Earnings Preview: Coach, General Dynamics, United Tech, Wellpoint

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Earnings Preview: Coach, General Dynamics, United Tech, Wellpoint

Wednesday is a big day of earnings for both European and US companies. We previewed some other US companies earlier, now we provide earnings previews for the following names, Coach, Inc. (NYSE:COH), General Dynamics Corporation (NYSE:GD) , United Technologies Corporation (NYSE:UTX), and WellPoint, Inc. (NYSE:WLP).

Coach, Inc. (NYSE:COH)  is scheduled to report 2Q13 results on Wednesday, January 23rd, before the market opens: Analysts forecast the company to report Q213 EPS of approximately $1.25.  The company remains focused on innovation in its product line and some believe that the merchandising (the recently introduced Legacy line and the Men’s collection), marketing (increased investment in FY13), and pricing strategies should continue to drive revenue. In addition, Coach’s customers’ future purchase intent remains strong despite the risk of softer macro conditions. Although FY13 is expected to be an investment year with additional SG&A expenses coming from recently international acquisitions, in-store enhancements, and brand support for Legacy, core businesses should continue to deliver leverage now and over the long term.

Coach, Inc. (NYSE:COH) is up against an 8.8% compare in North America for 2Q and currency headwinds could be tougher in the first half of the fiscal year than in the back half. Channel checks indicate that while some macro trends at retail in general were softer during the first three weeks of December, holidays sales did pick up momentum heading into Christmas. Specific to Coach, customers continue to respond well to the company’s Legacy line. The company has several other opportunities to drive top line growth such as strong trends in men’s (expected to reach $1 billion over time), continued growth in Asia including the recent acquisitions, and incremental impact to the top line from digital initiatives.

General Dynamics Corporation (NYSE:GD) is reporting earnings on January 23rd.  Some analysts expect a mixed quarter result from General Dynamics Corporation (NYSE:GD) for 4Q12 and a very conservative guidance given the pressure on the DoD budgets, likely below the current consensus estimates. With a backlog of five years (200 orders with production stretching to 2017) General Dynamics Corporation (NYSE:GD) will harvest cash flows as quickly as possible, and therefore, some do not expect orders to match deliveries in the near term. However, FAA approval was gained later than expected in 3Q12 and may impact deliveries scheduled for 4Q12.

Looking to 2013 and beyond, given the consternation in budget planning and the lack of awards at year-end, some analysts expect new CEO Phebe Novakovic to be prudent and set the bar low regarding guidance given the uncertainty of the implementation of sequestration despite the favorable impact of the G650 ramp.

United Technologies Corporation (NYSE:UTX) is reporting quarterly earnings on Wednesday. United Technologies Corporation (NYSE:UTX) held its annual outlook meeting (12/13), initiating 2013 guidance of $5.85-6.15 on sales of $64-65B.  Management set 2013 EPS guidance at $5.85-6.15 with $0.15 of contingency at the high end. Analysts forecast segment op margin growth of +30bps / +60bps in 2013 / 2014 after -60bps in 2012.  $7 of EPS for FY14 is eminently attainable, without assuming any major turn in US comm’l construction or DoD spending.

Organic growth guided to 3-5% in 2013, led by high single digit growth in commercial aero. Commercial and industrial end markets are expected to grow mid single digits, while defense is expected to decline mid single digits. Otis expected to see
double digit growth in China in 2013, reclaiming lost market share.

Recently, United Technologies Corporation (NYSE:UTX) has suffered from being viewed as a “non-US play” given its high international exposure.  Aside from the tailwind to CCS/Otis in Asia, organic growth should improve (to +4% in ’13 vs 0% in ’12) helped by U.S. housing trends, stabilization in Otis Europe AM, a sharp recovery in Transicold orders, and a normalization in Aerospace Systems/Pratt commercial AM.

WellPoint, Inc. (NYSE:WLP) will be reporting earnings on Wednesday, the 22nd of January.  WellPoint paid $92 per share in cash to acquire all outstanding Amerigroup shares, which equates to a purchase price of $4.9 billion or $4.47 billion when adjusted for Amerigroup’s unregulated cash position. The acquisition was made with approximately $700 million of cash on hand and proceeds from the issuance of $4.2 billion in debt with an average interest rate of 3.0%. Excluding transaction costs analysts expect the recent acquisition of Amerigrou will add $0.21 to 2013E EPS (+3%), moving up to $0.47 in 2014 (+6%) as merger synergies are realized and Amerigroup’s outsized earnings growth contributes more significantly to the bottom line.

For 2013, analysts are projecting EPS of $7.80, suggesting growth of 5%. This is predicated on basically flat net income (down 0.3%) and a decline in share count of 5%. For 2014, there are several moving parts discussed more fully in this report, that lead to an EPS estimate of $8.00. This would represent growth of 2.5% over 2013 EPS and is based on a decline in net income of 3.8% offset by a reduction in share count of 6.2%.

WellPoint, Inc. (NYSE:WLP) has a broad set of products allowing for participation in various areas of growth. As a Blues licensee, the company maintains one of the only strong brand advantages in a business that is moving closer to the consumer. Additionally, WellPoint, Inc. (NYSE:WLP) maintains leading local market share, which many see as the ultimate characteristic of success for this industry.

Disclosure: The author of this article has a long position in WLP.

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