Andrew Sohn: LMT, YHOO, SFS, UA

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Andrew Sohn, a junior at Columbia University, has started to contribute to Avondale’s company notes database. Below are quotes from some of the calls that Andrew has read this week.

 

 

Lockheed Martin (LMT)

 

Acquiring Sikorsky Aircraft

 

The first strategic action we announced is our signing of a definitive agreement to purchase Sikorsky Aircraft.

 

Potential spinoffs or sales in the near future

 

The second major action is the commencement of a strategic review of our government IT infrastructure services work at Information Systems & Global Solutions and of our technical services work at Missiles and Fire Control. The strategic review will address the changing market dynamics affecting these businesses and will help us determine how to best position them for future growth and is expected to result in a spinoff or sale of the businesses.

 

Sikorsky catered to similar customer base, possible synergies

 

Some of the important strategic benefits of this acquisition are that Sikorsky has familiar customers. This familiarity will assist the integration process through utilization of similar knowledge and interaction with common customers.

 

Macroeconomic factors also helped acquisition of Sikorsky

 

Their strong aftermarket business is also expected to provide a long-term source of earnings to the Corporation and another lever of value creation. The opportunity to access capital in today’s historically low interest rate environment is another significant contributor to the rationale and value creation of the acquisition…Sikorsky footprint in the commercial aviation segment is well-established with the extensive activities supporting the oil and gas industry. While this segment has been under recent pressure due to low oil prices, it is expected to recover in the future and add value to the Corporation. We believe these current pressures enable us to make this acquisition at a low point in the economic cycle.

 

 

 

Adjusting operating profit and EPS guidance

 

On Chart 20 we provide our updated outlook for the year. We are leaving both orders and sales unchanged at this time… We are increasing our segment operating profit by $75 million due to our strong performance through the first half of the year and as a result of our increasing profit, we are also increasing our earnings-per-share guidance by $0.15 to a new outlook of between $11 and $11.30 per share.

 

 

 

Industry has more competition, and customers looking more at prices

 

As you know, there is a lot more competitors that have come into the marketplace and our customers’ priorities are changing and what they’re looking at more – they’re much more price-sensitive and so the elements of our business predominantly will be in the work that we’re doing for civil agencies, IT infrastructure type services.

 

 

Sikorsky offers more leverage through cross-selling

 

I think in particular the international sales market is an interesting one for us where we – through the combination of our portfolios coming in having a discussion about the security needs of our international customers whether it’s F-35 Littoral Combat Ships, now Sikorsky helicopters is a much much more powerful discussion than what I believe the current parent could have in terms of bundling products and services together to go into the international marketplace.

 

 

Yahoo (YHOO)

 

Tailwinds last Q3, not so much this time

 

You may recall, in Q3 of last year, we had a number of beneficial factors that led to a very good quarter. These included the World Cup, new patent license royalties, and some accelerated fees around the Alibaba IPO. As a result, we expect to see some pressure in terms of year-over-year trends in Q3. We expect to be able to continue to show strong top line revenue growth in terms of GAAP, but our revenue ex-TAC and adjusted EBITDA will likely be under pressure year-over-year.

 

Focusing on expanding market share

 

We’re also making important investments for the long term. We are investing heavily to grow market share through both traffic acquisition and marketing. Two examples are our recently announced partnerships with Mozilla and Oracle, both are large search deals that we believe will enhance and stabilize our market share. But they obviously run at a lower margin than our organic traffic.

 

 

Mobile search is important

 

Mobile search is key to Yahoo!’s future. Search is half of our business. Users are more and more transitioning from desktop search to mobile search and we think it is fertile ground for innovation.

 

 

Premuim ads, native pricing, and video pricing drove revenue growth

 

So across more premium ads being sold, native pricing improving, and the enhancement of video pricing being added to the mix, that’s really what drove a lot of that 10%.

