Bear of the Day: Constellation Brands (STZ)

Is the party over for this alcohol producer? Constellation Brands (STZ) is a Zacks Rank #5 (Strong Sell) that produces and markets beer, wine and spirits. It is the third-largest beer company and a leading, high-end wine company in the United States. The company posted its first earnings miss in five quarters and the stock traded down significantly. After bouncing almost 10% off the recent lows, it might be time for longs to exit the stock due to falling earnings expectations.About the Company Constellation is headquartered in Victor, NY. The company was founded in 1945 and employs 10,000 people.Constellation’s portfolio consists of high-quality brands, including Corona, Modelo Especial, Robert Mondavi, Kim Crawford, Meiomi and SVEDKA Vodka. The company conducts its operations in the United States, Mexico, Italy, and New Zealand.The company is valued at $41 billion and has a Forward PE of 21. STZ holds Zacks Style Scores of “B” in Growth, but “D” in Value. The stock pays a dividend of 1.4%.  Q3 Earnings The company reported EPS on January 5th, missing expectations by 1.7%. Constellation reported Q3 at $2.83 v the $2.89 expected, while revenues came in below expectations.The company also cut its profit guidance as they warned of higher expenses. Constellation sees higher costs for raw materials, packaging, and logistics. Meanwhile some analysts are concerned that customers may trade down to cheaper drinks, which will make it harder for the company to raise prices to cover the higher costs.EstimatesAfter the quarter, analysts lowered their estimates and cut their price targets.Over the last 30 days, estimates have gone from $2.17 to $1.94, a drop of 10%. For next quarter they have fallen 6%, from $2.92 to $2.75.Looking ahead to next year, analysts have dropped their numbers 8% over the last 60 days, from $12.76 to $11.68.Almost every analyst that covers the stock cut their price targets after earnings:BMO reiterated outperform but cut to $265 from $290.JPMorgan reiterated Overweight, but lowered targets to $250 from $267.Cowen cut to Market perform and has a $200 target.Clearly the earnings performance will temporarily limit upside until the company gets costs under control.Technical TakeThe stock had already come well off its 2022 highs before reporting earnings, dropping from $260 to $230. After the report, the stock fell below $210, but has since rallied to the $227 area.The 50-day moving average is at $237 and the 200-day is at $240. Investors should expect these areas to be big selling zones and take off any positions into a rally to those levels.The stock might settle into sideways trading before taking out those recent lows. A break of the $210 area would likely bring a flush of the $200 level.Looking to the downside, the halfway back market from COVID lows to recent highs is $182, while the 61.8% Fibonacci retracement is $163. For those looking for a better long-term entry, they should wait until the stock is in that buying zone.SummaryCosts are adding up for Constellation Brands and it is hitting the bottom line. Investors should understand that upside in the stock is likely limited until this issue is resolved. Additionally, there is chance for more downside if the market decides to go lower.For those interested in the alcohol space, a better option in the sector might be Heineken (HEINY). The stock is a Zacks Rank #1 (Strong Buy) that is trading at 10-month highs.   Zacks Names "Single Best Pick to Double" From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time. This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.Free: See Our Top Stock and 4 Runners Up >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Constellation Brands Inc (STZ): Free Stock Analysis Report Heineken NV (HEINY): Free Stock Analysis ReportTo read this article on click here.Zacks Investment Research.....»»

Category: topSource: zacksJan 25th, 2023

Lindblad Expeditions Holdings, Inc. (NASDAQ:LIND) Q4 2023 Earnings Call Transcript

Lindblad Expeditions Holdings, Inc. (NASDAQ:LIND) Q4 2023 Earnings Call Transcript February 28, 2024 Lindblad Expeditions Holdings, Inc. misses on earnings expectations. Reported EPS is $-0.53 EPS, expectations were $-0.3. Lindblad Expeditions Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). […] Lindblad Expeditions Holdings, Inc. (NASDAQ:LIND) Q4 2023 Earnings Call Transcript February 28, 2024 Lindblad Expeditions Holdings, Inc. misses on earnings expectations. Reported EPS is $-0.53 EPS, expectations were $-0.3. Lindblad Expeditions Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Hello, everyone, and welcome to the Lindblad Expeditions Fourth Quarter and Full Year Financial Results. My name is Bruno, and I’ll be operating your call today. [Operator Instructions] I will now hand over to your host and Chief Financial Officer, Craig Felenstein. Please go ahead. Craig Felenstein: Thank you, Bruno. Good morning, everyone, and thank you for joining us for Lindblad’s 2023 fourth quarter and year-end earnings Callc With me on the call today is Sven Lindblad, Lindblad’s Founder and Chief Executive Officer. Sven will begin with some opening comments, and then I will follow with some details on our 2023 financial results and current expectations for 2024 before we open the call for Q&A. You can find our latest earnings release in the Investor Relations section of our website. Before we get started, let me remind everyone that the company’s comments today may include forward-looking statements. Those expectations are subject to risks and uncertainties that may cause actual results and performance to be materially different from these expectations. The company cannot guarantee the accuracy of forecasts or estimates, and we undertake no obligation to update any such forward-looking statements. If you would like more information on the risks involved in forward-looking statements, please see the company’s SEC filings. In addition, our comments may reference non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measures and other associated disclosures are contained in the company’s earnings release. And with that, let me turn the call over to Sven. Sven-Olof Lindblad: Thanks, Craig, and good morning, and thank you all for joining us today. When I returned to CEO of Lindblad Expeditions in June of 2023, I laid out for you a variety of priorities that I believe would usher in a new era for our enterprise. With eight months now in the rearview mirror, I would like to take a few minutes to discuss the progress we have made in each of these areas while providing some color on what drove our success this past year and why we are excited about the growth opportunity we have in the months and years ahead. First and foremost, the new era starts with putting the pandemic definitively behind us. The record financial results we delivered in 2023, including 35% revenue growth and adjusted EBITDA of over $71 million, a pretty good indication that we are well on our way to achieving that outcome. Craig will go through our financial results in a moment, but we took nearly 30,000 guests more than ever before to the remarkable destinations we have been visiting for decades. And most importantly, the guest feedback has been nothing short of extraordinary. All the drivers of our business were up this year, led by a 33% increase in guest nights, as we began to fully utilize our expanded fleet. As we increase capacity, we also saw meaningful growth in net yield, up 12% to $1,097 per guests night and occupancy taking up to 77% from 75% a year ago. I know there is a tendency to focus on occupancy, but in isolation, it is a misleading metric, especially in our business. Understandably, at the big cruise lines, there is a commitment to 100% occupancy even if the last percentages represent very low or perhaps even no yield. The reason is obvious, the onboard spend is meaningful in the casino, shops, spas, bars, land excursions, etc. So even if you add guests for free, you would be better off. In our case, there is minimal onboard spending. So that approach has absolutely no value. Also, we are extremely committed to maintaining price integrity, given long-term ramifications as there is no benefit in adding occupancy if yield decreases proportionately. So price integrity is a key metric and essential to preserve even if occupancies move ahead a bit slower in the short term. The second catalyst of our new era is capitalizing on the massive growth of interest in expedition travel. The poll to connect authentically with nature and culture is growing by the day, and there’s no other company in this segment with our track record or with our commitment to providing authentic and immersive itineraries. This past November, we further solidified our ability to take advantage of this growth with the extension and expansion of our 20 year old partnership with National Geographic, one of the world’s most respected and beloved brands. This new agreement, which runs through 2040 will enable us to grow our brand on an international scale and reach more citizen explorers than ever before. Beyond enhancing our shared expertise and the onboard experience for our guests, it will increase the earnings potential of the company by opening larger addressable markets through new worldwide audiences. In short, it will further solidify our position as the leader in expedition cruise and experiential adventure in travel, a segment we have been leading for more than 50 years. It also brings with it the power of Disney, the world’s largest media and entertainment conglomerate. They have so many different capabilities to promote and activate the market. And in past months, our team, along with their marketing and sales teams have been deep in the strategy and tactical plans on a regular basis meeting monthly to plan specific initiatives to drive business. By year’s end, we will be able to report with far more accuracy the detail about how the anticipated significant National Geographic and Disney effect, about the National Geographic and Disney effect, but harnessing that collective power is extremely exciting at a time with a poll to connect authentically with nature and culture is growing by the day. I firmly believe that this will result in meaningful accelerated growth in terms of occupancy, yield protection and expansion of the fleet for years to come. Third, in this new era is building our technology to support innovative ways to drive the business. In many ways, 2023 was a year of transition on this front as we launched our new reservation system in May, the final building block in our digital stack transformation, which also included a new CRM, a new connect management system, a new digital asset management system and a new customer data platform. Not surprisingly, the rollout of the reservation system was complex with numerous challenges that had to be solved. It was certainly a distraction for various parts of our organization, but we kept our focus on our guests and have put most of those challenges behind us. We still have ways to go before we finally exploit the possibilities that these systems provide, but we are already seeing record bookings coming through our website. We are achieving higher conversion rates across all parts of the funnel and we are delivering stronger guest service metrics at our contact center. A fourth pillar in this new era is reconnecting with our community in creative ways and creating the most modern marketing and sales platform to propel growth. The new agreement with National Geographic and our upgraded technology platform will certainly be a big part of that moving forward, but we are already reaching new audiences. With an expanded sales team and upgraded digital lead generation capabilities, we have been focusing on driving first-timer bookings through elevated search campaigns to capture and convert more prospects than ever before. Growing first timers is critical and that repeat behavior is significant, and they become the key community to propel growth. A new era also means bring R&D back to the forefront in terms of new geographies, new experiences in parts of the world we have been visiting for years and integrating the ways we immerse our guests in these remarkable destinations. For 2024, we have developed a variety of new itineraries specifically designed to attract new guests. Most are shorter duration in order to get people into the system for the first time. Examples of a multi-month commitment in Iceland this summer and our recently launched collaboration with Food & Wine magazine, preparing 14 trips along the Columbia and Snake Rivers in Washington and Oregon with programming elements, wine selections and specials of guest selected by the editorial staff of Food & Wine. One of our biggest initiatives — the biggest initiative, new initiative is a fly-in component for one of our Antarctica ships, creating itineraries that avoid crossing the Drake passage on some voyages and just one way on others. It also allows for people with more limited time to visit Antarctica. These offerings have literally flown off the shelves and are allowing us to connect with new travelers who wouldn’t have been — who wouldn’t have considered this kind of expedition before. The last component of the new era, I mentioned, was maximizing our diverse portfolio of land businesses while looking for additional expansion opportunities either through new capacity or further diversification of land offerings. The investments we have made thus far in broadening the land portfolio has proven widely successful, laying the vision of expertise and entrepreneurial spirit of the founders with the operating and marketing power of Lindblad has grown our land portfolio from EBITDA of just over $3 million when we first acquired Natural Habitat to nearly $23 million in 2023, including nearly 30% growth year-on-year. This has not only created significant value for our guests and shareholders but also is a great calling card as we strategically look to find additional companies to join our family. So as you can see, the new era has clearly begun for Lindblad Expeditions and we are excited to further accelerate that new era in 2024. We start the year with a strong foundation of future bookings with the Lindblad segment pacing 2% ahead of where we were at the same point in 2023, despite having significantly less carryover business from cancellations during COVID. Excluding these carryover bookings, we would be 21% ahead of a year ago. There are a couple of headwinds to point out for the upcoming year. Due to the gang violence that erupted in Ecuador, on January 10, we canceled two voyages out of precaution in the first quarter, and there was some booking instability. Fortunately, Ecuador’s young, energetic President seems to have quelled the violence. And for all practical purposes, the country has largely stabilized. We certainly are feeling no disruption of activity and bookings are returning to a more normal pattern. Another potential headwind in Q2 is the possible rerouting of water warships around the tip of Africa to avoid the Red Sea due to the recent attacks from Yemen. We did not operate with guests in the Red Sea. But if we reroute the transit, there would likely be a couple of voyages impacted. While these isolated events are certainly frustrating, we have come to expect a certain amount of external disruption, and these short-term headwinds tail in comparison to the broader opportunity. As to the — to expedition travel more broadly and incorporating adventure travel, this still represents one of, if not the largest growth segment in the travel industry. I get why nature and particularly the concern over its long-term future is fueling interest. And while there is much more competition than ever, I believe that a very strong brand will inevitably be elevated by expanding interest. So I’m really excited about the next years as we, together with our partners with National Geographic and Disney, build and grow our business, expand our ideas, our relevance in supporting necessary strategies that help protect environments, communities and history. So many thanks for your time. And now I will turn it back to Craig. Craig Felenstein: Thanks, Sven. As Sven highlighted, Lindblad delivered record revenue and EBITDA in 2023 as we further ramped operations with broader deployment of our expanded fleet and additional departures across our platform of land-based businesses. As we have discussed previously, the earnings potential of the company has increased considerably over the last several years with the addition of over 40% more ship capacity and three industry-leading land operators. And the record results we delivered in 2023 demonstrates the opportunity we have across our diverse portfolio of experiential offerings. Before we look ahead, let me take a few minutes to discuss our performance from this past year as we focused on further ramping ship operations, fueling the growth of our differentiated land portfolio and solidifying our overall infrastructure, technological footprint and marketing and sales capabilities to allow us to maximize the earnings potential in the years ahead. Total company revenue for the full year 2023 of $570 million increased $148 million or 35% versus 2022, as we continue to ramp operations with strong growth across both our Lindblad and Land Experiences segments. At the Lindblad segment, revenue of $397 million increased $119 million or 43% year-on-year, primarily due to a 33% increase in available guest nights from broader utilization of the fleet. Additionally, net yield increased 12% to $1,097 per available guest night due to higher pricing and occupancy expansion to 77%, despite the significant increase in available guest nights year-over-year. As we further ramp occupancy towards historical levels, you can see both the revenue opportunity and the operating leverage inherent in our marine platform as we attract more and more guests while maintaining strong pricing discipline across the expanded fleet. Similar to our ship operations, our land portfolio is also delivering strong growth, driven by additional departures and guests across each of our four unique businesses. Land Experiences revenue of $172 million increased $29 million or 20% versus a year ago, led by Natural Habitat’s polar bear and Africa trips, DuVine’s cycling tours across Europe, Classic Journeys walking tours in Italy and Morocco and Off the Beaten Path trips to the U.S. National Parks. The strong revenue growth across both segments generated significant operating leverage in 2023, with total company adjusted EBITDA of $71 million, an increase of $83 million versus a year ago, driven by a $78 million increase at the Lindblad segment and a $5 million or 29% increase at the Land Experiences segment. Looking a little closer at the cost side of the business, operating expenses before depreciation and amortization, interest and taxes increased $65 million or 15% versus 2022, led by a $39 million or 14% increase in cost of tours versus a year ago, primarily related to operating additional ship and land-based itineraries. Fuel costs decreased year-on-year as increased usage from operating additional trips was more than offset by lower pricing versus a year ago. Fuel was 5% of revenue in 2023 as compared to 7% of revenue in 2022. Sales and marketing costs increased $10 million or 17% versus a year ago, primarily due to higher commissions and royalties related to the increase in revenue and from increased search and direct mail marketing to drive future bookings. And G&A spending increased $15 million or 17% excluding stock-based compensation and onetime items versus a year ago, primarily due to higher personnel costs as we ramp operations and increase credit card commissions related to final payments for upcoming itineraries and higher deposits on new reservations for future travel. Total company net loss available to stockholders of $50 million or $0.94 per diluted share improved $66 million versus the net loss available to common stockholders of $116 million or $2.23 per diluted share reported a year ago. The improvement reflects the significant ramp in operations, partially offset by $8 million of additional interest expense net associated with the higher rates and increased borrowings mostly related to our debt refinancing in May of 2023 and a $7 million increase in stock-based compensation primarily related to the increase in value of Natural Habitat. Looking quickly at the fourth quarter of 2023, revenue increased 6% compared to the same period in 2022, due in large part to broader utilization of the fleet and additional land trip operations. Available guest nights at the Lindblad segment increased 18% due in large part to an additional transit voyage from Southeast Asia to French Polynesia on the resolution as well as from the timing of dry docks. As I highlighted on the last call, while taking guests on our transit voyages generates additional revenue on voyages that would normally be non-revenue generating, they do have a negative impact on occupancy and yields, which was evident in the Q4 metrics. The decrease in occupancy versus a year ago was predominantly due to the additional transit nights for sale as well as from increased cancellations on our Egypt itineraries due to the Israeli-Hamas war. Adjusted EBITDA in the fourth quarter of $4 million increased $7 million from the fourth quarter a year ago, as the majority of the revenue growth in the quarter fell to the bottom line with operating expenses before depreciation and amortization, stock-based comp, interest and taxes up only 1% versus the fourth quarter a year ago. Turning to the balance sheet. We ended the year with $187 million in cash and short-term securities, an increase of $58 million versus the end of 2022, primarily driven by the net proceeds of $67 million from the debt refinancing back in May of 2023, which was offset by free cash flow use of about $4.5 million. Free cash flow for the year included $25 million in cash from operations, led by the improved operating performance, which was partially offset by interest payments of $44 million. Please note that cash from operations was also negatively impacted by the use of future travel credits, which made up approximately 8% of ticket revenues in the current year. Cash from operations was more than offset by CapEx of $30 million, mostly from routine vessel maintenance as well as from investments in our digital initiatives. Looking ahead, we are excited by the sustained operating momentum across our expanded platform, and we anticipate significant growth in 2024, driven by higher occupancies and increased net yields across our fleet as well as additional travelers across our growing land businesses. The Lindblad segment is in a strong booking position for the upcoming year and the booking momentum has only accelerated with booking since the start of December for travel in 2024 up over 50% versus the same period a year ago for 2023. Additionally, we have already booked over 87% of our full year projected ticket revenues for the year. Given the strong booking trends we are generating, we expect total company tour revenue in 2024 between $610 million and $630 million and adjusted EBITDA between $88 million and $98 million. Please note that these projections reflect the increased royalty rate associated with the expansion and extension of our National Geographic relationship as well as the impact of the voyage cancellations that Sven mentioned earlier. In addition to the robust P&L growth in 2024, we also anticipate strong free cash flow generation, excluding any growth CapEx. Maintenance CapEx is expected to be approximately $25 million to $30 million in the current year, which includes vessel maintenance as well as some additional investments in our digital initiatives. We do anticipate buying part of the minority interest in our land companies during the first quarter, and we will continue to explore additional growth opportunities in the year ahead, including further diversifying our product portfolio or opportunistically expanding our fleet to capitalize on the continued growth in the demand for experiential travel. Thanks for your time this morning. And now Sven and I would be happy to answer any questions you may have. See also 20 Countries With the Longest Coastlines in the World and 15 Best Stocks to Buy According to Billionaire D.E. Shaw. Q&A Session Follow Lindblad Expeditions Holdings Inc. (NASDAQ:LIND) Follow Lindblad Expeditions Holdings Inc. (NASDAQ:LIND) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: Thank you. [Operator Instructions] Our first question comes from Steve Wieczynski from Stifel. Steve, your line is now open. Jackson Gibb: Hi This is Jackson Gibb on for Steve Wieczynski. So we’ve seen a fair amount of these disruptions over time and kind of how they’re magnified by your scale and in some cases, the uniqueness and your replaceability of the destinations you visit. But is there anything about the new expanded Disney deal that might help mitigate that impact by maybe filling funnel more from the demand side moving forward? Any kind of specifics about how you’re thinking about the deal might help mitigate impacts from shifting itineraries would be helpful. Sven-Olof Lindblad: Yeah. That’s an interesting question. Well, first of all, the — as a consequence of this new deal with National Geographic and by extension Disney, our marketing prowess or power, if you will, will increase, we believe, rather dramatically. Obviously, we will know more specifically and in greater detail by the end of the year how that manifests itself in terms of combating situations around the world that periodically arise, we will have to see. I mean one of the things we have done — first of all, there’s always been — if you think about going back decades, there’s always been something almost invariably, every now and then, you get through a year where absolutely nothing happened in the world that has any consequence or disruption in any way. But generally speaking, there’s always a couple of things — two or three things that cause you to have to maybe reroute a ship or diminish booking somewhat, in certain instances, significantly. So most areas we’re in are — we’re not in for extended periods of time, except for places that are traditionally very, very stable, Alaska, Galapagos, okay, we had some recent disruption, but that’s not — historically, there has not been disruption there, Iceland, Antarctica, the Arctic. So we’re very conscientious of making sure that we’re not in places in a significant — for a significant amount of time that are questionable in terms of the degree to which political influences and such can affect them. So I would say that — put it this way, we are going to be strengthened as a consequence of this relationship. Now we have a triangle. In essence, we have National Discovery, Disney and ourselves, and that’s a real powerhouse. So anything we face should be faced much — in a stronger way than we would have without them as part of it. I hope that answers your question. Craig Felenstein: Yeah. Thanks, Sven. The other side of this — yes, thanks, Sven. Jackson, the other side of this from my perspective is that there’s two aspects of our business that are pretty unique. One is we should have fair enough flexibility as Sven kind of highlighted, which is because of we are expedition by nature and we’re less reliant on individual ports or resources, we can’t take our ships and move them when these disruptions happen as long as there’s enough notice to ultimately sell whatever the change, ultimately we’re going to do is. The second thing is the company has scaled up pretty dramatically. If you think about where we were back in 2016 before we embarked on our expansion of our overall fleet, the fleet itself is up over 60% in terms of size. And then when you look at the land companies that we’ve expanded, the company’s earnings power has increased so dramatically that these kind of issues, the ones that you’re seeing in something like Ecuador potentially in the Red Sea have much less of an impact than they ever had before. The second thing on that front is we will continue to expand the company. As we continue to increase the scale and diversify the company, these things will continue to have less and less of an impact as we move forward. So to echo Sven’s point, it is something that is inherent in our business, but traditionally, the impact has not been significant or it will be even less so here moving forward as we continue to scale. Jackson Gibb: Okay. Awesome. That’s super helpful. I guess on the subject of expanding the company, we’ve seen a couple of your larger peers put in new ship orders, obviously, much different size and scale and different areas of operation. But is that something that you’re considering more seriously now? And I guess, a different way, what would have to happen for it to be the right time to order a new ship to make an addition to the fleet? Sven-Olof Lindblad: Yeah. So first of all, it’s absolutely clear that the most valuable thing, the single most valuable thing that we can do as a company and our focus on doing as a company is maximizing the inventory that we have already bought and spent money on acquiring, right? So getting the occupancies back up and making sure that the yields are maintained is the primary key element of growth, obviously, internally. So this year, we will learn a lot about what this triangle, and it’s the first time I’ve actually referenced it in that way. Disney, National Geographic and Lindblad, what the power of that is and assume as we understand that somewhat better, that will accelerate in all likelihood the commitment to acquire new vessels, whether that is acquiring vessels that exist that are no longer viable in the companies where they live or building new ships. Those are two avenues. If you think about our fleet broadly, up until 2015, there was — that we — up until 2017, we hit — always bought existing ships, modified them and made them suitable for our purposes, and then we started building ships. So we only built four new ships, and we have acquired a lot more than that over time. And so going forward, we will also be looking at these two avenues: are there existing ships that are suitable to us that need a happy home or are there — or should we build — be building new ships? And we will begin looking closely at that in the not-too-distant future as to which of those avenues is most suitable going forward. Jackson Gibb: Okay. Understood. And if I could just squeeze in one more. I just wanted to get some updated thoughts on how you’re thinking about buybacks. You’ve been unrestricted by — from a covenant perspective since February 2023, seem to have fairly ample liquidity. Just wanted to get your perspective on how you’re thinking about share repurchases now? Craig Felenstein: Sure. Thanks, Jackson. So I would say we really haven’t changed the way we look at share buybacks, really since we put our share buyback plan in place prior to the pandemic. And that is when you think about the cash at the company and what we want to do with that cash, our first priority is to grow the business organically. Our second priority is to look for M&A opportunities that will ultimately increase the earnings potential of the company here moving forward and increase the opportunity to grow. And then third, we have no hesitation about returning capital to shareholders, either through buying back shares or obviously lowering our outstanding debt when we have the ability to do so. So I would say that’s how we weigh all of our cash return at any given moment, and we’ll continue to do that moving forward. Jackson Gibb: Got it. Thanks, great. That’s all from me. Thank you. Operator: Our next question comes from Eric Wold from B. Riley Securities. Eric, your line is now open. Eric Wold: Thank you. Hi, everyone. Just a couple of questions for me. I guess first, Craig, if we think about the obviously strong growth in EBITDA year-over-year, we think about the numbers came in towards the lower end of the guidance range that you gave or kind of reaffirmed on the Q3 call. I know that there’s disruption from the Israeli-Hamas war, which was known at that time. Maybe just kind of give us a sense of kind of what are the biggest factors that kept EBITDA towards the lower end versus possibly getting up towards that higher end? Craig Felenstein: Sure. Yeah. I think you pretty much touched upon it, Eric, more than anything else, right? So when you look at the fourth quarter, everything pretty much came in where we anticipated it to come in from both revenue and cost perspective with the exception of the cancellations that came because of the conflict that was happening over in the Middle East. So when you ultimately have cancellations, they tend to have a pretty dramatic effect on revenue and it tends to fall right to the bottom line. So in the absence of that, the numbers certainly would have been a little bit higher, but the expectations for everything else pretty much came in where we thought they would. Eric Wold: Okay. Perfect. And then kind of a broader question. I know you’ve had now a number of months of working with kind of the expanded National Geographic, Disney team since you announced the extended agreement. I guess maybe give us, if you had more time to work with them, updated sense on, I guess, timing of when you expect kind of the full effect of kind of the Disney travel team to really start working with yours and start pushing the Lindblad tours? How visible do you think this relationship will be to consumers now versus maybe previously how visible consumers know that you’re a partner or kind of working with Disney and a part of that relationship? And then any sense on how those teams will kind of market your voyages relative to Disney’s own mass crews and kind of how that will be kind of — since you kind of parsed out in kind of their efforts, so to speak? Sven-Olof Lindblad: Yeah. So this is a multifaceted answer because it’s a multifaceted campaign, if you will. So there are three buckets of investment in terms of marketing. One is a joint investment between Disney and ourselves, which is managed jointly. There’s the National Geographic expeditions investment and there’s our investments, all pulling in the same direction because we have no longer any attribution connected with how business comes in. We — for the 20 years previously, we’ve had attribution. There’s specific business that’s coming through the National Geographic expeditions channel and through our own. And those have different financial mechanisms connected with it. That has been completely eliminated. So we’re all pulling in absolutely the same direction. None of us care where the business comes from, which of the channels it comes from and there’s value in all of the channels. So when you think about the addition of Disney, right, you had National Geographic expeditions in Lindblad, that’s been going on for 20 years. Now Disney comes into the mix as part of it. They have extraordinary distribution channels. When it comes to — I mean they have a huge sales force, for example, that accesses the trade. They have so many sort of distribution avenues, where they are intending to showcase Lindblad Expeditions, National Geographic. The teams are meeting regularly month to month on a disciplined basis for an extended period of time to develop strategies and tactics. And periodically, we get together on a wider basis at different levels of engagement between ourselves, the Disney team and the National Geographic expedition’s team to deal with longer-term issues that we believe can drive the business. So the engagement between the organizations has just been hugely cooperative and very excited and very, very committed to the idea of growing our business together because there’s lots of value for all parties if we do that. The good thing about a really, really good agreement is where you pretty much assured that everybody that’s part of that agreement gain significant value as a consequence of growth, and that’s what this agreement is. Eric Wold: Helpful. Thank you. Thank you, both. Operator: [Operator Instructions] Our next question comes from Alex Fuhrman from Craig-Hallum Capital Group. Alex, your line is now open. Alex Fuhrman: Hey, guys. Thanks for taking my question. It sounds like you’re obviously guiding to pretty significant revenue growth this year and the vast majority of the revenue that you’re projecting is already on the book. Can you help us square that a little bit with a relatively modest 2% increase in bookings compared to the same time last year? Are you starting to see people maybe book a little bit closer to the departure time now that it’s harder for them to cancel or reschedule their voyages? Craig Felenstein: Yeah. So let me touch on that, and then I’ll turn it over to Sven for any comments. The 2% increase in terms of revenue today is very misleading because we had this significant pile of money that was in — from cancellations that happened — cancellations from deferrals that happened during COVID into 2023 that were on the books at this point versus what we’re seeing this year, which is we had less of the carry in, but the week-on-week growth of bookings is so much more significant than it was a year ago in terms of the weekly bookings. So what we’re seeing is that 2% growth number is expanding rapidly every single week. So if I looked at it several weeks ago, it was down and now it’s already up and it will continue to head in that direction because, again, as I mentioned in my comments, if you look at the bookings from kind of December 1 through today, we’re up 50%, 5-0, versus where we were in the same bookings a year ago. So the momentum is really, really strong, and it has really just continued, so we fully anticipate that, that opportunity will continue to expand moving forward. Sven, I think you want to add. Sven-Olof Lindblad: Yeah. Well, just to clarify, so when — during COVID, we issued a ton of — and Craig can give you the actual amount of what’s called future travel credits, right, rather than canceling, they got a credit for the future. So we already received the money and then they were able to travel in the future. And so last year, a lot of — a significant number of those credits were utilized and were part of the — or considered part of the revenue. So this year, it’s all new people, by and large, very, very few future travel credits. So in a sense, the 2% is really misleading. If you exclude that particular metric, it’d be more like 20%, 21% ahead and 50% in the last couple of months in terms of future growth. So you got to take that in context. Alex Fuhrman: Okay, guys. That’s really helpful. I appreciate that. Thank you, both. Sven-Olof Lindblad: Thank you. Operator: We have no further questions. So I’d like to hand the call back to you, Craig. Craig Felenstein: Thank you, operator. Thank you, everybody else for joining us today. We appreciate your time. As always, if you have additional questions, please reach out. And we look forward to hearing from each of you. Thank you. Sven-Olof Lindblad: Thank you very much. Operator: Ladies and gentlemen, this concludes today’s call. Thank you for joining. You may now disconnect your lines. Thank you. Follow Lindblad Expeditions Holdings Inc. 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Category: topSource: insidermonkeyFeb 29th, 2024

