INTC: Look Ahead to March 2011 Quarterly Results

This post describes our model of Intel's (NASDAQ: INTC) Income Statement for fiscal 2011's first quarter, which will end on 26 March 2011.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about Intel and the business environment in which it is currently operating.

Intel Corporation is a prominent manufacturer of integrated circuits for computers, servers, hand-held devices, and communication products.  The company is included in the Dow Jones Industrial Average and the S&P 500.  It currently has a market value of approximately $115 billion on a fully diluted basis.

Fortune lists Intel as the most admired semiconductor company.

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WMT: Look Ahead to January 2011 Quarterly Results

This post describes our model of Wal-Mart's (NYSE: WMT) Income Statement for fiscal 2011's fourth quarter, which will end on 31 January 2011.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about Walmart and the business environment in which it is currently operating.

Retailing behemoth Wal-Mart Stores, Inc., operates 4404 stores in the U.S. (including Sam's Club) and 8838 worldwide, at last count.

In fiscal 2010, which concluded in January 2010, Walmart earned over $14 billion on net sales of $405 billion.  Although net sales rose only 1.0 percent, income continuing operations increased 8.8 percent.

These financial results enabled Walmart to regain the top position from Exxon Mobil (NYSE: XOM) on the Fortune 500 list of America's largest corporations.  A drop in energy prices in 2009 cut into the oil giant's revenue.

Economies of scale and ruthless efficiencies allow Walmart to sell many products for prices lower than competitors, which include Target (NYSE: TGT), Kohl's (NYSE: KSS), and Sears Holdings (NASDAQ: SHLD).  Walmart also purchases goods directly from manufacturers to reduce its costs.

Critics of Wal-Mart abound.

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HD: Look Ahead to January 2011 Quarterly Results

This post describes our model of Home Depot's (NYSE: HD) Income Statement for fiscal 2010's fourth quarter, which will end on 30 January 2011.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about Home Depot and the business environment in which it is currently operating.

The Home Depot, Inc., (NYSE: HD) is the largest retailer of do-it-yourself merchandise, which includes building materials, home improvement supplies, and lawn and garden products.  The company at last count has 2,244 retail stores, 88 percent in U.S. states or territories.  Home Depot also operates in Canada, China, and Mexico.

Home Depot earned nearly $2.7 billion in fiscal 2009, which was nearly 18 percent more than in 2008.  Revenue slipped 7 percent to $66.2 billion.  (Fiscal 2009 ended on 31 January 2010.)

In the last couple of months, Home Depot's market value has increased from $50 billion to $60 billion, on a fully diluted basis.  The market value is much less that it had been a decade ago, partially as result of share repurchases.

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CSCO: Look Ahead to January 2011 Quarterly Results

This post describes our model of Cisco Systems's (NASDAQ: CSCO) Income Statement for fiscal 2011's second quarter, which will end on 29 January.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about Cisco Systems and the business environment in which it is currently operating.

Cisco Systems, Inc., the proud plumber of the Internet, has a dominant role in markets for enterprise networking products and services. 

Cisco's earnings rose 27 percent in fiscal 2010, which ended in July, from $6.13 billion to $7.77 billion.  Revenue increased 11 percent, from $36.1 billion to $40.0 billion.  Fiscal 2010 included a 53rd week.

The market value of the company is currently around $120 billion, on a fully diluted basis. 

In fiscal 2011, Cisco will issue its first cash dividend.  The amount and timing of the dividend have not yet been disclosed.

Cisco categorizes its products as Routers, Switches, Advanced technologies, and other.  Switches generated the most Revenue in fiscal 2010, $13.6 billion, which was 42 percent of net product sales. 

Revenue from product sales was supplemented by $7.6 billion in Revenue from services in fiscal 2010.  Service revenue was 19 percent of total Revenue in fiscal 2010.

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NVDA: Look Ahead to January 2011 Quarterly Results

This post describes our model of NVIDIA's (NASDAQ: NVDA) Income Statement for fiscal 2011's fourth quarter, which will end on 30 January 2010.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about NVIDIA and the business environment in which it is currently operating.

