After Hours Summary: TLYS / GES +10%, SMTC +8% are higher while UEPS -13%, HOME -4%, CRM -3%, PVH -2% are lower following earnings/guidanceAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: TLYS +10%, GES +9.9%, SMTC +8.2%
Companies trading higher in after hours in reaction to news: TRNC +3.3% (ticking higher on reports of Donerail Group M&A interest), ECYT +2.4% (after closing 6% lower on the day), VSTM +1.5% (appoints Robert Gagnon CFO, effective August 28), DG +1.4% and MIK +1.2% (ahead of earnings), VGR +1.3% (indicated higher after declaring unchanged $0.40/share quarterly dividend and granting stockholders additional 5% annual stock dividend-also unchanged from prior year), MNOV +0.8% (modestly higher after noting its SPRINT-MS Phase 2b trial of MN-166 (ibudilast) in progressive multiple sclerosis results were published in NEJM)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: UEPS -13.4%, HOME -4.2% (also announces departure of CFO Judd Nystrom; names Jeffrey Knudson next CFO, effective September 28), CRM -3.1%, PVH -1.6%
Companies trading lower in after hours in reaction to news: LC -4.6% (COO Sameer Gulati resigned effective on December 31), CRON -2.8% (pulling back after today's 15% move higher), TLRY -2% (pulling back following today's earnings related strength)
alesforce beats by $0.13, beats on revs; guides Q3 EPS below consensus, revs in-line; raises FY19 EPS above consensus, raises rev, in-line (154.80 +1.81)
- Reports Q2 (Jul) earnings of $0.60 per share, excluding $0.14/share in mark-to-market gains, $0.13 better than the S&P Capital IQ Consensus of $0.47; revenues rose 27.3% year/year to $3.28 bln vs the $3.23 bln S&P Capital IQ Consensus.
- Unearned revenue +24% to $5.88 billion vs. +22-23% guidance.
- Co issues guidance for Q3, sees EPS of $0.49-0.50, excluding non-recurring items, vs. $0.54 S&P Capital IQ Consensus; sees Q3 revs of $3.355-3.365 bln vs. $3.36 bln S&P Capital IQ Consensus.
- Co issues guidance for FY19, sees EPS of $2.50-2.52, excluding non-recurring items, vs. $2.31 S&P Capital IQ Consensus; sees FY19 revs of $13.125-13.175 bln vs. $13.13 bln S&P Capital IQ Consensus.
· "With this strong quarter, we're well on our way to our next milestone of $23 billion in revenue in FY22." "Salesforce's vision and position as the #1 sales, service, marketing and CRM platform is enabling our customers to stay ahead and thrive in this Fourth Industrial Revolution," said Marc Benioff, chairman and co-CEO, Salesforce.
Pot Stocks Can’t Be Ignored
Marijuana stocks have been an investor darling this year, with even hedge fund billionaire Leon Cooperman betting his own money in the sector. Their big gains, including a spike in the past several days, will force advisors to take a position—whether it’s ushering their clients into the party, or just saying no.
A buying frenzy in pot-related companies touched off last week after a report that Diageo, the company behind Smirnoff and Johnnie Walker, was in talks to invest in or partner with at least three Canadian pot companies, MarketWatch notes.
That lifted firms like Tilray [TLRY] and Cronos Group [CRON]. Tilray sparked another leg up Wednesday by beating quarterly earning expectations. Since its July IPO, Tilray has shot from $17 to $61 per share. Cronos started trading on the Nasdaq in March and has since risen from $23 to $62 a share.
Is some irrational exuberance at work? Perhaps. “This is like bitcoin levels, the kind of move Tilray is making,” cannabis investor Jason Spatafora told MarketWatch. “The market is completely irrational. [Tilray’s] market capitalization is over $4.5 billion. That’s insane. They don’t have as much cash as [big rivals] Canopy or Aurora. It shouldn’t trade at half that valuation.”
