Too Many Quarterlies

S&P Dow Jones Indices is reclassifying Greece from Developed Market to Emerging Market status. Countries usually move in the other direction. More from India, Israel, Ireland, South Korea, Canada, Mexico, Greece, Brazil, and Colombia. There are too many quarterlies to count.

*Considering the brutality of its boardroom battle yesterday, Teva surprised on the upside with Q3 non-GAAP eps (excluding non-recurring items) at $1.27, just one penny down from prior year and a penny ahead of estimates by the pundits, as reported by acting CEO Eyal Desheh, CFO. In both dollars and local currencies, revenues rose 2% to $5.1 bn mainly thanks to continued US generics sales, up 4% of total revenues to 54%. This beat estimates by about $100 mn. Better sales of global specialty and OTC medicines also helped. For the year to date, profits hits $706 mn vs a loss last year to Q3 of $706 mn. However global active pharma ingredients (API) sales to third parties fell; those to Teva itself don't count.

Europe accounted for 28% of sales this year, or $1.4 bn, vs 4% last year, helped by Teva specialties. Revenues were down 1% in dollars and down 5% in local currencies, hurt by lower API sales.

Sales in the rest of the world fell 11% in dollars to $533 mn. They were nearly flat in local currencies, hurt by the decline in the yen and some Latin currencies, and delays in Russian purchases of multiple sclerosis blockbuster Copaxone.

Globally, Teva generic sales were flat at $2.5 bn and accounted for under half of total revenues in Q3, at 49% vs 50% a year earlier. US generics sales rose on the back of launches of copycats of Niaspan, Temodar, Tricor, and amphtamine salts.

Desheh said Teva narrowed its outlook for 2013, and now sees revenue of $19.7-$20.3 bn and adjusted eps at $4.95-$5.05 vs earlier forecasts if $19.5-$20.5 bn and $4.85-$5.15 respectively. Dr. Jeremy Levin today told the press that he didn't resign; he and the board agreed on the terms of his leaving.

What worries me more than any number at Teva is what will happen to the renowned team of drug experts Dr Levin brought with him from English-language drug companies when he joined Teva, like the chief scientist Michael Hayden and fellow Bristol Myersexec global operations chief Carlo de Notaristefani.

*Even better numbers came from Barrick Gold along with an announcement that to conserve cash, it will suspend construction on the Argentina side of its Pascua-Lama mine project straddling the border with Chile; the Chilean side suspension was imposed by the environmental authorities. is on the Argentina-Chile border to conserve cash.

ABX reported Q3 eps fell to 17 cents vs 65 cents in Q3 2012, beating estimates. Non-GAAP earnings hit 58 cents, nicely over the Bloomberg poll analyst forecast of 50 cents. While Canadian, ABX reports in US$s. Sales fell to $2.99 bn, down 15% from prior year, but above the Bloomberg estimate of $2.91 bn. Because the price of gold has fallen 20% from last year's level, that Barrick has gained market share.

Its new CEO Jamie Sokalsky has been divesting or cutting production at high-cost mines to focus on cheaper ones. ABX wrote down $8.7 bn in Q2, $5.1 bn for Pascua-Lama, and cut its dividend. In an interview with Bloomberg last month, Sokalsky said more asset sales are planned, but at least the dividends has been maintained.

*As we expected, Bombardier reported flat sales of $4.1 bn in Q3 (in US$s) and flat per share profits of 9 cents. There was the usual BDRAF split half and half between aviation and ground transportation lines. But the aviation side, because of delays with its maiden flight of the C-Series Next Gen single aisle regional jet, caused an $8 mn drop in adjusted net income to $165 mn and hit aviation earnings before taxes which fell 15% to $210 mn, and earnings as a percentage of aviation revenues, which fell to 5.2% from 5.7%. Only 45 planes were delivered in Q3 vs 57 a year before and the end-of-month backlog was only 26 planes vs 83 the year before. Aerospace backlog totalled $32.9 bn at the end of Sept, flat with the start of 2013.

Conservative Bombardier kept its cash flat YTD at $2.6 bn. Its order backlog rose marginally during the year to $65.5 bn, up $600 mn. But its free cash flow usage from operations quadrupled to $522 mn in Q3 vs prior year, again the result of low order intake and a costly flight-test program. (The big Chinese leasing deal already reported came after the quarter closed.)

Transportation produced more sales and cash flow to offset the drain in aviation, thanks to better orders from government-funded recovering subway and railway companies. Rail revenues came to $2.1 bn up $200 mn from prior year and before tax earnings were up 2% to $124 mn. However, as with planes, earnings fell as a proportion of revenues, to 6% from prior year's 6.3%. The edge in transportation was that usage of free cash flow was on $5 mn vs $58 mn the prior Q3.

While new transport orders at $1.7 bn were lower than the prior Q3's $2.2 bn, the backlog rose to $32.6 bn, up $600 mn YTD.

*AmBev reported confusing results. I think they sold a lower volume of more expensive beer in Latin markets in Q3. The Brazilian brewmeister saw its net profits drop by more than half from prior year levels, to reais 22.8 bn ($1.05 bn at this year's exchange rate) despite sales going up from BRL 3.77 bn to 4.19 bn. Its ebitda margin rose from 47% last Q3 to 49.5% this year. It achieved a higher price per unit of suds. So I can't figure out why net fell.

*Ecopetrol of Colombia had a strong quarter thanks to improved oil production, over 800 barrels of oil equivalent/day for the first time, up 7.7% sequentially. Net came in at COP 3.97 trillion, up over 22% both from Q2 and from Q3 2012. It discovered a 3rd oil find in Meta Province's CPO-10 block and inaugurated its Bicentenario pipeline during the quarter.