NVIDIA is best known for its powerful Graphics Processing Units that rapidly perform the complex calculations required to produce hyper-realistic images for computers and video games.

The company's share price shot up earlier this month in a favorable response to announcements NVIDIA made in conjunction with the Consumer Electronics Show in Las Vegas.  NVIDIA proclaimed its latest chips for mobile devices, such as the dual-core Tegra 2, are being used in increasing numbers of notebook computers, tablets, and smartphones.  NVIDIA also made known it would develop CPUs using technology from ARM Holdings (NASDAQ: ARMH) for a wide variety of other platforms.  This latter disclosure is significant because Microsoft (NASDAQ: MSFT) decided to enable a future version of the Windows operating system to work on ARM chips, allowing these devices to compete directly against the x86 devices developed by Intel (NASDAQ: INTC).

The ARM products, therefore, open another front in NVIDIA's rivalry with Intel.  NVIDIA has promoted the use of its parallel-processing GPUs for applications now run on Intel's general-purpose microprocessors.  Intel's latest generation of microprocessors, known as Sandy Bridge, includes sophisticated graphics capabilities that might eventually cut into sales of the discrete GPUs made by NVIDIA and Advanced Micro Devices (NYSE: AMD).

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BR: Look Ahead to December 2010 Quarterly Results

This post describes our model of Broadridge Financial's (NYSE: BR) Income Statement for the second quarter of fiscal 2011, which ended on 31 December 2010.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

If the normal seasonal pattern remains in place, earnings in the December quarter will be closer to those in September and March than June.


We begin by reviewing background information about Broadridge and the business environment in which it is currently operating.

Broadridge Financial Solutions, Inc., provides brokerage and other services to financial companies.  Broadridge has been ranked the top Brokerage Process Services Outsourcing Provider for the last three consecutive years in the Black Book of Outsourcing.

Automatic Data Processing (NASDAQ: ADP) spun off Broadridge on 30 March 2007.  (GCFR articles related to ADP can be found here.)

Broadridge earned $190 million ($225 million from continuing operations) in fiscal 2010, which ended in June, on revenue of $2.2 billion.  The company earned $223 million and had revenue of $2.1 billion in 2009.

The market value of Broadridge is currently about $2.8 billion.

Broadridge, for financial data reporting, divides its operations into two business segments: Investor Communication Solutions (ICS) and Securities Processing Solutions (SPS).  The ICS segment, which contributed more than 75 percent of Broadridge's revenue and pretax earnings in fiscal 2010, distributes and processes proxies for public companies and mutual funds.

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EIX: Look Ahead to December 2010 Quarterly Results

This post describes our model of Edison International's (NYSE: EIX) Income Statement for 2010's fourth quarter, which ended on 31 December.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about Edison and the business environment in which it is currently operating.

Edison International is the parent of Southern California Edison and Edison Mission Group.  SCE, which traces its roots back to 1886, operates a regulated electric utility serving a population of about 13 million people in central, coastal and southern California.  SCE contributed more than 80 percent of Edison's revenue in 2009.  

Edison Mission Energy owns, or has interests in, various independent power-generation facilities. 

The two other large electric utilities in California are PG&E Corp.'s (NYSE:PCG) Pacific Gas and Electric Company and the San Diego Gas and Electric subsidiary of Sempra Energy (NYSE: SRE).

Edison International earned $849 million for its shareholders in 2009 on Revenue of $12.4 billion, compared to earnings of $1.2 billion and Revenue of $14.1 billion in 2008. 

On 2 July 2010, Fitch Ratings upgraded Edison's long-term issuer default credit ratings from "BBB-" to "BBB," with a stable outlook.  The company increased the dividend on its common stock for 2011 from $1.26 to $1.28 per share.

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TDW: Look Ahead to December 2010 Quarterly Results

This post describes our model of Tidewater's (NYSE: TDW) Income Statement for the third quarter of fiscal 2011, which ended on 31 December 2010.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results that the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about Tidewater and the business environment in which it is currently operating.