For his part, Cooperman holds a position in Green Thumb Industries, a publicly-traded marijuana cultivator and dispensary operator, according to Business Insider. https://www.businessinsider.com/hedge-fund-billionaire-leon-cooperman-investing-in-marijuana-2018-8
For a deep dive into the business of marijuana, check out this March cover story from my Barron’s colleague Bill Alpert.
Hanging With the Hedge-Fund Bros to Get the Story
To research his new novel, ‘Lake Success,’ about a hedge-fund manager who loses everything, Gary Shteyngart spent four years among players in high finance
As characters in fiction, hedge-fund managers deliver high returns.
“There’s a gigantic flair to everything they do, almost like they’re living in a Russian novel,” said Gary Shteyngart, whose book out Tuesday, “Lake Success,” follows the manager of a $2.4 billion fund.
The novel joins a long list of books, movies and TV shows featuring financial executives whose ambition and wealth have allowed writers to examine tricky questions. How do the rich choose to use their power? What do they do with troubles that cash can’t fix? And how much money is enough?
Mr. Shteyngart sought the answers by removing his lead character, Barry Cohen, from the New York hedge-fund world and sending him across the country on a Greyhound bus—a journey the middle-aged antihero makes as his hedge fund collapses, an SEC investigation closes in on him and his marriage implodes. On the trip, he ditches his cellphone and credit cards, bringing with him little more than his luxury-watch collection, a complimentary vest from Citibank and dreams of an old girlfriend in El Paso, Texas.
Hanging With the Hedge-Fund Bros to Get the Story
To create the character of Barry, the author spent four years interviewing hedge-fund managers and others in finance. He flew on their private jets and went to their parties. He got so drunk with a group of young bankers that his wife had to help him unbutton his shirt when he got home at 4 a.m.
The 46-year-old New Yorker, a Russian immigrant who wrote about his family’s move from Leningrad to Queens in his 2014 memoir “Little Failure,” heavily researches his novels. He dove into the tech world for his 2010 dystopian bestseller “Super Sad True Love Story” and investigated the oil industry for “Absurdistan,” his 2006 work set in a fictional oil-rich former Soviet republic.
Some characters in “Lake Success” are based on combinations of many people, he said, but there is no one inspiration for Barry.
The executives Mr. Shteyngart met made and lost a lot of money during his research from 2012 to 2016. At low points, some sources—unnamed in the book’s acknowledgments—shared their emotional roller coaster with him. “They felt a lot of hatred toward investors. ‘Why can’t they see the long-term picture? They’re so fickle,’ ” he said. “There was a huge change in their perception of themselves.”
When he asked executives to explain a successful competitor’s underlying motivation, he said, the responses could be biting. “They would say, ‘His wife doesn’t really love him,’ ‘His mother never loved him enough,’ ‘His children really hate him.’ ” Mr. Shteyngart went on: “So many of them were missing fundamental pieces of themselves, and the money was supposed to fill in for those pieces.”
In the novel, almost every aspect of Barry’s life circles back to finance. “Barry was a Republican, but he had been long gay marriage since third quarter 2014,” Mr. Shteyngart writes, using investment lingo to convey his character’s support for the cause. A drug dealer with potential is “an undervalued stock.” A well-preserved college sweetheart and her family are declared “investment-grade.” And proof of Barry’s personal re-awakening: “He didn’t email. He didn’t Bloomberg. He didn’t stay up for the Asian markets.”
This world is populated by the 110-pound hedge-fund wife “with the knuckly shoulders and the retroussé nose” and the mother worried about a school’s HYPMS entrance rates (Harvard, Yale, Princeton, MIT, Stanford) for her pre-K child. For these hedge-fund titans, the occasional public meltdown is a rite of passage, just “like your first ankle monitor bracelet or your fourth divorce.”
The book’s minor characters continue Mr. Shteyngart’s filleting of the one percent. When employee Jeff Park makes a costly spreadsheet error, he passes out at his desk in horror. Later, he collects data about the women he dates. “Well, there’s some variance,” he says of their 5-foot-6-inch average height. “Maybe half a sigma.”
For the bus scenes, Mr. Shteyngart rode the Greyhound all day and scribbled notes at night in whatever hotel or motel was closest to the bus station. After those stints on what he dubs “The Hound,” he flew home first class on air miles.
