Tenneco to buy Federal-Mogul for $5.4 billion

Tenneco to buy Federal-Mogul from Icahn in deal valued at $5.4B

Tenneco to buy Federal-Mogul, Stockwinners
Tenneco to buy Federal-Mogul

Tenneco (TEN) will acquire Federal-Mogul (IEP) for $5.4 billion through a combination of $800 million in cash, 5.7 million shares of Tenneco Class A common stock, 23.8 million shares of Non-Voting Class B common stock and assumption of debt.

Under the agreement, Tenneco can reduce the number of shares of Class B Non-Voting common stock by up to 7.3 million shares and increase the cash consideration proportionately at the closing.

Tenneco has put in place committed debt financing to fund the transaction, which will replace Tenneco’s existing senior credit facilities and certain senior facilities at Federal-Mogul.

Upon closing, Tenneco expects a pro forma net debt-to-adjusted EBITDA ratio of approximately 3x.

The company is targeting a net debt-to-adjusted EBITDA ratio of approximately 2.5x by the end of 2019.

Tenneco expects that the transaction will generate significant value for shareholders. Upon completion of the acquisition, Tenneco will operate the combined businesses under a structure designed to begin concurrently the successful integration of Tenneco and Federal-Mogul and the separation of the aftermarket & ride performance and the powertrain technology companies.

“The strategic combination of Tenneco’s Ride Performance business with Federal-Mogul’s Motorparts business will establish a global aftermarket leader with an impressive portfolio of some of the strongest brands in the aftermarket including Monroe, Walker, Wagner, Champion, Fel-Pro and MOOG.

The powertrain technology company will be one of the largest pure play powertrain suppliers through the combination of Tenneco’s Clean Air product line and Federal Mogul’s Powertrain business, bringing together market leaders with reputations for innovation in meeting the changing needs of customers.

The combined business will offer a robust portfolio of products and systems solutions – from the engine to the tailpipe – to improve engine performance and meet tightening criteria pollutant regulations and fuel economy standards.

With its global scale, the company will drive content growth due to the demand for improved engine performance, tightening emissions regulations, light vehicle hybridization and expanded market opportunities with commercial truck and off-highway customers.”

TEN closed at $55.55. IEP closed at $59.69.


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December international rig counts rise

Baker Hughes reports December international rig count 954

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Rig Counts Rise – See Stockwinners.com Market Radar to read more

Baker Hughes (BHGE), a GE company, announced that the Baker Hughes international rig count for December 2017 was 954, up 12 from the 942 counted in November 2017, and up 25 from the 929 counted in December 2016.

The international offshore rig count for December 2017 was 191, up 8 from the 183 counted in November 2017, and down 19 from the 210 counted in December 2016.

The average US rig count for December 2017 was 930, up 19 from the 911 counted in November 2017, and up 296 from the 634 counted in December 2016.

The average Canadian rig count for December 2017 was 205, up 1 from the 204 counted in November 2017, and down 4 from the 209 counted in December 2016.

The worldwide rig count for December 2017 was 2,089, up 32 from the 2,057 counted in November 2017, and up 317 from the 1,772 counted in December 2016.

WTI crude last traded at $61.65 per barrel, up 21 cents.  Brent crude is up 16 cents to $67.78 per barrel.


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Rig counts continue to rise

Baker Hughes reports U.S. rig count up 6 to 929 rigs 

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Baker Hughes reports that the U.S. rig count is up 6 rigs from last week to 929, with oil rigs up 2 to 749, gas rigs up 4 to 180, and miscellaneous rigs unchanged.

The U.S. Rig Count is up 332 rigs from last year’s count of 597, with oil rigs up 272, gas rigs up 61, and miscellaneous rigs down 1 to 0.

The U.S. Offshore Rig Count is down 2 rigs from last week to 20 and down 2 rigs year-over-year.

The Canada Rig Count is up 7 rigs from last week to 222, with oil rigs up 4 to 111 and gas rigs up 3 to 111, and miscellaneous rigs unchanged.

