Portfolio Review


With earnings season in full swing, profit announcements dominate our company-news pages this week. The following paragraphs discuss the earnings of 11 companies.


Apple ($129; AAPL) said March-quarter earnings per share jumped 40% to $2.33, topping the consensus estimate by $0.17. Sales, up 27% to $58.01 billion, also comfortably exceeded analyst expectations. iPhone sales surged 55% to $40.28 billion on strong growth in China, while iPad sales slumped 29% to $5.43 billion. Management declined to disclose initial orders for the Apple Watch, though it noted demand continues to outstrip supply. Apple also raised its quarterly dividend 11% to $0.52 per share, payable May 14, and increased its stock-repurchase plan by $50 billion. Apple is a Focus List Buy and a Long-Term Buy.

In the March quarter, Corning's ($21; GLW) per-share profits increased 21% to $0.35 excluding special items to ease past the consensus by a penny. Revenue, hurt by foreign-currency headwinds, slipped 1% to $2.27 billion, missing the consensus. Corning says the surge in smartphones is more than offsetting softness in the tablet market. The company also addressed concerns over rising glass inventory levels in the supply chain, saying inventories remain near the high end of a healthy range. Although shares fell on the results, Corning remains a Focus List Buy and a Long-Term Buy.

Google ($561; GOOGL) reported March-quarter earnings per share of $6.57 excluding special items, missing the consensus by $0.03. Sales advanced 12% to $17.26 billion, with mobile search queries helping to drive quarterly growth. Paid clicks, or the number of online advertisements, increased 13%, while cost per click, the average price for ads, fell 7%. Google's stock rose on the results. Google is a Buy and a Long-Term Buy.


ADT ($38; ADT) said March-quarter earnings per share slipped 4% to $0.47 excluding special items, missing the consensus by $0.03. But total revenue, up 6% to $890 million, topped analyst expectations. Although shares fell on the results, the company appears headed in the right direction. Customer attrition improved for the fourth straight quarter. ADT also raised the low end of its range for recurring revenue (93% of total revenue) to 5.5% to 6% growth in fiscal 2015 ending September. The consensus currently targets total revenue rising 5%. ADT is a Focus List Buy and a Long-Term Buy.

Alaska Air Group's ($65; ALK) per-share profits soared 75% to $1.12 in the March quarter excluding special items to top the consensus by $0.02. Operating revenue rose 4% to $1.27 billion. Management said air fares are holding up pretty well, despite "unprecedented competitor capacity additions." For the June quarter, Alaska Air expects to grow capacity 10.5%, while per-gallon fuel costs are projected to fall 37%. With shares up since the results, Alaska Air remains a Focus List Buy and a Long-Term Buy.

Union Pacific ($107; UNP) grew March-quarter earnings per share 9% to $1.30, missing the consensus estimate by $0.07. The railroad's operating revenue held roughly flat and freight revenue fell 1%, as 2% lower volumes offset pricing gains. Freight revenue rose 6% for automotive products but fell 5% for both coal and intermodal. Although the disappointing results pressured shares, Union Pacific remains a Buy and a Long-Term Buy for now.


In the March quarter, Jones Lang LaSalle ($168; JLL) reported per-share profits of $0.94 excluding special items, up from $0.38 in the year ago quarter and double the consensus estimate of $0.47. Revenue advanced 16% to $1.20 billion, also ahead of the consensus. The Americas region drove growth with 24% higher revenue. The European region grew revenue 4%, while the Asian region managed 11% growth. LaSalle Investment Management delivered 34% growth, though it accounts for less than 10% of company revenue. Jones Lang announced a semiannual dividend of $0.27, up 8% and payable on June 15. Jones Lang LaSalle is a Focus List Buy and a Long-Term Buy.

Affiliated Managers Group ($225; AMG) grew March-quarter earnings per share 17% to $2.91 excluding special items, easing past the consensus by a penny. Revenue increased 7% to $635 million but fell short of analyst targets. Net client cash flows rose for the 20th straight quarter. Assets under management rose to $632.16 billion, up 2% from the end of December. Shares rallied on the results. Affiliated Managers Group, which also raised its full-year earnings guidance, is a Long-Term Buy.

Lincoln National ($58; LNC) earned $1.35 per share from operations in the March quarter, up 1% but $0.14 below the consensus. Management blamed the disappointing results on an increase in long-term disability claims for its group-protection unit and mortality rates that exceeded expectations in its life-insurance unit. Operating revenue grew 5% to $3.39 billion, meeting analysts' expectations. Lincoln, yielding 1.4%, is a Long-Term Buy.

Corporate roundup

Aetna's ($108; AET) per-share operating earnings jumped 21% to $2.39 in the March quarter, well ahead of the consensus of $1.95. Sales climbed 8% to $15.09 billion. Medical membership increased to 23.67 million, up 4% year-over-year and 0.5% from December levels, exceeding company guidance. Aetna now forecasts 2015 earnings per share of $7.20 to $7.40, compared to the consensus of $7.19 at the time of the announcement. Aetna is a Focus List Buy and a Long-Term Buy.

Lear ($112; LEA) grew March-quarter earnings per share 24% to $2.28 excluding special items, topping the consensus estimate of $2.19. Revenue increased 4% to $4.52 billion, driven by an 18% gain in North America. The seating unit posted 8% higher sales, more than offsetting a 9% decline for the smaller electrical business. Profit margins expanded for both segments. Lear's $843 million acquisition of leather supplier Eagle Ottawa in January contributed to the seating unit's growth. Lear is a Focus List Buy and a Long-Term Buy.

Consistent with plans approved by the Federal Reserve, Wells Fargo ($55; WFC) raised its quarterly dividend 7% to $0.375 per share, payable June 1. Wells Fargo is a Long-Term Buy.

Takeover update: Indecent proposals?

Unrequited love is in the air, as health-care companies shrug off the unwanted advances of potential suitors. The takeover triangle centers on Mylan ($75; MYL) trying to duck Teva Pharmaceutical Industries' ($62; TEVA) acquisition attempt by proposing to purchase Perrigo ($185; PRGO).

Teva's $40.1 billion offer values Mylan at $82 a share; Mylan says its shares should be worth "significantly in excess" of $100. In rejecting the bid, Mylan took the opportunity to disparage Teva, a "poorly performing, troubled company" that has shown "consistent underperformance" and suffers from a "dysfunctional culture."

The comments support reports that Mylan executives refer to Teva's stock as "toilet paper." Rebuffed by management, Teva is trying to convince large Mylan shareholders of the deal's merits. Abbott Laboratories ($47; ABT) owns a 14% stake in Mylan but cannot vote for a takeover proposal without Mylan's consent. Mylan also has a poison pill at its disposal that should at least temporarily block a hostile takeover.

Meanwhile, Mylan raised its offer for Perrigo to $35.6 billion, a cash-and-stock deal valued at $242 per share, up from prior offers of $222 per share and $205 per share. Perrigo deemed the prior bids too low and also rejected the latest offer. Perrigo makes infant formula and over-the-counter medicine for coughs and colds that big retailers sell under their own names.

Teva says it will buy Mylan under the condition that the Perrigo deal does not go through. Mylan is a Buy and a Long-Term Buy.

Elsewhere, Comcast ($58; CMCSa) relented to stiff regulatory opposition by withdrawing its proposal to acquire Time Warner Cable ($158; TWC) for $45.2 billion. Despite limited geographic overlap between the companies, Comcast would have gained a 57% stake in the U.S. residential broadband market, prompting worries that its dominant position could stifle competition. Comcast shares rose on the news and remain a Buy and a Long-Term Buy.

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