Nokia's Reduced Expectations

Nokia (NYSE: NOK and HEL:NOK1V) warned on 16 June 2010 that its Devices and Services (D&S) unit, which is the company's most important business, would have lower sales and profits than it had forecast in April after the first quarter of 2010.  Nokia blamed the shortfall on competition, the product mix, and the Euro's (€) depreciation.

This post shows how Nokia's latest announcement changes our model of the company's Income Statement for 2010's second quarter, which will end on 30 June 2010.  The model was described in detail in our Look Ahead to Nokia's June 2010 Quarterly Results, posted 3 June 2010.


Instead of expecting D&S net sales between €6.7 billion and €7.2 billion in the second quarter, Nokia now projects sales "at the lower end of, or slightly below" this range.  We had assumed the midpoint of the range when calculating a €10.4 billion estimate for the company's overall Revenue for the second quarter.  The change in guidance justifies a €300 million reduction in the Revenue estimate, to €10.1 billion. 

With lower revenue, Nokia won't need to spend as much on the parts and assemblies that make up its products.  However, the reduction in the Cost of Goods Sold won't be as great as the Revenue decline because Nokia reported that its margins have been lower than expected. 

Nokia's earlier forecast for the D&S non-IFRS operating margin was 9 to 12 percent.  When combined with the original revenue guidance, it established an expectation for non-IFRS D&S operating expenses of roughly (1 - 0.105) * €6.95 billion = €6.22 billion.

Nokia now believes the margin will be "at the lower end of, or slightly below" the 9-to-12 percent range.  This changes the non-IFRS D&S operating expenses expectation to about (1 - 0.09) * €6.7 billion = €6.10 billion. 

Although we have reduced the Revenue estimate by €300 million, we're only projecting a €100 million reduction in the Cost of Goods Sold, from €7.05 billion to €6.95 billion.

These changes reduce our estimate of Nokia's second-quarter Net Income from €429 million (€0.12/share) to €269 million (€0.07/share).

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COP: Look Ahead to June 2010 Quarterly Results

This post describes our model of ConocoPhillips's (NYSE: COP) Income Statement for the second quarter of 2010, which will end on 30 June.

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 market capitalization of ConocoPhillips is now around $80 billion. 

It has business interests around the world.

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).  In 2004, ConocoPhillips began investing in Lukoil (OTC: LUKOY), which is now responsible for 18% of total Russian oil production. 

In 2009, ConocoPhillips earned $4.86 billion ($3.24 per share) on revenue of $152.8 billion.  In 2008, the roller-coaster rise and fall of crude oil prices resulted in record-high annual revenue of $246.2 billion.  However, charges slashing the carrying value of intangible assets and investments by $33 billion led to a $17 billion loss in 2009.

Investing guru Warren Buffett, of Berkshire Hathaway (NYSE: BRK.A), characterized the purchase of ConocoPhillips shares, when energy prices were soaring, as his biggest mistake in 2008.  Berkshire still owned 33 million shares on 31 March 2010.

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PG: Look Ahead to June 2010 Quarterly Results

This post describes our model of Procter & Gamble's (NYSE: PG) Income Statement for the fourth quarter of fiscal 2010, which will end on 30 June 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 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 the first three quarters of fiscal 2010, the Household Care GBU generated nearly half of P&G's net sales and earnings.

The company's most-valuable brands, which are responsible for the lion's share of sales and profits, include Always, Ariel, Bounty, Charmin, Crest, Dawn, Downey, Duracel, Fusion, Gain, Gillette, Head and Shoulders, IAMS, Mach3, Olay, Oral B, Pampers, Pantene, Pringles, Tide, and Wella. 

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ADP: Look Ahead to June 2010 Quarterly Results

This post describes our model of Automatic Data Processing's (NASDAQ: ADP) Income Statement for the fourth quarter of fiscal 2010, which will end on 30 June 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 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 more than 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 of U.S. companies with a AAA bond rating.  It is also an S&P 500 Dividend Aristocrat, having hiked its dividend for 35 consecutive years.

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

ADP earned $1.3 billion on revenue of $8.9 billion in fiscal 2009, which ended June 2009.  It has a market capitalization of about $20 billion.

The company, according to its latest 10-K, 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 dealers of vehicles and machinery manage their business activities.

The Employer Services business segment contributed nearly three-quarters of the total revenue in fiscal 2000.  Competitors include Paychex (NASDAQ:PAYX), the now-private Ceridian, and India's Wipro (NYSE: WIT).

As a payroll processor, ADP is sensitive to changes in Employment.  From the payroll data it collects, the company issues the monthly ADP National Employment Report on non-farm private employment.