The Canada Rig Count is up 22 rigs from last year’s count of 200, with oil rigs up 11, gas rigs up 13, and miscellaneous rigs down 2 to 0.

Crude oil is up 85 cents to $58.25 per barrel.  Brent crude is up $1.01 to $63.64 per barrel.


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Target reports on Wednesday

What to watch in Target’s earnings report

target

Target (TGT) is scheduled to report results of its third fiscal quarter before the market open on Wednesday, November 15, with a conference call scheduled for 8:00 am EDT.

What to watch for:

1. COMPETITION WITH ONLINE RETAILERS

Retailers like Target have been hurt by an in online shopping on sites like Amazon (AMZN) rather than at brick-and-mortar stores. Analysts and investors will be listening for Target executives to comment on Amazon’s acquisition of Whole Foods.

Earlier this month, Reuters said Target and other retailers are using legal rights in real estate agreements to limit the initiatives of Amazon’s Whole Foods Market in malls, adding that the retailers have legal rights that enable them to limit Amazon’s Whole Foods activity near their location and bans on Amazon lockers and delivery operations near Target stores in Illinois and Florida have already been established. Morgan Stanley analyst Kimberly Greenberger told investors that her firm’s latest apparel survey lends support to her belief that Amazon is quickly gaining traction at the expense of department stores and certain specialty retailers.

Target Chairman and CEO Brian Cornell said that the retail environment is “crowded” and the environment will continue to be challenging.

2. GUIDANCE

Following better than expected second quarter results, Target forecast third quarter adjusted EPS of 75c-95c and said both Q3 and Q4 comp growth will be within the range the company experienced in Q1 and Q2. The company expects FY17 comp sales growth to be around flat, plus or minus 1%.

Target again raised its FY17 adjusted EPS view to $4.34-$4.54 from $3.80-$4.20.

3. HOLIDAY SEASON UPDATE

Target recently announced plans for the holiday season, including free shipping and gifts under $15.

The company is also allowing customers to receive their orders in several ways, including visiting one of its 1,800 stores, ordering online for delivery from Target.com, using Order Pickup or using Target Restock.

Last month Target said it planned to hire about 100,000 team members across the country for the upcoming holiday season, up from the 70,000 employees it hired last year, and said it would hire 4,500 team members at the company’s distribution and fulfillment centers to replenish products to stores and fulfill digital sales throughout the season. Earlier this month, Target announced its nationwide expansion on Google Express (GOOG, GOOGL), including voice- activated shopping, as well as the addition of Target REDcard as a payment option in 2018.

4. STORE REMODELS, CLOSURES

Target is expanding its plans to remodel supercenters and open smaller stores in cities. Target will remodel over 55% of its current stores by year end 2020.

CEO Brian Cornell said sales have increased 2%-4% at recently remodeled stores.

In addition to the 110 stores remodeled in 2017, Target plans to fully renovate more than 325 in 2018, 350 in 2019 and 325 in 2020.

CNBC said Target is planning to close about a dozen underperforming stores in Michigan, Florida, Illinois, and Texas, with those locations closing in February of 2018.

“We have a rigorous process in place to evaluate the performance of every store on an annual basis, closing or relocating underperforming locations as needed,” a spokesperson said, adding that “Typically, a store is closed as a result of seeing several years of decreasing profitability.”

TGT last traded at $59.78. The issue has a 52-weeks trading range of $48.56 – $79.33.


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Rig counts rise

Baker Hughes reports U.S. rig count up 9 to 907 rigs

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Baker Hughes (BHGE) reports that the U.S. rig count is up 9 rigs from last week to 907, with oil rigs up 9 to 738, gas rigs unchanged at 169, and miscellaneous rigs unchanged.

The U.S. Rig Count is up 339 rigs from last year’s count of 568, with oil rigs up 286, gas rigs up 54, and miscellaneous rigs down 1 to 1.

The U.S. Offshore Rig Count is unchanged from last week at 18 and down 3 rigs year-over-year.

The Canada Rig Count is up 11 rigs from last week to 203, with oil rigs up 8 to 108 and gas rigs up 4 to 95, and miscellaneous rigs down 1 to 0.