Transcript: Andrew Slimmon, Morgan Stanley Investment Management

     Transcript: The transcript from this week’s MiB: Andrew Slimmon, Morgan Stanley Investment Management, is below. You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.     ~~~ This is… Read More The post Transcript: Andrew Slimmon, Morgan Stanley Investment Management appeared first on The Big Picture.      Transcript: The transcript from this week’s MiB: Andrew Slimmon, Morgan Stanley Investment Management, is below. You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.     ~~~ This is Masters in business with Barry Ritholtz on Bloomberg Radio. 00:00:09 [Barry Ritholtz] This week on the podcast, I have another extra special guest. Andrew Lemons has pretty much done everything on the wealth management side of the business, starting at Brown Brothers Harriman before going on to Morgan Stanley, where he started out as a client facing wealth manager before moving into Portfolio Manager and eventually creating the Applied equity advisors team that uses a combination of quantitative and fundamental and behavioral thinking to create portfolios and funds that are sturdy and can survive any sort of change in investor sentiment. They look at geography, they look at cap size, they look at style, and they look at sector and try and keep a portfolio leaning towards what’s working best. These tend to be concentrated portfolios. The US versions are 30 to 60 holdings where the overseas versions are just 20 holdings. I, I found this conversation to be fascinating. There are a few people in asset management that have seen the world of investing from both the client’s perspective and a client facing advisor side to a PM and then a broader asset manager than Andrew has. He really comes with a wealth of knowledge, and he’s been with Morgan Stanley since 1991. That sort of tenure at a single firm is increasingly rare, rare these days. I, I found this discussion to be absolutely fascinating and I think you will also, with no further ado, Morgan Stanley’s, Andrew Slim. 00:02:01 [Andrew Slimmon] Thank you. It’s an honor to be here. 00:02:02 [Barry Ritholtz] Well, it’s a pleasure to have you. So let’s start at the beginning with your background. You get a BA from the University of Pennsylvania and an MBA from University of Chicago. Was finance always the plan? 00:02:15 [Andrew Slimmon] I think being in a competitive industry was all the plan. I played tennis competitively in juniors and went on and played in college and, and I always liked the, you know, you either won or lost and what I always liked about this industry, it was all about, you know, did you win or lose? There wasn’t a lot of gray area, and I think that’s what I do love about the stock market and investing in general, because there’s a scorecard and you can’t, there’s no room on the scorecard for the editorials. 00:02:41 [Barry Ritholtz]] No, no points for style or form. Exactly, exactly. It’s just did you win or lose? Exactly. So, so where did you begin? What was your first role within the industry? 00:02:48 [Andrew Slimmon] Sure. So, well, my first role was opening the, the mail at a brokerage firm in Hartford, Connecticut. But I started my career at Brown Brothers Herriman right here in, in New York, in a training program, which was great because they had commercial banking, they had capital markets, and they had the investment management side of the business. And that’s what getting exposure, all those led me to believe, gee, I really am interested in the stock market and how it works and investing in general. 00:03:16 [Barry Ritholtz] So what led you to Morgan Stanley? How’d you find your way to right to 00:03:21 [Andrew Slimmon] Ms? So I, yeah, I was a research analyst at, at Brown Brothers, and I was covering, you know, in healthcare stocks. I, I realized that there must be something more to investing than just what was going at the company level, because I noticed that the things that were moving my stocks on a day-to-day basis, weren’t just what was going at the company level. And University of Chicago where I went, got my MBA was obviously very focused on more the quantitative areas of investing. And I took Fama and French and so forth and Miller and all those that, that taught me that what drives a stock price is more than just the, you know, the company level. And so that’s, that was really how it, it rounded my knowledge of kind of investing the first steps and then coming out of, of business school. It was 91 and it was a recession. And I, I, I had met my wife in business school and she got a job at Kid or Peabody, if you remember that, investment banking in Chicago. And I couldn’t find kind of a buy side opportunity. And Morgan Stanley had a department called Prior Wealth Management that covered wealthy individuals and small institutions in Chicago. And I needed a job and I had a lot of student debt. So I said, Hey, as opposed to going the traditional buy side route, I’ll start in this area covering clients and investing for them. 00:04:49 [Speaker Changed] So 91, kind of a mild recession, mild and really halfway through what was a rampaging bull market. What was it like in the 1990s in New York in finance? 00:05:04 [Speaker Changed] Well, I mean, the thing that was amazing is we would have clients in the late nineties, they would come to us and they’d say, Andrew, I’m not greedy. I just want 15, 20% returns a year. 00:05:15 [Speaker Changed] Right. 00:05:15 [Speaker Changed] And no risk with, 00:05:16 [Speaker Changed] With limited risk risk, limited risk. Right. I knew you’re gonna go there. 00:05:19 [Speaker Changed] And, and that is what was so fascinating about today Yeah. Is today people say to me, Andrew, why would I invest in equities when I can get 5% in the money market? And what a difference in a mindset, which tells you where we are. In the late nineties, we had just gone through a roaring bull market optimism was just so rampant. And the worst year in the business I can remember was 1999, because as an investor covering clients, I was caught between doing the right thing for them, which was avoid these ridiculously priced stocks. Right. Or get on the train because the money is pouring through. And then it all came to an end in 2000, 2001. And I took a step back and said, thank God I never, you know, I I I just didn’t buy in the way some people did, and therefore save people a lot of money. It was a tremendously good learning experience for me to stay true to your values of investing. Ultimately, they work out. You, 00:06:16 [Speaker Changed] You are identifying something that I, I’m so fascinated by. The problem we run into with surveys or even the risk tolerance questionnaires is all you find out is, Hey, what has the market done for the past six months? If the market’s been good, Hey, every I, of course I want more risk. I’m, I’m, I’m more than comfortable with it. And if the market got shellacked, no, no, no. I, I can’t, I can’t suffer any more drawdowns. It’s just pure psychology. 00:06:42 [Speaker Changed] And, and I would go one step further. You know this, you’re in the business, but when you first meet someone, you never know the ones that are going to be truly risk averse or truly can withstand the volatility. And ones that can, some people say, don’t worry, I’m not worried about the drawdowns. And the minute it happens, they’re on the phone to you. And some people, I told you I wasn’t worried and I didn’t call you. Right. And you can never know. Just the first time you meet people who that’s going to be it, it’s 00:07:08 [Speaker Changed] A challenge figuring out who people really are. Not, not easy. So you started Morgan Stanley in 1991. You’re in that, that’s a long time ago. Yeah. You start on the private wealth side. What led you to becoming a portfolio manager with Morgan Stanley Wealth strategy? 00:07:24 [Speaker Changed] So if you think about my career, I learned to be a fundamental analyst. I went to University of Chicago and learned that, oh, there’s quantitative factors that drive a stock price beyond kind of what’s going on at the company level. The third part of my experience was being in prior wealth management, clients wanna believe they all buy low and sell high, but bear, you know, that doesn’t, isn’t the case. 00:07:45 [Speaker Changed] Somebody does accidentally someone randomly top ticks and bottom ticks to market. But nobody does that consistently. 00:07:51 [Speaker Changed] Exactly. And here’s a great example of what, I mean, if you think about the years 2020, in 2021, growth stocks took off. Right? But in 2022 they got crushed. Do you think more money went into growth managers and funds in 2021 or the end of 2022 after they got crushed? 00:08:10 [Speaker Changed] The flows are always a year behind where the market is. Exactly 00:08:13 [Speaker Changed] Right. So, so what I People 00:08:15 [Speaker Changed] Are backwards looking. 00:08:16 [Speaker Changed] What? Well, and that’s because there’s something called the tear sheet. If you were my client, I went to you and said, Barry, I think you should invest in emerging markets because look how terribly it’s done in the last five years. And I can you the tear sheet, you’re gonna go away. 00:08:28 [Speaker Changed] Everybody hates it, 00:08:29 [Speaker Changed] Right? Hate it. So the problem with this business is a stock price does not care what happened in the past. It only cares about what’s happened in the future. But as humans, we all suffer from recency buys. So what I observed in the nineties, it’s a long-winded answer. Your question is no, it’s 00:08:45 [Speaker Changed] An 00:08:46 [Speaker Changed] Interesting, what I observed in the nineties as a coverage offer, you can’t get clients to actually buy what’s out of favor. Right. And the flaw in the whole growth value us international is people frame, oh, maybe I should buy more growth because it’s working well, except it gets too expensive. So the reason I left being in wealth management, I was convinced that I could start strategies using more quantitative, but give us flexibility. So if we could start core strategies so that if growth got too expensive, we could tilt away from growth, or if Europe wasn’t working, we could tilt away from Europe. That gave us more flexibility as an active manager versus saying, I’m only a growth manager. And then I’m always trying to justify why you should buy growth. Or if I’m a value manager, all always justifying why I buy value. Remember, by 1999, a half of value managers had gone outta business in the last three years that just before they took off. That’s 00:09:48 [Speaker Changed] Unbelievable. I, I know folks who run short hedge funds and they say they could always tell when we’re due for a major correction. ’cause that’s when all of their redemptions and outflows it, it’s hit, hit a crescendo. 00:10:01 [Speaker Changed] And so that’s the problem with the dedicated style is you’re always fighting human behavior just at the juncture with which you should be investing. They’re selling, they’re selling their stocks. So, 00:10:14 [Speaker Changed] So let me ask you the flip side of the question. If you can’t get people, or if it’s really challenging to make people comfortable with buying outta favor styles or companies, can you get them to sell the companies that are in favor and have had, you know, an exorbitant runup and are really pricey? Or, or is that just the other side of the same coin? It’s 00:10:36 [Speaker Changed] The other side of the same coin, but, but I think what complicates, is it taxes? Sure. Because people don’t want to sell for taxes. And General Electric was a very important experience in my life in a, you know, back in the nineties, which was, it became the number one stock. Everyone loved it. And, and then, you know, it went through a can’t grow as quickly anymore. So the issue that I see in the industry is stocks never survive as the the number one company. And so eventually they, they decline and people don’t want to take money off the table when they’re the number one or tops because they have big gains. And then ultimately people sold a lot of General Electric with a lot less of a gain. So the trick is, is to reduce the exposures over time. So with, if I’m a core manager and I know that growth is expensive relative to its history versus value, we’ll tilt the portfolio. But we won’t go all into value, all into growth because timing these things is very, very tricky. 00:11:42 [Speaker Changed] So you’ve been with Morgan Stanley since 19 91, 3 decades with the same firm. Pretty rare these days. What makes the firm so special? What’s kept you there for all this time? 00:11:54 [Speaker Changed] Well, you have to remember that when I started in 9 19 91, wealth management was a, was a relatively small part of the, of the firm. And I give James Gorman tremendous credit. He really grew that area because of the stability of the cash flow. I ge I’m a pretty stable cash flow. And then when I progressed to and Morgan Stanley investment management, it was the same concept, which was we value the multiple on stable cash flows is higher than on capital market flows. And so that’s, I’ve kind of followed the progression of how Morgan Stanley’s changed and that’s been a great opportunity. And then I look and say, well, I was able to go from wealth management into the asset management because the firm grew in that era. So it’s a, it’s been a tremendously great firm to be with, but I’ve, you know, my career has changed over time as a firm’s changed over time. Sure. 00:12:47 [Speaker Changed] I, I had John Mack on about a year ago and he described that exact same thing, the appeal of, of wealth management. And part of the reason, what was it, Dean Witter, the big acquisition that was done was, hey, this allows us to suffer the ups and downs in the other side of the business, which has potential for great rewards but no stability. Right. Versus ready, steady, moderate gains from From the wealth management 00:13:12 [Speaker Changed] Side. Exactly. We bought Smith Barney, so on the wealth manage, that was another big one. Right. So then over the asset management side, there’s Eaton Vance E-Trade Wealth Management and with Eaton Vance came Parametric and Calvert. So the firm has grown in the areas that I’ve grown personally. So it’s been a great, great marriage for a long time. 00:13:30 [Speaker Changed] So your experience with General Electric? I had a similar experience with EMC and with Cisco late nineties trying to get people to recognize, hey, this has been a fantastic run, but the growth engine isn’t there. The trend has been broken. Don’t be afraid to ring the bell. And I’m not an active trader. Yeah. I’m a long-term holder. Getting people to sell their winners is not easy 00:13:54 [Speaker Changed] To do, is very, very hard. But, but also when stocks get very, very big, companies get very, very big. It just gets tougher to grow. In my experience, and this has nothing to do, GE just in general is when companies get big, usually the government starts looking into their business ’cause they might dominate too much. And so it’s a combination of why over time, and I know this is hard to believe given the last couple years, why the equal weighted s and p does actually outperform the cap weighted s and p because companies, mid-cap companies that are moving up, it’s easier to grow. That 00:14:30 [Speaker Changed] Hasn’t, what has it been 25 years since the Microsoft antitrust 00:14:34 [Speaker Changed] Boy? And that’s, that’s 00:14:35 [Speaker Changed] That’s that’s amazing. How often are equal weight s and p outperforming cap 00:14:40 [Speaker Changed] Weighted? It outperforms about half the time. It certainly had, I mean think about last year and through October, the cap weighted had outperformed the equated by 1100 base points. 00:14:50 [Speaker Changed] Wow. That’s a lot. 00:14:51 [Speaker Changed] But the thing that’s fascinating about this, Barry, and, and again, you know this is that it’s always the first year off of bear market, low investors sell. So retail flows were negative from the low of October 22 until for a year. And that’s until 00:15:06 [Speaker Changed] November 23. Exactly. 00:15:08 [Speaker Changed] But if you go back to 2020, March of 2020 flows were negative until February of 21. So it always takes about a year, 00:15:17 [Speaker Changed] February of 20. That’s amazing. ’cause from the lows in March percent, it was a huge set 00:15:22 [Speaker Changed] Of gains and net flows from mutual funds. ETFs were net they’re always negative the first year because of that rear view mirror recency bias. The reason why that’s relevant, Barry, is because when investors finally said, I can’t, I shouldn’t sell anymore, I should buy, they’re not gonna buy what’s already worked. They’re looking for other things. And that’s when the equated really started out before. Huh, 00:15:42 [Speaker Changed] Really interesting. So let’s talk a little bit about your concept of applied investing. What does that mean? What, what does applied investing involve? 00:15:53 [Speaker Changed] Okay, so there’s the theoretical story about it and then there’s the practical story. And I’m sure you’ll get a kick out of the practical, but the theoretical is that I don’t believe that a stock price return comes purely from what’s going on. Fundamentally, you have to decide should I own growth value, large cap, mid cap us versus non-US any stocks return about two thirds of return in any one year can be defined by those. So we have to get that right first. And that’s the quantitative size. So we use factor models to say, Hey, should we own growth stocks or value stocks? And so we tilt our portfolios quantitatively based on which of those factors are sending a signal that they’ll work in the future. 00:16:36 [Speaker Changed] So, so let me just make sure I understand this. Geography size, sector and style style are the four metrics exactly you’re looking at and trying to tilt accordingly into what you expect to be working and away from. 00:16:50 [Speaker Changed] Exactly. And the goal of that is to keep people in the game flip side is, you know, things are out of favor. They can stay out of favor. The problem in this business is styles and investing can stay out of favor longer than the client’s patient’s duration. 00:17:06 [Speaker Changed] Ju just look at value in the 2010s, right? I mean if you were not leaning into growth, you were left way behind. 00:17:13 [Speaker Changed] Exactly. And what I observed from my time being advisor is at the end of the day, clients don’t really care whether they own growth or value. They don’t care whether they own European US, they want to make money and they don’t want ’em go backwards. And if all you keep saying is yes, but you know, my value manager has outperformed the value index. And they’re like, yeah, but the s and p is going through the roof. Right? So you have to have some flexibility in your approach. So I wanted to start a group that at the core would use those quantitative metrics, but pure quantitative takes out kind of the fundamentals of investing because a certain portion of a stock’s return comes from what’s going at the company level. And the other thing is, if all I did was focus on the quantitative, you’d end up owning 300 securities. So 00:18:01 [Speaker Changed] Let’s, let’s 00:18:02 [Speaker Changed] Talk about SA and an SMA can’t do that or you don’t drive enough active share. 00:18:07 [Speaker Changed] MA is separately managed, managed, managed account account. Let, let’s talk about active share because your portfolios are fairly concentrated. The US core portfolio is 30 to 60 companies. That’s considered a modest holding, a concentrated holding. Tell us about the thinking behind that concentration. 00:18:28 [Speaker Changed] So it’s funny, going back to that first job at Brown Brothers, you know, at, in the time in the eighties, no one knew about passive investing. But I observed that, you know, they’d have these portfolios and they’d have kind of two or three stocks in every sector. So you’d end up with, you know, a hundred or 150 stocks and you know, they, it, not that they did poorly, but they never really, you know, it was really hard to drive a lot of active, you know, performance. 00:18:51 [Speaker Changed] Everything is one 2%. 00:18:52 [Speaker Changed] And at the time it wasn’t really, there wasn’t really passive investing. But then as, as time progressed, all these studies came out and said, well actually the most excess return in active management comes from managers that are very, very active. Right? And if you own a hundred, 150 stocks and you’re the benchmark is the s and p, you’re not active. So it was clear to me that we needed very concentrated portfolios but control the risk. And so that’s why we run these limited portfolios. The applied term is, so it gave some quantitative approach to what we do. But here’s the practical Barry, which is when the firm came to me and said, okay, you’re gonna become an asset management arm, you gotta come up with a name for your team. I knew that these firms show asset management companies alphabetically. 00:19:44 [Speaker Changed] So applied investing right 00:19:45 [Speaker Changed] There, I wasn’t gonna be Z applied. 00:19:48 [Speaker Changed] Right. 00:19:49 [Speaker Changed] I wanted to be at the top of 00:19:50 [Speaker Changed] The list. That’s very, that’s AAA exterminator always the first one. Exactly. To pull in the phone book. So let’s talk about two things you just mentioned. One is active share, but really what you’re implying are that a lot of these other funds with 200, 300 or more holdings, they’re all high fee closet indexers. What’s the value 00:20:10 [Speaker Changed] There? Right. And that’s why as an active manager, I have nothing against ETFs. I think it’s done great for the industry because shame on funds that own lots and lots of securities. You’re not doing a service to your investing. But at the end of the day, if I marginally underperform, not me, but in general, you know, it will take time to lose your assets. You know what’s right for the money management firm is not always what’s right for the, so the right thing is choose passive strategies, but there’s a place for active image, but it’s gotta be active 00:20:42 [Speaker Changed] Core and satellite. Exactly. You have a core of a passive index, but you’re surrounding it bingo with something that gives you a little opportunity for more upside. Exactly. Huh. Really, really interesting. So if the US holdings are 30 to 60 companies, the global portfolio is even more concentrated about 20 companies? 00:21:00 [Speaker Changed] Yeah, I mean, so, so taking a step back again, one of the, you know, remember I run mutual funds, but I start in the separate managed account business. So what it, what means is they would wealth manage would implement our portfolio for individuals by buying stock. And one of the things that I observed is that clients pull from the market faster than they pull from stocks. So in other words, when you’re worried about the market, if it’s about the market, some macro story, well do you wanna sell your Microsoft? Oh no, I like Microsoft, but I’m worried about the market. Okay, well owning individual securities is really powerful because it actually keeps people invested. 00:21:46 [Speaker Changed] There’s a brand name there that they relate to a 00:21:49 [Speaker Changed] Brand. Exactly. So people are more likely to pull from the market. So I believe in owning stocks, but the problem is, again, it goes back to, but if you own 200 stocks and they don’t have any wedded, so could we start a strategy? We started this oh eight where all the securities would be on one page. 00:22:04 [Speaker Changed] That’s amazing. So your global portfolio also has some international US companies. So in addition to things like LVMH and some other international stocks, you have Microsoft, you have Costco. Correct. What’s the thinking of putting those giant US companies in a global portfolio? 00:22:21 [Speaker Changed] It goes back to Barry, that concept, which is clients don’t care really where they make their money. And the problem with the, the benefit of global, a global strategies, I can own some US stocks and an international only I can’t own. And what happens if the US just so happens to do better than the rest of the world, then international doesn’t work as well. So it just gives us more flex. It’s that flexible flexibility to go where the opportunity set is. 00:22:51 [Speaker Changed] And to that point, your fund, the Morgan Stanley institutional global concentrated fund, which does have US stock trounce, the, the MSEI exactly X us, because the US has been outperforming international. That’s another style for 15. Since the financial crisis, the US has been crushing absolutely everyone else. 00:23:14 [Speaker Changed] But think about this way also, if I can own 20 stocks, okay, but they’re not all correlated to each other, right? So they’re, they have a lot of different themes. Like I really like this, the, the, the infrastructure stocks right now. But I also think there’s a place, as you said, Microsoft, but luxury brands only a few stocks, but have a different theme. Then I can control the risk in the portfolio. You, 00:23:38 [Speaker Changed] You’re diversified high act to share, but concentrated 00:23:41 [Speaker Changed] High act to share, but lower kind of risk. 00:23:44 [Speaker Changed] So when I look at the Morgan Stanley institutional US core, the description is we seek to outperform the benchmark regardless of which investment style, value, or growth is currently in favor. So your style agnostic, you want to just stay with what’s working. 00:24:02 [Speaker Changed] Exactly. And Philip Kim is the other portfolio manager. We’ve worked together 14 years. I started these quantitative models and then he really took it to the next level. And this was what has the likelihood of outperforming for the next 12 to 18 months from a style standpoint. That’s how we bias the portfolio. Things could get just too expensive, things get too cheap, but we need to see some migration in the opposite direction and then we buy us accordingly. We want to stay in the game. 00:24:29 [Speaker Changed] What about the Russell 3000 strategy? That’s not, it’s obviously more concentrated than the Russell, but it’s still a few hundred stocks. Tell us what goes into that thing. Well 00:24:39 [Speaker Changed] We noticed that our, just our quantitative factor model alone was doing well right beyond just adding the stock to buy. So we wanted to start a strategy that would add a little bit of excess return versus just buying an ETF that was just focused on that factor models. But we would diversify away the stock risk. 00:25:01 [Speaker Changed] Really intriguing. So let’s talk a little bit about Slimmons take, which is not only widely read at Morgan Stanley, it’s also pretty widely distributed on the street itself. Towards the end of 2023, you put out a piece, a few lessons from the year, and I I thought some of these were really fascinating. Starting with the s and p 500 has produced a positive return in 67 of the past 93 years, the market produced two consecutive down years, only 11 times. That’s amazing. I had no idea. 00:25:35 [Speaker Changed] Well, I mean, think about it. The, the, the likelihood over time in any one year, the market’s going to go up and if it, if it doesn’t go up, that’s irregular. But then to have another year in a row is very, very irregular. So that’s, that’s why I began 2023 saying, Hey, it’s, it’s highly likely it’s gonna be a good year just purely based on, based on the odds. And then you layer in that whole recency bias rear view mirror and people were way too negative. 00:26:02 [Speaker Changed] Yeah. At the end of 2022, the s and p peak to Trth was down about 25%. You point out there were only eight instances since 1960 where you had that level of drawdown and the average one year return was 22% following that. 00:26:21 [Speaker Changed] So I’ve put out a piece in September of 2022 saying, market’s down 20%, you should add money down 20%. And of course I felt like an idiot, you know, a month later because, and then the market was down 25%. And I produce a piece saying the average return is just over 20% if you buy into down 25%, which doesn’t necessarily mean it stops going down. Right? But what’s amazing about that is, you know what, the return off that October 22nd low of 2022 was 00:26:49 [Speaker Changed] 30 something. 00:26:50 [Speaker Changed] No, 21%. Oh 00:26:52 [Speaker Changed] Really? Dead on 00:26:53 [Speaker Changed] Right. Dead on in line. It’s uncanny how these things repeat itself. And that’s Barry again, it goes back to, you know, your experience, my experience is the macro changes, but behaviors don’t. Right. That’s the consistency of this business and that’s what I’m fascinated 00:27:08 [Speaker Changed] With. Human nature is perpetual. It’s, it’s, it’s Right. No, no doubt about it. 00:27:11 [Speaker Changed] And that’s what gave me confident that the fun flows would turn positive at some point in the fourth quarter because it was a year off the low. 00:27:18 [Speaker Changed] I really like that. Be dubious when a stock is declared expensive or cheap based on a singular valuation methodology like pe this is a pet peeve of mine. The e is an estimate at someone’s opinion. How can you rely on something, especially from someone who doesn’t have a great track record of making 00:27:39 [Speaker Changed] This forecast. It’s the, I think that’s the biggest error investors make over time is, well this stock is, you know, as you said, this stock is cheap or this market, think about Europe. Mar Europe has looked cheaper than the US for a number of years. The flaw in that is the e is a forward estimate. And it’s turned out that the E for Europe hasn’t been as good as what’s expected. And the E for the US especially the Nasdaq, has been a lot higher than was expected. So the denominator has come up in the us which makes a PE lower and the denominator come down you, which made it look more expensive. 00:28:18 [Speaker Changed] So that, that’s always amazing is if the estimates are are wrong to the downside, well then expensive stocks aren’t that expensive and vice versa. Exactly. If the estimates are too high, cheap stocks really ain’t cheap. Right. 00:28:31 [Speaker Changed] I watched that. But we also watched revisions and I’ve learned, learned also from being, you know, cynically in this business. Companies don’t always come clean right away and say, oh, our business really bad. It’s the, they drip out the news, right? Usually one bad quota follows another bad quote. I mean it’s very rare. So be careful that, and analysts are slow to adjust their numbers. Anytime someone says, I’m cutting my estimates, cutting my price target. But I think it’s bottomed, 00:29:00 [Speaker Changed] Right? 00:29:00 [Speaker Changed] Yeah. Be careful. 00:29:02 [Speaker Changed] Yeah. To that’s always, always amusing. I thought this was really very perceptive. Over 37 years in the investment business, I have become convinced that the most money is made when perceptions move from very bad to less bad. I love that because if you’ve lived through implosion or the financial crisis or even the first quarter of 2020, you know how true that is. 00:29:26 [Speaker Changed] Think about last year, you know, it’s the old saying by Sir John Templeton bull markets are born on pessimism. They grow in skepticism, they mature on optimism and they die on euphoric. Well, we had a bear market bottom in October of 2022. And so we came into last year, 2023 with, it’s gonna be a hard landing, it’s gonna be bad. And so there’s high levels of pessimism. And now as you advance into the fourth quarter fund flows turned positive as people realize, well maybe it wasn’t gonna be so bad. We’ve moved into the skepticism phase. So that’s why the biggest return year is always the first year off the low because that’s the biggest pivot and it has the least volatility. We didn’t have a lot of volatility last year 00:30:16 [Speaker Changed] And, and we saw that in oh 8, 0 9 and we saw that in 2020. 2020. It was really, it was really quite amazing. The flip side of this is also true, which is most money is lost when things move from great to just good. 00:30:33 [Speaker Changed] Well, again, if I go back to kind of growth investing, it got expensive and the growth rates of companies wasn’t quite as good and you know, in 2022 and the Fed started raising rates and that was problematic. It was no different. It reminded me a little bit of bubble. What brought down bubble is that companies just couldn’t report the earnings that were expected. And you had plenty of time to get out. But the problem is, what I saw in bubble, people wanted to kept buying these stocks as they’re going lower because they were, you know, rear view mirror investing. They were the previous the the loves. And what’s amazing is think about, I said before half the value managers went outta business in 99 by the year 2008. Do you know what the biggest sector of the s and p was? Financials they grew from nothing to 30% of the SP. So value worked all through the first period until we know what happened in great financial crisis. It 00:31:27 [Speaker Changed] It, it’s amazing that muscle memory when you’re rewarded for buying the dip for a decade, it’s a tough habit to break. Exactly. Exactly. So, so here’s another really interesting observation of yours. Whatever the hot product is rarely works the next 12 months. 00:31:43 [Speaker Changed] It’s because a hot product invariably pushes oftentimes valuations to extreme. And one of the things that we got very right in 2023 was in 2022 Bear Market, what did people buy into the lows of Bear Market? They bought defensive stocks, dividend oriented, low volatility type strategies became very popular in 2022 during a bear market. And so we could see that the defensive factor, safety became very expensive. So as we came out of this bear market, what lagged consumer staples, healthcare, utilities, all the safe things. So hot products pushes things to extreme and that usually, you know, unwinds itself badly 00:32:34 [Speaker Changed] Historically, once the fed stops hiking rates, equity rallies last longer and go higher than anyone expects. Explain the thinking 00:32:43 [Speaker Changed] Then. So I think it’s good news for this year, but also worries me about this year is if you look at the history of the period of time when the Fed said we’re done hiking till we’re going to cut that period does very, very well for equities. And we are kind of at a, a juncture where it, we’ve done pretty well. But if they’re not gonna cut rates until the summer, I think there’s more room to run for stocks. Now the flip side is, I hear a lot of people talk about when the Fed cuts the perception that that’s gonna be good for equities. I’m not so sure about that because if you look back in history, when the Fed cuts markets tend to go down initially not up. And you could argue yes, but Andrew, that’s because usually when they’re raising rates it’s an economic cycle, right? And therefore if they’re cutting, there’s a problem. And this time it was all about inflation. But what worries me is when the Fed does announce they’ll cut will people say, oh, they know something you don’t know. There’s a problem out there. And I think there’s an that will increase the anxiety. And so I think that’s, we’re in a good period right now, but it worries me when they do cut, will it be people start to worry about, there’s some, there’s a problem in the economy. 00:33:59 [Speaker Changed] See I I I’m a student of federal reserve history and I I could say with a high degree of confidence, they don’t know anything that you don’t know. They, they look at the same data, they’re populated by humans, none of whom have demonstrated any particular sort of prescient. And if we watched the past decade, they were late to get off their emergency footing. They were late to recognize inflation, they were late to recognize inflation peaked. And now it feels like they’re late to recognize, hey, you guys won, you beat inflation. Exactly. Take a victory lap. Right? They, they seem to always be talk about backwards looking. They always seem to be behind the curve. Right. 00:34:38 [Speaker Changed] But I just think the stock market is an emotional beast. Sure. And you know, and I look last year and the Bears people were too pessimistic every time they pop their head out of the den, they got stampeded. And so they’ll have a better year this year and I think it will scare investors and cynically, I can’t help but think, well people missed most, a lot of people missed last year and now they’re starting to get back in and after a very low volatility year, there’s always more volatility the next year. And so it’s inevitable it’s gonna be more, it doesn’t mean it’ll be a bad year for equities, it just will have more gut wrenching periods. 00:35:10 [Speaker Changed] I love this data point since 1940, markets have always gone up in the year when an incumbent president runs for reelection 17 for 17. Now if we break that down, what you’re really saying is, hey, if an incumbent isn’t running, the economy really has to be in the stinker roo and the stock market is following. But anytime an incumbent is running typically means we’re we’re doing pretty okay. Well 00:35:37 [Speaker Changed] And remember I said didn’t get reelected, just ran for reelection. Right. And so what happens, and I see it this year, is when presidents run for reelection, they want to juice the economy, they want the economy going well, right? And we have, Joe Biden has in his pocket the Infrastructure Act, the CHIPS Act and the Inflation Reduction Act. We own, the reason why we own industrial stocks is because they are telling us that the money is just starting to come in from the government. And these projects are getting just getting off way. We’ve seen this with the chips act, the money is just started poor. Right. That’s why the market tends to do well because the economy stays afloat during a reelection year. And 00:36:20 [Speaker Changed] And the really interesting thing about all this, you know, it’s funny, the 2020s is the decade of fiscal stimulus, whereas the 2010s were monetary stimulus, the first three cares acts. That was a, just a boatload of money that hit the market, hit the economy all at once. Each of the legislation packages you mentioned, that’s spending over a decade, that could be a pretty decent tailwind for a while. 00:36:43 [Speaker Changed] Very interesting between listen to Wall Street and what you listen to companies. And so I’m a company guy. I listen to companies and I’ll give you a great example. Right now people think the consumer is getting tapped out, but on the Costco call the other day, they say they see big ticket purchase items. Reaccelerating, well wait a minute, I thought the consumer well, which is it? Which is it? Right. And you know, and so the the point of this is, is that I go back to listen to what companies say. And I suspect as food inflation starts to come down and people have jobs, they actually could start to go buy, you know, higher ticket purchases. So, 00:37:15 [Speaker Changed] And we’ve seen some uptick in credit card use, but it nothing problematic with the ability to service that debt still seems to be very much intact. Correct. 00:37:24 [Speaker Changed] And that goes back to last year, one of the reasons I, the other reason I was optimistic is I kept hearing our companies say to me, I’m being told the recessions around the corner, but our business seems to be doing well. We don’t see it. Right. We 00:37:34 [Speaker Changed] Don’t see it. That’s really amazing. So, so let’s talk a little bit about who your clients are. You obviously are working with all the advisors at Morgan Stanley, but you’re managing mutual funds. Who, who are the buyers of, of those funds? Are they in-house? Are they the rest of the investing community? Who, who, who are your clients? 00:37:53 [Speaker Changed] Yeah, I mean, so that’s when, when I left being advisor in 2004, I started this group within Morgan Stanley. Wealth management with the products were only available to financial advisors at Morgan Ceiling. But when I left to go into Morgan Ceiling investment management in 2014, the purpose of that was to make my products available beyond Morgan Ceiling wealth management because I was getting calls from consultants and institutional investors saying, how do we get access to these funds? And I’d have to say, well you have to go through an advisor. So, so that, I wanted to broaden out the reach beyond. So I would say we’re on a number of platforms, you can buy our funds through the self-directed route. And so we’re broadening out the, the distribution. And you mentioned the slim and take before. That is a, a methodology that we use to reach out to our investor base. 00:38:49 Obviously I’d love to talk to each of every one of ’em, but I can’t. But I’ve learned in this business, if you communicate in a way that they can understand, and I don’t mean understand in, you know, in, in a bad way. Like, but writing a six page diatribe about why my stocks are so great and why the rest of the market stinks. No one’s gonna read that. They put it aside and say, I’ll read it tonight, then they don’t. But if you can provide short bullets of what’s going on in the market, why people should be bullish or bearish, you provide them with talking points. And that’s what we really try to do within the firm, but beyond the firm as well. 00:39:24 [Speaker Changed] Yeah. I I, one of the reasons I like lemon’s take is you really boil things down to brass tack. You’re not afraid to use third parties in some of your competitors research. You, you cite other people on the street when they have an interesting data point or, or, and and I very much appreciate that. ’cause a lot of people sort of take the, if it wasn’t invented here, it doesn’t exist to us. 00:39:51 [Speaker Changed] Yeah. I mean look, I’m, I’m, I want to grow the assets. I want to perform well, but I value the responses from the those who sit on the front lines dealing with clients every day because they’re the ones that feel kind of the emotional side of the business. Sure. If you sit back in, you know, my office and all, I’m looking at a company and just evaluating whether it’s PE is appropriate and earnings, you’re missing a huge part of this business. It’s a behavioral business. And so having access to advisors and listening to their feedback is so important. 00:40:27 [Speaker Changed] So you serve on Morgan Stanley’s Wealth Management’s Global Investment Committee. What is that experience like? I would imagine that’s a huge amount of capital and a tremendous responsibility. It 00:40:39 [Speaker Changed] Is a huge amount of capital and it drives kind of asset out suggested asset allocation for advisors. They don’t necessarily have to pursue it that way. My input is obviously on the equity side, but they have people in the, on the re the fixed income, high yield alternatives. And they all provide inputs into framing and overview. So I’m really, I sit in Morgan Stanley investment management, but I do provide that context and I think they like to have me on ’cause I actually have skin in the game and I run money for a, a living and I’m not always there saying you gotta buy growth or you gotta buy value. So I’m of agnostic. I’m just trying to figure out where the kind of the ball’s going. Do. 00:41:20 [Speaker Changed] So in the old days you used to speak with retail investors all the time, a as a pm Do you miss that back and forth because there is some signal in all of that noise, whether it’s fear or greed or Sure. Emotion. How, how do you, how do you operate being arm’s length away from that? 00:41:41 [Speaker Changed] I, that is a big concern I have is losing that access. So I still, I’m going to, I’m speaking in an event tonight with a, you know, a room full of advisors. So, and then, you know, we’re, we’ll, we’ll get together afterwards and I’ll listen to what they have to say. So I’m always interested in feedback that I get from advisors. Obviously I can’t spend all day talking on the phone. That’s the big reason why I left being an advisor was I recognize, hey, being an advisor, you gotta talk to your clients so forth. You can’t manage money and worry about both quarter can both. You can’t do both. And anyone that thinks you can, I, you know, it’s, it’s crazy and I really wanna develop these models, but I I, so, so all these communication ways, like slim and Take is a way to be in touch with advisors, encourage them, Hey, you think you, you disagree, send me an email. You know, I’m happy to, happy to hear from you because I think that’s very important. Huh. Really, 00:42:35 [Speaker Changed] Really 00:42:36 [Speaker Changed] Interesting. I really, behavioral finance, you know, the, the longer I’ve been in this business, I’ve been in this business a long time. It’s the behavioral finance that’s the consistency of this business. Geopolitics changes, right? But how people react is, is not, doesn’t 00:42:52 [Speaker Changed] Really change. Right. You, you, you can’t ch control what country is invading what other country. But you can manage your own behavior. Exactly. And people have a hard time with that. Exactly. It’s really interesting. I, I know only have you for another five minutes, so let me jump to my favorite questions. I ask all of my guests starting with what have you been screaming these days? Tell us what’s been either audio or video, what’s been keeping you entertained? 00:43:15 [Speaker Changed] Yeah, I, so if I think about my career, no one took me aside and said, this is how you manage money, right? Like, think about it. I learned about fundamental research, I learn about quantitative, I learn about the practicality of being in wealth management. And so I’ve always researched and watch and what does that got to do with your question is I’ve learned my way to being successful portfolio managers. So I’m obsessed with kind of always learning along the way. So I, you know, when I watch podcasts it’s always about, whoa. Or, or, or listen to podcasts or watch, you know, things. It’s, it’s always how to advance my knowledge base. Now I did play tennis, you know, in college and so I love all those, you know, break point, first tee, you know, the Formula one. I love all those things. But, but you know, as my wife gets frustrated with me, ’cause I’m probably gonna not gonna sit down and watch a three hour mindless movie because it’s kind of like not, not advancing. 00:44:13 [Speaker Changed] Huh. Really, really interesting. Tell, tell us about your mentors who helped to shape your career. 00:44:19 [Speaker Changed] So I mean, again, I look at points along the way were invaluable When I got to Morgan Stanley, Byron Ween, who, you know, I barely knew, but he was the first person that I recognized had this very good touch of fundamentals, but also the psychology, right? And so he was a great mentor even though he never really knew me, but listening and reading and understanding him was really important. But then I had a guy who ran our department named Glenn Regan, who had come from studying money management organizations and I didn’t know how to start a money management organization ’cause it was a team within and how do you grow and diversify. So there’s been different people along the way that have really shaped me. I came outta University of Chicago, gene Fama told me buy cheap stocks, but then William O’Neill said, yeah, but that doesn’t work and you need to have some momentum to, you know, like, he didn’t tell me that you 00:45:14 [Speaker Changed] Need a little can slim in that you 00:45:15 [Speaker Changed] Need to, you know, you had a little can so you need to cancel. Exactly. So there’s been people along the way that have been great influences on me that have mentioned me at the right time in my career. 00:45:26 [Speaker Changed] What are some of your favorite books and and what are you reading right now? 00:45:29 [Speaker Changed] I just finished same as Ever by Morgan Housel. Again, this concept of behavioral. I will eat up, you put a behavioral, anything about behaviors in front of me, I read it so like, you know, Richard Thaler mis misbehaving or you know, think fast, think slow, all those boats of books. Daniel Crosby is another one. All those books I just, but I just finished that and I just love it because again, all he spends the whole book is about these things. They just don’t change over time. 00:45:56 [Speaker Changed] Human nature, human perpetual, 00:45:58 [Speaker Changed] Human nature. Huh. 00:45:59 [Speaker Changed] Really interesting. I’ll tell you 00:46:00 [Speaker Changed] The last story. So, or I was tell a story. I was, I was on the floor of the New York stock change the day that Russian invaded Crimea. And one of my stocks was down ni my biggest position was down 8% that day. And I said, they don’t have any stores in Crimea. Why is the stock down? Well, because it was geopolitics. Well, you know, and within three days the stock came ro back. So I, it it’s, all it points to is sometimes fundamentals dislodged from, you know, the, the stock prices. And you have to understand that there’s a hu behavioral element. 00:46:32 [Speaker Changed] My favorite version of that story was, are you familiar with Cuba? Yeah, sure. So Obama announces we’re gonna normalize or start the process of normalizing relationships with Cuba. There’s a stock that trades under the symbol CUBA having nothing whatsoever. And it runs up 20% on just on the announcement. Correct. Because some algorithm picked up Cuba and bought it. And off, off we go. Correct. Amazing. All right, our final two questions. What sort of advice would you give to a recent college grad interested in a career in either investment management or finance? 00:47:07 [Speaker Changed] Yeah, so it’s interesting. I have four kids that are, you know, in the process of or have just come outta college or in the process of, and one of the dangers I see today is kids come outta school and they think they know exactly what, what they wanna do. You know, and then, and I’ll say, you don’t know your, what your capabilities are when you’re 22 years old. I mean, I was an introvert when I was 22. I’ve, I’ve realized in the early thirties I knew how to communicate. So I’m, I always say get into, if you can get into a firm that has a lot of opportunities, you know, today there’s less training programs, but those types of things with lots of opportunities. ’cause you don’t know what you’re gonna be good at and what you’re good at. Always follow what you think you’re interested in as long as it makes money, because that’s ultimately, but you don’t know initially. So I always encourage people initially don’t come out and say, I want to do this the rest of my life. You don’t know, that’s too narrow. Try to go to something broad. That’s the first advice. And, and I see today where people too narrow in their focus. 00:48:08 [Speaker Changed] I think that’s great advice. People, most of the folks I work with who are very successful, they’re not doing what they did right outta school. And to imagine that that’s gonna be your career. Very much misleading. And, and our final question, what do you know about the world of investing today that you wish you knew 30 plus years ago when you were first getting started? 00:48:29 [Speaker Changed] Well, I think, you know, 30 years ago I thought it was all about just what’s going at the company level. And then I realized, oh wait, that doesn’t really, you know, drive most of the stocks return. So you have to understand more about the broader implications of companies. I think 30 years ago there was less dissemination of fundamental news. Broadly today it’s much, you know, it’s much broader. So having information access fundamentally is more, more difficult. So I think the, the business has changed. But again, I go back to, I think the, the biggest change in my, how I think about it is behaviorally I’ve come to the real, that being an advisor sitting on the front line, I view that as a very key part of what’s shaped my career. Understanding that, you know, again, it doesn’t matter that the company didn’t have any stores in Crimea. 00:49:22 It went down for, you know, quite a bit. Or your Cuba story. I mean that, there’s just a behavioral element to this in investing, investing business. And look, you know, again, I go a, a great example which I mentioned before, which is it didn’t matter what growth stocks you own in 2022, they all went down, right? And so was it all the companies did poorly, no growth got too overbought. And so it had a correction. They all came back last year. You know, so understanding kind of those behaviors. I love that Warren Buffet quote investors frame their view looking solidly in the rear view mirror. Understanding that and having the ability to tack against that. That’s really what’s what’s worked for me over time. 00:50:03 [Speaker Changed] Hmm. Fa fa really fascinating stuff. Thank you Andrew for being so generous with your time. We have been speaking with Andrew Schleman. He’s managing director at Morgan Stanley Investment Management, where he is also lead portfolio manager for the long equity strategies for the Applied Equity Advisors team. If you enjoy this conversation, be sure and check out any of the 500 previous discussions we’ve done over the past nine and a half years. You can find those at iTunes, Spotify, YouTube, wherever you find your favorite podcast. Sign up for my daily reading Follow me on Twitter at ritholtz. Follow all of the Bloomberg family of podcasts on, on Twitter at podcast, and be sure to check out my new podcast at the Money short. 10 Minute conversations with Experts about the most important topics affecting you and your money at the money can be found at the Masters in Business podcast feed. I would be remiss if I did not thank the crack team that helps put these conversations together each week. Meredith Frank is my audio engineer. Atika Val Brown is my project manager. Shorten Russo is my head of research. Anna Luke is my producer. I’m Barry Ltz. You’ve been listening to Masters in Business on Bloomberg Radio.   ~~~   The post Transcript: Andrew Slimmon, Morgan Stanley Investment Management appeared first on The Big Picture......»»

Category: blogSource: TheBigPictureFeb 28th, 2024

Elanco Animal Health Incorporated (NYSE:ELAN) Q4 2023 Earnings Call Transcript

Elanco Animal Health Incorporated (NYSE:ELAN) Q4 2023 Earnings Call Transcript February 26, 2024 Elanco Animal Health Incorporated isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning, my name is Krista and I’ll be your conference Operator today. At this […] Elanco Animal Health Incorporated (NYSE:ELAN) Q4 2023 Earnings Call Transcript February 26, 2024 Elanco Animal Health Incorporated isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning, my name is Krista and I’ll be your conference Operator today. At this time, I would like to welcome everyone to the Elanco Animal Health fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad, and if you’d like to withdraw your question, again press star, one. Thank you. I would now like to turn the conference over to Katy Grissom, Head of Investor Relations. Katie, you may begin. Katy Grissom: Good morning. Thank you for joining us for Elanco Animal Health’s fourth quarter and full year 2023 earnings call. I’m Katie Grissom, Head of Investor Relations. Joining me on today’s call are Jeff Simmons, our President and Chief Executive Officer, Todd Young, our Chief Financial Officer, and Scott Purucker from Investor Relations. The slides referenced during this call are available on the Investor Relations section of Today’s discussion will contain forward-looking statements. These statements are based on our current assumptions and expectations and are subject to risks and uncertainties that could cause actual results to differ materially from our forecast. For more information, see the Risk Factors in today’s earnings press release, as well as our latest Form 10-K and 10-Q filed with the SEC. We do not undertake any duty to update any forward-looking statements. Our remarks today will focus on our non-GAAP financial measures. Reconciliations of these non-GAAP measures are included in the appendix of today’s sides and in the earnings press release. After our prepared remarks, we’ll be happy to take your questions. I’ll now turn the call over to Jeff. Jeff Simmons: Thanks Katy. Good morning everyone. Today Elanco reported fourth quarter and full year results for 2023. Our strong performance last year gives us confidence that are innovation, portfolio and productivity strategy is working and that our actions and investments to launch our new innovations and optimize our core portfolio are paying off. As we enter 2024, we are focused on advancing our strategy to deliver these three priorities: sustained revenue growth, innovation, and improved cash conversion. Starting on Slide 4 with revenue growth, in the fourth quarter we delivered 5% constant currency revenue growth, in line with our performance in the third quarter. Fourth quarter growth was driven by innovation, strength across our farm animal business, improved conditions in the European pet health retail market, and increased price. While we exceeded our sales expectations and demonstrated strong operating expense management for the quarter, adjusted EBITDA was adversely impacted by approximately $18 million of unexpected items, primarily related to the 54% devaluation of the Argentinean peso that occurred in December. Our fourth quarter sales growth drivers, along with the strength in our U.S. pet health retail business led to a return to full year constant currency sales growth at 1%. Importantly, we expect growth to continue in 2024 at 1% to 3%, even before the potential upside of our late stage pipeline. On innovation, we made significant progress in 2023 with the approval and launch of our canine parvovirus monoclonal antibody, or CPMA, and AdTab, our new over-the-counter oral parasiticide in Europe, as well as the submissions to our three late stage potential blockbuster products that have a path towards approval in the first half of 2024. We exceeded our expectations for innovation revenue in 2023 and our outlook for 2024 puts us on track to deliver our expected $600 million to $700 million of contribution by 2025. We continue to prioritize free cash flow improvements, paying down debt and reducing leverage, and exceeded our debt pay down expectations from our November guidance. In 2024, we expect cash available for debt pay down to be approximately $300 million, four times that of 2023. Earlier this month, we announced the sale of our aqua business to Merck Animal Health, allowing us to prioritize our investments going forward in larger markets with greater earnings potential and meaningfully improve our leverage profile. We expect net debt to adjusted EBITDA to be in the mid-4 times range by the end of this year and the high 3 times to low 4 times range by the end of 2025. Importantly, we are making disciplined decisions and taking actions to reallocate capital within our operations and invest for the future. Today we announced a strategic restructuring that will allow us to do three things: first, shift resources from farm animal to pet health across the international business as we drive adoption of innovation products and prepare to globalize our late stage pipeline. It also allows us to capitalize on efficiencies resulting from the completion of our ERP system integration and concentrate roles into strategic locations. Lastly, it allows us to transition our business model to distribution or other third party models in certain markets, notably Argentina. The restructuring will impact approximately 420 personnel or about 4% of the global workforce and is expected to deliver net savings of $20 million to $25 million in 2024, annualized the $30 million to $35 million of savings in 2025 and beyond. The savings will be reinvested in areas with more significant value creation opportunity, specifically in pet health globally and livestock sustainability. While we expect a limited amount of top line headwind from the shift to distribution markets, we do not expect our restructuring efforts to have a meaningful downside to sales otherwise, notably in international farm animal markets where we expect to realize savings. We have a strong track record of delivering productivity and will continue to look for additional opportunities to more efficiently allocate capital. I credit our senior leadership with these proactive actions that we believe will set Elanco up to deliver our next era of growth. Moving to Slide 5, our full year constant currency revenue growth of 1% was led by farm animal, but we saw marked improvement in our pet health business as well. Starting in farm animal, 4% constant currency revenue growth for the full year for farm animal represented accelerated growth rates for poultry, cattle and swine compared to 2022. The team executed across the business, but especially in places where we have strong market positions, notably international poultry and U.S. cattle. International farm animal, the largest revenue contributor of our four quadrants delivered 4% constant currency revenue growth, primarily driven by increased price and strength in poultry, a result of robust underlying demand and share growth in key markets like the U.K., Brazil and China. Our U.S. farm animal business also delivered 4% growth for 2023, driven by increased price and strength in cattle and swine, with poultry improving in the fourth quarter. Experior delivered $18 million in the fourth quarter, above the expected annualized run rate of $70 million that we shared in November. We remain encourage by Experior’s progress and expect continued growth for the product globally in 2024. Moving to pet health, global revenue declined 1% in constant currency, representing an encouraging improvement from the 5% constant currency decline in 2022. For the U.S. pet health business, revenue declined 1%, a significant improvement from the 9% decline in 2022. Enhancements in share of voice, physical availability, innovation contribution and increased price were more than offset by competitive pressure in the vet clinic market. Our OTC parasiticide business had a strong year in 2023, growing net sales 11% in retail channels as our top six retailers grew dispensing sales in both units and dollars. In the vet clinic, we’re encouraged by the growth of Credelio and new products like CPMA, Zorbium and Bexacat. As we look towards 2024, we are investing in an expanded sales force and implementing enhanced incentives to drive growth ahead of our anticipated new innovation launches in the vet clinic this year. Finally in international pet health, the 1% constant currency revenue decline was primarily driven by demand pressure in the Spain retail market in the first half of the year, which more than offset the encouraging growth from the Credelio family and AdTab in Europe. The Spain situation improved in the second half of the year and we expect that market to recover in the first half of 2024. Moving to Slide 6, I’ll cover our execution highlights across our innovation portfolio and productivity strategy for 2023. Starting with productivity, improving cash conversion continues to be a key priority across the organization. We continue to drive cross-functional efforts to improve net working capital, specifically on balance sheet inventory management which gradually improved in the second half of the year, with inventory being a source of cash in the fourth quarter. For the full year, we paid down $76 million of gross debt and finished with a year-end leverage at 5.6 times, slightly better than the midpoint of our November guidance. Finally, earlier this year we achieved a significant milestone of completing our ERP system integration, which will free up over $100 million of free cash flow for debt pay down in 2024. Moving now to portfolio, price growth was 4% for the year, up from our previous average of 2% with 4% in both pet health and farm animal. The core portfolio continues to stabilize, driven by stronger commercial capabilities, global omnichannel approach, and the complement of new innovation. We continue to invest in our highest value creation opportunities across commercial, R&D and manufacturing. Now onto innovation, where we had a very productive year of submissions, new product approvals in major markets, and advancement of our early stage pipeline. In-market innovation contributed $275 million of revenue in 2023, representing 3 percentage points of growth for Elanco and more than doubling the contribution from 2022. Growth was led by Experior and NutriQuest on the farm animal side and Credelio Plus, Credelio cat, AdTab and CPMA on the pet health side, with life cycle management and geo-expansions also contributing across both. CPMA finished in line with our expectations in 2023 with sales of $6 million. Expanded supply capacity and increased marketing efforts aimed at both veterinarians and pet owners are expected to make this product a key contributor to growth in 2024. On the late stage pipeline, our three differentiated assets – Credelio Quattro, Zenrelia, and Bovaer are all progressing with the FDA. As we’ve shared previously, the regulatory process is rolling and iterative at this stage, and we are in ongoing productive dialog with the FDA’s Center for Veterinary Medicine. These three potential blockbusters continue to have a path towards U.S. approval in the first half of 2024. While we are focused on the U.S. market first for these products, we are pleased to share we have also completed submissions for Zenrelia in nine additional markets, including the EU, U.K. and Australia. Additionally, the team continues to deliver targeted life cycle management which extends the life and the value of existing brands, helping to stabilize and protect the core. Total innovation sales in 2024 are expected to be $350 million to $400 million before the potential upside from our three late stage pipeline assets, putting us well on track to deliver the $600 million to $700 million of innovation sales by 2025. Finally, 2023 marks significant progress in our early stage portfolio with a number of promising assets in our next wave expected to drive growth in the second half of the decade. A special credit to Ellen de Brabander and her global R&D and regulatory team, as they’ve really set Elanco up to deliver significant high impact innovation in major markets for the years ahead. Before I cover our outlook for 2024 on Slide 8, I want to briefly discuss the announcement we made earlier this month to sell our aqua business for approximately $1.3 billion. This decision was a result of a strategic process that started about a year ago as we evaluated the expected growth drivers of our business in the future. We saw the opportunity to focus our investment in larger markets with greater earnings potential, namely pet health and livestock sustainability, which are aligned with our pipeline efforts. We expect the transaction to close around midyear. Importantly, with over a billion dollars of expected proceeds from this transaction combined with improved free cash flow from the business, we expect to accelerate debt pay down. We are deeply grateful to our aqua team’s dedication to delivering to our customers, as well as our bigger purpose of enriching lives with animal protein. Now moving to our outlook for 2024 on Slide 9, as we begin the year, we remain confident in the resilient underlying demand for animal care. Our outlook for the animal health market reflects underlying tailwinds from the humanization of pets and global protein demand, balanced by economic conditions impacting consumers, cyclical and profitability factors in livestock, and the macroeconomic and political tensions around the world. Despite this, we believe Elanco is uniquely well suited for growth this year. Our innovation expectations, our investment in key capabilities, our restructuring actions, the experienced team and differentiated omnichannel strategy contribute to this confidence. For the full year 2024, we expect 1% to 3% constant currency revenue growth. This includes price growth of approximately 3% and incremental innovation revenue contribution of at least 2% to 3%. Headwinds on a year-over-year core volumes are expected to lessen sequentially as we stabilize our base business through improved execution and lapping as well some regulatory and macroeconomic challenges last year. Importantly, our guidance includes the aqua business for the full year, but it excludes the contribution from our three late stage products currently under regulatory review with the FDA. We plan to update our expectations in line with our quarterly cadence to account for the transaction close and product approvals. This year, we expect revenue growth in both pet health and farm animal. For pet health, we see value drivers across all parts of our omnichannel strategy. Improved supply and innovation led by CPMA and AdTab are expected to be tailwinds. Our overall SG&A is increasing in 2024 as we reallocate investment from other parts of the business into our pet health portfolio. As part of this, we have expanded our U.S. field force, increased investment and efforts with our corporate groups, and are shifting resources in our international business to support improved share of voice. Importantly, this increased investment will be front half loaded as we increase promotional investments behind our market leading retail OTC parasiticide business during the northern hemisphere flea and tick season. On the retail side, we’ve expanded physical availability in new channels like club and dollar and within the existing channels like mass, pet specialty and grocery. These efforts in both the U.S. and Europe paired with enhanced brand activations are expected to drive increased awareness. Overall, our pet health business is set up for improved performance and growth in 2024, even ahead of our anticipated new products in parasiticides and dermatology. Moving to farm animal, we also expect growth for this business globally with innovation and price offsetting market challenges and generic pressure. We expect poultry and cattle to remain growth drivers. The livestock sustainability market continues to develop and the functionality of the carbon credit marketplace has been validated. We look towards the Bovaer approval as a catalyst for further expansion. The durability and the diversity of our global farm animal business is well positioned for both revenue and market share growth in 2024. With that, I’ll turn it over to Todd. Todd Young: Thank you Jeff, and good morning everyone. I will focus my comments on our fourth quarter and full year adjusted measures, so please refer to today’s earnings press release for a detailed description of the year-over-year changes in our reported results. Starting on Slide 11, in the fourth quarter, revenue was $1.035 billion, a 5% increase with price growing 3%. Slides 12 and 13 break down our revenue performance in the quarter by price, rate and volume, as well as species and region. For pet health globally, we declined 1% in constant currency in the quarter. Our U.S. business declined 5% as competitive pressure in the veterinary clinic was partially offset by innovation revenue, increased price, and an improved retail inventory situation compared to the reduced purchasing we experienced in the fourth quarter of last year. Our international pet health business grew 4% in constant currency, primarily driven by the economic rebound in Europe compared to the back half of last year and innovation revenue, partially offset by soft market dynamics in several Asian countries. Globally, sales of Seresto grew 25% in the quarter, driven by the U.S., which implemented a lower list price starting in December to maximize elasticity of the brand and the rebound in Europe I just described. The Advantage family sales declined 8% in the quarter, primarily driven by international markets. Both products benefited from the improved retail inventory situation in the U.S. in the quarter compared to last year. Shifting to farm animal, global revenue grew 10% in constant currency in the fourth quarter. As anticipated in our November guidance, U.S. farm animal growth was driven by resupply for cattle vaccines, strong Experior growth, and favorable timing of poultry rotations. While we expected U.S. farm animal to have a strong quarter, the 28% growth was significantly higher than we expected, which was the key contributor to us delivering above the top end of our revenue guidance. Solid international farm animal growth of 3% was driven by continued strength in international poultry. Continuing down the income statement on Slide 14, gross margin decreased 440 basis points to 50.1%. The decline was driven by an approximate 150 basis point headwind from slowing manufacturing output as we worked to reduce balance sheet inventory, as well as unfavorable manufacturing performance, including higher than expected inflation on certain key inputs and higher affiliate expenses, including a recently implemented higher import duty rate in Argentina, partially offset by improved price. Operating expenses declined 3% year-over-year in the quarter. R&D expenses were largely in line year-over-year, while SG&A declined 3% driven by disciplined cost management across the business and savings from completing our systems integration, partially offset by higher employee-related expenses. Moving to Slide 15, where we bridge adjusted EBITDA and adjusted EPS to our guidance from November, adjusted EBITDA was $165 million in the quarter. Along with the gross margin headwinds from unfavorable mix and manufacturing performance, this was adversely impacted by approximately $18 million of unexpected items primarily relate to Argentina. Adjusted earnings per share was $0.08 in the quarter. Our adjusted effective tax rate in the fourth quarter was 39.7%, primarily as a result of unfavorable return to provision adjustments partially offset by the benefit of certain refundable state income tax credits. On Slide 16, I’ll provide a few comments on our 2023 full year performance. We delivered just over $4.4 billion in sales with 1% constant currency growth, driven by improved price, adoption of new products, and strength in international poultry. These were partially offset by competitive pressure in the U.S. vet clinic, a soft European economic environment in the first half of last year, and generic pressure and changes in regulatory requirements in the U.S. farm business. On Slides 27 to 28, we have provided additional revenue breakdowns, including by top affiliates and certain products. Continuing down the P&L, gross margin was 56.3%, a decrease of 30 basis points compared to last year. The impact of slowing down manufacturing output and inflation was partially offset by improved price. These factors combined with a 2% increase in operating expenses and the fourth quarter impact of the devaluation and duty rate in Argentina resulted in adjusted EBITDA of $979 million for the full year. Adjusted earnings per share was $0.89 compared to $1.11 last year, with $0.14 coming from higher interest expense and tax. Our non-GAAP tax rate increased from 17.7% in 2022 to 22.3% in 2023, primarily driven by the items I described impacting the fourth quarter. Before moving to our 2024 guidance, let me offer a few words on our cash, debt and working capital on Slide 18. Operating cash flow was $271 million for the full year and $157 million in the fourth quarter. The year-over-year increase in the fourth quarter reflects improved net working capital performance, specifically on inventory and receivables, partially offset by higher cash interest costs. We ended the year with net debt of $5.472 billion and a net leverage ratio at 5.6 times. We reduced gross debt by $76 million for the full year, exceeding our November expectations of $50 million. In a moment, I’ll touch on our expectations for debt pay down in 2024 and the factors improving our cash outlook. Now let’s move to our 2024 financial guidance, starting on Slide 20. As Jeff mentioned, today’s guidance includes full year contribution from our aqua business but excludes contribution from our three key late stage pipeline assets: Credelio Quattro, Zenrelia, and Bovaer. We will update our guidance throughout the year to reflect evolution on both topics. For the year, we expect revenue to be between $4.45 billion and $4.54 billion, or approximately 1% to 3% constant currency growth. We expect innovation to contribute $350 million to $400 million, or $75 million to $125 million of growth year-over-year, Credelio Quattro, Zenrelia and Bovaer would increase this range and, regardless of timing, once launched we expect these products to be accretive to EBITDA in 2024. Additionally, we expect a revenue headwind of approximately $50 million as a result of strategic choices to change our distribution model, primarily in Argentina, exit low margin distribution agreements, and the continued phase out of contract manufacturing agreements. Gross margin is expected to decline slightly in 2024 as benefits from revenue growth will be more than offset by the impact of actions we are taking to slow down our manufacturing output to reduce balance sheet inventory and improve net working capital. The headwinds experienced in the second half of 2023 related to this and certain increased operating costs are expected to continue in the first half of the year, improving in the third quarter and shifting to a tailwind in the fourth quarter. Operating expenses are expected to increase 2% to 4% in 2024, driven by increased employee-related expenses and investment in commercial capabilities to support our pet health business. The increase is expected to be partially offset by reduced expenses primarily in the second half of the year from the restructuring we announced this morning, taking advantage of efficiencies resulting from our ERP system consolidation and reallocating resources to the business areas and countries with ability to generate greater earnings potential over time. For adjusted EBITDA, we expect $960 million to $1.01 billion. We anticipate adjusted EPS of $0.87 to $0.95. Given the cadence of dynamics in gross margin and operating expenses, adjusted EBITDA and adjusted EPS are expected to decline in the first half of the year and increase in the second half of the year. Slide 22 provides year-over-year bridges for adjusted EBITDA and adjusted EPS, and Slide 32 in the appendix provides a number of additional assumptions to help support your modeling efforts. On Slide 23, we share our first quarter 2024 guidance. We expect revenue of $1.16 billion to $1.185 billion, adjusted EBITDA of $255 million to $275 million, and adjusted EPS of $0.25 to $0.28. As a reminder, as a result of our ERP system blackout in 2023, approximately $100 million of revenue, $80 million of adjusted EBITDA and $0.13 of adjusted EPS shifted into the first quarter from the second quarter. In addition to the manufacturing headwinds discussed above impacting the first quarter, we are also increasing our investments in pet health with both the U.S. sales force expansion and the increase in promotional investments behind our retail OTC products. Given the timing of the northern hemisphere flea and tick season, we are making these investments starting in Q1, which will be in advance of the savings we expect to realize from the restructuring we announced this morning. Finally, I’ll share a few comments on our cash and balance sheet expectations for 2024 on Slide 25. We expect meaningful improvements in free cash flow conversion with $280 million to $320 million available for debt pay down, about four times more than our $76 million in 2023. The improvement is driven by reduced project costs, most notably moving past our ERP system implementation plus lower cash interest and improved net working capital from our inventory efforts, offset by slightly higher CapEx to support new launches. Using the same assumptions for innovation and the aqua transaction as we did with the P&L, at year-end 2024 we expect the net leverage ratio to be between 5.2 and 5.5 times. With the anticipated $1.05 billion to $1.1 billion in net proceeds from the aqua transaction, we expect to reduce our net leverage to the mid-4 range by year-end. Now I’ll hand it back to Jeff for closing comments. Jeff Simmons: Thanks Todd. As we enter our 70th year as a company and as the longest standing brand in animal health, we are humbled by the opportunity to serve our customers around the globe, the farmers, veterinarians and pet owners, and the animals in their care. As we enter 2024, we are laser focused on three priorities: sustained revenue growth, innovation, and improved cash conversion. Importantly, this management team is taking disciplined, decisive actions to improve our earnings potential and leverage profile over time, as evidenced by the sale of our aqua business for over a billion dollars of net proceeds, the restructuring announced today to reallocate resources to higher value creation areas, our investment in expanding our U.S. pet health field force to enhance share of voice and maximize innovation in our highest margin business area, and our focused efforts to manage manufacturing throughput to improve net working capital performance while investing to support the launch of differentiated products in years to come. These are difficult but the right decisions. We are executing on our IPP strategy. Our investments, our improved capabilities and experienced team delivered a return to top line growth in 2023, and that growth will continue in 2024. We are encouraged by our strong pipeline and the next wave of innovation which we expect to fuel long term sustainable growth for Elanco. With that, I’ll turn it over to Katy to moderate the Q&A. Katy Grissom: Thanks Jeff. We’d like to take questions from as many callers as possible, so we ask that you limit yourself to one question and one follow-up. Operator, please provide the instructions for the Q&A session, and then we’ll take the first caller. See also 25 Easiest Countries with Digital Nomad Visas for Remote Work and 25 Healthiest Countries in the World. Q&A Session Follow Elanco Animal Health Inc (NYSE:ELAN) Follow Elanco Animal Health Inc (NYSE:ELAN) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: Thank you. [Operator instructions] Your first question comes from the line of Jon Block from Stifel. Please go ahead. Jon Block: Thanks guys, and good morning. Jeff, it was good to see the filings that you mentioned for Zenrelia oUS. Any thoughts, high level thoughts on the approval timelines for EU, U.K. and Australia? When you look at one of your competitors, I believe it’s actually about 40% of worldwide [indiscernible] revenue is outside the United States, is where it actually resides, so certainly it seems like a material opportunity. Any more color on potential approval timelines oUS? Jeff Simmons: Yes, thanks Jon. We’ve made a lot of progress and would say that Zenrelia will be the fastest product in the history of Elanco in globalizing the major innovation, so nine major markets we’ve made submissions in, and it’s very similar, I think to the U.S. on these submissions or final submissions in the case of about a year. It varies from Japan to Australia to Europe, but if you figure that, we count on this being an early 2025 mode when we would start to get these approvals. Jon Block: Got it, helpful. Then for the second question, it might be a little bit of a two-parter, but my thought was that the ADUFA date for Zenrelia was in February, and Jeff, could you discuss any high level thoughts on what still remains to get done after any interaction with the agency? Do you have increased conviction with Zenrelia in 1H24 approval timeline? Todd, quickly just to pivot, the 2024 GM is being down, arguably that’s off of sort of a lower number where people’s heads were at a couple months ago. How do we think about the cadence of GMs for you guys? Usually you have the benefit from parasiticides in 1H, but at the same time, you’re trying to slow the plant and that’s going to be a headwind, so any thoughts around GM cadence throughout ’24? Thanks guys. Jeff Simmons: Yes Jon, no update today on the Zenrelia timeline. We continue really with no change in terms of just a very productive dialog with the FDA. We believe that market adoption, as we know, will be driven on value and execution, but again the dialog with the FDA is going well, no change. When there is change, of course, we’ll be announcing approval, and if there’s any change to that, we’ll let you know, so no change at all. Todd Young: Jon, thanks for the question on gross margin. As you know, for the full year we expect gross margin to be pretty close to the same in ’24 as ’23. The cadence of that will be a little different. We’ll still have higher gross margins in the first half of the year, but just not as high as we would have had last year because of the plant slowdown, so it’s a first half of the year slightly lower than last year, Q3 becomes pretty much in line, and then Q4, we get a tailwind as we started to slow down the plant during Q3 of ’23, such that we don’t have that same headwind in the fourth quarter of ’24. Katy Grissom: Thanks. Next caller? Thanks Jon. Operator: Your next question comes from the line of Erin Wright from Morgan Stanley. Please go ahead. Erin Wright: Great, thanks. Another one on Zenrelia – can you talk a little bit about the latest thoughts on your go-to-market strategy for Zenrelia, your thoughts on differentiation of the product, leveraging distribution, price, how you can leverage also your position even in online channels, just given that this is a significant category for the online channel as well? Thanks. Jeff Simmons: Yes, thanks Erin, and thank for the focus from you and Jon. As you know, we’re excited about entering the derm market. It will be a new market for us. We’ve got Zenrelia followed by our IL-31 short acting, both of these being differentiated assets, and our next wave of innovation that Ellen has made a lot of progress on and her team this year and bringing more products into development into our pipeline in derm, there will be added assets, so this is a market we’re going to be in and be a key player in, in the decade. I think we come back consistently as we look at this market and see that there are still a lot of unmedicalized dogs that are leaving vets without being treated. There’s a strong desire for more choice by vets and pet owners, and these fundamentals we believe matter, that this is a market that wants choice, and it’s globalizing, as Jon just referenced as well. I would emphasize that we continue to feel strongly that our differentiation is going to be–is key as well. When you look at how we’re going to launch this product, maybe just a couple points. First of all, we keep coming back to the two most important pillars, our value and then execution. Value gets around the differentiation in the product, the product itself, the portfolio that it’s going to be in, and then as you look at execution, the first thing that we really focused on, Erin, was getting the share of voice at a level that can be extremely competitive, and we believe we’re there now. We’ve got this sales force in place out there, selling parvo, preparing–and you know, we need to create share of voice high enough to create awareness at the vet clinic so that when the product gets into the market, that vet clinic is aware, and then we will start to turn up additional factors like digital and DTC, so that’s going to be the staged approach. We’re still looking at distribution. The great news is we’ve got lots more options with distribution, given our ERP set-up. We will intend to price to value and focus–you know, we believe innovation will be rewarded and differentiation will be rewarded, so we will focus on a value-based pricing approach relative to our differentiation. I think the last thing is what derm does with us now is it adds the fourth pillar – we’ve got para, we’ve got therapy and we’ve got the vaccines, and we think as we look at corporates and other vet clinics, other segments, that fourth pillar, having derm in that total portfolio is going to give us advantage, and that will be a key part of our launch strategy as well, Erin. Thank you. Erin Wright: Okay, thanks. Then just on restructuring and the bigger picture around the sale of aqua too, are you just continuing to evaluate other parts of your businesses here, or what other segments could you evaluate as potential divestitures? Jeff Simmons: Yes, maybe just a comment here. Here’s how we’re looking at it. I mean, we are concentrating our focus, let me be very clear, on pet health and livestock sustainability, and both of these decisions, both the sale of our aqua business and the restructuring we announced today, is all around creating enough resources to win and align to our pipeline in these bigger markets with greater earnings potential with these large blockbuster differentiated assets that we have. We have no intention of making any more strategic decisions here relative to other segments. Really, I would highlight coming to the restructuring, we’re doing really three things, as my comments that I made this morning. We’re shifting resources into these markets, pet health and livestock sustainability. Think in Europe – we’re going to move to much more of a B2B approach in pigs and put a lot more resources in pets. Second is we’re going to capitalize on this ERP implementation that’s now done and concentrate roles in strategic areas, and then lastly and importantly is we’re going to transition our business model in non-strategic markets, like Argentina. We’ve got about 90 countries we’re in, about 45 of them we’re in with people, and we’re moving some additional markets like Argentina into what we’re doing in the other 45, which is we’re using a distribution model. All of this allows us more resources that we can double down on these big areas, pet health and livestock sustainability. Operator: Thank you. Our next question comes from the line of Michael Ryskin from Bank of America Securities. Please go ahead. Michael Ryskin: Great, thanks for taking the question. Can you guys hear me? Jeff Simmons: Yes. Michael Ryskin: Great, thanks guys. First, I want to clarify a question on the guide for you, Todd. I think you were really clear that the revenues from the Zenrelia, Credelio Quattro, Bovaer are not included in the guide, but I wanted to be clear on how much of the cost is, because from an opex perspective, obviously the expansion of the commercial sales force, things like that, you’ve already put that into place and that’s already in numbers as it is. But what about incremental spend as the products get approved, so let’s say they get approved, let’s say they go to market and you do put some of that digital and DTC spend behind it in the second half of this year. Is that already included in the opex numbers, or would that also be incremental, just like the revenues? Todd Young: Mike, those will also be incremental, but what we did say in the prepared remarks is that we expect it to be accretive to EBITDA, so the EBITDA guidance you have will get better with the launch of the big three. Michael Ryskin: Got it, okay. That’s helpful. I just wanted to get that clarification on how the model would change as the products get approved, so appreciate that. Then a follow-up question, again on the guide for ’24. I think you talked about 3% price to revenues and up 2% to 3% from existing innovation, so from regular Credelio and Galliprant, things like that, but key percentile business constant currency, so volumes–another year of down volumes. Could you break that out again into what you’re expecting from end market versus specific headwinds to the legacy portfolio, and maybe headwinds from competition? Just help us de-convolute the volume expectations for ’24 a little bit, thanks. Todd Young: Sure Mike. We do expect volumes down in 2024. Volumes were down in 2023, but less than they were in 2022. Some of this is just the competition inside the vet clinic that we’ve called out previously. You’ll see Trifexis declined 21% in ’23, it’s down to being about $82 million in total revenues, so still a big product for us but one that we just know has greater competition there. You’ll also see both Ceresto and Advantage family were down last year – again, a lot of that’s in the vet clinic. The retail side of our business in the U.S. grew double digits. It was really strong as Bobby and his team got to more points of distribution, more physical availability, the share of voice and all of the work they’re doing, so some of the volumes are that legacy. Experior ramp is great – as you know, that generally takes out Optiflex, which is a different part of the portfolio, and so that impacts volumes as Experior ramps. Overall, we continue to feel very good about the sales momentum we have, the acceleration in ’23 versus ’22, and so as we move forward, we have that. There’s also an impact from these different countries on volume as we exit some of the low margin distribution and flip Argentina and a few other markets to using a third party distributor, versus our own internal people on the ground. Operator: Your next question comes from the line of Balaji Prasad from Barclays. Please go ahead. Balaji Prasad: Good morning and thanks for the questions. Firstly with regard to the decline in pet health in 4Q and outlook, you spoke about competitive pressure in veterinary clinics. Can you help us understand if this is transient or otherwise, is it driven by new launches from competitors, or are there some other factors at work? Also on 2024, as you speak about enhancing the sales force, could you quantify the sales force add, and do you think you’ll be adequately staffed to support the new launches? Thank you. Jeff Simmons: Yes, thank you very much. At the highest level just on the U.S. pet, I would step back and say we’ve made a lot of progress in U.S. pet overall. At the highest level, I think we’re much more competitive today. We’ve seen significant improvement in our overall engagement, our team, and I think the strategy is working that Todd just highlighted in terms of share of voice, physical availability, innovation and price, so we’re much more competitive as an organization today. 2023 was a strong year. If you step back and look, we saw an eight-point improvement sequentially from down minus-9 in 2022 to minus-1 overall, and I see this from the standpoint of stronger portfolios, more share of voice, a stronger team. We changed incentives for the sales force and just our overall portfolio is stronger when you start adding Bexacat, Zorbium, and now parvo, and parvo is opening a lot of doors for the vet clinic. As we step back, there’s no question we’re set up and we see nice growth coming ahead of our total global pet health business and farm animal business both contributing to growth in 2024. No question the competitiveness in the vet clinic in the U.S. is high – I mean, without question. I would say there’s a few factors that we would note. There is always the seasonality and weather factors, there’s some economics we’ve seen, more on the retail side where there’s some trade-down, and the competitive pressure inside the vet clinic. I think we’re well positioned as we’re bringing innovation, as we’re–you know, there’s an anticipation of these blockbusters that are coming, and our omnichannel approach, being able to have the retail business complementing the vet clinic business. We’re probably better indexed relative to those vet visits than most companies. Operator: Your next question comes from the line of Umer Raffat from Evercore ISI. Please go ahead. Umer Raffat: Hi guys, thanks for taking my question. Just two here, if I may. First, there’s some language on distribution model changes. Could you just confirm there’s no change on distributor strategy in the U.S., nor are there any payment term extensions in the U.S. for 2024? Then secondly, on heading into the Quattro launch, there’s some feedback that [indiscernible] is starting to preempt that potentially by making free tapeworm treatments available in case a dog does contract tapeworms. How are you thinking about that relative to your differentiation and expectations for launch? Todd Young: Well, let me take the first one, Umer, and then I’ll pass over to Jeff on tapeworm. With respect to distribution, we’re really speaking in this case to Argentina. As Jeff mentioned, we’re in 90 countries in total with people on the ground in about 45. Those other countries, we use distributors to take our products to market and we just sell to them, so that’s what we’re speaking to. With respect to the U.S., we are bringing some bear products into the U.S. distribution channel. It’s reflected in the guidance – it’s not material, but with our system consolidation, we’re able to now be more efficient and do it one way, versus having two different models that we’ve been running the last few years. Jeff? Jeff Simmons: Yes, thanks Umer. Yes, we’re excited about Credelio Quattro, and again, no update – the timeline continues, we continue to have productive dialog with the FDA. I think I would just back up and just make a couple comments. I think we know parasiticides is really an uninvolved category for pet parents and vets. Vet recommendation is key, so I come back to the core strategy, which is marking sure share of voice is high, and noted, yes, we’ve added our 75 reps, they’ve got experience, they’re in the field right now, and they’re trained and they’re adding value as we speak, selling parvo and other products, so we’ve got the share of voice. Then the second is, yes, differentiation. We believe there’s a few fundamentals that are key as you look at differentiation. One is broader coverage is always better, and full solutions are definitely preferred by the veterinarian. The second is diagnostics that can match the disease, and there is evidence today with increased diagnostics Idexx and others around tapeworm, that this concern is there, and it’s a zoonotic concern as well, so I think that’s second. With more people and more focus, both on the diagnostic side and the animal health side, the awareness is higher, and that usually leads to more prevalence. I think the last trend is zoonotic concerns, Umer, continue to be there, especially after COVID, and specific to tapeworms, look – one common tapeworm is transmitted by fleas, but there’s many tapeworms relevant to domestic dogs and have the potential to carry tapeworms, and that’s a serious disease impact, so we always say that if all else is equal, why wouldn’t you use a product with more coverage? So that’s our approach. Again, we’ve got the right teams in place preparing for the launch, we’ve had a long history in parasiticides with the broadest portfolio in and outside the vet, and we’re excited to be bringing Quattro to the market. Todd Young: Just one thing, Umer, on your payment terms, payment terms generally stay the same. There are always different things with different customers, but overall accounts receivable was a big inflow of cash in Q4 as we had strong operating cash flow performance relative to previous quarters, and a lot of that was just the work done by our teams around the globe to collect cash and really focus with our one system to get after A/R in a better way. Operator: Your next question comes from the line of Glen Santangelo from Jefferies. Please go ahead. Glen Santangelo: Yes, thanks for taking my questions. Just two quick ones from me. I just wanted to follow up on the competitive pressure in the vet clinics. It sounds like you’re certainly making some progress, and I’m just kind of curious about your confidence in the ability to take those 3% price increases this year that you’re forecasting in the guidance. Have you taken those already, and has there been any pushback as far as those are concerned? Jeff Simmons: Yes, first of all, Glen, thank you for the coverage and joining the interest in research on Elanco. Yes, absolutely – the competitive pressure is there. I would believe, as I’ve said, we’re in a much stronger position with stronger teams, stronger portfolio, and I think a lot of the tactics that we’re doing relative to this. I think the anticipation of our innovation as well, Glen, really creates partnerships with distributors, corporate clinics and others. It’s opened a lot more doors, which has been strong. I would say even the introduction–and an example, a proof point, if you point to the introduction of the latest broad spectrum parasiticide, what we’re actually seeing is more share taken within those and actually less share compared to other competitive launches taken from us, and I think that shows our differentiation, our segmentation, digital, all these things are working, so we’re set up well. Relative to price, we’ve continued to execute price in a very value-based way, and more innovation always allows us to bring those prices, and we’ve not seen a pushback on price and continue to see strong resilience for the market and a lot of interest and adoption from the vet side of our products and our portfolio. Glen Santangelo: Perfect. Maybe if I can ask just one revenue follow-up here, I’m just trying to triangulate your comments on innovation sales in 2025. I appreciate you don’t want to talk about 2025 at this point, but you’re sort of guiding people to $600 million to $700 million of sales from new innovation products, and if I sort of back out what you’ve done so far in ’23 and what you’re expecting in ’24, is it fair to say that we can triangulate what you’re sort of talking about with respect to the three pending launches? Jeff Simmons: Yes, we have, again, been very consistent to the commitment of $600 million to $700 million. It isn’t all exact math, as you do see us–Todd, as a reference, you’re going to have Experior climb and you’re going to have some overlap in products that come out, such as an Optiflex. But yes, as we start to guide to the $350 million, $400 million this year before the new products, then with the launches of the new products and our IL-31 that we have coming in 2025, those products will contribute and, yes, we’re staying and feel very confident in our commitment to the $600 million to $700 million by the end of ’25. That is correct. Operator: Your next question comes from Chris Schott from JP Morgan. Please go ahead. Chris Schott: Great, thanks so much. Just two questions from me. Maybe first on just the parvo opportunity in 2024, just any additional color of how much inventory you have this year and how big of a product that could become, and maybe just as you’re thinking about longer term with that, just update us on the ex-U.S. opportunity for parvo. My second question was just on gross margins. Any color you can provide on how much some of these inventory and manufacturing slowdown actions are having on gross margins in 2024? I’m really just trying to get some color on what the underlying trends are as we start to think about beyond this year of where gross margins can go. Thanks so much. Jeff Simmons: Yes, thanks Chris for the question on parvo. I’ll take that one first. It did land in line with our expectations in the quarter, but the bigger news is, yes, we’ve demonstrated the ability to scale our 2000 liter, which gives us confidence that we’ve got the capacity and the supply to really go into the marketplace full force, and we’re doing that with our new sales force right now. The product is performing well – that’s very important. I think another important note, Chris, is the product’s already in about 3,300 clinics, and more so with the general practitioners, which demonstrates that this is out there, there’s prevalence, and many clinics are seeing this. 73% of the adoption of those clinics is in general practitioners, 12 or so is in the shelter market, so we see the uptake initially. We’re seeing reorders as well, so we see this product being a key contributor to growth and a real step-up this year. Then yes, we would–and we’ve launched also, just to highlight, we’ve launched a pretty significant defender campaign to really drive just awareness of parvo. Right out of the gate, we’ve got about 1.2 billion impressions in a social media marketing campaign that we’re doing. We’ve set a charge with the vet clinic industry and a pledge to save a million puppies by the end of the decade, so all of that, I think is just creating awareness, strong marketing, more share of voice. Then yes, the next thing is we are starting to target key markets internationally where we can actually bring that product in, where there’s a higher prevalence of parvo. It might not be always the typical just a European market – there are other emerging markets as well with higher parvo, and we see blockbuster here potential as we globalize the product, so off to a good start. We’ll definitely be updating you quarter to quarter on some of the key metrics and the adoption......»»

