ADM: Earnings Report for the Quarter Ending December 31, 2020

Archer-Daniels-Midland reported before the market opened on January 26, 2021 it earned $1.22 per diluted share in the quarter that ended on December 31, 2020, up 36 percent from earnings of $0.90 in the same 3 months of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP). 

Adjusted earnings, a non-GAAP figure, fell 15 percent to $1.21 per share from $1.42 one year earlier, a much worse change than the GAAP percentage. The exclusions responsible for the $0.01 per share difference in the latest quarter between the GAAP and Non-GAAP earnings were: Impairment, restructuring, and settlement charges [$0.03 per share], Tax adjustments [($0.04) per share], and Acquisition and divestment  [$0.00 per share].  Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits.

This post compares the quarterly Income Statement published by ADM to the estimates I made in a previous “Look Ahead” post.  My estimates were based on publicly available guidance provided by ADM's management to financial analysts, news reports, and trends in the company's historical results.  Unless otherwise mentioned, all reported values mentioned below are GAAP figures.

First, a little background about the company:  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.

The following table is a simplified version of ADM's Income Statement for the December 2020 quarter, with company-reported along side my predictions.  Data from the year-earlier quarter are also provided.

Revenue in the December 2020 quarter totaled $18.0 billion, 10 percent more than last year's $16.3 billion. The Agricultural Services and Oilseeds business was responsible for 80 percent of overall revenue, and this unit's revenue grew by 16.3 percent compared to the year-earlier result. The Carbohydrate Solutions business contributed 12 percent of revenue, and this unit's revenue decreased by 16.1 percent. The Nutrition unit supplied 8 percent of revenue, and this business's revenue rose by 1.9 percent.

I was expecting ADM to report revenue of $16.3 billion for the December 2020 quarter.  The actual amount surpassed my estimate by $1.6 billion (10.0 percent).

The Cost of Revenue (also known as Cost of Goods Sold) was $16.6 billion in the latest quarter, which translates into a Gross Margin of 7.5 percent of revenue. Since it was higher than the 7.2 percent Gross Margin achieved in the year-earlier quarter, it signifies that ADM sold its products and services at more profitable prices relative to production costs. I was expecting the Gross Margin to be 6.7 percent in the December 2020 quarter, and ADM exceeded that prediction by 0.8 percent.

Sales, General, and Administrative expenses totaled $749 million in the December 2020 quarter, up from $654 million one year ago.  SG&A expenses increased from 4.0 percent to 4.2 percent of quarterly revenue, which shows ADM spent more per dollar of sales on indirect operational costs, such as marketing. I had estimated that SG&A expenses would be 4.2 percent of revenue, and ADM spent less than that percentage.

The last operating expense line on the Income Statement is for other operating income and expenses, such as restructuring.  This line amounted to a $19 million loss in the latest quarter.  I was expecting a net loss of $22 million.

ADM's Operating Income was $584 million in the quarter, up 41.7 percent from the year-earlier period.  Operating Income exceeded my $388 million estimate by $196 million.

Interest and other non-operating items summed to a net expense of $4 million.  My estimate was $72.0 million.

The effective income tax rate rose by 11.5 percent to 10.9 percent, which had a negative effect on net income.  I expected the tax rate to be 10.0 percent.

Net income in the quarter attributable to ADM was $687 million, $1.22 per share.  The figures for the year-earlier quarter were $504 million, $0.90/share. My earnings estimate for ADM in this quarter was $413 million ($0.73/share).

In summary, Archer-Daniels-Midland earned in the December 2020 quarter much more than I had expected. The company had better than predicted: Revenue growth, Gross Margin, Operating Income growth.  The company did worse with: Income tax rate.

This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed.  Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company.  These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).

 #adm        #gauges  #gcfr  #gcfr2 #QtrlyRpt   #nac_financialanalysis

MSFT: Earnings Report for the Quarter Ending December 31, 2020

Microsoft reported after the market closed on January 26, 2021 it earned $2.03 per diluted share in the quarter that ended on December 31, 2020, up 33 percent from earnings of $1.53 in the same 3 months of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP). 