Tidewater owns the world's largest fleet of vessels serving the global offshore energy industry in exploration, field development, and production.  Headquartered in New Orleans for more than 50 years, Tidewater first serviced drillers in the Gulf of Mexico.  It now conducts business on a global scale.

In fiscal 2010, which ended last March, Tidewater earned $259 million ($5.02 per share) on Revenue of $1.2 billion.  These figures were down from earnings of $407 million ($7.89 per share) on Revenue of $1.4 billion in fiscal 2009.

The company's Market Value is currently around $2.7 billion.

For financial reporting purposes, Tidewater's business is divided in U.S. and International segments.  In fiscal 2010, the International segment provided 92 percent of total vessel revenues and 96 percent of vessel operating profit.

Profits in the offshore segment of the energy industry have been scarcer the last couple of years.  The industry seems to oscillate between periods of high and low activity.  Energy producers calibrate their exploration and production activities to changing economic and industry conditions.  The Deepwater Horizon disaster in 2010, which led to an offshore drilling moratorium, almost certainly exacerbated the weakness during the current cycle.  (A Tidewater vessel, the Damon B. Bankston, was on the scene when the rig failed with tragic results.)

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WPI: Look Ahead to December 2010 Quarterly Results

This post describes our model of Watson Pharmaceuticals' (NYSE: WPI) Income Statement for 2010's fourth quarter, which ends today.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about Watson and the business environment in which it is currently operating.

Watson Pharmaceuticals, Inc., produces and distributes generic and, to a lesser extent, branded pharmaceuticals.  Watson earned $222 million in 2009, down from $238 million in 2009.  Revenue increased from $2.5 billion to $2.8 billion.

The company's market value is currently about $6.4 billion on a fully diluted basis.

The Arrow Group acquisition in December 2009 augmented Watson's portfolio of generic drugs and expanded the company's access to international markets.  Arrow was not Watson's first large acquisition: it purchased Andrx in late 2006.  The company also obtained 15 drugs in 2008 from Teva Pharmaceutical (NASDAQ: TEVA).

As a result of these deals, Watson should now be better postured to compete against generic giants Teva and Mylan (NYSE: MYL). 

Watson's business is divided for financial reporting purposes into three segments: Global Generics, Global Brands and Distribution.  With 170 different products, Global Generics contributed 59.7 percent of Revenue in 2009 and 71.6 percent of allocable operating income. 

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BP: Look Ahead to December 2010 Quarterly Results

This post describes our model of BP's (NYSE: BP and LON: BP) Income Statement for the fourth quarter of 2010, which will end on 31 December.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about BP and the business environment in which it is currently operating.

BP p.l.c. is a major Integrated Oil and Gas firm.  Formerly known as British Petroleum, BP became a behemoth by merging with Amoco in 1998 and acquiring Arco soon thereafter.

Headquartered in London, BP has interests ranging from Alaskan oil fields and pipelines to 50 percent of the TNK-BP joint venture with Russian partners.

In 2009, BP achieved profits of $16.6 billion on sales and other operating revenues of $239 billion.  BP produced 4 million barrel-of-oil equivalents per day. 

An estimated 5 million barrels of crude oil flowed from the Macondo area of the Gulf of Mexico before the damaged Mississippi Canyon 252 well was permanently sealed in September.  BP had obtained the Deepwater Horizon drilling rig, which was destroyed, from Transocean (NYSE: RIG).

As a consequence of the events in the Gulf of Mexico, before and after the explosion, BP's board ousted CEO Tony Haywood and replaced him with a safety-conscious Bob Dudley.  It didn't help Mr. Haywood that the Gulf disaster followed a string of other BP difficulties, including tragedies, maintenance problems, and market manipulation allegations.  Haywood himself had risen to the top job after an earlier ignominious leadership change.

To cover the disaster's costs, including a $20 billion compensation claims fund, BP recorded a pre-tax charge of $32.2 billion in second quarter of 2010.  BP indicated it would sell as much as $40 billion of assets to raise cash.  In one deal, Apache (NYSE: APA) agreed to spend $7 billion to purchase assets in Canada, Egypt, and the Permian Basin of West Texas and New Mexico.

