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Microsoft Corp., Amazon, Eli Lilly, The Hershey Company and The Travelers Companies

^{Published on 2010-07-23 14:11:16 - Market Wire}
 

CHICAGO--([ BUSINESS WIRE ])--Zacks.com Analyst Blog features: Microsoft Corp. (Nasdaq: [ MSFT ]), Amazon.com, Inc. (Nasdaq: [ AMZN ]), Eli Lilly (NYSE: [ LLY ]), The Hershey Company (NYSE: [ HSY ]) and The Travelers Companies (NYSE: [ TRV ]).

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Here are highlights from Thursdaya™s Analyst Blog:

Microsoft Splashes, Shares Dip

As analysts had been expecting ahead of Microsoft Corp.'s (Nasdaq: [ MSFT ]) earnings report for its fiscal 4th quarter and fiscal 2010 year-end, the company managed solid positive surprises on both the top and bottom lines after the closing bell Thursday. Fourth quarter EPS of 51 cents on company-record revenues of $16.04 billion beat the Zacks Consensus Estimates by 10.87% and 5.04%, respectively.

For Microsoft's fiscal year-end, the company posted EPS of $2.10 per share, topping the Zacks Consensus Estimate by 4 cents. Revenues of $62.48 billion in the fiscal year are also an all-time record for Microsoft. The company's CFO and COO cited strength where analysts had generally been looking for it: in its Windows 7 operating system, which has sold 175 million licenses thus far, and in its Bing search engine, which enjoyed its 13th straight month of increased market share.

Microsoft shares had been down roughly 15% year-to-date prior to Thursday's trading session, where investors were generally optimistic about Microsoft's potential results. MSFT shares closed up 72 cents, or 2.87%. After-hours trading has been notably reserved, however; shares have dipped as much as 22 cents since the company's earnings beat. Have the recent murmurs about CEO Steve Ballmer being under pressure from within the company overshadowed today's successful showing? Or do investors feel the gains made during the day priced in the good news?

Analysts have been generally optimistic in the past month regarding Microsoft's earnings. Five analysts had upwardly revised earnings estimates for the quarter -- and five for the fiscal year -- in the past 30 days. However, the magnitude of earnings revisions were another story: the 46 cents per share consensus estimate was up only a penny from where it was at the beginning of the quarter. For fiscal 1st quarter 2011, the Zacks Consensus Estimate is 54 cents per share, and $2.33 for the full year 2011.

Amazon Disappoints

Amazon.com, Inc. (Nasdaq: [ AMZN ]) succeeded in surpassing revenue expectations for its second quarter, but the company fell short of earnings expectations for the first time since 2006.

The world's most famous "e-tailer" announced earnings of 45 cents per share for the quarter, which was up more than 40% from last year's 32 cents. However, the Zacks Consensus Estimate was for 56 cents per share.

Net sales jumped by 41% year over year to $6.57 billion from $4.65 billion. This result inched past expectations of $6.56 billion.

Shares of Amazon plunged more than 10% in the wake of this news. We'll have to wait and see whether that's a simple kneejerk reaction, or something more serious. The market has been attuned to the top line so far this earnings season, and Amazon outperformed on that front.

Nevertheless, the earnings miss is a disappointment, especially at a time when the market is looking towards the earnings season to feel better about the sluggishly-improving economy. Amazon's report is not helpful in that respect, particularly when viewed against a backdrop of solid earnings announcements by other companies today.

Eli Lilly Shines, Ups Guidance

Eli Lilly (NYSE: [ LLY ]) reported second quarter earnings per share of $1.24, easily surpassing the year-earlier earnings of $1.12 and the Zacks Consensus Estimate of $1.11. Revenues also exceeded expectations. Revenues came in at $5.75 billion, topping the Zacks Consensus Revenue Estimate of $5.60 billion and 9% above the year-earlier revenues of $5.29 billion. Revenues were driven by an increase in volume (5%) and prices (2%), as well as a favorable impact of foreign exchange (1%).

Revenue by Major Products

During the second quarter, Eli Lillya™s lead product Zyprexa recorded a 5% year-over-year growth to $1.3 billion. While U.S. sales increased 10%, international markets sales grew only 1%.

Several other products maintained their growth momentum: Cymbalta (17% growth to $867.7 million), Humalog (6% growth to $504.6 million), Alimta (43% growth to $551.8 million) and Cialis (15% growth to $418.7 million). Cymbalta sales benefited from recent launches in Japan and Canada.

Meanwhile, Gemzar recorded a 17% decline in revenues to $293.4 million due to the entry of generics in major international markets. Newly launched Effient posted sales of $22.9 million, with U.S. sales coming in at $16.3 million.

The U.S. market accounted for approximately 56.7% of Eli Lillya™s total revenues during the reported quarter. Revenues from the U.S. increased 8% to $3.26 billion due to higher prices and increased volume. The growth momentum was maintained in the international market, as well. Revenues increased 9% to $2.49 billion due to increased demand and the positive impact of foreign exchange rates outside the Euro zone. This was partially offset by lower prices. The U.S. healthcare reform impacted total revenues by approximately $70 million.