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

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WMT: Financial Gauge Analysis for the April 2010 Quarter

Wal-Mart Stores (NYSE: WMT) earned $0.88 per diluted share on a GAAP basis in fiscal 2011's first quarter, which ended on 30 April 2010.  Earnings per share were 14 percent more than the $0.77 Walmart made in the same quarter last year.

In our earlier review of Walmart's Income Statement, we compared the actual results to our "look-ahead" estimates.  Reported earnings were $0.02 better than the $0.86 per share we had forecast.

We have now updated the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value for Walmart.  This post reports on the metrics and the associated financial gauge scores.  The metrics were calculated using data from Walmart's current and historical financial statements, including the latest 10-Q report.

A retailing behemoth, Wal-Mart Stores, Inc., earned $14 billion on net sales of more than $400 billion in the fiscal year that concluded January 2010.  Walmart regained from Exxon Mobil (NYSE: XOM) the top position on the Fortune 500 list of America's largest corporations.   Additional background information about Walmart and the business environment in which it is currently operating can be found in the look-ahead.

In summary, Walmart's latest quarterly results produced the following changes to the gauge scores:

• Cash Management: 13 of 25 (up from 12 in January)
• Growth: 7 of 25 (unchanged)
• Profitability: 10 of 25 (down from 11)
• Value: 7 of 25 (down from 9)

• Overall: 36 of 100 (down from 39)

The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.  Readers are encouraged to verify these figures and calculate others as they see fit using the filings available at the SEC's web site and elsewhere.

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PEP: Look Ahead to June 2010 Quarterly Results

This post describes our model of PepsiCo's (NYSE: PEP) Income Statement for fiscal 2010's 12-week second quarter, which will end on 12 June 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.

The model for the second quarter is particularly uncertain because of PepsiCo's recent acquisitions of its two largest bottlers.

First, we present some 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 is well regarded for good management, steady growth, and significant international exposure. 

Food and Beverage companies can be considered defensive investments because they are relatively less affected by economic slumps.

On 26 February 2010, PepsiCo completed acquisitions for $7.8 billion of Pepsi Bottling Group, Inc., and PepsiAmericas, Inc.  These simultaneous deals made PepsiCo one of largest consumer staple firms in the U.S.  The company's market capitalization is now around $100 billion.

PepsiCo then hiked its annual dividend by 7 percent, from $1.80 to $1.92 per share.

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HD: Financial Gauge Analysis for the April 2010 Quarter

Home Depot (NYSE: HD) earned $0.43 per diluted share on a GAAP basis in fiscal 2010's first quarter, which ended on 2 May 2010.  Reported earnings were 41 percent more than the $0.30 Home Depot made in the same quarter last year.

Non-GAAP "adjusted" earnings, which exclude various charges and discontinued operations, increased from $0.35 to $0.45 per share, a rise of 29 percent.

In our earlier review of Home Depot's Income Statement, we compared the actual results to our "look-ahead" estimates.  Reported earnings were $0.04 better than the $0.39 per share we had forecast.


We have now updated the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value for Home Depot.  This post reports on the metrics and the associated financial gauge scores.  The metrics were calculated using data from Home Depot's current and historical financial statements, including the latest 10-Q report.

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 operated 2,244 retail stores at last count, of which 1,976 (88 percent) were in U.S. states or territories.  Home Depot competes with Lowe's (NYSE: LOW), cooperatives such as Ace and True Value, and a multitude of smaller hardware stores.  Additional background information about Home Depot and the business environment in which it is currently operating can be found in the look-ahead.

In summary, Home Depot's latest quarterly results produced the following changes to the gauge scores:

• Cash Management: 7 of 25 (unchanged from January)
• Growth: 8 of 25 (up from 5)
• Profitability: 12 of 25 (up from 11)
• Value:  0 of 25 (unchanged)

• Overall: 22 of 100 (up from 21)

The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.  Readers are encouraged to verify these figures and calculate others as they see fit using the filings available at the SEC's web site and elsewhere.  Caution is suggested when comparing Home Depot's results before and after the company's restructuring in 2007.

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MSFT: Look Ahead to June 2010 Quarterly Results

This post describes our model of Microsoft's (NASDAQ: MSFT) Income Statement for fiscal 2010's fourth quarter, which will end on 30 June.

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 2009 was $14.6 billion, down 17.6 percent from fiscal 2008.  Revenue slipped 3.3 percent in 2009, from $60.4 billion in 2008 to $58.4 billion.  Microsoft's 10-K for fiscal 2009 notes that the "unfavorable global economic environment" caused "consumers and businesses [to] cut back on spending, which reduced PC shipments and IT investments."

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 now roughly $225 billion.