Category: topSource: insidermonkeyFeb 28th, 2024

Rocket Lab USA, Inc. (NASDAQ:RKLB) Q4 2023 Earnings Call Transcript

Rocket Lab USA, Inc. (NASDAQ:RKLB) Q4 2023 Earnings Call Transcript February 27, 2024 Rocket Lab USA, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good day. My name is Ellie, and I will be your conference operator for today. […] Rocket Lab USA, Inc. (NASDAQ:RKLB) Q4 2023 Earnings Call Transcript February 27, 2024 Rocket Lab USA, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good day. My name is Ellie, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Rocket Lab Fourth Quarter, 2023 Financial Results update and conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I’d now like to introduce to the call Colin Canfield, Head of Investment and Relations. Colin, you may now begin. Colin Canfield: Thank you. Hello, everyone. We’re glad to have you join us for today’s conference call to discuss Rocket Lab’s fourth quarter and full-year 2023 financial results. Before we begin the call, I’d like to remind you that our remarks may contain forward-looking statements that relate to the future performance of the company, and these statements are intended to qualify for the Safe Harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance, and factors that could influence our results are highlighted in today’s press release, and others are contained in our filings with the Security and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update these statements. Our remarks and press release today also contain non-GAAP financial measures within the meaning of Regulation G enacted by the SEC. Included in such release and our supplemental materials are reconciliations of these historical non-GAAP financial measures to comparable financial measures calculated in accordance with GAAP. This call is also being webcast with a supporting presentation, and a replay and copy of the presentation will be available on our website. Our presenters today are Rocket Lab’s Founder and Chief Executive Officer, Peter Beck, and Chief Financial Officer, Adam Spice. After our prepared comments, we will take questions. And now, let me turn the call over to Mr. Beck. Peter Beck: Yes, thanks, Colin. So, we’ve got a lot of great achievements and milestones to share across Q4 2023 and Q1 2024. Adam will then talk through our financial results for the fourth quarter before covering the financial outlook for Q1 2024. After that, we’ll take questions and finish today’s call with near-term conferences that we’ll be attending. Okay, on to what we achieved in the fourth quarter and for the year, starting with our launch business. So we had a successful return to flight in Q4. We rounded out 2023 with that flight, successfully deploying a satellite for a Japanese customer iQPS. This launch marked the conclusion of an in-depth, round-the-clock investigation that got to the bottom of the issue we had experienced on the previous launch. With mitigations now in place for future missions, we’re starting to pick up the launch pace for this year. In Q4, we also hit a new annual launch record, ending the year with ten launches, besting our previous record of nine. Not only did we reach this record, but we also commenced launches from our U.S. launch site, introduced and launched our HASTE suborbital Hypersonic vehicle for the first time, and we were the only small launch provider to launch more than one orbital mission in 2023. Overall, a strong year for the Electron team with plenty of firsts and new records, and we look forward to building on that this year. With the end of the fourth quarter, we wrapped up a record year of another kind, this time for new launch deals. We signed 25 new launch contracts in 2023, including 18 Electron missions and seven HASTE missions. Contracts were signed across a diverse customer base, including civil, defense, and national security and government customers, as well as commercial constellation operators. Clearly, demand for Electron is strong and continues to grow. With two launch sites now up and running, we’re well-positioned to meaningfully increase our launch cadence this year. We’ll dig into some more Electron achievements since the end of Q4 soon, as well as some key Neutron milestones. But first, let’s take a look at some of the key highlights from our space systems business across the final quarter of 2023. Well, we closed out 2023 and we secured a contract that started a new era for Rocket Lab, and that is the era of being a prime contractor. We were selected by the Space Development Agency to design and build 18 spacecraft for the agency’s tranche to transport layer. As prime contractor for the approximately $0.5 billion contracts, we are leading the design, development, production, test, and operations of the satellites, including procurement and integration of the payload and subsystems. It’s our largest single contract to date and establishes Rocket Lab’s position as a leading satellite prime contractor, providing supply chain diversity to the Department of Defense. All 18 satellites will integrate subsystems and components built in-house by our team, including solar panels, structures, star trackers, reaction wheels, radios, flight software, avionics, and for the first time a launch dispenser. This is a vertical integration strategy at work, and it gives us a real level of control over supply chain, enabling efficiencies, uncertainty on cost and schedule and quality of course. Of course, the SDA contract is not the only spacecraft constellation we have in development build. Our space systems team rounded out Q4 and the start of Q1 with some key milestones in the development of our constellation for Global Star. We’re now officially progressing from the design phase into production with the first flight frames and build for the constellation of 17 spacecraft. Simultaneously, our spacecraft component teams are getting to work on their subsystems, including solar panels, flight software, and so on. This constellation is still in the early phase, but we’re making rapid progress ahead of the 2025 launch schedule. Now onto a mission scheduled to launch much sooner than that. Our ESCAPADE mission for NASA and the University of California, Berkeley, we’re building two spacecraft headed to Mars orbit via Blue Origin launch scheduled for Q3 this year. In recent months, we’ve completed both propulsion decks, started environmental testing, and getting ready for ground operations at the launch site in preparation for launch. After a successful mission to the moon for NASA in 2022, we’re looking forward to pushing the boundaries of even more on this highly ambitious space science mission. That’s just a quick overview of some of the key highlights across Q4 and broader 2023. There’s plenty more we could have shared, but in the interest of time, let’s move on to some of the exciting progress and achievements so far in Q1. Okay, Neutron’s path to first flight. So there’s more green across the board, which is what we always like to see with Neutron team delivering on some key milestones at the end of last year and in early 2024. But let’s dive into some of the details. So, with Neutron vehicle development, we’ve hit my favorite part of the development program. Real flight hardware is not only coming off the production line, but it’s entering the integration test phase in preparation for first flight. The Avionics team has kicked some major goals with successful hardware in the loop, testing for simulated flights to orbit as well as landings. This is a process where we integrate real flight software with real flight avionics and hardware to get thousands of simulated flight environments. Hardware in the loop, or huddle testing, as we call it, has really been a key part of Electron’s success, enabling us to test like we fly on the ground. And it’s exciting and great to be entering that phase for Neutron now. We’re also well into the test and validation campaign for the Canard’s, which provides stability and steering to Neutron, particularly on re-entry and descent. We’ve now tested our first complete flight representative Canard drivetrain, including motion controller software, linear actuator, and all the Canard mounting hardware, bearings, and so on. Now this is really a big step forward for Neutron, and this represents one of the things we haven’t done before, so it’s great to get that behind us. On the structures side, development and production of Neutrons fairing, and Stage 1 and Stage 2 tanks continue, fairing molds and plugs are completed. These are some of the final steps before carbon composite flight structures start to come out of the factory. Things start to move very quickly in composites from here, so expect to see some more structure resembling a complete Neutron in coming months. And it’s been a big few months for the propulsion team bringing the Archimedes engine to life. The single-element pre-branded test campaign was completed. All of the engine components are complete or in final production for the first engine and once integrated testing is complete, we’ll start to see some fire at [indiscernible] and can move into production of those flight engines following successful test campaigns. Then on the launch infrastructure, Launch Complex 3 in Virginia is taking shape nicely. The team has completed initial piles and concrete foundations work for the water tower, locks tank, and of course the launch mounts. And having built three launch pads now, even though I said I’d never built another one, we’re really starting to get well refined and streamlining the process to build these quickly and efficiently. One of the ways we do this is by developing lots of key infrastructure in parallel. So we don’t wait until foundations to be done to you know, start the cryo tanks. We do it all concurrently and so on and so forth for launch mounts. We fabricate all those large steel structures off-site and bring them to site and install them just as soon as that foundation work is done. That’s how we’re able to build LC-2 in the record time of just ten months. And now with foundation work substantially underway, above-ground infrastructure like the launch mount, water tower, and tanks will start to be installed across the next couple of months, ready for final integration testing, and then, of course, in preparation for launch. Now over to Mississippi, where Archimedes test stand is ready for hot-fire at NASA Stennis, all the major concrete and steel construction work is complete and commissioning of the locks cold flow systems is underway. We’re on track for the stand to support an engine by the end of March. After that, we’ll really start to see some fire, which would be good. And on the Neutron production infrastructure in Q4, we announced we are establishing a space structures complex in Middle River, Maryland, in the former Lockheed Martin vertical launch building. This facility will be home to the development and production of a wide range of large composite structures and products for both launch and space systems, including Neutron. Just a couple of months after taking over the building, we’ve ready the facility to accept and install the large-scale production equipment, including our automated fiber placement machine, which is really the key to rapid repeatable production of Neutron’s composition structures. So across the board, we’ve reached some really critical milestones on our journey to the first Neutron launch over the past quarter and a bit. Now we’re at the pointy end of the development program where all the hardware, systems, and infrastructure start to integrate, culminating in Neutron’s first launch. Currently, our schedule closes for this by the end of 2024, and we do have a track record for delivering programs faster than typical industry standard timelines. But we’ll know more about how close to the schedule and timeline we are and we can hold once Archimedes breathes fire and we complete a couple of other major tests. So we’ll have an update on that soon. And then, now back to small launch. We had a strong start to the quarter, so far with two successful Electron missions. These included a dedicated launch for Spire Global and North Star, as well as a really complex and unique mission for Astroscale. The mission launched a satellite designed to rendezvous on orbit with an old derelict Japanese rocket stage. The purpose was to demonstrate the ability for a satellite to closely follow and monitor a non-cooperative object in space, with a view to understanding how satellites might be able to dock with pieces of space junk in the future and drag them back to Earth and obviously reduce orbital debris and increase space sustainability. Now, I don’t think many people really realize just how wildly ambitious and challenging that mission was for our team. It’s difficult enough to rendezvous two items in space that talk to each other like an astronaut capsule and the [ISS] (ph). They’re both communicating with each other and they know where each relevant object is. But in the case of a derelict rocket stage, it offers no data on its location, speed, tumble rates, all of these things you really, really need to know to approach something in space. So to put Astroscale’s spacecraft into exactly the right place at the right time to rendezvous with the stage. A GNC team demanded highly accurate orbital insertion with tighter margins than required on just about any missions. The exact zero was only able to be defined a day prior to the launch and required an [LTAN] (ph) accuracy of only plus or minus 15 seconds. I should note that the GNC team was able to deliver that accuracy to within 1.05 seconds, so 15 times better than the speed that was required. The team delivered perfect bullseye, the spacecraft was deployed to exactly the right location and they were able to contact the spacecraft and prepare to start commissioning it with only minutes — with after minutes after launch. It’s this level of tailored mission design, and that simply is just not possible on rideshare missions. And why demand for Electron continues to grow. With two launches down. We have two more to complete this quarter, including a mission for Synspective from LC-1 on March 9 UTC, followed by a dedicated launch for the National Reconnaissance Office on March 20 UTC from LC-2 in Virginia. The missions are a testament to the trust and value of our customers place in Electron since this will be Electron’s fourth launch for Synspective and fifth launch for the NRO. It will however be our first NRO launch from U.S. soil, so we’re excited to demonstrate responsive launch capability for the DoD on two continents. Not only did we launch two missions from Q1 so far, but we brought an Electron back too. We recovered Electron’s first stage from the Spire mission in January, bringing it back for an ocean recovery. Electron’s recovery process has been iterative, enabling us to make small modifications and improvements to the stage and marine recovery process without causing a slowdown on the rocket production line, enabling us to keep increasing Electron’s launch cadence. Generally, a program like this would cause a lengthy pause in production to allow for design freezes and production changes, but by taking small steps on each flight, we’ve been able to continue delivering the launch service to our customers and the one that they rely on. Happily, this process has yielded successful results. The January mission saw Electron come back in the best condition yet. The stage is currently undergoing hydrostatic testing to determine if we’re comfortable to put it back on the pad. The next milestone for the recovery program is to fly a mission with nine pre-flown Rutherford engines. You remember that we successfully relaunched a single Rutherford engine late last year, so now we’re going to put all nine of them through their paces. So keep an eye out for that milestone coming. Right, on to some of the key highlights for our space systems since the end of Q1 and just last week, we achieved a world first, successfully reentering a capsule from orbit that was used to manufacture pharmaceutical products in space. We designed and built and operated the spacecraft for Varda Systems Industries to host their in-space manufacturing capsule. Launched in of June last year, the spacecraft was initially designed to operate in orbit for around four months before being deorbited into the Utah desert. However, lengthy delays in regulatory approvals to bring the spacecraft home meant that we ended up on orbit for more than eight months, and in a testament to both our spacecraft builders and operators, it performed flawlessly for that extended duration. Now, operating a spacecraft is one thing, but bringing it home and landing it within a tiny designated area is quite another. A team managed 24/7 flight operations, conducted multiple engine burns, and carrying out real-time trajectory calculations and adjustments to set the capsule on a course for the Utah testing and training range. For context, the margin of error is less than 0.05%, and if an engine burn is even a fraction of a second too long or too short, you end up hundreds of miles away from your designated landing zone. This is typically the stuff of huge government programs and decades of development. The only other company to successfully reenter a capsule from orbit for a purely commercial mission is our friends over at SpaceX. So we’ve joined a very elite club on our first attempt. This mission was the first of four missions that we have booked for Varda, and the next spacecraft is built and ready for launch in the middle of the year. Excitingly, the lessons we’ve learned on this program are helping inform future projects, including scientific sample returns, point-to-point cargo delivery, and of course, human spaceflight capability on Neutron in the future. So on that note, before I hand it over to Adam to talk through the financial highlights and outlook, it’s fitting time to share an update on our wider spacecraft programs. In 2020, we launched our very first Rocket Lab-built satellite called Photon. It was really a defining moment for the business, a line in the sand where we became an end-to-end space company, not just a launch provider. Since then, we’ve had the privilege of developing, launching and operating spacecraft for a broad range of customers. And they’ve all told us the same thing, they need a reliable, highly capable spacecraft built quickly, affordably, and at scale and we’ve done this. We’ve developed a spacecraft that has delivered a mission — a successful mission to the moon for NASA, we’ve developed twin spacecraft for a mission to Mars, we’re building constellations of half-ton spacecraft for SDA and NDA. And of course, we’ve proven spacecraft reentry capability now too. As we’ve delivered more and more successful spacecraft missions, demand for these spacecraft or similar variants on them has grown. So we’ve expanded beyond Photon to create a full family of standard spacecraft buses. So allow me to formally introduce Lightning, Pioneer, Explorer, and of course the original Photon. Lightning is our newest spacecraft bus designed for a twelve-year-plus orbital lifespan in LEO. It utilizes electric propulsion, delivers high power and radiation tolerance, and incorporates full redundancy in all critical subsystems. This is a half-ton, three-kilowatt bus, ideal for communications, imaging, and remote sensing. Then there’s Pioneer, a highly configurable platform designed to support large payloads and unique mission profiles, including reentry. For interplanetary missions there’s Explorer, a high delta V spacecraft with around about a kilowatt of power, large propellant tanks, and precision orbit determination system ranging transponder, and all the things you need to go into deep space. Explorer enables small spacecraft missions to planetary destinations, near-Earth objects, and Earth-moon Lagrange points. And of course, Photon is sticking around as the original spacecraft plus launch option. Thanks to our vertical integration strategy, these spacecraft share many common components and subsystems designed and manufactured in-house by us, enabling us to deliver spacecraft quickly, affordably, and reliably using flight-proven components. Each of the spacecraft are currently on order in a range of quantities, with 40 plus satellites currently in our production backlog. So from humble beginnings with one spacecraft just four years ago, to a full family of them designed to serve commercial and government partners is certainly an exciting time for our space systems business. So that wraps up the key business highlights from Q4 2023 and Q1 this year so far. So from here, I’ll hand over to Adam to take us through the financial updates. Over to you, Adam. Adam Spice: Thanks, Pete. Fourth quarter 2023 revenue was $60 million, in line with our revised guidance provided on January 31, 2023, but below the low end of our original Q4 guidance in November, due primarily to the pushout of one of our planned Q4 launches, which was due to the longer than anticipated September anomaly remediation’s. Fourth quarter revenue represented a sequential decline of 11.3% due to the reduction of launches from three in Q3 to one in Q4, partially offset by continued growth in our space systems business. On a full-year basis, 2023 revenue was $244.6 million, with impressive growth of approximately 16% year-on-year, especially when taking into consideration the effect of September’s Electron anomaly. Our launch services segment delivered revenue of $8.5 million in the quarter from one launch, which is above our targeted average selling price of $7.5 million and consistent with our revised guidance of $8.5 million. Our current aggregate electron backlog reflects an average selling price of $8.1 million and we’re encouraged by a funnel of new business that is consistent with this pricing level. On a full-year basis, launch delivered revenue of $71.9 million, or an increase of 18.5% year-on-year. Our space system segment delivered $51.5 million of revenue in the quarter, which was up 11.2% sequentially and in line with our revised guidance of $50.5 million to $52.5 million. With sequential growth driven by our MDA satellite bus contract, as well as growth in our component businesses. On a full-year basis, space systems delivered revenue of $172.7 million or an increase of 14.9% year-on-year. Turning to gross margin. GAAP gross margin for the fourth quarter was 25.8%, in line with our revised guidance of 24.8% to 26.8%, while non-GAAP gross margin for the fourth quarter was 32.3%, which was well in line with our revised guidance of 31.4% to 33.2%. GAAP and non-GAAP gross margin performance reflects improved mix in both our merchant component and satellite manufacturing businesses, partially offset by the effect of less overhead absorption in our launch business due to only one Electron launch in the quarter. We ended Q4 with total production-related headcount of 852, up 36 from the prior quarter. Turning to backlog. We ended Q4 2023 with just over $1 billion of total backlog with launch backlog of $248.3 million and space systems backlog of $797.8 million. Relative to where we ended 2022, total backlog was up 108%, or $542.5 million, thanks primarily to the $489 million base portion of December’s $515 million SDA Beta award. For space systems backlog was up 106% year-over-year, or $410.4 million, again, largely due to the SDA Beta contract signing. In our launch services business, backlog was up over 213% on the back of multi-launch Electron deals with government and commercial partners along with strong HASTE bookings. We expect approximately 41% of current backlog to be recognized as revenues within 12 months as we scale our work in Electron, HASTE, MDA, and other space systems projects. Turning to operating expenses in the quarter, GAAP operating expenses for the fourth quarter of 2023 were $63.4 million. In line with our revised guidance of $62.5 million to $64.5 million. Non-GAAP operating expenses were $53.5 million, again, consistent with our revised guidance of $52.5 million to $54.5 million. GAAP operating expenditures grew 63% from the prior year’s fourth quarter, almost entirely within R&D due to increases in staff costs within space systems and Neutron, as well as prototyping and materials-related expenses. Non-GAAP operating expenditures grew 95% year-over-year, largely due to the same reasons above, less the effect of stock compensation expenses. Now focusing on the quarter-over-quarter changes. As mentioned in the prior slide, GAAP operating expenses for the fourth quarter of 2023 were $63.4 million and non-GAAP operating expenses were $53.5 million. The increase in both GAAP and non-GAAP operating expenses versus the third quarter of 2023 were primarily driven by a reduction in contra R&D credit that wrapped up in Q4 related to Neutron upper-stage development from our U.S. government partners, as well as the impact of increases in headcount and increased depreciation amortization expenses related to the recent CapEx additions. In SG&A, GAAP expenses declined $1.3 million quarter-on-quarter due to a decrease in performance reserve escrow related to our ASI acquisition, partially offset by an increase in change in contingent consideration related to our PSE acquisition. Non-GAAP SG&A expenses increased by $500,000, primarily due to increases in headcount along with increase in outside services expenses. Q4 ending SG&A headcount was 247, representing an increase of 11 from the prior quarter. In R&D specifically, GAAP expenses increased $10.9 million quarter-on-quarter due to the previously mentioned roll-off of contra R&D credits related to Neutron upper stage development, as well as an increase in Neutron development spending offset somewhat by a reduction in stock-based compensation expense. Non-GAAP expenses increased by $13.3 million due to the same underlying factors driving the GAAP spending increases. Q4 ending R&D headcount was 585, representing an increase of 65 from the prior quarter. In summary, total fourth quarter headcount was 1,684, up 112 heads from the prior quarter. Turning to cash, purchase of property, equipment and capitalized software licenses was $10.4 million in the fourth quarter of 2023, a decrease of $10.6 million from the $21 million in the third quarter of 2023. This sequential decrease was due to lumpiness in the timing of our large CapEx items across both of our launch and space systems businesses. Cash consumed from operations was $42.4 million in the fourth quarter of 2023 compared to $25.2 million in the third quarter of 2023. The sequential increase of $17 million was driven primarily by the timing of receipts and payments related to our satellite manufacturing business and the impact of delayed launch services milestone invoicing due to shifting manifest adjustments post Electron’s September 19, 2023 anomaly. Overall non-GAAP free cash flow, defined as GAAP operating cash flow reduced by the purchase of property, equipment, and capitalized software in the fourth quarter of 2023, was a use of $52.6 million compared to $46.2 million in the third quarter of 2023, or a more apples-to-apples comparison of $54.6 million when including the impact of our asset acquisitions, most of which is classified as PP&E. The material step up in negative non-GAAP free cash flow was, as noted in my prior GAAP operating cash flow commentary was result of the lumpy timing of payments and receipts associated with our space systems manufacturing operations and the impact of post anomaly launch services milestones invoice delays for which we expect the reversal of this negative working capital cycle through early 2024. The ending balance of cash, cash equivalents, restricted cash, and marketable securities was $327.9 million as of the end of the fourth quarter of 2023. Reflecting on the past four quarters, we continue to make meaningful progress towards our long-term financial model. Increased Neutron investment will likely continue to drive EBITDA losses in 2024 as we move through the year we believe a trend to improving scale and efficiency in our space systems business and Electron launch, cadence, and production efficiencies provide an optimistic outlook towards achieving our long-term target business model. Overall, we expect gross margin trends will continue to improve over time, thanks to the same factors that help drive improvement this year. In terms of when we can get to adjusted EBITDA breakeven Neutron investment, especially R&D spend, continues to be the pacing item to achieve its critical milestone. Turning to our recent fundraising of $355 million in convertible senior notes. With this financing, we believe we secured a large quantum of cost-effective and shareholder-friendly capital. The roughly $300 million of proceeds, net of our capped call and deal fees, positions the company to exercise inorganic adoptions to further vertically integrate our supply chain with the critical capabilities that are consistent with what we have done successfully in the past, which has enabled larger and more strategic program wins like the recent $0.5 billion SDA program. With that, let’s turn to our guidance for the first quarter of 2024, we expect revenue in the first quarter to range between $92 million and $98 million, representing sequential revenue growth of between 53% and 63%. This range reflects $60 million to $65 million of contribution from space systems and $32 million to $33 million from launch services, which assumes four launches. Although modestly lower than what we previously expected for Q4 just a few months ago. We don’t want to understate how encouraged we are with the magnitude of this forecasted quarter-on-quarter growth and how positively it reflects on the capabilities of the team to deliver this level of growth in such a complex and competitive set of businesses. We expect first quarter GAAP gross margin to range between 24% to 26% and non-GAAP gross margins to range between 29% to 31%. These forecasted GAAP and non-GAAP gross margins reflect improved projected launch cadence in Q1, offset by mixed shifts in our space systems business bias towards the larger and lower margin satellite manufacturing program revenue contribution versus certain of our higher gross margin component offerings. We expect first-quarter GAAP operating expenses to range between $73 million and $75 million and non-GAAP operating expenses to range between $62 billion and $64 million. The quarter-on-quarter increases are driven primarily by increased Neutron investment, including staff costs, prototyping, and materials, as well as the runoff of contra R&D credits related to our Neutron upper stage development agreement with U.S. Space Force. We expect first quarter GAAP and non-GAAP net interest expense to be $1.5 million. We expect first-quarter adjusted EBITDA loss to range between $28 million and $30 million and basic shares outstanding to be approximately 490 million shares. And with that, we’ll hand the call over to the operator for questions. Operator: We’re now opening the floor for the question-and-answer session. [Operator Instructions] Our first question comes from Andres Sheppard from Cantor Fitzgerald. Your line is now open. See also 16 Best Financial Stocks To Buy According to Hedge Funds and 20 Best Personal Injury Lawyers in NYC. Q&A Session Follow Rocket Lab Usa Inc. Follow Rocket Lab Usa Inc. or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Andres Sheppard: Hello, everyone. Good afternoon. Congratulations on the quarter, all the launches, the development of the Neutron and sounds like it really was a busy quarter. So congrats on all developments and thanks for taking our question. I was just wondering if maybe you can give us some color as to how we should think about scaling and timing of other opportunities in space systems across both maybe satellite manufacturers and components? And maybe how should we think about a reaction wheel in your backlog versus revenue so far contract? Thank you. Peter Beck: I’ll take the first pass at that, Adam. And you might want to talk about the revenue side. But I mean you know, we continue to see lots of scaling across the space systems business, particularly from commercial and government. So you have big programs like the SDA program that are procuring hundreds of satellites over extended periods of time that require replenishment, and then you have a commercial model that’s kind of similar. So as we — as those constellations and those government programs continue to build out, and we continue to either supply what we’ve already won or win more, the corresponding timing of that revenue will scale appropriately. But maybe. Adam, further comment? Adam Spice: Yes, no, I think a little more color there. So if you look at the mixed changes that are going on within our space systems business, specifically between the satellite manufacturing and the components businesses, we’ll say that this year we’ll have probably a more significant step up in the relative mix of the space systems part, like the satellite manufacturing part of the business, and that’s a function of going into production phase on our contract with MDA. So I think this year you start to see again a little more relative contribution from the Photon side of the business, but we are seeing very significant growth also from the components. It’s just coming from a different base. When you think specifically, you also asked about the reaction wheel business and kind of where that is. I think you’re probably referring to the mega constellation win that we’ve announced some time ago. And so that starts to ship in meaningful ways this year as well. So we see again very encouraging growth across the satellite manufacturing, but also components. In this case this year will be a very good year for growth in our reaction wheel business, particularly tied to that one mega constellation deal that we announced a couple of years ago. Andres Sheppard: Got it. That’s super helpful. I appreciate all of that context. Maybe one follow-up for you, Adam. In regards to the $515 million contract award with the Space Development Agency. I’m wondering if maybe you can give us some color as to how we should be thinking about in terms of modeling it in terms of revenue recognition. I understand there’s a base amount of little less than $490 million. And I think work for this contract has already begun. But just wondering if maybe you can give us some direction as to how we should be thinking about it in terms of recognition for revenue. Thank you. Adam Spice: Sure. Yes, for this contract in particular, it’s not too dissimilar to other satellite build contracts, and the fact that it’s more back-end loaded, it’s not like — under this contract, we will recognize revenue as we expend resources against the program to complete it. So under what they call an EAC basis, under ASC 606. So if you think about this year is really all about kind of finalizing the design elements of the program, and the majority of the revenue ultimately gets recognized as you’re kind of starting to build hardware and start to pull things to the floor. So this year we will recognize some revenue against the contract because there is cost to complete kind of the design elements of it. But what you really see is, the more meaningful contribution of revenue will start up probably more towards the second half of 2025, and then ultimately the satellites begin shipping and ultimately ship in 2027. Now, what we’ll say is that, if you think about the kind of the working capital kind of elements of this deal is, revenue recognition is not tied to kind of cash receipts and will be positive from a working capital perspective on this contract, because at some point we receive the payments from the customer and then we have to forward some of those payments, obviously, to our long lead vendors. But we have modeled this contract to be cash flow positive from its inception. So this is one where it’s both good from a working capital perspective, but also it’s going to build nicely from a revenue contribution as we progress through 2024 and into 2025 and beyond. Andres Sheppard: Wonderful. That’s super helpful. I appreciate that. Congrats again on the quarter. I’ll pass it on. Thank you. Operator: Next question comes from Erik Rasmussen from Stifel. Your line is now open. Erik Rasmussen: Yeah. Thanks for taking the questions and congrats on all the progress you guys have been making. Maybe just on the SDA award. When looking at that $515 million basis, it seems like the value per satellite of almost $29 million is meaningfully higher than what we saw that was previously awarded on that beta program. What’s driving this and what is the cost structure of the satellite and are there any NRE fees associated? Adam Spice: Yeah. Pete, I’ll let you take the first piece of that. Peter Beck: Sure. Yes, I mean not all satellites are created equal, Erik. And that particular bus and design is pretty unique. So I wouldn’t read too much into the average satellite price. It’s kind of saying the average car price, but there’s a Ferrari and a Toyota and you don’t expect those to be the same price. So you have to kind of look at it with respect to what its capabilities are and what are the quality of the components that have been used in it and so on and so forth. Adam Spice: And Erik, as far as the NRE piece, yes, there is an NRE element to this program. And that’s really, again, what’s going to be happening this year in 2024. And that’s what we’ll get the beginnings of revenue recognition on. It certainly won’t be a very significant portion of the overall contract value, but it’s also not completely immaterial. So as we progress through 2024, we’ll be able to provide more color on what that rev-rec looks like. It’s a little bit early because the contract is relatively new and we’re still going through a lot of program details. But again, as we progress throughout the year, we should have much more kind of ability to provide color on kind of the timing and the magnitude of the incremental contribution from the NRE phase of this contract. Erik Rasmussen: Okay, we’ll wait for that. Thanks. And then, obviously, your backlog continues to grow. You added over $500 million with the SDA award. Can you just comment on some of the types and sizes of potential deals, whether on the government or commercial side that you’re tracking, or maybe some qualitative comments to highlight the opportunities or maybe the programs you guys are looking at? Peter Beck: Sure. Obviously, Eric, SDA is a big one. I mean, as I mentioned in previous answer, these are spacecraft that require replenishing. U.S. government is moving from a few succinct assets in GEO to a distributed LEO architecture. So that’s a significant opportunity and change from the government. And it’s not just SDA. If you look across all of the government agencies, the transition down to LEO is occurring. So we see a lot of opportunities from the U.S. government and quite frankly from other governments as other governments follow that path. And then on the commercial side, there’s a number of constellations that we continue to track, but we’ll always be pretty selective about the work that we take on. And I think we mentioned before that we only really take on work that we believe is strategic to the longer-term vision of the company, and we’ll continue to follow that process. Adam Spice: Yes, and Erik, I’d add a little bit to that, too. I mean we had this big step up, as you noted, related to the SDA contract. And I think it’s a very meaningful one for us because, again, we’re priming that mission. We’re not a sub, we’re the prime for it. So I think that opens up other opportunities to take on bigger and bigger prime projects. But I think with this big step up, I think we can also kind of look forward to, really, as we get closer and closer to getting Neutron to the pad. Obviously, that’s going to be an opportunity to significantly build our backlog in a very, very meaningful way given the estimated average selling price of that vehicle versus Electron. And in addition to basically looking forward to having Neutron start adding to the backlog, we’re seeing a lot of excitement and appetite towards HASTE. And the HASTE missions are a great opportunity for us. They’re a recent add to our launch capability stack. So across both Neutron, HASTE, and just kind of, if you want to call the Electron classic, I think there’s really a lot of opportunities to continue to build that backlog and kind of hopefully maintain a relatively consistent mix of launch and space systems. When Pete and I kind of were looking at how we want to model this business going forward, we do like the predictability that space systems brings with it across components, plus large program opportunities, because launch is always going to be a lumpier business. But we think there’s a large magnitude of opportunity there again, particularly as we mix in more HASTE and start to see neutral opportunities feather into the backlog. Erik Rasmussen: Great. Maybe if I could just ask one more on the convert deal you announced, how did you arrive at this maybe versus other financing options you were contemplating? And then of the $300 million net proceeds, obviously, we mentioned M&A, what kind of assets could be interesting to bring in-house that would drive further your strategy? Adam Spice: Yes, I’ll take the first one and I’ll pass off to Pete to kind of maybe provide a little more color on M&A targets as far as areas we might be looking at. But why convert I think, when we looked at all the different options and we did kind of exhaust all the different possibilities out there, it was the right vehicle to provide us the quantum of cash that we were looking to raise because we do see a lot of opportunities out there to grow inorganically and continue exploiting kind of M&A as a growth vehicle for us. And if you look at the flexibility that provides as well, there were no financial covenants related to it, it gives us a lot more freedom to run the business the way that we think it needs to be run. And from a cost to capital perspective, we just think it represented the lowest cost to capital versus some other kind of straight debt options and so forth. So we ran kind of parallel processes, looking at different ways to bring capital into business, all the way from doing a straight equity offering to doing straight debt to then the convertible. And the convertible just came on top in almost every metric that we were looking to raise on. So to us, it became kind of a no-brainer as we learned more about each of those options as they would be presented to our business. So I would say we put some competitive tension in the process to make sure that we were picking the right product and ultimately felt comfortable that this indeed was the one. Peter Beck: Yes. And on the assets for potential M&A targets. So, look, there’s a couple of things that we don’t have in [indiscernible] with respect to space systems. So there’s a potential for some tuck-ins. I would say we have a reasonable focus on payloads, I mean, as a prime now on the SDA mission, the only thing that we’re not really doing, the actual payloads and sensors, so I think that’s obviously an area of interest. And I’ll remind you that the end goal here is not just to be a bus provider or even a prime. It’s to ultimately have our own constellation in orbit providing services because that’s where we ultimately think this all goes. So, as I mentioned before, everything we do is within that kind of vision. And the same with any kind of M&A target, especially in the payload area. Erik Rasmussen: Great. Thanks for taking the questions, and good luck. Adam Spice: Thank you. Operator: Our next question comes from Kristine Liwag from Morgan Stanley. Your line is now open. Kristine Liwag: Hey, good afternoon, everyone. Peter, with the Varda mission, you mentioned that your experience with a capsule’s re-entry could inform potentially crude missions via Neutron. Can you expand on that a bit? And how far along are you in developing a re-entry capsule for Neutron’s that can carry humans? And how are you thinking about that market opportunity there? Peter Beck: Yes. Thanks, Kristine. So, look, as we’re designing Neutron, to be clear, we don’t have any active capsule development programs or anything. But as we’re developing the vehicle, we wanted to make sure it was human-ratable because it’s a vehicle of significant enough scale and class that it should be capable of human spaceflight. So it’s definitely something we pay close attention to. Now, with respect to the human spaceflight market, it’s kind of an unusual one because really, there’s only one customer right now that being NASA and they’re fairly well served. So it’s unclear whether or not there’s a big enough market opportunity to go after that as it stands today, especially if you were to self-fund all the development because typically those programs, the development has been paid for by the government. So that would be a pretty big call to make. But we’ll make sure that we’re ready and able to do human spaceflight missions when we think the market conditions are right and when there’s more than probably one customer, which, obviously, needs to be more than one destination. So as the Space industry continues to evolve and grow and it becomes clear that there’s more destinations and more customers for human spaceflight, then we’re ready with the Neutron vehicle and clearly, we can reenter and land stuff exactly where we need to. Kristine Liwag: Great. Thanks for the color. And maybe on Neutron, too. You talked about Neutron being on the pad this year, but what do you think about a launch in 2024 given all the work left on the program? And also how do you think about the cadence? Are you still on track for about three Neutron launches in 2025? Peter Beck: Yes, look, I mean, at the end of the day, it’s a rocket program, right? And right now we have a schedule that closes for a launch by the end of the year. But we’ve got a lot of testing to get through. And if everything goes well, then everything goes well. If we have some issues and some development issues along the way, whether it be propulsion or other systems, then that will cause us to real evaluate the schedule. But kind of as it stands today, that’s kind of where we’re looking at it. And we have a — like I said, we have a schedule that closes. And then on cadence, we’ll follow a very similar cadence to what we did with Electron. So if we get one away this year, then next year we’d look to do sort of three and then we may be able to step it up to as much as five. But it really depends on how the development program goes and it also depends on how much work we have to do after we get past first flight as to what cadence we can meet. But what I will say is, we certainly get up from an infrastructure perspective to deliver those cadences with the AFP machine in the Middle River facility and also the Virgin orbit asset. I would say that from an infrastructure standpoint, we’re in a good position to scale. Kristine Liwag: And last question on Neutron. As you sit here, what do you anticipate the mix of customer set is for government versus commercial over the next two years? Where do you see the most opportunity for Neutron customers? And when do you plan to share the details of the initial customer set for the first launch? And ultimately, do you expect to launch Neutrons from both Wallops and New Zealand? Peter Beck: Sure. So we certainly hope for a mix of sort of 50-50. We’ve found that to be pretty, you know, about right for Electron. I think it provides a good mix and there’s plenty of government customers that are looking forward to the vehicle coming online and equally so commercial customers. So I have no reason to believe that we won’t see a different mix. And then with respect to Wallops and New Zealand. So it will only launch from Wallops. New Zealand is not a viable launch site for a vehicle of this size. To give you a sense of scale, if we took all of the liquid oxygen produced in New Zealand it would half-fill a Neutron tac once. So there’s just not the industrial base to be launching this vehicle of this class down in New Zealand. So it’ll be exclusively Wallops pad to start with, for sure. Kristine Liwag: Great. Thank you for the color. Peter Beck: No worries. Operator: Our next question comes from Cai von Rumohr from TD Cowen. Your line is now open. Cai von Rumohr: Thank you very much. So your gross margin you’ve indicated is going to be lower in the first quarter than the fourth. And yet if you hit the target you’re going to have four launches versus one. And you’ve basically made the point that there’s this huge leverage in terms of more launches. So how come the gross margin is down? You mentioned systems, but is the launch margin up sequentially? Adam Spice: Yes. So, Cai, I’ll take that one. The launch margin actually does increase sequentially based on those increased number of launches. It’s really all consumed, though, and then some by space systems is again a result of a disproportionate growth on the system side of things as we move into the production phase of the MDA contract. So again, it’s kind of a goodness on the launch side does get consumed by kind of just the mix on the space system side. So the benefit of these large space system contracts is obviously scale and absolute dollars that flow. But they do come at a lower gross margin versus our components business. So over time, it’s really all about managing that mix of this kind of larger, lower gross margin programs on the manufacturing side of space systems versus the higher margin component sales and the increasing gross margins that we expect from our launch business as we continue to grow or scale the cadence of Electrons throughout the year. Cai von Rumohr: Thank you. And then a second one, HASTE, you mentioned you got seven orders in 2023. What percent are they? How many are there out of your manifest of 2022 this year. Roughly when do they go and how does their profitability compare with an Electron launch? Adam Spice: Yes. So we have two HASTE missions on the manifest for 2024 out of the total 22 manifested. And if you look at the contribution from a margin perspective is relatively consistent with other launches. I mean we have a higher selling price but we also have some incremental costs associated with those because they go out of Wallop. So we have more kind of variable costs related because we pay the range fees in Virginia. Plus we also have kind of incremental government mission assurance costs. So you basically have the benefit of the higher selling price. But as a gross margin percentage contributor, it’s about on par with other Electron missions. Cai von Rumohr: Thank you very much. Operator: Next question comes from Matt Akers from Wells Fargo. Your line is now open. Matt Akers: Hey guys, good afternoon. Thanks for the question. I think, Adam, you touched on EBITDA break even and it sounds like that’s kind of paced by sort of how fast Neutron then goes. Is there any more color you can kind of give there? Is there a range we should sort of think of, I guess is 2025 a reasonable outcome? Kind of if everything goes as planned. Adam Spice: Yes. So as we progress through 2024, we expect obviously growth on the top line to continue, we expect gross margin expansion. All of that really does get consumed by a step up in investment for Neutron. We’re really kind of in the throat of the spend on Neutron this year and it’s really all about getting across the line, getting the vehicle to pad, and then once we start kind of going into production on that vehicle, then obviously you’ve got some — obviously contributing revenue to offset the cost and it moves from R&D to cost to sales. So from a adjusted EBITDA perspective we really need to get that initial Neutron model to the pad and off. So if you think about our timing again, if we’re successful in the green light schedule holds, as Pete talked about earlier, where we get to launch off by the end of this year, that’s really kind of that cresting point. And so not too long after that, we should really be in the phase that where we could be looking down at line of sight to adjusted EBITDA positivity, but it really can’t happen practically without getting that first Neutron off. Matt Akers: Got it. Thanks. That’s helpful. And then I guess, just to go back to the M&A discussion, I think you highlighted some of the assets you might be looking at. Are those assets coming available for sale? Are the prices reasonable? Just any color on what you’re seeing in the market out there. Adam Spice: I want Pete take a first stab at that. Peter Beck: Yeah, sure. Thanks, Adam. Yeah, I mean, bear in mind that a lot of these potential acquisitions are companies that we’ve worked with for many years and we know well, that’s kind of been our normal kind of motives of operation. It’s less what’s coming to market and what people are delivering to our plate, rather than strategically going through and working out the ones that we really need. So for us, it’s not about buying revenue. It’s about making sure we have the capability in-house and with the end goal of doing our own thing in the future. I think privately funded, privately held companies seem to have, I’ve noticed it seem to have kind of been slightly insulated from some of the value destruction that publicly traded companies may have experienced. So we are seeing probably prices and asks that are a little bit higher than might be benchmarked against public companies. Adam, you might have some more to say about that, but that’s typically what we’re seeing. Adam Spice: Yeah. Matt, I would say that the expectations of sellers remains high. I think though, we are seeing now maybe we’re getting to a breaking point because we’ve seen processes, sale processes that have been broken so where a transaction hasn’t been reached by privately held companies. So I think that they’re meeting a lot of resistance with their expected price tags. So hopefully that starts to kind of drive a change in sellers behaviors and expectations. I think at some point they ought to realize that ultimately the buyers, if they’re not just going to trade amongst kind of private equity players, that it’s these public market larger companies that have liquidity and currencies to use, that they’ve got to kind of come in line more with public market valuations......»»

