Earnings Preview: Higher profit seen for AT&T

NEW YORK (AP) — AT&T Inc., the largest telecommunications company in the U.S., reports first-quarter results Tuesday before the stock market opens. It follows chief rival Verizon, which reported strong wireless results on Thursday.

WHAT TO WATCH FOR: The first quarter is generally a sleepy one for cellphone companies, lacking in major phone launches. That means it’s time to take profits, and AT&T is expected to show a profit increase from last year.

The number of net new devices signed up on service contracts is usually a figure of focus. AT&T is likely to add fewer than the 677,000 added by Verizon in the quarter — it hasn’t beat Verizon on this measure since 2010, before Verizon had the iPhone.

There have been rumors this year that AT&T is interested in investing overseas, but the company has so far lent no support to those ideas. They’re likely to come up again as analysts get a chance to talk to executives on a conference call after the earnings release.

There is turmoil in the lower ranks of the wireless industry, as No. 4 T-Mobile USA is set to buy No. 5 MetroPCS Communications Inc., and two suitors are vying for Sprint Nextel Corp., the No. 3 contender. AT&T is somewhat insulated from the upheaval, but faces its own challenges, as Verizon extends its lead and growth slows.

WHY IT MATTERS: Dallas-based AT&T had customers for 77.8 million wireless devices and 34.8 million landlines at the end of last year. Its stock is a component of the Dow Jones industrial average.

WHAT’S EXPECTED: Analysts polled by FactSet expect earnings of 64 cents per share on revenue of $ 31.7 billion.

LAST YEAR’S QUARTER: AT&T earned $ 3.6 billion, or 60 cents per share, in the first quarter of 2012. Revenue was $ 31.8 billion.


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Cargill fiscal 3Q profit falls on higher costs

MINNEAPOLIS (AP) — Cargill said Tuesday that its fiscal third-quarter net income fell 42 percent, hurt by higher costs at its meat processing businesses.

For the quarter ended Feb. 28, the privately held agribusiness company earned $ 445 million, down from $ 766 million in the same period a year ago. Revenue edged up 1 percent to $ 32.2 billion.

Minneapolis-based Cargill said its North American meat processing businesses were pressured by the high cost of feed ingredients stemming from last year’s drought conditions in many parts of the country.

In addition, results at the company’s animal nutrition business were pulled down by Venezuela’s currency devaluation in February and by tough economic conditions in meat and dairy production, Cargill said.

Origination and processing earnings fell from year-ago levels on mixed results from different regions.

While export demand for U.S. soybeans and meal was strong all quarter due to limited pre-harvest supplies in South America, weather delays and logistical problems resulted in lower-than-expected Brazilian soybean and soybean product exports, the company said.


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Quicksilver 4Q profit higher than first reported

FORT WORTH, Texas (AP) — Quicksilver Resources Inc. said Monday that its fiscal fourth-quarter and full-year net income and revenue came in higher than the natural gas producer first reported in February.

The company said that as it was preparing its final documents for the year, it determined that certain hedges did not qualify for hedge accounting at their designation dates. As a result, the unrealized gains and losses on these derivatives have been recognized in earnings rather than deferred. The accounting change had a ripple effect on other parts of its financial statement and on its other quarters.

Quicksilver said that after making the adjustments, it determined it had a loss of $ 548 million, or $ 3.22 per share, for the quarter on revenue of $ 224 million. It earned 5 cents per share on an adjusted basis. That compares with its report in February of a net loss of $ 1.1 billion, or $ 6.47 per share, on revenue of $ 179.1 million for the period. It reported an adjusted loss of a penny per share at the time.

Analysts at the time expected net income of a penny per share and $ 173 million in revenue, according to FactSet

Quicksilver said it now measures its net loss for the year at $ 2.35 billion, or $ 13.83 per share, on revenue of $ 709 million. It had a loss of 5 cents per share for the year on an adjusted basis. Previously, the company reported a net loss of $ 2.49 billion, or $ 14.61 per share, for the year on revenue of $ 670.8 million. It had previously reported a loss of 27 cents per share for the year on an adjusted basis.

Shares of the Fort Worth, Texas, company rose 9 cents, or 4 percent, to $ 2.31 in after-hours trading.


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Macy’s seen reporting higher 4Q profit

NEW YORK (AP) — Macy’s Inc. is expected to announce solid fourth-quarter financial results on Tuesday that should show a decent holiday shopping season. But investors will be focused more on whether shoppers have been feeling pinched in recent weeks because of the 2 percent payroll tax hike that’s pinching their paychecks.

WHAT TO WATCH FOR: The department store chain, which also operates the upscale Bloomingdale’s stores, has been reaping the benefits of its strategy of tailoring merchandise to local markets, which is expected to be reflected in the results. Analysts will listen for comments about how it was able to grab share during the holiday season, and will also want to know whether Macy’s executives see shoppers scaling back on purchases because of new financial pressures on top of old worries like sluggish job growth.

On Jan. 1, Social Security payroll taxes rose 2 percentage points after a temporary tax cut expired. That will slice about $ 1,000 from the take-home pay of a household earning $ 50,000. Since the Social Security tax is levied against income only up to $ 114,000, it disproportionately affects middle- and lower-income households. Macy’s targets middle- to upper- income shoppers, so analysts will want to know if shoppers who buy lower-tier goods at Macy’s are buying less.

