PG: Look Ahead to December 2020 Quarterly Results

This "look-ahead" post discusses how I came up with an estimate for Procter & Gamble's earnings for fiscal 2021's second quarter, which ended on December 31, 2020, by predicting each element of its Income Statement, from top-line Revenue to bottom-line Earnings Per Share (EPS) and everything in between. 

Once the company’s official results become available later this month, I will compare the published Income Statement to the prediction and identify any surprises, positive or negative.  Examining these differences can identify what factors (e.g., profit margins, non-GAAP expenses, tax rates, share buybacks) are driving changes to a company's financial performance.

But, before we get into the details, let's take a step back and start with background information about Procter & Gamble.

P&G, which owns brands familiar to shoppers around the world, is a long-time giant of the consumer products industry. COVID-19 increased consumer and business demand for cleaning products and this has boosted P&G's sales, as did the greater amount of time people are spending at home.  Note that P&G acquired in November 2018 the over-the-counter (OTC) consumer healthcare business of Germany's Merck for $3.7 billion in cash.

Shares of P&G now trade for about $139 each, giving the company a market value of $364 billion. These shares can be found in the Dow Jones Industrial Average, Standard and Poors 500, Standard and Poors 100, Standard and Poors Dividend Aristocrats, New York Stock Exchange Composite, and Russell 1000 stock indices.

P&G recorded profits of $14 billion on revenue of $72 billion during the last year. In the quarter that ended on 30 September 2020, P&G earned $1.63 per share, which significantly beat the $1.42 Wall Street consensus forecast. See https://tinyurl.com/yxf89wdr for P&G's most recent quarterly report.

Revenue in the September 2020 quarter totaled $19.3 billion, 9% more than last year's $17.8 billion. The Fabric and Home Care business was responsible for 34% of overall revenue, and this unit's revenue grew by 14.0% compared to the year-earlier result. The Baby, Feminine and Family Care business contributed 24% of revenue, and this unit's revenue increased by 3.0%. The Beauty unit supplied 20% of revenue, and the value rose by 7.0%.

My starting point, if available, when estimating earnings is guidance provided by the company's management to financial analysts.  It's true that the company may downplay expectations somewhat to avoid disappointments, but the top managers ought to know better than anyone else how well their products and services are selling.  I also look for other information about the company in the news, and I take advantage of trends in the company's historical results.  While it makes my task a little more difficult, I also try to estimate earnings that conform to Generally Accepted Accounting Principles (GAAP).  Non-GAAP results, which most professionals focus on, are somewhat arbitrary and often exclude meaningful items.

P&G management updated their expectations for fiscal 2021 in October 2020 when they last reported quarterly results.

P&G raised its outlook for fiscal 2021 all-in sales growth from a range of one to three percent to a range of three to four percent versus the prior fiscal year. The revised range includes an estimated one percent negative impact from foreign exchange. The Company raised its outlook for organic sales growth from a range of two to four percent to a range of four to five percent.

The Company said it now expects fiscal 2021 GAAP diluted net earnings per share growth in a range of four to nine percent versus fiscal 2020 GAAP EPS of $4.96. GAAP EPS guidance now includes non-core charges in the range of $0.15 to $0.20 per share from the early debt retirement project that was initiated earlier this month. P&G raised guidance for core earnings per share growth from a range of three to seven percent to a range of five to eight percent versus fiscal 2020 core EPS of $5.12. The Company said its current outlook includes headwinds of approximately $325 million after-tax from foreign exchange impacts and $50 million after-tax from higher freight costs. The outlook also includes an estimated $150 million after tax headwind for the combined impacts of higher interest expense and lower interest income. These headwinds should be partially offset by approximately $175 million after-tax benefit from lower commodity costs.

P&G did not provide any specific guidance for the December 2020 quarter.  