The Canada Rig Count is up 27 rigs from last year’s count of 176, with oil rigs up 19 and gas rigs up 8.

Crude oil last traded at $56.74 per barrel, down 43 cents.


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Oprah lifts Weight Watchers!

Weight Watchers hit 52-week high as ‘Oprah Effect’ boosts results

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Shares of Weight Watchers International (WTW) surged in Tuesday’s trading after the company’s quarterly report beat expectations on both the top and bottom line.

In addition to announcing an increase in subscribers, the weight management services provider again raised its fiscal year guidance.

EARNINGS BEAT AND RAISE

After the market close on Monday, Weight Watchers reported third quarter earnings per share of 65c on revenue of $323.7M, handily beating analysts’ estimates of 51c and $319.4M, respectively.

Weight Watchers said end of period subscribers were up 18.4% from last year to 3.4M, driven by growth in all major geographic markets.

End of period meeting subscribers were up 10.6% and online subscribers at the end of the quarter were up 24.4% vs. last year, the company said.

Total paid weeks were up 19.8% in Q3 vs. last year. The gains prompted the company to again raise its earnings per share view for fiscal year 2017. Weight Watchers now sees FY17 EPS of $1.77-$1.83, up from its prior view of $1.57-$1.67.

In August, Weight Watchers raised its FY17 EPS view to $1.57-$1.67 from $1.40-$1.50. The company expects to end 2017 with over 400,000 more end of period subscribers than in year-end 2016, which will translate into an EPS tailwind of at least 30c in 2018.

THE OPRAH EFFECT

Weight Watchers has been on a turnaround track since Oprah Winfrey took a stake in the company and agreed to become a company spokesperson in October 2015.

The company said on its earnings conference call that Winfrey, a “strong advocate of our new program,” will play an “essential” role in its upcoming U.S. marketing campaign.

WHAT’S NOTABLE

In addition to “the Oprah Effect,” CFO Nick Hotchkin said the company is retaining customers through technology investments and an improved weight loss program.

Weight Watchers announced in late April that Mindy Grossman, CEO of HSN, Inc (HSNI), would join the company as president and CEO in July.

Weight Watchers noted on its earnings call that in an independent study conducted in the U.K. and recently published in the British Medical Journal, researchers found “considerable” reductions in diabetes risk as well as an average weight loss of 22 pounds within a year of patients being referred to Weight Watchers.

In September, Weight Watchers applied for a patent called “fresh smart portions delivered,” according to a filing with the USPTO.

Others in the home meal delivery business include Blue Apron (APRN).

ANALYST COMMENTARY

Craig-Hallum analyst Alex Fuhrman raised his price target for Weight Watchers to $70 from $50 following the company’s “strong” beat and raise report.

The analyst told clients in a note that momentum is building in 2017 with the potential for significant upside to estimates in 2018. With the post New Year’s “diet season” quickly coming up, Fuhrman said future beats could be even bigger as the company carries a meaningful recruitment tailwind into 2018.

PRICE ACTION

Weight Watchers shares touched a 52-week high and are up about 21% to $54.32 in morning trading.


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Michael Kors Higher following results

Michael Kors’ beat and raise boosts shares of luxury retailers

Michael Kors to acquire Jimmy Choo PLC for $1.35B. See Stockwinners.com for stocks to buy, stocks to watch, stocks to follow

Shares of Michael Kors (KORS) jumped in Monday’s trading after the apparel and accessories maker gave better than expected guidance for the fiscal year after announcing top and bottom line results for its most recent quarter that topped consensus forecasts.

EARNINGS BEAT

Michael Kors reported second quarter earnings per share of $1.33 on revenue of $1.15B, handily beating analysts’ consensus estimates of 83c and $1.04B, respectively.

Second quarter comparable store sales decreased 2.5%, a smaller decline than the 4.7% drop analysts were expecting.

The company’s earnings also beat previous guidance calling for EPS of 80c-84c on revenue of $1.035B-$1.055B and comp sales down in the mid-single digits range.