Analysts will also be looking for details on how Macy’s has benefited from the woes of J.C. Penney, which implemented a new pricing plan early last year that ditched hundreds of sales in favor of “everyday pricing.” The move has turned off shoppers, who are used to seeing big sales signs. Penney is expected to report its fourth straight quarter of big losses and sales drops on Wednesday.

Macy’s is also locked in a legal battle with Penney over a partnership with Martha Stewart. Macy’s filed a lawsuit against Penney in January 2012, arguing that the struggling department store chain breached its long-standing contract with the home diva with a deal in late 2011 to open Martha Stewart shops in most of its stores by spring of this year. The trial, which started last week, is expected to last for nearly three weeks.

Like many retailers, Macy’s had a slow start to the fourth quarter because of the lingering effects of Superstorm Sandy and ongoing economic uncertainty. But sales bounced back in January. The company reported earlier in the month that revenue at stores open at least a year, a key gauge of a retailer’s performance, rose 11.7 percent in January. That handily topped the 6.4 percent increase analysts polled by Thomson Reuters expected.

Revenue at stores open at least a year excludes results from stores recently opened or closed.

Chairman, President and CEO Terry Lundgren said in a statement that Macy’s January sales were helped by putting new fashion items into its stores for post-holiday shoppers.

Total revenue for the five weeks ended Feb. 2 rose 34.6 percent to $ 1.8 billion. Online sales for the month jumped 48.9 percent. For the fourth quarter, total revenue climbed 7 percent to $ 9.35 billion, topping the consensus analysts’ estimate of $ 9.29 billion, as online sales surged 47.7 percent. Revenue at stores open at least a year was up 3.9 percent.

Macy’s now foresees quarterly earnings of $ 1.94 to $ 1.99 per share, up from $ 1.91 to $ 1.96 per share.

WHY IT MATTERS: Macy’s is seen as a barometer of spending among middle- to upper-income shoppers nationwide.

WHAT’S EXPECTED: Analysts surveyed by FactSet, on average, expect earnings of $ 1.99 per share on revenue of $ 9.33 billion.

LAST YEAR’S QUARTER: Macy’s, based in Cincinnati, earned $ 1.70 per share on revenue of $ 8.72 billion.


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Omnicare Tops Est., Higher Profit

Provider of drugs to long-term care facilities and nursing homes, Omnicare Inc. (OCR) posted fourth-quarter 2012 adjusted (excluding one-time expenses) earnings per share of 86 cents surpassing the Zacks Consensus Estimate of 85 cents. For 2012, the company reported adjusted earnings per share of $ 3.36 beating the Zacks Consensus Estimate of $ 3.34.

Reported net income in the quarter jumped 89.3% year over year to $ 59 million (or 54 cents per share).

Revenues

Net sales decreased 1.7% year over year to $ 1,530 million in the fourth quarter, beating the Zacks Consensus Estimate of $ 1,508 million. For 2012, revenues remained roughly flat y/y at $ 6,160 million surpassing the Zacks Consensus Estimate of $ 6,133 million. 

Net sales of the Long Term Care Group were $ 1,184 million in the quarter, down 7.3% year over year. Net sales of the Specialty Care Group were $ 346 million, up 25.4% year over year.

Margins

Adjusted EBITDA margin picked up 20 basis points year over year to 10.7% in the reported quarter. Adjusted operating margin increased 30 basis points to 8.9%. 

Adjusted operating income from continuing operations for Long Term Care Group improved 6.2% year over year to $ 155 million. The same for Specialty Care Group jumped 33.3% to $ 36 million in the quarter.

Balance Sheet, Cash Flow and Other

Omnicare exited the fourth quarter with cash and cash equivalents of $ 454.2 million, down 21.7% year over year. Long-term debt (including notes and convertible debentures) rose 3.2% year over year and was sizeable at $ 2,030 million. Cash flow from continuing operations climbed 26.7% year over year to $ 128 million.

Omnicare repurchased about 0.8 million shares in the fourth quarter for $ 28 million. The company had $ 220 million available under its recent share repurchase authorization, as of Dec 31, 2012.

Outlook

For 2013, Omnicare anticipates revenues between $ 6.1 billion and $ 6.2 billion. The company forecasts adjusted earnings per share (from continuing operations) in a range of $ 3.47 to $ 3.57. Omnicare also expects cash flows (from continuing operations) in the range of $ 450 million to $ 500 million.

Omnicare is a market-leading provider of long-term care pharmacy services for individuals directly and indirectly through subsidiaries, across North America. It competes with PharMerica Corporation (PMC) in certain niche segments.

Omnicare has shown significant improvement in margins, attributable to new generic introductions and cost containment efforts. The company’s performance in the most recent quarter negated external pricing pressure and reimbursement cuts.

Moreover, generic launches in the next few quarters present a major opportunity due to Omnicare’s direct access to manufacturers and current greater exposure to the institutional pharmacy channel than in the past couple of years. Operational synergies from the buyout of Five Star’s pharmacy business are also expected to materialize in 2013. However, the company continues to rely on Medicare and Medicaid programs for a major share of its revenues.

We currently have a Zacks Rank #2 (Buy) on the stock. Air Methods Corp. (AIRM) and Covance Inc. (CVD) also carry a Zacks Rank #2 (Buy) and are expected to do well.
 

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