APPLE’S RED DELICIOUS PROFITS
Apple (AAPL) reported first fiscal quarter revenues rose 9% to $91.8 billion with net income up 11% to $22.2 billion and EPS climbing 19% to $4.99. These record results reflected strong demand for the iPhone 11 and iPhone 11 Pro models and all-time records for Services and Wearables. iPhone sales increased 8% during the quarter to $56 billion with Services revenues increasing 17% to $12.7 billion and Wearables sales jumping 37% to $10 billion thanks to strong demand for Apple Watches and AirPods, with both items capacity constrained.

During the holiday quarter, Apple’s active installed base of devices grew in each geographic segment and has now reached over 1.5 billion. The company ended the quarter with 480 million paid subscribers to its Services, a 120 million increase year over year. Apple expects to exceed 500 million subscribers in the March quarter with a goal of 600 million subscribers by year end to its Services. International sales accounted for 61% of the quarter’s revenues. Free cash flow increased 22% during the quarter to $28 billion with the company paying dividends of $3.5 billion during the quarter and repurchasing $20.7 billion of common stock.

Apple ended the quarter with about $207 billion in cash and investments, $93 billion in long-term debt and $89.5 billion in shareholders’ equity. Supply chain constraints caused by the coronavirus, along with temporarily closed retail stores in China, led Apple to lower its growth outlook for the second fiscal quarter.Apple’s stock has provided us with a red delicious 687% total return over the last decade. With the stock appearing fully valued, it prompted us to trim back over sized positions.   

MSC INDUSTRIAL $5 A SHARE SPECIAL DIVIDEND
MSC Industrial (MSM) reported fiscal 2020 first quarter sales dipped 1% to $823.6 million with net earnings declining 12% to $65.4 million. These results reflect broad-based softness in the industrial sector.Consistent with the company’s balanced allocation strategy of returning cash to shareholders, the Board declared a special dividend of $5.00 per share in addition to the regular dividend. Given continued economic weakness, management expects revenues and earnings to decline further in the second quarter. After pocketing the special dividend, we decided to sell our position in MSC Industrial due to weak financial results with a disappointing 20% loss over the last two years.

TASTY PEPSICO PROFITS
PepsiCo (PEP) reported 2019 revenue rose 4% to $67.2 billion with operating income up 2% to $10.3 billion. Organic revenue growth accelerated to 4.5% for the full year with revenue growth broad-based across business segments and geographies. Return on shareholders’ equity during 2019 was a tasty 49.4%. During 2019, PepsiCo paid $5.3 billion in dividends and repurchased $3 billion of common stock.The company announced a 7% increase in its annualized dividend to $4.09 for 2020, representing the 48th consecutive year of dividend increases. In 2020, PepsiCo expects organic revenue growth of 4% with constant currency EPS growth of 7%. The company expects to generate $6 billion of free cash flow. Total cash returns to shareholders in 2020 are expected to approximate $7.5 billion comprised of dividends of $5.5 billion and share repurchases of $2 billion. With the stock appearing fairly valued after bubbling up a 61% gain over the last six years, we decided to pocket partial PepsiCo profits.

MORE MONEY FROM MASTERCARD
Mastercard (MA) announced that its Board of Directors has declared a quarterly cash dividend of 40 cents per share, a 21% increase over the previous dividend of 33 cents per share. The Board of Directors also approved a new share repurchase program, authorizing the company to repurchase up to $8 billion of its Class A common stock. The new share repurchase program will become effective at the completion of the company’s previously announced $6.5 billion program. The company has approximately $300 million remaining under the current program authorization. Mastercard’s stock has charged up a 290% total return over the last six years and appears fully valued, which prompted us to trim back our position.

With the proceeds from MSC Industrial and the profits from Apple, PepsiCo and Mastercard, we plan to add to our positions in ADP (ADP), Genuine Parts (GPC), UPS (UPS) and T. Rowe Price (TROW). See these articles below:

Under The Spotlight: Genuine Parts Company
Portfolio Highlights: From Hold To Buy (ADP, UPS, TROW) - March 2020