Solid execution from SLB in its first quarter under CEO Le Peuch (appointed in July), especially in the face of heightened NAM headwinds and market pessimism toward OFS/oil. Adjusted 3Q EPS of $0.43/sh handily beat WR/cons of $0.40. Marginal revenue growth in NAM was a positive surprise vs. US frac and rig count weakness (buoyed by GoM), but the bulk of the beat was driven by int’l (seasonal Northern Hemi activity and exceedingly strong incrementals in Reservoir Characterization). SLB limited capex, managed WC well, and drove solid FCF in excess of our est. The $12.7B write down was mostly non-cash (intangibles), although the $1.6B frac write down is indicative of the accelerated pivot toward a more capital-light NAM footprint.
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Next year, LUV will begin selling fares through GDS providers Travelport and Amadeus. LUV said this will boost 2H20 PT income by $10-20M. We estimate that will grow to >$200M in 2-3 years. Travelport and Amadeus together only have 25-30% share of the domestic GDS market, which Sabre dominates at 70-75%. We believe LUV’s entry into the GDS corporate travel market will drive corporate share gain for LUV, with a CASMx penalty, but drive RASM and margins higher. But there is a big picture game theory worth discussing and Sabre is in the center of it. And we think LUV has leverage.
He believes that the economy could enjoy 5% annual productivity growth for a decade if we let technology transform major industries that to date have not experienced much productivity growth. Dr. Joe Kennedy is senior fellow at the Information Technology Innovation Foundation, the top science and technology think tank. He addresses six myths behind calls for increased regulation of large tech companies and suggests four actions government can take to bolster innovation.
So far, so good. The quarter is not a disaster and stocks are going up on genuine beats (FAST, HON, DOV). But they are going down on not so good news (TXT, SNA) and our 3Q distributor survey indicates that the next wave of reports will bring more "not so good news". At these multiples (16.5x NTM EPS), earnings achievability matters and we do not want to get ahead of the inevitable EPS cuts. We like AME and UTX into prints. We remain tactically cautious PH, ROK and LII.
UAW’s Council approved a tentative contract with GM. But in a disappointing development for GM, UAW opted to remain on strike until the deal is fully ratified by members... in another week (Oct 25). We cited this as a risk in our 9/18 Daily (our base case model assumed that the strike would end Oct. 28). We believe that there may be several reasons UAW took this route, including the possibility that despite generous terms, UAW is not highly confident that this contract will be ratified. In that case, GM and UAW could be forced to return to the table. With respect to the contract itself, additional details supported our initial conclusions: We estimate that the deal will cost GM less than $300 MM in 2020 ($235 MM net of restructuring), and we do not see this as a risk to 2020 financial targets (or longer term headcount flexibility).
After the close today (10/17/19), CVTI pre-reported 3Q EPS of ($0.08)-($0.09), well below Cons. of $0.21, our prior estimate of $0.25, and initial guidance of about $0.35. Following TL misses from KNX and JBHT, we were expecting a weak report, but weren’t expecting CVTI to report a loss in the quarter.
ETFC reported 3Q EPS after the close of $1.07 vs. our $1.01 and cons. $1.00. However, despite positive trends in 3Q (beat on revenues across both NII and fees, higher cash balances, etc.), results were overshadowed on the call by questions surrounding potential for M&A / strategic alternatives. Bottom line: Management had a very tough task on the call having to address concerns relating to pricing developments and the need to walk back prior EPS targets (along with the timetable). We thought Pizzi and Turner did a good job of outlining new expense initiatives aimed at defending their operating margin while reiterating the Board’s willingness to remain open to potential suitors. While we came out of the call no more or less convinced on the likelihood of takeout, we do believe that higher cash balances and more aggressive expense initiatives should drive cons. higher and support a higher standalone valuation.
This morning GPC reported Q3 results. Revenue growth of +6.2% was 30bps below Consensus. Adj. EPS of $1.50 beat Cons of $1.47 and our $1.46. Automotive margins declined 60bps y/y, largely due to deleverage in Europe on a MSD comp sales decline. GPC also lowered guidance for sales & EPS largely due to EIS divestiture. Shares were up 1%.
Our weekly opioid news digest reviews key developments in the ongoing litigation, including pretrial filings and other relevant news flow.
After the close, CSX filed an 8-K disclosing that activist investor Mantle Ridge sold 19M shares in the open market today and that Mantle Ridge will sell an additional 5M shares back to CSX as part of CSX’s buyback program. As of 6/30, Mantle Ridge held 38M shares of CSX’s stock implying around 14.5M shares remaining after today’s sales. Our sense is that around ~11M of these shares have been distributed to Mantle Ridge’s LPs that chose to retain the stock instead of cashing out today, and that Paul Hilal will retain the remaining 3M-4M shares of CSX stock including performance shares he chose to receive in stock and not cash. Thus, we don’t expect any additional selling pressure related to Mantle Ridge, and we now know why the stock didn’t react better today following its strong 3Q report.