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PG: Look Ahead to December 2010 Quarterly Results

This post describes our model of Procter & Gamble's (NYSE: PG) Income Statement for fiscal 2011's second quarter, which will end on 31 December 2010.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about P&G and the business environment in which it is currently operating.

Procter & Gamble creates and markets many well-known Household and Personal products, which are Consumer Staples, to customers around the world.  The company, based in Cincinnati, traces its roots back to 1837.

P&G reported Net Income of $12.7 billion ($10.9 billion from continuing operations) on Net Sales of $78.9 billion in fiscal 2010, which ended in June.  Sales to Wal-Mart Stores (NYSE: WMT) and its affiliates produced about 16 percent of P&G's Revenue.

The company's market capitalization is nearly $200 billion, which makes P&G one of the ten most valuable U.S. corporations.

It's no surprise to find P&G on the list of S&P 500 Dividend Aristocrats.  The company has paid a dividend from 120 consecutive years, and it has raised the payment in each of the last 54 years.  P&G is also number 6 on Fortune Magazine's 2010 list of the World's Most Admired Companies.

P&G is organized into units that focus on a particular product category.  At the highest level, the company has three global business units:  Beauty and Grooming, Health and Well-Being, and Household Care.  Each GBU comprises two segments.

In fiscal 2010, the Household Care GBU generated about one half of P&G's net sales and the Beauty and Grooming GBU was responsible for about one third of sales.

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COP: Look Ahead to December 2010 Quarterly Results

This post describes our model of ConocoPhillips's (NYSE: COP) Income Statement for the fourth quarter of 2010, which will end on 31 December.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about ConocoPhillips and the business environment in which it is currently operating.

ConocoPhillips is one of the ten biggest Integrated Oil and Gas companies, which produce, refine, transport, and market energy products.  The company was formed in 2002 when Conoco, Inc., merged with Phillips Petroleum.  It added Burlington Resources, with its extensive natural gas operations, in March 2006 (when gas prices were high).

The market value of the company is now around $100 billion, up from about $60 billion in early 2009 but still well below the all-time high of $150 billion.

ConocoPhillips has business interests in 26 countries around the world, from Algeria to Vietnam.

For financial data reporting, ConocoPhillips has six operating segments:  Exploration & Production, Midstream, Refining & Marketing, Lukoil Investment, Chemicals, and Emerging Businesses.  The Chemical segment consists of a joint venture with Chevron.

The Refining and Marketing segment provided more than 70 percent of ConocoPhillips's Revenue in 2009, and Exploration & Production contributed most of the rest.  However, Exploration & Production and the Lukoil Investment generated much of the year's Net Income.

The company's worldwide production, excluding Lukoil, averaged 1.85 million barrel-of-oil equivalents per day in 2009, compared with 1.79 million BOE/day in 2008.

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ADP: Look Ahead to December 2010 Quarterly Results

This post describes our model of Automatic Data Processing's (NASDAQ: ADP) Income Statement for the December-ending second quarter of fiscal 2011.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

First, we present some background information about ADP and the business environment in which it is currently operating.

Automatic Data Processing performs payroll, human resource, data processing, and outsourcing Business Services for well over 500,000 clients, large and small, in the United States and other countries.  ADP pays one of every six private sector employees in the U.S.

ADP is one of four remaining U.S. companies with a AAA bond rating.  An S&P 500 Dividend Aristocrat, ADP recently announced its 36th-consecutive annual dividend increase. 

The company has a market value of about $23 billion.

As the processor of many payrolls across the U.S., ADP quickly senses macroeconomic changes in Employment.  ADP uses the data it collects to issue the monthly ADP National Employment Report on non-farm private employment. 

Fortune Magazine deemed ADP to be Most Admired in the Financial Data Services industry.

In fiscal 2010, which ended 30 June, ADP's earnings fell to $1.21 billion from $1.33 billion in the prior year.  Revenue increased to $8.93 billion from $8.84 billion.  The company's results in fiscal 2010 were weakened by high unemployment, which reduces the demand for payroll services, and low interest rates, which limits the company's interest income.