This post compares the quarterly Income Statement published by Microsoft to the estimates I made in a previous “Look Ahead” post.  My estimates were based on publicly available guidance provided by Microsoft's management to financial analysts, news reports, and trends in the company's historical results.  Unless otherwise mentioned, all reported values mentioned below are GAAP figures.

First, a little background about the company:  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.

Revenue in the December 2020 quarter totaled $43.1 billion, 17 percent more than last year's $36.9 billion. The Productivity and Business Processes business was responsible for 31 percent of overall revenue, and this unit's revenue grew by 12.9 percent compared to the year-earlier result. The Intelligent Cloud business contributed 34 percent of revenue, and this unit's revenue increased by 23.0 percent. The More Personal Computing unit supplied 35 percent of revenue, and this business's revenue rose by 14.5 percent.

I was expecting Microsoft to report revenue of $40.0 billion for the December 2020 quarter.  The actual amount surpassed my estimate by $3076.0 million (7.7 percent).

The Cost of Revenue (also known as Cost of Goods Sold) was $14.2 billion in the latest quarter, which translates into a Gross Margin of 67.0 percent of revenue. Since it was higher than the 66.5 percent Gross Margin achieved in the year-earlier quarter, it signifies that Microsoft sold its products and services at more profitable prices relative to production costs. I was expecting the Gross Margin to be 65.4 percent in the December 2020 quarter, and Microsoft exceeded that prediction by 1.7 percent.

Microsoft spent $4.9 billion on Research and Development in the latest quarter, up from $4.6 billion one year ago. I had estimated that R&D expenses would be $5.0 billion.  R&D was 11.4 percent of Revenue.

Sales, General, and Administrative expenses totaled $6.1 billion in the December 2020 quarter, up from $6.1 billion one year ago.  SG&A expenses decreased from 16.4 percent to 14.1 percent of quarterly revenue, which shows Microsoft spent less per dollar of sales on indirect operational costs, such as marketing. I had estimated that SG&A expenses would be 16.1 percent of revenue, and Microsoft spent less than that percentage.

Operating Income was $17.9 billion in the quarter, up 28.8 percent from the year-earlier period.  Operating Income exceeded my $14.7 billion estimate by $3.2 billion.

Interest and other non-operating items summed to a net  income of $440 million.  My estimate was $0.0 million.

The effective income tax rate fell by 1.6 percent to 15.7 percent, which had a positive effect on net income.  I expected the tax rate to be 16.0 percent.

Net income in the quarter was $15.5 billion, $2.03 per share.  The figures for the year-earlier quarter were $11.6 billion, $1.53/share. My EPS estimate was $1.62.

In summary, Microsoft's earnings were much better than I expected.  The major factors that resulted in this achievement were: strong revenue growth, an improved Gross Margin, reduced R&D spending, lower SG&A/revenue ratio, and non-operating income.

The Cash Flow Statement for the quarter shows that Microsoft's operating activities generated $12.5 billion in cash during the last quarter, up 17.2 percent from $10.7 billion in the year-earlier period. The cash flow delta was, therefore, less robust the change in earnings. Notable uses for cash included $4.2 billion to pay dividends to shareholders, $415 million for corporate acquisitions,$6.5 billion to buy back the company's common shares, and $4.2 billion to acquire property, plant and capital equipment. 

Free cash flow over the last 12 months totaled $50.5 billion, or $6.63 per share using the latest share count. At the current market price per share of $232.33, this translates into a modest Free Cash Flow Yield of 2.9 percent.

This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed.  Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company.  These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).

 #microsoft    #msft    #gauges  #gcfr  #gcfr2 #QtrlyRpt   #nac_financialanalysis

3M Company: Earnings Report for the Quarter Ending December 31, 2020

3M Company reported before the market opened on January 26, 2021 it earned $2.38 per diluted share in the quarter that ended on December 31, 2020, up 43 percent from earnings of $1.66 in the same 3 months of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP). 

Adjusted earnings, a non-GAAP figure, rose 23 percent to $2.38 per share from $1.94 one year earlier, a less robust change than the GAAP percentage. 

