October 15, 2008
-EPS growth of 17%. Unit case volume +5%. Revenue +11% ex-bottler sale. YTD Cashflow from ops $5.5B
-International up 7% in units. China up 17%. India up 18%. Brazil and Mexico up 7%. Latin America up 8%. Europe and Africa up 9%. Russia -3%. Japan -1%. Western Europe up 3%
-Earnings up 40% y/y, revenue up 18% $3B
-Gains were led by export coal, grain, ethanol, and metals
-Continued challenges in house and automotive markets. Weakness in emerging markets, forest products, food/consumer, cement, lumber and appliances
-Higher revenues in agricultural products, metals, phosphates, and fertilizers
-Coal grew 31% $1.8B in revenue, continued strong demand for exports
-Auto revenue down 2%
-Intermodal grew 18% to $399M
-Looking out to Q4 and 2009: Growth – agricultural products, chemicals, emerging markets, food/consumer and metals. Coal, coke, and iron remain strong due to export and utility markets. Intermodal flat with volume losses in international traffic offset by domestic traffic. Forest products, phosphate, and fertilizer flat with yield efforts to offset volume softness
-Auto and housing to be weak in 2009. Expect broader economy and industrial sector to slow in first half of 2009
October 14th, 2008
-Atom off to very good start – $200M in revenue during the quarter
-ASP lower q/q, but flat ex-Atom
-Began shipments of Nehalem during the quarter. Formal launch in November
-Q3 played out as expected until September. Saw softness in corporate segment while consumer was more seasonal
-As they head into Q4 seeing mixed signs. Will do a mid-quarter update on December 4th due to uncertainty
-While economic outlook as deteriorated over the past quarter, competitive position has strengthened
-China is on track to be their largest market and rebounded nicely after the earthquakes/Olympics
-46c vs 41c est. $2.12B revenue vs. $2.13B est. Q4 guidance of 40c vs 47c est. $2.02-2.17B vs. $2.43B est. 2008 guidance of $1.70 vs. $1.73 est. $8.525-$8.675B revenue vs. $8.94B est.
-Revenue up 12% y/y, non-GAAP EPS up 11% (+24% ex-one time benefit in Q3-07)
-”very challenging external environment” expects it to continue to Q4 and beyond. Consumer spending being impacted
-Paypal 28% of revenue, on its way to 1/3
-Skype users up 51% y/y. 63% y/y Skype to Skype minutes. 54% y/y Skype-out minutes
-Bought back $623M of stock at a avg. cost of $25.09
-$543M in FCF for the quarter, +6% y/y. ROIC 28.8% trailing 12 months
-saw considerable slowdown in all businesses beginning in mid-August
-EPS driven by lower tax rate and cost controls as they tightened discretionary spending
-Vehicle 20% of GMV decelerated 12 points and got worse during the quarter
-Global GMV $14.3B down 1% y/y. Ex-vehicles up 3%. -2% on FX neutral
-weak trends seen in 2nd half of Q3 continued in Q4
-Reiterate FCF for 2008 $2.35B-$2.45B
Q&A
-All businesses decelerated 2nd and 3rd week of August “sharply”
-Will increase marketing, coupon-related, Microsoft cash back, etc.
-Right now Skype is not a distraction
-10% strengthening of dollar hurts revs by $200M
-Q3 +12 q/q growth. Q4 -4% q/q guidance
Valuation
-eBay is trading at $14.60 in after-hrs. After haircutting a severe recession scenario of 10%, netting out tax to re-patriot cash, net cash, and interest income, using $1.70 net cash and $1.58 FCF/share it’s trading at 8.2Xs FCF ex-cash (12% FCF yield). $9.60 would be 5Xs FCF (20% FCF yield).
CNBC just reported the nine financial firms that will receive preferred stakes from the Federal government.
Citigroup
Wells Fargo
JPMorgan Chase
Bank of America
Goldman Sachs
Morgan Stanley
Merrill Lynch
State Street
Bank of New York Mellon
These firms will receive $125B in total. Another $125B will go to other financial firms. The government will get perpetual preferred stock that will pay 5% interest for 5 years and 9% in the next 5 years. The government will also get warrants worth 15% of the preferred amount.
The government basically has chosen the big 9 that will survive. You have 4 commercial banks, 3 investment banks, and 2 clearing & custody firms, which is enough for a working financial system.
Julian Robertson of Tiger Management fame was interviewed by Erin on CNBC. Here are some of the things he said:
-We are just about to go into a recession. The last 4 weeks of horrible stock market will have (negative) repercussions on the economy
-We will get “a doozey” of a recession. When Japan fell apart starting in 1990, at least they were loaded with savings. 80-85% of Americans are broke and will have to cut back spending
-He doesn’t think we will go into another Great Depression as the government has been intervening. However he thinks we will have 10-15 years of a poor economy before we have a good economy
-He thinks the government should guarantee bank deposit like Europe did, also guarantee inter-bank loans
-He will vote for McCain because he is a long-time friend and is also good on the environment. However he thinks Obama with his advisors of Larry Summers and Bob Rubin will be better for the economy
-His favorite trade is the “curve steepener.” He thinks the Fed will continue to be accommodative which will help the 2 year rates. However the Fed has no control over the 10 year and 30 year rates which will rise. Also the dollar will weaken. This trade acts as an inflation hedge
-He likes MA, AAPL, MSFT, BIDU, V, GS, and RYAAY on the long side. He is short copper
October 10th will go down as one of the most frantic days I’ve ever experienced. When the market opened and went straight down 698 points (Dow) in the first 8 minutes and then rallied back to positive by 10:08AM, you could hear the cheering roars of the NYSE trading floor on CNBC. That gave me goose bumps.
Then you had Bush come on TV to calm the nation; however as soon as he started speaking, the Dow plummeted again near the lows of the morning by 1:50PM. Near the end of the day there was another huge rally around 2:56-3:36PM to even higher highs up 322 points (1019 points from the low) for the day and then a selloff the rest of the day to close down 128 points.
GigOM has his notes on Sequoia Capital’s meeting with their portfolio companies to tell them to prepare for the upcoming severe recession. Sequoia is widely regarded as the best venture capital firm in the world. Here’s some choice quotes:
His message to companies was don’t worry about getting ahead, instead, “We’re talking survive. Get this point into your heads.” He warned that companies need to be cash-flow positive, and if they are not, then they need to get there now, because raising capital without being cash-flow positive is going to be tough. He was warning that there will be a price to pay for those who hesitate to act. – Mike Moritz
Told the room that we are in the beginning of a long cycle, what he called a “secular bear market.” This could be a 15-year problem, he said. This comment was accompanied by many slides that showed historical charts of previous recessions averaging 17-year cycles. He pointed out that the issue here is not the equity markets but the credit market, and that will take a long time to recover. – Eric Upin
This downturn was a different animal and one from which it would take “years to recover.” When it comes to deciding between capital preservation and grabbing market share, he advised that everyone should be preserving capital. Cutting deeper is the formula to survive, and this is an era of survival of the quickest. – Doug Leone
As of today October 9th, 2008, the SP500 is -21.9% month-to-date. This compares to:
October 1987 -21.8%
August 1998 -14.6%
We are living in truly historic times. And the month isn’t even close to being over yet.
Take a look at the chart above. Doesn’t it seem the Fed is behind the curve and “panicky” reactive. One thing is for sure, they never should of cut rates all the way to 1% in 2003.