ADP has three main businesses:  Employer Services, Professional Employer Organization Services, and Dealer Services.  Employer Services processes payrolls, administers benefits, and performs other services to enable firms "to staff, manage, pay and retain their employees."  PEO Services, by establishing co-employment relationships with customers and their employees, enables businesses to outsource various functions.  In this arrangement, an ADP entity becomes the employer of record for the affected employees.  Dealer Services helps companies that sell vehicles and machinery manage their business activities.

The Employer Services business segment contributed 72 percent of total revenue in fiscal 2010.  Competitors include Paychex (NASDAQ:PAYX), the now-private Ceridian, and India's Wipro (NYSE: WIT).

Dealer Services revenue has been adversely affected by the downturn in vehicle sales and the closing of many dealerships.

ADP has recently acquired several other companies, including Italian business software developer Byte Software House, automotive marketing firm Cobalt, human resource solutions provider Workscape, and payroll tax firm MasterTax.

In 2007, ADP divested its Brokerage Services Group business, which became Broadridge Financial Solutions (NYSE: BR).  GCFR articles related to Broadridge can be found here.



Automatic Data Processing earned $0.56 per diluted share on a GAAP basis in the September-ending first quarter of fiscal 2011.  Earnings per share were unchanged from the same three months of last year. 

Readers wanting to take another look at ADP's September 2010 quarter might wish to review our Income Statement and Financial Gauge analyses.

Now, we are ready to look ahead to ADP's results for the December 2010 quarter.

In the press release on 27 October 2010 announcing its results for the September quarter, ADP updated its guidance for fiscal 2011.  Some changes to the guidance reflect the company's better-than-expected performance during the first fiscal quarter, and other adjustments are reactions to recent corporate acquisitions.

Including the results of the newly acquired companies, ADP now believes it can achieve full-year Revenue growth between 7 percent and 8 percent.  Since Revenue in fiscal 2010 was $8.93 billion, the guidance translates into a Revenue range of $9.56 billion to $9.65 billion for the fiscal year that will end in June 2011.  Let's say $9.6 billion.

In the September 2010 quarter, ADP brought in Revenue of $2.23 billion.  This leaves $9.6 billion - $2.23 billion = $7.37 billion for the final nine months of the fiscal year.

December quarters are not typically biggest producers of Revenue for ADP, so we can't simply divide $7.37 billion divided by 3.  Our specific target is $2.36 billion, 32 percent of the nine-month total.

ADP's guidance indicates that pretax operating margin expansion is expected at the company's Employer Services, but margin declines are expected at PEO Services and Dealer Services.  Acquisition costs will put negative pressure on margins.  However, since Employer Services is much bigger than the other units, the company-wide margin may be flat to slightly positive.

In fiscal 2010, the Gross Margin as a percentage of Revenue was 52.1 percent, but it was closer to 50 percent in each of the last two quarters.  Given this information and the seasonal pattern, we are setting our target for the Gross Margin in the December quarter at 51 percent.  When combined with our Revenue estimate, the margin target leads to a forecast for the Cost of Goods Sold -- what ADP calls "Operating Expenses" -- of (1 - 0.51) * $2.36 billion = $1.16 billion. 

Depreciation and amortization expenses have been around $60 million per quarter for nearly three years.  We have no reason to expect a different figure in the December 2010 quarter. 

Research and Development expenses ("Systems Development and Programming Costs") were $135 million in the September 2010 quarter.  We are looking for a similar figure in the current quarter.

Sales, General, and Administrative expenses are more variable.  In the last five fiscal years, the amount per quarter has ranged from $436 million to $697 million.  As a percentage of Revenue, SG&A has varied between 20.7 percent and 32.5 percent.  The percentages have generally been falling from year to year.   Given this data, we are expecting SG&A expenses in the December 2010 quarter will be 24 percent of Revenue, or 0.24 * $2.36 billion =  $566 million.

