>>> Coach reports EPS in-line, misses on revs; reaffirms FY17

--> COH +3.6% pre-open 41k shares traded

Coach reports EPS in-line, misses on revs; reaffirms FY17
  • Reports Q1 (Sep) earnings of $0.45 per share, in-line with the Capital IQ Consensus of $0.45; revenues rose 0.7% year/year to $1.04 bln vs the $1.07 bln Capital IQ Consensus. Net sales for the Coach brand totaled $950 million for the first fiscal quarter, an increase of 1% on a reported basis and a decrease of 1% on a constant currency basis. As expected, the strategic actions in the North America wholesale channel impacted sales by about 150 basis points.
    • Total North American Coach brand sales decreased 3% on both a reported and constant currency basis to $545 million.
    • International Coach brand sales rose 7% to $395 million on a reported basis from $369 million last year and 3% on a constant currency basis. Greater China sales were approximately even with prior year in dollars and increased 5% on a constant currency basis driven by double-digit growth and positive comparable store sales on the Mainland offset by continued weakness in Hong Kong and Macau. In Japan, sales rose 11% in dollars and decreased 7% in constant currency impacted by a decline in Chinese tourist spend, lapping last year's dramatic increase.
    • Sales for the remaining directly-operated businesses in Asia rose low-single digits in dollars and constant currency, while Europe remained strong, growing at a double-digit pace.
  • Co is maintaining its fiscal 2017 outlook as outlined in August.
    • Co continues to expect revenues for fiscal 2017 to increase by low-to-mid single digits, including an expected benefit from foreign currency of ~100-150 basis points based on current exchange rates. In addition, the Company is maintaining its operating margin forecast for Coach, Inc. of between 18.5-19.0% for fiscal 2017. This guidance incorporates the negative impact of both Stuart Weitzman and the strategic decision to elevate the Coach brand's positioning in the North American wholesale channel, including a reduction in promotional events and the closure of about 25% of doors. Interest expense is still expected to be in the area of $25 million for the year while the full year fiscal 2017 tax rate is projected at about 28%.
    • Taken together, the Company continues to project double-digit growth in both net income and earnings per diluted share for the year (consensus +9.1% to $2.16).

Coach On Call
  • Continues to expect double-digit sales increase in its UK business
  • Renovated and opened 40 locations during the quarter, in-line w/ its target to end year w/ 700 stores in updated format
  • Estimates the North American premium men's and women's backend accessory market was flat to up lsd in the September quarter,
    • Co believes impacted by negative trends seen in the US department store space
  • Brick and mortars in North America rose ~4% driven by tickets and conversion while traffic was down modestly
  • Declines in Chinese stores traffic more than offset by other nationalities
  • Coach brand operating margin increased 200 bps Y/Y to 17.9%
  • Continues to expect Coach brand directly operated square footage to grow lsd globally
    • Internationally, co expects msd increase in sq footage led by growth in Europe and msd increase in mainland China
  • $570 mln of inventory at end of quarter, -5% Y/Y
  • No strategic acquisitions planned imminently
  • Expects dividends to grow in-line w/ prior year's operating income growth
  • Continues to assume a lsd comp for the Coach brand in North America
  • Continues to expect Capex to be ~$325 mln in FY 17