Retail net sales for the quarter increased 8% to $645M, while wholesale net sales were up 2.5% to $263.6M on a constant currency basis. Licensing revenue fell 2.1% to $38M.

Looking ahead, Michael Kors raised its fiscal 2018 forecast and now sees EPS of $3.85-$3.95 on revenue of about $4.59B, against analysts’ estimates of $3.71 and $4.3B, respectively.

Comparable sales for the Michael Kors brand are expected to decline in the mid-single digits. In its last earnings report, Michael Kors forecast EPS of $3.62-$3.72 on revenue of $4.275B and SSS down in the mid-single digits.

Third quarter earnings per share, however, is expected to be $1.22-$1.27, well below analysts’ estimates of $1.50, but includes anticipated dilution from Jimmy Choo of about 4c.

Revenue is seen at $1.355B-$1.385B, including $105M-$110M of incremental Jimmy Choo revenue, above estimates of $1.29B. Comparable sales for the Michael Kors brand are expected to decline in the high-single digits.

TRANSITION YEAR

Michael Kors Chairman and Chief Executive Officer John Idol said in a statement that “Our second quarter results were better than expected, and we are pleased with our continued progress executing on our strategic plan, Runway 2020.” Idol, who reiterated that FY18 will be a “transition year” for the Michael Kors brand, said its efforts will ultimately drive improved financial performance.

On its earnings conference call, Idol reiterated that he believes Jimmy Choo can reach $1B in sales over time.

Additionally, Idol revealed a 360-degree marketing campaign with Google (GOOG, GOOGL) to support Access smartwatches “to further heighten demand.”

Idol said the fashion watch category is “challenging” and sees continued sales declines for the year in the total watch category. The company expects to close 40-50 stores in the fiscal year, more than its previous view of 20-40 stores. Kors previously announced plans to close 100-125 of its full-price retail stores over the next two years.

ANALYST COMMENTARY

Buckingham maintained its Neutral rating on Michael Kors and noted that Q3 guidance calls for “significant” deceleration and margin pressure. The firm said the Kors brand still has a loyal consumer base, albeit smaller than at its peak, that will pay full price for the brand, but that overall growth will be “a challenge.” The firm remains on the sidelines despite an “attractive” valuation, but would look to become more constructive when it is more confident that sales and margins represent “trough” levels.

Oppenheimer noted Kors’ “strong” quarter, and said the stock would be up more if not for the lower Q3 guidance.

PRICE ACTION

Shares of Michael Kors are up about 15% in early trading to $54.70. Shares are up nearly 28% year-to-date.

OTHERS TO WATCH

Others in the luxury accessory space trading higher include Vera Bradley (VRA), up 3%, and Coach, which recently changed its name to Tapestry (TPR), up 1%.


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Flex Pharma reports positive data on Lou Gehrig’s Disease

Flex Pharma reports ‘positive’ topline data from Phase 2 trial of FLX-787

Flex Pharma reports positive results. See Stockwinners.com for details

Flex Pharma (FLKS) announced positive topline data for FLX-787 from its randomized, double-blinded, placebo-controlled, cross-over Australian trial in ALS patients with frequent muscle cramps.

Amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig’s Disease, is a disease that affects parts of the nervous system that control voluntary muscle movements (the muscles that people move at will, like those of the arms and legs).

The study was terminated early to focus the company’s resources on the ongoing US Phase 2b ALS study.

In eight patients who completed the trial per protocol, FLX-787 demonstrated a statistically significant percentage reduction from baseline in both cramp-associated pain intensity and stiffness, relative to placebo control, based on daily patient assessments by Numerical Rating Scale.

Strong and consistent trends were demonstrated on multiple endpoints, including: percentage reduction in the number of cramps from baseline, increase in cramp free days from baseline, and improvements on both the Patient and Clinician Global Impression of Change.

FLX-787 was generally well tolerated.