Category: topSource: insidermonkeyFeb 28th, 2024

Netflix (NFLX) Stock Price Prediction in 2030: Bull, Base and Bear Forecasts

In a landscape where the battle for eyeballs intensifies, Netflix Inc. (NASDAQ: NFLX) stands out as a colossus in the streaming world. As we project into 2030, understanding NFLX’s potential trajectory involves dissecting its products, earnings growth, and business valuation. With the backdrop of its recent performance—where it showcased a commendable surge in revenues and […] The post Netflix (NFLX) Stock Price Prediction in 2030: Bull, Base and Bear Forecasts appeared first on 24/7 Wall St.. In a landscape where the battle for eyeballs intensifies, Netflix Inc. (NASDAQ: NFLX) stands out as a colossus in the streaming world. As we project into 2030, understanding NFLX’s potential trajectory involves dissecting its products, earnings growth, and business valuation. With the backdrop of its recent performance—where it showcased a commendable surge in revenues and net income—the anticipation around its future performance is palpable. Let’s dive into the analysis. Bull case for the stock price Tom Schilling attends Netflix reception event Under the bull scenario, Netflix’s trajectory is marked by several key drivers: Product Innovation and Market Expansion: Netflix’s relentless pursuit of content diversification and technological enhancements positions it as a pioneer in personalized entertainment. Its aggressive expansion into international markets, coupled with localized content strategies, is expected to fuel subscriber growth beyond current forecasts. Earnings Growth: The company’s earnings have shown an extraordinary increase, with net income soaring by over 1500% in the latest quarter compared to the previous year. Such momentum, propelled by robust revenue growth (12.49% last quarter) and strategic cost management, indicates a bright earnings trajectory. Business Valuation and Market Leadership: Despite trading at a premium valuation with a P/E ratio of 49.41 significantly above the subsector average of 41.77, Netflix’s market capitalization of $256.8 billion reflects investor confidence in its enduring growth story. The company’s return on equity (ROE) outperforms the subsector and S&P 500 averages, underscoring its efficient capital utilization and solid profitability. Assuming a 25% annual growth rate in EPS from 2024 to 2030, the future EPS in 2030 would be significantly higher than the $17.23 EPS in 2024 due to this aggressive growth rate. With the future P/E ratio assumed to expand to 60, reflecting high investor confidence, the stock price projection for Netflix under the bull case scenario is approximately $3,943.63. This optimistic outlook is based on Netflix’s ability to continue its impressive growth trajectory through product innovation, market expansion, and sustained earnings growth. Base case for the stock price Adam Sandler and Carry Mulligan attend Netflix event In the rapidly evolving landscape of streaming media, Netflix Inc. stands at a pivotal juncture. The base case scenario for NFLX by 2030 is grounded in a balanced view of its potential, considering its product innovation, earnings growth, and business valuation as depicted in the latest financial analysis. Product Innovation and Market Penetration:  Netflix’s continued investment in content diversification and technological innovation is expected to keep its product offerings compelling. The company’s strategy to enhance user experience through AI and machine learning for personalized content recommendations plays a crucial role. However, in the base case scenario, Netflix faces stiffer competition from emerging and established players, leading to slower but steady subscriber growth. Earnings Growth: Based on the analyst report, Netflix’s earnings have shown robust growth, with a notable increase in net income and sales in recent quarters. For instance, net income surged by 1596.4% in Q4 FY23 compared to Q4 FY22, highlighting the company’s ability to scale efficiently. Nevertheless, the base case assumes this growth moderates as market saturation approaches and content production costs escalate. The forecasted earnings per share (EPS) increase to $17.23 in 2024 from $12.01 in the previous fiscal year reflects optimism but also acknowledges the challenges of maintaining such high growth rates. Business Valuation:  Netflix’s market capitalization of $256.8 billion, alongside its P/E ratio of 49.41, places it at a premium compared to the industry average of 41.77. This premium valuation reflects the market’s confidence in Netflix’s growth trajectory and its leadership position in the streaming sector. However, the base case scenario also considers the potential impact of regulatory challenges, changing consumer preferences, and competition on its valuation. While Netflix is expected to maintain a leadership position, the valuation may adjust to reflect more realistic growth expectations and market dynamics. Assuming a 0% annual growth rate in EPS from 2024 to 2030, the future EPS in 2030 would remain at $17.23, identical to the 2024 EPS. Given a future P/E ratio adjustment to 50, which reflects a more cautious but still optimistic investor sentiment, the stock price projection for Netflix under the base case scenario is approximately $861.50. This scenario suggests a stable performance by Netflix, maintaining its current level of profitability without significant growth or decline in its earnings per share. Bear case for the stock price Kunal Nayyar attends a Netflix event As we delve into the bear case scenario for Netflix Inc. by the end of this decade, we confront a landscape marked by heightened competition, evolving consumer preferences, and significant financial challenges that could temper its ascension. This perspective, strictly derived from an in-depth financial analysis, presents a sobering view of potential hurdles Netflix may face, impacting its products, earnings growth, and business valuation. Product Saturation and Market Penetration:  In the bear case, Netflix encounters a saturated market where its once revolutionary streaming service struggles to find new growth avenues. With every major player in the entertainment industry launching or enhancing their streaming services, Netflix’s initial competitive edge in content diversity and technological innovation faces dilution. The company faces fierce competition from big brands like Prime from, Inc. (NASDAQ: AMZN) and The Walt Disney Company (NYSE: DIS).  There are many private companies such as Hulu and Dwayne ‘The Rock’ Johnson’s Seven Bucks Productions delivering high quality content to viewers thus taking market share away from Netflix. Even traditional movie theater companies like AMC are not collapsing.  The relentless pursuit of original content, once a boon, becomes a financial strain without commensurate subscriber growth, especially in mature markets.  Stalled Earnings Growth:  The financial underpinnings of this scenario reveal a company grappling with the economic realities of its business model. Despite previous years of explosive growth—such as the 1596.4% net income surge in Q4 FY23 compared to Q4 FY22—this trajectory proves unsustainable. Increased content costs, coupled with the need to lower subscription prices to retain viewers in a crowded market, significantly compress margins. The projected earnings per share (EPS) growth, while optimistic in past assessments, flattens as Netflix struggles to maintain its profitability amidst rising expenses and competitive pressures. Business Valuation Concerns: In a bear market scenario, the premium valuation of Netflix’s stock, evidenced by its high P/E ratio of 49.41 relative to the sector P/E ratio of 41.77 and S&P 500 P/E ratio of 27.30, comes under scrutiny. Investors begin to question the sustainability of its growth rates and the prudence of its investment in content. The market capitalization, which stood impressively at $256.8 billion, faces potential contraction as investors recalibrate their expectations for the company’s future performance. The optimism that once buoyed its stock price gives way to a more cautious appraisal of its financial health and market position. Assuming a -25% annual growth rate in EPS from 2024 to 2030, the future EPS in 2030 would decrease significantly due to the compounded negative growth rate, resulting in a future EPS of approximately $3.07. With the future P/E ratio assumed to contract to 35, reflecting investor concerns and a more pessimistic view of Netflix’s future performance, the stock price projection for Netflix under the bear case scenario is approximately $107.33. This scenario paints a starkly negative picture of Netflix’s future, driven by challenges such as increased competition, market saturation, and financial pressures impacting its earnings.  These are challenges that even diversified giants like Disney cannot escape.  Final Thought Katja Hofem speaks on stage at the reception event of Netflix In the high-stakes world of streaming entertainment, Netflix Inc. confronts a future brimming with both unparalleled opportunity and formidable challenges. The bull case envisions a landscape where Netflix’s innovative prowess and strategic market expansions solidify its dominion, driving its stock to new heights. Conversely, the base case posits a scenario of steady growth, tempered by intensifying competition and market saturation. The bear perspective, however, sketches a cautionary tale of potential stagnation, where escalating costs and a crowded marketplace erode Netflix’s financial robustness and market valuation. As we stand at this crossroads, the trajectory of Netflix by 2030 will be emblematic of its agility to navigate the evolving digital frontier, underscoring the critical interplay between innovation, market strategy, and financial acumen in securing its legacy in the streaming era. Before committing to an investment in Netflix stock, every investor is advised to undertake their own research and analysis to evaluate the stock’s potential thoroughly. Sponsored: Attention Savvy Investors: Speak to 3 Financial Experts – FREE Ever wanted an extra set of eyes on an investment you’re considering? Now you can speak with up to 3 financial experts in your area for FREE. By simply clicking here you can begin to match with financial professionals who can help guide you through the financial decisions you’re making. And the best part? The first conversation with them is free. Click here to match with up to 3 financial pros who would be excited to help you make financial decisions. The post Netflix (NFLX) Stock Price Prediction in 2030: Bull, Base and Bear Forecasts appeared first on 24/7 Wall St.......»»

Category: blogSource: 247wallstFeb 26th, 2024

The Game Of "Chicken" In Today"s World

The Game Of "Chicken" In Today's World By Peter Tchir of Academy Securities The Game of "Chicken" in Today’s World I’ve been thinking a lot about the game of “chicken” lately. The “game” where two people drive at each other, effectively “daring” each other to swerve out of the way or not. Maybe this fixation was triggered by all the 40th anniversary of “Footloose” messages I saw on social media. Since I cannot dance to save my life (I have absolutely no rhythm), I just remember the game of chicken played with farm equipment. But the reality is that the game of chicken can apply to so many things: geopolitically, politically, and even in markets as of late. Certainly every time someone mentions “drawing lines in the sand,” which is happening a lot, I think of the game of chicken. We will attempt to look at a few things through the “chicken” lens: Russia and Ukraine. The Middle East. Fighting the Magnificent 7. The Chinese stock market. But first, let’s think about the game of chicken a little bit more. The Game Theory of “Chicken” Chicken is a great way to start thinking in terms of game theory. The game itself seems quite simple: Only 2 actors. Only 1 choice each actor can make. An obvious and immediate consequence of those actions. It is so simple (yet far more interesting) from a game theory perspective. The analysis begins with this simple board: There are 4 possible outcomes. The first obvious step is to assign some “values” to these outcomes. Let’s use a scale of -10 to 10, with -10 being extremely bad and 10 being extremely good. The “easiest” square to fill in seems to be the one in which neither side swerves. That ends in flames and death. So, let’s call it -10. Both swerving is not really a win. You avoid flames and death, but you could have won, since the other side swerved. Let’s call this a -1. It is mildly annoying that you didn’t win, but no real consequences. If you don’t swerve and the opponent swerves, you “won.” But what did you win? Some satisfaction, but I think it is obvious that you didn’t win as much as you lose if you really lose. So, let’s say you call a win a 5. Similarly, if you swerve and your opponent doesn’t, you have “lost” pride more than anything. To make this a bit symmetric, to start, let’s assign a -5 to this outcome. After this initial “analysis,” here is how “you” are thinking about the game. You can see that it is asymmetric, at least with the values we’ve assigned. Swerving limits how bad the outcome could be (worst case of -5 versus -10). If your opponent was equally likely to swerve or not swerve, your “expected” outcome of swerving is slightly worse than not swerving, as it is -3 vs -2.5. Aside from telling us that this is a stupid game to get involved in (the expected values are negative no matter what decision you make), we “know” our opponent is not random and is likely engaging in a similar decision process. For starters, let’s assume that their outcome function is the same as ours (this is called “mirroring” in the intelligence world, and is often a mistake). Two things come out of this step: Are you really sure about the values you have assigned to the outcomes? Maybe on a cursory initial thought, they made sense, but are they true? Not just for yourself, but for your opponent as well. If your tendency is to reduce the tail risk (the -10 outcome), then you would tend to swerve. However, if you think your opponent thinks like you do, they may also have that tendency, allowing you to possibly “win” by not swerving. The already simple game has become more complex. There is no reason to believe that your opponent’s reaction function is the same as yours. That concept of “mirroring” is problematic. Let’s assume, for the moment, that you went back and reviewed your valuations and are comfortable with them (easier said than done). Then your decision will ultimately be influenced by what you really believe your opponent believes. What if flames and death isn’t viewed as a -10 by your opponent? What if they have some reason to view that as “only” a -8? What if “bravado” or something is an important feature of your opponent, and they place greater weight on “winning” and view the outcomes where they swerve with greater disdain? In this scenario, your opponent seems far less likely to swerve. Their “downside” is only the difference between -8 and -6. Their “expected” outcome (assuming you were 50/50 on what to do) is -4.5 if they swerve, versus -1 if they don’t swerve. You, in your analysis, probably have to start assuming the opponent is unlikely to swerve, skewing your expected outcome calculations much more in the direction of swerving (because you believe your opponent is less likely to swerve). Winning The Game of “Chicken” We could play with a variety of scenarios, but one theory in the game of chicken is that if you can demonstrate an inability to “swerve” you “should” win. The example that my professor used was you make a big show of dropping a concrete block on the accelerator, tying the steering wheel into position, and then sticking your hands and feet out of the window – clearly demonstrating that you cannot swerve. The opponent, if they believe you won’t panic at the last moment, has to assume you won’t swerve. In which case, unless they have dramatically different outcome values, they should swerve. But enough about the game theory of chicken and let’s get back to the 4 things that we came to discuss. Russia and Ukraine As we enter the third year of this war, the U.S. is debating what level of support to provide Ukraine. From a “game of chicken” perspective, I think that Ukraine has already lost. Assuming that we get through this year’s process, it would seem logical for Putin to decide that next year might be the year funding doesn’t get approved. Yes, something decisive could happen during the U.S. elections, but November is a long way away right now. Putin’s logical conclusion would be to drag this out, and hope that next year, funding fails. If the U.S. wanted Ukraine to “win” this war, it should approve a massive 5-year spending plan, that cannot be easily undone after the election. That would change Putin’s calculus. He doesn’t get the “free option” of thinking that the U.S. might tire of its spending. For now, I expect this war to drag on. As the U.S. election nears, both Zelensky and Putin will have to play their own games of chicken with the election results. If it looks like a Trump/Biden rematch will be close at the polls in November, both Russia and Ukraine may gravitate towards a truce of some sort. The Ukrainians face existential risks if the outcome will ensure that funding will dry up. The Russians, as the “bad actors” in the area, can always go back to war if they like the outcome of the election, but since they are also tiring of this war that they seem incapable of winning, some sort of deal should make sense to them as well. Status quo for now, with all parties keeping a close eye on the U.S. election. The Magnificent 7 If I had a dollar for every time NVDA was mentioned this week, I’d have a LOT of $$$$$$s! We went into this week having written A Retrospective of All-Time Highs on February 11th and A Market “Only a Mother” Could Love on February 19th. After the NVDA earnings came out, we published NVDA Crushes It, Nasdaq 100 Still Lower Than Friday early on Thursday. The title of that latest report didn’t age well as stocks not only gapped higher on the open but continued their relentless push higher. On the other hand, for all the hype, all the excitement, and all the jubilation, I’m not sure who holds the winning hand right now – the bulls or the bears? Given the excitement and hype, no one can be blamed for realizing that even with all the hoopla, the Nasdaq 100 was only higher than where it had been back on February 9th for a brief window and that didn’t occur until Friday! Yes, if you have been fighting the market and the so-called Mag 7 for a year, it has been an epic failure. If you got in more recently and covered any shorts at all after the 3% to 5% pullback ahead of the now fabled earnings, you are probably sitting in pretty good shape! But that isn’t the game of chicken I came to talk about. When I look at QQQ (a Nasdaq 100 ETF with a transparent portfolio), you see that MSFT is 8.8% of that index. AAPL 8.2%. NVDA 5.6%. META and Broadcom and the two classes of Alphabet are also around 5%. So, the game of “chicken” that I think is being played out is among active managers who are underweight those stocks relative to the index that gets so much attention (and, more importantly, the allocations). Some managers are restricted to 5% or less in their portfolio by their own rules. But even managers who don’t have rules may find it “uncomfortable” owning so much of a stock (especially ones that have performed extremely well, outstripped the market, and have some metrics that seem to push the boundaries on some “traditional” rule of thumb valuation metrics). How many managers have some of these stocks as their largest positions, but are still underweight relative to the indices? That is the game of chicken that is being played out in real time. In many ways, whether we see a “capitulation” into market weight on these names, or not, will determine the next move. I find it difficult to believe, even after Thursday, that many who are underweight will change their minds now. I’m staying bearish the market here. I will “buy the dips” but by that I mean cover some shorts, only to reload higher, but I am a fully committed U.S. equity bear here. While there is no obvious catalyst to a big move lower, I’m not sure what the catalyst higher is as we move away from the last vestiges of post-NVDA earnings trading. On Friday, I did overhear someone on Bloomberg point out that large rallies into new highs (like we had on Thursday/Friday) have been a precursor to large downward moves in the past. I don’t have the details on that report, but I’d like to see it, as it fits my needs well! Dancing With Myself Since I cannot keep a beat, but enjoy dancing, I find that I have to dance to the 5 songs that seem to be at the beat I dance to. Ironically, or weirdly, or just strange, is that one of those songs is “Dancing with Myself” by Billy Idol. Anyways, felt compelled to share how I would try to “win the game of chicken” on the dance floor! Don’t Fight the CCP We all know that you Don’t Fight the Fed! It probably should be the first three chapters of any credible finance textbook right now. But, many seem comfortable fighting the Chinese Communist Party. That just seems weird to me. While I don’t think China is investible longer-term (from either the asset management side of things or the corporate side of things), I think that it is tradable. Over time I don’t think the CCP will be good to foreign investors, but right now, I want to be overweight Chinese equities (overweight or max long, as my “normal” weighting to China is 0.0%). Chinese stocks (based on FXI, an ETF that is easily accessible) are at levels that required a “crisis” to achieve in the past (post-GFC and post-COVID). While I don’t like the demographics in China, I do not think they will reclaim their role as an “industrial hub” of America and Western Europe, and while I don’t think they will treat foreign investors well, I think there are several reasons to own some Chinese shares right now. As you all know, or anyone who has been reading the T-Report for the past year knows, I am all about the transition from “Made in China” to “Made by China.” Chinese brands will attempt to sell more and more of their products globally – with Emerging Market countries (where China has a trade deficit) as the focal point. I view it more as a threat to our companies, but it should help their companies. But that isn’t the main driver of things right now. I think it is quite simple: China, and especially the CCP, needs to keep the middle class at least somewhat happy. We saw how quickly some protests over COVID turned China’s COVID policy around. The CCP wants to retain power, and while “suppression” is one of their tools, so is “appeasement.” I think that the “mistake” many are making is that we are “mirroring” (to China) what we are used to in response to financial market and economic weakness domestically. The reality is that most of the time, the Fed is the only game in town. While D.C. acted relatively quickly and aggressively in response to COVID, the central bank has usually done the heavy lifting here. So far, the Bank of China has not been as aggressive as we would have expected if they were serious about getting the market to bounce. But I think that is where we are making a mistake. I expect China and the CCP to have a multi-pronged approach. They will attack the problem from many angles. One pertinent point is that “normally” I laugh at efforts to restrict short selling. Yeah, you have to run for the hills briefly, but you know it will just take out the short base (which will become a dip buyer) and markets will find ways to short the things anyways (either through proxies, or some other vehicle or mechanism) and things will get worse again. I do not think that with respect to China’s efforts to restrict selling and short selling. “Where there is a will, there is a way” applies to China here. So, in this game of chicken, I’m staying long Chinese stocks. I couldn’t resist and I cherry picked the start date of Feb 2nd. For the month of February, FXI has done well versus the Nasdaq 100, but all we hear about is being bullish big tech/Mag 7 and bearish China. I think that is a lot like what we saw start in early November. Back then, the “laggards” had started to outperform, but it was ignored for several weeks until the trend was well in place, and only then did people jump on the bandwagon. Nasdaq versus FXI seems like a losing game of chicken, but I highly suspect that positioning and news flow is on my side. The Middle East There are so many horrific “games of chicken” being played in the Middle East that I don’t know where to begin. So I won’t. I will focus on the one that I think is most important for financial markets. That is Iran versus the U.S. Many see the two countries sitting across a chess board and moving pieces around. I see two drivers all geared up. So far away, that they look like specks on the horizon to each other. But they are travelling on a collision course and are gaining speed. The biggest risk for markets is that the U.S. feels compelled to stop Iranian oil shipments. There are far worse things going on for people in the region, but the one thing that I think would move markets dramatically would be if the U.S. feels that they need to stop the Iranian flow of oil. That may be a relatively high hurdle (Russia still sells oil, after all), but would be the one that would send shockwaves through the market. It is also the one game of chicken where I am incredibly fearful that we are not playing chicken properly! I don’t think we understand the other side’s outcome table very well. I am incredibly concerned that we are “mirroring” our own values when we think about their decisions. That would potentially be a big mistake. More importantly, and this is the first time we’ve discussed this, I think that we think how they think about us is wrong. That is incredibly confusing, but I think it is correct. We are trying to portray an image of power. Don’t cross this line or we will do this! And so far, we have done this. I think that the U.S. believes it has been successful in establishing fear. That the escalate to de-escalate strategy is working (see Escalation and Expansion). I am concerned that they think if they prod that line a few more times, we will “swerve.” That we don’t really have the stomach to not swerve. We are trying to convince them that we place a much higher value on not swerving than they believe we really have. I think that may be correct. This is a game of chicken with real life consequences, and it is far from over. Bottom Line Maybe Goldilocks is here, but I think that the bears are quite comfortable right now too. Lots of head-to-head battles, figuratively and literally. From a positioning standpoint: 10-year to trade into the 4.4% to 4.6% range. Start thinking about 2 cuts this year, rather than 4. The dot plot could surprise. Be very cautious on risk here. Equities and the big winners in particular. Still undecided on CRE and the banking space. Credit will hold in better than other asset classes but will be pushed around by equity risk and if I’m right, expect a widening in credit spreads. In any case, it will be curious what phrase takes over the airwaves this week, though I suspect it will still be AI. Tyler Durden Sun, 02/25/2024 - 15:10.....»»

Category: blogSource: zerohedgeFeb 25th, 2024

16 Best Russell 2000 Stocks To Buy According To Hedge Funds

In this article, we discuss 16 best Russell 2000 stocks to buy. If you want to skip our discussion on the Russell 2000 index and overall stock market performance, head over to 5 Best Russell 2000 Stocks To Buy According To Hedge Funds.  In the final quarter of 2023, small-cap stocks experienced a substantial rally, […] In this article, we discuss 16 best Russell 2000 stocks to buy. If you want to skip our discussion on the Russell 2000 index and overall stock market performance, head over to 5 Best Russell 2000 Stocks To Buy According To Hedge Funds.  In the final quarter of 2023, small-cap stocks experienced a substantial rally, with the Russell 2000 Index gaining 14.0% by the end of the year. This outperformance was notable both in absolute terms and relative to large-cap indices like the Russell 1000 and Russell Top 50, which gained 12.0% and 10.9% for the quarter, respectively. The Federal Reserve’s decision to halt rate hikes contributed to a robust performance in domestic equities. In light of the remarkable fourth quarter, the Russell 2000 was no longer in a bear market by the end of 2023, yet it remained down 14.3% from its peak on November 8, 2021, according to Royce Investments. The Russell 2000 lagged behind its large-cap counterpart for 2023, with gains of 16.9% compared to 26.5%, as well as for the 3-, 5-, and 10-year periods ending on December 31, 2023. Although both small-cap style indexes performed well in the fourth quarter of 2023, the advantage clearly favored small-cap value, with the Russell 2000 Value Index gaining 15.3% compared to 12.7% for the Russell 2000 Growth Index. This occurrence of small-cap value outperforming growth, especially with double-digit gains, is relatively rare, happening 35% of the time since the inception of the Russell 2000 on December 31, 1978. In December 2023, US small-cap stocks reached historically low relative values compared to large caps, as reported by LSEG Datastream. The small-cap S&P 600, with a forward price-to-earnings ratio of 13.7, traded below its long-term average of 18, contrasting sharply with the current level of 19 for the S&P 500. European small caps also displayed a similar trend, with a forward P/E ratio of 12.2, falling below the 15-year average of 15 and the broader MSCI Europe’s current P/E of 12.3. This undervaluation has increased the attractiveness of small caps in a broader market rally driven by expectations of global central banks cutting rates in 2024 amid declining inflation. Historically, US small caps have outperformed large caps during periods of rising growth and slowing inflation, with the Russell 2000 showing an annualized gain of 25.2%, compared to 17.3% for the S&P 500, according to Morningstar Wealth’s analysis of data dating back to the 1970s. Morningstar Wealth is overweight on small caps in its US equity fund, considering the cheap valuations as a source of “margin of safety,” as highlighted by Marta Norton, the chief investment officer in the Americas. Additionally, there is an expectation of a turnaround in small-cap earnings. LSEG data forecasts a 30% increase in earnings for Russell 2000 companies in 2024, following an 11.5% decline in 2023. This positive outlook adds to the appeal of small-cap stocks in the current market landscape. Recently, Sahak Manuelian, the managing director and head of equity trading at Wedbush, joined BNN Bloomberg, expressing that small-caps and long-duration assets have been experiencing significant upward movement. He asserted that this trend is ongoing and predicted further upside for the Russell 2000.  According to elite hedge funds, some of the best Russell 2000 stocks to invest in include Chord Energy Corporation (NASDAQ:CHRD), Super Micro Computer, Inc. (NASDAQ:SMCI), and Cytokinetics, Incorporated (NASDAQ:CYTK).  Our Methodology  For this list, we consulted the iShares Russell 2000 ETF. We considered its top 40 holdings and selected the 16 companies which were most popular among hedge funds. We have assessed the hedge fund sentiment from Insider Monkey’s database of 933 elite hedge funds tracked as of the end of the fourth quarter of 2023. The list is arranged in ascending order of the number of hedge fund holders in each firm. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).  A senior executive looking up at a large boardroom filled with the stocks their company manages. Best Russell 2000 Stocks To Buy According To Hedge Funds 16. BellRing Brands, Inc. (NYSE:BRBR) Number of Hedge Fund Holders: 31 BellRing Brands, Inc. (NYSE:BRBR) operates in the United States, focusing on providing a range of nutrition products. Their offerings include ready-to-drink protein shakes, other beverages, powders, nutrition bars, and more, primarily marketed under the Premier Protein and Dymatize brands. On February 5, BellRing Brands, Inc. (NYSE:BRBR) reported financial results for the first fiscal quarter of 2024 ended December 31, 2023. The company posted a non-GAAP EPS of $0.43 and a revenue of $430.4 million, outperforming Wall Street estimates by $0.03 and $21.96 million, respectively.  According to Insider Monkey’s fourth quarter database, 31 hedge funds were bullish on BellRing Brands, Inc. (NYSE:BRBR), compared to 32 funds in the prior quarter.  In addition to Chord Energy Corporation (NASDAQ:CHRD), Super Micro Computer, Inc. (NASDAQ:SMCI), and Cytokinetics, Incorporated (NASDAQ:CYTK), BellRing Brands, Inc. (NYSE:BRBR) is one of the best Russell 2000 stocks to invest in.  15. Qualys, Inc. (NASDAQ:QLYS) Number of Hedge Fund Holders: 31 Qualys, Inc. (NASDAQ:QLYS) provides cloud-based IT, security, and compliance solutions globally. Their offerings encompass services like Cybersecurity Asset Management, Vulnerability Management, and Web Application Scanning, delivered through the Qualys Cloud Apps. Qualys, Inc. (NASDAQ:QLYS) is one of the best Russell 2000 stocks to monitor. On February 7, the company reported a Q4 non-GAAP EPS of $1.40, beating Wall Street estimates by $0.07. The revenue increased 10.5% year-over-year to $144.57 million, in-line with market consensus.  According to Insider Monkey’s fourth quarter database, 31 hedge funds were long Qualys, Inc. (NASDAQ:QLYS), compared to 25 funds in the last quarter. Terry Smith’s Fundsmith LLP is the largest stakeholder of the company, with 623,955 shares worth $122.5 million.  Polen U.S. Small Company Growth Strategy stated the following regarding Qualys, Inc. (NASDAQ:QLYS) in its fourth quarter 2023 investor letter: “Qualys, Inc. (NASDAQ:QLYS), a cloud-based IT security solutions company focused on vulnerability management software, delivered better-than-expected top and bottom-line growth and raised full-year guidance for 2023—particularly encouraging given the challenging macro environment. We continue to believe Qualys is very well positioned to benefit from the secular trend of growing cybersecurity demand, and that the company is uniquely positioned thanks to its platform approach and disciplined balance of profitability and growth.” 14. ATI Inc. (NYSE:ATI) Number of Hedge Fund Holders: 32 ATI Inc. (NYSE:ATI) is a global manufacturer and seller of specialty materials and components, operating in two segments – High Performance Materials & Components and Advanced Alloys & Solutions. ATI Inc. (NYSE:ATI) ranks 14th on our list of the best Russell 2000 stocks. On February 1, ATI Inc. (NYSE:ATI) reported a Q4 non-GAAP EPS of $0.64 and a revenue of $1.06 billion, exceeding Wall Street estimates by $0.02 and $10 million, respectively.  According to Insider Monkey’s fourth quarter database, 32 hedge funds were long ATI Inc. (NYSE:ATI), compared to 31 funds in the last quarter. Richard Driehaus’ Driehaus Capital is the biggest stakeholder of the company, with 1.5 million shares worth $70.4 million.  Liberty Park Capital made the following comment about ATI Inc. (NYSE:ATI) in its Q1 2023 investor letter: “We are pleased that Liberty Park Fund, LP has gotten off to a strong start in 2023. January was a particularly strong month for both of our funds, and LPF was able to use the market’s strength to install several new short positions; those positions greatly helped the portfolio in February and March as the market receded. ATI Inc. (NYSE:ATI) and ZEUS each reported better-than-expected earnings caused by a widening spread between selling prices and commodity prices. We expect these spreads to compress and for margins at each of the companies to revert back to normal levels.” 13. Nextracker Inc. (NASDAQ:NXT) Number of Hedge Fund Holders: 33 Nextracker Inc. (NASDAQ:NXT) is an energy solutions company specializing in solar tracker and software solutions for utility-scale and distributed generation solar projects globally. On January 31, Nextracker Inc. (NASDAQ:NXT) announced financial results for the third quarter ended December 31, 2023. The company reported a Q3 non-GAAP EPS of $0.96 and a revenue of $710.43 million, outperforming Wall Street estimates by $0.47 and $92.94 million, respectively. Revenue for the quarter increased 38.4% on a year-over-year basis.  According to Insider Monkey’s fourth quarter database, 33 hedge funds were bullish on Nextracker Inc. (NASDAQ:NXT), compared to 26 funds in the earlier quarter.  12. e.l.f. Beauty, Inc. (NYSE:ELF) Number of Hedge Fund Holders: 34 e.l.f. Beauty, Inc. (NYSE:ELF) provides cosmetic and skincare products worldwide under brand names including e.l.f. Cosmetics, e.l.f. Skin, Well People, and Keys Soulcare. It is one of the best Russell 2000 stocks to monitor. On February 6, e.l.f. Beauty, Inc. (NYSE:ELF) reported its financial results for the quarter ending December 31, 2023. The non-GAAP EPS of $0.74 and revenue of $270.9 million exceeded Wall Street estimates by $0.18 and $31.99 million, respectively. Revenue for the quarter rose 85% compared to the same period last year.  According to Insider Monkey’s fourth quarter database, 34 hedge funds were long e.l.f. Beauty, Inc. (NYSE:ELF), same as the prior quarter. Ben Jacobs’ Anomaly Capital Management is the largest stakeholder of the company, with 616,912 shares worth $89 million.  Diamond Hill Long-Short Fund made the following comment about E.l.f. Beauty, Inc. (NYSE:ELF) in its Q4 2022 investor letter: “New positions initiated in Q4 included shorts International Business Machines (IBM), Acushnet Holdings (GOLF) and E.l.f. Beauty, Inc. (NYSE:ELF). Shares of value-oriented beauty brand ELF received a meaningful boost from normalizing beauty usage and spending in a post-COVID environment, which we believe has contributed to its premium multiple relative to competitors in the beauty space. As this temporary lift unwinds, we expect elf’s valuation to similarly return to a level better aligned with its product offerings.” 11. Comfort Systems USA, Inc. (NYSE:FIX) Number of Hedge Fund Holders: 34 Comfort Systems USA, Inc. (NYSE:FIX) operates in the mechanical and electrical services industry in the United States. The company offers a range of services including installation, renovation, maintenance, repair, and replacement for heating, ventilation, air conditioning, plumbing, electrical, piping, controls, off-site construction, monitoring, and fire protection systems. Comfort Systems USA, Inc. (NYSE:FIX) ranks 11th on our list of the best Russell 2000 stocks. On February 22, the company declared a quarterly dividend of $0.25 per share, in line with previous. The dividend is payable on March 19, to shareholders on record as of March 8.  According to Insider Monkey’s fourth quarter database, 34 hedge funds were bullish on Comfort Systems USA, Inc. (NYSE:FIX), up from 24 funds in the prior quarter. Israel Englander’s Millennium Management is the biggest stakeholder of the company, with 277,011 shares worth $57 million.  Richie Capital Group made the following comment about Comfort Systems USA, Inc. (NYSE:FIX) in its Q1 2023 investor letter: “Comfort Systems USA, Inc. (NYSE:FIX) (FIX up 26.9%) – The national provider of HVAC installation, maintenance, and repair services, had an outstanding quarter. Driven by positive tailwinds from the trends in modular construction and American business reshoring, the company finds itself with more business than it can accommodate. Management highlighted that Comfort Systems has an order backlog that will keep them busy well into 2024. Their order book is completely full for 2023 and they are now booking projects for 2024. The reported jump in backlog was primarily due to a large order from a single customer in the modular construction business. The commitment is to support a large customer project where the company is seeking to get ahead of other businesses and the coming reshoring trends. One of the traits we most admire about Comfort Systems is their deep relationships with their customers. Comfort System’s believes that this is only the beginning of the movement towards reshoring and, in the coming years, more businesses will develop new buildings and facilities in the U.S. to overcome recent global supply chain challenges. Finally, Comfort Systems announced the acquisition of South Carolina-based Eldeco. Edelco performs electrical design and construction services in the Southeast and is expected to contribute annualized revenue of $130 to $140M. The acquisition will be accretive to earnings in 2023 and 2024.” 10. Weatherford International plc (NASDAQ:WFRD) Number of Hedge Fund Holders: 35 Weatherford International plc (NASDAQ:WFRD) is a global energy services company that specializes in providing equipment and services for the drilling, evaluation, completion, production, and intervention of oil, geothermal, and natural gas wells worldwide. The company operates through three segments – Drilling and Evaluation, Well Construction and Completions, and Production and Intervention. On February 6, Weatherford International plc (NASDAQ:WFRD) reported a Q4 GAAP EPS of $1.90 and a revenue of $1.36 billion, outperforming Wall Street estimates by $0.57 and $20 million, respectively.  According to Insider Monkey’s fourth quarter database, 35 hedge funds were long Weatherford International plc (NASDAQ:WFRD), compared to 34 funds in the earlier quarter. Donald Yacktman’s Yacktman Asset Management is the largest stakeholder of the company, with 1.38 million shares worth $135.4 million.  Yacktman Asset Management made the following comment about Weatherford International plc (NASDAQ:WFRD) in its Q3 2022 investor letter: “Weatherford International plc (NASDAQ:WFRD) shares rallied due to solid revenue growth and margin expansion. After many years of restructuring, the company’s results are improving significantly, which we think offers continued upside to the shares.” 9. Abercrombie & Fitch Co. (NYSE:ANF) Number of Hedge Fund Holders: 35 Abercrombie & Fitch Co. (NYSE:ANF) is a specialty apparel retailer with operations in the United States, Europe, the Middle East, Asia, the Asia-Pacific, and Canada. The company operates through two segments – Hollister and Abercrombie. Abercrombie & Fitch Co. (NYSE:ANF) ranks 9th on our list of the best Russell 2000 stocks. On January 31, the company officially launched a partnership with the McLaren Formula 1 team. The collaboration involves the release of licensed graphics apparel, content creation, and social media collaborations between the two entities.  According to Insider Monkey’s fourth quarter database, 35 hedge funds were long Abercrombie & Fitch Co. (NYSE:ANF), compared to 28 funds in the earlier quarter.  Carillon Chartwell Small Cap Value Fund made the following comment about Abercrombie & Fitch Co. (NYSE:ANF) in its Q3 2023 investor letter: “Within the Carillon Chartwell Small Cap Growth Fund, information technology and industrials were the strongest-performing sectors, with strong stock selection leading to alpha generation. Abercrombie & Fitch Co. (NYSE:ANF) reported very strong earnings driven by significant margin improvement that resulted from much lower shipping and freight costs compared to last year.” 8. Permian Resources Corporation (NYSE:PR) Number of Hedge Fund Holders: 35 Permian Resources Corporation (NYSE:PR) is an independent oil and natural gas company that specializes in developing crude oil and liquids-rich natural gas reserves in the United States. On January 30, Permian Resources Corporation (NYSE:PR) announced a series of strategic transactions, including two bolt-on acquisitions, an acreage swap, a non-core asset sale, and additional grassroots acquisitions. The company acquired 11,500 net leasehold acres and 4,000 net royalty acres in Eddy County, New Mexico, for a total of $175 million from undisclosed third-parties. These properties, mainly undeveloped acreage, offer over 100 gross operated, two-mile locations with high net revenue interests (NRIs). Permian Resources Corporation (NYSE:PR) is one of the best Russell 2000 stocks to buy.  According to Insider Monkey’s fourth quarter database, 35 hedge funds were bullish on Permian Resources Corporation (NYSE:PR), same as the prior quarter.  7. Murphy Oil Corporation (NYSE:MUR) Number of Hedge Fund Holders: 36 Murphy Oil Corporation (NYSE:MUR) is an oil and gas exploration and production company with operations in the United States, Canada, and internationally. The company explores for and produces crude oil, natural gas, and natural gas liquids. Murphy Oil Corporation (NYSE:MUR) is one of the best Russell 2000 stocks to invest in. On January 25, the company declared a $0.30 per share quarterly dividend, a 9.1% increase from its prior dividend of $0.275. The dividend is payable on March 4, to shareholders on record as of February 20.  According to Insider Monkey’s fourth quarter database, 36 hedge funds were bullish on Murphy Oil Corporation (NYSE:MUR), compared to 31 funds in the prior quarter. Steve Cohen’s Point72 Asset Management is the largest stakeholder of the company, with 1.6 million shares worth $67.8 million.  6. Atkore Inc. (NYSE:ATKR) Number of Hedge Fund Holders: 37 Atkore Inc. (NYSE:ATKR) is engaged in the manufacturing and sale of electrical, mechanical, safety, and infrastructure products and solutions globally. The product offerings include conduits, cables, installation accessories, metal framing, mechanical pipe, perimeter security, and cable management. On February 1, Atkore Inc. (NYSE:ATKR) announced earnings for its fiscal 2024 first quarter ended December 29, 2023. The company reported a non-GAAP EPS of $4.12 and a revenue of $798.5 million, outperforming Wall Street estimates by $0.51 and $21.45 million, respectively.  According to Insider Monkey’s fourth quarter database, 37 hedge funds were bullish on Atkore Inc. (NYSE:ATKR), compared to 35 funds in the prior quarter. Jeffrey Gates’ Gates Capital Management is the largest stakeholder of the company, with 822,321 shares worth $131.5 million. In addition to Chord Energy Corporation (NASDAQ:CHRD), Super Micro Computer, Inc. (NASDAQ:SMCI), and Cytokinetics, Incorporated (NASDAQ:CYTK), Atkore Inc. (NYSE:ATKR) is one of the top Russell 2000 stocks, ranking 6th on our list.  HL Global Small Companies Equity Strategy made the following comment about Atkore Inc. (NYSE:ATKR) in its first quarter 2023 investor letter: “By region, the US posted the biggest outperformance. Atkore Inc. (NYSE:ATKR) reported higher demand for electrical conduit, particularly for non-residential uses such as data centers and chip-fabrication plants.”   Click to continue reading and see 5 Best Russell 2000 Stocks To Buy According To Hedge Funds.    Suggested articles: Billionaires Mario Gabelli and Mason Hawkins Love These 14 Stocks 11 Best Stocks That Pay Monthly Dividends in 2024 11 Best Airline Stocks to Buy According to Analysts   Disclosure: None. 16 Best Russell 2000 Stocks To Buy According To Hedge Funds is originally published on Insider Monkey......»»

Category: topSource: insidermonkeyFeb 25th, 2024

Companhia Brasileira de Distribuição (NYSE:CBD) Q4 2023 Earnings Call Transcript

Companhia Brasileira de Distribuição (NYSE:CBD) Q4 2023 Earnings Call Transcript February 23, 2024 Companhia Brasileira de Distribuição isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning, everyone, and thank you for holding. Welcome to the video conference to announce […] Companhia Brasileira de Distribuição (NYSE:CBD) Q4 2023 Earnings Call Transcript February 23, 2024 Companhia Brasileira de Distribuição isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning, everyone, and thank you for holding. Welcome to the video conference to announce GPA’s Fourth Quarter 2023 results. [Operator Instructions] We would like to inform you that this video conference is being recorded and will be made available on the Company’s Investor Relations website, where we also have our entire earnings publication. [Operator Instructions] We underscore that the information contained in this presentation and forward-looking statements made during the conference referring to projection goals and financial and operational goals are based on the premises of the management as well as on information currently available. These forward-looking statements are no guarantee of performance. They involve risks and uncertainties as they refer to future events and depend on circumstances that may or may not occur. Investors should understand that overall economic conditions and other market conditions could impact the results of GPA and differ materially from those expressed in these forward-looking statements. We have with us the CEO of GPA, Marcelo Pimentel; and the CFO and Director of IR, Rafael Russowsky. I will give the floor to Mr. Pimentel to begin the presentation. Marcelo Pimentel: Good morning to all, and thank you all for attending our fourth quarter 2023 conference. Before we talk about our results, I would be remiss if I didn’t comment on the unfortunate passing of Abilio Diniz. Few people have the power to personify an activity. And that is what Abilio was. He personified the retail market. He trained most of the great professionals who work here and in retail. And the legacy and admiration of these people are for the great professional and the man that he was. Abilio was a tireless optimist for Brazil, a very firm manager, and very close to everyone here at GPA. It is up to us to honor with respect his history and everything that he built. On my behalf and on behalf of the Board of Directors, the management and the employees at GPA, we would like to thank him. To Geyze, his wife, his children, family and friends our sincere condolences. You can count upon us to keep his memory alive here at GPA. Very well. Let’s go on to the results. This is a quarter that I am particularly happy to present to you as it shows the result of very sound and consistent work. More than that, we have had a positive evolution in operational and financial indicators that are very relevant to our business. This quarter, we closed the second year of GPA’s turnaround project. We entered 2024 much better prepared. This will doubtlessly be the year of acceleration of earnings, consolidation of our position, and strengthening of the value proposition of our proximity and mainstream brands. In addition to Pão de Açúcar, on Slide number 4, we highlight the sequential evolution of margins and sales growth above the market and with market share gains. The great news here that I would like to highlight is our operating cash generation. We reached BRL907 billion in operating cash flow in 2023, representing an improvement of BRL1 billion vis-a-vis the year 2022. This is an enormous step forward and a clear signal that our business by itself, considering all the operational work that we are conducting, has great potential for cash generation. That’s excellent news. This slide also shows other major highlights of the quarter and the year with growth in all indicators, gross revenue and total growth of 6.3% in the quarter and 11.3% in the year. Pão de Açúcar revenue with a 6% growth for the quarter, revenue growth at around 19.3%, strong 20% growth of our e-commerce, both on a quarterly basis. In same-store sales, we also evolved. It was 4.3% in the quarter and 5.9% in the year. This is the seventh consecutive quarter of positive evolution for the Company. Our EBITDA margin grew 1.8 percentage points higher than the fourth quarter ’22, with net debt falling by BRL700 million, and our cash position with coverage of 3.1x the short-term debt. Rafael will go into the details about financial indicators ensuing this. Following the presentation, if we consider the top line, it is worthwhile mentioning that the growth in total sales and same-store sales was higher than the self-service food market. We recorded an increase of 0.3 percentage points in market share, even with a strong comparison of the fourth quarter ’22, a growth for the fifth consecutive quarter, and stock out continues to fall with very significant improvement of 3.2 percentage points compared to the same quarter in ’22. December was a very strong month for us, even with a slower market. The same-store sales increased driven by the increase in volume. The perishables category was the highlight at Pão de Açúcar and Extra. Our NPS pillar was once again positively impacted by the improvement of our customer satisfaction, which translates into greater flow and greater recurrence. NPS evolved 10 points vis-a-vis the same period in 2022. All of our banners recorded advances as a result of the improvement of service as a whole, the reduction of time at the checkout line, self-checkout stations and improvement in price perception. It is important to mention the growth of Gold and Black customers after we relaunched the Mais program last year, which led to a 9.5% increase in the number of premium and valuable customers, which are those with the higher frequency of purchases and higher monthly spending. This is also a result of our investment and improving customer communication through the CDP tool, customer data platform, which allows us to further personalize the customer experience and allows us to leverage our customer base as well as our e-commerce sales. Now to go into our digital pillar. In this quarter, we reached a 20% growth in e-commerce sales, the best rate in the last six quarters with 12% penetration in total food sales. Both channels, both 1P and 3P showed strong double-digit sales growth. We also increased the share of perishables, reaching a 33% penetration, an increase of 6.2 percentage points vis-a-vis the fourth quarter ’22, driven by the migration of sales to the 100% ship-from-store model, and we continue to be models in digital, food, retail, both in 1P and on our platform with partners. Our e-commerce has undergone an important process efficiency gain in recent quarters, allowing for a reduction of expenses without impacting sales growth, leading to a positive evolution of the contribution margin. On the next slide, we highlight our progress in the expansion pillar. Throughout 2023, we opened 61 stores, 56 of the proximity format, with emphasis on Minuto Pão de Açúcar in the state of Sao Paulo and five stores of Pão de Açúcar, an important movement that has taken the brand’s value proposition to regions with a great growth potential. This expansion led us to an incremental sale of BRL670 million in the quarter. I’m not going to dwell on the details of the profitability pillar, as Rafael will comment on it, but I can’t help but talk about the evolution of our gross margin of 25.7 percentage points, an increase of 3.1 percentage points compared to the fourth quarter of ’22, and 0.6 percentage points better compared to the previous quarter, demonstrating gradual and continuous improvement. And our EBITDA, as mentioned in the opening, reached 7.7 percentage points, also in continuous evolution with the best margin of the last eight quarters. As I said, I will allow Rafael to offer you the details on our progress. And to close my opening results on the next slide, we have our progress with the social and environmental initiative agenda. As part of our sustainability strategy, we continue to increase the number of women in leadership positions reaching 41% this quarter. Our sustainability strategy is committed to a circular economy agenda and actions focused on a low-carbon economy. Thus, we reduced Scope 1 and Scope 2 emissions by 10% as a result of the gas replacement and engine room retrofit projects among the transformation and impact actions of our value chain in November. We hold a multisector engagement event with all of our animal protein suppliers, with the aim of aligning our guidance and commitments on that front. And within the scope of social impact, we celebrate six years of the project, Mãos na Massa, which trains people in situation of social vulnerability on basic baking and confectionery ideas through the GPA institute. We ended the year with 207 new graduates, who will now have more job opportunities. We additionally donated 1.760 tons of food to the program, Parceria Contra o Desperdício. There was more than 3 million meals complemented through this program. I am very proud of this, and this program will celebrate 30 years of operation the next year. I close now my initial comments and hand the floor over to Rafael to comment on the financial performance. Rafael Russowsky: Thank you very much, Marcelo. Good morning to everyone who is here with us. The following figures represent continued operations unless otherwise noted. I’m going to start on Slide 9, where we present GPA’s total revenues, which reached BRL5.6 billion in the fourth quarter of 2023, representing growth of 6.3% over the fourth quarter of 2022. This increase was driven by same-store increase of 4.3% and also advancement of our expansion plan, with opening of 61 new stores since the beginning of 2023, out of which 12 were in the fourth quarter. Pão de Açúcar grew 4.2%, driven by strong increase in volume, which significantly mitigated the still present impact of food deflation in some important categories in the quarter. As mentioned by Marcelo, this was the seventh consecutive quarter of same-store growth. We believe that this evolution reflects the consistency in delivery to the customers. It has strengthened the brand and brought more and more premium and valuable customers to our stores. Including new stores, the banner sales increase was 6%. For the year, same-store growth was 7.2%, and total growth was 13.3%. The strong increase resulted in an increase of 0.8 percentage points in share of Pão de Açúcar sales in total use of GPA. Proximity format. It has observed 5.6% growth in same-store and strong increase of 19.3% growth, which included expansion. The very good performance of this format can also be evidenced by the 2.9 percentage point increase in market share versus small supermarkets in Greater Sao Paulo. In the year, Proximity grew 8.2% in same-store and 19.8% when we also include expansion. In Extra Mercado, same-store sales growth reached 2%. Food deflation played a very relevant role in this format, but we were able to accelerate the growth in the volume of perishables, mitigating the deflection effect. In the year, Extra Mercado posted same-store increase of 3% and total store of 7.9%, driven by new stores which were converted from the hypermarket model in 2022. Now let’s move on to the performance of gas stations. We achieved significant growth of 14.6% in sales, especially with increasing volumes. Finally, we had significant increase of more than 20% sales of e-commerce, reaching BRL538 million in the quarter with both sales channels, IP and 3P, showing double-digit growth. The speed up in growth was observed thanks to 100% ship-from-store model, which we implemented in the second quarter of 2023. This model allowed us to advance even further in the order quality and meeting our delivery time to our customers, in addition to accelerating the increase in the share of perishables in e-commerce sales, which is a fundamental pillar for recurrence of purchase and increased profitability of the model. In the fourth quarter of 2023, we achieved 33.2% penetration of perishables, 6.2 percentage points higher than the previous year. Slide 10, we can see GPA’s financial performance, excluding the effect of international perimeter. Please bear in mind that with sales of Cnova in the last quarter and the conclusion of sales of Éxito in January ’24, we are a company focused on 100% Brazilian food retail. Regarding profitability, 2023 was characterized by the reversal in the margin compression process we had observed in 2022. The initiatives we implemented in our context of turnaround plan were critical, and they have begun to show results as of the last quarter of ’22. Since then, the Company has been reporting sequential exposure in our gross margins and adjusted EBITDA, evidencing effectiveness and consistency of our initiatives implemented. Gross profit reached BRL1.3 billion, 25.7% margin, as we can see on the chart above. We’ve seen gradual improvement in margins since the fourth quarter of 2022, with gains of 3.1 percentage points in the comparison between the fourth quarter of ’23 and the same period of ’22. Adjusted EBITDA totaled BRL404 million, margin of 7.7%, showing an increase of 0.7 percentage points over the previous quarter and 1.8 percentage points compared to the fourth quarter of 2022. Now forwarding to Slide 11, we come to consolidated financial performance. On the left, we can see net income from continued operations improved by BRL185 million compared to previous year. As previously indicated, the reduction in losses is mainly due to improvement in operating results. The chart on the right, we can see the net income of our discontinued activities in the fourth quarter of 2023, where there was improvement of BRL615 million compared to previous year with net loss of BRL216 million. The positive change reflects primarily the reduction of negative impacts on the discontinued operation of hypermarkets. Now let’s move on to Slide 12. On the left, we can see material operating cash flow. In this quarter, we had strong operating generation of BRL1.1 billion, which is a progression compared to the fourth quarter of 2022. On the right, we can see cumulative view in 2023 of operating cash flow. We had operating generation of BRL907 million, strong positive results of BRL1.4 billion based on operating cash consumption over the comparison with 2022. The results generated from significant improvement in our operating results as well as significant four-day improvement in our working capital, resulting from higher inventory turnover after the implementation of our project for review of assortment and the category management in Pão de Açúcar. Slide 13 shows the change in net debt, which reached BRL2.3 billion in the end of the period. In the fourth quarter of 2023, there was a reduction of BRL721 million in net debt, mainly due to operating cash generation of BRL1.1 billion. First cash generation was partially consumed by BRL164 million in CapEx and BRL174 million in net financial costs. It’s important to emphasize that the progression in our GPA financials performance is the result of discipline in operating management that we’ve been implementing as part of turnaround plan. We are also very rigorous in the execution of our financial deleveraging plan to have a capital structure that is in resonance with our operations. Therefore, in the end of the fourth quarter, we completed the sales process of our remaining stake in Éxito with financial settlement on January 23, 2024. It resulted in cash inflow of BRL789 million, not included in the end of 2023. Considering this additional cash, the net debt would have been BRL1.5 billion. These recent developments confirm the effectiveness of our initiatives that we’ve been implementing and further increase our confidence that we are on the right track to deliver increasingly consistent sustainable results. I close now our initial presentation, and I would like to open for the Q&A session. Thank you. Operator: [Operator Instructions] Let’s see, our first question by Gustavo Senday of XP. See also 15 Most Luxurious Places To Retire Abroad if You Have a Budget Over $15,000 a Month and Billionaires Mario Gabelli and Mason Hawkins Love These 14 Stocks. Q&A Session Follow Companhia Brasileira De Dist (NYSE:CBD) Follow Companhia Brasileira De Dist (NYSE:CBD) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Gustavo Senday: I have two questions. First, you said in your release that 2024 will be a year of acceleration, where you’re going to benefit from your own changes. Can you please tell us a bit more about that? Thinking about all the KPIs, so product availability, assortment review, [OPG] project. Can you just share some of those insights with us? And secondly, same-store dynamics, something that attracted my attention. What have you been observing in the beginning of this year in terms of same-store? Marcelo Pimentel: Thank you, Gustavo. When I joined in April ’22, together with my team, we’ve created a strategy for the first three years, focused on turnaround plan. We informed you at that time that everything would be based on our six strategic pillars and based on them, focusing on picking up more sales; growing over inflation rate; regaining market share; improving customers’ experience, measured through NPS than gaming; really the leadership in e-commerce; increasing the penetration in digital channel; organic expansion, just focused on our premium banners, especially Minuto and Pão de Açúcar; and really resuming profitability. One of the merits of this process that we’ve been experiencing is that we’ve been just very compliant with our strategy since 2022, and we are going to take it consistently until the end of 2024. Speaking of that, in 2022, we implemented consolidated results in the upcoming year, as you’ve seen, but we want to move ahead. We don’t think we’ve achieved our full potential yet. For all different metrics, we are going to keep on moving ahead, and I’m going to give you a few examples. Our category management, for example, which has brought the results for Pão de Açúcar, and that’s something we did last year. In the last quarter of ’23, we’ve started putting into action, first, for Proximity banners, and now in the first quarter, we’ve started that for Extra. And we have high expectations of start seeing results, that we obtained in Pão de Açúcar, also to be present in the other banners. We are also focusing on management of generosity, so to speak, our promotional campaigns and also the retail programs, all of that taking us to improvement gross margins. Therefore, you can see that we are improving our NPS. We’ve reached 75%, 76%, but we want to keep on having higher NPS, and we want to really move on with that. Concerning digital, our expectation is that once we have consolidated our ship-from-store operations at 100% rate, in our stores, we’re going to gain scale and improve profitability. We launched, in the end of the quarter, a model of one- to two-hour delivery through our Proximity store. It’s a new channel. In terms of expansions, we are going to stick to the original plan, expanding the model of proximity stores in the city of Sao Paulo with Minuto Pão de Açúcar. It has expanded sales, but it has also increased the margins to our business at large and also improved profitability. We’ve begun 2024 much better positioned than we used to be in 2023. And with operating improvements, as Rafael has shown you, we are going to keep on growing and maintaining our guidance of delivering EBITDA between 8% and 9% for 2024. Part of that also results from the fact that we have started quite well the year. We cannot give you any guidance now or details about that. But what we can assure you is that January was a very strong month to us. We have a very important presence in the coast of Sao Paulo, so Pão de Açúcar. Thanks to our store portfolio, we had a very positive position. So we’ve just completed the seasonality of Carnival, which was also very good to us. So we are very optimistic for the year of ’24. Operator: Our next question is from Fernanda. [Operator Instructions] Perhaps we should go on to the next question and then return to Fernanda. Following the order of the questions, the next question is from Gustavo Fratini from Goldman Sachs. Gustavo Fratini: Congratulations for your results. I would like to speak about the topic of expense control. You had very high gross margin this quarter. Nevertheless, this had a slight negative impact, which was an increase in expenses. Selling had a significant growth of almost 19%. And you remarked that this refers to enhancing the customer experience in store. Could you give us more detail in terms of which line items have grown most, the hiring of personnel, increase in marketing expenses? Marcelo Pimentel: Well, thank you, Gustavo. And so far as possible and so far as we can share these details, in fact, the growth came from these stores. I remind you that we began working strongly in 2023 as well as in 2022, always with a focus on the reduction of back office items. For many years, the store had, had service that was deteriorating. And throughout this entire period, we set forth to do what we wanted to do in terms of enhancements in our warehouse, and our head offices and headquarters always being extremely cautious to preserve the in-store activity. Yes, we did invest in personnel for the stores. We remind you that we were facing problems with lines. This was a great detector of our NPS. We carried out diversity of other investments in stores. It’s difficult to specify where it is exactly where we had this impact. We invested very generally in stores to offer support to the client pillar, the NPS pillar, which, of course, is our focus, which is the core of our turnaround plan. Everything that we do here has a view on the client and the return of our operations, which we have seen. Once again, all of this stems from this initiative focused on the client. It is about investments in stores. Of course, we have personnel involved in this process, but we’re referring to more general investments and scores. What I would like to back up here is I will give you a special example, so that you understand the type of investment we made. We took the decision of changing e-commerce from the distribution center to stores......»»