Revenue is predicted to rise between 3 and 4 percent for the fiscal year, but this figure grew 8.5 percent in the September quarter.  This may indicate that management is somewhat concerned that the overall economic impact of COVID-19 might start to have more of a negative effect on P&G.  I'm going to assume that P&G's revenue in the December 2020 quarter will only be 3 percent more than in the December 2019 period.

GAAP EPS for the fiscal year is expected to increase between 4 and 9 percent from last year's $4.96, which sets the range as $5.16 to $5.41.  The reported EPS for the September quarter was $1.63, which leaves $3.53 to $3.78 for the final nine months of the fiscal year.  It's also worth noting that operating earnings per share will have to be $0.15 to $0.20 higher than this range to compensate for an early debt retirement charge.

For the Gross Margin and Sales, General and Administrative (SG&A) expenses, I'm assuming their values as a percent of sales will be consistent with P&G recent quarters.  I'm not sure if forecast for the early debt retirement charge will be fully recognized in the December quarter, but I reduced my estimate of non-operating gains by $400 million to account of this charge.

For the other lines of the Income Statement, I tried to choose values consistent with historical results.  I end up with an earnings estimate of $3.15 billion, or $1.20 per share.

The following Income Statement results from estimates made as discussed above. 

Please note that my organization of revenues, expenses, gains, and losses, which I use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.

 #p&g  #pg  #gauges #gcfr  #gcfr2 #lookahead #nac_financialanalysis

KMI: Look Ahead to December 2020 Quarterly Results

This "look-ahead" post discusses how I came up with an estimate for Kinder Morgan's earnings for fiscal 2020's fourth quarter, which ended on December 31, 2020, by predicting each element of its Income Statement, from top-line Revenue to bottom-line Earnings Per Share (EPS) and everything in between. 

Once the company’s official results become available on January 20, I will compare the published Income Statement to the prediction and identify any surprises, positive or negative.  Examining these differences can identify what factors (e.g., profit margins, non-GAAP expenses, tax rates, share buybacks) are driving changes to a company's financial performance.

But, before we get into the details, let's take a step back and start with background information about Kinder Morgan.

Kinder Morgan owns and operates a sprawling network of pipelines and associated terminals for transporting oil, gas, carbon-dioxide, and other products. About 40 percent of the natural gas consumed in the U.S. is carried by Kinder Morgan pipelines.  In 2014, the company completed a series of acquisitions that converted general and limited partnership interests in various Kinder Morgan and El Paso entities into full ownership.  As was the case for nearly every company in the industry, Kinder Morgan's results in 2020 were hurt by the significant drop in worldwide demand for energy products as COVID-19 led to reduced economic activity.  The resulting decline in the price of oil and gas also impaired (i.e., reduced the carrying value of) the tangible and intangible assets on the company's balance sheet. 

Shares of Kinder Morgan, Inc., now trade for about $14 each.  These shares can be found in the Standard and Poors 500, Standard and Poors 100, New York Stock Exchange Composite, and Russell 1000 stock indices.

Kinder Morgan recorded profits of $122 million on revenue of $12 billion during the last year. In the quarter that ended on 30 September 2020, Kinder Morgan earned $0.18 per share (excluding certain items), which missed the $0.20 Wall Street consensus forecast. See https://tinyurl.com/y2hps7cd for Kinder Morgan's most recent quarterly report.

Revenue in the September 2020 quarter totaled $2.9 billion, 9% less than last year's $3.2 billion. The Natural Gas Pipelines business was responsible for 62% of overall revenue, and this unit's revenue fell by 6.5% compared to the year-earlier result. The Products Pipelines business contributed 15% of revenue, and this unit's revenue fell by 8.7%. The Terminals and CO2 unit supplied 23% of revenue, and the amount fell by 16.3%.

My starting point, if available, when estimating earnings is guidance provided by the company's management to financial analysts.  It's true that the company may downplay expectations somewhat to avoid disappointments, but the top managers ought to know better than anyone else how well their products and services are selling.  I also look for other information about the company in the news, and I take advantage of trends in the company's historical results.  While it makes my task a little more difficult, I also try to estimate earnings that conform to Generally Accepted Accounting Principles (GAAP).  Non-GAAP results, which most professionals focus on, are somewhat arbitrary and often exclude meaningful items.