This post compares the quarterly Income Statement published by 3M to the estimates I made in a previous “Look Ahead” post.  My estimates were based on publicly available guidance provided by 3M's management to financial analysts, news reports, and trends in the company's historical results.  Unless otherwise mentioned, all reported values mentioned below are GAAP figures.

First, a little background about the company:  Formed more than a century ago as Minnesota Mining and Manufacturing, the 3M Company is now a conglomerate that sells a wide range of innovative products for Safety and Industrial, Transportation and Electronics, Health Care, and Consumer markets.  While many 3M products have been designed for demanding commercial and medical applications, consumers might be more familiar with the company's Scotch® tape and Post-It Notes®.  COVID-19 has affected 3M's businesses in different ways:  sales of N-95 masks and certain other health care and consumer products have grown, while sales of industrial products have fallen.  In December 2020, 3M announced it would be taking actions to eliminate redundancies and better leverage analytical data to become more efficient in both operations and marketing.

Revenue in the December 2020 quarter totaled $8.6 billion, 6 percent more than last year's $8.1 billion. The Safety and Industrial business was responsible for 37 percent of overall revenue, and this unit's revenue grew by 12.7 percent compared to the year-earlier result. The Transportation and Electronics business contributed 27 percent of revenue, and this unit's revenue increased by 2.3 percent. The Health Care unit supplied 26 percent of revenue, and this business's revenue rose by 5.4 percent.

I was expecting 3M to report revenue of $8.3 billion for the December 2020 quarter.  The actual amount surpassed my estimate by $283.0 million (3.4 percent).

The Cost of Revenue (also known as Cost of Goods Sold) was $4.4 billion in the latest quarter, which translates into a Gross Margin of 48.9 percent of revenue. Since it was higher than the 46.7 percent Gross Margin achieved in the year-earlier quarter, it signifies that 3M sold its products and services at more profitable prices relative to production costs. I was expecting the Gross Margin to be 48.0 percent in the December 2020 quarter, and 3M exceeded that prediction by 0.9 percent.

3M spent $0.46 billion on Research and Development in the latest quarter, down from $0.52 billion one year ago. I had estimated that R&D expenses would be $0.50 billion.  R&D was 5.3 percent of Revenue.

Sales, General, and Administrative expenses totaled $1.9 billion in the December 2020 quarter, down from $1.9 billion one year ago.  SG&A expenses decreased from 23.9 percent to 22.0 percent of quarterly revenue, which shows 3M spent less per dollar of sales on indirect operational costs, such as marketing. I had estimated that SG&A expenses would be 21.0 percent of revenue, and 3M spent more than that percentage.

The last operating expense line on the Income Statement is for other operating income and expenses, such as restructuring.  This line amounted to a $0.0 million loss in the latest quarter.  I was expecting a net loss of $150.0 million due to restructuring.  The charge must have been included in one of the other operating expense items.

Operating Income was $1.8 billion in the quarter, up 39.5 percent from the year-earlier period.  Operating Income exceeded my $1.6 billion estimate by $0.3 billion.

Interest and other non-operating items summed to a net expense of $139 million.  My estimate was $100.0 million.

The effective income tax rate fell by 1.5 percent to 18.5 percent, which had a positive effect on net income.  I expected the tax rate to be 21.0 percent.

Net income in the quarter was $1.4 billion, $2.38 per share.  The figures for the year-earlier quarter were $1.0 billion, $1.66/share. My EPS estimate was $2.02.

In summary, 3M's earnings were much better than I expected.  The major factors that resulted in this achievement were: strong revenue growth, an improved Gross Margin, reduced R&D spending, and a lower tax rate.

The Cash Flow Statement for the quarter shows that 3M's operating activities generated $2.5 billion in cash during the last quarter, up 7.6 percent from $2.3 billion in the year-earlier period. The cash flow delta was, therefore, less robust the change in earnings. Notable uses for cash included $848 million to pay dividends to shareholders, $2 million to buy back the company's common shares, and $422 million to acquire property, plant and capital equipment. 

Free cash flow over the last 12 months totaled $6.6 billion, or $11.32 per share using the latest share count. At the current market price per share of $170.40, this translates into a decent Free Cash Flow Yield of 6.6 percent.