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:
  • INST -19.4%, ARNC -13%, NLS -11.4%, MCEP -10.8%, BKD -9.9%
  • LB -8.2%, (L Brands lowers Q3 EPS guidance ahead of its Investor Update Meeting; sees October same store sales +1% vs +LSD growth guidance )
  • RAIL -6.3%, TEX -5.6%, PBI -5.3%, STRL -4.3%, ALLT -3.7%, ETN -3.1%, MPWR -3%, HCLP -2.7%, ( Chief Operating Officer Jefferies Alston, III resign)
  • CMI -2.6%, DKL -2.4%, EMR -2.3%, HCP -2.2%, PFE -2.1%, OXY -1.9%, BP -1.7%
Other news:
  • NVCN -39.2% (announces that Judge Burroughs upheld the jury's verdict and $70 mln award against the co and awarded $21 mln in enhanced damages to that award)
  • NETE -3.5% (thinly traded; discloses that it, Paystar, and Nexcharge have terminated the binding letter of intent dated July 21, 2016)
  • EFC -2.3% (ticking lower, announces third quarter dividend of $0.45 per share, down from prior $0.50/share)
  • BABA -1.9% (insider might be helping SEC with investigation, according to NY Post)
Analyst comments:
  • AMFW -3.2% (downgraded to Equal Weight from Overweight at Barclays)
  • WM -0.9% (initiated with a Sell at Goldman)
  • MA -0.7% (downgraded to Neutral from Buy at Guggenheim)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:
  • DRRX +16.1%, IFMI +12.5%, RYAM +10.6%, CGNX +7.9%, OSK +6.5%, AMKR +5.6%, RDCM +4.7%, ADM +4.2%,RDS.B +4.1%, AEIS +3.8%, INCY +3.6%
  • RDS.A +3.5%, LMNX +3.3%, CIE +2.8%, ORC +2.6%, EXAC +2.5%, TSO +2.4%, IDTI +1.9%, MOS +1.8%, AUDC+1.7%, THC +1.4%, CPS +1.3%, GPP +1.2
  • GPP +1.2%, SNE +1.2%, K +0.8%, COH +0.6%, HW +0.6%, TRI +0.6%
M&A news:
  • OCLS +54.5% ( sells its Latin American-related assets to Invekra S.A.P.I. de C.V. of Mexico for $19.5 mln in cash)
  • ANGI +9.7% (co announced it is seeking strategic alternatives; also reported earnings)
Select Macau gaming names showing strength after Gaming Inspection and Coordination Bureau reported October gross gaming revenue +8.8% YoY:
  • WYNN +2.2%, LVS +1.9%, MGM +1.3%
Select metals/mining stocks trading higher:
  • SLW +2.6%, AKS +2.5%, GG +2%, BBL +1.9%, ABX +1.9%, GDX +1.9%, SLV +1.8%, FCX +1.5%, RIO +1.4%, BHP+1.2%
Other news:
  • DRYS +25.8% (sold five of its Panamax vessels for an aggregate gross price of $29.4 million)
  • LION +2.4% (Fidelity Southern will replace Monster Worldwide in the S&P SmallCap 600 after the close of trading on November 2)
  • DLNG +2% (Dynagas LNG Partners enters charter agreement with Gazprom Marketing & Trading Singapore for the employment of the 150k cubic meter steam turbine LNG carrier Clean Energy)
  • BBRY +1.7% (BlackBerry signs agreement with Ford Motor Company for expanded use of BlackBerry's QNX and Security Software)
  • CEMP +1.5% (receives a $10 mln milestone payment from Toyama Chemical, triggered by Toyama progressing to Phase 3 studies with solithromycin in Japan)
  • VRX +1% (following late sell-off on reports that former exec might be under criminal investigation; co confirms has been fully cooperating with authorities throughout the investigation and in frequent contact/continue to cooperate with US Attorney's Office for the Southern District of New York )
  • CBR +1% (light volume- Board has engaged a strategic adviser to assist in exploring strategic alternatives)
Analyst comments:
  • TWLO +3.2% (initiated with an Outperform at Oppenheimer)
  • MPC +1.7% (upgraded to Neutral from Sell at UBS)
  • CVX +0.8% (upgraded to Overweight from Equal-Weight at Morgan Stanley)

(MS) Shire PLC (SHP.L): 3Q 16 1st Take: a soft quarter

3% sales miss (hematology orders phasing), 4% EPS miss ($3.17). All vs Axis consensus, 3Q sales came in 3% below ($3,315m, up 111% CER) mostly due to BXLT (7% miss) hurt by the timing of large International orders - c 50% of sales - in hematology (10% miss) and to a much lesser genetic diseases (2% below; 12% miss for Cinryze with destocking and supply constraint) despite solid Internal medicine (10% beat) and neuroscience (2% beat)

 

Shire PLC (SHP.L)

3Q 16 1st Take: a soft quarter

Read Full Report

(PDF: 8 Pages)

Europe

Stock Rating   Overweight

Price Target   5,600p

 

Nicolas Guyon-Gellin, Vincent Meunier, Patrick Chen

 

November 1, 2016

First full quarter of BXLT combination impacted by hematology one-offs, limited synergies and dilution as expected. Fast growing rare disease platform with self-help, yet at a 20% sector P/E discount; Overweight.

