(MS) Earnings Season Summary - 2Q 2015

While it is very early in the European results season, with just 82 companies tracked to date, below are four initial conclusions from results so far:

1) Earnings season has started in reasonable shape, very similar to 1Q.
It is far too early to draw definitive conclusions about the shape of European 2Q results, but what we have seen from one week of results has been more comforting than the recent deterioration in earnings momentum may have initially suggested. We have tracked 82 companies, or 5% of market cap. 35% of companies have beaten earnings estimates, while 29% have missed, giving a net beat of 6% of companies. On these figures, 2Q results are tracking at very similar levels to last quarter (which saw a 6% net beat). Although earnings have come in 18% below expectations on a weighted basis (given a large miss from Investor AB), given the very small sample size at present this figure is largely irrelevant. In contrast, the median stock has beaten estimates by 0.9%, which is far less susceptible to distortion from the low sample size. Weighted earnings are on track to grow 4%, with the median stock growing at 11%.

2) Revenue beats have slowed from recent quarters.
While earnings beats have largely matched 1Q, there has been a slowdown in top-line beats. The last three reporting seasons have seen, on average, 19% more companies beating revenue estimates than missing. 2Q sales results to date have on balance come in ahead of expectations, with 42% beating while 34% missed sales estimates. While still positive, the 8% net beat would mark a significant slowdown against recent quarters. We suspect this slowdown in revenue beats has been largely driven by the stabilisation in the euro given that revenue results tend to be more volatile than earnings around FX moves (due to the offsetting impact of offshore costs). After three successive quarters of euro declines (8% in 3Q14, 4% in 4Q14 and 11% in 1Q15), the stabilisation in the euro in 2Q (up 3%) has seemingly already started to be reflected in sales results.

3) Earnings estimates have been downgraded sharply ahead of results, but results and guidance provide more cause for optimism. As we discussed in European Equity Strategy: 2Q Earnings Preview - Downgrade Risks May Be Rising (13 Jul 2015), Europe saw a renewed period of consensus earnings downgrades in the run-up to earnings season, after a two-month period of net upgrades. Currently Energy and Utilities are the only two sectors seeing net upgrades, and when compared to the equivalent week during the quarter, the earnings revisions ratio
is now currently tracking at the worst pace in a year (see page 5). This has occurred despite 1Q earnings coming in ahead of expectations and guidance revisions having been largely positive during the last results season. The combination of the positive breadth of earnings results and a number of guidance upgrades (see page 6), on balance, do make us more hopeful of seeing earnings momentum improve from the current lackluster trajectory.

4) Stock reaction to results has been largely positive.
On page 9, we illustrate some initial data looking at how stocks have performed around results. Clearly we need to be cognisant of the fact that we are still very early on in results season, but in general there has been a positive skew in how stocks have reacted to results. Across every metric we track, stocks beating estimates have outperformed on the day of results by more than those that missed underperformed. The most extreme
example is for net income, where stocks missing on net income have actually, on average, outperformed the market on the day of results.

>>> TSLA - Cash burn rate is rising, Tesla may need to raise more funds - tech b


Cash burn rate is rising, Tesla may need to raise more funds - tech blog 

"In its most recent quarter, Tesla Motors reported negative free cash flow of $558 million, raising alarms from analysts that the company could run out of cash by years end. Even the announcement of a new $500 million credit facility last month has not quieted speculation that the company will need more money.

"Teslas cash burn - its stockpile has dropped from $2.7 billion to $1.5 billion in the last three quarters - has drawn gawkers on Wall Street and in the press. Most of the attention has been on its massive capital expenditures, which capture the imagination and are indeed the major driver. The company has said it plans total capital expenditures of $1.5 billion this year, including its Gigafactory battery plant in Nevada and a paint shop being touted as the worlds most advanced."

(BN) Toshiba to Restate 152 Billion Yen of Past Profits After Probe

Toshiba to Restate 152 Billion Yen of Past Profits After Probe
2015-07-20 13:02:22.952 GMT


By Pavel Alpeyev and Takashi Amano
(Bloomberg) -- Toshiba Corp. must correct 152 billion yen
($1.2 billion) of past earnings after an internal accounting
probe revealed the company overstated profits under pressure
from management.
The amount is almost triple the 55 billion yen writedown
the Tokyo-based company estimated earlier. Toshiba announced
summary findings from a third-party committee investigation
Monday and President Hisao Tanaka is scheduled to hold a
briefing the following day.
Toshiba has lost $3.6 billion in market value since May 8,
when it withdrew its earnings forecasts, canceled the year-end
dividend and widened the accounting probe.

