Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday, April 29.
CEO Interview: Sandy Cutler, Eaton (ETN)
"There is more to earnings than geography. What matters is execution." Cramer owns Eaton (ETN) for his charitable trust, mainly because he believes in ETN's ability to execute, primarily through its tried and tested CEO Sandy Cutler. The company made a successful acquisition of Cooper Industries, which gives it more exposure to electricity. Now electrics make up 60% of sales. ETN beat the Street's estimates by 5 cents with revenues that were a bit light. Sandy Cutler described Europe as "molasses" in terms of growth, Asia as somewhat good and the U.S. pretty good. ETN predicts it can grow by 8% this year. Cutler mentioned that sales were up 34% and profits rose 28%. "We are off to a solid start," in a challenging environment, Cutler said. Management has been restructuring and improving efficiency. While some areas are weak, aerospace and electrics should remain strong.
Apple (AAPL), IBM (IBM), Amazon (AMZN), 3M (MMM), AT&T (T), Intel (INTC), Qualcomm (QCOM), Bank of America (BAC), Wells Fargo (WFC), JPMorgan (JPM), Goldman Sachs (GS), Morgan Stanley (MS), General Electric (GE), United Technologies (UTX), UnitedHealth (UNH), Caterpillar (CAT), Starbucks (SBUX), McDonald's (MCD), J.C. Penney (JCP)
The Dow rose 106 points on Monday, with other averages reaching highs. However, many major companies have reported disappointing quarters. For some reason, there is a disconnect between how the indexes are behaving and the performance of large corporations on earnings. One explanation may be that smaller to mid-size companies are performing better than large corporations. In any case, there seems to be confidence that belies declines in individual companies, however important they are.
Apple (AAPL) reported the "benchmark of bad quarters" and has had the most price target cuts and downgrades of any other company so far this earnings season. Apple's decline cost it $250 billion in its gargantuan market cap. Exxon (XOM) has declining growth, is not finding enough oil and is not increasing its dividend sufficiently. IBM (IBM) dropped 10%, which disappointed Cramer, since it is a holding in his charitable trust. IBM's shares have recovered somewhat, but not to pre-earnings levels. Amazon (AMZN) was pummeled, down 20 points. Cramer, however, liked the earnings report in which management discussed expanding gross margins. Nevertheless, the stock shed another $5 since earnings. 3M (MMM) usually has consistent earnings growth, but not this time around. AT&T (T) saw the largest one day decline Cramer remembers ever witnessing for the stock. The decline in wireline does not bode well for a number of small businesses.
It wasn't surprising that Intel (INTC) would miss, but Qualcomm (QCOM) was an "anointed" stock, and is now one of the biggest disappointments in tech. General Electric (GE) suffered from deceleration in Europe and had one of the highest profile earnings misses. Cramer's charitable trust is buying GE on the decline. United Technologies (UTX) is another charitable trust holding that has suffered from European weakness and sequestration. UTX's consistency has been so legendary, that the miss was "breathtaking."
The major banks were disappointing across the board: Bank of America (BAC), JPMorgan (JPM), Wells Fargo (WFC), Goldman Sachs (GS) and Morgan Stanley (MS) have been lackluster. Caterpillar (CAT) missed on multiple metrics and slashed guidance. McDonald's (MCD) and Starbucks (SBUX) seemed to have reported successful quarters, but, on further inspection, McDonald's comps were weak and Starbucks' (SBUX) gross margins were not outstanding in China, although same store sales for SBUX rose 7%. Share prices of both companies seem to be recovering.
Cramer took a call:
J.C. Penney (JCP) is getting some financing, but "earnings matter, not financing." Still, the extra cash can buy JCP time to attempt a comeback. The following holiday season could make or break JCP.
CEO Interview: Chuck Bunch, PPG Industries (PPG)
PPG Industries (PPG) is a chemical company that has re-invented itself after spinning off its commodity chemical segment and focusing on its proprietary coatings. The company is transcending the challenges posed by the difficult macro situation. The stock rose from $132-140 following earnings, and is now trading at $147, but has still only risen 8.6% so far this year. Cramer thinks PPG might have more room to run. The company is combating weakness in Europe through re-structuring and cost cutting. It recently acquired a coatings company that is going to give PPG wider exposure in North America. CEO Chuck Bunch said the first quarter was exceptionally weak in Europe, but he doubts that Europe will continue to be a dramatic headwind. Business is strong in China, particularly since auto sales are up 10%. Bunch noted a recent dividend increase, and says he plans to use extra cash to look for another profitable acquisition. "PPG is in all the right markets," including aerospace, housing and autos. "The stock is not up enough."
CEO Interview: Michael W. Bonney, Cubist Pharmaceuticals (CBST)
Cubist Pharma (CBST) is a "real business with real profits." Its main product, Cubicin, is an antibiotic used to prevent infections acquired in hospitals and makes up 90% of sales. The drug goes off patent in 2018. To offset this, CBST has 2 other antibiotics in its pipeline, each with blockbuster potential. CEO Michael Bonney said that each drug, if approved, could have $1 billion potential. CBST's antibiotics are essential, because hospitals are a "hotbed for the development of resistance" for germs. Of the so-called "superbugs" that are resistant to many antibiotics, most have appeared first in hospitals. The flu season was a drag on CBST's last quarter, because Cubicin does not function as well with "community acquired" flu and pneumonia; "If you have a hospital full of people with flu, Cubicin doesn't work as well." However, Bonney expects a strong remainder of the year.
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