 

 

New NFL deal offers new opportunity

 

On the NFL, one, we’re so excited that they chose us. It’s such a new area for them. It’s a great area for us. The fandom of the NFL is just immense, and so we’ve been working very closely with them to understand how the experience should be presented, how we should make it available to our different users, where on our site we should make it available.

 

 

Smart and Final (SFS)

 

 

10% unit growth is the goal

 

In the Smart & Final banner, our goal is 10% unit growth each year. That equates to 20 new stores in 2015 and at the end of the second quarter, we’re right on that pace.

 

 

Extra! In favor of Legacy

 

We also plan to continue our steady pace of Legacy Smart & Final banner store to Extra! store conversions and opportunistic relocations. With more than 50% of the Smart & Final banner stores now in the Extra! format, the fraction of legacy stores will continue to drop each quarter.

 

 

Deflationary pressures larger than expected

 

Generally speaking, deflationary pressures were higher than expected in the second quarter, but it’s important to note that we’re seeing across the board deflation in every category. In fact, in the Smart & Final banner, we tracked 27 sub categories of sales and in the second quarter, we believe that only four of the 27 categories were deflationary, but three of these are key volume categories for us; Cheese, dairy and produce and deflation in the quarter had an overall negative impact on sales growth.

 

Expanding into delivery models

 

One other element in introducing Smart & Final to potential new customers is our test of delivery formats. We’ve pilots in limited geographic areas in both San Francisco and Los Angeles markets. With Google Express for same day and next day delivery and more recently with Instacart, an on-demand delivery model, while our experience is limited, we’re encouraged by the potential of both delivery models to better meet the needs of our customers as well as the potential to attract new customers both households and businesses.

Under Armour (UA)

 

Making strong moves into NBA market

 

To help drive this initiative we’ve recently brought on Terdema Ussery who for the past 18 years has served as President of the NBA’s Dallas Mavericks and has prior industry experience in athletic footwear and apparel. We can speak to this in more depth at our Investor Day meeting at September but we want to be clear today about our intent. This category focus will provide the structure to help us sell more shirts and shoes. This structure has proven successful for us in Golf with the combination of great product; a great asset and a great team helped us double revenues in the past two years.

 

 

Using Connected Fitness platform to expand customer base

 

We can do so because of the strength of our Connected Fitness platform, but we continue to add more than 100,000 unique registered users of a platform every single day. We remained in the early stages of incumbent potential of what the world’s largest digital health and fitness community with now over 140 million athletes can do to help us build consumer engagement and drive healthier lifestyles…Ultimately the more people exercise the more athletic footwear and apparel they will buy. Again we will provide deeper detail on our Connected Fitness opportunities in September at our Investor Day but we’re extremely pleased with the growth of our community and the type of insight we can bring to our consumers lives.

 

Brand imaging is about consistency and long-term commitment

 

And so brands are built on consistency, consistency is built in trust and trust is built in drops and is lost in buckets. And so what you see is we had a great big pouring I think of credibility in the sport of basketball and which Steph brings us on a day to day basis but that’s going to require a lot more investment and it’s going to require a long-term commitment. And so we want to let everybody know particularly our consumer but frankly our competition as well that we are moving in the basketball we’ve been working on this for it’s not an overnight success we’re working on this for years if not decade and we’re incredibly proud of where we’ve gotten to but we’re really just getting started.

 

 

Don’t want to expand through fanbases

 

So we’re now looking at, a) our profitability and it’s been one asset at the time and it’s been things from joining the EPL football with people in places like Tottenham Hotspur and then finding ways to make investments the recent announcement we had with Sao Paulo Football Club down in Brazil it’s not an immediate return for us. I’ve always said I don’t really see us as a licensed jersey manufacturer I don’t like that idea of growing sport by simply selling fan gear, we want to be on the authentic athlete we want to be on the pitch on the court on the field. But there is ways for us to get in and so finding the resource that we can spin off to make an investment in the market is very new for us like Brazil, its’ a big deal. And so we’re — I think we’re very patiently doing that around the globe where we’re finding assets that make sense and especially we can reinforce at markets that we can create an ROI that’s sooner than later.