The expectations Kinder Morgan's management communicated for the December 2020 quarter last October are shown below.  Unfortunately, for my purposes here, the guidance is for Distributable Cash Flow (DCF) and Adjusted Earnings Before Interest expense, income Taxes, Depreciation, depletion, amortization (DD&A), and Amortization of excess cost of equity investments and certain items (EBITDA).  The company does not provide guidance for GAAP net income, claiming it is impractical to make the necessary predictions.

For 2020, KMI’s original budget contemplated DCF of approximately $5.1 billion ($2.24 per common share) and Adjusted EBITDA of approximately $7.6 billion. Because of the pandemic-related reduced energy demand and the sharp decline in commodity prices, the company expects DCF to be below plan by slightly more than 10% and Adjusted EBITDA to be below plan by slightly more than 8%. As a result, KMI expects to end 2020 with a Net Debt-to-Adjusted EBITDA ratio of approximately 4.6 times.

Market conditions also negatively impacted a number of planned expansion projects such that they are not needed at this time or no longer meet our internal return thresholds. We therefore expect the budgeted $2.4 billion of expansion projects and contributions to joint ventures for 2020 to be lower by approximately $680 million. With this reduction, DCF less expansion capital expenditures is improved by approximately $135 million compared to budget, helping to keep our balance sheet strong.

The guidance indicates that Kinder Morgan expects DCF for the year to be less than 90 percent of $5.1 billion, or $4.59 billion.  DCF realized during the first nine months of 2020 was $3.35 billion, so the fourth-quarter estimate is $1.24. billion or a little less.  Similarly, the Adjusted EBITDA guidance for the year is 92 percent of $7.6 billion, or $7.0 billion.  For the fourth quarter, the estimate is $7.0 billion less the $5.13 billion of the first nine months of 2020, or $1.87 billion.

A prediction for GAAP net income can be derived from the DCF or Adjusted EBITDA estimates, but the calculation in each case requires approximations to account for the many items excluded from DCF and Adjusted EBITDA.

Consider Adjusted EBITDA:  During the first nine months of 2020, GAAP net income was about $5.6 billion less than Adjusted EBITDA.  However, $1.6 billion of this amount was a one-time impairment charge.  The difference between GAAP net income and Adjusted EBITDA was $4.0 billion, or $1.33 billion per quarter, excluding the impairment.  

Subtracting $1.33 billion from the $1.87 billion Adjusted EBITDA estimate yields $0.54 billion, or $540 million, as the GAAP net income estimate for the December 2020 quarter.

Coming up with an Income Statement prediction that would generate $540 million ($0.24 per share) in earnings is an even trickier proposition, and one most certainly prone to error.  But the following takes into consideration the information mentioned above and trends seen in the company's historical results. 

Please note that my organization of revenues, expenses, gains, and losses, which I use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.

 #kindermorgan  #kmi  #gauges #gcfr  #gcfr2 #lookahead #nac_financialanalysis

ADM: Look Ahead to December 2020 Quarterly Results

This "look-ahead" post discusses how I came up with an estimate for Archer Daniels Midland's earnings for fiscal 2020's fourth quarter, which ended on December 31, 2020, by predicting each element of its Income Statement, from top-line Revenue to bottom-line Earnings Per Share (EPS) and everything in between. 

Once the company’s official results become available on February 2, I will compare the published Income Statement to the prediction and identify any surprises, positive or negative.  Examining these differences can identify what factors (e.g., profit margins, non-GAAP expenses, tax rates, share buybacks) are driving changes to a company's financial performance.

But, before we get into the details, let's take a step back and start with background information about ADM.