Category: topSource: insidermonkeyFeb 25th, 2024

Grab Holdings Limited (NASDAQ:GRAB) Q4 2023 Earnings Call Transcript

Grab Holdings Limited (NASDAQ:GRAB) Q4 2023 Earnings Call Transcript February 22, 2024 Grab Holdings Limited beats earnings expectations. Reported EPS is $0.01, expectations were $-0.08. Grab Holdings Limited isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Hello, all, and thank […] Grab Holdings Limited (NASDAQ:GRAB) Q4 2023 Earnings Call Transcript February 22, 2024 Grab Holdings Limited beats earnings expectations. Reported EPS is $0.01, expectations were $-0.08. Grab Holdings Limited isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Hello, all, and thank you for joining us today. My name is Lydia, and I’ll be your conference operator for this session. Welcome to Grab’s Fourth Quarter and Full Year 2023 Earnings Results Call. After the speakers’ remarks, there will be a question-and-answer session. I’ll now turn it over to Douglas Eu to start the call. Douglas Eu: Good day, everyone, and welcome to Grab’s fourth quarter and full year 2023 earnings call. I’m Douglas Eu, Head of Asia Investor Relations at Grab. And joining me today are Anthony Tan, Chief Executive Officer; Alex Hungate, Chief Operating Officer; and Peter Oey, Chief Financial Officer. During the call today, Anthony will discuss our key strategic and business achievements, followed by Alex who will provide operational highlights, and Peter will share details of our fourth quarter and full year 2023 financial results. Following prepared remarks, we will open the call to questions. During this call, we will be making forward-looking statements about future events, including our future business and financial performance. These statements are based on our current beliefs and expectations. Actual results could differ materially due to a number of risks and uncertainties as described on this earnings call in the earnings release and in our Form 20-F and our filings with the SEC. We do not undertake any duty to update any forward-looking statements. We will also be discussing non-IFRS financial measures on this call. These measures supplement, but do not replace IFRS financial measures. Please refer to the earnings materials for a reconciliation of non-IFRS to IFRS financial measures. For more information, please refer to our earnings press release and supplemental presentation available on our IR website. And with that, I will turn the call over to Anthony to deliver his remarks. Anthony Tan: Thank you for joining us today. 2023 was a pivotal year for Grab. We set out to achieve a number of big milestones and we delivered on our key goals. Our mobility business, which was severely impacted by the pandemic exceeded pre-COVID levels as we exited 2023. This was done through focused product investments into our key affordability initiatives and targeting traveler demand. In deliveries, we drove a reacceleration of our deliveries GMV, executing upon three consecutive quarters of sequential growth post-COVID normalization. In the fourth quarter of 2023, deliveries GMV reaccelerated to grow 13% year-on-year setting us up strongly for 2024. At the same time, deliveries segment adjusted EBITDA margins expanded by over 160 basis points year-on-year as we continued to drive marketplace efficiencies and grow our category leadership position across all our core markets amid reductions in incentive spend. And finally at a group level, we achieved our bottom line goals. We turned group adjusted EBITDA profitable since the third quarter of 2023 and also achieved adjusted free cash flow and positive net profit for the first time in the fourth quarter of 2023. These outcomes were achieved by driving intense scrutiny and discipline on costs while innovating relentlessly to deliver top line growth. Our net profit benefited from an accounting accrual reversal. More importantly, our adjusted EBITDA continued to grow quarter-on-quarter. This showcases our ability to deliver strongly on the bottom line, which we are committed to improving in the coming years. Importantly, we took strides towards profitable growth while staying true to our mission empowering everyday entrepreneurs. During the year we generated over $11 billion of earnings for our driver and merchant partners, which is an all-time high. And our average driver earnings per transit hour also grew by 14% year-on-year while also onboarding over 700,000 new merchants in the year itself. We achieved this by driving win-win solutions such as hyper-batching and just-in-time allocations, all of which enabled us to improve the productivity of our driver partners, enhancing their earnings potential while reducing our cost to serve. For Grab, improving lives and livelihoods is not just the right thing to do, but makes financial sense for us to. Only by helping our communities to thrive can we also thrive alongside them. Looking ahead to 2024, this is a year where we will build on our foundations and double down on the following key priorities. First, we will deepen our engagement with all our users by focusing on value creation through product innovation. One such initiative is GrabUnlimited, the largest on-demand paid loyalty program in Southeast Asia. We are confident that we will be able to drive further uplift to customer lifetime value by stepping up cross-selling initiatives and service differentiation for our users, which will lead to improved usage frequency and retention rates. We’ve already demonstrated this in 2023 via the cross-sell of GrabUnlimited to our supermarket Jaya Grocer in Malaysia, which resulted in net new MTUs on to the Grab platform. We’ve also seen strong traction with our Malaysian digital bank GXBank, which was launched in the fourth quarter of 2023. This is the first digital bank out of the five licenses granted in Malaysia to launch. GXBank has seen more than 100,000 customer signups in just the first two weeks, of which 39% of depositors were existing Grab users. Our loans disbursals for GXS Singapore also grew quarter-on-quarter and over 80% of GXS customers don’t have ecosystem linkages to Grab. Second, we’ll continue to expand the top of our funnel. We’ll do this by increasing our appeal to travelers, harnessing strategic product partnerships such as with WeChat or Alipay or expanding our product portfolio to provide not just affordable solutions but also high value offerings. I’m particularly excited about one of our new launch products Family Accounts. This feature allows users to add their loved ones to a group account, enabling users to share payment methods with potentially new to Grab users, example, family members or elderly parents while allowing them to keep track of each other’s rides for peace of mind. We’ll further leverage generative AI to drive productivity enhancements. For example, we have now developed our own in-house LLM powered marketing tool, which has enabled us to reduce content generation time from 99 hours to just 90 minutes, while raising output quality. And furthermore, our pilots also show an improvement in click-through rates as compared to content generated manually. So this not only drives significantly greater throughput, but also enables us to stay lean and disciplined from a cost management perspective. Savings can then be reinvested into more technology to drive greater long-term growth for the platform. This is only one of the many GAI initiatives that we are currently working on that we are proud to share with you today. Now, from this three, we won’t stop here. As a leader of this company, I’m constantly looking at ways where we deliver greater impact and bolder growth by investing and incubating brand new tech lab initiatives. When successful these initiatives, will be transformative for Grab. Our leaders have all been empowered to drive this step change for us to reap the fruits of this labor in the subsequent years. In executing such initiatives, we’ll be strategically patient but tactically impatient and always remain good stewards of capital. As part of this push, we expect these initiatives to accelerate revenue growth rates in the mid-term after 2024 building on the solid foundations we are establishing this year. Peter, our CFO will elaborate later. Finally, on creating shareholder value, we see a clear path to steady group adjusted EBITDA growth and to improve upon our adjusted free cash flow generation in the years to come. With the progress that we have made on profitability with a strong balance sheet in place, we are announcing two capital market-related activities today that have been approved by our Board of Directors. Firstly, we plan to repay our remaining Term Loan B debt facility, which we expect will save us around $50 million in interest expenses annually. Secondly, we are announcing our inaugural share repurchase program of up to $500 million, which Peter will share more on later. In closing, we are incredibly excited about what Grab will embark on in the years to come. Southeast Asia is a fertile ground for us. We’re now the largest on-demand platform in the region at a scale that is over three times larger than our next closest competitor and yet, there’s still a lot for us to achieve for our partners in this region. Having operated in the region for over a decade, we’re now best positioned to deploy our significant local knowledge, data insights, scale and technology to solve the region’s many complex problems including accelerating financial inclusion for the underbanked. We will also remain relentless in innovation to unlock new possibilities for our users and partners while ensuring we continue to focus on growing our bottom line and shareholder value over the long-term. I’ll now hand over to Alex, who will cover our fourth quarter operational highlights in more detail. Alex Hungate: Thank you, Anthony. Our fourth quarter results demonstrate our commitment to driving both top line growth and bottom line improvements, while deepening market penetration across the region. Over the next few minutes, I will share our operational highlights and the underlying drivers of these results starting with Deliveries. We saw robust demand growth for Deliveries with both MTUs and GMV at record highs, driven by improving year-on-year spend per user across our 2000 to 2022 user cohorts. Our pre-COVID cohorts are spending well over two times relative to their initial year and even cohorts that started during or after the COVID lockdowns are showing higher spend relative to their initial year. Everything that we do is about making ourselves the number one choice for our users and partners in Southeast Asia. In order to achieve this, we continue to improve the affordability and reliability of our delivery services, as we reduced our cost to serve so effectively that we were able to expand our profitability at the same time. Our teams have executed strongly on this front and we have made meaningful improvements in several of our efficiency metrics such as batching and trips per transit hour. Almost 40% of our Deliveries orders were batched in the fourth quarter, growing by around 10 percentage points year-on-year. And average delivery fees for batched orders were 8% lower than unbatched orders supporting our push for greater affordability. Adoption of Saver deliveries, a key focus in 2023 also hit 23% of all delivery orders. And as we expected Saver users recorded average frequency levels that were 1.6 times higher than non-Saver users during the fourth quarter. In Singapore, where Saver was launched much earlier than our other markets, eight out of 10 Saver orders are now batched. And looking ahead, we see further opportunities to improve on our efficiency while expanding our product portfolio to maximize value and convenience for a wider range of users. We have begun to roll out several hyper-batching product initiatives that not only improve batching rates but also maximize basket size per trip, while providing users with more affordable delivery fees. While for our users who want their food faster, we also offer priority deliveries. In contrast to Saver, priority deliveries have higher delivery fees relative to standard and they generate adjusted EBITDA margins which are much higher than standard deliveries on a per order basis. Priority deliveries is still in its early days, as it comprises only 6% of orders and we are confident we can continue to grow adoption of this product. GrabUnlimited, the largest paid on-demand loyalty program in Southeast Asia now is proving to be an important engagement and attention driver for our loyal users. The program continues to account for one-third of Deliveries GMV and subscribers exhibited healthier spend levels and retention rates relative to non-subscribers. We see opportunities to improve customer lifetime value on GrabUnlimited by driving up cross-sell rates, particularly to Mobility and Financial Services as well as to introduce more non-monetary exclusive benefits for our most loyal subscribers. Looking ahead, I’m confident that our Deliveries top and bottom lines will continue to grow healthily in 2024. While our Deliveries business performance is typically impacted by seasonal factors in the first quarter, I do want to call out that Deliveries demand has held up resiliently so far this year and we expect GMV to be relatively stable now on a quarter-on-quarter basis. We also anticipate year-on-year growth rates in the first quarter to remain north of 12% and for demand to grow sequentially in the second quarter. So let me take a step back and examine the overall food competitive landscape. The competitive moats that we have built have enabled us to remain in pole position as the regional category leader across Southeast Asia with a scale advantage that’s now more than two times larger than our next largest competitor. In 2023, we drove year-on-year category leadership expansion across every one of our core markets and at the same time, we have improved Deliveries segment adjusted EBITDA margins by over 160 basis points to 3.6% and are profitable in every one of our core markets on a segment adjusted EBITDA basis. Looking forward, we also see headroom for segment adjusted EBITDA margins for Deliveries to expand by a further 100 basis points to 200 basis points over the medium-term. The success of this organic strategy means that we must hold a correspondingly high hurdle rate when assessing inorganic opportunities. While as a matter of policy we do not comment on rumors we understand that Delivery Hero has issued a statement overnight indicating that they have terminated discussions with regard to a potential sale of their Foodpanda business in certain Southeast Asian markets. Consistent with that statement, Grab can also confirm that it is not pursuing any acquisition of that business. Now moving on to Mobility. Our Mobility business recorded strong year-on-year GMV growth. We also exceeded our guidance with GMV surpassing pre-COVID levels as we exited 2023. This growth came on the back of strong demand as we focused our efforts to further drive growth in domestic ride hailing and on capturing the return of traveler demand as it started to ramp up throughout 2023. We previously shared that the traveler segment is a key focus for us. Compared to domestic users travelers are generally less price sensitive and on average spend nearly twice as much as domestic users. We are pleased to see that our efforts to capture this set of users has yielded good results. Year-on-year Mobility traveler MTUs and spending grew 67% and 68%, respectively during the quarter. And in 2024, we still see headroom to continue targeting international traveler demand to provide further upside to our Mobility business. Notably official stats estimate that inbound travelers across several of our core markets are still at only around 70% of pre-COVID levels with governments projecting further growth in inbound travel this year. In addition, we continue to aid drivers in improving their productivity and earnings potential on our platform, while also reducing our cost to serve to improve the affordability of our services. Our efforts to optimize driver supply and enhance driver efficiencies to meet demand continue to bear fruit. During the fourth quarter, monthly active driver supply grew 11% year-on-year with total online hours growing 20% year-on-year and this resulted in the proportion of surge to Mobility rides further reducing by 589 basis points year-on-year. Correspondingly, average frequency per Mobility user grew 11% year-on-year and in tandem with higher volume led to improvements in ride hailing driver utilization rates and a 14% year-on-year increase in average driver earnings per transit hour. As we look ahead to 2024, we expect growth rates for Mobility to remain strong. We usually see seasonal softness in the first quarter, but with our efforts in place to drive demand, we expect Mobility demand to be stable sequentially. And structurally similar to Deliveries we see plenty of headroom to increase total users and enhance frequency levels by expanding and deepening our product portfolio across our key affordability and high value initiatives. One of these key affordability initiatives was the relaunch of Move It our two-wheel ride hailing app in the Philippines, which has seen daily rides grow phenomenally by over 30 times in less than eight months. It was such a proud moment when earlier this week we met many of the new drivers who have joined us in Manila and were so happy for the opportunity to earn a good living on the Grab platform. In fact when I arrived at the center at around 10:00 P.M. there were still hundreds of new drivers arriving to sign up. Beyond our affordability initiatives we see ample opportunities to roll out and expand newer products such as GrabCar Premium which will enable us to tap into newer user segments such as corporate travel demand. Moving on to Financial Services. Revenues here more than doubled year-on-year and grew 12% quarter-on-quarter on the back of higher contributions from our ecosystem payments and lending businesses. Total loans disbursed in 2023 grew 57% year-on-year to reach $1.5 billion and we ended the quarter with $326 million of loans outstanding underpinned by the expansion of ecosystem lending in GrabFin and the new FlexiLoan volumes from GXS Bank in Singapore. This is even while we maintained NPL ratios at low single-digit. Customer deposits across our Digibank stood at $374 million at the end of 2023 as we are still managing our deposit balances underneath the regulated deposit cap in Singapore. Segment adjusted EBITDA losses narrowed year-on-year driven by higher revenues from lending and from payments where we further streamlined our cost base in GrabFin as we focused our strategy on on-platform payments. We also continue to see solid traction across our Digibank as Anthony highlighted earlier. Finally, on our Enterprise and New Initiatives segment, year-on-year revenues more than doubled, while segment adjusted EBITDA grew by 378%. During the fourth quarter, our advertising business reached several all-time highs. Advertising revenues scaled to 1.5% of total Deliveries GMV and reached an annualized run rate of nearly $160 million, while segment adjusted EBITDA margin as a percentage of revenue is nearly 80% in this very profitable business. We deepened the penetration of our advertising self-service platform among our merchant partners, while improving monetization rates. We saw monthly active advertisers joining our self-service platform grow by 54% year-on-year to 115,000, while active advertisers consistently demonstrated higher retention rates than non-advertisers. And average spend by active merchants who adopted self-serve advertising tools also increased 129% year-on-year underscoring the value we deliver to our merchant partners who try out our advertising platform. While advertising penetration is still relatively nascent today, we see plenty of upside to drive demand for our advertising services and value for our merchant partners and other top brands. So, in closing, we are happy with the progress that we’ve made in expanding our top line, while driving operational efficiencies to improve our bottom-line. There is still significant headroom for growth going forward, both in terms of driving frequency uplifts, user stickiness, and adding new users and partners to our platform. And with that let me turn the call over to Peter. Peter Oey: Thanks Alex. We closed out 2023 on a strong footing. In the fourth quarter, revenue grew 30% year-on-year to reach $653 million, while full year revenue grew to $2.36 billion. This is above the top end of the revenue guidance that we revised up in the last quarter. The strong revenue growth was driven by all segments of our business. On a year-on-year basis, in the fourth quarter, Mobility revenue was up 26% as we continued to see strong demand from domestic users and international travelers across the region. Deliveries revenues grew 20% as we continued to grow GMV, while reducing incentive spend. Financial Services revenue doubled in the fourth quarter and we improved payment monetization and increased lending contributions. And Enterprise revenues, consisting primarily of advertising, more than doubled year-on-year to hit an annualized revenue run rate of around $160 million. This was attributable to increased ads monetization and ads demand from our merchant partners. On GMV, our on-demand segments of Mobility and Deliveries saw fourth quarter GMV growth of 18% year-on-year. Mobility GMV grew strongly by 28% year-on-year, exceeded pre-COVID levels as we exited 2023. Deliveries GMV, its third consecutive quarter of growth, with a reacceleration in growth to 13% year-on-year. This was supported by strong underlying demand trends with Deliveries MTUs hitting a record high, coupled with increasing levels of GMV per Deliveries MTU. Moving on to segment, adjusted EBITDA. Total segment adjusted EBITDA doubled year-on-year to $228 million in the fourth quarter. This growth can be attributed to all segments of the business. Deliveries segment adjusted EBITDA grew to $96 million in the fourth quarter, with segment adjusted EBITDA margins expanding by over 160 basis points to 3.6%. Mobility segment adjusted EBITDA grew 20% year-on-year to $182 million, with margins at 12.3%. Financial Services segment adjusted EBITDA narrowed 13% year-on-year to negative $81 million. The reduction in losses was driven primarily by lower overhead expenses and higher revenues from lending and payments in our GrabFin business that more than offset higher cost of funds and also higher Digibank related costs. Notably, payment cost of funds represented 26% of our Financial Services segment cost structure in the fourth quarter. Finally, for Enterprise segment, adjusted EBITDA grew by 378% year-on-year for the fourth quarter. As a percentage of revenues, margins expanded to 79% consistent with our efforts to improve the monetization of our ad services and increased self-serve ads penetration across our merchant base. Regional corporate costs for the fourth quarter improved 13% year-on-year to $193 million. The year-on-year improvements are attributed to reductions across both variable and our fixed cost base. Total headcount reduced 18% year-on-year, as we continued to recognize greater efficiencies across the organization. While cloud costs and direct marketing expenses declined 32% and 16% respectively, year-on-year in the fourth quarter. As a result of the strong top line growth and the greater focus on profitability, we continue to grow group adjusted EBITDA to $35 million in the fourth quarter, a year-on-year improvement of $146 million. Separately for the first time, we reported a quarterly positive adjusted free cash flow of $1 million in the fourth quarter. We also reported for the first time, a net profit of $11 million in the fourth quarter. I do want to call out that while we reported a net profit in the fourth quarter, we benefited from the reversal of an accounting accrual that was no longer required. As we look ahead to 2024, we remain committed to growing our business sustainably anchored on generating profitable growth and free cash flow. As Alex mentioned, our business performance is subject to seasonal factors. And in the first quarter, we expect on-demand GMV to be stable on a quarter-on-quarter basis, with demand and supply being impacted by the Lunar New Year festivities and Ramadan. Nevertheless, we expect year-on-year growth rates for on-demand GMV to be healthy and to see a sequential rebound of GMV in the second quarter and continued growth during the year. From a margin perspective, we expect Mobility margins to be maintained at around 12% plus and Deliveries margins to be 3% plus through 2024. As we look beyond 2024 however, we see headroom for margins to expand by a further 100 basis points to 200 basis points for Deliveries in the midterm, as we continue to build out new product features that enhance our operational efficiencies as well as drive greater marketplace optimization. We will aim to provide an update on our longer-term margins during our first quarter results call. Separately in Financial Services, we expect losses to sequentially narrow heading into 2024, coming down from peak losses in the fourth quarter of 2023. On our forward guidance for 2024, we estimate revenues to come within the range of $2.7 billion to $2.75 billion, representing a year-on-year growth of 14% to 17% and for adjusted EBITDA to be at $180 million to $200 million. In the medium term, we anticipate revenue growth beyond 2024 to accelerate as we are incubating and scaling up a series of tech-led products and initiatives that Alex and Anthony spoke about. We expect these initiatives to drive strong growth across our core products and services and also see meaningful upsides in contributions from our digital banks, advertising, and our high value offerings as key examples. And as for our adjusted free cash flow for 2024, we expect this to improve substantially year-on-year as we grow profitability and drive cash flow generation. However, I do want to point out that the trajectory of our quarterly adjusted free cash flow levels could fluctuate, due to seasonal factors and the timing of payments for certain expenses such as bonus payments and capital expenditures. Finally, we expect to be highly disciplined on costs and to continue driving operating leverage in the business. Centralized regional expenses, which accounts for approximately half of our regional corporate costs is expected to grow broadly in line with inflation much lower than our revenue growth. Turning now to our balance sheet and liquidity position. We continue to maintain a strong liquidity position, ending the year with $6 billion of gross cash liquidity up slightly from $5.9 billion in the prior quarter. And our net cash liquidity was $5.2 billion at the end of the year, flat from the prior quarter. I would like to also take some time to share our updated capital allocation framework, with the objective of driving long-term sustainable value creation for our shareholders. First, we will have a high hurdle rate when it comes to deploying our capital and we’ll have a balanced approach to investing for organic profitable growth and be very highly selective on inorganic opportunities. Secondly, we will continue to be efficient in our working capital needs and continue to maintain a strong balance sheet with ample liquidity. Third, where there is excess capital on our balance sheet we will look to return it to our shareholders. In line with this capital allocation framework our Board of Directors have approved an inaugural share repurchase program of $500 million and the full repayment of the outstanding balance of our Term Loan B, with the principal and accrued interest amount of $497 million as of the end of 2023. We are announcing our first share repurchase program now as we are in the fortunate position of having a very strong balance sheet while retaining sufficient cash to fund the growth of our business. This also underscores our commitment in driving shareholder value creation and only the highest return on investment opportunities, when deploying our cash. This also has benefited of offsetting dilution resulting from issuing of shares as part of our employee stock compensation plans. As for the repayment of the Term Loan B, we expect this to create significant interest expense savings for Grab of approximately $50 million per year. Finally, as we look ahead to 2024 and beyond, I would like to provide an update on our financial reporting that we will move towards beginning from our first quarter of 2024 results. We will be revising the composition of our operating segments, which reflects a change in how we plan to evaluate and manage the performance of our businesses and to also enhance our segment’s financial disclosures to be more comparable with peers. As such, from the first quarter of 2024, we will be allocating the relevant portions of advertising revenues and costs currently in our Enterprise segment, cost of funds, currently in our Financial Services segment, and regional corporate costs to the respective segments of our business. Secondly, consistent with our strategic focus on ecosystem transactions, and lending for GrabFin and our digital banks, we will be enhancing disclosures around our lending and banking business which we have seen since our third quarter results, while discontinuing the reporting of GMV for our Financial Services segment as we de-prioritize off-platform transactions. We’ll share additional color on these reporting changes during our next earnings call. In closing, Grab delivered a strong set of results in 2023, where we continued to grow across our top and bottom lines. As we look into 2024, we will continue to manage the business with three key financial guardrails. First, by continuing to generate sustainable adjusted EBITDA growth; second, driving towards sustained positive adjusted free cash flow. And third, continue to drive operating leverage in the business. Before ending the call, Anthony, Alex and I would like to thank fellow Grabbers, our users and partners for their contributions and support. Without it, these results and strong performance in 2023 would not have been possible. Thank you very much for your time. And we will now open up the call to questions. Operator: Thank you. [Operator Instructions] Our first question comes from Pang Vitt of Goldman Sachs. Your line is open. Please go ahead. Pang Vitt: Hi. Good afternoon, management and thank you very much for the opportunity. First of all, congratulations on your first profitable quarter and announcing a positive surprise in the $500 million share buyback. On this point, can you share with us more, on this repurchase program you announced? What will be the pace of this? And how do you plan to utilize this program for the rest of the year? That’s question number one. Question number two, we understand that Foodpanda, as you mentioned has terminated discussion with regards to a potential sale in Southeast Asia. On this point, could you share potential color with us on why this asset was not of your interest? And how does this potentially impact the competitive landscape in Southeast Asia going forward? See also 25 Best Zoos in the US and 16 States With the Lowest Or No Sales Tax. Q&A Session Follow Grab Holdings Ltd (NASDAQ:GRAB) Follow Grab Holdings Ltd (NASDAQ:GRAB) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Peter Oey: Hey, Pang. This is Peter. Let me take the first one around the $500 million buyback and I’ll ask Alex, to address your second question around Foodpanda. The announcement of the first purchase repurchase program, we view this as an ideal opportunity to look at investing in the long-term upside in our business and also, we coupled with the $5.2 billion net cash liquidity position. Now, as to the pace of how we deploy the capital, we will be efficient in how we’re using that and a lot of that Pang will be influenced by the dynamic market itself. We will be very cautious in how we’re deploying this cash in the market, but we are committed to the Board mandate for the share buyback program. And we’ll continue to update the market, as we continue into the program. Alex Hungate: Hi Pang. It’s Alex here. Let me talk about the Foodpanda situation. As we were indicating in our comments, in food deliveries we are more than double the size now of the next largest competitor in Southeast Asia. And we’ve been able to translate that scale into significant efficiency advantages. The cost to serve that Anthony was talking about and hyper-batching the just-in-time allocation. All of these things work better, at higher volume with higher density. And that means we’ve been able to then drive affordability which drives growth and improves our competitive position even better. So increasing CP in all markets, increasing margin in all markets, and we’ve even shared today that we expect our long-term margins in Deliveries to go up by another 1% to 2% higher than the 3% plus that we’ve mentioned in the past as our long-term target. And that reflects the confidence that we have that we can continue with this organic strategy, driving growth and driving improved margin and driving better services for our consumers. And therefore the bar for any inorganic use of shareholder funds has to be very high in comparison with that. And so in the end, any asset that we would acquire would have to be available at a very attractive price to cross that bar. And I think probably that’s all I should say. Operator: Thank you. Our next question comes from Venugopal Garre of Bernstein. Please go ahead. Your line is open. Venugopal Garre: Hi Grab management. Thanks a lot for the opportunity. So two questions from me, firstly, I remember last year you had started with an EBITDA loss guidance of about $275 million to $325 million and eventually you ended up reporting a loss of only $20-odd million. So I want to understand that while you’ve given a guidance of about $180 million to $200 million of profit this year on EBITDA level, but if I annualize your fourth quarter EBITDA that itself is $140 million. So you’re not really looking for a guidance, which is materially different from what you’ve delivered in fourth quarter in terms of run rate. I just wanted to understand that given a broadly positive outlook in the medium term as well on almost all your segments, why are we being a bit conservative on guidance? What is it that’s something that we should watch out for if at all? And if the prices emerge, which are the areas you think the prices could emerge? That’s my first question. Second one is a smaller one largely on the Financial Services sector. While we were anticipating some increase in losses sequentially given that you had noted the Malaysia launch. Could you just quantify the impact if at all more importantly for us to understand how the losses would shape up especially through the year? Is it going to be elevated for a while before it comes down or is it going to be a swift improvement? Thank you so much. Peter Oey: Hi, Venu. Let me address the first one around the EBITDA, and Alex I’ll ask you to address the second part of the question. A few things here, Venu. One is as Anthony and Alex mentioned, we are in 2024 focusing deepening our product moats, and we’re incubating a number of product and tech investments, particularly around operational efficiency improvements that we will expect to see growth acceleration in revenue beyond 2024. For this year, as we also alluded in the remarks, we are keeping our margins on Deliveries and Mobility fairly stable at the 3% and 12% plus respectively. Now, we do see opportunities for our Deliveries margin to expand in the midterm we quoted somewhere around 100 basis points to 200 basis points and this you will see part of the EBITDA expansion in 2025 and beyond. But given where we are today and the line of sight that we have from a guidance perspective, this is where we are committed as a point in time. And as we continue to roll out these new product features, which we’re very excited about, we will continue to update our EBITDA guidance. Alex Hungate: Thanks for the question, Venu, on Financial Services. Yes, you’re right, the increase in the EBITDA losses in the fourth quarter as we had indicated was because of the Malaysia launch, the launch of GXB in Malaysia, which has been very successful. As Anthony said, in the first two weeks alone we gathered 100,000 new accounts, but there were launch related expenses in the fourth quarter. We took in deposits of course which is great, but we are not able to redeploy those deposits into the income generating lending products until we launch the loan products, which is upcoming in this coming quarter. So that is the first part of the question. I think the GrabFin costs remain relatively stable. You asked for some of the underlying factors elsewhere. So, GrabFin costs remained relatively stable quarter-on-quarter, despite their improvements in revenues actually, so they’re heading on the right track there. And within that you’ve got the cost of funds for our payments business, which supports the on-demand platform payments. That is approximately $30 million in the quarter, representing about 26% of the total Financial Services segment cost structure. So, hopefully that’s helpful for you to understand that that’s an underlying piece of the cost structure in GrabFin. I want to call out that we see payments though as one of our core moats, because having our own payments infrastructure will significantly lower the payment cost for Grab, and we expect that payment cost to now because it’s under our own control, so to speak, we expect it to remain roughly stable as a percentage of our on-demand GMV in 2024. So there are two indicators for you, which might help you to model going forward. So going forward, the last part of your question, Q4 does represent the peak of the quarterly losses for the Financial Services segment for Grab. Now going forward, we’ll see the revenue kicking in from the loan book. So, we’re already lending in Singapore. We’ve got GFin also doing well with its high velocity low ticket ecosystem lending. And then from this quarter, we’ll start to have Malaysian loan revenue on top of that again. And in Singapore as the regulatory caps are lifted, the Singapore business can start to scale more aggressively also. So that’s why we’re calling Q4 as the peak of the losses for the Grab Financial Services. Operator: Our next question comes from Sachin Salgaonkar of Bank of America. Please go ahead. Your line is open. Sachin Salgaonkar: Hi. Thank you for the opportunity. I have two questions. First question perhaps a follow-up to Venu’s question, but want to ask that in a slightly different format. So if you look at what you guided for adjusted EBITDA and revenue it does imply an adjusted EBITDA margin anywhere between 7.3% to 7.5% at the high end. Your last reported adjusted EBITDA margin was close to around 5%. So in a way we are looking for a 200 bps improvement in margin. And if the mobility margin is around 12%, delivery margin around 3% plus; is a large part of the improvement predominantly driven by the Financial Services losses going down or it’s also the delivery margin 3% less implies maybe 100 bps improvement from that? So that’s question number one. Question number two, wanted to understand a bit more color on the centralized regional expense what you guys are talking about. I understand in the next quarter you’re going to give details, but anything this quarter you guys want to provide in terms that will help us quantification going into next quarter? And the related question is basis my understanding, roughly 30% of your costs, are largely linked to GMV. So as in how GMV increases, we should see an increase in these expenses in a pretty hefty manner right? I just wanted to understand how one should look at the regional cost expense going ahead? Thank you. Peter Oey: Okay. Sachin, let me take all those questions. Let me take the first part around the EBITDA margin. There’s a couple of things here that I want to call out. One is, there are operating leverage in the business. A lot of the product initiatives that we’re pushing is also generating operational efficiency in our business. Some of that may be translated in the segment margins some of those can be translated in outside of our segments in our corporate cost structure also. So there is improvement. There’s operating leverage in the business. And what we said was the margin for our Mobility and Deliveries will be around about the 12% and 3% plus. Now GFin though, you’re right. The GFin part or the Financial Services segment as Alex just alluded earlier will see improvements in the cost structure of our business, as well as they start to generate revenue especially from our banking and as we start to scale loan even further of that business. So you’ll see a dynamic of operating leverage in the business in terms of efficiencies and also the GFin or the Financial Services segment also coming down. The third part is around our regional corporate costs. That’s going up roughly inflation with around about say 4% on a year-over-year basis which is at a significantly lower clip versus what our GMV growth is. Your second question around centralized regional corporate costs. So the cost structure there is growing in line with inflation like I said earlier. Now, there’s always a couple of pieces in regional corporate cost. There’s a variable piece and there is the fixed cost piece. Now, the cloud and direct marketing will obviously commensurate with the growth of the pace of the business itself. Those are variable costs. And while we’re continuing to see efficiency both in cloud and marketing and you saw the reduction in those cost structure in 2023, we’ll continue to make sure that those have been efficiently optimized. We will see as a percentage of GMV those revenue — those cost structure being stable, but from an absolute dollar perspective will continue to grow with the growth of our on-demand business. On the fixed cost structure though, it’s going to be pretty much in line with the growth of the inflation. That’s how we’re thinking about it. We’re being very disciplined in terms of how we’re managing our fixed cost structure. We’re going to be very prudent in terms of how we are looking at headcount across the business, and we are going to continue to find productivity across our workforce space as it comes. I hope that answers the question. Operator: Our next question is from Piyush Choudhary of HSBC. Please go ahead. Your line is open. Piyush Choudhary: Hi. Thanks a lot for taking the questions, and congrats to Anthony and entire team on good set of results and announcing the share buyback. Two questions. Firstly, how do you expect MTU growth going forward across segments? In fourth quarter, we saw good growth in MTU. Is it driven by gaining market share or you’re able to expand the TAM with new solutions? And if you can call out, how much is seasonally driven due to travel and tourism in the region? Secondly, on the deliveries segment, can you talk a little bit about your margin range across various countries? I would imagine that there is a big difference between deliveries margin and there could be room for improvement over there in some of the countries where you have more intense competition. So why we are saying deliveries margin will remain more constant year-on-year? Wouldn’t that mix or improvement in those countries helped to lift margin even in 2024? Thank you. Alex Hungate: Piyush, thanks for your questions. I’ll take the first one on the MTU growth and then hand to Peter for the second one. Yeah, we see opportunity on the MTU side from the mobility recovery. Clearly the traveler segment is not fully recovered since pre-COVID. As I mentioned in my remarks earlier, most external estimates suggest that it’s only around 70% so far. Then we’ve got on the deliveries, we’re starting to see the effect of the affordability initiatives that we flagged to you earlier last quarter. We can see that it does drive new users using the platform and also frequency, so that will give us an MTU boost as well. And then the family accounts that Anthony mentioned earlier, we’re optimistic about that. We think that that will improve the self-generated growth of MTUs, the network itself generating new MTUs. So we’re very keen on that as a hyper-growth driver as well. And then we think that we’re barely tapped into the premium segment, the corporate premium segment and as we mentioned in our remarks there will be some really fantastic new offerings coming up for that segment. So we hope that that will be a high margin and high growth opportunity for our MTUs going forward. Peter? Peter Oey: Yeah. Piyush also I just would add also from an MTU perspective, we’re also driving engagement in our business. It’s really important that yes we can add MTUs, but also we’ve got to make sure these users are constantly engaging in our platform and we have more and more users now using the Grab platform. We finished the quarter at 38 million and we see opportunities to grow that even further in 2024. But it’s also equally as important that they are constantly coming back to the platform and using them. That’s part of our growth factors also in 2024, but that’s going to also come from product features that we’re investing in the business, and tied to that actually is your question around margins. Now you asked about country specific margins. We only see our business as a portfolio. We don’t look at while countries are important, but it’s really important that we see it across the board, across all the countries itself. And if you step back in terms of what we’ve done in Deliveries margin, we’ve seen margin improvement of over 500 bps over the last two years itself. Now this is a year that we are going to continue to consolidate and make investments into these new product initiatives that will drive engagement as well as also broaden the TAM base. We’ve worked hard last year in affordability with growth at TAM base there. We ended [Technical Difficulty] with record GMV and we’re going to push this year also to make sure that we bring in new user base; but also, that these user base are sticky, these user base are constantly using our product base and that will lead to further acceleration in growth of revenue and margins for our Deliveries business in 2025 and 2026. So this is how we’re thinking about it. Where there is upside in margins, we’ll obviously capture those margins. But for us, making sure that we are going to see revenue growth acceleration in the business, especially in 2025 and 2026......»»

