Global Company News For Thursday: BCE, TEVA, NOK, AGU, Veresen
*The rollcall of results begins with BCE in Canada which matched revenues expectations in Canada's traditionally slow June quarter while adjusted earnings beat Capital IQ forecast EPS by 3 loony cents at 94 cents Canadian. Net earnings were C$830 mn, up 2%; adjusted earnings were up 12.1% at $824 mn.
Revenues rose a modest 0.3% at C$5.34 bn, C$40 mn below the consensus forecast. Wireless produced the best cash flow gain and growth, at 7.7% and 4.6% respectively. Adjusted earnings before interest, taxes, depreciation, and amortization rose 3.2% to C$2.268 bn. The difference between these is that there are more BCE shares out after last Dec.'s bought deal.
But the key to its results was lower operating costs both in wireless and wired telephony. It also gained from new “fibe” products for broadband TV and Internet and its media offerings producing growth. Its spending in Q2 on expanding broadband fiber was C$950 mn, up 3.9%, over prior year, and also a greater proportion of its total revenues, at 17.8% vs 17.2%.
BCE confirmed its earlier guidance of EPS for the full year at C$3.45-3.45 plus revenue growth of 1 to 3%. It also expects to be able to support its expanded capex and our dividends for broadband with EBITDA growth. By stressing customer service it expects to generate more spending per customer household and less churning of accounts.
Upgrades help. BCE signed up nearly 70,000 new wireless postpaid customers in Q2 while losing just over 25,000 less desirable prepaid accounts. It also signed up 35,255 new Fibe TV clients, while losing 33,154 less desirable satellite TV ones. The stock rose 1.1% in Canada trading.
*Nokia of Finland reported more mixed results in euros under International Financial Reporting Standards for Q2, net sales of euros 5.6 bn vs prior year which did not include acquired Alcatel-Lucent. This was a major strategic move, to transform NOK which cost euros 15.6 bn. Its sales were considered better than expected.
Adjusted IFRS sales were euros 5.7 bn, vs prior Q2 sales of euros 6.4 bn, a near 11% drop because of weak mobile network business, which accounted for about 80% of the drop. Profits missed analyst forecasts by one eurocent, coming in at minus euros 665 mn ($729 mn), vs plus euros 338 mn the year before. Again adjusting for the merger and other exceptionals, the non-IFRS net profit level was plus euros 194 mn, vs prior year Q2's euros 336 mn. Per share this was 3 Eurocents (non-IFRS), one third the prior year 9 Eurocents.
This is its second quarter in a row producing a loss. It lost euros 513 mn in Q1.
CEO Rajeev Suri cited “a challenging market” and “the ongoing integration” of ALU. He cited an agreement with Samsung over intellectual property patents licensing which will help results, he said, in Q3. But he warned that “the decline in our topline remains a concern” and “we do not expect these conditions to improve near-term.” He said NOK will focus on “operation discipline, strengthening sales execution, and opportunities in the evolution to 4G” and 5G.
He also promised cost-cutting in the amount of euros 1.2 bn/yr by 2018, up by a third from the earlier target. CEO Suri also expressed “confidence in our ability to deliver cost savings” thanks to “increased granular visibility” of its business.
The main issue is that network upgrades are not being invested in by telcos from NOK's developed market base, while Chinese competitors are moving in.
NOK also had to issue corrections in the translation into English of its Finnish financial report, which added to the uncertainty. NOK was penalized 3.5% at the opening after falling 4% in European trading.
*Israel's Teva (TEVA) is, like NOK, a proxy for its market. It reported results which beat on both sales and profits in a transformative quarter during which it divested about 75 drugs to meet regulatory requirements for completing its takeover this month of Allergan's generics business. That was the major one-off but another was the withdrawal of its migraine patch treatment Zecuity which caused skin burns and scarring, and another abandoned cardio drug. All these caused a $572 mn asset write-down in Q2. The result was sales at $5.04 bn vs the consensus estimate of $4.88 bn, up 1% from prior Q2 mostly because of a $141 mn (4%) impact of exchange rate changes.