Chicago-based ADM is a global agribusiness that purchases, transports, stores, processes, and merchandises agricultural commodities (including oilseeds, corn, and wheat) and products (such as vegetable oils, flour, other food ingredients, livestock feed, and biofuels).  In the first quarter of 2019, ADM acquired Neovia and Florida Chemical Company as it seeks to become one of the world’s "leading nutrition companies."  Separately, ADM is creating an independent ethanol subsidiary that it may eventually sell or spin-off.

Shares of ADM now trade for about $51 each.  These shares can be found in the Standard and Poors 500, Standard and Poors Dividend Aristocrats, New York Stock Exchange Composite, and Russell 1000 stock indices.

ADM recorded profits of $2 billion on revenue of $63 billion during the last year. In the quarter that ended on 30 September 2020, ADM earned $0.89 per share (excluding certain items), which significantly beat the $0.71 Wall Street consensus forecast. See https://tinyurl.com/y5v988oj for ADM's most recent quarterly report.

Revenue in the September 2020 quarter totaled $15.1 billion, 10% less than last year's $16.7 billion. The Agricultural Services and Oilseeds business was responsible for 76% of overall revenue, and this unit's revenue fell by 8.6% compared to the year-earlier result. The Carbohydrate Solutions business contributed 14% of revenue, and this unit's revenue fell by 19.5%. The Nutrition unit supplied 10% of revenue, and the amount was essentially unchanged from the year-earlier period.

My starting point, if available, when estimating earnings is guidance provided by the company's management to financial analysts.  It's true that the company may downplay expectations somewhat to avoid disappointments, but the top managers ought to know better than anyone else how well their products and services are selling.  I also look for other information about the company in the news, and I take advantage of trends in the company's historical results.  While it makes my task a little more difficult, I also try to estimate earnings that conform to Generally Accepted Accounting Principles (GAAP).  Non-GAAP results, which most professionals focus on, are somewhat arbitrary and often exclude meaningful items.

ADM management communicated some expectations for the December 2020 quarter during the conference call with financial analysts after the company announced its third-quarter results last October.  A few relevant excerpts follow:

Looking ahead, we expect to see strong North American exports and global crush margins in the fourth quarter, combined to contribute to a very strong Ag Services and Oilseeds performance, with results significantly higher than the third quarter of this year, though lower than Q4 of 2019, which included a $270 million benefit for 2 years of the retroactive biodiesel tax credit.

Looking ahead, we expect the fourth quarter for Carbohydrate Solutions to be close to Q3 of this year and substantially higher than the fourth quarter of 2019, driven by improved year-over-year fuel ethanol margins and higher industrial-grade sales. While Sweetener and Flour volumes will still be impacted by weaker food service demand, we expect the year-over-year percentage decline to be smaller than it was in Q3.

Looking ahead to the fourth quarter, we expect nutrition to deliver another quarter of 20-plus percent year-over-year OP growth with a typically seasonally weaker Q4 in Human Nutrition, offset by seasonally stronger Animal Nutrition

The guidance above, if I'm interpreting it correctly, suggests that ADM's Segment Operating Profits for the fourth quarter may be in the ranges listed below.

Corporate results that subtract from Segment Operating Profit averaged $400 million per quarter during the first nine months of 2020.  If the fourth quarter turns out to be similar, Income before Taxes could be $380 to $540 million.

It's not the ideal analytical approach but, lacking other definitive information, I played around with the Income Statement to get Income before Taxes to equal $460 million (midpoint of the range above), while keeping each line more or less consistent with the company's historical results.  The result was an estimate for earnings of $413 million ($0.73 per share).

Please note that my organization of revenues, expenses, gains, and losses, which I use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.

 #adm  #archerdanielsmidland  #gauges #gcfr  #gcfr2 #lookahead #nac_financialanalysis

AAPL: Look Ahead to December 2020 Quarterly Results

This "look-ahead" post discusses how I came up with an estimate for Apple's earnings for fiscal 2021's first quarter, which ended on December 26, 2020, by predicting each element of its Income Statement, from top-line Revenue to bottom-line Earnings Per Share (EPS) and everything in between.