This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed.  Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company.  These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).

 #3m    #mmm    #gauges  #gcfr  #gcfr2 #QtrlyRpt   #nac_financialanalysis

BR: Look Ahead to December 2020 Quarterly Results

This "look-ahead" post discusses how I came up with an estimate for Broadridge Financial Services' 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 in February, 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 getting into the details, let's take a step back and start with background information about Broadridge. 

Broadridge provides investor communications, securities processing and other financial services. Broadridge performs proxy voting services for more than half of all public companies and mutual funds globally, and in an average day it processes $8 trillion in fixed income and equity trades.  Broadridge was spun off from Automatic Data Processing in 2007.  In 2019, Broadridge completed four acquisitions: Rockall, a provider of securities-based lending and collateral management solutions; RPM, a provider of enterprise wealth management software solutions and services; retirement plan custody and trust assets from TD Ameritrade; and, Shadow Financial Systems, which had cryptocurrency and Exchange Traded Derivatives capabilities.  On December 31, 2019, Broadridge and IBM agreed that IBM will operate, manage and support the Broadridge Private Cloud for the next 10 years.

Shares of Broadridge now trade for about $149 each, giving the company a market value of $17 billion. These shares can be found in the Standard and Poors 500, New York Stock Exchange Composite, and Russell 1000 stock indices.

Broadridge recorded profits of $473 million on revenue of $5 billion during the last year. In the quarter that ended on September 30, 2020, Broadridge earned $2.15 per share (excluding certain items), which significantly beat the $0.63 Wall Street consensus forecast. 

Revenue in the September 2020 quarter totaled $1.4 billion, 12 percent more than last year's $1.2 billion. The Investor Communications business was responsible for 55 percent of overall revenue, and this unit's revenue grew by 7.2 percent compared to the year-earlier result. The Global Technology and Operations business contributed 22 percent of revenue, and this unit's revenue increased by 8.1 percent.

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.

Broadridge updated its guidance for fiscal year 2021, which ends next June, after the company last reported quarterly results.  The update (see the excerpts below) indicate that the company now expects revenues and earnings to be higher than it did when the fiscal year began.

Unfortunately for my purposes, Broadridge didn't provide any specific written guidance for the December quarter.  However, during a conference call, the company's management did voice the following statement shedding some light on expectations for the quarter.

We do expect second quarter earnings to be lower than in the first quarter and more in line with historical averages of 12% to 14% of our full year earnings. Embedded in that view are our expectations for event-driven revenues of approximately $40 million, a more normalized tax rate and the impact of the increased investment spend, I noted.

Broadridge expects its GAAP EPS in fiscal year 2021 to be 5 to 12 percent greater than the $3.95 per share it earned in fiscal year 2020.  The prediction range is, therefore, $4.15 to $4.42 per share.  As the company noted, about 13 percent of this annual EPS can be expected in the second quarter, so a reasonable EPS range for the quarter is $0.54 to $0.58.  

To come up with a revenue estimate for the December quarter, I confirmed that Broadridge normally records ~22 percent of fiscal year revenue in the second quarter.  If I assume revenue for the fiscal year will be 2.5 percent higher (the midpoint of the guidance range) than the previous year's $4.53 billion, the estimate for the latest quarter becomes:  0.22 * 1.025 * $4.53 billion = $1.02 billion.  

The GAAP operating income margin in fiscal 2020 was about 13.8 percent.  The company expects that to increase by 180 basis points, but margins in the December quarter are usually much lower than the yearly average.  If I assume an operating margin of 10 percent in the quarter, it would imply that the cost of goods sold + sales, general, and administrative expense would equal $1.02 billion * (1- 0.1) = $920 million.  In a typical quarter, the cost of goods sold is about 83 percent of operating expenses, or 0.83* $920 million = $764 million.  Sales, general, and administrative expenses would be $920 million - $764 million = $156 million.

Non-operating expenses can be variable, but an interest expense of $15 million per quarter is fairly typical.  

An income tax rate of 21 percent would yield net income of $67 million ($0.57 per share), which is consistent with the company's guidance.