For Related News and Information:
Toshiba Declines After Report Probe May Lead to Asset Sales (2)
Toshiba Rises as Accounting Probe Target Less-Than-Expected
Japan’s Shame Index Earns Its Title With Toshiba: Opening Line
Toshiba profitability: 6502 JP <Equity> FA PROF <GO>
Toshiba earnings surprises: 6502 JP <Equity> SURP <GO>
Top stories: TOP <GO>
Biggest technology stories: TTOP <GO>

To contact the reporters on this story:
Pavel Alpeyev in Tokyo at +81-3-3201-2137 or
palpeyev@bloomberg.net;
Takashi Amano in Tokyo at +81-3-3201-2423 or
tamano6@bloomberg.net
To contact the editors responsible for this story:
Robert Fenner at +61-3-9228-8705 or
rfenner@bloomberg.net
Suresh Seshadri, Dave McCombs

>>> US Gapping Up

Gapping up
In reaction to strong earnings/guidance: HZNP +7.9%, EXAS +3.2%, HAL +3.2%, MS +3.1%, LMT +1.4%, HAS +1%

M&A news: VSLR +42.9% (SunEdison (SUNE) to acquire Vivint Solar for ~$2.2 bln; under the merger agreement, Vivint Solar stockholders will receive $16.50/share), UTX +1.1% (Lockheed Martin confirms it will acquire Sikorsky Aircraft from UTX for $9.0 billion)

Other news: EXEL +33% (announces positive top-line results from METEOR, the Phase 3 pivotal trial of Cabozantinib vs. Everolimus in patients with metastatic renal cell carcinoma), DCTH +23% (confirms receipt of Orphan Drug Designation From FDA For Melphalan to treat Cholangiocarcinoma), HCLP +10.3% (Barron's profiles positive view on the MLP space), AMRS +8.8% (cont strength), FRO +7.5% (likely due to clearer outlook for Greece), VLTC +4.4% (cont strength), DRYS +3.7% (likely due to clearer outlook for Greece), NBG +3.5% (Greek banks open up today), GPRO +3.3% (cont strength), GRFS +2.7% (announces a $700 mln contract through 2026 with Abbott (ABT) for the production of antigens), NVO +1.3% (still checking), MT +1.2% (positive Barrons article), CLF +1% (may be in tandem with MT), YHOO +0.8% (announces the initial filing with the SEC for the planned spin-off of its Alibaba (BABA) stake)

Analyst comments: CLVS +4.1% (added to Conviction Buy List at Goldman), GRNT +3.8% (initiated with a Buy at UBS), EMES +3.1% (upgraded to Neutral at Robert W. Baird), CLLS +3.1% (initiated with a Buy at BofA/Merrill), AMZN +1.7% (upgraded to Outperform at Cowen), STNG +1.6% (upgraded to Overweight from Neutral at JP Morgan), UPL +1.6% (upgraded to Buy from Accumulate at KLR Group), TXN +1.1% (upgraded to Buy from Neutral at UBS), SLB +1% (upgraded to Outperform from Market Perform at Wells Fargo)

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: CALM -10.9%, NEWP -4.8%, CNX -3%

Select metals/mining stocks trading lower: AU -6.4%, GFI -6.1%, SLW -4.5%, NEM -4.1%, EGO -3.8%, GG -3.7%, GDX -3.5%, ABX -3.5%, AEM -3.4%, RGLD -3.3%, AUY -3.3%, GOLD -3.2%, AG -3.1%, SSRI -3%, GLD -1.8%, FCX -1.6%, SLV -0.6%


Other news: CRMD -11.8% (announced an update on strategic transaction process; To seek CEO successor, expects to initiate its first Phase 3 study for its lead product Neutrolin in Q4), MSB -5.6% (decreases distribution to $0.04 form $0.32 prior), FIT -1.5% (cont vol post IPO)

