In what has been one of the worst market and economic environments in decades and what is likely to be a quarter with negative GDP, there have been a few companies that have managed to buck the trend and report (relatively) good earnings news.
Here's a look at three.
What Apple did:
Apple was expected to earn $1.39 on revenues of $9.74 billion. The company reported earnings per share of $1.78 on revenues of $10.17 billion. Furthermore, the company guided to EPS of 90 cents to $1.00 and revenues of $7.6 billion to $8.0 billion for the April quarter. Consensus estimates call for Apple to earn $1.07 on revenues of $8.2 billion. However, given Apple's penchant for under promising and over delivering, the investment community gave the guidance zero credence.
How Apple did it:
Apple was the most sought after technology vendor this holiday season. While PC sales may be slowing down based on recent reports from
, Apple's Mac sales were within expectations. The company's laptop sales were strong while desktop sales were slightly weak. It is possible that the introduction of the lower priced laptop models may have changed the sales mix.
However, ASPs (average sales prices) held steady. Apple's iPod sales of 22.7 million units were much stronger than expected and grew 3% year-over-year, although U.S. iPod sales did decline 3%. iPhone sales of 4.36 million units grew 88% YOY. Finally, this corporate cash machine generated $3.6 billion of cash during the quarter, bringing its liquidity hoard to near $29 per share. That's not bad for a stock now trading at around $90 per share.
What Google did:
Google was expected to earn $4.96 on revenues (ex-Traffic Acquisition Costs or TAC) of $4.12. The search engine/advertising technology company reported EPS of $5.10 on revenues ex-TAC of $4.22 billion.
How Google did it:
In past quarters as Google was experiencing tremendous growth, the company's costs were also surging. Many analysts and investors were concerned that Google's lack of hiring and spending control was causing its expenses to uncomfortably spiral out of control. Google finally got the message.
Google's headcount grew by only 99 net people, which was the lowest quarterly growth since the company went public. Gross revenues grew YOY by 18.1%, whereas cost of revenues rose 12%, R&D expenses rose 16.3% and SG&A rose 14.8%. Aggregate paid clicks, which include clicks related to ads served on Google sites and AdSense partners, increased approximately 18% over YOY and approximately 10% sequentially.
As advertising expenditures dropped globally, due to slowing economies and problems in the financial services and automobile sectors, which were heavy on-line advertisers, it appears that Google traffic and related click ads increased. I attribute this to two factors: new advertisers, such as educators filling the void left behind by financial services companies and simply more people on the Internet, seeking new jobs and business opportunities.
What IBM did:
IBM was expected to earn $3.03 on total revenues of $28.15 billion. Instead, "Big Blue" reported EPS of $3.28 on total revenues of $27 billion. For the full year, IBM earned $8.93 cents on revenues of $103.6 billion. Furthermore, the company raised fiscal year 2009 EPS guidance to at least $9.20, compared to existing FY09 consensus estimates of $8.75. Not many companies are raising guidance and certainly a 5% boost in guidance despite a slowing economy and strengthening U.S. dollar sends a strong message to investors and analysts.
How IBM did it:
IBM describes its success as one of transformation. To most people, IBM is still the "International Business
Corporation," but that was then. Hardware sales represent only 8% of total revenues versus 24% in 2000. Meanwhile, software sales now represent 43% of revenues versus 25% in 2000. Today's IBM has four main business lines: Global Technology Services, Global Business Services, Systems & Technology Software and Financing (a small unit but nevertheless, a mainstay of any large company these days). In each line of business, except Systems & Technology, gross margins rose for the year and the quarter. The company's overall gross margin rose YOY by 190 basis points to 44.1% for FY08 and 300 basis points for the fourth quarter of 2008.
Finally, IBM is expanding in growth markets, particularly Brazil, India and China.
Typically, during recessions consumer staples companies -- food, tobacco, pharmaceuticals -- perform well. If you're looking for bright spots in this cloudy market or simply want to check the pulse of consumers, be on the lookout for earnings from these types of companies over the next few weeks.
Also, during a recession there are always going to be corporate stars that shine in a challenging environment. Apple, Google and IBM are prime examples of companies that have managed to navigate the current economic downturn. How? They share a few common elements:
Products that increase productivity or decrease costs for end users.
Expense controls in place.
Focus on profit margins.
Strong balance sheets.
Other companies that fit this model and could perform well are
Research In Motion
Can you identify any others?
At the time of publication, Rothbort was long AAPL, GOOG and MCD, although positions can change at any time.
Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele.
Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.
Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Term Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.
For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at
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