Arch Coal (ARCH) 18Q1 Results

Arch reported 18Q1 diluted EPS of $3.91, up from $2.75 in 17Q1 and well ahead of the consensus estimate of $2.71.  The gain in earnings came despite a 3.5% decline in revenues to $555.2 million, primarily because of lower expenses and ancillary items, including lower depreciation, an increase in the fair value of coal derivative contracts, lower amortization of acquired sales contract costs and lower selling and administrative expenses, partially offset by lower other operating income. Yet, Arch’s adjusted EBITDA (according to my definition) did improve from $101.7 million to $105.0 million, due entirely to cost management.

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Verizon (VZ) 18Q1 Results

Verizon reported 18Q1 GAAP earnings of $1.22 per share, better than last year’s $1.11.  Non-GAAP adjusted EPS of $1.20 were also up from $1.17 last year.  This year’s GAAP results benefited from a $0.02 gain on a pension adjustment related to the company’s voluntary termination program.  Last year’s results were hurt by $0.02 of acquisition-related costs and $0.04 of charges related to early debt retirement.  The $0.03 improvement in non-GAAP EPS was due to $0.07 in operational improvements partially offset by $0.04 of accounting-related costs from the implementation of new accounting standards on revenue recognition and lease accounting.

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Acme United Corp. (ACU) 18Q1 Results

The company reported diluted EPS of $0.24 per share, up from $0.21 a year ago.  Sales declined 1% to $31.4 million due mostly to a non-repeat of a large order from a distributor who was launching a first aid kit program in last year’s quarter.  On a constant currency basis, sales were flat.

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American Express 18Q1 Results: The Momentum Continues

Earnings of $1.80 per share included a $0.21 charge related to merchant fees litigation.  Excluding that charge, AXP’s 2019 first quarter EPS would have been $2.01, up from $1.86 a year ago and in line with market expectations.  Management reported solid growth in billings across all of its customer segments and geographies. Credit quality remained at “industry-leading” levels.

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Cloud Peak Energy: Valuable Assets But Little Income

On January 29, Cloud Peak Energy (“CPE”) announced that it had hired a team of professionals to help it review its capital structure and formulate restructuring alternatives. That followed its announcement last November that it was pursuing strategic alternatives, including possibly a sale of the company. These steps have been precipitated by the company’s weak financial performance and deteriorating liquidity, which prompted the disclosure in its 2018 annual financial statements of substantial doubt about its ability to continue as a going concern. On March 26, CPE’s shares were delisted from the NYSE because its share price had remained below the minimum $1 threshold for more than 30 consecutive days. (CPE shares now trade in the pink sheets under the symbol “CLDP.”)

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Back of the Envelope: The New Dow Chemical

DowDuPont, the chemical behemoth created in 2017 from the merger of The Dow Chemical Company and E.I. DuPont de Nemours and Company, is set to spin-off Dow Holdings (“New Dow” or DOW) on April 1.  This is the first of two planned steps to create three leading global publicly-traded companies:  New Dow will focus on material sciences; Corteva, which will be spun-off on June 1, on agriculture (seeds and crop protection); and the surviving company (“New DuPont”) on specialty products.

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Senior Housing Properties Trust Nears Restructuring/ Acquisition of Five Star

After reporting a 2018 fourth quarter loss of $23 million, negative EBITDA for the quarter of $12.5 million and a $51 million drawdown on its bank credit facility, it is clear that Five Star, SNH’s largest tenant, must obtain a significant rent concession if it is to continue as an independent company.  Additional asset sales could further delay a restructuring but only temporarily.

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Housing Market Update – February 2019

The outlook for housing (or more precisely, sentiment about the outlook for housing) has improved in recent weeks, primarily because of the decline in mortgage rates.  The average rate on the 30-year mortgage has fallen by 57 basis points (bp) since mid-November from a peak of 4.94% to 4.37% last week (as of Feb. 14), according to Freddie Mac.  That should bring more entry level buyers back into the market during the peak spring selling season which is just now getting underway.  Improving sentiment can be seen in the latest reading of the NAHB/Wells Fargo Housing Market Index, which rose four points in February to 62, better than consensus expectations of 59.  Since consumer confidence remains fairly high, there is a chance that house sales could bounce back sharply, if buyers rush to avoid missing out a second time.

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GE 18Q4 Results: Curb Your Enthusiasm

General Electric (GE) posted 2018 fourth quarter results that were viewed positively by the financial community primarily because there were no new major negative surprises. Although management gave an update on the company’s recent progress and certain aspects of its outlook, it declined to give specific guidance on 2019 earnings. It did not set a date for CEO Larry Culp’s presentation to the financial community. Mr. Culp said that 2019 should be viewed as more about the “how” than the “how much,” suggesting that the investment community should focus more in 2019 on the company’s achievements in addressing organizational, structural and execution issues and less on earnings. This is a clear indication that 2019 will be another “reset” year.

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American Water Works (AWK) 2019 Update

American Water Works Company (AWK) has delivered superior operating, financial and stock price performance over the past eight years. Its 2018 performance did not match the eight year average in either absolute or relative terms. However, management is confident in the company’s ability to achieve EPS growth “at the high end” of its 7%-10% guidance range over the next five years. While that seems like a bold assertion after eight years of superior earnings growth, the stock will likely continue to outperform peers, if management achieves its five-year targets. Outperformance vs. the broader market will depend upon other factors, such as interest rate and economic growth trends.

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