Non-GAAP gross profit was $3.2 bn also up 1% y/y and sequentially vs GAAP gross profit of $2.9 bn, down 1% for both. Its generics business was hit with the loss of exclusivity for Abilify (for schizophrenia and bipolar disease); Nexium (for acid reflux); and Pulmicort (for Crohn's disease) which nipped generic sales 7% to $2.29 bn and generics gross profits by 1.6% to $614 mn. Its sales of its specialties, notably Copaxone which lost it patent exclusivity nonetheless rose by nearly 9% to $2.27 bn. Copaxone for multiple sclerosis saw sales grew 8% to $1.1 bn, and 10% in the USA, showing that there is life after patents end when faithful patients get a price cut. Specialty meds, TEVA's term for patented products, accounted for 45% of revenues this Q2 vs only 42% in Q2 2015.
Another gain was from what Teva calls “rest of the world”, boosted its Japan deal with Takeda.
Profit came in at $254 mn, 20 cents/sh vs $539 mn or 63 cents the year before. There also were 7% more share out after a Dec. offering to finance the Allergan buy, 859 mn. Adjust for that, and exceptional items, EPS came in at $1.25 vs $1.43, up from the Thomson-Reuters estimate of $1.20/sh.
EBITDA non-GAAP cash flow was essentially flat at $1.7 bn despite much higher financing costs from an impaired investment in Mesoblast. But cash flow from operations was off 35% from prior year.
R&D spend rose to $370 mn from $357 in the prior year, a key metric in the drug business with the heaviest costs for developing meds acquired from Labrys and Auspex.
CEO Erez Vigodman said its expects to book full year sales of $22-22.5 bn and EPS for the full year to be $520-5.40. Being run by a general means TEVA strategy planning is very important, including the new buy from Allergan of its US distribution network announced yesterday. Teva stock rose 3.25% on the news and its results to $55.3.
*Agrium, the Canada fertilizer firm, reported earnings of C$ 564 mn, or C$4.18/sh, beating by a dime, but down from the $674 mn or $4.71/sh or Q2 2015, hit by weak prices. Its revenues fell short of estimates at C$6.42 bn despite its hefty build-up of retail stores, 33 of which it acquired in Q2. They produced the second highest sales even for AGU retail which will be further boosted with the Cargill store buy in process and another of which no details were given, by another 30 locations. This makes AGU a fertilizer firm with a difference. But the low prices of ag chemicals will hurt.
AGU warned that despite higher planted acreage and favorable growing conditions for corn and soybeans, nitrogen and urea fertilizer prices are under pressure not offset by higher demand for fungicides and herbicides because of wet conditions. Potash fertilizer demand is expected to be boosted this autumn because of depleted inventories and no new production in AGU's markets and CEO Chuck Magro expects high demand for nitrogen and urea to improve sales later this year. However, he has cut his full year forecast for EPS to C$5-5.3 from an earlier level of $5.25-6.25. The stock went into free fall at the opening today but recuperated to US$89.38 on heavy volume.
*The board at Canada's Veresen suspended its subsidy to Canadians reinvesting dividends, perhaps because it doesn't want to extend the boon to USA investors as your editor keeps demanding. Veresen also will divest its power generation business which produces 625 megaWatts from renewable and gas-fired plants. TD Securities of Canada will handle the divestiture.
Both will result in more funds for its natural gas and NGL pipeline and infrastructure businesses. This will result in self-funding of C$1.4 bn of capital projects under construction without borrowing. The eventual boost of its dividend will come on both sides of the 64'40 border once the new projects come on, with a debt at just over 4x cash flow (EBITDA).
For Q2 it reported distributable cash of 30 loony cents, up 10% yr/yr, or C$94 mn overall thanks to good throughput volumes from the Alliance pipeline, and strong US mid-west demand. It also forecast full year distributable cash will rise 7% thanks to H1 business and management judgment that the momentum will continue.
The projects set to be financed directly include the Veresen Midstream upgrade with processing facilities which cost $203 mn in Q2 and on which it will spend a further $1.2 bn; the now completed Hythe refrigeration gas processor which cost $12 mn; the Burstall ethane storage facility which will cost $140 mn, and of course the Jordan Cove LNG project and its Pacific Connector whose FERC approval is likely. In each case only the sums to be spent by VSN are given, not those of partners. FCGYF is the US ticker symbol.
Disclosure: None.
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