The following Income Statement summarizes the estimates made as discussed above. 

This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed.  Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company.  These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).

#broadridge  #br  #gauges #gcfr  #gcfr2 #lookahead #nac_financialanalysis

IBM: Earnings Report for the Quarter Ending December 31, 2020

IBM reported after the market closed on January 21, 2021, it earned $1.51 per diluted share in the quarter that ended on December 31, 2020, down 63 percent from earnings of $4.11 in the same 3 months of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP). 

Operating Earnings from Continuing Operations, a non-GAAP figure, fell 56 percent to $2.07 per share from $4.71 one year earlier, a decline not quite as steep as change than seen in the GAAP figures. The principal exclusions contributing to the $0.56 per share difference in the latest quarter between the GAAP and Non-GAAP earnings were: Acquisition-Related Adjustments [$0.40 per share], Retirement-Related Adjustments [$0.22 per share], and Other [$0.04 per share].  Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits.

This post compares the quarterly Income Statement published by IBM to the estimates I made in a previous “Look Ahead” post.  My estimates were based on publicly available guidance provided by IBM's management to financial analysts, news reports, and trends in the company's historical results.  Unless otherwise mentioned, all reported values mentioned below are GAAP figures.

First, a little background about the company:  IBM was the first giant computer company, and it was once one of the largest companies in the world.  When hardware became a commodity product, IBM increased its focus on more-profitable information technology services for businesses.  Always a research powerhouse, the company subsequently developed cloud-computing and artificial intelligence services (e.g., "Deep Blue"), but IBM's annual revenue has been slowly declining for years. IBM started to recreate itself in a more radical way in 2019 by acquiring Red Hat, a leading open-source software firm, for $34 billion.  The next step came when IBM announced in October 2020 it would spin off its managed infrastructure services unit, into a separate company.  This business is currently part of the Global Technology Services division, and it brings in revenue of about $19 billion per year.  

Revenue in the December 2020 quarter totaled $20.4 billion, 6 percent less than last year's $21.8 billion. The Global Technology Services business was responsible for 32 percent of overall revenue, and this unit's revenue percent fell by 5.5 percent compared to the year-earlier result. The Cloud & Cognitive Software business contributed 34 percent of revenue, and this unit's revenue decreased by 4.5 percent. The Global Business Services unit supplied 20 percent of revenue, and this business's revenue fell by 2.7 percent.

I was expecting IBM to report revenue of $20.2 billion for the December 2020 quarter.  The actual amount surpassed my estimate by $167.0 million (0.8 percent).

The Cost of Revenue (also known as Cost of Goods Sold) was $9.8 billion in the latest quarter, which translates into a Gross Margin of 51.7 percent of revenue. Since it was higher than the 51.0 percent Gross Margin achieved in the year-earlier quarter, it signifies that IBM sold its products and services at more profitable prices relative to production costs. I was expecting the Gross Margin to be 48.5 percent in the December 2020 quarter, and IBM exceeded that prediction by 3.2 percent.

IBM spent $1.61 billion on Research and Development in the latest quarter, up from $1.60 billion one year ago. I had estimated that R&D expenses would be $1.62 billion.  R&D was 7.9 percent of Revenue.

Sales, General, and Administrative expenses totaled $7.2 billion in the December 2020 quarter, up from $5.4 billion one year ago.  SG&A expenses increased from 24.9 percent to 35.5 percent of quarterly revenue, and the big increase is due to a ~$2.0 billion charge for restructuring.  

The last operating expense line on the Income Statement is for all other operating income and expenses.  This line amounted to a $173.0 million gain in the latest quarter.  I had assumed the restructuring charge, originally expected to be $2.3 billion, would be listed here and not as part of SG&A.

Operating Income was $1.9 billion in the quarter, down 56.2 percent from the year-earlier period.  Operating Income exceeded my $0.4 billion estimate by $1.4 billion. The better-than-expected Gross Margin and the less-than-expected restructuring charge accounted for much of the difference between the actual result and my prediction.

Interest and other non-operating items summed to a net expense of $564 million.  My estimate was $525.0 million.