Category: topSource: insidermonkeyFeb 23rd, 2024

Keurig Dr Pepper Inc. (NASDAQ:KDP) Q4 2023 Earnings Call Transcript

Keurig Dr Pepper Inc. (NASDAQ:KDP) Q4 2023 Earnings Call Transcript February 22, 2024 Keurig Dr Pepper Inc. beats earnings expectations. Reported EPS is $0.55, expectations were $0.54. Keurig Dr Pepper Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good […] Keurig Dr Pepper Inc. (NASDAQ:KDP) Q4 2023 Earnings Call Transcript February 22, 2024 Keurig Dr Pepper Inc. beats earnings expectations. Reported EPS is $0.55, expectations were $0.54. Keurig Dr Pepper Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Keurig Dr Pepper’s Earnings Call for the Fourth Quarter of 2023. [Operator Instructions] This conference call is being recorded. [Operator Instructions] I would now like to introduce the company’s Vice President of Investor Relations and Strategic Initiatives, Jane Gelfand. Ms. Gelfand, you may begin. Jane Gelfand: Thank you, and hello, everyone. We appreciate your attention, recognizing that many of you are also attending an industry conference. Earlier this morning, we issued a press release detailing our fourth quarter and full year results, which we will discuss during this conference call. Before we get started, I’d like to remind you that our remarks will include forward-looking statements which reflect KDP’s judgments, assumptions and analysis only as of today. Our actual results may differ materially from current expectations based on a number of factors affecting KDP’s business. Except as required by law, we do not undertake any obligation to update any forward-looking statements discussed today. For more information, please refer to our earnings release and the risk factors discussed in our most recent Form 10-K, which will be filed with the SEC later this morning. We will also discuss non-GAAP measures of our performance. Definitions and reconciliations to the most directly comparable GAAP metrics are included in our earnings release. We will also speak about the concept of underlying performance, which removes the impact of nonoperational items in the current and prior years. These items include gains on asset sale leaseback transactions, reimbursement of litigation expenses related to the successful resolution of our body armor lawsuit, a business interruption insurance recovery and the change in accounting policy for stock compensation. Here with us today to discuss our results are KDP Chairman and CEO, Bob Gamgort; Chief Operating Officer; Tim Cofer; and Chief Financial Officer and President, International, Sudanshu Priyadarshi. I’ll now turn it over to Bob. Robert Gamgort: Thanks, Jane, and good morning, everyone. 2023 was a year of significant progress for KDP as we grew share across the majority of our business, entered multiple high-growth white spaces, such as ready-to-drink coffee and sport hydration through highly capital-efficient partnerships, began to rebuild margins while simultaneously driving high-quality reinvestment, returned more than $1.8 billion to shareholders, including a 7.5% dividend increase in the opportunistic repurchase of 22 million shares and delivered our financial outlook, while significantly improving the composition of our earnings and strengthening our balance sheet. . Full year constant currency net sales grew nearly 5% and EPS advanced 6%. On an underlying basis, our EPS growth was even stronger and in the double digits as we largely eliminated the contribution from nonoperational gains that benefited the prior year. Pricing actions and a near doubling of year-over-year productivity savings, more than offset continued inflationary pressure, supporting earnings growth even as we funded a double-digit increase in marketing. Our 2023 performance demonstrated the resilience inherent in our broad portfolio with continued momentum in U.S. refreshment beverages and international offsetting short-term pressures in U.S. coffee. We also initiated a thoughtful succession process that balances continuity and new perspectives across the company’s most senior leaders. Tim and our refreshed executive team have merged seamlessly are building momentum and add to my confidence in KDP’s future success. Our hard work in 2023 sharpened our strategic road map and bolstered our capabilities and financial profile providing a platform for growth and value creation in 2024 and over the long term. Moving now to our fourth quarter results. A primary focus for us last year have been rebuilding our margin structure. We made impressive gains in Q4, driving the strongest quarterly gross margin expansion in our history and the fastest rate of operating margin improvement in multiple years. This improvement was broad-based across each of our segments and enabled us to deliver EPS above the outlook we shared last quarter despite the impact of some transitory top line headwinds. Q4 constant currency net sales grew 1.1%, with net price realization more than offsetting a volume/mix decline. This result is not representative of our ongoing momentum and was, in part, weighed down by short-term factors in our U.S. coffee business that we do not expect to persist. We have good visibility to mid-single-digit consolidated net sales growth in 2024, which Sudhanshu will address in a few minutes. Q4 gross margin expanded 450 basis points, translating to gross profit dollar growth of 10% and helping to fund increased investments. Operating income increased at a high single-digit rate and EPS grew in the double digits. Notably, normalizing for nonoperational items in 2022, our Q4 underlying EPS growth rate was in the high teens. We continue to enjoy strong momentum in U.S. refreshment beverages. Net sales grew at a high single-digit rate in Q4, led by still very healthy net price realization and manageable elasticities with volume mix declining only modestly in the period, redouble focus on productivity and cost discipline along with strong C4 energy partnership execution, translated this topline to double-digit operating income growth. Q4 segment margins expanded meaningfully even as marketing continued to grow. As we observed back in October, though consumers remain largely resilient, value is a key shopping consideration. Many consumers are making trade-off decisions to manage stretch household budgets. As a result, value-oriented channels, such as club stores continue to outperform and consumers are inclined to shop more during deal periods such as holiday weeks. Our U.S. refreshment beverages business model is well suited to a dynamic macro environment. The breadth of the beverage occasions we serve and the depth of our distribution allow us to spot changing consumer trends with speed. We then flex our plans to deliver on the key tenets of our growth strategy, driving category growth, market share gains and white space expansion regardless of the operating environment. Fourth quarter was no exception with dollar sales growth and share gains across 85% of our U.S. refreshment beverages business. CSDs grew nicely, led by Dr. Pepper, which was the largest market share gainer among the top 10 category brands for both the quarter and the year. During Q4, we once again activated our Fansville marketing campaign, the fuel awareness and drive demand. And despite Dr Pepper’s existing scale, we grew incremental display and ACV for key varieties and pack sizes. Dr. Pepper, strawberries and cream also remained highly resonant, finishing 2023 as the #1 innovation launch in the CSD category. In other parts of our portfolio, we leverage revenue growth management to ensure we are offering consumers continued compelling value across all channels and formats. For instance, in Q4, we deployed more multipacks and tailored promotional and merchandising strategies by channel for core hydration and Avion. As a result, our premium water portfolio grew retail dollars and notched market share gains, overcoming some consumer trade down to mainstream water. Our pursuit of white space opportunities continued in Q4, wrapping up a very active year. We exited the first year of our sales and distribution partnership for C4 Energy with momentum. C4 commands less than a 3% share in energy today with meaningful upside ahead, and we have strong commercial plans to add significant further scale in 2024. We also just started shipping electrically through the KDP system, which will build our exposure to the fast-growing sports hydration category and multicultural consumers. A full innovation slate adds to our 2024 excitement. These include the launch of Dr. Pepper Creamy Coconut, just in time for the summer season. Canada Dry Fruit/CSD, Apple Mini bottles, the restage of Buy Wonder Water, 4 hydration partnering with Teen USA Symnastics and the national U.S. rollout of Penafiel, our powerhouse mineral water brand from Mexico. We intend to leverage continued U.S. refreshment beverages top line growth to drive a balance of reinvestment and bottom line delivery in 2024. Over the past year, our commercial and supply chain teams have grown increasingly integrated, yielding significant efficiencies. As a result, our productivity savings run rate step changed in 2023, and we began 2024 with healthy carryover savings and a robust pipeline of additional projects to support P&L flow-through. In U.S. coffee, we continue to control the controllables in the context of a still sluggish at-home coffee category. Our Q4 pod shipment trends improved relative to Q3, and we delivered another quarter of strong segment margin recovery and underlying operating income growth. We also ended this year having added approximately 2 million new households to the Keurig ecosystem in line with our target. That said, net sales declined 10% year-over-year as some short-term dynamics weighed on Q4 segment performance. As Sudhanshu will describe in detail, a combination of transient factors accounted for roughly half of the top line decline, and we expect these to dissipate in 2024. Bigger picture, volume consumption in the at-home coffee category declined about 3% in 2023 in IRi tracked channels gradually recovering from a mid-single-digit decline in 2022. Q4 category trends were largely consistent with the full year. In both the quarter and the year, single-serve coffee continued to grow as a percent of total at-home coffee servings. And Keuring compatible brewers also gained meaningful share. 2023, 4 out of 10 brewers sold were Keuring compatible. And in Q4, that ratio approached 50%. These are clear indications of our ecosystem’s ongoing appeal to coffee drinking households. While at-home coffee category consumption is taking longer than we anticipated to return to growth to the back half of ’23 was clearly stronger than the first, and we expect the gradual recovery to continue. Our 2024 U.S. coffee strategy incorporates a balance between long-term growth initiatives and short-term actions that address current macro realities. We will continue with high-quality brand and ecosystem building activities to drive incremental household penetration, increased pod usage among existing and new households and accelerate growth in ready-to-drink coffee. At the same time, we will emphasize affordability through revenue growth management initiatives such as engineering brewers to hit important entry price points. and highlighting the relative value of consuming coffee-at-home versus in coffee shops. For higher income consumers, we continue to build out super premium solutions. These actions should support a broader at-home coffee recovery and ultimately help return the single-serve category to its long-term growth trend. Even so, we are building our 2024 financial plans around more prudent category growth assumptions. With more than 50 million coffee drinking households in the U.S. yet to convert to single-serve, there is significant runway to steadily grow penetration. We have an ambitious vision of Keuring future, some of which we will begin to share publicly starting this spring. At the annual Houseware Show in a few weeks, we will preview an exciting pipeline of disruptive innovation of Keuring brewers, and we will be making a public announcement about these innovation plans shortly before that event. Our 2024 pod program is equally robust. Innovation will span cold and hot occasions and a spectrum of brews and flavors. Along with incremental promotional and marketing support, these new products will directly bolster our owned and licensed brands. Products like refreshers will benefit our indulgent donut shop brand, while our high-profile collaboration with Kevin Costner will elevate Green Mountain. This is Costner’s first brand campaign in 30 years and will feature the co-creation of a unique set of blends and integrated marketing events to highlight our shared passion for coffee quality and sustainability. We remain focused on building out the super premium tier of pods, which reinforces Keurig’s reputation for quality and supports premiumization in the category. Our latest activities began in Q4 with the introduction of lock alone licensed pods and continue in early 2024 with the conversion of Lavazza to a licensed relationship, which will unlock more growth and efficiencies for the brand. Our ready-to-drink coffee efforts are also gaining momentum. In Q4, we commenced our sales and distribution partnership for lock-on ready-to-drink coffee now with renovated products and packaging. Wrapping up on U.S. coffee, while we are not satisfied with our 2023 performance, we are taking steps to support a stronger 2024. We are acting as a category leader to revive long-term category growth, thinking expansively and disruptively with the vision, capabilities and willingness to invest in the future growth opportunities for ourselves and on behalf of our partners. In other words, we are being open-minded and ambitious and positioning KDP to benefit from an at-home coffee category rebound, while also planning 2024 in a measured way. Moving now to our International segment. Revenue grew at a double-digit rate on a reported basis and high single-digit rate in constant currency with continued balance between pricing and volume mix. As with our other segments, operating income grew faster than net sales, resulting in significant margin expansion. Our performance reflected healthy growth across country markets. Our results were led by strong trends across our cold beverages portfolio, primarily driven by Penafiel and Clamato in Latin America, Canada Dry and Dr. Pepper CSDs in Canada, and our continued expansion of our ready-to-drink alcohol and alcohol alternatives products. In our international coffee business, we delivered strong household penetration growth in 2023 and this will remain a 2024 priority. For that aim, we recently inked an agreement to make sure the official coffee maker of the NFL in Canada, capitalizing on the sports growing popularity. Our international momentum is supported by broad-based capability investments, including in areas such as distribution and consumer insights. As in the U.S., our DSD system in Latin America represents a competitive advantage. During 2023, we bolstered our reach by expanding our routes and building out more dedicated coolers at retail and plan to do so again in 2024. Meanwhile, our innovation pipeline marries local expertise and enterprise-wide insights. For instance, the launch of Schweppes mocktails in LatAm will build on our experience in ready-to-drink low and no alcohol products in Canada. While the upcoming introductions of Dr. Pepper Dark Berry in Mexico, an expansion of 0 CSDs in Canada, leverage successful playbooks out of the U.S. Since merger, we have grown our international business at a strong double-digit CAGR from slightly over $1 billion in annual sales to almost $2 billion. We continue to see outsized growth potential in this segment, and it will remain a meaningful contributor to KDP’s total results in 2024 and beyond. Wrapping up, 2023 represented another year of delivering on our commitments while also advancing key strategic priorities. The operating environment is as ever demanding but our all-weather business model and energized teams are up to the challenge. Our focus remains on sustainably and thoughtfully extending our leadership position in the beverage industry while consistently delivering strong and predictable financial outcomes, including a return to our long-term algorithm in 2024. On March 19, we will be hosting a webcasted investor event to dive deeper into our strategy and the multiple value creation opportunities we see across the business. We hope many of you will join or tune in. I will now turn the call briefly over to Tim, after which Sudhanshu will walk us through the detailed financial results and outlook. Timothy Cofer: Thanks, Bob, and good morning, everyone. After joining KDP in November, I’ve spent the past 3 months fully immersing myself in the business as Chief Operating Officer, and in preparation for the CEO succession later this spring. My onboarding has exposed me to nearly every aspect of KDP, and most importantly, to its people. At the top of that list, Bob, Sudhanshu, our Board of Directors and the broader executive leadership team, with whom I’ve already forged strong and collaborative partnerships. I’ve spent time in multiple KDP locations from our headquarters in Dallas and Boston to the front lines of DSD retail as well as our cold and coffee manufacturing plants. I’ve met with many of our customers and partners and above all, listen to the valuable feedback from our employees. I also had an active hand in developing the 2024 plan that we’re sharing with you today, and I echo Bob’s confidence in KDP’s ability to continue to deliver and create value for our shareholders. The investor event in a few weeks will be my first opportunity to share a more comprehensive view of my observations on the beverage industry, KDP as a market leader and our strategy to extend that leadership in the years ahead. I look forward to kicking off a deeper discussion at that time. For now, let me just say that I’m equally impressed by KDP’s current strength as I am excited about the company’s future potential. We are a leader in a very attractive industry. We steward many iconic brands that consumers love. Our commercial and distribution capabilities are differentiated. We are a preferred partner and have demonstrated an ability to evolve our portfolio in a way that broadens growth exposure and accomplishes it with capital responsibility. Finally, one of our greatest strengths is that we act with a challenger mindset. This is an important cultural element that attracted me to KDP and one which we plan to build upon going forward. Although Keurig Dr. Pepper is still a young company, our track record of strong and consistent financial delivery over a historically dynamic past 5 years is testament to our resilience and potential. I’m honored to build on such a formidable foundation and look forward to partnering with the Board and my colleagues to drive the next chapter of KDP’s success. We have strong alignment and our commitment to deliver value to all stakeholders, including our shareholders. We’re fortunate to have many long-term investors who have supported KDP since the merger, and we look forward to delivering for all of you in the years ahead. And with that, I’ll turn it over to Sudhanshu. Sudhanshu Priyadarshi: Thanks, Tim, and good morning, everyone. I will focus my remarks this morning primarily on our quarter 4 results and the 2024 outlook. Our Q4 performance demonstrated strong execution in a dynamic operating environment. We further rebuilt our margin structure, invested to seed future growth opportunities and delivered a strong EPS growth that was slightly ahead of our outlook. . Fourth quarter net revenue advanced 1.7%, with 1.1% constant currency growth. Net price realization increased 4.8%, which was partially offset by a 3.7% decline in volume mix. We enjoyed strong momentum across approximately 70% of our business namely in U.S. refreshment beverages and international, but our top line growth was pressured by temporary headwinds in U.S. coffee. Gross margin expanded a record 450 basis points year-over-year, driven by a favorable net impact of pricing, productivity savings and moderating inflation. We also earned performance incentives relative to our strong commercial execution of the C4 partnership, which contributed approximately 100 basis points to gross margin. SG&A deleveraged 170 basis points, in part reflecting a double-digit increase in marketing. Total company operating income grew 6.5%, which, along with modest below-the-line leverage drove 10% EPS growth. Excluding the year-over-year reduction in nonoperational gains, EPS would have grown in the high teens. In 2023, we essentially eliminated nonoperational benefits. We now move into 2024, looking to build on this solid earnings base. Moving to the segments. U.S. Refreshment Beverages grew net sales 6.8%, led by 7.5 percentage points of pricing. Volume/mix declined a modest 0.7% with manageable elasticities, broad market share gains and a healthy growth contribution from C4 Energy. As Bob discussed, in 2024, we will build on our commercial momentum with a robust slate of innovation though our cadence of launches differ slightly from last year. For instance, our Dr Pepper Creamy coconut rollout will begin in quarter 2 and gain steam into the summer as opposed to the very successful launch of strawberries increased in quarter 1, 2023. While the calendar difference is made temporarily weigh on our market share comparison early in 2024, we remain confident in another great year for U.S. substation Beverages relative market performance. Segment operating income grew 20.2% in the quarter and margins expanded 360 basis points. This growth reflected the net sales momentum, a favorable impact of productivity net of inflation and the C4 performance incentives partially offset by higher marketing. In U.S. coffee, we made good progress across multiple dimensions. Share gains for the single subsegment, and for Keuring continued. We executed a successful holiday approval program to end the year with 40 million Keuring households and the segment margins came in at the highest level in 10 quarters. These markers survive, we do not view the headline 9.9% net-well decline in quarter 4 as overly indicative. With pricing, a positive contributor, just shy of 1%, segment sales were pulled down by a 10.7% decrease in volume mix. Let me deconstruct drivers to give you a sense of why we see roughly half of the decline as transient. Brewer revenue decreased 21%, primarily due to a 14% decline in brewer shipments and reflecting a return of normal seasonal shipment patterns against a steadier point of sales trends. Looking at the back half in total is more telling with brewer shipments in line with point-of-sale purchases. As context, full year approval shipments in 2023 were 13% higher than pre-pandemic shipments in 2019, representing a 3% CAGR. Pod revenue declined 7% in the period, even with the continued impact from previously discussed private label exits, pod shipment trends sequentially improved as expected, down 3% in quarter 4 versus 8% last quarter. Pod revenue in the period was also unfavorably impacted by mix, given a lower percentage of sales from on in-licensed brand relative to last year. The temporary headwinds in quarter 4 included the brewer decline, private label exits and a modest impact of lapping an extra week last year. Though quarter 1 will continue to reflect still sluggish category dynamics, we do expect these discrete factors to be less impactful beginning next quarter. Moving to segment operating profit and margins. Although quarter 4 operating income dollars declined 2.8% year-over-year, this was entirely due to the impact of lapping more than $50 million in nonoperational benefits. On an underlying basis, our operating income grew in the double digits. U.S. coffee operating margin expanded 260 basis points relative to the prior year. Drivers of this expansion included an improving relationship between pricing and inflation, continuous productivity benefits and overall cost discipline. In 2024, reinvestment will be an important priority in the segment and will source from these margin tailwinds. International segment net sales grew 11.5% in the fourth quarter. On a constant currency basis, sales increased 6.5%, with pricing up 3.6% and volume mix growing 2.9%. We continue to deliver strong results across markets, despite tough year-over-year comparisons in Mexico from lapping the World Cup last year. Segment operating income increased a very strong 25.6% on a reported basis and 19.8% in constant currency terms, thanks to pricing, operating leverage and productivity mating favorably against iteration. As President of our International segment, I see a tremendous multiyear top and bottom line growth opportunities across this business, including in 2024. Moving to balance sheet and cash flow. Our ongoing cash generation remains strong. However, we chose to deploy a significant component of our 2023 cash flow to strategically reduce our supplier financing program, a decision that optically weighed on our free cash flow even as it to strengthen our balance sheet. Put another way, our free cash flow for the year measured just north of $900 million, but included a $1.6 million use of cash from accounts payable, primarily due to our discretionary decision around the supplier financing program. Our business remains highly cash generative and on an ongoing basis, we continue to expect conversion commensurate with other leading beverage players. However, we will be below this long-term level in 2024 due to a continued a bit more modest impact from reducing supplier financing. How we intend to allocate our capital remains very much intact. Our priorities include making organic and inorganic investments to support our growth further strengthening our balance sheet, consistent with our long-term net leverage target of 2 to 2.5x and returning cash to shareholders through a steadily growing dividend and opportunistic share buybacks. In any given year, we may over-index to 1 or more of our priorities based on short-term opportunities, but over time, we will take a balanced approach. For example, direct shareholder returns were a focus area during 2023, representing a cash deployment of over $1.8 billion. We saw value in our stock and repurchased 22 million shares during the year, including more than 8 million shares in quarter 4, with over $2.9 billion remaining on our buyback authorization, we will continue to be opportunistic. We also raised our dividend 7.5% during 2023, marking our third consecutive annual increase. Moving now to our 2024 guidance. We expect to deliver mid-single-digit constant currency net sales growth and high single-digit EPS growth in 2024, consistent with our long-term algorithm. Based on our current FX outlook, we expect reported results to also incorporate roughly 50 basis points, top and bottom line currency headwind in 2024. Our plans reflect continued strong momentum in our U.S. Refreshment Beverages and international segments, while contemplating a relatively muted contribution from U.S. coffee. New strategic partnerships will contribute approximately 200 basis points to overall top line growth which will also benefit from the combination of carryover pricing and selected new price actions consistent with a more normalized inflationary environment. We are projecting another year of robust productivity savings to help offset this more normal level of inflation. Even with planned reinvestments in our brand and capabilities, we expect healthy operating profit growth, reflecting net sales growth and full year operating margin expansion. However, we also anticipate some below-the-line headwinds primarily in interest expense. This will constrain some of the operating profit flow through to EPS, though we retain good visibility to bottom line growth within our high single-digit target range in 2024. Our full year outlook includes the following below-the-line assumptions. Interest expense in a $560 million to $580 million range, an effective tax rate of approximately 22% and approximately $1.4 billion diluted weighted average shares outstanding. From a phasing perspective, we expect our top and bottom line momentum to build throughout the year. This quarterly EPS flow is typical for us and accounts for our innovation and investment calendar as well as building contributions from electrolyte and lacalome in the back half. Reflecting these dynamics and a slower start to the year in U.S. coffee, we forecast first quarter net sales and EPS growth in the low single digits. In closing, 2023 was a significant year for KDP. We grew share across most of our portfolio, increased gross margin through efficient pricing and record productivity, invested in key growth factors, improved the composition of our earnings profile and to strengthen our balance sheet. We expanded into attractive bite spaces through capital-efficient strategic partnerships and return a meaningful amount of cash to shareholders. Our 2023 performance was the product of hard work and strong execution across our whole organization, which enabled us to achieve a good set of operating and financial outcomes that were in line with our original projections. Our results also underscore our proven ability to deliver consistently and predictively in a dynamic operating environment. We have strong confidence that we will do so again in 2024. With that, I will now turn the call back to Bob to close. Robert Gamgort: Thanks, Sudhanshu. Five years out from having played a key part in creating KDP, my excitement about its future continues to build. Our performance track record speaks for itself. In the 5 years since merger, net sales have grown at a 6% CAGR and EPS at an 11% CAGR. We have generated almost $11 billion in cumulative free cash with roughly half redeployed to bolster the business through transformational capital investments and disciplined M&A and partnership deals, which further enhance KDP’s growth profile. . We returned the other half to shareholders, enhancing our TSR delivery. We are looking forward to seeing many of you in mid-March and to sharing more about our go-forward strategic road map. KDP’s priorities are very clear. They reinforce our role as a disruptive and dynamic force within the beverage industry and lend visibility to continued delivery against our attractive long-term growth algorithm. My confidence is made all the stronger, given the refreshed management team now in place with Tim’s vision and energy already taking root and propelling KDP into its next chapter. Thank you for dialing in during a busy day of cagny, we are now happy to take your questions. See also 14 Best Canadian Stocks To Buy and Hold In 2024 and 12 Best Wind Power and Solar Stocks To Buy. Q&A Session Follow Keurig Dr Pepper Inc. (NYSE:KDP) Follow Keurig Dr Pepper Inc. (NYSE:KDP) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: [Operator Instructions] The first question today comes from Peter Grom with UBS. Peter Grom: So Bob, you mentioned that you’re building your ’24 operating assumptions based on category growth expectations that are more prudent. Can you maybe just unpack that a bit more? And I would be particularly curious on what your expectations are for the U.S. coffee business sounds like 1Q is still going to be sluggish, but it does also seem that you need the category growth to improve in order to kind of hit your organic sales outlook. So just any thoughts on specifically when you think that inflection will happen would be helpful? Robert Gamgort: Sure. All 3 of us on the call today have been very involved in the development of the 2024 plan. I think as we said right upfront, there’s no expectations in the plan of any significant change in the macro environment. And we talked about our expectations around coffee being quite muted as we think about 2024. We focused our energies really on what we have in our control which we’ve talked about a number of times. I think given that Tim will be taking over in Q2 and he’s been very much involved with the team in developing AOP, it may be helpful for you guys to hear from Tim about why we have conviction on the outlook that we provided today. Timothy Cofer: Yes. Thanks, Bob. Peter. As Bob said, I think we do have good visibility into the mid-single-digit net sales growth, ’24 outlook that we’ve shared with you today, and it really reflects 3 primary elements, and I’ll start with Refreshment Beverages. We had a strong ’23 and expect to continue positive momentum into ’24. I think it will be characterized by a more normalized pricing environment that includes both some carryover and select targeted new actions. That will drive a more balanced price and vol mix equation. . We’ve got a strong innovation lineup again, and Bob referenced some of those initiatives earlier in the prepared remarks, all supported by strong digital marketing and in-store activation, and we will benefit from our recent expansion into higher growth of white spaces, including electrolyte in sports hydration, which is fully incremental, and the continued scaling of our C4 platform and energy space in partnership. Second, we think we have continued significant runway in international. And we’ve demonstrated a double-digit CAGR since the merger. As Bob mentioned earlier, it’s a much bigger part of the mix. We’ve nearly doubled the business since merger at almost $2 billion. And we expect that solid momentum to continue in ’24. And that brings us to coffee. The 21st elements really give us time for U.S. coffee to recover on the top line. And so the overall mid-single-digit sales guidance reflects relatively muted contribution expectations from U.S. coffee we expect coffee vol/mix recovery. We expect sequential improvement throughout the year. We’ve got some good programming and good new ideas, partnerships, La Colombe, Luvata conversions on the premium side, new marketing campaigns on Green Mountain and Original Donut Shop, some strong innovation, including refresher and extension in our ICE platforms, all the while in this economic environment, reinforcing our quality, a variety and importantly, our strong value proposition relative to coffee shop alternatives. Operator: The next question is from Chris Carey with Wells Fargo. Chris Carey: Just following up on coffee. Can you maybe just help frame the visibility that you have on operating profit and operating profit margins and the vision if the top line remains muted as you expect, that would assume that’s in line with your expectations, but it has been quite a volatile experience over the last several years. So what if things get worse, do you have enough buffer to be able to invest behind maintaining the sequential improvement even if still muted in 2024, while maintaining your your profit expectations for the year, so any context there would be helpful? Robert Gamgort: Yes. Chris, let me just give you just a bigger picture context on the top line, and then I’ll ask Sudhanshu to talk to you about the margins. and it’s all under that umbrella of controlling the controllables. We have good visibility on the margins. If you look at the very long-term trends on at-home coffee and single-serve in particular, you talked about is volatility. It was a situation where the category went straight up during COVID due to time spent at home and then it moved down from that peak. So it’s been slow moving. We talked about it quarter-to-quarter. It actually hasn’t been that volatile. It’s just been slower in recovery than any of us expected. Just to reiterate a couple of comments about the category. We’re not happy with the the pace of the rebound, but it is sequentially getting better. It is interesting that we’re seeing this trend globally in nearly every developed market, any other trend that seems to consistently hold up is that the single-serve segment outperforms all other forms of coffee. And so we’re seeing this gradual improvement, the untracked channels perform better than the track channels. And given that the pace of that, while sequential has been gradual, that’s why our planning expectations going forward, we think are quite reasonable and prudent. Now that’s an area we don’t fully control, we influence it through our innovation and marketing. We do have a lot of visibility and control of the margins. So Sudhanshu, you want to talk about that side of the equation? . Sudhanshu Priyadarshi: Thanks, Bob. And Chris, as you saw this in second half, that gives you a proof point of how we have rebuilt margin first half, we were at 30% operating income margin, in Q3, we did 33%, in Q4, we did 36%. And we said that it took us multiple years to come down from the peak margin, it will take us multiple years to get the margin to pull back. But at the same time, in 2023, we took structural action to support our prior U.S. coffee margin. We talked about renegotiating partners contract. We made progress on Spartenburg. And in 2024, we expect for the full year, coffee margin progress on an annual basis, but I wouldn’t rely on second half margin as an ongoing margin for coffee. And we also need to factor in the balancing between 2 priorities. One is supporting category and top line recovery, but we feel good about coffee margin expansion for 2024. . Operator: The next question comes from Brett Cooper with Consumer Edge Research. Brett Cooper: A question for you on LRB brand partnerships. I was hoping you could stick to the evolution of your capability to onboard brands. I don’t know, maybe using recent additions versus those that you started earlier any tangible evidence you have with respect to those benefits you get on your own brands to bring those on? And then just the environment for partnership additions that we sit in today? Robert Gamgort: Sure. So we’ve got good experience now. in onboarding a number of brands. And I’m not going to recite all of the ones that we’ve had over the past 4 or 5 years. But the most recent additions, which have happened or in process of being onboarded right now, of course, C4 La Colombe ready-to-drink coffee and Electrolit. As we’ve developed — as we’ve brought brands on board, we’ve learned quite a bit about how to exit them out of their current distribution system quickly and efficiently, and then how to onboard them both into our national account planning process all the way down through our inventory planning and merchandising and delivery at a store-by-store level. So we’ve developed a playbook that we use. It’s the same team who has onboarded all of these brands. And when we are in a position where we have an agreement with a partner, we bring all the commercial teams together. We spent a couple of days and we have this down to really a science. The tangible evidence of that, I would point to C4 where you could see there was not only 0 slippage in terms of its performance during an onboarding, which is a fear in most situations where you’re transitioning from one distribution system to another, we picked up immediately and improved the performance as soon as it came into our system. And you can see that in terms of increased availability, both breadth and depth of availability. You can see it in the merchandising quality, and you can also see it in the display and promotional activity. And obviously, those are all the leading indicators, the lagging indicator that’s critically important is the share gain. So we have the same bullishness as we’re bringing La Colombe up to speed right now. And as I mentioned in my prepared remarks, Electrolit just started shipping through our system is going incredibly well right now. So I think we’ve got a great example — many good examples of how we get better and better at that. In terms of what does the environment look like. The track record we have now of every brand partner brand that has come into our system that has seen a marked improvement in performance and growth and even brands that have been in our system for a very long period of time, our longest partner brand is Vita Coco and the fact that they continue to grow as well. has created a great sense of attraction for other brands who are outside of the system to try to get in. That puts us in a position to be very thoughtful and disciplined about where we want to do this. and also to be able to construct deals that are truly win-win over the long term. And we think the hallmark of this is that from an investment and growth perspective is that we’re able to leverage the strength of the business improvement that we can offer partners to construct deals that are highly attractive to us, very capital efficient, give us exposure to higher growth segments and the proof in terms of the benefits to the partner or in the results that I just talked about. Operator: The next question comes from Dara Mohsenian with Morgan Stanley. Dara Mohsenian: So Bob, I just wanted to return to top line in the at-home coffee category in the single-serve segment. You obviously covered 2024, but just can you take more of a look backwards at 2023 and some of the recovery being weaker than expected? Is it just the COVID drop-off you referenced earlier or are there other factors that drove some of that softness? And then just turning to the long term. So any perspective on if anything structurally changed here in the single-serve party segment? How you think about the growth opportunity post-2024? Robert Gamgort: We’ve felt a lot of time studying the coffee segment since the COVID peak and then the anticipated recovery since then. I think Chris mentioned before that there was some volatility in the top line. I was thinking about this question, the volatility was really driven by our expectations of a rebound and are not happening. If you look at the actual trends underneath it, they’ve been pretty steady, unfortunately, on the upside, much slower than we had originally anticipated. I always start with the total at-home coffee category because single-serve mirrors that, except it just performs better than total at-home coffee. So there’s nothing fundamental about single-serve. It’s really in the context of total coffee. This is an interesting category. And similar to many I have worked on in my career. It’s a universal product. It’s a very high frequency consumption pattern. And in situations like that, you can see that minor changes in consumer behavior can really move the needle. And again, we’re not talking about volume changes of plus 10%, minus 10%, we’re talking a much smaller ranges within there. But given the size of that business to us, it has an impact on us. Mobility was clearly a factor that’s not debatable. But if it was all mobility, we would have seen a faster rebound than that. And so as we go through this process of understanding it and our peers do the same globally and you can listen to their insights from their calls as well, you can see that there’s really no single issue. It’s a lot of little things that have contributed to it. And I think the best news in that is that as all of us in the coffee industry have done the deep-dive diagnostics to understand, is there something structurally that’s changed? Is there a significant consumer behavior or perceptual change? I’m happy to tell the answer is no, that the equity and beliefs around coffee and the attractiveness of coffee even to the younger generation is as good as it’s ever been. So for us, we keep doing what we’re doing, which is driving the category through innovation and marketing. And as I mentioned, again, in my prepared remarks, we’re going to be debuting some real breakthrough innovation in the near future. We look forward to being able to do that. And we’re also making sure that we are targeting affordability in the short term. We know that there’s quite a bifurcation in U.S. households. The higher income households are increasing their consumption of premium products. And so it’s important for us to have premium brewers and a super premium coffee line because we want to be attractive and competitive with that segment. But we also know that the mid- and lower income consumers have become more value seeking. And therefore, we’re very much focused on ensuring that we always have an entry-level price point brewer or 2 out there. We focus on the cost per cup and talking about that more overtly in comparison to the price benefit we offer versus away from home coffee and, of course, being more selective in targeting promotions and price pack architecture. So we’re happy to see the improvement we wish in the category, which the pace was faster. We’ve taken very prudent a very prudent approach to our assumptions for 2024 to let that happen naturally and be able to deliver good results as it does. Operator: The next question comes from Andrea Teixeira with JPMorgan. Andrea Teixeira: So I appreciate the explanation on perhaps volume in the shift that you mentioned, Rob, but can you comment more about the price mix for the coffee parts? How much of that was from what you just said, you want to focus on affordability? And — or is that effect of life that you have been seeing more of a structural shift from on to partner brands? And related to that, what should investors expect in terms of the cadence of the pod recovery or perhaps becoming as bad as we progress through the year? Robert Gamgort: Yes, I’ll answer the last part first, in terms of the cadence, you’re seeing it happen, right? You see the sequential improvement on there. We don’t have anything that would indicate that the continuation of that is anything but a good assumption. I think when you take a look at mix, mix, just remind you, mix gets very noisy when we analyze it quarter-by-quarter. There are a couple of factors in mix. On the brewer side, we had a mix scenario where we sold more of entry-level lower-priced brewers. We’re indifferent from a household penetration perspective, but it does have an impact on the revenue side as you — we say a 0 impact on the profit side of the business. . If you take a look at it within Pod, you do see that the owned and licensed pods were lower as a percent of total sales during the quarter and that the 1 licensed products have a higher revenue contribution. In our last earnings call, we talked about that the category had gotten a bit more promotional. It’s not a surprise when the category consumption is soft. You can expect to see individual players promote more to try to gain a share advantage. Remember, we are really focused on category growth because we have about 80% of the category. So that’s not a big of a focus for us. But when the price gaps become so far out of line, we have to address them on our owned and licensed portfolio. And we said that we were going to do that in the fourth quarter, which is what we’ve done, and it just takes time for that to catch up. But our expectation is that the promotional and marketing activity and the innovation activity that we put in place on owned at license will bear fruit for us in 2024. Operator: Our last question today comes from Filippo Falorni with Citi. Filippo Falorni: Just wanted to go back to assumptions for category growth, but on the U.S. refreshment beverage side. Clearly, we’ve seen normalization in pricing and volumes have been a little bit weaker to start the year. Maybe can you give us a sense of what you’re assuming for refreshment beverages for your core business, excluding the partnerships? Robert Gamgort: Sure. When we take a look at 2024, we’re coming off of a couple of years of incredibly strong category growth that was driven by unprecedented levels of pricing and really healthy elasticities in the face of that pricing that’s not a good expectation for the long term. So when we think about 2024, we think it reverting back towards the long-term patterns that we’ve seen for LRB in the individual segments. And that means more balance between price and volume mix. . Two specific things to call out when you think about our business with regard to 2024 and why we have confidence in our guide, and Tim went through that in great detail. But with regard to U.S. refresh and beverages, I would call out that partnerships are an important part of our growth engine. And you can expect those are — contributed about 200 basis points towards growth as we think about 2024. And then the only other comment I would make is the phasing of the growth in U.S. refreshment beverage is slightly more second half focused, and that’s driven by 2 things. The timing of Dr. Pepper innovation is a bit later this year. And you know that Dr. Pepper innovation has a material impact on our growth for our LRB. And then the other part, too, is the ramp-up of Electrolit, which is happening right now, and we’ll pick up steam as we move throughout the year. but that’s already a very substantial business that will be coming fully into our system. And as we’ve been able to do with C4 and other partner brands, we expect to be able to work with them to step up the performance to an even higher level, and so as that builds, that will have a much more significant impact on our growth rate in the second half of the year......»»

Category: topSource: insidermonkeyFeb 23rd, 2024

Medtronic plc (NYSE:MDT) Q3 2024 Earnings Call Transcript

Medtronic plc (NYSE:MDT) Q3 2024 Earnings Call Transcript February 20, 2024 Medtronic plc beats earnings expectations. Reported EPS is $1.3, expectations were $1.26. Medtronic plc isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Ryan Weispfenning: [Video Presentation] Good morning and welcome […] Medtronic plc (NYSE:MDT) Q3 2024 Earnings Call Transcript February 20, 2024 Medtronic plc beats earnings expectations. Reported EPS is $1.3, expectations were $1.26. Medtronic plc isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Ryan Weispfenning: [Video Presentation] Good morning and welcome to Minnesota, where we finally have some snow. I’m Ryan Weispfenning, Vice President and Head of Medtronic Investor Relations. And I appreciate that you’re joining us this morning for our Fiscal ’24 Third Quarter Video Earnings Webcast. Before we go inside to hear our prepared remarks, I’ll share a few details about today’s webcast. Joining me are Geoff Martha, Medtronic’s Chairman and Chief Executive Officer; and Karen Parkhill, Medtronic’s Chief Financial Officer. Geoff and Karen will provide comments on the results of our third quarter, which ended on January 26th, 2024, and our outlook for the remainder of the fiscal year. After our prepared remarks, the Executive VPs covering our segments will join us. And we’ll take questions from the sell-side analysts that cover the company. Today’s program should last about an hour. Earlier this morning, we issued a press release containing our financial statements and divisional and geographic revenue summaries. We also posted an earnings presentation that provides additional details on our performance. The presentation can be accessed in our earnings press release or on our website at During today’s program, many of the statements we make may be considered forward-looking statements. And actual results may differ materially from those projected in any forward-looking statements. Additional information concerning factors that could cause actual results to differ is contained in our periodic reports and other filings that we make with the SEC. And we do not undertake to update any forward-looking statements. Unless we say otherwise, all comparisons are on a year-over-year basis, and revenue comparisons are made on an organic basis, which excludes the impact of foreign currency and third quarter revenue in the current and prior year reported as other, which stems from prior business separations. There were no acquisitions made in the last four quarters, that had a significant impact on total company or individual segment quarterly revenue growth. References to sequential revenue changes compared to the second quarter of fiscal ’24 and are made on an as-reported basis. And all references to share gains or losses refer to revenue-share in the fourth calendar quarter of 2023 compared to the fourth calendar quarter of 2022, unless otherwise stated. Reconciliations of all non-GAAP financial measures can be found in our earnings press release or on our website at And finally, our EPS guidance does not include any charges or gains that would be reported as non-GAAP adjustments to earnings during the fiscal year. With that let’s head into the studio and hear about the quarter. [Video Presentation] Geoff Martha: Hi, everyone, and thank you for joining us today. Our momentum and solid execution continued this quarter as we establish a track-record of consistently delivering mid-single-digit organic revenue growth. Diabetes took another step forward with double-digit growth supported by a return to growth in the US. I’d also note that particular strength we saw in multiple businesses like Core Spine, Cardiac Surgery, Structural Heart and Cardiac Pacing. And we had strong growth across International markets as we expand access to our innovative healthcare technologies all around the globe. At the same time, we’ve had a rapid cadence of new product approvals and we’re continuing to differentially invest in our pipeline of highest growth opportunities. We’re advancing innovative core technologies like robotics, AI and closed-loop systems. And with five AI products already FDA approved, we’re leading the way in bringing the tech into MedTech. We also continue to make progress on our comprehensive transformation of the company. We’re incorporating a performance driven culture that’s based on execution, speed and playing to win. And we’re leveraging our scale to drive efficiencies. So when you look at our financials this quarter, you’re seeing the early results of our focus on restoring earnings power and converting our earnings into strong cash-flow, and we’re using that cash to both invest in high-return opportunities and return value to our shareholders. So we’re executing and we’re delivering, and we expect to continue over the coming quarters and years given our momentum. Our ongoing transformation, our breakthrough innovation, our exposure to strong secular growth markets and our numerous catalysts across the business. Now, before I get into the details of our Q3 results, I do want to mention that we provided a Portfolio Management update this morning on our patient monitoring and respiratory interventions businesses. After a comprehensive review, we have decided to exit our unprofitable ventilator product line. And retain and bring together our remaining PMRI businesses into one business, which we’re calling acute-care and monitoring. Now we’ve determined, it is in the best interest of Medtronic, its stakeholders, the ACM business both near and long-term to exit vents because of its increasing unprofitability and market preference shift to lower acuity ventilators. Now as we exit vents, I want to recognize the strong legacy of our business and the Puritan Bennett brand. And we’re committed to serving the needs of our customers and honoring our ventilator service contracts. And I also want to thank the employees in our ventilator business, who played an incredible role during the pandemic to dramatically expand production to get ventilators to the communities around the world that needed them. And while we exit, we do believe that existing manufacturers can meet the customer demand for new ventilators going forward. Now at the same time, we decided to retain and refocus the remaining PMRI businesses. Three main factors have driven this decision. First, we have strong conviction in our ability to lead and drive growth in acute-care and monitoring, given our improved competitive position. And our ability to properly fund this business with savings from exiting vents. Second, the importance of data in this space is changing rapidly. It’s becoming the basis of innovation. And this fact further improves our competitive differentiation. And lastly, as a company more broadly, we continue to prioritize profitable, innovation-driven growth and category leadership and ACM can deliver both. That does not mean we will shy away from additional portfolio moves going forward. But the bar is high for any strategic activity that dilutes our focus on our profit and growth. So when you take these decisions together, we’re able to provide increased investment for acute-care and monitoring, using the savings from vents and bringing two businesses together, all without creating dilution to our P&L. Now let’s get into the details behind our Q3 results. We continue to look at our portfolio in three categories, established market leaders, synergistic and highest-growth businesses. In this quarter all three grew in line with our expected growth algorithm. Our established market leader and synergistic businesses grew mid-single-digits, while our highest growth businesses posted high-single-digit growth and we expect their contribution to our overall growth to further accelerate in the quarters ahead. Now, looking first at the established market leaders, a combined they made up just under half of our revenue and grew 4%. Starting with Cranial & Spinal Technologies. We’re driving consistent above-market growth on the continued adoption of our AiBLE ecosystem. CST delivered high-single-digit growth in Core Spine, mid-teens growth in biologics and high-single-digit growth in enabling technology. We had strong double-digit unit growth in StealthStation navigation, O-arm Imaging and Mazor robotic systems. A leading indicator for future growth in this business. We also continue to see strong adoption of UNiD Adaptive Spine Intelligence, our integrated AI-based surgical planning solution. Now with AiBLE, we’re offering a complete robust ecosystem of enabling technologies and associated implants for spine surgeons. Our global footprint, which includes over 10,000 systems is over four times greater than the nearest competitor. And with this scale and extensive and rapidly increasing installed-base, we’re transforming the spine industry, we are leading the way. As more surgeons adopt our integrated spine technologies and in an environment where there is disruption from consolidation, we’re attracting the best sales teams to Medtronic to grow and expand our business. Next in surgical, we grew 3%, our Wound Management business won share growing in the high-teens on the strength of our V-Loc barbed sutures. We also had solid mid-single-digit growth in hernia products, as we won share in synthetic permanent mesh with our ProGrip platform. And as expected, our surgical growth continue to have a modest impact from declines in bariatric surgery. Now we still believe this impact will be temporary as more patients become eligible for surgery, and as patients seek a more permanent treatment to weightloss. To wrap up our established market leaders, Cardiac Rhythm also grew 3%, driven by high-single-digit growth in cardiac pacing, our micro leadless pacemakers continued to post strong results growing 15% driven by the launch of our next-generation Micra AV2 and VR2 devices. We’re also benefiting from the adoption of conduction system pacing, an alternative to traditional single or dual chamber pacing. Our 38-30 lead the only one on the market approved for conduction system pacing, continue to grow strong double-digits. In CRM, we also began training and the limited launch of our Aurora EV-ICD. We expect the EV-ICD to reaccelerate our Defibrillation Solutions growth in the coming quarters. As I’ve shared with you in the past, Aurora is a game-changer in the ICD space. It delivers the benefits of a traditional ICD including similar-size, longevity and pacing features. But without the leads in the harder veins, and these benefits can be realized with one device and only one implant procedure. We expect our advantages will not only displace the competitor’s device, we will expand the population far beyond the existing segment and be a strong growth driver for CRM. Now turning to our synergistic businesses, combined they grew mid-single-digits in Q3. And I’ll highlight some of the drivers here. Let’s start with Aortic which grew 13% on supply recovery and continued momentum of our Endurant AAA franchise. Cardiac Surgery grew 10% driven by strength in Perfusion and Cannula and ECLS Oxygenators, given competitor quality issues and the strong sales in international markets of our Avalus surgical valve. Coronary grew 7%, driven by double-digit growth in both guide catheters and balloons. And we increased our drug-eluting stent share in the US and in Europe on the continued rollout of our Onyx Frontier drug-eluting stent. Now turning to businesses in our highest-growth markets. As I mentioned earlier, together these businesses grew in the high-single-digits this quarter, and we expect their contribution to our growth to accelerate going forward. Now diabetes led the way, growing double-digits on the global adoption of our game-changing MiniMed 780G system. We’re seeing strong sequential momentum, growing 5% over the prior quarter. Our customer base is growing sequentially and we’re driving more revenue per customer. In the US, we not only returned to growth, we grew mid-single-digits, driven by nearly 50% revenue growth and insulin pumps. We doubled our new users year-over-year, attracting those on multiple daily injection as well as users of competitor systems. Users are choosing 780G for the outcomes it delivers. With intensive insulin users, these outcomes matter. And the 780G is highly differentiated. It’s the only AID system to automatically adjust and correct sugars every five minutes. It offers flexible glucose targets as low as 100, and features are proprietary meal detection technology. This leads to high time and range for users. And this type of glycemic control is coming with less effort and burden. As users realize the relief that comes from spending more time in automation with our SmartGuard technology. It’s worth pointing out that in a recent third-party survey of nearly 2,000 US diabetes pump users, the 780G scored number-one in overall pump satisfaction, among Type 1 CGM users our Guardian 4 Sensor mirrored competitor sensors in overall satisfaction. And during the quarter, we secured CE Mark for our Simplera Sync sensor for use with the 780G, and we look to begin the limited release this spring. And in US, we’re planning to submit the 780G with Simplera Sync to the FDA in the first half of this calendar year. Simplera Sync is half the size of our current sensor. It has a disposable design and is much easier to put on. Now we’ve been driving the diabetes turnaround for some time, and I got to tell you it certainly feels really good to return to double-digit growth. But we’re not finished here, there is definitely more work to be done as we work to bring to market an even more robust ecosystem of differentiated technology for people living with diabetes, including next-generation durable pumps, smart pens, patch pumps sensors and algorithms. And as the intensive insulin management space moves to using smart dosing through either AID or Smart MDI, we expect an acceleration in the growth contribution from our diabetes business. Now turning to Cardiac Ablation Solutions, we delivered 11% growth in International markets, including 9% growth in Western Europe. Our strong International growth as well as our overall performance continues to be driven by our leading Arctic Front cryo solution as Pulsed Field Ablation is still in the early stages. We are seeing though a lot of enthusiasm in the market for our PFA products. In Europe, we’re the only company with PFA offerings for both the single shot and the focal segments. And in single shot, we have now started the limited market release of our PulseSelect PFA system here in fiscal Q4. And we’re seeing very efficient procedures, and after just a couple of cases. And so the learning curve is really short. The catheter handling and maneuverability has been excellent due to its small shaft and our custom 10Fr bidirectional sheath. Clinicians are also reporting no noticeable muscle contraction with our PFA product, which is beneficial for patient experience. In focal, we continue to ramp manufacturing of the Affera Mapping System and Sphere9 catheter and remain in limited market release in Europe. Sphere9 is the only catheter that can perform both pulsed field ablation and radiofrequency ablation and high-density mapping. It’s really an all-in-one catheter. In the US, our CAS business declined in the quarter. We faced the first full quarter of competition in the cryoablation space, which is a space we created and had been the only player. In addition, many customers actually held back purchases as they awaited the launch of our PulseSelect PFA catheter, which is now commercially available. We do expect to improve from here as we roll-out the recently approved next-generation Nitron CryoConsole and PulseSelect, the only PFA catheter FDA-approved for both paroxysmal and persistent AF. And in addition to the European feedback, clinicians have consistently commented on how well it’s visualized and how easily it connects to their mapping system. So, we’re also making progress in bringing our Affera Mapping System and Sphere9 catheter to the US. With the last patient follow up in our SPHERE Per-AF Pivotal Trial now completed. We expect to see the results at a medical meeting in the first half of this calendar year. With an $8 billion market size, expanding our share in this underpenetrated cardiac ablation space is a big opportunity for us. We expect our growth profile to improve over time. First, moving towards market growth and then winning share as we bring our rich pipeline of innovation to patients you need this technology. In neurovascular this quarter we grew high single-digits, when you exclude sales in China, where the market is subject to volume-based procurement. We continue to have strong double-digit growth and flow diversion globally. This is being driven by our innovative Shield Technology for treating brain aneurysms, which is available on both Pipeline Flex and Vantage flow diverters. In Robotic Surgical Technologies, we continued growing the installed base for our differentiated Hugo Robotic System in International markets. In the US our EXPAND URO pivotal trial continues to enrol and we expect to have first enrollment in our hernia trial very soon. We expect Hugo equipped with advanced digital capabilities to be a meaningful growth driver for us in the years ahead. We believe surgeon preference for our open console and modular design, our leading position in minimally-invasive surgery and instrumentation, our connected digital ecosystem and data-enabled insights along with our world-class surgical training program and partnerships will meaningfully advance the low penetration of robotic surgery around the world. Now turning to Structural Heart, we grew high-single-digits in the quarter, including mid-single-digit sequentially, as we see ongoing adoption of Evolut FX and its improved design and market-leading valve performance. In Europe, where FX was launched for the first full quarter, we grew double-digits. And Japan grew in the low 20s on the continued adoption of FX. I’m pleased to share the news today that we have submitted Evolut FX+ to the FDA for approval. FX+ has three windows in the frame to allow easy coronary access, while providing the same dependable valve performance of our Evolut platform. And we were also pleased to hear that one-year trial results of our SMART Trial will be presented as a late-breaker at ACC, on April 7th. We’re excited to see the results and are looking-forward to having both FX+ and the SMART Trial as well as the continued strength of our four year low-risk data as catalysts for our Structural Heart business. Now with that, let’s go to Karen for a deeper look at our Q3 financial performance and our fiscal ’24 guidance raise. Karen? Karen Parkhill: So looking at our financials, our third quarter was another quarter where we delivered on our commitments. Our revenue grew 4.6% ahead of expectations, and adjusted EPS was $1.30, $0.04 above the midpoint of our guidance range. We attribute the beat to stronger-than-expected revenue growth and gross margin, offset by $0.04 from greater-than-anticipated currency impact, primarily from the devaluation in the Argentine peso in December. We’re delivering durable mid-single-digit revenue growth and have now for several quarters. As Geoff mentioned, International markets were an important driver for us. Our non-US developed markets grew 6%, including 8% growth in Western Europe and 7% growth in Japan. In fact, we had double-digit growth in several of our businesses across both of those regions. Emerging markets grew 10%, we had high-teens growth in the Middle-East and Africa and mid-teens growth in South Asia. China grew low-double-digits as some of the VBP we expected there continues to be delayed. And Eastern Europe grow in the low-single digits given Russian sanctions. In the US, we grew 2%, we have several new product approvals that are at the earliest stages of their launches and expect those launches to positively impact our US growth over the next couple of quarters and beyond. Looking down the P&L, we delivered a strong quarter. Both our adjusted gross and operating margins were ahead of expectations. Our adjusted gross margin of 66.1% improved year-over-year, overcoming a 60 basis-point headwind from foreign exchange and continued elevated inflation. We attribute the favorability primarily to the delayed China VBP and lower freight costs. We also continue to see traction from our pricing efforts and an early benefit from our comprehensive COGS efficiency efforts. While our adjusted operating margin of 25.2% declined 70 basis points, it was entirely driven by currency. In fact operating margin on a constant currency basis was up 160 basis points from improvement in gross margin and strong SG&A leverage, as we continue to drive efficiencies across the enterprise. Below the operating margin line, our adjusted tax rate was a little higher than anticipated, mainly due to the jurisdictional mix of profits. On the flip side, income on our investments was also a little better than expected with higher rates. It’s worth noting that while our adjusted EPS was flat year-over-year, it grew 8.5% on a constant currency basis from the leverage we drove down the P&L. We also significantly improved our free cash flow and conversion in the quarter. Now turning to guidance. Given our top and bottom-line beat and continued strength in our underlying fundamentals, we’re raising our full-year revenue and EPS guidance. We now expect full year organic revenue growth of 4.75% to 5%. For the fourth quarter, we’re expecting organic revenue growth to be in the range of 4% to 4.5%. On a comp-adjusted basis, this is an acceleration from the third quarter, as we continue to ramp our recent product launches. With the exit of ventilators that we announced today, we are moving the associated revenue to the other segment, starting in the fourth quarter. As is the case with all revenue in other, we will exclude it from our organic revenue growth. And additional details can be found in our third quarter earnings presentation. Regarding currency based on recent rates, we would see a full-year revenue impact in the range of an unfavorable $15 million to a favorable $35 million, including an unfavorable impact of $70 million to $120 million in the fourth quarter. On the bottom line with the beat in the third quarter, we’re raising our full year EPS guidance by $0.04 at the midpoint to a new range of $5.19 to $5.21. I’d point out that given our durable performance, we’ve been able to increase this guidance by $0.15 at the midpoint from where we initially started the year. For the fourth quarter, we expect adjusted EPS of $1.44 to $1.46. And regarding currency based on recent rates, we’re seeing an unfavorable impact of 7% on full year EPS, including an unfavorable 5% impact in the fourth quarter. Lastly, while we’ll give our fiscal year ’25 guidance on our earnings call in May, after we finish our planning, I want to share our early thoughts. You’ve seen us deliver durable revenue growth for several quarters, and we expect that to continue. Down the P&L inflation, currency and tax are currently headwinds to earnings growth. And we expect to continue to increase our investments in R&D. That said, we’re very focused on driving offsets, where we can, and improving the earnings power of the company. And regarding the portfolio management decisions we announced today, while the Street’s FY’25 numbers didn’t yet reflect the potential separation, with today’s decision we’re able to increase investment in innovation-driven growth without near-term earnings dilution or an ongoing impact to cash-flow, all with a focus on optimizing long-term shareholder value. I want to close by expressing my sincere gratitude to all of our employees for your hard work and unwavering commitment to the Medtronic mission. Your dedication was instrumental in achieving our results this quarter, and making a difference for so many people around the world. Thank you. Geoff, turning it back to you to take it home. Geoff Martha: Okay, thank you. But before I wrap up, I want to note that Tom Holleran passed away last week at the age of 94. Tom provided decades of leadership to our company. First as General Counsel, next as President and as a Director on our Board for many, many years. In the early 60s, Tom was one of the instrumental people who created our Medtronic mission together with our founder, Earl Bakken. Tom was also a significant leader in the twin cities and beyond and served on several company boards. Our thoughts are with Tom’s family as they celebrate his life. Now, before we go to analyst questions, I’ll close with a few brief concluding comments on our progress. You see now for several quarters in a row that we’re delivering on our commitments with durable mid-single-digit revenue growth. And when you look over the last couple of quarters, we’ve had a rapid cadence of meaningful innovative product approvals, many of which are just getting started, including EV-ICD, both PulseSelect and Affera in PFA. Inceptiv for SCS, Percept RC for DBS. And of course, our new Simplera Sync sensor in diabetes. And we can’t forget Symplicity for hypertension. When you combine these with our investments to enter surgical robotics, along with the strong execution we’re having in businesses like spine and diabetes, this is what gives us confidence in our ability to continue delivering durable growth. At the same time, we’ve been sharing with you our efforts to restore the earnings power of the company. And we’re seeing those efforts begin to show up in our financials. And the comprehensive transformation that we’ve been working on streamlining our operating model, aligning incentives, revamping our capital and portfolio management activities and instilling a performance-driven culture, well, this is also having an impact. These changes take time and we’re certainly not done, but it’s very encouraging to see our progress and where we stand today. And equally exciting are the catalysts that we see coming, which we believe will lead to significant advancements for patients and value-creation for both healthcare systems around the world and our shareholders. So with that, let’s move to Q&A where we’re going to try to get to as many analysts as possible, so we ask that you limit yourself to just one question. And only if needed a related follow-up. If you have additional questions, you can reach out to Ryan and the Investor Relations team after the call. With that, Brad, can you please give the instructions for asking a question. A – Brad Welnick: [Operator Instructions] Lastly, please be advised that this Q&A session is being recorded. For today’s session, Geoff, Karen and Ryan are joined by Que Dallara, EVP and President of Diabetes; Mike Marinaro, EVP and President of the Medical-Surgical Portfolio; Sean Salmon, EVP and President of the Cardiovascular Portfolio; and Brett Wall, EVP and President of the Neuroscience Portfolio. We’ll pause for a few seconds to assemble the queue. See also 16 Companies With The Highest Sustainable Revenue in the US and 25 Most Affordable Places to Retire in the U.S. in 2024. Q&A Session Follow Medtronic Inc (Old Filings) (NYSE:MDT) Follow Medtronic Inc (Old Filings) (NYSE:MDT) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: We’ll take the first question from Larry Biegelsen at Wells Fargo. Larry, please go ahead. Larry Biegelsen: Good morning. Thanks for taking the questions and congratulations on another nice quarter here. I wanted to just focus my one question on the fiscal 2025 comments, Geoff and Karen. You talked about durable growth, is that, should we think about that as mid-single-digit organic growth? And just help us, I think, there’ll be some concerns about what we’re seeing in the AFib business given the low-double-digit decline in the US. What are the puts and takes to consider there. And on earnings Karen, can you quantify those headwinds inflation, tax and FX in fiscal ’25 and consensus is at about 5%, are you comfortable with consensus EPS growth? Thank you for taking the question. Geoff Martha: Yeah, well, first of all, thanks for the questions, Larry. Maybe I’ll start with the CAS one, and then Karen, maybe, Sean and I will take the AFib one and then Karen can talk about the FY’25 questions. So I’m going to phone a friend and tap Sean here in a second here. But on — but on our AFib business, look we are confident in the investments that we made that are going to bear fruit here. We haven’t seen that translate into financials yet, but there’s lots of leading indicators here that we’re seeing that give us confidence both in you know one in continued I think stronger performance than people might think in cryo. But importantly in PFA for both PulseSelect organic program and then Affera. But Sean, do you want to comment on this a little more specifically for Larry. Sean Salmon: Yeah, sure, Geoff. So Larry, in the US what we had experienced was the first time ever a competitor in the cryo segment, so we had a 100% market share and we had the competitor ramp up their production, we felt that in the fourth quarter. I think there’s also some anticipation for some new products we’re launching including Nitron Console a refresh on our capital equipment for cryo. And of course the PulseSelect, which just started its launch in United States after the quarter closed. And that’s doing very, very well, the feedback has been exceptional, doing well in the United States, doing well outside the United States. And I think those catalysts to growth of Pulsed Field for both the PulseSelect, that’s the single-shot technology as well as our point-by-point ablation is driving a lot of enthusiasm. So, I think we’re going to see a return to growth and into next year we really feel the full force of those launches. So it’s a step-back certainly in the United States with the 11% growth worldwide or outside the United States, I should say, is giving us a lot of confidence. This is a pipeline that’s poised to return us to growth in that segment. Karen Parkhill: Thanks, Sean. And on FY’25 Larry, I would just start with the fact that we’re really pleased with our performance through these last several quarters. Q3 was another solid quarter, our fifth consecutive quarter of solid mid-single-digits. And I would point out that we drove that mid-single-digit growth this quarter off of mid-single-digit comps last year. And that’s what we expect to continue into FY’25, you know, we’ve been working through our planning process, and we expect to wrap that up in advance of our Q4 earnings call. So we’ll give our guidance in May. Not ready to give you real specifics, but from a high level, we’ve had no major changes to the puts and takes for next year that we discussed on our earnings call in Q2. And we’re focused on obviously setting up guidance that sets us up for success, prioritizes innovation and allows us to deliver on our commitments. But just on margins and down the P&L, there are puts and takes, we’ve got inflation that’s stabilizing a bit, but it’s still higher than historical. Currency is always dynamic, but at recent rates we are facing a decent headwind from FX and we’ll just have to see how that shakes out. Global tax reform is likely to be a headwind, but as always, we’re focused on driving offsets, where we can. And as you know, we’ve made, we’ve made good and real progress on our COGS cost out work, and that started with centralizing our global ops and supply chain, and focusing those teams on putting in place tangible programs that we now have in place to drive that cost-out work. And always, we’re continuing to focus on driving pricing as an important lever. We’ve built a new muscle around pricing and we’re just making it stronger and stronger. And then we’re always focused on controlling expenses. We’ve got discipline on our largest driver of our expense, which is our headcount. And we expect that to continue. So really no major changes from what we laid out last quarter. Larry Biegelsen: Okay. Geoff Martha: Okay, thanks, Larry. And I’ll remind the analysts, please stick to one question and a related follow-up if needed. Brad, can we take the next question, please. Brad Welnick: The next question comes from Robbie Marcus at JPMorgan. Robbie, please go ahead. Robert Marcus: Great. Thanks and good morning everyone. Wanted to ask on the Patient Monitoring business, the original intent was to try and sell it or spin it, you’re now keeping it and exiting the ventilator business. Just maybe walk us through the thought process. What happened in the market and why this is the best outcome for Medtronic? Thanks. Geoff Martha: Sure, I’ll take that one, Robbie. So a couple of things, I’ll start with — a couple of things have changed. And I’ll start with what — we do have strong conviction in driving profitable category leadership in this what we’re calling acute-care and monitoring business. And a couple of dynamics have changed. And just to remind the monitoring component, the patient monitoring component is the biggest part of this — of that — of those businesses that we intended to spin. I think the biggest thing that changes are two things. Our improved competitive positioning. You know is in our Monitoring business in particular changed over the last year. As we are working on the process, we continue to run the business. And it performed well, and the competitive dynamics versus our main competitor Massimo changed significantly for the positive for us. And we believe that we can ensure that, that change is durable with the increased investment and we find a way to make that increased investment, which leads to the decision to wind-down the vents business. It’s a very difficult decision, but the business became increasingly unprofitable throughout the last year. The growth slowed even more. And the dynamics within the vent segment are changing, moving to lower acuity ventilators. And our kind of I’d say unique, and worthy contributions are more in the higher acuity hospital based. And so with that market changing and becoming increasingly unprofitable, our decision to wind that down creates the oxygen, the investment if you will, that we can fund the monitoring side of the equation here and ensure that this, our competitive positioning versus Massimo we can — we feel like we can extend it. And another dynamic that has emerged is the use of data and the importance of data in this space. And that’s been changing and becoming increasing. And actually, I’d say, it’s the basis for innovation and our confidence in taking that data, and translating that into meaningful iteration, rapid iterations as well as disruption over time is pretty high, given what we’ve been able to do with AI and other parts of the company. And so you add all this together, and I finally say that, the last thing I’ll make a comment on is, as a company more broadly, we continue to prioritize profitable growth and category leadership. When you take all these factors together, we believe we’re able to provide increased investment for this acute-care monitoring business what we’re calling at ACM now using the savings from brands and also bringing the two — these were two separate businesses, our respiratory interventions business with ventilators in it and our monitoring business, bringing them together at the leadership level also creates some savings. And then we can find that the incremental investment needed for the monitoring business, all without dilution to our P&L. So, you know, the last thing I want to say is, this was a difficult decision, and it doesn’t take anything away from our employees who played such a pivotal role during COVID in driving ventilator innovation and responding to the global needs during the COVID pandemic. And I also want to give a nod to the just the legacy of the Puritan Bennett brand, which has been so strong. And we’re proud of the rich legacy of this business and Puritan Bennett ventilators, and this decision has not been easy. And last thing I’ll say this does not mean that we’re going to shy away from additional portfolio moves. So don’t read anything into that. But the bar is high for any strategic activity that’s going to dilute our focus or our earnings. Ryan Weispfenning: Okay, thank you, Robbie. We’ll take the next question please, Brad. Brad Welnick: The next question comes from Joanne Wuensch at Citi. Joanne, please go ahead. Joanne Wuensch: Good morning, and thank you for taking the question. There are lot of products that I could ask around. So I’m just going to throw a couple of headline ones out there. Diabetes, congratulations on a return to US growth. Is there a way to peel that apart a little bit on new accounts or new patients versus renewals? And I guess my second question has to do with Hugo. And if you can give us a little bit of a state of an update on how those launches are going outside the United States? Thanks. Geoff Martha: Well thanks Joanne for the questions. You know, obviously, we’ve been working this diabetes turnaround for some time, and it hasn’t been a straight line, but we definitely have some momentum here on 780G, that platform, and just our capabilities here, to use the data like, I was talking about the Patient Monitoring business here as well to create algorithms that really are differentiated and drive differentiated outcomes for patients. And that’s playing out globally, and now in the United States. So I’ll Que — maybe Que if you could come in and answer Joanne’s if you could peel it apart a little bit more for Joanne, I’d appreciate it. Que Dallara: Yes, look we’re very pleased with the progress that we’ve made every quarter since 780G launch. And we are seeing new patients grow significantly as well as renewals, so both are progressing very well. It will take time to rebuild our installed base, but you can see with the pump growth that we saw in the US, 40% — high 40s year-over-year, that’s going to be followed by consumables and CGM growth as well. So we expect to continue to make progress every quarter, but pretty pleased with how the markets reacted to the product introduction. Geoff Martha: Okay. Thanks Que. Mike Marinaro can you jump in on Hugo here? Mike Marinaro: Yeah, and thanks Joanne for the question. So we continue to see very good progress with Hugo outside the United States with an expansion of installations, and countries around the globe. In fact we entered into two new sub-regions in Central and Eastern Europe. And are continuing to see very good response to the things we’ve talked about previously. So the open console, the very crisp visualization and increasingly very good feedback around our Touch Surgery Enterprise platform, which on its own continue to expand and had a very good quarter with installations both with Hugo and in our broader surgical business. Also as Geoff noted, during the commentary we continued very good progress with our EXPAND URO IDE here in the US and are preparing for our first patient enrollment in the hernia IDE. So, in total, good reception, a sharpening sort of appreciation for the features of Hugo. I think an emergence of the digital ecosystem and an appreciation for that as well. Geoff Martha: Yeah, I’d say Joanne on this one — thanks, Mike, first of all, and I’d say on this one, in the robotic system and the features are differentiated and has been — and been well-received, but it’s broader than that as Mike pointed out. I mean it’s about the digital platform that comes with it, and as well as the instrumentation, as we transition instrumentation in our laparoscopic business onto the robot particularly stapling in energy. All these moves build momentum, build capabilities momentum over time and we’re seeing — we saw that play out in the Spine business. We bought Mazor and it wasn’t an overnight change. You saw our last couple of quarters have been, but it took the integration of these things, you know, Mazor with our navigation and then imaging and then getting these AI-guided surgical planning systems, all these things coming together, you know, every quarter more progress have built the ecosystem we have today, that’s really driving that, not just the growth for Medtronic, but to growth for the Spine industry right now. And we expect to do the same thing in soft-tissue surgery. Ryan Weispfenning: Okay, thank you, Joanne. And we’ll take the next question please, Brad. Brad Welnick: The next question comes from Travis Steed at Bank of America. Travis, please go ahead. Travis Steed: Hey, thanks for taking the question. Can you hear me okay? Geoff Martha: Yeah, hey, Travis. How are you doing? Travis Steed: Good, good. Hey, Geoff, curious if you could talk a little bit more on the gross margin productivity. Some of the things you’re driving there. And can you still get the kind of 2x to 3x annual cost savings on the gross margin line. And last month, at the investor conference you talked a lot about leveraged EPS growth. I’m just curious if that’s a comment that applies to FY’25 or if that was more of a longer-term comment? Geoff Martha: Sure. Let me tell you. I’ll start off and transition to Karen. On the gross margin a couple of things that I’d point out. One is pricing, Karen talked about that. I do think what we’re seeing here is a lot of innovation in the industry and a lot of Medtronic. And this innovation, we’re finding is valued. It drives value in the health system, and I think we’ve gotten better at showing the health economics of the innovation that applies from the innovation in addition to the clinical value. I think in the past, we were pretty indexed on clinical value. And more recently, we keep that focus and then add the health economics, and it’s getting paid for. And we’re I think doing a better job of making those points and getting that pricing and I do think it’s durable. So the pricing has increased, I’d say, for the company overall, 200 basis points or so relative to the past, and I think we’re going to keep pushing for even more. On the converse, if you don’t have the innovation, be prepared for that as well because I think hospitals have gotten more sophisticated and purchasing, and your price is going to pay for that if you’re not keeping up with the innovation. But given where we are on the product cycles and giving us pricing muscle, we feel good about that being incremental especially to the historical baseline. The other you asked about is cost goods sold productivity, and the answer, the short answer to your question is, yes, we do think it’s sustainable, we’ve got lots of opportunity here. Can you think about it, we have this pretty big footprint of factories and distribution centers and too many suppliers I have said in the past. Now with Greg Smith coming in a couple of years ago and we’ve centralized that, we can take a strategic look across that portfolio. And we have a long list of cost-down programs. And then we’ve ensured that we’ve effectively contracted those between our global operations supply-chain team and our operating units, because it takes release product engineering to make sure that these cost programs can happen in our operating unit. So we feel good about that, and we feel that that’s sustainable. So those are two big changes that impact positively gross margins now and into the future. And speaking in the future, I’ll turn it over to Karen to talk about your FY’25 leverage question. Karen Parkhill: Yeah, so just on, I’ll just add on gross margins too, we’re pleased with our performance that we had this quarter. We overcame a 60 basis point headwind from FX and continued inflationary pressures. And a lot of that was driven by strong pricing, which Geoff talked about. We also did have some continued delays and China VBPs in Aortic and Peripheral Vascular and Stapling. And those VBPs could be coming through this coming fourth quarter or this current fourth quarter and potentially into next year. So that’s just something going on in gross margins. You know, as we talk — as we think about leverage down the P&L clearly we’re focused on driving leverage. And I think we talked about it last quarter, Travis, clear leverage is where your bottom-line grows faster than your top-line. We’re focused on getting there eventually. We’re not ready to talk about that for FY’25, it’s still too early for our planning guidance. And I’ve already pointed out, lots of different puts and takes for next year. Geoff Martha: Yeah. Like Karen said pricing on the gross margin side, pricing, cost of goods sold productivity a lot of focus there. Karen mentioned earlier on the call about discipline around our G&A. Our people are the number one driver of our cost there and so we put a discipline in there that we’re holding to. And then finally just setting up the portfolio for profitable growth and the decision on with the changing dynamics, the decision to hold our Monitoring business, because of the confidence in the profitable growth is evidence of that, is setting up the portfolio, the right way. So, I’ll leave it there on the focus of on recovering the earnings power of the company, and we’ll provide more details on that FY’25 look next quarter. Ryan Weispfenning: Okay. Thank you, Travis. Next question, Brad......»»

