This morning (5/21/2019), AZO printed Q3 results with SSS of 3.9% in-line with our 3.7% but ahead of Consensus’ 3.0%. EBIT was in-line and EPS beat on tax-rate (Exhibit 2). Shares were +5% vs S&P +1%.
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Day 2 of the EPG Conference has just wrapped and it is clear that the divergence between long-cycle strength and short-cycle weakness continues, as PH, ITW and DuPont continue to see inventory de-stocking persisting through 2Q19; tariffs are not viewed broadly as a threat to guidance, Our bullish outlook for UTX FCF expansion was supported by management, while GDI (NC, $35. 89) is confident in its synergy goals for IR Industrial. We believe ITW is leaning towards more aggressive acquisition growth ambitions, while ETN leans more towards portfolio focus.
UTC CEO Greg Hayes presented earlier today (5/21/2019) at the Electrical Products Group (EPG) conference, which provided material updates on trading, guidance and the separation. Overall commentary was bullish and UTX remains a top pick. YE19 target price remains unchanged at $149.
Another quarter taking share and building customer loyalty. Merch margins were down due primarily to higher freight expenses, which are likely to abate towards the 2H19. Despite imperfect spring weather, Marmaxx continued to take share from these on-mall share donors. While the new generation of shoppers shuns the tired on-mall experience, when presented with compelling value (defined as quality for price), shoppers will frequent a brick-and-mortar store. We further note that the e-commerce channel has ~75% unique product from the stores, significantly reducing cannibalization risk. With strong cash flow, increased dividends and share repurchases, and one of the highest ROICs in retail, we reiterate OP.
If WMT can repeat its 1Q20 performance going forward without slowing sales, there could be significant upside to our estimates. From our perspective, however, we think that in order to maintain the level of sales Walmart is experiencing, the company will likely need to invest more in price, more in wages, and more in ecommerce logistics with 1-day shipment and assortment. As we discussed in our post-earnings note and downgrade to Underperform, central to our thesis is that WMT is mining its U.S. store fleet to fund ecommerce initiatives abroad and that many of the benefits experienced are likely to fade as price gaps to competition begin to slow traffic growth in the core U.S. business. Indeed, the quarter was marked by a surprisingly profitable Walmart U.S., partially offset by a surprisingly less profitable Walmart International.
GLNG reported an adjusted net loss of $42MM vs a consensus net loss of $24MM and our $16MM net income estimate. TCE realizations of $39,000/day were lower than our estimate and explain the variance, with management citing weather and capacity related spot LNG market weakness as a weight on freight markets. Importantly, the company announced that the board has authorized a spin out of the shipping business (excluding two more modern vessels, one of which is marked for FSRU conversion). A separation of the growth (FLNG/FSRU/Golar Power) from the shipping business, unencumbering the growth business from legacy debt, is a long-awaited catalyst which we believe is positive for GLNG shares.
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