Earnings Preview: AFLAC, Archer Daniels, ADP, BDX, Cardinal HealthVW Staff
Tuesday is a big earnings day for many large corporations. We preview earnings for many prominent companies reporting earnings (mostly for Q4). Among the companies previewed in this article, AFLAC Incorporated (NYSE: AFL), Archer Daniels Midland Company (NYSE: ADM), Automatic Data Processing (NASDAQ: ADP), Becton, Dickinson and Co. (NYSE: BDX), and Cardinal Health, Inc. (NYSE: CAH).
AFLAC Incorporated (NYSE: AFL) will report Q4 2012 earnings on Tuesday the fifth of February. The majority of insurance companies will be reporting on February 6. Analysts at Deutsche Bank recently lowered their FY13 EPS estimate from $6.90 to $6.60 and FY14 EPS estimate from $7.40 to $7.25 to reflect current Yen weakening and new Deutsche Bank foreign currency estimates. The new estimates incorporate a ¥/ $ exchange rate of 95 at year-end 2013, compared to a previous estimate of 90. The YE14 exchange rate estimate is unchanged, at 95, but the lower EPS estimate for 2014 reflects a lower beginning-of-year Yen. All in, the analysts estimate negative impacts of $0.54 and $0.14 attributable to the lower Yen, for 2013 and 2014, respectively.
The price target for AFLAC Incorporated (NYSE: AFL) is based on an equal weighted approach of (1) a regression of forecasted operating ROE to price-to-book, and (2) a forecasted price-to operating earnings multiple relative to the S&P 500. A higher regression implied price-to-book valuation and higher S&P price-to-earnings valuation are offsetting lower EPS estimates. The analysts usually give greater weight to the price-to book regression but given the company’s less volatile operating earnings they believe that equal weighting is merited. With roughly 80% of earnings generated in Japan, a stronger- or weaker-than-estimated yen impact may result in the company beating or missing estimates. Stronger employment growth in the U.S. or greater inroads in the large-case business for Aflac U.S. will result in the company beating expectations.
Archer Daniels Midland Company (NYSE: ADM) will report Q4:CY12/Q2-Sub Year earnings on Tuesday, February 5th before the market open and host an earnings review at 9am EST. Analysts at Miller Tabak are calling for Q4 revenue and adj. EPS of $23.5bn and $0.53 versus consensus of $22.71bn and $0.58. Although they anticipate that ADM benefited from higher y/y oilseed crush margins, y/y Brazilian corn export growth, moderate improvement in European biodiesel results, they expect a weak contribution from NA AG services (trading-logistics) and ethanol operating losses to more than offset in the quarter. That being said, ethanol margins have recovered to near break-even levels in January (up from a -$0.30/bu loss in Dec) and the analysts believe that global demand for US corn and wheat may return in H1:13, as a late Brazilian bean harvest and Russian wheat shortages may shift trade back to US.
Analysts at Miller Tabak believe that relative equity performance will shift back towards Archer Daniels Midland Company (NYSE: ADM) in 2013, as they see downward pressure on ADM’s earnings power bottoming in H1:CY13. As such, the analysts would be buyers on potential weakness around near-term earnings volatility, as positive forward looking ethanol comments could encourage long-term investors.
Automatic Data Processing (NASDAQ:ADP) is scheduled to report earnings Tuesday morning February 5. Goldman Sachss; revenue/EPS estimates of $2,742 mn/$0.72 are roughly in line with consensus. Their FY13 forecast of $11,450 mn/ $2.95 is ahead of the Street’s $11,298 mn/ $2.91 as they anticipate earnings acceleration in the back half of ADP’s FY13 driven by a strong product cycle and continuing improvement in private employment. The analysts’ 12-month price target is $68 or 21.9X their CY2013E EPS of $3.10 and the current dividend yield is 2.9%.
Goldman Sachs Analysts anticipate continuing momentum in the key metrics of new business sales (annualized recurring revenue expected from orders in the quarter) and pays per control are likely to drive the upside to FY13 estimates.
For the last three quarters, pays per control has grown at a 3% or better pace indicating healthy hiring trends and new sales have grown at a double-digit rate driven by the strong product cycle. As new sales turn into revenue and a healthy employment environment supports pays per control growth, they forecast earnings acceleration in the latter part of FY13, driving upside potential to consensus estimates.
Although there could be some near-term disruption in the quarter driven by Hurricane Sandy, Goldman believes that the focus will be on the strength of the metrics driving longer term gains. In addition to the reported metrics, they anticipate an update on client sentiment as Automatic Data Processing (NASDAQ: ADP)’s main selling season began in January.
Becton, Dickinson and Co. (NYSE: BDX) will report F1Q (C4Q) before the market opens and will hold a conference call at 8:00 AM EST. Analysts at Barclays forecast revenue of $1.85 B (up ~1% reported; ~4% ex-fx), roughly in-line with the Street, and EPS of $1.21 versus the Street’s $1.23. They expect an in-line quarter on the top and bottom lines and expect the key focus areas going into the call to include: 1) Organic growth, volumes, and expectations; 2) Gross margins and pricing pressure; 3) FY13 guidance; 4) BDMax rollout; and 5) Impact to flow cytometry from continued weakness in the US research market.
Sentiment/What to Expect: Becton, Dickinson and Co. (NYSE: BDX) gave FY13 guidance along with its F4Q12 results on 11/7/12. Barclays believes that FY13 EPS guidance was below consensus, which they think is likely due to conservatism, FX, and increased SG&A spending (including the device tax, EM spending, pension expense, and SAP implementation).
For FY2013, BDX anticipates revenue growth of 2-3% vs. consensus of 3% (3.5-4.5% ex-FX with 50 bps from acquisitions; vs. Barclays 4.2%) and EPS in the range of $5.58-$5.64 (up 7-8% ex-FX; or up 10-11% excluding the device tax) versus the consensus of $5.80. Both revenue and EPS are 2H weighted given expected contributions from new products, with BDX expecting 100bps higher revenue in the 2H.
The lower end of BDX’s guidance range contemplates a worsening of macro conditions in the US and Western Europe, while the upper end of guidance assumes the FY4Q environment does not change (general stability in the US, with continued headwinds in Europe and Biosciences). BDX noted that emerging markets, safety products, and new product launches should drive ~4% ex-fx growth in Medical and Diagnostics despite continued price pressure, while Bioscience will likely continue to be pressured (~1% ex-fx growth), weighed down by research funding pressures in flow cytometry.
Cardinal Health, Inc. (NYSE: CAH) reports F2Q:13 results on Tuesday. Cardinal’s contract with ESRX (OP) expired on 9/30/12, and this will be the first quarter that CAH reports earnings without the PBM. Analysts at Leerink Swann are looking for adjusted EPS of $0.84 (+4.7% y/y) which is $0.01 behind consensus of $0.85. While they believe thatCardinal Health, Inc. (NYSE: CAH) has an excellent management team, they view the environment this quarter as difficult.
They estimate that there will be ~$2.4B of generic launches vs. $9.7B in F2Q:12, this will be the first quarter without ESRX (OP), and are cautious on the Medical Division. There is concern that it may take longer than expected to realize benefits from the Medical Business Transformation (MBT), guidance of “double-digit operating profit growth” may need to be reduced, and the Medical Device tax will become effective in F2H:13.
Management may have baked in some conservatism due to a Walgreens renewal, but both the CVS and WAG contracts remain an overhang. Renewal of one or both of these deals might be announced this quarter, which may lead to a modest rally.