Rolling up these estimates yields a target for Operating Income, as we define it, of $442 million.  This is 2.4 percent less than Operating Income in the December 2009 quarter.

As for non-operating items (i.e., other income less interest expense), $15 million would seem to be a conservative estimate based on recent history. 

We're assuming the effective Income Tax Rate will match fiscal 2010's 35 percent.  This assumption leads to an estimate for Net Income of $297 million ($0.60 per share, depending on the share count).  In the year-earlier quarter, Net Income from continuing operations was $316 million ($0.62 per share).

Please click here to see a normalized depiction of the projected results next to ADP's quarterly Income Statements for the last couple of years.  Please note that our organization of revenues, expenses, gains, and losses, which we use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.







Full disclosure: Long ADP at time of writing.

PEP: Look Ahead to December 2010 Quarterly Results

This post describes our model of PepsiCo's (NYSE: PEP) Income Statement for fiscal 2010's 16-week fourth quarter, which will end on 25 December 2010.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about PepsiCo and the business environment in which it is currently operating.

PepsiCo, Inc., is a leading global purveyor of beverages and snacks.  The company, which has a market value over $100 billion, is well regarded for good management, steady growth, and significant international exposure. 

Businesses, such as PepsiCo, that sell consumer staples are considered defensive investments because they are relatively less affected by economic slumps.  These firms also tend to pay generous dividends, and this is true for PepsiCo.  The company hiked its annual dividend this year by 7 percent, from $1.80 to $1.92 per share.

While famously locked in a battle with Coca-Cola (NYSE: KO) for the soft-drink market, it is important to recognize the importance of PepsiCo's other product lines.  Frito-Lay North America had Revenue in 2009 of $13.2 billion, which was 30.6 percent of PepsiCo's total revenue.

On 26 February 2010, PepsiCo completed acquisitions of Pepsi Bottling Group, Inc., and PepsiAmericas, Inc., for $7.8 billion in total.  These transactions give PepsiCo, according to statements made during a conference call, "one vertically integrated value chain [for beverages] just like [the] snacks business."  PepsiCo will be "making decisions which benefit the total system without concern as to how the cost and benefits are shared between the brand and bottling operations."

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NOK: Look Ahead to December 2010 Quarterly Results

This post describes our model of Nokia's (NYSE: NOK and HEL:NOK1V) Income Statement for the fourth quarter, which will end on 31 December 2010.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about Nokia and the business environment in which it is currently operating.

A Finnish company with a rich history, Nokia Corporation has been the leading global producer of mobile phones since 1998.  The company also sells the network infrastructure that supports these phones. 

Nokia's sales, earnings, and share price have fallen precipitously in recent years.  Global economic weakness has certainly had a negative effect.  However, the most visible and far-reaching problem has been Nokia's inability to stem the success of Apple's (NASDAQ: AAPL) iPhone, which was introduced in 2007.  Blackberry products sold by Research in Motion (NASDAQ: RIMM) and, more recently, smartphones based on the Android architecture promoted by Google (NASDAQ: GOOG) have also become popular at Nokia's expense. 

Nokia devices have long used the Symbian operating system, but the company is now working with Intel (NASDAQ: INTC) to combine the Maemo and Moblin mobile operating systems into MeeGo.  Maemo is a Linux derivative.

In the latest and most dramatic attempt to regain its competitive position, Nokia replaced its Chief Executive Officer with Mr. Steven Elop, formerly of Microsoft (NASDAQ: MSFT).  One wonders if Mr. Elop will decide Nokia should build devices using Windows Phone software.

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MSFT: Look Ahead to December 2010 Quarterly Results

This post describes our model of Microsoft's (NASDAQ: MSFT) Income Statement for fiscal 2011's second quarter, which will end on 31 December 2010.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

First, we present some background information about Microsoft and the business environment in which it is currently operating.

Microsoft develops and sells the operating system software that runs on more than 90 percent of personal computers.  It also has dominant application software and server software franchises.  In addition, the company provides various online services, such as the Bing search engine and online advertising.  Microsoft also sells video game consoles, entertainment devices, and computer peripherals.

