Earnings Preview: Du Pont, Delta, Google, And Norfolk Southern

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Earnings Preview: Du Pont, Delta, Google, And Norfolk Southern

Tuesday the 22nd of January is a big earnings day. Many notable, large S&P 500 companies will be releasing their quarterly earnings report (mostly Q412). We preview earnings for the following companies, E I Du Pont De Nemours And Co (NYSE:DD),  Delta Air Lines, Inc. (NYSE:DAL), Google Inc (NASDAQ:GOOG), and Norfolk Southern Corp. (NYSE:NSC).

E I Du Pont De Nemours And Co (NYSE:DD) will be reporting earnings today.  Analysts at Goldman Sachs expect E I Du Pont De Nemours And Co (NYSE:DD) to report earnings per share of $3.53/$4.68 in 2013 and 2014, respectively. Consensus is for EPS of $0.41 in Q4. Some key questions include, is the $1 billion share repurchase program the start of a trend of returning more cash to shareholders? DuPont should complete its announced $1 billion repurchase program in 2013. However, from there management may revert to its typical pattern of using repurchases simply to offset dilution. To be fair, DuPont’s 4% dividend yield is at the high end of the peer range.

Monsanto’s beat is positive for DuPont’s crop chemical’s business. However, while Monsanto’s recent results
demonstrated significant price achievement in glyphosate, this is not definately as a read-across for broader crop chemicals. In particular,  glyphosate prices are only now going up to cover 2010-2012 production cost increases that were unable to be passed through by Chinese generic producers until mid-2012 when Monsanto ran out of incremental volume to introduce to the market. Further,  the droughts in 2012 in both North and South America likely led to lower crop chemical applications and therefore volume.

Delta Air Lines, Inc. (NYSE:DAL) is reporting earnings on January 22nd 2012. Analysts expect the company to report revenue of 8.592 billion and EPS of $0.28, for Q4. For the third consecutive year, Delta Air Lines, Inc. (NYSE:DAL)’s non-fuel unit costs will grow around 5%, doubling industry gains since 2010. However, unit cost inflation slows as 2013 progresses, and   DAL’s cost edge relative to its larger peers could resume widening in the second half of 2013. Hedge losses and Trainer start-up expenses raised fuel costs in 2012, but the refinery should lower 2013 fuel cost.

Delta is generating around $1.5bn/yr of FCF, yet shareholders have remained last in line as management has directed its FCF to creditors, customers, suppliers, employees, and even other airlines instead. However, management plans on adopting a more balanced capital deployment strategy upon achieving its $10bn interim net debt target, which some believe will occur by mid-2013.

Google Inc (NASDAQ:GOOG) will be reporting earnings on Tuesday January 22nd. The street is expecting  4Q,12 consolidated net revenue and EBITDA estimates of $12,395.6M and $5,087.0M.  It’s important to note the wide range of Street estimates ($11.3B-13.2B for revenues).  Google’s share of U.S. Search remained above 66% throughout 4Q:12, with Search query growth outperforming the overall industry rate (at -2% vs. -4% overall, according to comScore). It’s important to note that this data does not capture mobile or international, where most of the query growth happens. The street expects Google Inc (NASDAQ:GOOG)’s paid clicks at +28% Y/Y and CPCs at -7.5%.

Retailers are running more PLA ads than ever before as Google Shopping is now fully transitioned to a 100% paid service. PLAs are essentially image ads that form the backbone for the new Google Shopping experience, which transitioned from a free to a 100% paid service on October 17. While some were concerned retailers would balk at paying Google for a previously free service, checks suggest robust adoption of Google Shopping / PLAs across a broad slice of retailers.

Prior to the Oct. 17 transition, Google previously used scrapers to collect product details (images, inventory levels, size, color, etc.), which was then displayed in the Google Shopping search results in a format that looked like a PLA. The retailer never had to pay Google for clicks under the prior rules. But under the new Google Shopping rules, retailers must now purchase PLAs or be excluded from the Google Shopping results.

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Google Inc (NASDAQ:GOOG) says the new rules will improve the user experience. Under prior rules, websites often listed a sold-out item as in-stock, in hopes of generating free traffic. Under new rules, the fee ensures websites will only list available inventory, and those listings will be highly detailed (image of product, accurate price, actual number in-stock, color / size options, etc.).

Norfolk Southern Corp. (NYSE:NSC) reports earnings this Tuesday. Analysts expect the company to report Q4 earnings per share of $0.47 on revenue of $2.67 billion. Utility coal consumption improved in the last two months of 2012, up roughly 5%. Although comparisons are easing on prior warm winter weather and significant gas switching, the improvement suggests at least a near-term floor for utility coal demand. CSX Corporation (NYSE:CSX) and Norfolk Southern Corp. (NYSE:NSC) coal also improved with average December non-holiday weekly loadings increasing roughly 10% from November levels.

U.S. export tonnage declined in 4Q12, especially for metallurgical volumes which were down more than 20%. This will represent a headwind for both eastern networks. But at less than 10% of total revenue for CSX Corporation (NYSE:CSX) and sub 5% for Norfolk Southern Corp. (NYSE:NSC), we think export reductions in 2013 can be manageable, especially following a year in which eastern coal volumes declined 14% in aggregate.

Disclosure: Short Delta, no other positions.

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