Once the company’s official results become available on January 28, I will compare the published Income Statement to the prediction and identify any surprises, positive or negative.  Examining these differences can identify what factors (e.g., profit margins, non-GAAP expenses, tax rates, share buybacks) are driving changes to a company's financial performance.

But, before we get into the details, let's take a step back and start with background information about Apple.

Apple became one of the world's most valuable companies by designing and selling stylish, easy-to-use computers, tablets, smartphones, music players, and watches, as well as software and media.  Services for these devices are also a lucrative and growing business for Apple, but selling iPhones is, by far, the company's largest single revenue source. The transition to 5G mobile technology may serve to boost iPhone sales even higher.  Apple is now selling laptops with fast, power-efficient processors it designed, replacing chips made by Intel, and they expectation is that other Apple-designed chips will be included in future products.  Apple's shares split 4-for-1 on 28 August 2020; they had split 7-for-1 just six years earlier.

Shares of Apple now trade for about $130 each.  These shares can be found in the Dow Jones Industrial Average, Standard and Poors 500, Standard and Poors 100, NASDAQ 100, and Russell 1000 stock indices.

Apple recorded profits of $57 billion on revenue of $275 billion during the last year.  In the quarter that ended on September 26, 2020, Apple earned $0.73 per share, which beat the $0.71 Wall Street consensus forecast. See https://tinyurl.com/yx9xv84k for Apple's most recent quarterly report.

Revenue in the September 2020 quarter totaled $64.7 billion, 1% more than last year's $64.0 billion. The iPhone business was responsible for 41% of overall revenue, and this unit's revenue fell by 20.7% compared to the year-earlier result. The Services business contributed 22% of revenue, and this unit's revenue grew by 16.3%. The Mac unit supplied 14% of revenue, and the amount grew by 29.2%.  

My starting point, if available, when estimating earnings is guidance provided by the company's management to financial analysts.  It's true that the company may downplay expectations somewhat to avoid disappointments, but the top managers ought to know better than anyone else how well their products and services are selling.  I also look for other information about the company in the news, and I take advantage of trends in the company's historical results.  While it makes my task a little more difficult, I also try to estimate earnings that conform to Generally Accepted Accounting Principles (GAAP).  Non-GAAP results, which most professionals focus on, are somewhat arbitrary and often exclude meaningful items.

Apple communicated its expectations for the December 2020 quarter last October during the conference call it held for financial analysts after it released the results for the September quarter. (It would have been nice if they had included the guidance in their earnings press release or the associated 8-K SEC filing.) Apple declined to provide specific revenue guidance because of the uncertainties associated with COVID-19, but they did provide some information about the company's outlook.

Given the continued uncertainty around the world in the near term, we will not be issuing revenue guidance for the coming quarter. However, we are providing some insights on our expectations for the December quarter for our product categories. These directional comments, assume that COVID related impacts to our business in November and December are similar to what we’re seeing in October.

We just started shipping iPhone 12 and 12 Pro, and we’re off to a great start. We are also excited to start preorders on iPhone 12 Mini and 12 Pro Max next Friday. Given the tremendously positive response, we expect iPhone revenue to grow during the December quarter, despite shipping iPhone 12 and 12 Pro four weeks into the quarter, and iPhone 12 Mini and 12 Pro Max seven weeks into the quarter. We expect all other products in aggregate to grow double digits, and we also expect services to continue to grow double digits.

For gross margin, we expect it to be similar to our most recent quarters, despite the costs associated with the launch of several new products. For OpEx, we expect to be between $10.7 billion and $10.8 billion. We expect OI&E to be around $50 million, and the tax rate to be around 16%.