In the patients completing both cross-over periods per protocol: FLX-787 showed a median 31% reduction in cramps from baseline versus 0.1% reduction for patients while on placebo control; Patients had a median of 4.4 cramp free days versus 0 for placebo control; Patients evaluated themselves as improved with FLX-787 treatment 50% of the time versus 12.5% with placebo control; and Clinicians blinded to treatments evaluated 50% of patients as improved with FLX-787 versus 0% for placebo control.

The company also analyzed the Period 1 and Period 2 results of all patients randomized in the trial and believes the cross-over results are not driven by a cross-over bias or unblinding effect.

FLKS closed at $3.32.


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Meet the next Fed Chief

Fed Policy: the nomination of Powell as Fed Chairman is all but sealed

Meet the next Fed Chief. See Stockwinners.com for details

Fed Policy: the nomination of Jerome Powell as Fed Chairman is all but sealed. The secret was fairly well kept, but late yesterday newswires largely confirmed it.

The markets have already reacted, by and large, with yields having dropped from last week’s jump when John Taylor was seen as the leading contender.

The dollar did soften a bit further yesterday.

Powell has been a governor on the Federal Reserve Board since 2012, and never dissented. Hence, this is a “continuity” pick and he’s seen following the gradualist approach of Yellen (and Bernanke).

He is also seen as a moderate on regulatory issues too. His confirmation process shouldn’t be problematic since he was already cleared as a Fed governor.

Of interest, he would be the first Fed chairman without a Ph.D. in economics since Volcker.

Along with serving on the Fed Board for the past five years, Powell, 64, has worked inside and outside government.

He was a Treasury undersecretary from 1990 to 1993 under President Bush.

More recently he was a partner and managing director of the Carlyle Group.

Note that newly installed governor Quarles also once worked at the Carlyle Group (CG).

There will be four vacancies on the seven member Fed Board, assuming Yellen retires from her governor position, giving President Trump lots of opportunities to make his mark on the Fed.


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CSX postpones investors conference

CSX postpones investor conference, announces share buyback

CSX postpones investor conference, announces share buyback. See Stockwinners.com

Following yesterday’s announcement of executive changes including naming Jim Foote as COO, CSX Corporation (CSX) is postponing its scheduled October 30th Investor Conference to a later date.

“Our team continues to build momentum and the addition of Jim increases my confidence in our ability to serve customers and deliver shareholder value,” said Hunter Harrison, president and CEO.

“I am more confident than ever in CSX’s ability to achieve industry leading operating and financial performance and look forward to showcasing our leadership team at a future date.”

CSX also announced the Board has authorized $1.5B in share repurchases, which builds on the $1.5B program recently completed.

“The Board’s action to expand the repurchase program demonstrates our confidence in CSX’s long term future and ability to generate substantial free cash flow,” said Harrison.

Citi Comments

Citi analyst Christian #Wetherbee believes the “surprising” postponement of CSX’s investor day will likely prompt concerns about CEO Hunter Harrison’s health and “potential disarray in the management ranks” following the replacement of two C-level executives Wednesday.

The analyst, however, believes the company needs more time for new COO Jim Foote to get familiar with operations in order to participate in the presentation.

Wetherbee expects the shares to face downward pressure in the short term, but thinks little incremental has changed at the company. He keeps a Buy rating on CSX with a $58 price target.

CSX closed at $52.92.


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Atossa Genetics breast cancer drug shows promise

All objectives met in Phase 1 study of oral Endoxifen

Atossa Genetics breast cancer drug shows promise. See Stockwinners.com for details

Atossa Genetics (ATOS) reported preliminary results from its Phase 1 study of its proprietary oral Endoxifen.

All objectives were successfully met.

Safety: There were no clinically significant safety signals and no clinically significant adverse events in participants receiving oral Endoxifen.

Tolerability: Oral Endoxifen was well tolerated at each dose level and for the dosing duration utilized in the study.

Pharmacokinetics: Oral Endoxifen demonstrated blood levels that have been associated with a therapeutic effect in the adjuvant setting in women with breast cancer. These data demonstrate the suitability of oral Endoxifen for further clinical development.

“Based on these positive preliminary results, we are advancing our oral Endoxifen into Phase 2 studies,” commented Dr. Steven C. Quay, CEO and President.

