Earnings Preview: Toyota, Take-Two, Sirius XM, Estee Lauder – ValueWalk Premium

Earnings Preview: Toyota, Take-Two, Sirius XM, Estee Lauder

Earnings Preview: Toyota, Take-Two, Sirius XM, Estee Lauder

February the 5th, 2013 is a huge earnings day. We provided earnings preview for 10 companies in total, here and here. In this article we provide an earnings preview of several other large corporations reporting earnings on Tuesday. The companies in this article include, Toyota Motor Corporation (NYSE: TM) (TYO:7203), Take-Two Interactive Software, Inc. (NASDAQ: TTWO), Sirius XM Radio Inc (NASDAQ:SIRI), and Estee Lauder Companies Inc (NYSE:EL).

Toyota Motor Corporation (NYSE: TM) (TYO:7203)  reports earnings on Tuesday. Toyota Motor has enjoyed a very powerful run on its share price, rising 35% over the past quarter, about the same time that the yen has been weakening. Nonetheless, even without the yen’s fall, the other fundamentals surrounding its business still look so good: performance in the US remains strong, Southeast Asian markets are hitting records and even its China business is looking a bit healthier.

Analysts at BAML are bullish on Toyota Motor Corporation (NYSE: TM) (TYO:7203) for the following three reasons, (1) they estimate that Toyota can rein in structural fixed costs and maintain favorable margins, despite faltering volume growth, (2) the weaker yen will persist, allowing Toyota to leverage the domestic production profile it opted to maintain, and (3) an agenda is in place for reviving US business, and resumed vigor in its most important market will support ongoing efforts to bolster its earnings profile.

While Toyota Motor Corporation (NYSE: TM) (TYO:7203) had a great new product rollout last year, with successful launches of the Camry, Prius c and Lexus ES, there is no rest for the wicked. Fortunately, Toyota is following up with recently launched models or soon-tobe- launched models that will mainly impact FY3/14. These include the Lexus IS, Avalon, Highlander, RAV4 and Corolla.

For the six months ended 30 September 2012, TOYOTA MOTOR CORPORATION revenues increased 36% to Y10.908T. Net income increased from Y81.58B to Y548.27B. Revenues reflect The Automobile Business segment increase from Y4.176T to Y10.11T, Financial Services Business segment increase from Y264.06B to Y532.47B, Other segment increase of 98% to Y266.25B, Japan segment increase from Y1.838T to Y6.062T, Northern America segment increase from Y1.065T to Y4.542T.

Take-Two Interactive Software, Inc. (NASDAQ: TTWO) reports earnings on Tuesday. Analysts at Pacific Crest recently lowered their FQ3 estimate to the low end. They note that difficult industry conditions continue to plague videogames. Take-Two could be the next victim when it reports its FQ3 (Dec.) on Tuesday. NBA2K13 and XCOM likely sold below expectations despite great reviews. The analysts now see FQ3 revenue at the low end of Take-Two’s guidance and are changing their estimates to $325.0 million and $0.47 from $375.0 million and $0.60.

Incredible streak of delays continues, prompts lower F2013 and F2014 estimates. The analysts are catching up on their F2013 and F2014 estimates to the previously announced delays of GTA V and BioShock Infinite. They are shifting 2 million units of BioShock out of F2013 and into F2014 and moving GTA V into FQ2 from FQ1. They are also lowering GTA V estimates to 18 million units from 20 million units for F2014 to reflect negative industry trends and transition to next-generation consoles. Their new revenue and EPS estimates are $1.11 billion and ($0.10) for F2013 and $1.45 billion and $1.60 for F2014.

The analysts are lowering Take-Two Interactive Software, Inc. (NASDAQ: TTWO)'s price target, but are still buyers of TTWO. Despite the fourth delay, they still believe GTA V is set up for strong performance and that TTWO will trade up into the release. As long as it does not prove to be a mirage. However, due to lower estimates, they are lowering their price target to $18 from $22, based on roughly the same multiple of 11x of their new F2014 EPS estimate of $1.60.

Sirius XM Radio Inc (NASDAQ:SIRI) is to report its 4Q earnings results on Tuesday, February 5. With the company having given a preliminary update on 4Q12 and introducing 2013 targets (on January 9), analysts at Goldman Sachs see less risk around quarterly results. Specifically, SIRI noted it ended the year with 23.9mn subscribers, implying 2.0mn net adds (vs. most recent guidance of 1.8mn) and 1.6mn+ self-pay net adds (up over 30% yoy). The company also noted it expects to meet or exceed all of its 2012 financial guidance.

Momentum continues exiting 2012 into 2013.

Goldman expects 4Q12 results to reflect another quarter of accelerating top-line growth, to +14.2% yoy (+60bp
qoq) this quarter. Revenue momentum is a function of continued subscriber growth strength (as noted above, given improving auto sales), along with (what we expect to be) another quarter of accelerating ARPU growth to +5.1% yoy this quarter (with continued benefits from the 2012 rate hike).

Goldman expects that revenue growth to continue outpacing opex and drive another quarter of margin expansion, while flattish capex and lower interest costs should drive an expected 50%+ yoy increase in company-reported FCF to $297mn.

Upside to 2013 targets, as SIRI remains one of Goldman's top ideas.