The company is organized into five operating segments: Client, Server and Tools, Online Services Business, Microsoft Business Division, and Entertainment and Devices Division.  The Business Division contributed the most Revenue ($18.9 billion) and led the way in Operating Income ($11.9 billion) in 2009.  Online Services lost $2.4 billion and Entertainment and Devices essentially broke even.

Microsoft is poised to reap handsome profits from the launch in October 2009 of Windows 7, which is the latest version of its desktop operating system, and from the 15 June 2010 release of Office 2010.  The company hopes to sell 270 million Windows 7 licenses in 2010. 

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TDW: Financial Gauge Analysis for the March 2010 Quarter

Tidewater (NYSE: TDW) earned $1.10 per diluted share on a GAAP basis in fiscal 2010's fourth quarter, which ended 31 March.  Earnings per share were 48 percent less than the $2.13 Tidewater made in the same quarter of 2009.

In our earlier review of Tidewater's Income Statement, we compared the actual results to our "look-ahead" estimates.  Reported earnings were $0.02 more than the $1.08 per share we had forecast.

We have now updated the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value for Tidewater.  This post reports on the metrics and the associated financial gauge scores.  The metrics were calculated using data from Tidewater's current and historical financial statements, including the latest formal 10-K report.


Tidewater, Inc., owns the world's largest fleet of vessels serving the global offshore energy industry.  Headquartered in New Orleans for more than 50 years, Tidewater first serviced drillers in the Gulf of Mexico. 

The company still works in its home region, and a Tidewater vessel was on the scene at the Deepwater Horizon when the rig failed tragically.  However, the lion's share of Tidewater's business has been outside the U.S. for many years.  International operations were responsible for 92 percent of the company's vessel revenue in fiscal 2010.

Additional background information about Tidewater can be found in the look-ahead.

In summary, Tidewater's latest quarterly results produced the following changes to the GCFR gauge scores:

• Cash Management: 9 of 25 (down from 10 in December)
• Growth: 0 of 25 (down from 1)
• Profitability: 4 of 25 (down from 6)
• Value: 2 of 25 (down from 9)

• Overall: 15 of 100 (down from 29)

The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.  Readers are encouraged to verify these figures and calculate others as they see fit using the filings available at the SEC's web site and elsewhere.

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NOK: Look Ahead to June 2010 Quarterly Results

This post describes our model of Nokia's (NYSE: NOK and HEL:NOK1V) Income Statement for the quarter that will end on 30 June 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 financial statements conform to International Financial Reporting Standards.  Amounts are expressed in Euros (€).

The profit attributable to Nokia shareholders fell to €891 million in 2009, from €4.0 billion in 2008 and €7.2 billion in 2007.  Net Sales dropped 19 percent, from €50.7 billion in 2008 to €41.0 billion in 2009.

Nokia blamed its diminished performance in 2009 on "deteriorated global economic conditions, including weaker consumer and corporate spending, constrained credit availability and currency market volatility."  The company did observe an improved environment in the second part of the year.

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NVDA: FInancial Gauge Analysis for the April 2010 Quarter

NVIDIA (NASDAQ: NVDA) earned $0.23 per diluted share on a GAAP basis in fiscal 2011's first quarter, which ended on 2 May 2010.  The company reported a net loss of $0.37 per share in the comparable quarter of the previous year.

In our earlier review of NVIDIA's Income Statement, we compared the actual results to our "look-ahead" estimates.  Reported earnings were $0.02 per share better than the $0.21 per share we had forecast.

We have now updated the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value for NVIDIA.  This post reports on the metrics and the associated financial gauge scores.  The metrics were calculated using data from NVIDIA's current and historical financial statements, including the latest 10-Q report.


NVIDIA creates powerful Graphics Processing Units that rapidly perform the huge numbers of calculations required to produce hyper-realistic images for computers and video games.  Additional background information about NVIDIA and the business environment in which it is currently operating can be found in the look-ahead.

In summary, NVIDIA's latest quarterly results produced the following changes to the GCFR gauge scores:

• Cash Management: 18 of 25 (down from 19 in January)
• Growth: 20 of 25 (up from 6)
• Profitability: 22 of 25 (up from 12)
• Value: 3 of 25 (down from 4)

• Overall: 53 of 100 (up from 39)

The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.  Readers are encouraged to verify these figures and calculate others as they see fit using the filings available at the SEC's web site and elsewhere.

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INTC: Look Ahead to June 2010 Quarterly Results

This post describes our model of Intel Corporation's (NASDAQ: INTC) Income Statement for the quarter that will end on 26 June 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.

According to Intel's last 10-K, Hewlett Packard (NYSE: HPQ) and Dell (NASDAQ: DELL) accounted for 21 percent and 17 percent, respectively, of Intel's net revenue in 2009.

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

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