In the quarter that ended in December 2019, Apple's sales totaled $91.8 billion (see below), with the iPhone responsible for $56 billion or almost 61 percent.  Lacking more specific guidance, I've assumed iPhone sales in the December 2020 quarter will increase 3 percent, and sales of all other products and services will rise 10 percent.  These assumptions yield a revenue estimate of $97.1 billion

1) Net sales by category:
iPhone	$	55,957			$	51,982
Mac	7,160				7,416
iPad	5,977				6,729
Wearables, Home and Accessories	10,010				7,308
Services	12,715				10,875
Total net sales	$	91,819

I'm also assuming the Gross Margin will be 38.2 percent, which is about what it has been recently.  The other lines of the Income Statement get determined fairly easily from Apple's guidance and/or historical results.

This process yields an earnings estimate of $22.2 billion ($1.30 per share).

The following Income Statement summarizes the figures discussed above. 

Please note that my organization of revenues, expenses, gains, and losses, which I use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.

 #apple  #aapl  #gauges #gcfr  #gcfr2 #lookahead #nac_financialanalysis

ADP: Look Ahead to December 2020 Quarterly Results

This "look-ahead" post discusses how I came up with an estimate for Automatic Data Processing's earnings for fiscal 2021's second quarter, which ended on December 31, 2020, by predicting each element of its Income Statement, from top-line Revenue to bottom-line Earnings Per Share (EPS) and everything in between. 

Once the company’s official results become available on January 27, I will compare the published Income Statement to the prediction and identify any surprises, positive or negative.  Examining these differences can identify what factors (e.g., profit margins, non-GAAP expenses, tax rates, share buybacks) are driving changes to a company's financial performance.

But, before we get into the details, let's take a step back and start with background information about ADP.

ADP provides "human capital management" and human resource outsourcing services, such as payroll, benefits, and personnel management, to numerous firms around the world.  These services are increasingly cloud-based.  In the company's most recent fiscal year, ADP "processed and delivered more than 69 million employee year-end tax statements, and moved more than $2.2 trillion in client funds."

Shares of ADP now trade for about $176 each.  These shares can be found in the Standard and Poors 500, Standard and Poors Dividend Aristocrats, NASDAQ 100, and Russell 1000 stock indices.

ADP recorded profits of $2 billion on revenue of $15 billion during the last year. In the quarter that ended on 30 September 2020, ADP earned $1.41 per share (excluding certain items), which significantly beat the $0.96 Wall Street consensus forecast. See https://tinyurl.com/y4jsk38m for ADP's most recent quarterly report.

Revenue in the September 2020 quarter totaled $3.5 billion, 1% less than last year's $3.5 billion. The Employer Services business was responsible for 68% of overall revenue, and this unit's revenue fell by 2.6% compared to the year-earlier result. The PEO Services business contributed 32% of revenue, and this unit's revenue grew by 3.7%.

My starting point, if available, when estimating earnings is guidance provided by the company's management to financial analysts.  It's true that the company may downplay expectations somewhat to avoid disappointments, but the top managers ought to know better than anyone else how well their products and services are selling.  I also look for other information about the company in the news, and I take advantage of trends in the company's historical results.  While it makes my task a little more difficult, I also try to estimate earnings that conform to Generally Accepted Accounting Principles (GAAP).  Non-GAAP results, which most professionals focus on, are somewhat arbitrary and often exclude meaningful items.

ADP management communicated their expectations for the December 2020 quarter last October. 

The guidance indicates that the company expects fiscal 2021 revenue to match fiscal 2020 revenue, which was $14.6 billion, give or take 1 percent.  In the first quarter of fiscal 2021, ADP recorded revenue of $3.47 billion, down 0.7 percent.  It seems reasonable to conclude that second quarter revenue should also be more or less the same as the year-earlier figure, $3.67 billion.  I rounded up to $3.7 billion.

ADP also forecast margins lower than last year by 1 to 1.5 percent, which can be modeled by increasing costs relative to revenue.  The tax rate and EPS guidance is also helpful and seems realistic.

The following baseline Income Statement takes into consideration the information mentioned above and trends seen in the company's historical results.  Earnings are estimated to be $598 million ($1.39 per share).