The effective income tax rate fell by 6.2 percent to 1.9 percent, which had a positive effect on net income.  I expected the tax rate to be 10.2 percent.

Net income in the quarter was $1.4 billion, $1.51 per share.  The figures for the year-earlier quarter were $3.7 billion, $4.11/share. My EPS estimate was ($0.10).

In summary, IBM greatly exceeded my prediction by increasing its gross margin, incurring a lower-than-expected restructuring expense, and (somehow) having an income tax rate close to zero.

The Cash Flow Statement for the quarter shows that IBM's operating activities generated $5.9 billion in cash during the last quarter, up 69.8 percent from $3.5 billion in the year-earlier period. The cash flow delta was, therefore, much better than the change in earnings. Notable uses for cash included $1.5 billion to pay dividends to shareholders, $299 million for corporate acquisitions, and $1.1 billion to acquire property, plant and capital equipment. 

Free cash flow over the last 12 months totaled $15.2 billion, or $16.86 per share using the latest share count. At the current market price per share of $118.60, this translates into a very attractive Free Cash Flow Yield of 14.2 percent.

This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed.  Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company.  These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).

 #ibm  #gauges  #gcfr  #gcfr2 #QtrlyRpt   #nac_financialanalysis

INTC: Earnings Report for the December 2020 Quarter

Intel Corporation reported after the market closed on January 21, 2021 it earned $1.42 per diluted share in the quarter that ended on December 26, 2020, down 10 percent from earnings of $1.58 in the equivalent 13 weeks of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP). 

Non-GAAP earnings were unchanged from one year earlier at $1.52 per share. Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits. However, caution is warranted when analyzing these figures because management has considerable leeway in choosing which GAAP-required items to exclude.

This post compares the quarterly Income Statement published by Intel to the predictions I made in the “Look Ahead” post I shared earlier.  

First a little background about the company:  Intel makes semiconductor chips used in computers, servers, and many other devices. Once the clear leader of its industry, the rapid growth of mobile phones benefited competing firms that did a better job producing chips that required less electrical power, a key consideration.  Intel has also lost market share because of delays manufacturing new generations of chips.  Apple started using its own proprietary chips in its devices, replacing those from Intel.  When the price of Intel's shares dropped in 2020, Third Point, a hedge fund, got involved and advocated for changes.  They got their way, at least in part, when Intel announced in January 2021 that its Chief Executive Officer would be replaced by Pat Gelsinger, who was CEO of VMWare and had previously worked at Intel.  Even before this CEO change, Intel had taken some significant strategic actions; e.g., divesting most of its  smartphone modem business and making a deal to sell its NAND memory and storage business to SK hynix for $9 billion.

Revenue in the December 2020 quarter totaled $20.0 billion, 1 percent less than last year's $20.2 billion.  Intel's guidance for the quarter, issued last October, was that revenue would be about $17.4 billion.  I used this latter figure in my prediction.  Sales were obviously much better than anticipated.

The Client Computing Group business was responsible for 55 percent of overall revenue, and this unit's revenue grew by 9.3 percent compared to the year-earlier result. The Data Center Group business contributed 30 percent of revenue, and this unit's revenue decreased by 15.6 percent. The Non-Volatile Memory Solutions Group unit supplied 6 percent of revenue, and this business's revenue fell by 0.7 percent.

The Gross Margin weakened from 58.8 percent of revenue to 56.8 percent, a sign that Intel sold its output and services at less profitable prices relative to production costs.  Although weaker, profitability was better than I had anticipated, as I thought the Gross Margin would be 54 percent of revenue.

Research and Development expenses rose to $3.7 billion from $3.4 billion.  I was expecting $3.3 billion.

Sales, General, and Administrative expenses increased from $1.54 to $1.76 billion, or from 7.6 percent to 8.8 percent of quarterly revenue.  I expected SG&A to be slightly higher, 9.0 percent of revenue.  The company spent more per dollar of sales on other operational costs, such as marketing. 

The last operating expense line on the Income Statement is for restructuring and other"special operating items.  This line was only $52 million in the last quarter, quite a bit less than the $260 million I had been expecting because of all the changes underway at Intel.  