In the novel, Barry leaves his family after his young son is diagnosed with autism. Mr. Shteyngart, who is married with a 4-year-old son, said he learned about the disorder from friends whose families were grappling with the diagnosis. Barry himself may be on the spectrum. Struggling with social interactions as a child, he stands in front of a mirror for hours practicing opening lines and follow-up retorts so he can talk to the other boys at school.
“I think that’s where I put some of myself in there,” Mr. Shteyngart said, recalling his difficulties not speaking English as a poorer student at a generally wealthy school. “I had no social cues. I was always trying to figure out, ‘What’s the code?’ It took me until college to figure it out.”
His latest novel has some people asking him for financial advice—a development the author calls “a scary, scary thing.” In reply, he quotes from his research. “Some of the coolest guys I’ve ever met in this industry say, ‘Let me tell you a secret, Gary: low-cost index funds,’ ” he said. “They’re like, ‘Don’t invest in our stuff. Just low-cost index funds.’ ”
Pernod Ricard could acquire beverage companies with strong digital profiles - CEO
29 AUG 2018
* Will maintain active portfolio-management strategy
* Has wiggle room for more sizeable deals
* No immediate plans to invest in recreational marijuana
French spirits producer Pernod Ricard [EPA:RI] could consider buying beverage companies with strong digital profiles, CEO Alexandre Ricard told this news service on the sidelines of the company’s FY18 financial results presentation. This follows the recent acquisition of Spanish wine trade e-commerce specialist Uvinum,
“M&A could help us sustain our effort to digitalize our entire company”, he added.
Through digitalization, Pernod Ricard is aiming, via new technologies and data analysis, to offer new and more personalised experiences to its consumers, according to its website.
Interesting targets in this area would be rather small in size, a sector analyst noted. Univum for instance employed 25, and its 2016 estimated sales stood at EUR 10m.
Besides this strategy, the company will keep actively managing its current brand portfolio, by making targeted acquisitions and disposing of non-core brands, the CEO said during the presentation.
The company has been on the look-out for bolt-on acquisitions for several years already. In 2016, it was particularly interested in beverage brands with premium marketing positions, and fast growing revenues in the US and in emerging countries, this news service then reported.
However, the group's M&A strategy now does not target any specific geography, Ricard added on the sidelines of the presentation. Pernod Ricard will remain pragmatic and is ready to assess opportunities from all over the world, he added.
In any case, the company will focus on targets showing interesting value-creation perspectives, Helene de Tissot, group director finance, IT & operations, told this news service on the sidelines of the presentation.
Most of the liquor producers with interesting profiles are craft distilleries created rather recently, the sector analyst said. As such, future transactions would most probably represent a revenue increase of less than 1% for Pernod Ricard, the analyst added.
Should Pernod Ricard decide to sell a brand, it will not be either one of its strategic international brands, strategic local brands or strategic wines, the analyst added. Potential candidates for disposals would most certainly be brands falling under the category "other" in the group's portfolio, the analyst said. This subcategory comprises many various non-core companies, and represents about 13% of the company's sales, the analyst noted.
In the last eighteen months, the company has bought a majority stake in Mexico-based mezcal producer Del Maguey Single Village Mezcal and sold its Scotland-based Glenallachie distillery and Spanish Aura Winery and Bodegas Vinicola de Navarra wineries.
Reduced leverage
As its debt has kept shrinking over the years, Pernod Ricard has now more wiggle room to make more sizeable acquisitions, Ricard said during the conference. However, there is no pressure on the company to do so, he added.
Pernod Ricard’s record high EUR 1.4bn free cash flow allowed it to reduce its net debt/EBITDA multiple to 2.6x on 30 June 2018, from 3x the previous year, according to the company’s financial documentation. In FY08, the company’s net debt leverage stood at 6.2x.
Despite this greater financial flexibility, the company will remain cautious as it intends to keep an investment grade credit rating, de Tissot said.
Pernod Ricard has no immediate plans to invest in the nascent North American recreational marijuana business, Ricard said on the sidelines of the conference.