Category: topSource: insidermonkeyFeb 21st, 2024

These Are The Best Dividend Stocks, According to Wall Street

There is a maxim on Wall Street that essentially says, “20% of investors who want to make money are in stocks, while the 80% who want to keep their money are in bonds.” This was a broad, wide-brush description that attempted to summarize why the fixed-income market is so much larger than the equities market. […] The post These Are The Best Dividend Stocks, According to Wall Street appeared first on 24/7 Wall St.. There is a maxim on Wall Street that essentially says, “20% of investors who want to make money are in stocks, while the 80% who want to keep their money are in bonds.” This was a broad, wide-brush description that attempted to summarize why the fixed-income market is so much larger than the equities market. However, diversification is a fundamental principle that many investment advisors stress as a risk mitigation strategy. Dividend-paying stocks can be an attractive way for an investor to have one’s cake and eat it too; in addition to potential price appreciation, an annual dividend not only reduces an investment’s cost basis, but can also provide timely additional cash income, especially in the current inflationary climate. The motivations of investors looking to invest in dividend stocks can vary across the spectrum. In rough terms, they can be divided into four (4) categories: Investors who seek to invest in Fortune 500 stocks for long-term growth but with an added income bonus component; Investors seeking capital preservation with a reliable income that compares favorably to bonds; Investors seeking high-yield junk bond alternatives in the dividend stock arena; Investors seeking industrial sector-based income streams (i.e., energy or real estate) with a lower cost entry point and better liquidity than what could be afforded with bonds. Fortune 500 Stocks With an Income Bonus Among Fortune 500 stocks, telecoms offer attractive dividends in addition to good upside potential. Conservative stock investors often have a weak tolerance for the roller coaster prices of high flying stocks that may soar only to crash and burn. The lower volatility of large cap stocks that are included in the S&P 500 or the Dow Jones Industrial Average 30 make for less sleepless nights and better peace of mind for these investors. When appraising large cap stocks, a history of steady, or even better, increasing dividends is often an additional sign of earnings stability and continued future upside. The fact that a company has reached a rate of growth that allows it to pay back investors for their loyalty and support beyond its reinvestment needs for hitting growth targets holds considerable appeal to low risk investors. Additionally, large cap stocks that pay a dividend can get a positive bump in their CAGR (Compound Annual Growth Rate), which can make a difference if they are being assessed for potential inclusion in a mutual fund or ETF against other rivals in the same industrial sector. This is especially true when a dividend per share amount has a history of incremental increases over a span of years, and is calculated in a separate dividend CAGR metric. Verizon Communications One of the longtime analyst darlings among large cap, dividend paying stocks is Verizon Communications (NYSE:VZ). As one of the premier telecommunications companies in the US, Verizon was formed in 2000 from the former “Baby Bell” companies, Bell Atlantic and Nynex, along with GTE. At the time of this writing, Verizon’s yield is 6.63% on an annual $2.66 dividend, paid quarterly. After an industry-wide selloff for all US telecom companies in mid-2023 over concerns about lead in their cables, Verizon has made a 30%+ price increase to its present levels. From a dividend growth perspective, Verizon has logged 1.93% over 12 months, 1.97% over three years, 2.01% over five years, and 2.34% over a decade. AT& T AT&T has the most US subscribers in the telecommunications industry. According to Investopedia, Verizon’s extensive national network and plan flexibility makes it the largest US wireless carrier. Although AT&T (NYSE:T) has the greater number of subscribers, Verizon, which ranks number 2 in subscribers, has a larger market cap ($168 billion vs. $120.7 billion). On the cautionary side, the reduction in household landlines and cable service in favor of cellphones and video streaming has supercharged Verizon’s wireless services, which commensurately account for more than half of its revenues. As a result, Verizon has greater exposure to satellite problems or other wireless related issues than its rivals. Additionally, its high profile has drawn significant institutional stock ownership, which stands at about 62%, with 38% in the hands of only 25 shareholders. As a result, if, say Vanguard Group, which has a sizable 8% stake in Verizon, all of a sudden needed to liquidate a large block of shares, it makes for a larger impact jolt to the stock price than a selloff from smaller retail investors. Nevertheless, Verizon’s FIOS optic fiber system is the core of its 5G network and they proudly advertise that it has been the recipient of the greatest number of consumer awards for customer satisfaction and internet speeds over the past decade. Among analysts’ publications, Morningstar still rates Verizon as its top performing dividend stock as of January, 2024. Longtime competitor AT&T, which has a current yield of 6.58%, is a viable investment alternative to Verizon. It has a larger subscriber base with more hardwired customers and a wider distribution of low-band 5G coverage, albeit slower than Verizon’s FIOS 5G. Income With Capital Preservation Preferred stocks from Global Ship Lease and its rivals in the maritime shipping sector can deliver very attractive yields with mitigated volatility. Preservation of principal with income is a hallmark of bonds. Among the stocks that emulate these traits, preferred stocks often come the closest. Due to their higher dividend payments, they often trade in a more narrow range than their parent company common stocks. Additional bond-like attributes of preferreds include a “par” value redemption price by the issuing company, which may opt to “call” the security after a protection period, and an increased sensitivity to prevailing interest rates. Features unique to preferred stocks may include a preset convertibility ratio option to common stock, no penalties in the event a dividend payment is skipped, and a preferential repayment place in queue should the company go bankrupt, which would be right after bondholders and ahead of common stockholders. Global Ship Lease, Inc. A good example of a solid preferred stock that has maintained a narrow price range and steady income dividend payments is British shipping company Global Ship Lease Inc. 8.75% Series B Cumulative Redeemable Perpetual Preferred Shares (NYSE: GSL.PB). With a par amount of $25 and a historical trading range between $25 and $26, Global Ship Lease’s preferred stock currently is yielding 8.42% at a price of $25.92 at the time of this writing. Sporting a fleet of 65 smaller and mid-sized container ships, Global Ship Lease has a niche in the maritime shipping space that has grown its charter shipping business while only maintaining seven (7) full-time employees. A.P. Moller Maersk One of the most recognized shipping companies in the world, A.P. Moller Maersk transports over 12 million containers annually. To illustrate the relative price stability of GLS.PB, A.P. Moller Maersk (OTCMKTS:AKMBY), one of the oldest and largest maritime shipping container companies in the world, had a 600% price fluctuation from March 2020 to December 2021, exacerbated during 2021, when the Suez Canal blockage from a stuck carrier created a global supply chain crisis. Since that runup, the stock has fallen back down 238% to its current price. By contrast, Global Ship Lease preferred shares essentially stayed in the $25-$26 price range during the same period, and has maintained that steadfastness to the present. In addition, the Federal Reserve’s raising of interest rates to combat inflation had a negligible effect on Global Ship Lease preferreds stock price, nor did it impact the dividend payments, something that cannot be said for some other preferred issues. Conversely, geopolitical events can affect international shipping companies, and Global Ship Lease is not invulnerable. Analysts in general believe that if the Red Sea concerns over the war in Gaza were to be curtailed, shipping rates and the perception of other supply chain threats would also subside, causing a sell off of maritime shipping stocks that could impact a preferred stock like GLS.PB and create a dividend skip, something for investors to bear in mind. Safe Bulkers, Inc. Safe Bulkers Inc.’s fleet of Kamsarmax vessels can haul even more dead weight tonnage per voyage than their Panamax ships. An alternative company with a similar preferred stock that competes in the maritime space on a larger level is Monaco based Safe Bulkers, Inc. Preferred D (NYSE:SB.PD). Their 46 ship fleet includes 11 Panamax and 9 Kamsarmax vessels, and they specialize in dry bulk shipping of iron ore, coal and grain. With an 8% coupon, the preferred also currently trades steadily between $25-26 and its yield is presently 7.86%. Their Series C preferred has been called, but the D series should be around for a long time, unless Safe Bulkers gets a suddenly huge $80-100 million windfall that could finance a redemption. High-Yield Dividend Stocks Iconic brands with high dividends make for widespread loyalty among both institutional and individual investors. Altria Group, Inc. Investors who seek junk bond-like yields often take similar risks when seeking high-dividend stocks. However, there are some solid equities that coincidentally have a fat dividend that has ensured stockholder loyalty for years, and they also have significant institutional ownership that helps to keep their price protected from short sellers. One such example is Altria Group, Inc. (NYSE:MO). With a 200-year history of selling tobacco products, Altria has weathered the negative publicity inherent with tobacco’s medical study links to lung cancer, nicotine addiction, and disfavor from the ESG policies of institutional funds. Nevertheless, Altria’s Marlboro is still an iconic, globally recognized American brand, and the company continues to meet or exceed analysts’ earnings forecasts, even in the wake of moderately reduced revenues. With a 9.67% yield at the time of this writing, Altria Group is certainly in junk bond territory from a yield purview. From a dividend growth perspective, it is also helpful to note that the company has consistently increased dividends a whopping 54 times in 58 years, dating back from when it was Philip Morris, all the way to the present, with a 4.3% hike made just last year. For further comparison, Altria Group 2019 issued notes, which mature in 2039 and carry a 5.8% coupon, are BBB-rated and are trading at roughly 102.50, meaning that their yields are nearly half that of the common stock. This is something that fixed-income investors, who have a much higher entry point than with the stock, are surely factoring into their portfolio allocation decisions. Industry Specific Income Focused Dividend Stocks REITs from Arbor Realty Trust and its rivals are a low cost way for investors to get real estate rent roll recurring income without the hands-on work of a property owner. The ETF and mutual fund markets for dividend stocks have proliferated significantly in the last few decades. Due to the high cost of entry for some industrial stocks, these pooled dividend stock funds have become very popular, and are now segmented by various categories, such as by market cap composition, yield, and industrial sector, to name a few. Energy, transportation, telecommunications, mining, and technology are all industries that have well-known dividend-paying stocks within their sectors. One fundamental sector that has a prohibitively high entry point cost that has become very attractive for portfolios of all types is real estate. To gain access to real estate rent rolls without the intricacies and burdens of managing real estate properties, securities have been created that pool these rent rolls. Diversified ones, such as Real Estate Investment Trusts, or REITs are excellent, low-cost platforms for investors interested in this space. As registered trusts that distribute 90% of their taxable income to shareholders, they are legally exempt from Federal taxes. Arbor Realty Trust Arbor Realty Trust (NYSE:ABR) is a New York-based REIT that was formed in 2003. Unlike some other REITs where capital is invested in hard real estate assets, Arbor’s focus is in real estate collateralized financial products, such as mezzanine and bridge loans, multi-family mortgage loans, and other types of short and medium-term debt instruments. Given that it is a REIT that trades on the New York Stock Exchange, Arbor Realty Trust has a high level of liquidity, especially when compared to brick-and-mortar real estate properties, or even individual debt instruments. Sporting a 14.09% yield at the time of this writing, Arbor Realty Trust’s dividend has been growing at roughly 10.25% annually since 2011. With a dividend payout ratio of 88.85%, analysts’ consensus is that this is a sustainable rate, and would equate to dividend amounts for Arbor doubling in 7.1 years if uninterrupted. Additionally, Arbor has some heavyweight institutional ownership participation, with Blackrock, Vanguard Group, State Street Corp., and Goldman Sachs among the top five largest shareholders. While Arbor Realty Trust may certainly look attractive with its high yield and dividend growth history, there is a caveat: China Evergrande Group China Evergrande Group is one of the largest real estate companies on the planet, and its bankruptcy is causing a financial ripple effect around the globe. The meltdown of Chinese real estate goliath Evergrande (OTCMKTS: EGRNQ) is triggering repercussions across the globe not only in commercial and residential real estate markets, but also in a variety of financial sectors. As such, It remains to be seen as to the extent of its effect on companies like Arbor, which have less tangible assets on their books, and whose capital is more tied to financial products leveraged with real estate. Global Net Lease, Inc. Global Net Lease specializes in commercial property lease-buybacks in New York City. For a REIT with the extra safety of a preferred stock, Global Net Lease, Inc. Preferred A (NYSE:GNL.PA) currently yields 8.62%. Also based in New York, the company manages commercial properties with a specialty niche in lease-buyback transactions. As the preferred stock is a relatively smaller item on Global Net Lease’s total balance sheet yet has priority over the regular REIT dividends, the likelihood of a skipped payment is drastically reduced, although this would entail minimal dividend growth. Dividend stocks certainly offer features that suit the needs of a broad range of portfolio requirements. Investors have a variety of both individual stocks and funds from which they can choose, and should certainly engage in their own research before pulling the trigger on a particular security. For further insights into stocks with upside combined with dividends, see: 4 Analyst Favorite ‘Strong Buy’ Stocks With Dividends Likely Rising This     Sponsored: Want to Retire Early? Here’s a Great First Step Want retirement to come a few years earlier than you’d planned? Or are you ready to retire now, but want an extra set of eyes on your finances? Now you can speak with up to 3 financial experts in your area for FREE. By simply clicking here you can begin to match with financial professionals who can help you build your plan to retire early. And the best part? The first conversation with them is free. Click here to match with up to 3 financial pros who would be excited to help you make financial decisions. The post These Are The Best Dividend Stocks, According to Wall Street appeared first on 24/7 Wall St.......»»

Category: blogSource: 247wallstFeb 17th, 2024

"Abercrombie & Fitch is cool again": A WallStreetBets post from 2 years ago nailed the clothing retailer"s 268% meme-stock spike

At the time of the Reddit post, Abercrombie & Fitch stock traded at just over $32 per share, which is the same level it traded at in December 1998. Wall Street Bets users have driven up the GameStop stock priceREUTERS/Dado Ruvic/Illustration/File PhotoA WallStreetBets post on Reddit nailed the 268% rally in Abercrombie and Fitch stock.Shares of the clothing retailer have been on a tear recently as profits and revenues improve."Abercrombie & Fi[t]ch is cool again... and the stock is GROSSLY undervalued," reads the WallStreetBets post.The remarkable rise in Abercrombie & Fitch stock has shocked Wall Street over the past year — but one WallStreetBets user isn't surprised at all.Reddit user SillyGoose41212 wrote in a WallStreetBets post on January 10, 2022 that Abercrombie & Fitch stock was extremely undervalued.Since SillyGoose41212 posted their thesis to the WallStreetBets forum, the stock has soared 268% and is trading at an all-time high of about $120 per share.Abercrombie & Fitch's stock performance even outpaced AI-darling Nvidia in 2023.The post, which is titled "Abercrombie & Fi[t]ch ($ANF) is cool again... and the stock is GROSSLY undervalued," offered a fundamental thesis as to why the clothing retailer's stock price was a good buy at the time. The opportunityAt the time of the WallStreetBets post, Abercrombie & Fitch stock traded at just over $32 per share, the same level it traded at in December 1998.The brand had languished throughout the 2010s, as its heavy exposure to mall-based retail locations and limited exposure to e-commerce didn't sit well with investors or consumers. YChartsBut Abercrombie's fortunes started to turnaround when its current CEO, Fran Horowitz, took the top job in 2017 and initiated a multi-year turnaround plan.A few years later, and SillyGoose41212 took notice."You might think of Abercrombie & Fi[t]ch as the store you used to shop at when at the mall as a teenager.. you know, the store with the clothes that had Abercrombie & Fi[t]ch written all over everything? (Same thing with their other store Hollister)," the Reddit user wrote. "But here's the thing: their clothes are actually kinda cool now. They have thankfully adapted to the times and are offering a very inoffensive and trendy selection of clothing.""It also isn't painful to walk into Abercrombie/Hollister as they are no longer perfume/fragrance infested dungeons... Finally but most importantly: The clothes don't have their stupid logo/name all over them anymore and are actually fashionable," SillyGoose41412 wrote. Abercrombie's appealing valuation in January 2022 also bolstered the likelihood of success for the trade.The author observed that even though Abercrombie & Fitch had industry-leading 60% gross margins and was executing aggressive share buybacks, the stock traded at just a 4x multiple of its trailing twelve-month enterprise value to EBITDA multiple, and at a price-to-sales ratio of just 0.5x."I think in a market with insane multiples on pre-revenue companies that value is a safe place to be, and although clothing retail is as boring of a sector as it gets, the multiples here cannot be overlooked. $ANF is undervalued. It should trade higher than the current price," SillyGoose41212 concluded in early 2022.The resultsFollowing the Reddit post in January 2022, Abercrombie & Fitch got caught up with the ensuing bear market and declined by as much as 57%. But since the stock found its bottom in September 2022, it has been on an absolute tear, soaring as much as 754% to record highs.The strong stock performance has been driven by a successful turnaround in Abercrombie's business that has been years in the making.The company's e-commerce sales channel now makes up about half of its annual revenue, and a methodical refresh of its stores and apparel has helped drive a surge in sales and profits. Abercrombie & Fitch raised its full-year 2023 guidance in November after it saw third-quarter sales surge 20%, and it provided another upbeat outlook on its sales trajectory in January following a solid holiday quarter.What Wall Street is saying At the time of the Reddit post, Abercrombie & Fitch had an average price target of $48. Five Wall Street analysts had rated Abercrombie stock a "Buy", while four analysts considered it either a "Hold" or a "Sell," according to data from Bloomberg. Today, Wall Street still isn't convinced that the stock is a good buy. Only three Wall Street analyst rate the retailer as a "Buy" while there are six "Hold" ratings. The average price target of $95 represents a potential downside of about 21% from current levels.Since March 2023, JPMorgan retail analyst Matthew Boss has raised his price target on Abercrombie & Fitch five times, from a low of $34 to today's target of $99, thanks in part to its "90's-esque brand momentum."Boss rates the stock at "Neutral," but noted in a recent note that the stock is on "Positive Catalyst Watch.""Our work points to continued brand momentum into November/December across both brands, with Abercrombie NPS per our HundredX insights data up more than 90% relative to the trailing 24 months and Hollister NPS +11% over the same time period," Boss wrote in a note last month. "We remain Neutral on ANF given fashion-driven demand/margin volatility multi-year across the Abercrombie/Hollister brands," Boss said.A throwback to the 2021 meme-stock crazeThe prescient stock pitch by SillyGoose41212 is a throwback to the meme-stock craze that took over the stock market in 2020 and 2021, which was spearheaded by the 15-million-strong WallStreetBets group.Retail investors piled into shares of beaten-down companies that went viral regardless of the underlying company fundamentals, in a bid to both make money and make Wall Street lose money.Shares of GameStop and AMC Entertainment soared to astronomical levels, leading to billions of dollars of losses for some hedge fund managers who were caught on the other side of the trade.And while Abercrombie & Fitch might stoke a sense of 1990's nostalgia for some investors, it's also very different from the meme-stock craze of yesteryear. Despite the stock's 754% rally since September 2022, it still trades at a reasonable valuation with a 19x forward price-to-earnings multiple, which is less than the S&P 500's current multiple of 20x.It has a growing and profitable business, and the fundamental rationale behind SillyGoose41212's stock pitch is much more sound than the YOLO mentality that is often present among WallStreetBets traders.Yet just like the meme-stock craze, the successful stock pitch on Abercrombie & Fitch serves as a reminder that retail investors can still beat Wall Street at their own game. Read the original article on Business Insider.....»»

Category: personnelSource: nytFeb 17th, 2024

Anywhere Real Estate Inc. (NYSE:HOUS) Q4 2023 Earnings Call Transcript

Anywhere Real Estate Inc. (NYSE:HOUS) Q4 2023 Earnings Call Transcript February 15, 2024 Anywhere Real Estate Inc. misses on earnings expectations. Reported EPS is $-0.54 EPS, expectations were $-0.39. HOUS isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning […] Anywhere Real Estate Inc. (NYSE:HOUS) Q4 2023 Earnings Call Transcript February 15, 2024 Anywhere Real Estate Inc. misses on earnings expectations. Reported EPS is $-0.54 EPS, expectations were $-0.39. HOUS isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good morning and welcome to the Anywhere Real Estate Year-End 2023 Earnings Conference Call Via Webcast. Today’s call is being recorded and a written transcript will be made available in the Investor Information section of the company’s website tomorrow. A webcast replay will also be made available on the company’s website. At this time, I would like to turn the conference over to Anywhere’s Senior Vice President, Alicia Swift. Please go ahead, Alicia. Alicia Swift: Thank you, Brianna. Good morning and welcome to the year-end 2023 earnings conference call for Anywhere Real Estate. On the call with me today are Anywhere’s CEO and President, Ryan Schneider; and Chief Financial Officer, Charlotte Simonelli. As shown on Slide 3 of the presentation, the company will be making statements about its future results and other forward-looking statements during this call. These statements are based on the current expectations and the current economic environment. Forward-looking statements, estimates and projections are inherently subject to significant, economic, competitive, antitrust and other litigation, regulatory and other uncertainties and contingencies, many of which are beyond the control of management, including, among others, industry and macroeconomic developments. Actual results may differ materially from those expressed or implied in the forward-looking statements. Last, the references made to January in these remarks are actual results for the month January 2024 included one more business day than January 2023. Our discussions on January closed volumes have been disclosed as both unadjusted and adjusted to reflect like for like number of business days. Important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are specified in our earnings release issued today, as well as in our annual and quarterly SEC filings. For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, February 15, and have not been updated subsequent to the initial earnings call. Now I will turn the call over to our CEO and President, Ryan Schneider. Ryan Schneider: Thank you so much, Alicia. Good morning, everyone. I am incredibly excited about 2024. There’s more optimism in the housing market. We have increasing competitive advantages as a company and we continue to demonstrate our ability to deliver results. And I’m really proud of what Anywhere Real Estate accomplished in 2023. It was an incredibly difficult year in the housing market, with the fewest home sale transactions since 1995 combined with unprecedented industry litigation challenges. All the while, the Anywhere team stayed focused on our strategic agenda. We continued our track record of delivering meaningful results even as we navigated the challenging market conditions. We generated $200 million of operating EBITDA and $67 million of free cash flow in 2023. Our EBITDA would have been meaningfully higher without our litigation reserves, and our free cash flow would have been above $100 million without litigation payments and taxes related to debt transactions. The ability to generate these levels of EBITDA and free cash flow, even in such a challenging year for housing demonstrates our financial octane [ph], which is a clear competitive differentiator. We realized over $200 million of cost savings as we continue to simplify, automate and streamline our operations for the future, and we have another $100 million of cost savings targeted for 2024. We continually focus on permanently lowering our cost base, which gives us significant earnings power, especially in more normal housing markets. And now in 2023, we also improved our capital structure with more than $300 million of debt reduction. Continuing debt reduction is critical and remains a top capital allocation priority. We utilized our competitively advantaged financials to invest in the business for future success, unlike competitors who have had to pull back given the down 2023 housing market, we delivered products, marketing, data, AI and automation wins, all to enhance our value proposition to help position us for future growth and to streamline our company. For example, integrating and digitizing our brokerage and title operations to better assist agents and consumers from contract to close, creating a more frictionless transaction experience, growing our franchise network, one of our most important strategic priorities through new and expanded offerings like Affiliate Insights, Listings Direct and Upward Title. Strengthening our luxury leadership position through continued domestic and international expansion of our high end brands, growing our auction partnership with Sotheby’s auction house and demonstrating our preeminent position, selling the most expensive homes in America, including a $295 million listing that we recently brought to the market and continuing an aggressive generative AI agenda across many parts of our company. Our biggest success scaling are generative AI pilots since we last spoke, are happening across brokerage and title operations and in marketing as we are automating operational tasks and increasing our efficiency. Finally, we successfully architected the first nationwide settlement in the seller antitrust class action litigation. We are passionate about spending our leadership time and dollars, growing our business and supporting our customers rather than on litigation. Others have written that our position is a competitive advantage relative to the competition who face large judgments or lawsuits, and we agree with that and hope to capitalize on it going forward. And we look forward to our final approval hearing on May 9. Now so as I started the call, we are really excited about 2024. We are seeing more optimism and positivity around housing. The market was very weak throughout 2023 with our and the market’s volume down almost 20% year-over-year as there are only 4.1 million home sale transactions here in the United States, but we’ve started to see some green shoots in the macro economy. Mortgage rates have come down over recent months. Consumer sentiment around housing is improving and recently hit a two-year high this month, and there are possibilities for rate cuts in 2024. Now, beyond the macro improving, we really like the early indicators we’re seeing in our book. Our open volume in December was up 8% year-over-year, with growth in both units and price. This was the first month we saw positive open volume since December of 2021, and our January results continued the strengthening trend. January closed volume was up 9% year-over-year with growth in units and price. However, there was an additional business day in January, but like for like January closed volume was still up 4% year-over-year. Now home prices continue to be resilient as more than 80% of the country saw price gains in our portfolio in the quarter. That continues to illustrate the lack of supply challenges in the market. One of the biggest factors that made 2023 such a tough year for housing. We see demand greater than supply also showing up in other metrics. For example, a larger percentage of homes in our portfolio are selling in the first two weeks than they’ve done in prior years. Now, beyond potentially turning the corner with some volume momentum, we like our differentiated results in the market. Most striking is the strength of our luxury business, particularly our Sotheby’s International Realty brand, whose closed volume in the quarter was actually up year-over-year when both the market and our overall portfolio’s volumes were down. And our luxury leadership also serves us well moving forward as the listings growth we’re seeing today on $1 million plus homes is meaningfully outpacing the listing’s trajectory both in the market and in the rest of our portfolio. Now, while we have a lot of optimism heading into 2024, the two biggest issues of 2023 will both bear watching this year. First, with 2023 a historically tough year for housing, even meaningful growth above 2023’s numbers will still be another challenging year for the housing ecosystem. And second, while we’ve settled our litigation, the industry and regulatory dynamics at play in residential real estate are still ongoing. You should know that we’re bringing the same proactive thinking and leadership as the industry evolves that we demonstrated in our litigation strategy. And I continue to believe the medium-term outlook for housing is quite strong, given both future demographics and the potential for lower interest rates. And if you look at our 2023 results delivery relative to the competition, our business improvements throughout the year and how our financial octane translates as the housing market rebounds, it’s hard not to be excited like we are. I appreciate how the world has recognized Anywhere Real Estate’s great work as we’ve been named one of America’s most innovative companies by Fortune and to the Forbes list of World’s Best Employers for the third year in a row. This is in addition to our track record as a world’s most ethical company for a dozen years and a great place to work for six years. Now everything I’ve spoken about is because of our great employees, agents and franchisees who helped Anywhere lead through 2023. We I’d like to thank them for their commitment and energy in a tough year, and I love the optimism I’m hearing from our people about what’s ahead for the housing market and for Anywhere Real Estate in 2024. With that, let me turn it over to Charlotte. Charlotte Simonelli: Good morning, everyone. We had many successes in 2023 despite the challenging market. We generated meaningful operating EBITDA. We over delivered on cost savings. We mitigated future risk with our legal settlements, we improved our capital structure with sizable debt reduction, we saw the best commission split trends we’ve seen in years, and we prudently managed our cash. We continue to execute on our controllables and position Anywhere for success going forward. We believe these accomplishments along with our progress on strategic objectives will drive differentiated results relative to our peers and lead us to deliver long-term value to our shareholders. I will now highlight our full year 2023 financial results. We delivered full year 2023 revenue of $5.6 billion and operating EBITDA of $200 million even despite significantly lower industry transaction volumes. Our operating EBITDA would have been meaningfully higher without approximately $50 million of litigation reserves that we took for both antitrust and non-antitrust litigation. We generated free cash flow of $67 million and our free cash flow without taxes related to debt transactions and litigation payments would have been above $100 million. Our free cash flow was up year-over-year due to improved working capital and lower CapEx offset in part by lower EBITDA. Our improved working capital was primarily driven by lower incentives paid in Q1 2023. Consistent with our capital allocation priorities, we used our free cash flow to make selective investments in the business to drive growth, including attracting agents and franchisees at better margins and expanding products and services with the highest ROI. And we continue to drastically improve both our cost and capital structures this year. We reduced debt by over $300 million in 2023, which represents over $900 million in debt reduction since 2019. We are always evaluating ways to further improve our capital structure, and I feel confident in our ability to weather the current market with only about $200 million due before 2026 and ample liquidity remaining on our $1.1 billion revolver. We realized $222 million of cost savings, which was about 10% higher than our target last year, and we have identified another $100 million cost savings target for 2024, which continues our multiyear trend of reducing costs in the business. Now let me go into more detail on our business segment performance. Our Anywhere Brands business generated $527 million in 2023 operating EBITDA. While down versus prior year, driven by historically soft industry volumes we love our powerful franchise business with its recurring royalty stream, high margins and its relative stability over time. Our Anywhere Advisors operating EBITDA was negative $144 million in 2023. However, this business generated $171 million in operating EBITDA before the transfer of intercompany royalties and marketing fees paid to our franchise business. Commission splits were 80.2% in 2023, up 46 basis points year-over-year, with 15 basis points of that increase coming from lower new development business in 2023. We continue to like the moderation we see in splits with only four basis points of year-over-year increase in the fourth quarter. And in the fourth quarter, split would have been down year-over-year, excluding the new development impact. The improvement in split pressure this year was driven by low volumes, more stable agent mix, better recruiting economics and other proactive actions we have taken and we see those continuing into 2024. Anywhere Integrated Services operating EBITDA was negative $17 million in 2023 due to lower purchase and refinance volumes which was partially offset by cost savings. We saw improved GRA performance, which was $22 million better than prior year. And given the tough market, we were pretty happy that our mortgage JV was able to break even for the year. I will now provide our current outlook for 2024. As mentioned, we expect to deliver about $100 million in additional 2024 cost reductions including carryover of approximately $40 million of actions already taken in 2023. Some of these savings will come from integrating and digitizing our support services for brokerage and title, further reducing our real estate footprint, product rationalization and automation across the enterprise. These savings will be offset in part by inflationary pressures. We like the free cash flow our business delivers and that we demonstrated in 2023. However, remember, we have over $100 million of payments expected in 2024 between our $73.5 million class action litigation payment and the $38 million legacy California tax matter as possible headwinds. The strength or weakness of the housing market will also be one of the biggest drivers of our free cash flow in the year. Consistent with Ryan’s remarks, we are seeing a bit of volume improvement at the start of the year but most of the overall improvement in industry forecast comes in the back half of the year. And given that, you should expect the shape of our earnings in 2024 to look similar to the shape of 2023. We expect more normal seasonal volumes throughout the year, and Q1 is still at historically low unit volumes, which will likely drive our EBITDA negative in the quarter. As the market leader, we have proven our ability to navigate tough markets by continuing to prioritize investing for growth while also delivering efficiencies for today and tomorrow. We continue to be focused on reducing debt and all of this will position us for an even stronger future. Let me now turn the call back to Ryan for some closing remarks. Ryan Schneider: Thank you, Charlotte. I’m incredibly proud of how the Anywhere team led and delivered through the 2023 housing market. We generated meaningful operating EBITDA and free cash flow, reduced our debt, invested in the business for future growth, over delivered on our cost savings and mitigated risk by reaching a nationwide settlement in our antitrust litigation. 2024 is about Anywhere Real Estate executing on what we can control. Delivering on our strategic agenda and utilizing our competitive advantages to drive growth to outperform the market and to deliver value for our agents, our franchisees and our shareholders. With that, we will take your questions. See also 15 US States with the Least Debt Per Capita and 30 Most Densely Populated Cities in the US. Q&A Session Follow Anywhere Real Estate Inc. (NYSE:HOUS) Follow Anywhere Real Estate Inc. (NYSE:HOUS) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: Thank you. [Operator Instructions] Your first question comes from Soham Bhonsle with BTIG. Please go ahead. Soham Bhonsle: Hey. Good morning everyone. Hope you’re doing well. Ryan Schneider: Good morning. Thank you. Soham Bhonsle: So I guess the first – great. I guess the first one for either Ryan or Charlotte. Thinking about the long-term margins for the business for a second, so over the past couple of years, obviously you’ve been on this cost reduction journey, there’s probably some of that comes back as volumes come back, but it seems like you’re trying to change how you operate all together. So I guess my question is, historically, this business has been, call it, a low double-digit margin business. But in a normalized market, where do you think your margins can go? Charlotte Simonelli: Yes. So I think prior to the housing market that we’re seeing this year, meaning 2023, we have been at double – low-double digit margins. I mean, they’ve been different years. Some have been sort of huge years some have been more normal years. So I think it depends on the year, but yes, we have had lower double digit margins. I think what’s important to know for going forward is that, yes we are trying to change how we work. And so the cost savings that we’re taking out today are less likely to be added back when the housing market improves because these are like structural changes to our business. So I’m optimistic that we will be able to keep more of this cost out of the business as the market come back – comes back. Now sure, there’s always going to be a bit of investment that we have to make as the market improves both in like people to support the transactions and other marketing-related costs that will correlate to volume. But I’m actually very optimistic that a lot of the work we’re doing today are going to be costs that stay out of the business. Ryan Schneider: Yes. And look, we’ve been explicit that two-thirds of our cost reduction we think is totally permanent, right? We’ve been explicit in the past on the temp versus permanent split. And then remember, within that total margin we also have the 40-plus percent margin franchise business that we’re loving our growth on and are strategically prioritizing along with the luxury area. And so we’re always hoping we can do even more on that that helps the overall margin. But that franchise business and the financial octane we get from that is, frankly, probably one of the competitive advantages we’ve got. Charlotte Simonelli: And keep in mind, none of the $100 million of cost savings is temporary. The $100 million for this year is all permanent. Ryan Schneider: Yes. Soham Bhonsle: Yes. Got it. Okay. And then Charlotte, being – historically the $15 million to $17 million framework for every 100 basis points in volume, is that still a fair way to think about the business this year? Or is there any other puts and takes we should be thinking about? Charlotte Simonelli: Yes. I think that number is more on a normal housing market. I think with the volumes that we’re seeing today, it’s definitely a little bit lower than that. And it’s because more of this is impacted in units versus price. So yes, I would say it’s definitely lower than that in the housing market that we were in 2023, and we’ll see what happens to the housing market. But keep in mind off of this low base, like even a 10% improvement in the housing market is still a low housing market. Soham Bhonsle: Right. And then just last one on the comments around commission splits, obviously encouraging trends there. But Charlotte, did you mean to say in 2024 we should expect similar to what we saw in Q4, which was close to flat? Or what you sort of produced in all of 2023? Charlotte Simonelli: So there’s three factors that are going to drive the commission splits, and I intentionally didn’t give a number because the single biggest driver is going to be volume. And I think those are going to – volume will evolve over the year. And I think if you can look at the industry forecast, like huge swings expected in the back half, but we haven’t seen those yet. So that’s part of the reason I’m not giving an actual number. So volume is going to be a huge piece of that. I think I called up the new development business for a reason. Over the five years I’ve been here, it’s never been more than a couple of basis impact like year-over-year. This year, it was 15 basis points. So it was a huge impact. So to the extent that we get back to a more normal new development business, which is highly correlated to New York City, then that will be less of a headwind for us in 2024. The third factor is sort of the amortization of recruiting and retention payments. And so to the extent that we’ve had much improved economics in 2023, the negative impact from that amortization will also be improved in 2024. But I think you can’t really correlate one quarter to a year. And so I think – think of it year-over-year with the three factors that I’ve just given you, it will depend on volume. If new development is sort of a nil impact on an annual basis next year, that will also be a favorable year-over-year comparison, and we should also see a slight favorable year-over-year comparison on the amortization. Soham Bhonsle: Okay. Understood. Thanks for all the color. Charlotte Simonelli: Thank you. Operator: Your next question comes from Matthew Bouley with Barclays. Please go ahead. Matthew Bouley: Hey. Good morning everyone. Thanks for taking the questions. Just wanted to ask around all the commission rates, news, maybe one way to put the question would be, and obviously congratulations on all the work with the settlement over this past year. But kind of as we think about maybe some of the risks from the DOJ, how does – how does the settlement kind of shield you from that potential risk? And then maybe just kind of thinking a little beyond that, just potential kind of range of outcomes in this industry from a commission perspective, kind of how are you positioning the business, communicating with agents and all that, just in case you have, again a different range of potential outcomes there? Thank you......»»

Category: topSource: insidermonkeyFeb 16th, 2024

Small AI Companies Soar After Chip Giant Reveals Stake

Through its SEC disclosure, Nvidia provided investors with more evidence of its long-term growth plan. Several firms saw their shares soar on Thursday morning after chip leader Nvidia disclosed investments yesterday evening. In its first-ever 13F filing with the SEC, Nvidia – a leader in the AI space – provided investors with more evidence of its long-term growth plan.Nvidia NVDA has witnessed its own stock soar to new heights, rewarding investors with a 550% return since the depths of the 2022 bear market. With this latest rally, Nvidia has surpassed both Alphabet and Amazon in market capitalization, becoming the 3rd most valuable company in the United States.Semiconductor stocks have led the way over the past year. Robust demand for products that run cutting-edge artificial intelligence have boosted investor appetite for companies that produce the chips. Several of Nvidia’s customers include fellow members of the Magnificent 7, including Facebook-parent Meta Platforms and Microsoft, as they require thousands of AI chips to run their own advanced offerings. Nvidia’s Mounting Influence Perhaps the most notable investment that Nvidia disclosed was a nearly $150 million stake in Arm Holdings ARM, the British chip designer that made headlines recently after the stock soared on an EPS beat and strong sales outlook.Image Source: StockChartsNvidia previously attempted to purchase Arm Holdings two years ago in a blockbuster $80 billion deal, but the agreement turned sour after it hit antitrust issues. The firm was taken private by Japan’s SoftBank in 2016 before returning to the public stage last September. ARM shares had nearly tripled in value from the original IPO price, but a decline over the past few sessions pared some of the gains.Another disclosure made was a $3.67 million stake in SoundHound AI SOUN. The company develops AI software that is tailored to vocal recognition, enabling businesses to deliver high-quality conversations to their customers. Their platform offers tools to help brands build voice assistants and automatic speech recognition, natural language understanding, and embedded voice solutions.Image Source: StockChartsSOUN stock surged more than 80% intraday before erasing much of the gains. SOUN was one of the most actively-traded stocks across all U.S. exchanges on Thursday.Nvidia also announced a minor stake in autonomous driving company TuSimple Holdings, a Chinese firm that recently delisted from the Nasdaq. In December of last year, the company announced that it would be closing its part of the business that conducted operations in the U.S. The stock, which is traded over-the-counter, jumped more than 50% early Thursday morning.A previously disclosed stake in biotech company Recursion Pharmaceuticals (RXRX) was also reaffirmed in the SEC filing, in which Nvidia invested more than $75 million. In addition, Nvidia divulged shares in Israel-based medical device company Nano-X imaging NNOX, which provides teleradiology services and develops artificial intelligence applications used in medical imaging. NNOX stock nearly doubled in value this morning before shedding much of the gains.Image Source: StockChartsFinal ThoughtsThe AI craze is clearly still underway. But related stocks are getting extended here, so it’s a good time to take partial profits while holding on to the rest to take advantage of any further upside.Nvidia continues to be at the forefront of the AI movement. The chip giant is a Zacks Rank #2 (Buy) and is set to report Q4 results next week. Zacks Names "Single Best Pick to Double" From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. It’s credited with a “watershed medical breakthrough” and is developing a bustling pipeline of other projects that could make a world of difference for patients suffering from diseases involving the liver, lungs, and blood. This is a timely investment that you can catch while it emerges from its bear market lows. It could rival or surpass other recent Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report NVIDIA Corporation (NVDA): Free Stock Analysis Report ARM Holdings PLC Sponsored ADR (ARM): Free Stock Analysis Report Nano-X Imaging Ltd. (NNOX): Free Stock Analysis Report SoundHound AI, Inc. (SOUN): Free Stock Analysis ReportTo read this article on click here.Zacks Investment Research.....»»

Category: topSource: zacksFeb 15th, 2024

Patterson-UTI (PTEN) Q4 Earnings and Sales Beat Estimates

Patterson-UTI (PTEN) plans to spend $740 million on capital expenditures in 2024. The company expects an effective tax rate of 24% and annual cash taxes of $35-$45 million for the year. Patterson-UTI Energy, Inc. PTEN reported fourth-quarter 2023 adjusted net profit of 19 cents per share, which beat the Zacks Consensus Estimate of 18 cents. This outperformance can be attributed to the impressive performance of the Completion Services and Drilling Services segments. However, the bottom line declined from the year-ago quarter's level of 46 cents. This underperformance can be attributed to poor contribution from the Other Operations segment.Total revenues of $1.6 billion beat the Zacks Consensus Estimate of $1.5 billion. The top line also improved 100.9% on a year-over-year basis. This outperformance can be attributed to PTEN's improved revenue contribution from its Completion Services segment on a year-over-year basis.Patterson-UTI will pay its quarterly dividend of 8 cents per share on Mar 15, 2024, to shareholders of record as of Mar 1, 2024.  Its share repurchase authorization had $1 billion left as of Dec 31, 2023.Patterson-UTI Energy, Inc. Price, Consensus and EPS Surprise Patterson-UTI Energy, Inc. price-consensus-eps-surprise-chart | Patterson-UTI Energy, Inc. QuoteSegmental Performances                            Drilling Services: Revenues in this segment totaled $463.6 million, up 0.4% from the prior-year quarter’s figure of $461.5 million. The figure also beat our projection of $387.6 million. Operating profit amounted to $92.7 million compared with $81.2 million in the fourth quarter of 2022. However, the figure was lower than our estimate of $97 million.Completion Services: This segment’s revenues of $1 billion rose about 230.6% from the year-ago quarter’s figure of $306.8 million due to better pricing. The figure also exceeded our expectation of $949.6 million.Operating profit totaled $70.3 million compared with $58.6 million in the fourth quarter of 2022. However, the figure was lower than our estimate of $81.9 million.Drilling Products: Revenues totaled $88.1 million, with an operating loss of $261,000. The fourth quarter marked PTEN's first complete reporting period following its acquisition of Ulterra Drilling Technologies.Other Services: Revenues amounted to $18.3 million, 9.4% lower than the year-ago quarter’s figure of $20.2 million. Operating profit amounted to $1 million compared with $3.5 million in the fourth quarter of 2022.Capital Expenditure & Financial PositionIn the reported quarter, PTEN spent $205.3 million on capital programs compared with $119.2 million in the prior-year period. As of Dec 31, 2023, the company had cash and cash equivalents worth $192.7 million and long-term debt of $1.2 billion.OutlookPatterson-UTI expects oil basin activity to remain relatively steady throughout 2024, while natural gas basins could experience a negative impact from current low prices.In the Drilling Services segment, the company looks forward to operate an average of 120 U.S. rigs in the first quarter of 2024, up from 118 in the previous quarter. It expects first-quarter Drilling Services adjusted gross profit to be relatively flat quarter over quarter.Completion Services segment revenues are expected to be in the range of $940-$950 million, with approximately $750 million in direct operating costs and an adjusted gross profit of $190-$200 million.In the Drilling Products segment, demand is expected to remain steady through the first quarter. Revenues are expected to be approximately $90 million, with $50 million in direct operating costs and an adjusted gross profit of $40 million.In the Other segment, revenues and adjusted gross profit are expected to be flat sequentially.Patterson-UTI expects selling, general, and administrative expenses of approximately $65 million and depreciation, depletion, amortization, and impairment expenses of approximately $280 million for the first quarter.For 2024, PTEN expects an effective tax rate of 24%, with annual cash taxes in the $35-$45 million range. The company also anticipates spending around $740 million on capital expenditures. This allocation includes $285 million for Drilling Services, $360 million for Completion Services, $55 million for Drilling Products, and $40 million for Other and Corporate purposes.Zacks Rank and Key PicksCurrently, PTEN carries a Zacks Rank #4 (Sell).Investors interested in the energy sector might look at some better-ranked stocks like Subsea 7 S.A. SUBCY and Energy Transfer LP ET, both sporting a Zacks Rank #1 (Strong Buy), and Murphy USA Inc. MUSA, carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.Subsea 7 is valued at $3.96 billion. The company currently pays a dividend of 38 cents per share, or 2.93%, on an annual basis.SUBCY offers offshore project services for the energy industry, specializing in subsea field development, covering project management, design, engineering, procurement, fabrication, survey, installation and commissioning of seabed production facilities.Energy Transfer is valued at $43.91 billion. The company currently pays a dividend of $1.26 per share, or 9.03%, on an annual basis.ET is an independent energy company, principally engaged in the acquisition, exploration, development and production of crude oil and natural gas.Murphy USA is valued at around $8.34 billion. In the past year, its shares have risen 47%.MUSA is involved in the marketing of retail motor fuel products and convenience merchandise, operating retail stores under the brands Murphy USA, Murphy Express and QuickChek. Zacks Names "Single Best Pick to Double" From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. It’s credited with a “watershed medical breakthrough” and is developing a bustling pipeline of other projects that could make a world of difference for patients suffering from diseases involving the liver, lungs, and blood. This is a timely investment that you can catch while it emerges from its bear market lows. It could rival or surpass other recent Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Patterson-UTI Energy, Inc. (PTEN): Free Stock Analysis Report Murphy USA Inc. (MUSA): Free Stock Analysis Report Energy Transfer LP (ET): Free Stock Analysis Report Subsea 7 SA (SUBCY): Free Stock Analysis ReportTo read this article on click here.Zacks Investment Research.....»»

