Apple Reports First Quarter Earnings 2015

Apple reported its financial results for the first quarter during the past week. The results came in significantly better than the same quarter last year and beat analyst expectations. Below I will present some key data from the report and my own reflections.

Results For The Fourth Quarter Compared To The Same Quarter In 2014

- Sales came in at 74.6 billion dollars - an increase of 30% from the previous quarter (57.6).

- Unit sales in millions for the major product categories were as follows:

•  iPhone 74.5 (new record)
•  iPad 21.4
•  Mac 5.5

- Net income increased by 37% hitting the 18 billion dollar mark (9.5). No other company has reported sucha large profit for a single quarter before!

- Earnings per share were 3.06 dollars, an increase of 48% compared to the same quarter last year (2.07). EPS increased so much more than the net profit, because of the massive buybacks Apple executed earlier in the year. The number of shares outstanding have been reduced by 7%.

What Are The Main Reasons For The Strong Results?

• Record sales of the iPhone, which during the first quarter accounted for almost 70% of Apple's income.
• Higher margins - up from 37.9 to 39.9 percent.
• Share Repurchases

What Else Was Positive?

• Appstore deliver record income.
• Apple PAY launched in October already accounts for almost 70% of all mobile payments in the US.
• Sales in China have increased significantly.
• Apple has spent 130 billion on share buybacks and dividends, and still has 178 billion dollars left in treasure chest.
• 30 automakers have pledged support for Carplay during 2015t.

My First Reaction To The Report

It is very encouraging that both sales and profit increases so dramatically for Apple. The company will surpass my prediction of sustainable VPA by a wide margin if it continues at this rate. iPad sales did not quite liv up to expectations though. The lower iPad sales is most likely a result of cannibalization, since the iPhone 6 Plus is approaching iPad Mini's screen size.

As of late Apple is becoming a more shareholder-friendly company, which previously executed split, dividend increase and above all share repurchases testify to. With this in mind It will be interesting to see by how much they will raise the dividend in the next quarterly report.

Apple's strength and weakness is that the company primary is depended on a product category, a dependence that is greater than ever before. At the same time the current depth of the iPhone lineup is strong. Although iPhone is the product category that has grown the most, Apple also has a number of product categories and services that have grown considerably in recent years, albeit at a slower pace. Products and services such as Apple Pay, Carplay, iWatch, App Store, Mac, Apple TV, make me feel confident that Apple will expand its earnings base in the years ahead. Even if we remove the iPhone completely out of the equation, Apple still is a strong company with a solid historical growth.

If I previously had any thoughts of selling they have all but vanished. Apple will have a place in the portfolio for a long time. You can, as usual, find my Watch List and Stock Portfolio in main menu.

Have a good day

One of the worse quarters in McDonald's recent history

A couple of days ago the fastfood giant released its report for the fourth quarter and also the full year. In this post I will present some key data from the report and my own reflections. 

Results For The Fourth Quarter Compared With The Same Quarter In 2013.

- Sales decreased by 7% to 6,6 billion dollars (7).

- Net profit was 1,06 billion for the period, an decrease of 21% (1,4).

- Earnings per share (EPS) decreased by 19% to 1,13 dollars (1.4).

Results For The Financial Year 2014.

- Sales decrease by 2% to 27,4 billion dollars (28).

- Net income was 4,7 billion for the period, an decrease of 15% (5,6).

- Earnings per share (EPS) decreased by 8% to 4,82 (5.55).

Factors That Influenced The Results Negatively.

• Tough competition primarily in the US continues to weigh heavy on McDonald's profitability. Sales decreased 1.7% and operating earnings with 15% in the final quarter due to lower guest influx and sales in existing restaurants.
• McDonald's is also losing market share in its largest established market, Europe, where sales fell by 1% and operating profit by 14%. Russia and Ukraine has had weak development in the European segment, were the company's restaurants closed down due to the conflict in Ukraine.
• McDonald was also sentenced to pay the equivalent of 0.31 dollars per share in additional taxes, which is a one time cost.
• The supplier scandal in China had a negative impact on profits equivalent to about 0.23 dollars per share.

What Was Positive Then?

• On 18 September McDonald rose its dividend by 5% for the 39th year in a row.
• The fast food giant also bought back the equivalent to 2% of its total share count during 2014.
• McDonald's continues to open and renovate restaurants around the world. The company will also focus on increasing the number of franchise restaurants primarily outside the United States.