Net Income in fiscal 2010 was $18.8 billion, up nearly 30 percent from the prior year.  Revenue increased 7 percent, from $58.4 billion in 2008 to $62.5 billion.  Microsoft's  10-K for fiscal 2010 states:

Revenue increased mainly due to strong sales of Windows 7, which was released during fiscal year 2010, and PC market improvement. [...]  Diluted earnings per share increased reflecting increased net income and the repurchase of 380 million shares during fiscal year 2010.

Microsoft is included in the Dow Jones Industrial Average and the S&P 500.  For many years, the company's shares have generally traded at a price between $20 and $30, with occasional excursions outside the range.  The company's market capitalization is roughly $235 billion.

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INTC: Look Ahead to December 2010 Quarterly Results

This post describes our model of Intel Corporation's (NASDAQ: INTC) Income Statement for fiscal 2010's fourth quarter, which will end on 25 December 2010.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about Intel and the business environment in which it is currently operating.

Intel is the foremost manufacturer of integrated circuits for computers, servers, hand-held devices, and communication products.  In fiscal 2009, Intel had Net Income of $4.37 billion ($0.77 per share), down 17 percent from $5.29 billion ($0.92 per share) in the previous year.  Revenue slipped 6.5 percent, from $37.6 billion to $35.1 billion.

Intel is included in the Dow Jones Industrial Average and the S&P 500.  It has a market capitalization of about $120 billion.

The company's business is organized around nine product groups.  The two largest groups are PC Client and Data Center.  The PC Client Group sells microprocessors and related products for desktop, notebook, and netbook computers.  It also markets wireless connectivity products.  PC Client was responsible for $26.2 billion of Revenue in 2009, nearly 75 percent of Intel's total Revenue.

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HD: Look Ahead to October 2010 Quarterly Results

This post describes our model of Home Depot's (NYSE: HD) Income Statement for fiscal 2010's third quarter, which will end on 31 October.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about Home Depot and the business environment in which it is currently operating.

The Home Depot, Inc. (NYSE: HD) is the largest retailer of do-it-yourself merchandise, which includes building materials, home improvement supplies, and lawn and garden products.  The company has 2,244 retail stores, of which 88 percent are in U.S. states or territories.  Home Depot also operates in Canada, China, and Mexico.

Home Depot earned nearly $2.7 billion in fiscal 2009, which was nearly 18 percent more than in 2008.  Revenue slipped 7 percent to $66.2 billion.  (Fiscal 2009 ended on 31 January 2010.)

The market value of the company is currently near $50 billion.

A big drop in sales in 2008 affected most retailers, and stores dependent on the housing market were doubly challenged.  Home Depot chose to consolidate operations and reduce capital outlays.  The first step, announced in May 2008, was to relinquish 50 planned stores in the U.S. and to close 15 existing stores.  The second step, taken in January 2009, was to exit the EXPO Design Center and a few other peripheral businesses.  These actions led to asset impairment, severance, and other charges over $1.1 billion.

The U.S. Census Bureau's Monthly Retail Trade Report indicates that sales have been recovering, modestly and somewhat erratically.  The Bureau estimated U.S. retail and food services sales in September were a seasonally adjusted $367.7 billion, up 0.6 percent (±0.5 percent) from August and up 7.3 percent (±0.7 percent) from September 2009.

Persistent high unemployment and the still-fragile housing market in the U.S. remain concerns.  Consumer sentiment was down in one recent report.

Home Depot competes with Lowe's (NYSE: LOW), cooperatives such as Ace and True Value, and a multitude of smaller hardware stores.  These rivals took advantage several years ago of lapses in Home Depot's customer service, which had deteriorated.  Frank Blake, who took over as Chairman and CEO in early 2007, has made improved customer service a high priority.  The company's current investments in technology upgrades are evidence that this effort continues.

Home Depot is also working to reduce inventory costs by streamlining product distribution.  New Rapid Deployment Centers are key elements of this effort.  These regional warehouses receive mass deliveries from manufacturers and dole out the products to 100 or so area stores.  This distribution model is similar in form to Wal-Mart's (NYSE: WMT) exemplar of efficiency.

