Thursday, 3 September 2015

End of US earnings season head scratchers: Joy Global and Campbell Soup

So as we move into September there are a few US earnings season odds and ends to sort out.  For the S&P 500 it actually has been a reasonably workable earnings season.  Yes versus - say - the 1 April earnings estimates there has been a slight deterioration almost exclusively in the more overseas facing areas (industrials, materials etc.) where US dollar strength has impacted.

It is one of these areas (materials) that I turn to first with the sheer dumping in the share price of the mining sector supplier Joy Global.  No joy in these shares today which are kicking around close to big multi-year lows: 

(h/t @JackDamn)

Let's face it the numbers were pretty poor reflecting the huge constraints on spending we noted from large mining companies like BHP Billiton and Rio Tinto (link here).  All key segments whether from a sales or bookings perspective were down with unsurprisingly the original equipment part most impacted: 

As they noted in the more details comments projects got delayed and hence they had to run their own cost optimisation initiatives too.  

However they are still making money even if earnings hopes for FY15 were pulled back substantially...

'Company now expects 2015 guidance of $1.80 in EPS on revenue of $3.1B vs. earnings of $2.50-$3.00 per share on sales of $3.3B-$3.6B'

...which still suggests US$250m+ of operating profit.  x10(ish) EV/ebit anyone?  I must admit at prevailing I prefer the lunacy as represented by the big, high yielding mining companies (see for example here) who are nearer the top of the food chain but on any reasonable timeframe Joy Global feels overly hated.  One for the watch list - and the big multi-year lows are saying something.  

And then there is Campbell Soup who I have grumpily written about before (see for example here).  Interesting since I wrote these short biased thoughts the shares have broadly moved sideways.  

So what about today's numbers?  One observation I made on Twitter shortly after the results were published kind of summarises the numbers well: 

At least is suggesting growth for fiscal '16. Ebit yoy +3 to +5%, revenues up 0-1%, some FX impact. Yawn.

At least the core US 'simple meals' (soup et al) business did ok...

At the above link at a low-to-mid teens EV/ebit multiple and a c. 4% free cash flow yield I said the shares had to be in the US$30s to be interesting.  I would stick with that view. 

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