My View Of The Report
This report is one of the worse from McDonalds in recent years. If we disregard non-recurring items the result does not look as bad, but regardless of one-off items, earnings growth is negative. Here is how sales and EPS has developed during the past five years:

The picture above is pretty clear since EPS and Revenues are at their lowest levels since in 2010. McDonald's CEO Don Thompson admits that the company continues to face headwinds and that market environment is challenging. He stressed that the company is going to continue to focus on improving the customer experience, and he remains convinced that McDonald's can boost growth and create value for shareholders over the long term.

In order to boost growth McDonalds must increase the comparable sales and guest influx in existing restaurants within the established markets of Europe and the US. The company has for this reason developed three strategies to increase their relevance with their customers:

• Modernization and improvement of McDonald experience (trademark, restaurants, menus and customer service).
• Shorteing and simplifying the ordering and payment process with new technology such as mobile, web, and payment solutions. McDonalds has for this reason joined Apple Pay.
• Use existing resources more effectively to realize the points above.

To date, the implemented measures have apparently not had the desired effect since McDonalds is losing customers to competitors in their two main markets. I think that the fast food chain needs to reinvent its self somehow, to be able to reach mine and later generations (1980 to 2000) to really get the growth ontrack.

McDonald's is, despite the recent growth problems, a stable and shareholder-friendly company, that has raised dividends for 39 years in a row. I believe that the fast food giant is worth buying up to a price of about 87 dollars. You can, as usual, find my Watch List in main menu.

What is your view on McDonalds latest report?

Johnson and Johnson's Report For The Fourth Quarter Of 2014

A couple of days ago the pharmaceutical giant released its report for the fourth quarter and also the full year. In this post I will present some key data from the report and my own reflections. The figures below are excluding items affecting comparability.

Results For The Fourth Quarter Compared With The Same Quarter In 2013.

- Sales decreased by 0.6% to 18.25 billion dollars (18,35).

- Net profit was 3.6 billion for the period, an increase of 1.2% (3.5).

- Earnings per share (EPS) increased by 2.4% to 1.27 dollars (1.24).

Results For The Financial Year 2014.

- Sales increased by 4.2% to 74.3 billion (71.1).

- Net income was 16.3 billion for the period, an increase of 8% (13.8).

- Earnings per share (EPS) increased by 8% to 5.97 dollars (5.52).

Factors That Influenced The Results.

• The main reason for the improved results was that total sales increased by approximately 16.5% for the pharmaceutical segment. It was mainly the US market that contributed to the growth in sales with a growth rate of 25% over the previous year. Drugs such as Olysio / Sovraid, Remicade, Simponi among others have mainly driven the increase in sales.
• The business segment Medical Devices and Diagnostics contributed negatively since sales fell 9% to 6.6 billion dollars during the year.
• Sales of consumer products decreased 3.6% to 3.6 billion. The decline in sales was primarily due to lower sales internationally.
• The strong dollar and other items affecting comparability effected the results negatively.

The report is a testament to Johnson and Johnson's (JNJ) strength, since the company now has managed to raise ernings for 31 years. Forecasted earnings was yet again raised and this time to 6.12 - 6.27 dollars per share, from the previous 5.85 - 5.97 dollars.

The focus on new drugs has paid off for Johnson and Johnson, the business segment pharmaceutical has been a growth engine for the company and will continue to be so in the future. I would have preferred to have seen revenue growth across all business segments, but price increases and the strong dollar has made 2014 a challenging year. However, I think the business overal has a bright future ahead. With the worlds population getting older and older, our need for medicines and medical equipment will not subside, but rather increase in the future.

One of the company's main strengths is its defensive operations that are relatively evenly distributed between three strong business segments. This is how revenues are distributed between the different business segments:

There are just a handful of companies in the world that come close to Johnsons and Johnson's defensive qualities and impressive cash flow. The company also has increased dividends for as many as 52 years in a row. The company has an impressive amount of cash at its disposal - over 30 billion dollars.

Valuation
The price I'm willing to pay the most (my Price Cap) for Johnson & Johnson is 84 dollars. My Price Cap is based on the following assumptions:

• I estimate that JNJ will have an average dividend growth rate equivalent to about 9% going forward.
• I deem sustainable EPS to be roughly 5.5 dollars and sustainable P/E-Ratio to be 20 based on the companies defensive qualities.

You can find my valuation data under my watch list in main menu. Unfortunately, I am afraid it will be some time before the company sink to the level of my Price Cap, but he who waits for something good never waits to long.

Have a nice day!