In early 2007, Home Depot sold HD Supply to a consortium of private equity firms.  Home Depot kept a 12.5 percent stake in HD Supply, which serves professional contractors.  Unfortunately, this investment cost the company $325 million that it subsequently wrote off.  Home Depot also guaranteed $1.0 billion of HD Supply's debt.


Home Depot earned $0.72 per diluted share on a GAAP basis in fiscal 2010's second quarter, which ended on 1 August 2010.  Earnings per share were 8.6 percent more than the $0.66 Home Depot made in the same quarter of 2009.

On a non-GAAP "adjusted" basis, earnings increased from $0.67 to $0.72 per share.  The non-GAAP numbers exclude unusual items, but the most recent quarter had no such gains or losses.


We are now ready to look specifically at Home Depot's third quarter of fiscal 2010.

When Home Depot reported second-quarter results, it updated its guidance for fiscal 2010.

Updated Fiscal 2010 Guidance

Based on its year-to-date performance and expectations for the remainder of the fiscal year, the Company updated its fiscal 2010 guidance and now expects sales to be up approximately 2.6 percent for the year. The Company expects diluted earnings per share from continuing operations as reported to increase by approximately 22.6 percent to $1.90 for the year. This earnings per share guidance includes the benefit of the Company’s year-to-date share repurchases, but excludes the impact of future share repurchases.

During the conference call (transcript available from Seeking Alpha) that followed the earnings announcement, Home Depot made some additional comments about its expectations

we now believe that our expenses for the year will grow at a factor of less than 50% of sales growth.

For the year, we expect our effective tax rate to be approximately 36.5%.

We believe the back half of the year will resemble the first half of the year, which, when backing out the commodity price inflation we experienced in the first half, suggests back-half sales growth in the 2% area.

Within this guidance, we now expect our operating margin to be approximately 8.3% for the year.

Because Net Sales in fiscal 2009 totaled $66.176 billion, the company's updated guidance for fiscal 2010 is (1.026 * $66.176) billion = $67.9 billion.  Revenue in the half of the year was $36.3 billion, which leaves $31.6 billion for the last two quarters.

From results in previous years, we expect that 52.5 percent of the $31.6 billion will be realized in the third quarter.  This suggests a Revenue estimate for the current quarter of 0.525 * $31.6 billion = $16.6 billion.  The estimate is 1.5 percent more than Revenue of $16.36 billion in the October 2009 quarter.

Given the company's results to date this year, we have assumed the third quarter's Gross Margin will be 34.3 percent of Revenue.  Our estimates for Revenue and Gross Margin translate into a forecast for the Cost of Goods Sold of (1-0.343) * $16.6 billion = $10.9 billion.

The estimate for Depreciation and amortization expenses in the current quarter is $410 million.  This item has mostly been between $410 and $430 million per quarter recently.  The trend appears to be downward, so the next reported value could be a little lower.

Sales, General, and Administrative expenses in the two previous October quarters were 23.7 percent and 23.8 percent of Revenue.  Since the company has become a little more efficient, we are using 23.5 percent for the current period.  Using the Revenue estimate, we're targeting the SG&A expense to equal 0.235 * $16.6 billion = $3.9 billion.

Subtracting these operating expenses from Revenue yields an estimate for Operating Income of $1.38 billion in the third quarter, 9.5 percent more than last year.

Our target for interest and other non-operating items is a net expense of $160 million, roughly the same as in recent quarters.

An effective income tax rate of 36.5 percent (as per the guidance) would lead to Net Income of $776 million ($0.47/share) for the quarter.  In the third quarter of 2009, Net income was $689 million ($0.41 per share).


Please click here to see a full-sized, normalized depiction of the projected results next to Home Depot's quarterly Income Statements for the last couple of years.  Please note that our organization of revenues, expenses, gains, and losses, which we use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.






Full disclosure: Long HD and WMT at time of writing.  No position in any other company mentioned.