Expenses

On the operational front, expenses increased 7% during the quarter. R&D expenses were 14% higher, mainly due to increased late-stage clinical trial costs and development milestones. Apart from this, marketing, selling and administrative expenses increased 3% driven by higher expenses in international markets. This was partially offset by lower administrative expenses and cost-control efforts by the company.

Guidance Raised on Strong Results

Following the release of strong second quarter results, Eli Lilly raised its guidance for fiscal 2010. The company now expects earnings in the range of $4.50 - $4.65 per share, 10 cents above the earlier guidance of $4.40 - $4.55. The current Zacks Consensus Estimate of $4.49 is a penny shy of the lower end of the new guidance.

Hersheya™s Q2 Tops

The Hershey Company (NYSE: [ HSY ]) second quarter 2010 GAAP earnings slipped 34.5% to $46.7 million from $71.3 million in the year-ago period. Excluding special items, adjusted earnings per share came in at 51 cents, which topped the Zacks Consensus Estimate of 47 cents as well as the year-ago adjusted earnings of 43 cents per share.

Hersheya™s net sales during the quarter increased 5.3% year-over-year to $1.2 billion, matching the Zacks Consensus Estimate. The growth was mainly driven by favorable pricing and improvement in the international business, including a 1% favorable impact from foreign currency translation.

Furthermore, management stated that ramped-up advertising spending (which was up approximately 50%) and increased in-store promotions and merchandising drove operating performance. In the channels measured by syndicated data, U.S. market share during the quarter increased 0.3 points.

Hersheya™s gross margin for the quarter expanded 560 basis points (bps) to 44.3%. The increase was primarily driven by favorable pricing, Global Supply Chain Transformation (GSCT) program savings and productivity gains. The operating margin for the quarter improved by a modest 10 bps year-over-year to 10.1% as higher gross margin was partially offset by increased overheads, and charges related to the Godrej Hershey Ltd. JV in India and the GSCT program.

Hershey exited the quarter with cash and cash equivalents of $249.1 million, and long-term debt-to-capitalization of 67.2%, compared to cash balance of $28.8 million and long-term debt-to-capitalization of 76.7% in the year-ago period.

Travelers Misses, Trims Outlook

Operating earnings of The Travelers Companies (NYSE: [ TRV ]) for the second quarter of 2010 was $1.39 per share, lagging the Zacks Consensus estimate of $1.51 by 12 cents. Results compare favorably with operating earnings of $1.25 in the prior-year quarter. Operating income was $690 million, down 5.8% from $732 million in second-quarter 2009.

Including net realized investment losses of $20 million or 4 cents per share, Travelers reported a net income of $670 million or $1.35 per share compared with $740 million or $1.27 per share in the second quarter of 2009. The prior-year quarter realized a net investments gain of $8 million or 2 cents per share.

An after-tax decrease in underwriting gain was partially offset by after-tax increase in net investment income leading to a decline in net income. However, net income per share increased year over year due to lower shares outstanding at the end of the quarter compared with second quarter 2009 end.

Net written premiums of Travelers during the quarter totaled $5.7 billion, up 1% from $5.6 billion in the second quarter of 2009, largely attributable to higher net written premiums in Personal Insurance. However, decrease in net written premiums in Business Insurance and Financial, Professional & International Insurance was a partial offset.

New business volumes of Travelers during the quarter declined year over year in Business Insurance and Financial, Professional & International Insurance, partially offset by an increase in Personal Insurance.

Net investment income of Travelers improved 15% year over year to $762 million during the quarter, driven by positive returns in the non-fixed income portfolio.

Travelersa™ underwriting gain declined to $220 million in the quarter from $329 million from the prior-year quarter, reflecting a higher combined ratio of 95.2% compared with 93.2% in second-quarter 2009.

Travelers saw an increase in catastrophe losses, due to several severe wind and hail storms as well as flooding, partially offset by the increase in net favorable prior-year reserve development led to an increase in combined ratio.

Full-Year 2010 Guidance

Management expects pretax Catastrophe losses of $1.274 billion, including $364 million for second half of 2010. After-tax Catastrophe losses are estimated to be $835 million, or $1.71 per share, including $238 million or 51 cents per diluted share, for the back half of 2010.

Management expects to spend $4 billion to repurchase shares.

Management does not expect additional prior-year reserve development, favorable or unfavorable.

Management expects average invested assets (excluding net unrealized investment gains and losses) after taking into account dividends and share repurchases to decrease by low single digits.

Taking into account these factors, management lowered the upper-end of earnings by 10 cents per share to result in full-year earnings guidance of $5.20-$5.45 per share.

Travelers focuses on enhancing its shareholder value through dividend and share buybacks, which continue to positively impact both its earnings per share as well as return on equity. Based on high retention rates, favorable renewal rate changes, favorable prior-year reserve development and prudent underwriting practices, Travelers is poised to perform better going forward.

However, a lackluster economy, restricted premium growth and significant exposure to asbestos and environmental claims keep us on the sideline. We thus maintain our Neutral recommendation on Travelers with the quantitative Zacks #3 Rank (Hold) for the company, indicating no clear directional pressure on the shares over the near term.

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