3% sales miss (hematology orders phasing), 4% EPS miss ($3.17). All vs Axis consensus, 3Q sales came in 3% below ($3,315m, up 111% CER) mostly due to BXLT (7% miss) hurt by the timing of large International orders - c 50% of sales - in hematology (10% miss) and to a much lesser genetic diseases (2% below; 12% miss for Cinryze with destocking and supply constraint) despite solid Internal medicine (10% beat) and neuroscience (2% beat). Adjusted EBIT came in 6% below ($1,254m, 37.8% margin, 120bp miss) despite good cost containment (lower COGS/R&D, higher SG&A) and EPS 4% below ($3.17; lower financials and tax rate). Of note, encouraging Xiidra (dry eye) sales ($14m vs cons $10m) reflected strong uptake despite the distortion from 30-day free promotion and inventory building.

FY16 guidance reiterated (consensus in line), focus on hemophilia market access and Xiidra. As anticipated, Shire reiterated guidance of $10.8-11bn sales (MS $10.8bn; consensus $10.9bn) and $12.70-13.10 core EPS (MS $13.04; consensus $12.97). During the conference call we expect investors to focus on 1/ pricing risk in hemophilia after Express Scripts comments yesterday 2/ Xiidra early days feedback and 3/ Cinryze US supply constraints expected to be fixed by early 2017. Of note, as widely anticipated after a bumpy development, Shire terminated high risk SHP610 for Sanfilippo A after p2b failed and confirmed SHP643 (angioedema) p3 results in 2Q 17.

A unique fast growing rare disease platform with self help, yet at a 20% sector P/E discount. The Baxalta transaction significantly increased Shire's exposure to long-duration orphan drugs (c ⅔ of revenues), adding critical mass, and de-risking current white-pill cash cows with further portfolio optimisation optionality. While Shire's superior growth profile (12% revenue/EPS 5-year CAGR) derives partly from BXLT synergies and deleveraging, we find the current 20% 12-month forward sector P/E discount inappropriate in light of Shire's proven track record at integrating companies, leadership in rare diseases and attractive risk-reward. Next major catalyst will be 10th Nov investor day.

Conference call at 2.00pm GMT, UK 0808 237 0030; US 1 866 928 7517; password 42020034

3Q results variance table vs MS and consensus

Source: Axis consensus, Company data, Morgan Stanley Research estimates

FY 16 guidance vs MS and consensus

Source: Axis consensus, Company data, Morgan Stanley Research estimates

NY Post : Gabelli, Icahn continue battle over Federal-Mogul shares

Mario Gabelli on Monday gained the upper hand in his battle to force Carl Icahn to sweeten his offer for a car-parts manufacturer.

Icahn, who owns 82 percent of Federal-Mogul, offered $9.25 a share for the remaining stake but fell way short after Gamco Investors boss Gabelli — who has a leading stake in Federal-Mogul — pressed for a higher price.

Just 28 percent of the remaining shareholders tendered their shares at Icahn’s offering price.


Icahn needs to win a majority of the outstanding shareholders. Once the activist investor’s stake passes 90 percent, he can take the company private.

On Monday, Icahn extended his tender offer for 15 days, until Nov. 14. Icahn can still win the day over Gabelli without raising his price.

There was little urgency for shareholders to tender at the present price, because Icahn’s merger agreement with Federal-Mogul required him to extend his $9.25 offer at least one time.

However, some believe he will improve the tender offer to get the deal done.

“It wouldn’t surprise me if Icahn raises his bid by $1 a share” before the new deadline, a source closely following the situation said.

Icahn has already raised his bid twice — first from $7 and then from $8.

Gabelli, reached at an auto-parts conference in Las Vegas, declined comment — as did Icahn.

This isn’t the first time the two have tangled over price.

Last year, Gabelli succeeded in getting Icahn into a bidding war against tire maker Bridgestone for auto-parts company Pep Boys.

Bridgestone had bid $15 a share, but after a protracted bidding war, Icahn paid 23 percent more, or $18.50, a share.

Gabelli owned a leading Pep Boys stake, just as he holds 36 percent of the non-Icahn owned slice of Federal-Mogul.

Part of why Icahn and others are having trouble getting asset managers to sell shares in tender offers is they are getting stingier with their proposals, the source said.

“People are trying to pay as little as possible,” the sources added. “They are being very careful.”

Federal-Mogul shares stayed flat Monday, closing at $9.26.