Please note that my organization of revenues, expenses, gains, and losses, which I use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.

 #adp  #gauges #gcfr  #gcfr2 #lookahead #nac_financialanalysis

MSFT: Look Ahead to December 2020 Quarterly Results

This "look-ahead" post discusses how I came up with an estimate for Microsoft's earnings for fiscal 2021's second quarter, which ended on December 31, 2020, by predicting each element of its Income Statement, from top-line Revenue to bottom-line Earnings Per Share (EPS) and everything in between. 

Once the company’s official results become available on January 28, I will compare the published Income Statement to the prediction and identify any surprises, positive or negative.  Examining these differences can identify what factors (e.g., profit margins, non-GAAP expenses, tax rates, share buybacks) are driving changes to a company's financial performance.

But, before we get into the details, let's take a step back and start with background information about Microsoft.

Microsoft develops and sells operating system and application software, software and cloud services, and hardware items, such as game consoles. Cloud computing has become a large and growing business for Microsoft, and the company competes with industry leader Amazon, Google, and others. Microsoft acquired LinkedIn in December 2016 for approximately $27 billion, and it acquired GitHub in October 2018 for $7.5 billion. In September 2020, Microsoft reached an agreement to acquire ZeniMax Media, the parent company of game-developer Bethesda Softworks, for $7.5 billion.

Shares of Microsoft now trade for about $222 each.  These shares can be found in the Dow Jones Industrial Average, Standard and Poors 500, Standard and Poors 100, NASDAQ 100, and Russell 1000 stock indices.

Microsoft recorded profits of $47 billion on revenue of $147 billion during the last year. In the quarter that ended on 30 September 2020, Microsoft earned $1.82 per share, which significantly beat the $1.54 Wall Street consensus forecast. See http://tinyurl.com/yxosq5h4 for Microsoft's most recent quarterly report.

Revenue in the September 2020 quarter totaled $37.2 billion, 12% more than last year's $33.1 billion. The Productivity and Business Processes business was responsible for 33% of overall revenue, and this unit's revenue grew by 11.2% compared to the year-earlier result. The Intelligent Cloud business contributed 35% of revenue, and this unit's revenue grew by 19.7%. The More Personal Computing unit supplied 32% of revenue, and the amount grew by 6.4%.

My starting point, if available, when estimating earnings is guidance provided by the company's management to financial analysts.  It's true that the company may downplay expectations somewhat to avoid disappointments, but the top managers ought to know better than anyone else how well their products and services are selling.  I also look for other information about the company in the news, and I take advantage of trends in the company's historical results.  While it makes my task a little more difficult, I also try to estimate earnings that conform to Generally Accepted Accounting Principles (GAAP).  Non-GAAP results, which most professionals focus on, are somewhat arbitrary and often exclude meaningful items.

Microsoft's management communicated their expectations for the December 2020 quarter last October.  (It would have been nice if they had made this easier to find by including it in an 8-K.)

The guidance indicates that the company expects Revenue between $39.5 and $40.4 billion, Costs of Goods Sold between $13.75 and $13.85 billion, and other operating expense (i.e., Research and Development, plus Sales, General, and Administrative expenses) between $11.4 and $11.5 billion.  

The following baseline Income Statement takes into consideration the information mentioned above and trends seen in the company's historical results. The bottom line is that estimated earnings are $12.35 billion ($1.62 per share).

Please note that my organization of revenues, expenses, gains, and losses, which I use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.

 #microsoft  #msft  #gauges #gcfr  #gcfr2 #lookahead #nac_financialanalysis

VZ: Look Ahead to December 2020 Quarterly Results

This "look-ahead" post discusses how I came up with an estimate for Verizon's earnings for fiscal 2020's fourth quarter, which ended on December 31, 2020, by predicting each element of its Income Statement, from top-line Revenue to bottom-line Earnings Per Share (EPS) and everything in between. 