“We expect our initial Phase 2 study will be in women who are refractory to tamoxifen and we expect to begin that study in the first quarter of 2018,” continued Dr. Quay.

BACKGROUND

Researchers at the Mayo Clinic Cancer Center are developing a new drug to help women with estrogen receptor positive breast cancer who are unable to derive benefit from the drug tamoxifen. These women need an alternative to #tamoxifen because their bodies are unable to effectively metabolize the drug to its active agent, endoxifen.

Tamoxifen is a hormone therapy that has been used for more than 40 years to reduce the risk of breast cancer and to prevent recurrence. However, research has demonstrated that patients with very low levels of a critical enzyme called CYP2D6 and those with low endoxifen levels have a higher risk of recurrence or progression when treated with tamoxifen.

Endoxifen, also known as N-desmethyl-4-hydroxytamoxifen, is an orally active nonsteroidal selective estrogen receptor modulator (SERM) of the triphenylethylene group that is or was under development for the treatment of estrogen receptor-positive breast cancer. It is also being evaluated as an antipsychotic for treatment of mania and other psychotic disorders.

ATOS haled at $1.22.


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Graphic Packaging and International Paper Join Forces

Graphic Packaging forms partnership with IP’s consumer packaging unit

Graphic Packaging and IP join forces. See Stockwinners.com for details

Graphic Packaging (GPK) said it will create a $6B paper-based packaging company by forming a new partnership comprised of Graphic Packaging’s existing businesses and International Paper’s (IP) North America Consumer Packaging business.

Graphic Packaging will own 79.5% of the partnership and will be the sole operator.

International Paper will own 20.5% of the partnership, equivalent to a $1.14B value.

The partnership will assume $660M of International Paper debt.

There will be no change to Graphic Packaging’s current board or leadership team. The company said, “The transaction will be completed at a compelling EV/Adjusted EBITDA multiple of 8.6x, pre-synergies, and 6.3x, post-synergies.

International Paper will have a 2-year lock-up on the monetization of their partnership interest and cannot purchase GPK shares for a period of 5 years, subject to limited exceptions.”

It added, “The $75 million in synergies is compelling and will be driven by cost reductions, increased paperboard integration, and procurement and mill efficiencies.”

The transaction has been approved by the boards of both companies and is expected to close in early 2018. International Paper’s North America Consumer Packaging business is a $1.6B revenue producer of solid bleached sulfate paperboard and paper-based foodservice products.

The business includes two SBS mills located in Augusta, Georgia and Texarkana, Texas with annual production capacity of 1.2 million tons of SBS, three converting facilities in the U.S. and one in the U.K..

The business is projected to generate Adjusted EBITDA of $210M in 2017.


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Caterpillar reports on Tuesday

What to watch in Caterpillar earnings report

Caterpillar reports on Tuesday. See Stockwinners.com for details

Caterpillar (CAT) is scheduled to report results of its third fiscal quarter before the market opens on Tuesday, October 24, with a conference call scheduled for 11:00 am ET.

What to watch for

1. GUIDANCE:

On July 25, Caterpillar reported results for its fiscal second quarter and raised its forecast for fiscal 2017. The company said it expected earnings per share, excluding-costs, to be about $5.00, up from the prior view of $3.75, against analyst expectations of $4.32 at that time.

The company also raised its FY17 revenue guidance to $42B-$44B from $38B-$41B, against analyst consensus of $40.54B at that time. For FY17, Caterpillar said it expected profit per share of about $3.50 at the midpoint of the sales and revenues outlook range, or adjusted profit per share of about $5.00. The previous outlook for 2017 profit was about $2.10 per share at the midpoint of the sales and revenues outlook, or adjusted profit per share of about $3.75. The company now expects to incur about $1.2B of restructuring costs in 2017. The outlook does not include potential mark-to-market gains or losses related to pension and other post-employment benefit plans.

2. RETAIL MACHINES SALES

On August 18, Caterpillar reported retail machines sales in the three months ending in July were up 12%. For reference, retail sales of machines were up 7% in the period ending in June and up 8% in the period ending in May.