The company is, however, assessing whether the use of recreational marijuana could have an impact on premium-spirit consumption levels, he said. This assessment work is in its very early stage, he added.
As the use of recreational cannabis is now legal in nine US states and is expected to be allowed in Canada starting 17 October 2018, Diageo was reported last week to be in talks with marijuana producers regarding a potential investment or partnership.
In FY18, Pernod Ricard’s reported sales decreased by 0.3% to EUR 8.99bn. Excluding the impact of negative FX rate, the company recorded 6% growth, according to its financial documentation. Its reported net profit from recurring operations grew by 2% to 1.51bn.
Closing Summary: Amazon Paces another Record-Setting DayWednesday was another record-setting day on Wall Street with the S&P 500 (+0.6%), the Nasdaq Composite (+1.0%), and the small-cap Russell 2000 (+0.4%) closing at all-time highs for the fourth day in a row. The Dow Jones Industrial Average (+0.2%) finished at a seven-month high, coming within 2.0% of its January 26 record.
Gains were broad-based on Wednesday, with eight of eleven sectors finishing in the green. The consumer discretionary and information technology sectors were the top-performing groups, benefiting from a rise in most FAANG names, including Amazon (AMZN 1998.10, +65.28, +3.4%) and Apple (AAPL 222.98, +3.28, +1.5%), both of which finished at new all-time highs.
Amazon shares nearly broke the $2000 mark after Morgan Stanley raised its target price for the internet retail giant to $2500 -- a new Street high.
Meanwhile, the energy sector (+0.6%) also had a positive session, helped by a rise in crude prices. West Texas Intermediate crude futures finished higher by 1.4% at $69.50/bbl, extending gains after the Department of Energy's weekly inventory report showed that U.S. crude stockpiles decreased by 2.6 million barrels last week.
The trade-sensitive industrial sector (+0.1%) struggled to stay afloat despite both President Trump and Canadian Prime Minister Justin Trudeau expressing optimism over U.S.-Canada trade talks, which they are looking to wrap up by Friday. In turn, the heavily-weighted financial sector (-0.02%) underperformed, as did the telecom services (-0.8%) and real estate (-0.1%) sectors.
In earnings news, retailers were in focus once again, with American Eagle (AEO 25.50, -1.78, -6.5%), Dick's Sporting Goods (DKS 35.60, -0.76, -2.0%), and Express (9.93, -0.06, -0.6%) all dropping in reaction to their quarterly results. Conversely, Shoe Carnival (SCVL 41.74, +4.83, +13.1%) spiked after reporting better-than-expected earnings, revenues, and guidance.
Looking at other markets, U.S. Treasuries finished Wednesday roughly flat, with the yield on the benchmark 10-yr Treasury note closing unchanged at 2.88%. Meanwhile, the U.S. Dollar Index slid for a fourth straight session, dropping 0.2% to 94.47, and the CBOE Volatility Index declined 3.2% to 12.10.
Reviewing Wednesday's economic data, which included the second estimate of Q2 GDP, July Pending Home Sales, and the weekly MBA Mortgage Applications Index:
- The second estimate of second quarter GDP pointed to an expansion of 4.2%, while the consensus expected a reading of +4.0%. The first estimate came in at +4.1%.
- The key takeaway from the report is that it included a downward revision to personal spending growth (from 4.0% to 3.8%) that was offset by a higher estimate for nonresidential investment growth, government spending, and a downward revision to imports, which are a subtraction in the calculation of GDP.
- Pending Home Sales declined 0.7% in July (consensus +0.5%). Today's reading follows an unrevised 0.9% increase in June.
- The weekly MBA Mortgage Applications Index decreased 1.7% to follow last week's increase of 4.2%.
Looking ahead, investors will receive the weekly Initial Claims report and July Personal Income, Personal Spending, and PCE Prices on Thursday.
- Nasdaq Composite +17.5% YTD
- Russell 2000 +13.1% YTD
- S&P 500 +9.0% YTD
- Dow Jones Industrial Average +5.7% YTD
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