Once the company’s official results become available on January 26, I will compare the published Income Statement to the prediction and identify any surprises, positive or negative.  Examining these differences can identify what factors (e.g., profit margins, non-GAAP expenses, tax rates, share buybacks) are driving changes to a company's financial performance.

But, before we get into the details, let's take a step back and start with background information about Verizon.

Verizon Communications is a major provider of wired and wireless voice and data communications services to U.S. businesses and consumers. The company took its current form in 2000 when Bell Atlantic merged with GTE.  Verizon's wireless business is second only to AT&T in the U.S., and in September 2020, Verizon announced it would acquire Tracfone, the leading pre-paid and value mobile service provider.  The industry is now transitioning to 5G technology. 

Shares of Verizon now trade for about $59 each, and the company's market value is about $240 billion.  These shares can be found in the Dow Jones Industrial Average, Standard and Poors 500, Standard and Poors 100, New York Stock Exchange Composite, and Russell 1000 stock indices.

Verizon recorded profits of $18 billion on revenue of $128 billion during the last year. In the quarter that ended on 30 September 2020, Verizon earned $1.25 per share (excluding certain items), which beat the $1.22 Wall Street consensus forecast. See https://tinyurl.com/y5ej5n6w for Verizon's most recent quarterly report.

Revenue in the September 2020 quarter totaled $31.5 billion, 4% less than last year's $32.9 billion. The Consumer business was responsible for 69% of overall revenue, and this unit's revenue fell by 4.3% compared to the year-earlier result. The Business business contributed 25% of revenue, and this unit's revenue fell by 1.7%.

My starting point, if available, when estimating earnings is guidance provided by the company's management to financial analysts.  It's true that the company may downplay expectations somewhat to avoid disappointments, but the top managers ought to know better than anyone else how well their products and services are selling.  I also look for other information about the company in the news, and I take advantage of trends in the company's historical results.  While it makes my task a little more difficult, I also try to estimate earnings that conform to Generally Accepted Accounting Principles (GAAP).  Non-GAAP results, which most professionals focus on, are somewhat arbitrary and often exclude meaningful items.

Verizon's management communicated their expectations for the December 2020 quarter last October.  

Outlook and guidance

Based on three quarters of resilient earnings and projected trends into fourth-quarter 2020, Verizon is updating financial guidance for full-year 2020:

•The company now expects adjusted EPS growth (non-GAAP) of 0 to 2 percent, an update from prior guidance for 2020 adjusted EPS growth (non-GAAP) of -2 to 2 percent. This update includes the previously discussed accounting headwinds, impacts from COVID-19, and new device launches in fourth-quarter 2020.

•The company now expects total wireless service revenue growth of at least 2 percent in fourth-quarter 2020 compared to last year.

Verizon expects the following results for full-year 2020:

•Capital spending to now be at the higher end of the guided range of $17.5 billion to $18.5 billion.

•Adjusted effective income tax rate (non-GAAP) in the range of 23 percent to 25 percent.

Adjusted earnings per share (non-GAAP), excluding special items, in 2019 was $4.81, which indicates the company expects the equivalent figure for 2020 to be between $4.81 (zero percent growth) and $4.91 (2 percent growth) per share.  During the first nine months of 2020, adjusted EPS was $3.69.  This suggests adjusted EPS in the fourth quarter will be between $1.12 to $1.22.  GAAP EPS is typically lower, but the difference varies widely from quarter to quarter.

It's interesting that Verizon expects revenue from its wireless services to grow "at least 2 percent" in the fourth quarter because revenue from these services only increased 0.3 percent in the third quarter.  Wireless service revenue is just over half of Verizon's total revenue, and we can use the wireless guidance to predict overall revenue.

The following baseline Income Statement tries to take into account the information mentioned above, and it is more or less consistent with the company's historical results.  GAAP earnings are estimated at $4.72 billion ($1.14 per share).

Please note that my organization of revenues, expenses, gains, and losses, which I use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.

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