The company reported world Resources Industries sales up 8% in the July-end period, compared to a June period decline of 1%.

Construction Industries world sales were up 13% in the July-end period, better than the 10% increase in the June-end period. Total Energy & Transportation Retail Sales were down 2% in the July-end period, worse than the 1% increase seen in the June period.

On September 21, Caterpillar reported retail machines sales in the three months ending in August were up 11%. For reference, retail sales of machines were up 12% in the period ending in August and up 7% in the period ending in June.

The company reported world Resources Industries sales up 5% in the August-end period, compared to a July period increase of 8%. Construction Industries world sales were up 12% in the August-end period, a tick worse than the 13% increase in the July-end period. Total Energy & Transportation Retail Sales were down 3% in the August-end period, worse than the 2% decrease seen in the July period.

On October 23, the company reported retail machines sales in the three months ending in September were up 13%. For reference, retail sales of machines were up 11% in the period ending in the prior month and up 12% in the period ending in July.

The company reported world Resources Industries sales up 8% in the September-end period, compared to a August period increase of 5%.

Construction Industries world sales were up 15% in the September-end period, better than the 12% increase in the prior period. Total Energy & Transportation Retail Sales were up 5% in the September-end period, better than the 3% decrease seen in the prior three-month period.

3. MANAGEMENT CHANGES

On August 1, Caterpillar announced that Chief Financial Officer Brad Halverson will retire in early 2018. The company added that it will launch a global, external search to fill the CFO position and Halverson’s decision to continue working into early 2018 helps to ensure a smooth transition for the CFO position.

On August 10, the company’s board appointed former U.S. senator Kelly Ayotte to the board and will be a member of the Public Policy & Governance Committee of the board. Senator Ayotte’s appointment was effective on that date.

On August 11, the company appointed Suzette Long as the company’s general counsel and corporate secretary. The group she will lead includes Caterpillar’s Legal Services Division and Global Government & Corporate Affairs Division.


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Deltic Timber sold for $4 billion

Deltic Timber jumps after agreeing to be bought by larger peer Potlatch

Deltic Timber sold for $4 billion. See Stockwinners.com for details

Shares of Deltic Timber Corporation (DEL) are higher after the company agreed to be acquired by larger peer Potlatch Corporation (PCH).

The combined company is expected to have a pro-forma market cap of about $3.3B and a total enterprise value of over $4B.

ALL-STOCK TRANSACTION

Potlatch confirmed this morning that it has agreed to buy Deltic Timber in an all-stock transaction, creating a company with a total enterprise value of $4B.

Under the terms of the deal, Deltic shareholders will receive 1.8 Potlatch shares for each Deltic share they own.

When the deal closes, which is expected to occur in the first half of 2018, Potlatch shareholders will own 65% of the combined company. The combined company will be called Potlatch Deltic Corporation and trade on the Nasdaq Stock Market under the ticker “PCH.”

Deltic Chief Executive Officer John Enlow will be the combined company’s vice chairman, while Potlatch Chief Executive Officer Mike Covey would continue in the role. Deltic will convert to a real estate investment trust structure, and will pay out accumulated profits of $250M to investors through a dividend consisting of 80% stock and 20% cash by the end of 2018.

The companies expect to realize about $50M of after-tax cash synergies and operational efficiencies. The combined company will have a diverse timberland portfolio of approximately 2M acres, with approximately 1.1M acres in the U.S. South, 600,000 acres in Idaho, and 150,000 acres in Minnesota.

In addition, the company will operate eight wood products manufacturing facilities, including six lumber manufacturing facilities, one medium density fiberboard facility and one industrial plywood mill.

The combined company will have lumber capacity of 1.2B board feet in total. Deltic and Potlatch compete with Weyerhaeuser (WY).

WHAT’S NOTABLE

In August, Deltic said it was assessing a “comprehensive range” of strategic alternatives, both internal and external. The company said at the time that it had been approached “by a number of industry participants” regarding interest in a potential deal.