Analyst comments: BRCD -2.5% (downgraded to Sell from Neutral at UBS), YELP -1.9% (downgraded to Equal Weight at Barclays ), Z -1.7% (downgraded to Underweight at Barclays), PUK -1% (downgraded to Hold from Buy at Jefferies), FOXA -0.5% (downgraded to Neutral from Outperform at Macquarie)

>>> Fed's Bullard (hawkish, non voter): See more than a 50% probability of rate

Fed's Bullard (hawkish, non voter): See more than a 50% probability of rate hike in September, would prefer to begin raising rates early and proceed gradually 
- Unemployment will go below 5% eventually, sees +3% GDP growth in 2H of 2015- Very bad for a central bank to be behind the curve
- Do not see China stock market gyrations as something that would impact the US substantially
- Worried about reach for yield, somewhat questionable investment decisions
- Have heard anecdotal reports of reaching for yield but do not think we are in a bubble situation yet

FT : Banks back rival to Bloomberg messaging system


A chat tool described as a WhatsApp for business is being launched by 15 Wall Street banks in a bid to challenge Bloomberg’s dominance of the market in financial messaging.
The service, Symphony, will debut two years after it emerged that Bloomberg’s reporters had used private terminal data to spy on bank employees.

Symphony, which is being launched in two weeks, sprang out of an in-house messaging project at Goldman Sachs.
Many Wall Street companies communicate internally and with clients via a mish-mash of unencrypted tools such as Instant Bloomberg, Eikon Messenger, AOL Instant Messenger and Skype for Business.
Now, if David Gurle, chief executive of Symphony Communication Services, gets his way, the banks will soon replace many of those services with his own encrypted tool, which allows users to share ideas and analysis in a secure, compliant environment.
The Palo Alto-based company has been testing a beta version since April and will start selling a repackaged product to big clients — who will be charged up to $30 per user per month — from the first week of August.
Symphony’s software is open source so customers can build their own features on top, unlike the closed Bloomberg system.
“We wanted a way for everybody in an organisation to have a rich communication and collaboration tool,” said Mr Gurle. At the moment, there are too many “silos of messaging islands”, he said, so people often “default to email, the only universal bridge. But [email] is not rich and powerful and does not build institutional knowledge and it is not social.”

Rival companies have tried for years to loosen Bloomberg’s grip on messaging, and it is unclear whether a tool backed by multiple banks will flourish where others have failed. At least 320,000 Bloomberg subscribers around the world use Instant Bloomberg, while Thomson Reuters has more than 240,000 users of Eikon Messenger.
Bloomberg could not be reached for comment. A Thomson Reuters spokesperson said the company would “look to work with any partners” who share its goal of “securely connecting the broader community across financial markets”.
According to Mr Gurle, the snooping scandal of May 2013 was a “trigger” for banks to review their reliance on Bloomberg terminals for functions including messaging. Then, following a complaint from Goldman, Bloomberg admitted that it had allowed reporters to access information from the terminal — including details of when clients last logged on, what dealings they had with the helpdesk and which of the terminal’s functions they were using. Such practices had ended, the company said.
About a year later, Goldman merged its in-house messaging product with a similar tool that Mr Gurle had been developing and rebranded it as Symphony. These days, Goldman has an “equal voice” with 14 other financial investors which have chipped in about $70m of funding, said Mr Gurle.

The full line-up consists of Bank of America Merrill Lynch, BNY Mellon, BlackRock, Citadel, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, Jefferies, JPMorgan, Maverick Capital, Morgan Stanley, Nomura and Wells Fargo.
A free version of the Symphony platform will be offered to the public from mid-September, and a cheaper format for smaller companies should follow soon after, said Mr Gurle.
There was no reason that Symphony could not extend into other industries such as healthcare, said Salman Ullah, a partner at Merus Capital, a Palo Alto-based venture firm, and a former colleague of Mr Gurle’s at Microsoft. Merus backed Symphony’s seed-funding round and is now the only non-Wall Street investor, with about 5 per cent.
“We think this could be a WhatsApp for enterprises,” said Mr Ullah, citing the instant-messaging app owned by Facebook. “It is one thing being able to talk to people within a company, but it’s another thing to message outside the company, in a completely frictionless and secure way.”
He cited an email he had just received from his stockbroker at Fidelity, asking him to check the company’s own website for a reply to an inquiry.
“That is hardly state of the art,” he said.