any rate I increased my shares in SWKS by 16% on Friday. It is now about 14.2% of my portfolio, even after the sell-off, and has a PE of 11.7%

Infinera (INFN) I’ll have to work on next week, as it’s a lot to think about and I had a lot of earnings to deal with this week.

Here are last week’s reports reprinted:

Signature Bank (SBNY)
This remains one of the best banks in the world! By the way, I’m not exaggerating about this. Forbes rates the 100 largest banks in America on a series of metrics, weights them mathematically, explains explicitly how they rated them, and publishes the results as “The Best Banks in America” or some such. SBNY has been one of the top ten banks for six years running. They were number two in the Americas in 2014. They were first, number one (!) of 100 banks, last year. And they were rated number six this year. The best of the big four banks was Wells Fargo at about number 34, as I remember.

SBNY is my 4th biggest position at 8.3% of my portfolio, with a PE of 18.6 at the current price of $142.

Here’s what their March earnings looked like:

Earnings were up 23% from $1.64 to $1.97.
Twelve month trailing earnings were also up 23% from $6.20 to $7.63, so they have been very consistent.
Book Value was $62.85, which was up 10.7% sequentially, up 21.6% from a year ago, and up 56.7% from two years ago.
Efficiency Ratio of 32.2% was just incredible (!), even better than the 35.1% a year ago.
Net Interest Margin was 3.32%, slightly better than the very good 3.26% a year ago.
Non-accrual loans were 0.42% of total loans and 0.30% of total assets.

There were some concern over their exposure to taxi medallion loans in New York City, but those are only about 4% of their total loans, and they discussed the issue at length in the CC.

The stock price ran up from $134 two weeks ago to $147 before earnings, and settled back after earnings, closing Friday at $141.70 (up 5.7% from two weeks ago).

Greenbrier (GBX)
This company is a dominant and innovative figure in railroad car construction. When the oil boom was on they were booming too. Now that oil isn’t booming for the time being, they are priced as if no one will ever use a railroad again. They have a backlog that should last for a couple of years and only about 10% of it is energy related. I bought shares a few weeks ago at a PE of less than 4(!) and a price of $27. When they announced earnings just where they said they would be, and re-confirmed their outlook for the fiscal year at about $5.90, the price went up to $32, but it’s now settled back to $29.70. I’m keeping it a very small position (1%) as I’m not really a value investor.

Here’s what their quarter looked like:

Revenue was $669 million, up from $505 million a year ago, but down sequentially from $802 million.
Earnings were $1.41, down from $1.57 a year ago, and from $2.15 sequentially.
Twelve month trailing earnings were $6.91, up 49% from $4.64 a year ago. (Yahoo has them at $7.06 in earnings but I’ll use mine, which are a few cents lower).
Backlog for 34,100 railroad cars. They deliver about 5,000 per quarter, and got in 3,000 orders in the quarter in spite of all the bad karma in the industry, so that backlog should last for a long, long time.
Generated $192 million in cash in fiscal 2015, up from $136 million the year before.
They pay a dividend of about 2.6%, are repurchasing shares, and are at a PE of 4.3.

Outlook: They are now half way through their fiscal year, with $3.55 in the bank, and they reaffirmed $5.90 at the midpoint for full fiscal year earnings. They feel they can do fine eating away at their backlog until the cyclical railroad industry comes back to life. It was a good, confident conference call.

Skechers (SKX)
This company is doing wonderfully, with no obvious threat in sight. It sold off for no particular good reason, except that the price had risen a lot this year. I’m comfortable with it as one of my big three largest, and oversized, positions. It’s currently about 13.4% of my portfolio, at a price of $32.75, and a PE of 17.8. This is a great company, and selling at a very low price when compared to other companies in the same field.

Here’s what their quarter looked like:

Revenue was $979 million, up 27.5% from $768 million a year ago. International Revenue was up 47%, and revenue growth from China keeps coming in at over 100%.
Earnings were 63 cents, up 70% from 37 cents a year ago.
Twelve month trailing earnings were $1.84, up 57% from $1.17 a year ago.
Owned same store comps were +9.8%.
They opened more than 80 stores in the quarter.
They are enlarging and automating their European Distribution Center, expanding throughout the world, and don’t see any impediment to future expansion and growth.

Last year some of the Mar quarter got pushed into Jun quarter because of a West Coast long shoreman strike. This year, some of June quarter got pulled into March because Easter came so early, so they say June won’t be up by nearly as much as March, but no one seemed to care as the stock price rose more than 6%.

By the way, think of this:
Nike revenues last quarter grew 4% (compared to Skechers which grew 27.5%!).
Nike trailing earnings grew 22% (Skechers trailing earnings grew 57%).
Nike has a PE of 29 (Skechers has a PE of 17.8).

Does SKX have room for price appreciation? You figure it out. (And that’s not even comparing to UA with a PE of 45).

Hope this helps,


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We had to post it in three parts this time.

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