Category: topSource: zacksFeb 15th, 2024

Nordstrom (JWN) Plans to Introduce a Rack Store in New Jersey

Nordstrom (JWN) reveals plans to open a Nordstrom Rack in Manalapan Township, NJ in spring 2025. Nordstrom, Inc. JWN has been making efforts to drive efficiency and improve customer experience via faster order fulfillment. In addition, its focus on Nordstrom Rack bodes well. The company has been making improvements in the Nordstrom Rack banner, driven by strategic brand penetration increases.In recent developments, management unveiled plans to open a Nordstrom Rack in Manalapan Township, NJ in spring 2025. With a span of 26,000 square feet, this store will be situated in Manalapan Commons, a renowned shopping center, which includes Best Buy, Panera Bread, Five Below, PetSmart, and Raymour & Flanigan. The shopping center, which is owned and managed by Urban Edge Properties, is located off Route 9 and Craig Road.Here, shoppers can avail expedient services like online order pick up from and, coupled with easy returns. The planned opening of the Nordstrom Rack store is a testament to Nordstrom’s commitment to expanding its retail footprint in New Jersey.The Rack banner remains on track to increase productivity throughout the network, reduce transportation costs and delivery times, and enhance services via faster delivery. The company continues focusing on introducing more premium brands at Rack, better assortment and increased brand awareness.We note that the company has opened 11 Rack stores in the third quarter of fiscal 2023 and one early in the final quarter, bringing the total to 19 stores. Going ahead, it intends to roll out to more markets.Nordstrom, Inc. Price and Consensus Nordstrom, Inc. price-consensus-chart | Nordstrom, Inc. QuoteWhat’s More?Nordstrom has been making efforts to enhance customer experience through faster delivery. The supply-chain optimization work began in early 2022 and has delivered significant customer benefits and operational efficiencies. Going ahead, JWN continues to seek additional efficiencies in flow and improved productivity through inventory-management initiatives.In addition, Nordstrom remains focused on its long-term strategy, which builds on its market strategy to capitalize on its digital-first platform to better serve customers, gain market share and deliver profitable growth. For this, the company is focused on three areas, winning in important markets, expanding the reach of Nordstrom Rack and enhancing its digital capabilities.Moreover, it remains focused on the closer-to-you strategy, which aims to link stores and services to expedite deliveries, expand online offerings and add cheaper merchandise at its Rack off-price stores. Increased focus on distribution capabilities along with improved connectivity of physical and digital inventory are likely to contribute to Nordstrom Rack sales by roughly $2 billion in the long term. Over the past three months, shares of this current Zacks Rank #3 (Hold) have gained 2.7% against the industry's break even.Eye These Solid PicksWe have highlighted three better-ranked stocks, namely Gap GPS, American Eagle AEO and Hibbett HIBB.Gap, a fashion retailer of apparel and accessories, currently sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 137.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.The Zacks Consensus Estimate for Gap’s current financial-year earnings per share suggests growth of 385%, from the year-ago reported figure.American Eagle, a leading apparel retailer, currently sports a Zacks Rank of 1. AEO delivered an earnings surprise of 23% in the trailing four quarters.The Zacks Consensus Estimate for American Eagle’s current financial-year sales suggests growth of 5% from the year-ago reported figure.Hibbett, the key sporting goods retailer, currently carries a Zacks Rank #2 (Buy). HIBB delivered an earnings surprise of 24.2% in the trailing four quarters.The Zacks Consensus Estimate for Hibbett’s current financial-year sales suggests growth of 1.7% from the year-ago reported figure. Zacks Names "Single Best Pick to Double" From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. It’s credited with a “watershed medical breakthrough” and is developing a bustling pipeline of other projects that could make a world of difference for patients suffering from diseases involving the liver, lungs, and blood. This is a timely investment that you can catch while it emerges from its bear market lows. It could rival or surpass other recent Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report American Eagle Outfitters, Inc. (AEO): Free Stock Analysis Report Nordstrom, Inc. (JWN): Free Stock Analysis Report The Gap, Inc. (GPS): Free Stock Analysis Report Hibbett, Inc. (HIBB): Free Stock Analysis ReportTo read this article on click here.Zacks Investment Research.....»»

Category: topSource: zacksFeb 15th, 2024

Why FleetCor Technologies (FLT) is a Top Growth Stock for the Long-Term

Wondering how to pick strong, market-beating stocks for your investment portfolio? Look no further than the Zacks Style Scores. It doesn't matter your age or experience: taking full advantage of the stock market and investing with confidence are common goals for all investors. Luckily, Zacks Premium offers several different ways to do both.Featuring daily updates of the Zacks Rank and Zacks Industry Rank, full access to the Zacks #1 Rank List, Equity Research reports, and Premium stock screens, the research service can help you become a smarter, more self-assured investor.Zacks Premium also includes the Zacks Style Scores.What are the Zacks Style Scores?The Zacks Style Scores, developed alongside the Zacks Rank, are complementary indicators that rate stocks based on three widely-followed investing methodologies; they also help investors pick stocks with the best chances of beating the market over the next 30 days.Each stock is given an alphabetic rating of A, B, C, D or F based on their value, growth, and momentum qualities. With this system, an A is better than a B, a B is better than a C, and so on, meaning the better the score, the better chance the stock will outperform.The Style Scores are broken down into four categories:Value ScoreFor value investors, it's all about finding good stocks at good prices, and discovering which companies are trading under their true value before the broader market catches on. The Value Style Score utilizes ratios like P/E, PEG, Price/Sales, Price/Cash Flow, and a host of other multiples to help pick out the most attractive and discounted stocks.Growth ScoreWhile good value is important, growth investors are more focused on a company's financial strength and health, and its future outlook. The Growth Style Score takes projected and historic earnings, sales, and cash flow into account to uncover stocks that will see long-term, sustainable growth.Momentum ScoreMomentum traders and investors live by the saying "the trend is your friend." This investing style is all about taking advantage of upward or downward trends in a stock's price or earnings outlook. Employing factors like one-week price change and the monthly percentage change in earnings estimates, the Momentum Style Score can indicate favorable times to build a position in high-momentum stocks.VGM ScoreIf you want a combination of all three Style Scores, then the VGM Score will be your friend. It rates each stock on their combined weighted styles, helping you find the companies with the most attractive value, best growth forecast, and most promising momentum. It's also one of the best indicators to use with the Zacks Rank.How Style Scores Work with the Zacks RankThe Zacks Rank is a proprietary stock-rating model that harnesses the power of earnings estimate revisions, or changes to a company's earnings expectations, to help investors build a successful portfolio.#1 (Strong Buy) stocks have produced an unmatched +25.41% average annual return since 1988, which is more than double the S&P 500's performance over the same time frame. However, the Zacks Rank examines a ton of stocks, and there can be more than 200 companies with a Strong Buy rank, and another 600 with a #2 (Buy) rank, on any given day.This totals more than 800 top-rated stocks, and it can be overwhelming to try and pick the best stocks for you and your portfolio.That's where the Style Scores come in.To have the best chance of big returns, you'll want to always consider stocks with a Zacks Rank #1 or #2 that also have Style Scores of A or B, which will give you the highest probability of success. If you're looking at stocks with a #3 (Hold) rank, it's important they have Scores of A or B as well to ensure as much upside potential as possible.The direction of a stock's earnings estimate revisions should always be a key factor when choosing which stocks to buy, since the Scores were created to work together with the Zacks Rank.Here's an example: a stock with a #4 (Sell) or #5 (Strong Sell) rating, even one with Style Scores of A and B, still has a downward-trending earnings outlook, and a bigger chance its share price will decrease too.Thus, the more stocks you own with a #1 or #2 Rank and Scores of A or B, the better.Stock to Watch: FleetCor Technologies (FLT)Peachtree Corners, GA based FLEETCOR Technologies, Inc. is a global commercial payments solution provider. Through its portfolio of brands, FLEETCOR helps companies automate, secure, digitize and control payments to, or on behalf of, their employees and suppliers. FLEETCOR serves businesses, partners and merchants in North America, Latin America, Europe, and Asia Pacific.FLT is a #3 (Hold) on the Zacks Rank, with a VGM Score of A.Additionally, the company could be a top pick for growth investors. FLT has a Growth Style Score of B, forecasting year-over-year earnings growth of 14.4% for the current fiscal year.Six analysts revised their earnings estimate higher in the last 60 days for fiscal 2024, while the Zacks Consensus Estimate has increased $0.08 to $19.35 per share. FLT also boasts an average earnings surprise of 0.6%.With a solid Zacks Rank and top-tier Growth and VGM Style Scores, FLT should be on investors' short list. Zacks Names "Single Best Pick to Double" From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. It’s credited with a “watershed medical breakthrough” and is developing a bustling pipeline of other projects that could make a world of difference for patients suffering from diseases involving the liver, lungs, and blood. This is a timely investment that you can catch while it emerges from its bear market lows. It could rival or surpass other recent Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report FleetCor Technologies, Inc. (FLT): Free Stock Analysis ReportTo read this article on click here.Zacks Investment Research.....»»

Category: topSource: zacksFeb 15th, 2024

5 Agriculture - Products Stocks to Watch in a Challenging Industry

The Zacks Rank for the Agriculture - Products industry paints a gloomy picture. Investors should keep an eye on these five stocks braving the industry headwinds -- West Fraser (WFG), CalMaine Foods (CALM), GrowGeneration (GRWG), Hydrofarm (HYFM) and Arcadia Biosciences (RKDA). The Zacks Agriculture - Products industry has been bearing the brunt of high input costs, labor shortage and supply-chain headwinds. The decline in commodity prices adds to the concerns. Nevertheless, increasing consumer awareness regarding food ingredients and the preference for healthier alternatives will support the industry. Alternative agricultural technologies like hydroponics and vertical farming are expected to be other key catalysts, given their inherent benefits.Players like West Fraser Timber Co. WFG, CalMaine Foods CALM, GrowGeneration GRWG, Hydrofarm HYFM and Arcadia Biosciences RKDA are poised well to gain from the strong demand in their end markets and ongoing growth initiatives.About the IndustryThe Zacks Agriculture – Products industry comprises companies that are either involved in storing agricultural commodities, distributing ingredients to others, or engaged in farming crops, livestock and poultry products. Some are engaged in purchasing, storing, transporting, processing and selling agricultural commodities or products derived from the same. They operate grain elevators, wherein income is generated from commodities bought and sold using these elevators or held as inventory. Some companies provide nutrients, advanced indoor and greenhouse lighting, environmental control systems and accessories for hydroponic gardening — the method of growing plants using mineral nutrient solutions in a water solvent instead of soil. A few players offer innovative, plant-based health and wellness products. Companies producing lumber also fall under this industry.Trends Shaping the Future of the Agriculture - Products IndustryLow Commodity Prices, High Costs Act as Woes: High interest rates and a strong dollar took a toll on agricultural commodity prices last year. Soybean, corn and wheat prices have dipped lately, as supply prospects from South America have improved due to favorable weather conditions in the backdrop of low demand. Demand in China for soybeans as animal feed is expected to go down due to the government’s efforts to reduce and substitute the use of soybeans in animal feed to decrease reliance on imports. The decline in crop prices, coupled with rising production costs, is expected to weigh on U.S. net farm income this year. The U.S. Department of Agriculture’s latest forecast for net farm income for 2024 is pegged at $116 billion, down from $156 billion in 2023. The forecast indicates an anticipated decline of 27% from the inflation-adjusted 2023 total, and would represent the largest annual decline since 2006. Players in the industry have also been facing rising labor, packaging and distribution costs, among other expenses. Companies are implementing cost-reduction actions and pricing strategies to sustain margins in the current scenario.Solid Demand to Support Industry: Demand for food is directly influenced by population and demographic changes beside income growth and income distribution. Per the United Nations, the global population will rise to 8.5 billion in 2030 and 9.7 billion in 2050. This would lead to a 50% increase in global food demand. In response to the growing consumer demand for healthier food alternatives, several agricultural and food-based companies are investing in innovation and augmenting their product and market strategies to bring new quality and healthy food ingredients to the market. Ongoing improvements in grain-handling techniques and investment in larger storage spaces will likely support the industry. Plus, stable earnings across all cycles are ensured, considering the industry’s products are always in demand, irrespective of the condition of the economy.Hydroponics & Cannabis Act as Key Catalysts: Hydroponics is gaining popularity as it gives growers the ability to regulate better, and control nutrient delivery, light, air, water, humidity, pests and temperature in an indoor setting. It can help produce crops faster with higher yields than traditional soil-based growers. It is being utilized in new and emerging industries, including the cultivation of cannabis and hemp. Vertical farms producing organic fruits and vegetables also utilize hydroponics due to a rising shortage of farmland and environmental vulnerabilities. Also, vertical farming is the latest agricultural technology, wherein companies use shelves and artificial light to grow produce, minimizing land and water consumption. Total sales for the hydroponic equipment industry are projected to surpass $16 billion by 2025. Even though the cannabis industry is undergoing a rough patch due to an oversupply, its long-term prospects are intact. In the United States, several states have legalized cannabis for medical or recreational use, representing the largest market in the world. By 2027, spending on legal cannabis is expected to reach $47.3 billion in North America.Zacks Industry Rank Indicates Dull ProspectsThe Zacks Agriculture - Products industry is part of the broader Zacks Basic Materials sector. The industry currently carries a Zacks Industry Rank #220, which places it in the bottom 12% of the 251 Zacks industries.The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bleak prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the downward earnings per share outlook for the constituent companies in aggregate. Looking at the aggregate earnings per share estimate revisions, it appears that analysts are losing confidence of late in this group’s growth potential. Since the beginning of 2024, the industry’s earnings per share estimates for 2023 and 2024 have moved 28% and 36% south, respectively.Before we present a few stocks worth considering for your portfolio, let us look at the industry’s recent stock market performance and valuation. Industry Versus Broader MarketThe Zacks Agriculture – Products industry has underperformed its sector and the Zacks S&P 500 composite over the past 12 months. Stocks in this industry have moved down 8.8% in the past 12 months compared with the S&P 500’s growth of 20.3%. The Basic Materials sector has declined 7.2% in the same timeframe.One-Year Price Performance Industry's Current ValuationOn the basis of the trailing 12-month EV/EBITDA ratio, a commonly used multiple for valuing Agriculture - Products stocks, we see that the industry is currently trading at 5.65X compared with the S&P 500’s 16.96X. The Basic Materials sector’s trailing 12-month EV/EBITDA is 15.22X. This is shown in the charts below.Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)Enterprise Value/EBITDA (EV/EBITDA) Ratio (TTM)Over the last five years, the industry has traded as high as 17.08X and as low as 3.63X, the median being 6.44X.5 Agriculture - Products Stocks to WatchWest Fraser: The company has been witnessing solid demand for Oriented Strand Board (OSB), plywood and other engineered products in North America, driven by new home construction markets. WFG’s strategy of optimizing its portfolio through acquisitions, divestitures, mill curtailments and significant capital investments is expected to contribute to its growth. In line with this strategy, it recently finalized the acquisition of Spray Lake Sawmills in Cochrane, AB, aligning well with its lumber and treated wood business. West Fraser's emphasis on enhancing operational efficiency and reducing costs will aid margins. With strong financial flexibility and a favorable cost position, the company is well-positioned to maintain a competitive edge.The Zacks Consensus Estimate for this Vancouver, Canada-based company’s earnings for 2024 suggests year-over-year growth of 1,067%. Earnings estimates have moved up 22% to $5.51 in the past 90 days. This diversified wood products company currently carries a Zacks Rank #3 (Hold).Price & Consensus: WFGCalMaine Foods: The company is committed to expanding operational capacity, pursuing synergistic acquisitions, and investing in innovative, scale-driven products and services to drive long-term growth. CALM completed the acquisition of the commercial shell egg production and processing facilities of Fassio Egg Farms, aligning with its strategy of expanding its cage-free egg production capacity. The preference for specialty eggs, including cage-free eggs, continues to be on the rise due to state mandates, as well as consumer preference. Also, consumers are willing to pay premium prices for these products. Specialty eggs, thus, remain a focal point for CalMaine Foods’ growth strategy. Backed by its efforts, the company’s sales of cage-free eggs have increased and now constitute a larger share of its product mix. CalMaine Foods also recently announced that it agreed to acquire a broiler processing plant, hatchery and feed mill in Dexter, MO, from Tyson Foods. It plans to repurpose the assets for use in the production of eggs and egg products. This deal will help CalMaine Foods expand its geographic footprint in Missouri and the surrounding markets.Jackson, MS-based CalMaine Foods is the largest producer and distributor of fresh shell eggs in the United States. The Zacks Consensus Estimate for CALM’s earnings for fiscal 2024 has moved up 61% in the past 90 days. The company has a trailing four-quarter earnings surprise of 131.5%, on average. CALM carries a Zacks Rank #3.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Price & Consensus: CALM GrowGeneration:  The company has been focusing on building and growing its private brands, investing in accretive and complementary acquisitions, and expanding its store presence. Its acquisition strategy is focused on acquiring well-established, profitable hydroponic garden centers and proprietary brands, and private-label brands. GRWG has been right-sizing its cost structure, lowering inventory and consolidating its store footprint. It expects 2023 margins to benefit from these actions. The favorable mix impacts of a greater proportion of private label and proprietary brand sales are also expected to favor the results. The company has also been continuing its progress on digital transformation efforts to enable further efficiencies in its supply chain.Greenwood Village, CO-based GrowGeneration owns and operates retail hydroponic and organic gardening stores in the United States. The Zacks Consensus Estimate for the company’s fiscal 2024 earnings indicates year-over-year growth of 22.3%. Earnings estimates have been unchanged over the past 90 days. GRWG currently carries a Zacks Rank #3.Price: GRWGHydrofarm: The company is focused on streamlining operations, reducing costs and improving efficiencies amid the challenging operating environment. Major initiatives include narrowing the product and brand portfolio, relocating and consolidating certain manufacturing and distribution centers, and the closure of two company locations. These efforts are expected to drive margins by improving the brand sales mix and productivity, and reducing costs. The company has also been expanding its reach to serve commercial cannabis, and commercial food and floral end users.Shoemakersville, PA-based Hydrofarm engages in the manufacturing and distribution of controlled environment agriculture equipment, and supplies in the United States and Canada. The Zacks Consensus Estimate for HYFM’s earnings for fiscal 2024 indicates year-over-year growth of 51%. The estimate has been unchanged over the past 90 days. HYFM currently carries a Zacks Rank #3.Price: HYFMArcadia Biosciences: The company continues to make solid progress in executing Project Greenfield, its three-year strategic plan to drive growth and profitability. RKDA has been streamlining its business to focus on higher-margin brands, while aggressively managing costs. Aided by its efforts, the company has delivered positive gross profit from continuing operations for seven consecutive quarters and reported the lowest total SG&A expenses in four years in the third quarter of 2023. The GoodWheat range has been supporting revenue growth for the company. RKDA entered the baking mix category with the launch of better-for-you pancake and waffle mixes in mid-2023. GoodWheat pasta and pancake mixes, and Zola coconut water were added to more than a thousand stores of distribution in the third quarter. The company has now expanded to a third category with GoodWheat Mac & Cheese, a family household staple representing more than $1.1 billion in sales. Better-for-you brands make up nearly 20% of the category and are growing faster than traditional brands. RKDA plans to ramp up innovation for GoodWheat and Zola coconut water, and add categories through acquisition.Arcadia is a producer and marketer of innovative, plant-based health and wellness products. In the past 90 days, the Zacks Consensus Estimate for this Davis, CA-based player’s fiscal 2024 earnings has moved up 25.5%. Earnings estimates indicate year-over-year growth of 59%. RKDA has a trailing four-quarter earnings surprise of 39%, on average. It currently carries a Zacks Rank #3.Price & Consensus: RKDA Zacks Names "Single Best Pick to Double" From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. It’s credited with a “watershed medical breakthrough” and is developing a bustling pipeline of other projects that could make a world of difference for patients suffering from diseases involving the liver, lungs, and blood. This is a timely investment that you can catch while it emerges from its bear market lows. It could rival or surpass other recent Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report West Fraser Timber Co. Ltd. (WFG): Free Stock Analysis Report Cal-Maine Foods, Inc. (CALM): Free Stock Analysis Report Arcadia Biosciences, Inc. (RKDA): Free Stock Analysis Report GrowGeneration Corp. (GRWG): Free Stock Analysis Report Hydrofarm Holdings Group, Inc. (HYFM): Free Stock Analysis ReportTo read this article on click here.Zacks Investment Research.....»»

Category: topSource: zacksFeb 15th, 2024

Molson Coors Beverage Company (NYSE:TAP) Q4 2023 Earnings Call Transcript

Molson Coors Beverage Company (NYSE:TAP) Q4 2023 Earnings Call Transcript February 13, 2024 Molson Coors Beverage Company beats earnings expectations. Reported EPS is $1.19, expectations were $1.12. Molson Coors Beverage Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good […] Molson Coors Beverage Company (NYSE:TAP) Q4 2023 Earnings Call Transcript February 13, 2024 Molson Coors Beverage Company beats earnings expectations. Reported EPS is $1.19, expectations were $1.12. Molson Coors Beverage Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). Operator: Good day, and welcome to the Molson Coors Beverage Company Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. You can find related slides on the Investor Relations page of the Molson Coors website. With that, I’ll hand it over to Traci Mangini, Director, Investor Relations. Traci Mangini: Thank you, operator, and hello, everyone. Following prepared remarks today, we look forward to taking your questions. In an effort to address as many questions as possible, we ask that you limit yourself to one question. If you have technical questions on the quarter, please pick them up with the IR department in the days and weeks that follow. Now today’s discussion includes forward-looking statements. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in our most recent filings with the SEC. We assume no obligation to update forward-looking statements. GAAP reconciliations for any U.S. or non-U.S. GAAP measures are included in our news release. Unless otherwise indicated, all financial results the company discusses are versus the comparable prior year period in U.S. dollars and in constant currency when discussing percentage changes from the prior year period. Also, U.S. share data references are sourced from Circana unless otherwise indicated. Further, in our remarks today, we will reference underlying pre-tax income which equates to underlying income before income taxes on the condensed consolidated statements of operations. With that, over to you, Gavin. Gavin Hattersley: Thank you, Traci, and thank you, everybody, for joining us today. Before we get started, I want to mention that Tracey Joubert, our Chief Financial Officer, is unable to attend today. We moved our earnings date earlier this year, so I didn’t conflict with CAGNY and Tracey had a very long-standing family commitment at this time. So Greg Tierney, our Vice President of FP&A Commercial Finance and Investor Relations, will be filling in on her behalf for this earnings call, and you’ll see Tracey next week at CAGNY. At the start of last year, no one, absolutely, nobody could have predicted what would happen in the beer industry. We are just growing the top and bottom line of this business, and we are committed to doing it again in 2023. Since then, we increased our expectations for the full year, not once but twice. We’ve continued to raise the stakes and I’m proud to say that once again, we have delivered what we said we would. In 2023, our global net revenue grew more than 9%, and we grew our bottom line by nearly 37%. These are our highest reported dollar results on record ever, on top of the already impressive results in 2022. We’ve proven that Molson Coors is the kind of business that can turn itself around, deliver against its commitments and continue to grow no matter the volatility of the external environment. Every year, for the past 3 years, our industry has faced challenges. We’ve gotten good at managing them, even when they’re massive enough to permanently alter the beer industry. And every year for the past 3 years, we have navigated successfully through the challenges. We have delivered against our vision, and we have grown. But growth is not a strong enough word to describe what we achieved in 2023. We’ve set a new baseline for our business, and you don’t need to look any further than our bottom line. In fact, our 2023 underlying pre-tax income was higher than we thought it would be, and frankly, higher than anyone I am aware of said would be in 2028. So Molson Coors delivered 6 years of profit growth, 6 years of growth in just 1 year. That focus is a new baseline. We are ready for this moment. So let’s get into why we are confident. In 2023, our top 5 brands around the world drove over 2 million more hectoliters than they did the prior year. This is like adding the entirety of Blue Moon’s global volume to our portfolio. In the U.S., our core brands are growing distribution and space at retail. And as I will discuss in a minute, we expect to gain significantly more space in the spring. Last year, our brands in the U.S. also grew more share of the on-premise than any other brewer. This includes our core brands, and it also includes growth for Blue Moon. And as of the latest 12-week CGA Nielsen reads, we are going 3x more share in the on-premise than constellation, 3x more. To put this performance into perspective, Coors Light and Miller Lite each grew more dollars in the on-premise than Constellation did as a total brewer. I’ll let that sink [ph] in for a second. Because of this momentum, we added an incremental $1 billion in distributor revenue to our network in 2023, and our distributors are just as motivated to grow again this year. Perhaps most importantly, the consumers who have come to our portfolio over the past 12 months have stuck with us, and they are more loyal than we have historically seen. So we brought new consumers into our portfolio, we’ve retained our loyal base and our plans for 2024 are designed specifically to bring in even more new consumers and there’s no better place to start than with our core brands. Let me start with the U.S. In the fourth quarter, Coors Light, Coors Banquet and Miller Lite all grew brand volume by double digits. Miller Lite left in a [indiscernible] strong into 2022 and still grew 0.5 point of industry dollar share in the fourth quarter. And Coors Light grew dollar share by nearly a full share point in the quarter. You’ve also heard us talk more about Coors Banquet and for good reason. Brand volume grew by nearly 20% for the full year in 2023, and it has grown industry share for 11 straight quarters. We have a lot of runway on Banquet, especially with younger legal age consumers. We gained more distribution in 2023 and grew on-premise draft lines for Banquet by nearly 50% in the fourth quarter alone. So you can expect to see us putting a lot of focus behind Banquet this year, along with Coors Light and Miller Lite. Coors Light and Miller Lite have grown significantly at retail, gaining more dollar share of displays in 2023 than any other beer brand. And that trend has continued in 2024 and with Coors Light, Coors Banquet and Miller Lite growing dollar share of displays by nearly 20% in the 4 weeks leading up to the Super Bowl. This is an incredibly important point. And the reason why it’s quite simple, store shelves and coolers have a finite amount of space. So floor displays represent incremental space and high visibility. This added space also means more days of inventory at retail for our brands. And from a consumer perspective, it means our brands are placed in areas of the store where they’re more likely to sell quickly. Now we can’t talk about our presence at retail without mentioning spring resets. You’ll recall that Coors Light and Miller Lite gained about 6% to 7% more space during the summer and fall adjustments, which is a huge increase for brand this large. We are now starting to get a clearer picture of what we can expect again as spring resets take shape. And based on the conversations we’re having with top retailers, we expect to gain significantly more distribution and space for our brands in 2024 on top of the gains we made last year. In fact, one of our larger chain retailers has already confirmed at its space that is well above the four levels for our core brands this year. It’s important to note, though, that this won’t happen all at once. Unlike the unprecedented resets we saw last summer and fall, spring resets are phased between the spring and summer. The impact will likely show up over time, roughly between March and July of 2024. Eating up to those months and throughout our core brands in the U.S. will have large integrated campaigns running across TV, digital, retail and live events. You’ve already started to see this with Coors Light and the Super Bowl which got a great reaction from consumers and supported our success in the marketplace. In the 4 weeks leading up to the Super Bowl, we added an incremental 160,000 display units of Coors Light at retail. During the same time, Coors Light velocities grew by nearly 14%. So not only are we selling much more beer, it’s also selling much faster. As far as what’s next, Coors Light’s choose Chill campaign will run throughout the year with strong media pressure and amplification from celebrity fans at Grammy award-winning country music star Lainey Wilson. And in March, we plan to launch a campaign of comparable size for Miller Lite. I can’t say much about that right now, but it’s some of the best work I’ve seen on Miller Lite in a long time, and that’s a very high bar. So we are excited about it. The growth of our core brands is not limited to the U.S. In our other global markets, we continue to see strong performance and have plans to continue the momentum in 2024. In Ontario, Coors Light and Molson Canadian are now the #1 and #2 beers in the total market, and both brands grew share of the industry in Canada for the full year. Miller Lite, which sells at an above premium price point in Canada continues to grow at a rapid pace with fourth quarter volumes accelerating up nearly 60%. In Croatia, Ožujsko achieved its highest share levels in recorded history and now holds more than a 50% share of segment. In the U.K., Carling grew value share versus its competitive set in the fourth quarter, and we are very excited that Carling is now the first official beer partner of the Men’s and Women’s FA Cup, which will provide significant visibility and relevance for the brand in 2024. So our core brands have carried their 2023 momentum into this year and the higher end of our portfolio has a lot of runway in 2024 as well. In the fourth quarter, our EMEA and APAC business achieved a record high 52% of our net brand revenue at an above premium price point. In the U.K., Madri Excepcional continued its growth streak. In the fourth quarter, Madri was the fastest growing major beer brand in the U.K., both by volume and value sales. Madri’s volumes grew by 80% for the full year, easily surpassing 1 million hectoliters. Growth like this does not come easy in the beer space, especially in less than 3 years for a new to the world brand that launched during a pandemic. We have some expansion with Madri, so it should not be a surprise that we have ambitions to scale this brand and expand its global footprint. Last month, we announced that we are launching in Canada, and product is rolling out on to shelves starting this week. We plan to grow this brand thoughtfully in markets where the opportunity and desire are clear. We are starting with Canada and select European markets this year. So that is our focus right now, and we will consider future expansion when the time is right. In terms of our flavor portfolio, Simply Spiked continues to be a growth engine for our business and the industry. This brand more than doubled its volume in the U.S. in 2023 and Simply Spiked Peach was the #1 innovation by volume and dollar sales in the grocery channel. Simply Spiked is also gaining ground in Canada, we had launched nationally less than a year ago. Already, it has nearly a 4% share of a statement in a matter of months. And along with brands like Coors Seltzer and Vizzy, it has driven Molson Coors to become the only major brewer growing share of flavor in Canada. We plan to continue our growth in flavor this year, but our approach will be focused and deliberate. We are launching Simply Spiked Lemonade in the U.S. this month. And in March, our new-to-the-world innovation happy Thursday would hit shelves and eCommerce platforms across the U.S. We’ve gotten great responses from retailers for both of these launches, and we plan to support them with strong marketing and sampling activations in every region of the country this spring and summer. So we are very confident we can go off our tremendous results in 2023, and we are very confident in the momentum of our brands and our plans for 2024. So you can be confident that we are going to deliver what we say we will deliver, just as we have for the past few years. We are confident because we’ve weathered every recent challenge imaginable challenges in our industry and challenges in the macro environment. And from that perspective, we continue to see signs of improvement. Country to conventional wisdom, U.S. beer industry volume trends improved during 2023 and particularly in the fourth quarter, which was consistent with strong improvements in consumer spending. In fact, the overall beer category gained dollar share of total alcohol beverage in 2023. Our brands led the industry volume improvement during 2023. And we are focused on our position as the leader of this industry. So we plan to grow Molson Coors top line again in 2024. Are we cautious about the year ahead? Of course. While inflation has come down, there are still plenty of reasons to be wary about the macro environment, but our strong results give us confidence in our ability to deliver in 2024. I know a number of you remain skeptical of our ability to grow this year. We were skeptical in 2022 and also in 2023, but the numbers don’t lie. We delivered what we said we would. So for 2024, here’s what I will say, we are committed to growth. And for the long-term, we’ve shared our growth algorithm, and we intend to deliver on it, just as we have delivered on what we have said we would over the past 4 years. And with that, I’ll turn it over to Greg to share some details on our financials and our guidance. Greg? Greg Tierney: Thank you, Gavin. 2023 was an incredible year for our company. Our net sales revenue grew an impressive 9.3% with strong growth from both business units. Top line performance was driven by favorable global net pricing, Americas volume growth and positive sales mix. Our above premium portfolio comprised 27% of total net brand revenue for the year, and that was with a tremendous strength in our core power brands. In fact, our above premium brand in our above premium brands grew net brand revenue by 6% for the year, behind successful innovations like Simply Spiked and continued growth in Madri Financial volume increased 1.8%, while brand volume grew 2.2%. Our supply chain team did an outstanding job in meeting the high consumer demand in the U.S., leading to financial volume growth of 3.5% and brand volume growth of 5.3% in the year. And we delivered strong margin expansion as cost savings and volume leverage significantly offset inflationary pressures and higher MG&A spend. As a result, underlying pre-tax income grew 36.9%, also driven by both business units and exceeded our expectations. Underlying free cash flow climbed to $1.4 billion, also exceeding our expectations. This enabled us to continue to strategically invest in our business, further strengthen our balance sheet, raised dividend 8% and repurchased approximately 150 million shares under our new share repurchase program that we announced in October. So as Gavin discussed, we’ve entered 2024 with a strong foundation. This gives us confidence for continued growth in 2024, which aligns with our long-term growth algorithm for net sales revenue and underlying pre-tax income. But before we get into our outlook, let’s discuss the fourth quarter. Both business units contributed a solid top line growth of 5%. Underlying pre-tax income increased 2.1% as we continue to invest strongly behind our brands, which is particularly impactful to the bottom line in a typically lower profit quarter. Now looking closer at the top line. Favorable net pricing and sales mix drove net sales per hectoliter growth of 4.2%. Favorable sales mix was due to lower contract brewing volume related to the wind down of the PEPs [ph] agreement ahead of its termination at the end of 2024. Consolidated financial volume increased 0.8% as growth in Americas was offset by declines in EMEA and APAC. Americas shipments increased 2.2% with U.S. domestic shipments up 4.3%, driven by the strength of our core premium brands. However, as expected, lower contract brewing volume related to the PEPs agreement with a headwind of approximately 2% to America’s shipment volume. And also recall that in the third quarter of 2023 due to our strong U.S. brewery performance, we shipped ahead of expectations. So we entered the fourth quarter with healthy U.S. inventory levels. This allowed us to give our employees some well-deserved time off during the holidays and to conduct routine system maintenance well positioning us to build inventory in the first quarter ahead of peak season. EMEA and APAC financial volume declined 3% on lower brand volumes. Consolidated brand volume growth was 4.3%. As expected, growth accelerated versus the third quarter and underscored the continued strong momentum of our core brands. Now looking by market, Americas brand volume increased 6.7%. That was led by the U.S. where brand volumes were up 8.5%. Coors Light, Miller Lite and Coors Banquet performed strongly, each up double digits. In Canada, brand volume increased 0.7%, benefiting from growth in our above premium portfolio. While industry softness weighed on brand volume, we continue to grow share in Canada for the quarter adding nearly 2 share points for the quarter. That was the strongest growth of any major brewer in the country. And in Latin America, while mix improved, brand volume was down 5%. This was largely due to challenging economic conditions in some of our key markets in the region. In EMEA and APAC, brand volume declined 2.2%. This was due to industry softness in the U.K. off-premise which partially offset the strength of our above premium portfolio and inflation continued to pressure Central and Eastern European performance. Now turning to costs. Underlying cost of goods sold per hectoliter was up 1.4% with notable differences by market. As expected, inflation was a headwind in the quarter, partially offset by cost savings and a 30 basis point benefit from volume leverage. In the Americas, underlying cost of goods sold per hectoliter decreased 0.7% as cost savings, volume leverage, lower logistics costs more than offset the impact of direct materials inflation. In EMEA and APAC, we continue to see persistent inflationary pressure with underlying cost of goods sold per hectoliter up 8.8%. These increases were driven by direct material — materials and logistics costs as well as unfavorable mix from premiumization. Underlying marketing, general and administrative expenses increased 17.4%. We invested strongly behind our brands, increasing marketing spend over $50 million in the quarter. Our focus was on retaining our existing drinkers and attracting new ones including using addressable channels or places where we can use data to more precisely target them and continuing our push behind live sports. General and administrative expenses were also higher as variable compensation expense reflected the strong operating performance for the year. Underlying free cash flow was $1.4 billion, up 66.5% for the year. This exceeded our expectations, in part due to the timing of working capital movements at the end of the year. Utilizing our strong free cash flow and given our greatly improved financial flexibility, we continue to deploy capital in ways that we believe will drive the greatest shareholder value. We continue to invest in the business, putting to work approximately $690 million in capital projects like the Golden Brewery modernization and investing in capabilities to drive efficiencies, cost savings and sustainability. And we supported our strategic growth initiatives under our string-of-pearls approach with bolt-on acquisitions like Blue Run Spirits and upping our investment in ZOA. We continue to delever our balance sheet with a cash repayment of $500 million in Canadian debt upon its maturity in July, coupled with higher cash balances, we ended the year with net debt of $5.4 billion, down over $600 million for the year. Given this and our strong underlying EBITDA, net debt to underlying EBITDA was 2.2x at year-end, aligned with our long-term goal of under 2.5x. Underscoring our enhanced financial strength, we are pleased to have earned credit rating upgrades from our ratings agencies in the fourth quarter. In October, S&P Global upgraded Molson Coors to BBB and in November, Moody’s upgraded us to BAA2. We continue to return cash to shareholders. In 2023, we paid quarterly cash dividends totaling $1.64 per share and up 8% from 2022. And today, as part of our intention to sustainably increase the dividend, we announced our quarterly dividend of $0.44 per share to be paid on March 15, 2024, and this represents an increase of 7%. Now lastly, as announced in our Strategy Day on October 3, our Board authorized a new share repurchase program of up to $2 billion over the next 5 years. Under our sustained and opportunistic approach, we were active in the market during a 2-month open window in the period, repurchasing approximately 2.5 million shares for a total cost of approximately $150 million. This equates to a repurchase of over 1% of our outstanding shares in roughly 2 months. Now let’s turn to our outlook. For 2024, we are issuing guidance of low single-digit net sales revenue growth on a constant currency basis, mid-single-digit underlying pre-tax income growth on a constant currency basis. Mid-single-digit underlying earnings per share growth, underlying free cash flow of $1.2 billion, plus or minus 10%, underlying depreciation and amortization of $700 million, plus or minus 5%. Net interest expense of $210 million, plus or minus 5%, an underlying effective tax rate in the range of 23% to 25% and capital expenditures incurred of $750 million plus or minus 5%. Now let me walk through some of the underlying assumptions. We expect annual net pricing to revert to historical levels. In the U.S. and Canada, that’s been approximately 1% to 2%, while in Europe its typically priced closer in line with inflation. We also expect mix benefits from premiumization as we advance toward our medium-term goal of reaching approximately one-third of our total global net brand revenue from above premium portfolio. Financial volume is expected to be impacted by the PEPs contract brewing arrangement, which terminates at the end of this year. Expected to be a headwind of approximately 3% or 2 million hectoliters to America’s financial volume with the wind down continuing throughout the year. Additionally, we anticipate financial volume performance to be strongest in the first quarter as we build inventories coming into peak season in the U.S. Gross profit is expected to increase driven by mix and cost savings. While inflationary pressure is expected to moderate from 2023, we expect that underlying cost of goods sold per hectoliter will increase due to a combination of continued inflation, including material conversion costs, higher costs related to premiumization and lower volume leverage as compared to 2023. Also, while spot prices are currently lower than they have been over the past 2 years, recall that we have a longer term hedging program, and as a result, we expect to experience a headwind in 2024 from certain commodity hedges put in place in 2022 and 2023. We do not anticipate significant changes in total MG&A and plan to put the right commercial pressure behind our brands and key innovations. We’ll do this through strong media plans at both the local and national level through live sports, including another Super Bowl commercial and through robust retail programming that drives consumer engagement. G&A is expected to face an easier comparison given the increase in incentive compensation in 2023 related to the significant outperformance versus our initial plan. Underlying earnings per share growth is the one metric that is below our long-term growth algorithm. This is largely due to a higher forecasted underlying effective tax rate. Underlying free cash flow guidance is impacted by working capital timing that benefited 2023 as well as slightly higher capital expenditures. So in summary, we are very proud of our performance in 2023. We enter 2024 with strong brands, an exciting innovation pipeline, compelling programming, strong and supportive distributor partners, more retailer shelf space and tap handles and the financial flexibility to balance growth and reinvestment. This gives us confidence in our ability to deliver our long-term growth algorithm in 2024 and in the years to come. With that, we look forward to answering your questions. Operator? Operator: [Operator Instructions] Our first question comes from Andrea Teixeira from JPMorgan. Your line is now open. Please go ahead. See also 20 Fastest Growing Energy Companies in the US and 15 Easiest Countries to Immigrate to from Mexico. Q&A Session Follow Molson Coors Beverage Co (NYSE:TAP) Follow Molson Coors Beverage Co (NYSE:TAP) or Subscribe with Google We may use your email to send marketing emails about our services. Click here to read our privacy policy. Andrea Teixeira: Good morning, and thanks, Gavin and Greg. Just on the assumptions for your guide, right? So are you expecting — it seems from the phasing that you spoke, Greg, regarding first quarter where the volumes or you’re looking at volumes being stronger. Are you assuming market share continues to build from where you left off in the fourth quarter? And from a volume perspective, of course, perhaps is — and I appreciate the color on the impact through for the year. But on an underlying basis, in the U.S, how much are you expecting volumes to behave in 2024? Thank you. Gavin Hattersley: Thanks, Andrea. A couple of things I would say in response to your question. Firstly, we believe the changes in the U.S. beer industry are permanent. And we are off to a very fast start in Q1. The momentum that we saw in Q4 has continued into Q1. In the U.S. Molson Coors is leading all brewers in year-to-date dollar share growth by growing 1.5 points. We are ahead of conservation share growth. ADI continues to decline more than any other major brewer in the U.S., using about 4.5 points year-to-date. From an industry point of view, we would expect the U.S. industry to fall back to the sort of flat to down one level, and we would expect to gain share as we continue into this year. And as you rightly point out, there are lots of drivers and multiple levers to support our top line growth algorithm. And obviously, that includes pricing, which we’ve said will be in the sort of historical 1% to 2% range. It is market-by-market. We would expect to get pricing in Canada and EMEA APAC as well. It includes positive mix from our continued premiumization of our portfolio. And of course, you rightly point out the headwind of PEPs. When you put all those factors together, that gets to our guidance for this year of low single digits. Thanks, Andrea. Operator: The next question comes from Bonnie Herzog from Goldman Sachs. Bonnie, your line is open. Please go ahead. Bonnie Herzog: All right. Thank you. Good morning. I had a question on your underlying EPS growth guidance. First, curious why you’re now introducing EPS guidance? And then hoping you could bridge your mid-single-digit pre-tax income growth guidance with just the mid-single-digit EPS growth guidance. I guess I’m wondering why there’s no leverage on the bottom line. And then in the context of that, how should we think about share repurchases this year? Thanks. Gavin Hattersley: Thanks, Bonnie. Look, we introduced the long-term growth algorithm with EPS at our Investor Day in the fourth quarter of last year. So we wanted to make sure that our guidance that we gave now for 2024 covered those three elements of our guidance that we launched at the Investor Day and EPS was obviously one of those. The reason — and of course, that was long-term guidance that we gave at Investor Day. And as Greg said, the reason why we are slightly less from an EPS point of view than our long-term algorithm is our tax rate, which goes up a couple of percentage points given the mix of where we make our profitability and tax rates around the world. So that’s the main driver. Was there anything else that I missed anything else lately? Greg Tierney: Share repurchases. Gavin Hattersley: Share repurchases, that’s right. Look, we’ve got an approach, Bonnie, that for our share purchase reprogram which is both sustained and opportunistic. So we’ve got a sustained ongoing repurchase and we’ve got an opportunity to repurchase. The program is $2 billion, that sort of roughly equates to $400 million over each year over the 5-year period. And we will take our cash holdings into account our capital allocation policy and do what we think is right from a shareholder point of view as we execute that share program. Operator: The next question comes from Peter Grom from UBS. Peter, your line is open. Please go ahead. Bryan Adams: Yes, good morning, guys. This is actually Bryan Adams on for Peter. Thanks for taking the question. So just kind of rounding out the conversation on the top line, I wanted to take a look at the EMEA and APAC business specifically on the volumes. I know you guys mentioned weak consumption in the U.K. as well as some sustained pressure in Central and Eastern Europe as the primary driver. And obviously, that’s been a trouble there over the last several quarters here. But just curious to hear your view as to where things stand in these markets versus kind of where they’ve been over the last 12 months? Like has there been any sequential improvement such that you’d envision a return to volume growth in the near-term? Or should we expect the premiumization to be the primary driver in ’24? Thanks. Gavin Hattersley: Thanks, Bryan. Look, EMEA, APAC last year had a tremendous year. We grew top and bottom line double digits and I don’t think we’ve done that for a while. In terms of the various markets in which we operate, Central and Eastern Europe, we’ve been very clear about that over the last six or so quarters that the consumer is more challenged in that market. We are seeing signs of lowering inflation and a lower impact for that consumer. And so our expectation is that, that is going to continue to improve as we head into 2024. In the U.K., you are right. We’ve had two slower quarters from an overall industry point of view for Q3 and Q4. Q3 was largely weather-driven. Q4 was largely off-premise driven. And — there was a fairly substantial excise increase in the off-premise of around 10% in the U.K. And of course, that probably had somewhat of a negative effect in the fourth quarter. But the U.K. consumers remained remarkably resilient. And our expectation is that will continue. You point to our premiumization, yes. I mean, you had such a tremendous success with the launch of Madri in the U.K. Who would have thought you could launch a brand at the beginning of a pandemic in the on-premise and 3 years later, it would have the share that it has in the on and off premise and be well north of 1 million hectoliters already. And that what’s even more surprising is actually the low awareness that exists through that brand. So there’s a lot of runway for us to drive Madri, not only in the U.K., but we are also launching it in Bulgaria, and we are launching it in Canada as we head into this year. Thanks, Bryan. Operator: The next question comes from Rob Ottenstein from Evercore. Rob, your line is open. Please go ahead. Robert Ottenstein: Great. Thank you very much. Gavin, your team on the supply chain side and the brewery side, really did a fantastic job last year given the abrupt and unyielding change in the business dynamics and just did a great job. Under those circumstances, though, and given the extent of the change I’m assuming that you didn’t or it would have been very difficult to kind of optimize the system, both in terms of the breweries and the logistics. You’ve had a little bit more time now I would think, to do that. So kind of looking in on 2024, have you been able to get unlocks there, make the system more efficient given the dramatic changes in the volumes. Obviously, the PBR is going to have an impact, but that’s — this is going to be a higher margin product that you’re going in there, so there’s a chance to reoptimize there. And then in that context, I’m a little bit surprised that the COGS per hectoliter are going to still go up given what used still be very strong volumes and declining aluminum costs. So maybe if you can kind of put that all together and give us some context. Thank you. Gavin Hattersley: Thanks, Rob. Look, I’ll start. Greg can add some color on COGS as well. But first thing, yes, I think our supply chain team has done an amazing job over the last 3 years, reacting to, obviously, every imaginable crisis, and they’ve got battle hardened and did a tremendous job of reacting to this permanent industry shift that took place in April. Yes, we have had opportunities to optimize. We continue to optimize the sourcing of our beers between breweries, and we continue to do that and we’ll continue to do that on an ongoing basis. In terms of, obviously, PEPs coming out, you rightly point to the fact that, that will give us an opportunity to optimize even further. It reduces a lot of or it takes a lot of complexity out of our business, allows us to do longer runs of our own higher margin brands. As far as COGS is concerned, look, there’s a lot of factors that go into COGS, not just operating leverage. One would obviously be as we drive towards our above premium goal, above premium products come at a higher cost to make. So those certainly negatively impact overall COGS. Greg, why don’t you just give some color on COGS? Greg Tierney: Yes. Gavin, thank you. So I think you hit on that — a large headwind, right? As we talk about premiumization and move towards that one-third goal, that’s going to be a headwind to cost of goods. It’s beneficial for our business, obviously, overall, but will be a headwind to cost of goods. We do see material cost inflation, material conversion costs are going to be a headwind for us this year. And obviously, as I said in the prepared remarks, even though spot prices have come down, we still do have, with our longer-term hedging program, some hedges that are going to be headwinds for us that were layered on in 2022 and 2023. So those are the big drivers. Gavin Hattersley: Thanks, Greg. And Rob, that all just sort of wraps up into our guidance for underlying profit, which is mid single digits, in line with our long-term algorithm. Thanks, Rob. Operator: The next question comes from Filippo Falorni from Citi. Filippo, your line is open. Please go ahead. Filippo Falorni: Hey, good morning, everyone. So I wanted to go back to the guidance. I want to clarify, clearly, you mentioned Q1 is going to have a very strong volume performance. But Gavin, are you assuming also, particularly in the U.S. volume growth in the balance of the year, particularly — obviously, you’re going to cycle a much tougher comps in the balance of the year. And even assuming you’re going to have permanent changes, that would imply further share gains. So just any color on the volume performance in the U.S. post Q1 would be helpful. Gavin Hattersley: Yes, thanks. Look, I mean, maybe just a comment around the overall industry, right? As I said, despite the headlines you might read, the overall beer category grew dollar share of total alcohol beverage in 2023. I think that’s important context when you consider consumer habits, which essentially underpins your question as well. We’ve got a lot of levers from a top line point of view. We’ve got pricing. We’ve got a positive mix from premiumization. And notwithstanding the comps which are coming in the second quarter, it is our expectation and goal that we will continue to take market share. Thanks, Filippo Operator: The next question comes from Nadine Sarwat from Bernstein. Nadine, your line is open. Please go ahead. Nadine Sarwat: Yes, hi. Thank you everybody. Two questions for me. One, just on the quarter. What exactly surprised you to the upside in Q4 for constant currency underlying income before tax to come to that 2% increase versus I believe the previous guidance was for a decline. And then my second question, a little bit more long-term. You called out, I think, in your prepared remarks the belief that you have the share shifts that we’ve been seeing in the U.S. are permanent. Could you give us a bit more color as to your conviction on will you be maintaining all of that share into 2024? I asked this especially in light of President Trump’s favorable social media post for Bud Light, which I know is probably on the mind of many people on this call. So any data points or surveys that you could point to would be very helpful. Thank you. Gavin Hattersley: Thanks, Nadine. Look, on your first question, not much surprised us in the fourth quarter. If I had to point to one thing, maybe the industry performed a little better in our U.S. market than we had originally expected it to. And so that drove our underlying profit to slightly exceed our guidance. I mean it wasn’t a lot, right? I mean it was — we were just under 37%, which in the greater scheme of things, it’s not a lot of dollars when you compare it to our overall underlying profit. So more or less, things were as we expected. EMEA, APAC actually did a little better-than-we-expected. Canada did a little, tiny a little bit worse than the U.S. did better. But overall, there’s nothing really I can point out that was a big oha [ph] for us......»»

Category: topSource: insidermonkeyFeb 14th, 2024