While 2013 targets imply substantial growth across revenue/EBITDA/FCF (9%/22%/29%), The analysts at Goldman believe they may still prove conservative. They see incremental upside to SIRI via greater than expected growth in free cash flow (FCF) and FCF/share estimates. They expect Sirius XM Radio Inc (NASDAQ:SIRI) to utilize FCF and an under-levered balance sheet to aggressively repurchase shares, shrinking share count nearly 20% through 2015E and 45% over the next ten years.

Estee Lauder Companies Inc (NYSE:EL) will be reporting earnings on Tuesday. With a flurry of negative industry data points mixed among a few positive ones (LVMH, ULTA December sales), analysts at Barclays research think all eyes will be focused on Estee Lauder Companies Inc (NYSE: EL)’s F2Q sales results. Recall, Estee Lauder Companies Inc (NYSE: EL)’s F2Q guidance already reflects a sequential deceleration in underlying top line growth (i.e., organic sales growth excluding the SAP sales pull forward into the quarter), though the analysts have wondered with the stock’s performance since F1Q earnings (+6% vs. S&P +7%) if the market has thought that outlook unnecessarily conservative. To be sure, prior to these negative data points the analysts think most were expecting at least 5% underlying sales growth (+7% local currency), yet in light of recent industry data, they think 5% would be considered favorably. This being said, Barclays will be interested in hearing the company’s take on the current state of the Prestige Beauty market, and new product launches slated for F2H13. Their F2Q13 EPS estimate of $1.04 is a penny below Consensus, though they think that local-currency sales growth estimate (+7%, or +5% excluding SAP buy in) is slightly above.

Focusing in on the segments, for EMEA, Barclays assumes a deceleration to just +1% underlying sales growth for EMEA-proper (excluding Travel Retail & SAP impact) from ~2% in F1Q, taking into account difficult comps. They could see some upside from both Russia (which is beginning to anniversary inventory destocking at a major retailer) and the UK (which saw unusually weak results in the year ago quarter). As for Travel Retail (+10% growth), they expect inventory destocking mentioned in F1Q to abate, though growth should be hampered by weakness in South Korea (~15% of travel retail sales). For Asia Pacific, they are modeling just +5% underlying sales growth (excluding ~5% of buy-in ahead of SAP in Hong Kong & China). Within the region, they are modeling +20% growth in China (~22% of Asia Pacific, ~4.7% of total company) mostly reflecting continued new door openings, but a mid-teens decline in South Korea and a low-single-digit decline in Australia. The analysts expect the strongest underlying sales growth to come from the Americas (~7% excluding SAP) as momentum in U.S. Department Stores (~60% of the region) & ‘alternative channels' (including Sephora) remains corroborated by NPD data in which the Prestige channel grew +5% in December. With regard to profitability, the analysts are modeling operating margins down -60 bps YoY to 21.4% as 70 bps of gross margin expansion is offset by 130 bps higher SG&A (~$75 mm increase in advertising offset by lapping $7 mm Ojon impairment charge & ~$17 mm of cost savings).

Current Consensus Expectations

—-  F2Q13 —-

·         F2Q13 EPS: $1.05 [$1.00-$1.09 range, Barclays Research = $1.04]

·         F2Q13 sales growth: +5.9% [+3.6-8.6% range, Barclays Research = +6.7%, +7.0% local currency (including SAP buy-in)]

—-  FY13  —-

·         FY13 EPS: $2.57 [$2.50-$2.61 range, Barclays Research = $2.56]

·         FY13 sales growth: +5.4% [+4.2-7.0% range, Barclays Research = +6.0% reported, +6.7% local currency]

—-  FY14  —-

·         FY14 EPS: $2.96 [$2.74-$3.06 range, Barclays Research = $2.97]

·         FY14 sales growth: +6.8% [Barclays Research = +7.7% reported, +7.6% local currency]


Guidance Recap

—-  F2Q13  —-                                     

·         F2Q13 Core EPS = $0.97-$1.03

·         Local currency sales growth +6-7%

·         Buy in ahead of SAP adds $70-90 million in sales (primarily in Asia), F2Q12 included ~$30 million buy in ahead of SAP.

·         ‘Underlying' sales growth excluding SAP is +4-5% (SAP adds ~2% to local currency sales growth)

·         FX (1.5)% drag to sales growth

·         AM&S increase $70-80 million versus year ago period to support product launch calendarization and maintain sales momentum

·         Restructuring savings of $15-20 million


—-  FY 2013  —-                                   

·         FY13 Core EPS = $2.47-$2.56

·         Local currency sales growth +6-7% (assumes +3% Prestige market growth)

·         FX (-2.0)% drag to sales growth

·         Hair Care & Skin Care are expected to be fastest growers, followed by Makeup & Fragrance

·         Growth lead by Asia Pacific followed by the Americas & EMEA

·         Restructuring enabled cost savings of $50-75 million

·         70-90 bps of operating margin improvement (currency reduces operating margin by 20-30 bps)

·         Effective tax rate 31-33%

·         Cash flow from operations $1.2 billion

·         Capital expenditures ~$475-500 million

·         Core guidance excludes initial estimate of $0.01/share charge related to restructuring program


—-   Longer-Term (Through Fiscal 2015) —-

·         Grow sales +1 point ahead the prestige beauty market growth rate

·         15.5-16% operating margin by the end of FY14

·         Cost savings from 4-year restructuring program: $760-785 million through FY13

·         Inventory days to improve to 150-155 by FY14

·         Produce ROIC of at least 21-22%


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