From Abhimanyu Sisodia in India on RDY and PKX:

*Dr Reddy Q2 results at $0.65/sh beat analyst estimates $0.46/sh. While RDY profitability outperformed [ED: up 69% from last year's level in rupees], revenues fell short at $537 mn vs expectations of $561 mn. Generics revenues grew a healthy 32% y-o-y, driven by North America and emerging markets. Russia showed the strongest growth at 44%, driven by seasonal demand while India's 8.9% rise was healthy given price ceilings and trade disruptions RDY suffered in Q2. RDY launched 19 products and filed for a further 13 globally. Dyspepsia drug fondaparinux and anticoagulant omeprazole gained the most market share. However RDY's wholesale API sales fell by 19%.

RDY historically spends the most on R&D among Indian pharma firms and boosted the level further this quarter, to 9% of revenues vs 6.1% in Q2 2012. EBITDA margin rose to 28.3% of revenues against 25.9%. The profitability of generics is highlighted by the 66% gross profit margin here. Selling expenses grew 21% y-o-y driven largely by increased brand building activities. The impact of those is reflected in the company's Profit After Tax, which surged 76% y-o-y to c.$113 mn. With numbers like these, RDY remains a buy.

*Zacks reaffirmed Posco's "neutral" rating after its disappointing earnings last week.

*UBS raised its stake in Paddy Power plc to 8.95%.

*Odontoprev still hasn't provided last year's dividend figure but I think the payout must be higher because the share rose 19% to over $10 in today's trading. Brazil's ODPVY is a new ADR for a prepaid dental program in Latin America. We bought at the launch and they stil don't know how to write a dividend press release in English or Portuguese.

*MXCHF has analysts in disarray on what to do and what the target price is, ranging from a sell by BBVA with a TP of NMP 62.6 to a buy from Credit Suisse with a TP of 80. There are lots of estimates in between. From the conference call with Mexichem yesterday, here are some takeaways mainly from CEO Antonio Carrillo Rule.

*With the Latin American construction and infrastructure industry in the doldrums, and facing currency losses against the Mexican peso, Mexichem is launching a new business line, sales of fluorine-based cement flux for self-construction and home improvement which has growth potential.

*The impact of China's considerable capacity increase plus ending export barriers and creating new export incentives for selling fluorospar refrigerants hurt Mexichem in the US market. Mexichem last week started a US Dept of Commerce dumping complaint to go before the World Trade Organization. It was delayed in order to get the case set up properly and then further held up by the US government shut-down. Señor Carrillo expects a ruling by Q1 next year.

*Polyvinyl chlorine resins and pipes are a growth area in Latin America for agricultural use and MXCHF dominates the market.

*While in addition to disparate estimates of needed manning levels (reported earlier) MXCHF was surpised by the need in Sept. to shut in its jv plant with Pemex for repairs to the vinyl chloride monomer(in which it owns 56%), it also had some positive surprises about what CEO Carrillo called "erratic conditions" at Pajaritos. One is that the VCM plant can be restarted by the end of this year. Another is that the separate ethylene line is producing despite the closure. This ethylene is being exported.

*The shutins at other sites were voluntary, and creating negative impact on the bottom line: a temporary closure in Colombia for an upgrade; cutting sulphur production a mere year after it had been resumed in Mexico; closing an unneeded second production line in Japan.

*Mexichem has abandoned talks with Solvay about a PVC line acquisition in Belgium (following its takeover of Wavin there) but considers the US DuPont decision to flog place its fluorite business which CEO Carrillo called "a low payout opportunity for us", as the global fluorite business consolidates. "I'm convinced Mexichem will be a strong player, and opportunities will become clear in the next quarter," he said. I anticipate fill-in acquisitions in fluoro-polymers and -elastomers where MXCHF is not present.

*There will be some news later today on energy opportunities in vertical integration, one of 3 business lines at MXCHF. This will conflict with my obligation to prepare for trick or treat for the local children and therefore I will not be covering it. Mexicans may celebrate Dia de la Muerte but they have no respect for Hallowe'en.

Of course we are keeping our Mexichem shares. We were in early and overpaid but long-term it makes sense.

*Booh. The Teva saga may encourage Jerusalem to ease up on another Israeli giant and tax-beneficiary, Israel Chemicals. I cannot otherwise explain why ISCHF stock is up nicely today.

*I am not alone. At the Harvard Club last night Guy Spier, manager of Aquamarine Fund, explained why he had bought Potash of Saskatchewan and why he sold it from his fund this year. He bought because POT is the low-cost producer for a fertilizer of which there is limited supply and high demand. New capacity is expensive to bring on. "POT looked cheap." But he sold over the breakdown in the potash cartel early in the summer. "Oligopolies and cartels are unstable. They have bad karma. I will not invest again in a cartel", he commented, although he admitted he had made about 50% on his initial investment in POT which also owns a stake in ISCHF (cf above note).

Spier, a British Harvard Biz School graduate who runs the fund manager from Zurich, got his start running family money, but his US Aquamarine feeder fund now also manages some of my family money. My husband got to know Guy when they both helped the US Oxford Alumni Association. Guy started out in fund management with money from his father and uncle but now has outside clients like my spouse. "I want to invest for the greater good and not in cartels," he added.

His Swiss-based fund (which also has a UK feeder fund) uses no leverage, no margin loads, no short positions, and no complexity, to quote Guy. But it still outperforms all 3 US indexes: Dow, S&P, and Nasdaq. I think its biggest current holding is Fiat but I am guessing; Guy won't tell.