Monday is a relatively light earnings day for what is a heavy earnings week. However, a few notable companies will be reporting earnings on Monday the 28th of January. We provide an earnings preview for some of the companies reporting on 1/28, which include, Caterpillar Inc. (NYSE:CAT), Yahoo! Inc. (NASDAQ:YHOO), and BMC Software, Inc. (NASDAQ:BMC).
Caterpillar Inc. (NYSE:CAT) will be reporting Q4 earnings on Monday. The company recently released retail sales and engine shipment data that appears to be negative relative to expectations. Based on that and other data points, analysts at Wells Fargo Securities expect a wider miss and lower 2013 guidance. The analysts recently decreased their Q4 2012E EPS to $1.45 from prior $1.66 (consensus $1.71), 2012E to $8.90 from $9.10 (consensus $9.11) and 2013E to $8.00 from $8.20 (consensus $8.62).
Combining this with datapoints from other sources and a U.S. construction and power generation equipment dealer check, the likelihood that CAT provides a subdued outlook appears high, and CAT may take longer than investors currently expect to destock inventory and recalibrate production to moderating demand levels. Recent data suggests key global construction equipment production regions (i.e., Japan) appeared to cut construction and mining equipment production 2% yr/yr for the three months ending November 2012.
Caterpillar Inc. (NYSE:CAT)’s stock has realized valuation improvement that is directionally opposed to construction equipment production trends, and historically, CAT typically does not realize sustainable valuation expansion from mid-cycle lulls until machine production yr/yr declines bottom. Against moderating demand trends, ongoing destocking initiatives may persist well into 2013 (as appears to be indicated by updated outlooks from Kennametal and Timken).
Japanese construction and mining equipment production (i.e., as a proxy for global demand) declined 2% yr/yr for the three months ending November 2012. While investor optimism appears to have gained momentum post U.S. fiscal cliff resolution, the reasons for Japanese construction equipment manufacturers to reduce production are not likely limited to U.S. political issues but rather to recalibrate production against moderating sales trends.
Yahoo! Inc. (NASDAQ:YHOO) will be reporting Q4 earnings on Monday. Analysts at Cantor Fitzgerald expect Yahoo! to report in-line results on Monday, 1/28 after market close, with modest improvements in Display and Search, but materially lagging industry growth rates. The stock is up ~30% since 3Q:12 results, reflecting a $3.65 billion investor payment plan (announced during 3Q earnings), excitement over an Alibaba Group IPO (timing yet to be announced), and early moves new CEO Marissa Mayer has announced.
Although the analysts believe that the stock remains relatively inexpensive, they see limited upside without a material re-acceleration in growth for Display and/or Search and clear visibility into plans for the Alibaba IPO. (Yahoo announced a staged valuation realization plan for monetization of its Alibaba stake, including potential sales in a future Alibaba IPO on ).
Cantor’s 4Q:12 net revenue and EBITDA estimates of $1,222.0M and $449.4M, respectively for Yahoo! Inc. (NASDAQ:YHOO), are roughly in-line with the Street’s (FactSet) $1,212.6M/$468.1M. Cantor has an EPS estimate is $0.21 vs. the Street average at $0.27.
Cantor estimates that Display revenue ex-TAC will be relatively flat Y/Y +0.9% Y/Y to $550.5M (vs. +0.5% Y/Y last quarter) and that Search ex-TAC will grow 10.3% Y/Y to $414.0M (consistent with last quarter’s +10.6% Y/Y). These rates compare to 2012 global industry growth estimates of ~12% and ~19%, respectively.
While visibility into an operational turnaround may not be very clear yet, Ken Goldman, the new CFO may now be in a position to guide, at least for 1Q:13. If so, and given his short tenure, many expect such guidance to err conservatively.
Investors expect CEO Mayer to provide a progress report on investments/traction in Mobile, on programmatic ad selling, on Search (possible renewal of the RPS guarantees with Microsoft) and on the stock buyback. Additionally, with CFO Goldman having had a quarter to settle in, investors may hear a discussion about potential restructuring plans.
Achieving “above-industry growth rates” will take time. Ms. Mayer’s strategy to re-energize Yahoo! Inc. (NASDAQ:YHOO) to “above-industry growth rates” seems optimistic, but sensible to us. That said, many don’t believe that they will start seeing the fruits of her labor, if successful, until several quarters out at the earliest.
BMC Software, Inc. (NASDAQ:BMC) reports F3Q results Monday night, January 28. Analysts at Raymond James have received positive checks from their U.S.-based channel contacts on BMC this quarter. In addition, they state that the checks reported a stabilization of the sales organization that has seen high attrition levels in the last year, some opening of pent up demand for deferred ITSM projects and less vulnerability to displacement by fast growing SaaS compeititor ServiceNow.
In addition, BMC Software, Inc. (NASDAQ:BMC) could boost FY13 earnings guidance slightly on the call given execution of an accelerated buyback program that is estimated could be $0.04 accretive to FY13 and $0.27 accretive to FY14 . However, the analysts view the stock as fairly valued given a forecast for 5% top line growth FY12-FY14, just below a five-year CAGR of 6% organic growth through FY11, and with the stock at 9.8 EV/FCF, trading at a slight premium to its three-year historical average of 9.4X.
In addition the analysts wrote in their downgrade note on 10/15/12 that they viewed BMC Software, Inc. (NASDAQ:BMC)’s private market value as $50 plus or minus $5, or 13% upside from Friday’s close. That is attractive upside as public market value but not as private given that many believe the universe of potential acquirers for the asset is narrow.
Analysts at Evercore Partners expect BMC to report 3Q13 results that are broadly in line with their own/Street expectations. They forecast total revenue of $591.5m (+7.9% y/y) vs. Street estimates of $587.6m. Their EPS estimate of $1.04 (vs. the Street at $1.01) factors in the expected impact of BMC’s accelerated share repurchase plan.
They forecast operating margin of 38.0% (-82 bps y/y) as they expect that investments around BMC’s SaaS offerings, in particular, are likely to continue to limit margin upside.
Disclosure: No position