Operating Income was $5.9 billion in the quarter, down 13 percent from the year-earlier period, but much better than I had predicted.

As for non-operating items, Intel benefitted handsomely from the stock market's surge as it recorded a large $1.7 billion gain on equity investments.  Interest income was lower. 

The effective income tax rate was surprisingly high at 21.8 percent.  

Net income of $5.9 billion was 15 percent lower than in the December 2019 quarter.  Earnings per share of $1.42 were only down 10 percent, as buybacks reduced the number of shares outstanding.  The guidance for the quarter was for an EPS of $1.02 per share.  Nevertheless, because of much higher revenue, better profitability and the large gain on equity investments, Intel's earnings were dramatically better than forecast.  

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.

 #intel  #intc  #gauges #gcfr  #gcfr2 #lookahead #nac_financialanalysis

KMI: Earnings Report for the Quarter Ending December 31, 2020

Kinder Morgan, Inc., reported after the market closed on January 20, 2021 it earned $0.27 per diluted share in the quarter that ended on December 31, 2020, no change from earnings of $0.27 in the same 3 months of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP). 

Adjusted Earnings, a non-GAAP figure, did a little better, rising 4 percent to $0.27 per share from $0.26 one year earlier. 

This post compares the quarterly Income Statement published by KMI to the predictions I made in the “Look Ahead” post I shared earlier. 

First a little background about the company: Kinder Morgan owns and operates a sprawling network of pipelines and associated terminals for transporting oil, gas, carbon-dioxide, and other products.  Already a large owner of pipelines, Kinder Morgan became gigantic when it acquired El Paso, Corp., in 2012.  Shortly thereafter, Kinder Morgan executed a series of transactions, totalling $76 billion, that converted general and limited partnership interests of various Kinder Morgan and El Paso entities into one publicly traded company. About 40 percent of the natural gas consumed in the U.S. is now carried by Kinder Morgan pipelines.  More recently, Kinder Morgan (and most other other energy firms) experienced declining profits and cash flows when actions taken worldwide to combat the COVID-19 pandemic reduced overall demand for energy products.  Upstream producers that depend on high prices were hurt the most, but midstream firms such as Kinder Morgan also suffered.  The company incurred impairment charges totaling $1.6 billion in 2020 when it recognized formally that lower energy prices had lowered the value of its assets.

Revenue in the December 2020 quarter totaled $3.1 billion, 7 percent less than last year's $3.4 billion.  I had predicted Revenue of $3.2 billion, and the actual figure missed this by 3.2 percent.

The Gross Margin weakened from 56.6 percent of revenue to 55.3 percent, a sign that Kinder Morgan sold its output and services at less profitable prices relative to production costs. I had assumed the Gross Margin would be 57.0 percent, and the actual margin was less profitable.

Sales, General, and Administrative expenses rose from $236 million in the year-earlier quarter to $270 million.  These expenses increased from 7.0 percent to 8.7 percent of quarterly revenue, which shows the company spent more per dollar of sales on other operational costs, such as marketing.  I had expected SG&A to be 7.4 percent of revenue, a lower figure than the actual percentage.

Operating Income sank from $1.9 billion (boosted by a big gain on a divestiture) to $980 million.  My estimate of $937 million was in the right ballpark.

Interest and other non-operating items totaled a net expense of $180 million, much better that last year’s $850 million expense because of higher earnings on equity investments.  I had predicted a $230 million non-operating expense.

The effective income tax rate fell sharply from 42 percent to 22 percent, which had a positive, but expected, effect on Net Income.

Net Income attributable to KMI, at $607 million, was almost the same as in the year-earlier quarter.  It beat my estimate of $537 million by 13 percent.   EPS, as mentioned above, was steady at $0.27, and exceeded by estimate by $0.03.

In summary, Kinder Morgan’s revenue and operating margins decreased in the latest quarter, when compared to the year-ear period.  But, non-operating income increased sharply and the income tax rate was down.   Somehow, everything balanced out and the company’s earning per share was exactly the same as last year, and 13 percent more than I expected.

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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