Deltic said it had met with Southeastern Asset Management, which held a 15% stake in Deltic as of August 25, “on a number of occasions” to discuss the ideas. In August, SAM said “it has become clear after many attempts that Deltic is not serious about engaging with Southeastern at a substantive level,” and that it may nominate directors at Deltic’s next annual meeting.

OTHER POTLATCH NEWS

Potlatch this morning also reported quarterly results, with earnings per share excluding items of 94c beating analysts’ consensus estimates of 90c. Revenue of $190.44M was essentially in line with analysts’ $190.45M consensus. Potlatch also raised its quarterly dividend 7% to 40c per share from 37.5c, payable December 29 to investors of record on December 8.

PRICE ACTION

In Monday’s trading, Deltic Timber is up over 6% to $94.83, while Potlatch is up about 2% to $53.90.


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GE Disappoints!

GE shocks with ‘unacceptable’ results, guidance cut

GE gets $15B contract from Saudi Arabia

Shares of General Electric (GE) are lower in Friday’s  trading after the company reported quarterly profit that missed consensus estimates by 20c per share.

GE also cut its outlook for fiscal 2017 as new CEO John Flannery called the results “unacceptable.”

MISS AND CUT

GE this morning reported third quarter industrial operating earnings per share of 29c excluding restructuring charges, missing analysts’ estimates of 49c.

Total revenue for the quarter was $33.47B, which beat analysts’ expectations of $32.56B.

The company said that while the majority of its business units had “solid” earnings performance, “this was offset by a decline in Power performance in a difficult market.” “This was a very challenging quarter,” CEO John Flannery said.

Looking ahead, GE cut its FY17 EPS view to $1.05-$1.10 from $1.60-$1.70, well below estimates of $1.53.

“We are focused on redefining our culture, running our businesses better, and reducing our complexity,” Flannery added.

EXECUTIVE COMMENTARY

On GE’s earnings call, Flannery said the results were “unacceptable to say the least” and that while there are many areas of strength at the company, “it’s clear we need to make some major changes.”

Flannery said GE is doing “deep dives” on all aspects of the company, adding that “everything is on the table and there have been no sacred cows.” The company has started to outline its restructuring plans, saying it plans to exit more than $20B of its businesses in the next one to two years, but noted that the dividend is a “priority.”

STRATEGY UPDATE UPCOMING

GE is planning to update its company strategy and 2018 framework on November 13. Flannery has already been cutting jobs, research operations and corporate jets and cars.

PERSONNEL CHANGES

GE has also undertaken personnel changes, including the earlier-than-expected retirement of Chairman Jeff Immelt. According to a spokeswoman, “[Immelt felt Flannery] is prepared to be chairman and CEO now and leaving GE allows him to look at opportunities outside the company.”

Additionally, on October 6, GE said CFO Jeff Bornstein would leave the company on December 31 and will be succeeded by GE Transportation CEO Jamie Miller.

Bornstein said on today’s earnings call that GE was not “living up to our own standards or investor standards and the buck stops with me.”

Earlier this month, GE announced the election of Trian Fund’s Ed Garden to its board to replace Robert Lane, who is retiring. Trian’s Nelson Peltz said he had pushed to get Garden on GE’s board to “bring a fresh mindset.”

‘SHOCKING’ RESULTS

Deutsche Bank analyst John Inch called GE’s weaker than expected Q3 results this morning “shocking,” noting that the company “falls well short” of generating enough cash to pay its $8B common dividend from operations, which raises the prospects of a pending dividend cut and/or raising financial leverage to pay for the dividend. He has a Sell rating and $21 price target on GE shares.

Meanwhile, Citi analyst Andrew Kaplowitz said the earnings report indicates that the mounting challenges developing over time in the Power business now appear to be fully materializing. Kaplowitz, who has a Buy rating and $31 price target on GE, thinks shares could potentially be approaching a bottom.

PRICE ACTION

GE shares are down about 3%  at $22.72, improving quickly from their opening lows. The early drop pushes the stock’s year-to-date losses to nearly 30%. Shares have a 52-weeks trading range of $22.10 – $32.38.


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