Portfolio Review


Earnings review


Apple ($103; AAPL) reported earnings per share of $1.42 in the September quarter, up 20% and $0.11 above the consensus. Revenue advanced 12% to $42.12 billion, also ahead of the consensus. iPhone and Mac sales both rose at least 18%, more than offsetting the 14% decline for tablets. The midpoint of Apple's December-quarter sales guidance implies 13% growth, above the consensus at the time of the announcement. Shares rallied on the results.

Apple introduced a new iPad model. Both the iPad and new iMac are slated to start shipping this month. In other product news:

➤ Apple has reportedly postponed production of a larger iPad until next year to accommodate enormous iPhone demand.

➤ Apple Pay, the mobile-payment service launched on Oct. 20, has the support of more than 500 financial institutions and 220,000 U.S. retail locations. However, key retailers including Wal-Mart Stores ($76; WMT) are refusing to participate, for fear of losing control of their relationship with customers.

➤ The company plans to launch its Apple Watch in early 2015.

Apple is a Focus List Buy and a Long-Term Buy. Wal-Mart Stores is a B (average).

Google's ($543; GOOGL) per-share profits rose 13% to $6.35 excluding special items in the September quarter, missing the consensus by $0.18. Revenue increased 20% to $16.52 billion. Expenses rose faster, up 28%, as Google ramped hiring and continued its massive capital outlays for building data centers. Paid clicks increased 17%, while cost per click, or advertising rates, slipped 2%. Google also showed off its newest Nexus smartphone, tablet, and set-top box. In a departure from its past strategy, Google priced these devices closer to Apple's models; Google used to sell its gadgets at a steep discount. Google is a Focus List Buy and a Long-Term Buy.

SanDisk ($87; SNDK) grew September-quarter sales 7% to $1.75 billion. However, operating profit margins contracted, contributing to a 9% decline in per-share profits to $1.45 excluding special items, topping the consensus by $0.12. Management's December-quarter sales guidance fell short of the consensus. SanDisk also announced plans to increase capacity 5% in 2015. While SanDisk's expansion is well below expected industry growth of 30% to 40%, it still sparked concerns about overcapacity. Shares fell on the report but have since recovered. SanDisk remains a Focus List Buy and a Long-Term Buy.

EMC ($27; EMC) grew September-quarter earnings per share 10% to $0.44 excluding special items, $0.02 short of the consensus. Sales climbed 9%. EMC also agreed to buy a 25% stake in VCE from Cisco Systems ($23; CSCO) for an undisclosed sum. EMC already holds a 63% stake in VCE, which sells computing gear to corporate clients. EMC is a Long-Term Buy. Cisco is rated B (average).


ManpowerGroup ($63; MAN) grew per-share profits 28% to $1.61 excluding special items in the September quarter, to exceed the consensus by $0.11. Sales rose 4% on growth of 2% in France and 5% in the U.S. — Manpower's two biggest markets. Looking ahead to the December quarter, the midpoint of management's per-share-profit guidance fell $0.06 short of the consensus of $1.49, largely due to currency headwinds. Manpower is a Focus List Buy and a Long-Term Buy.

B/E Aerospace ($74; BEAV) said September-quarter earnings per share jumped 29% to $1.16 excluding special items and adjusting for an unusually low tax rate in the quarter, easing past the consensus by $0.02. Sales surged 24% to $1.10 billion. All three segments posted double-digit sales growth. The company raised its 2014 per-share-profit outlook by $0.10 to $4.45, a penny below the consensus at the time of the announcement. B/E Aerospace is a Buy and a Long-Term Buy.

In the September quarter, Dover ($76; DOV) earned $1.35 per share from continuing operations excluding special items, topping the consensus of $1.31. Revenue advanced 8%. Dover raised its 2014 guidance for sales to 8% but trimmed the upper end of its per-share-profit target because of higher acquisition-related expenses. Dover is a Long-Term Buy.

Norfolk Southern ($107; NSC) reported 17% growth in earnings per share to $1.79 in the September quarter, missing the consensus by $0.04. Revenue increased 7% to $3.02 billion, as coal shrank 2% but intermodal and general merchandise both rose 10%. Norfolk Southern is a Long-Term Buy.


For the September quarter, Capital One Financial ($78; COF) said earnings per share from continuing operations rose 4% to $1.94, in line with the consensus. Revenue held roughly flat at $5.64 billion. Capital One raised its provision for credit losses by 17% to $993 million in the quarter and could continue building up its reserves in coming quarters. Capital One is a Long-Term Buy.

U.S. Bancorp's ($40; USB) per-share profits crept 3% higher to $0.78 in the September quarter to match the consensus estimate. Revenue increased 2%. Net interest margin contracted, though average total deposits grew 7% and average total loans rose 6% on strong commercial demand. U.S. Bancorp is a Long-Term Buy.

Other earnings reports

Halliburton ($54; HAL) earned $1.19 per share from continuing operations in the September quarter, up 31% and ahead of the $1.10 consensus. Results excluded a $1.1 billion settlement linked to the 2010 Gulf of Mexico oil spill. Revenue climbed 16%. Halliburton says today's low oil prices aren't sustainable and that supply and demand should regain equilibrium soon. The company added that neither U.S. nor foreign drillers have signaled they will curtail activity. Halliburton raised its quarterly dividend 20% to $0.18 per share, payable Dec. 26. Halliburton is a Buy and a Long-Term Buy.

Packaging Corp. ($67; PKG) grew September-quarter earnings per share 37% to $1.26 excluding special items, matching the consensus. In addition to PCA's $2.1 billion Boise acquisition last October, results benefited from higher sales volumes and an improved product mix. Revenue soared 80%.

Shares jumped after management said it has begun to explore converting part or all of the company into a master limited partnership (MLP). It's not clear whether PCA's paper or containerboard businesses would qualify under MLP rules — rules currently under review by the Internal Revenue Service. For a lot more on MLPs, check out the March 3 issue in our online archives. Visit the Subscriber Area and look for the "Back Issues" pull-down menu in the right-hand column. Packaging Corp. is a Buy and a Long-Term Buy.

Rank Change

Southwest Airlines ($34; LUV) is being added to the Long-Term Buy List.

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