The Allstate Corporation's Earnings Results: 3 Key Takeaways

The Allstate Corporation (NYSE: ALL  ) , a $27 billion property and insurance company with a focus on home and auto insurance, presented solid third quarter results on Thursday.   The insurance business reported earnings, which beat consensus estimates, delivered another quarter of strong net written premium growth and combined ratios, but also reported higher catastrophe losses that weighed on Allstate's operating income.   1. Earnings beat
Allstate reported operating earnings of $1.39 per share, which beat consensus estimates of $1.33 per share. Allstate's earnings beat follows similarly strong results at The Travelers Companies and The Hartford Financial Services Group, which both reported third quarter earnings beats as well.
Though catastrophe losses affected Allstate's third quarter profitability by $517 million compared against just $128 million in the year ago quarter, Allstate's results nonetheless indicate a strongly performing insurance franchise.   2. Robust premium growth and combined ratios
Probably the biggest takeaway from Allstate's third quarter results was, that the company was affected by catastrophe losses that were four times larger than last year.

Despite that, Allstate was able to achieve a property-liability underwriting gain of $474 million in the most recent quarter. Its combined ratio has slightly improved sequentially to 93.5%, which compares against 97.4% in 2Q 2014 and against 90% in 3Q 2013. Allstate's underlying combined ratio, which adjusts for non-recurring items like catastrophe losses, however, remained in the mid-80% neighborhood with 86.1%.

Source: The Allstate Corporation Third Quarter Results Presentation

Allstate also benefited from premium momentum in the most recent quarter. Allstate's third quarter saw 4.9% premium growth to $7.8 billion in its property-liability business, which added to the positive premium trend Allstate has seen over the course of last year.

3. Capital deployment
Companies often resort to share repurchases to supplement a dividend that's paid to shareholders.   The initiation or increase of a dividend usually signals to investors that a company intends to keep paying regular cash, which is why dividends are viewed as a permanent commitment. Share repurchases, on the other hand, are often supplementing dividend payments, and are mostly opportunistic in nature.   And Allstate remains committed to going full in on delivering value for shareholders via the deployment of both dividends and share buybacks. As Thomas J. Wilson, chairman, president and CEO of The Allstate Corporation, said relating to Allstate's third quarter results:
"Shareholders continued to realize good returns, with an operating income return on equity of 13% and $1.05 billion of dividends and share repurchases in the third quarter."   And that's exactly what shareholders want to hear. Not only did the company perform well with a 13% return on equity, but management is more than willing to share those gains with shareholders. Year-to-date, Allstate returned $2.42 billion to investors, which is some serious cash.

In the most recent quarter, Allstate bought back its own shares for a total consideration of $926 million, and the company is determined to continue to deploy capital for the benefit of shareholders in the future.   Furthermore, Allstate's management is shareholder friendly, funneling substantial amounts of money back to shareholders in both dividends (with a 1.8% yield, according to S&P Capital IQ) and share repurchases. With further premium momentum, solid combined ratios, and a focus on capital deployment, Allstate remains an interesting insurance investment after its latest results release.

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10 Brands of Baby Wipes Recalled for Bacterial Contamination

Paula Showen/Alamy Baby wipes being sold under 10 different brand names have been voluntarily recalled by the manufacturer, Nutek Disposables, according to a Food and Drug Administration press release. The concern is the possible presence of bacteria that could pose problems for people with weakened immune systems or chronic lung disease. Nutek has supposedly received "numerous reports" of complaints, including rashes, irritation, infections, fever, gastro-intestinal issues, and respiratory issues. However, there is no confirmation that the problems were caused by use of the wipes. The affected brand names are Cuties, Diapers.com, Femtex, Fred's, Kidgets, Member's Mark, Simply Right, Sunny Smiles, Tender Touch, and Well Beginnings. Nutek shipped the wipes before Oct. 21, 2014 to Diapers.com, Family Dollar (FDO), Fred's, Sam's Club (WMT), Walgreens (WAG), and various Internet sites and other retailers. Nutek had initially received a "small number" of complaints about discoloration and odor in wipes. Tests showed the presence of bacteria, , in some of the packages. The FDA explains:

B. cepacia poses little medical risk to healthy people. However, people who have certain health problems like weakened immune systems or chronic lung diseases, particularly cystic fibrosis, may be more susceptible to infections with B. cepacia. If you believe you have a weakened immune system or chronic lung disease and you have used one of the affected wipe products, you should call your doctor promptly for medical advice.

On Oct. 3, 2014, the company initiated a voluntary product withdrawal. Then wider reports of problems came in, although there is no confirmation that those issues were due to exposure to contaminated wipes. Nutek has not yet identified the cause of the contamination, and has stopped manufacturing and shipping wipes from the facility involved for the time being. Consumers who purchased products from the affected batches can return them to the place of purchase for a full refund. If you have questions, you can contact the company at 855-646-4351, weekdays from 10 a.m. to 4 p.m. Eastern time. More from Erik Sherman
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Mid-Day Market Update: Pandora Shares Tumble After Q1 Results; Weatherford Spikes Higher

Related BZSUM Mid-Morning Market Update: Markets Open Lower; Ford Profit Misses Street View #PreMarket Primer: Friday, April 25: More Sanctions On Russia Likely

Midway through trading Friday, the Dow traded down 0.79 percent to 16,370.72 while the NASDAQ tumbled 1.43 percent to 4,088.84. The S&P also fell, dropping 0.70 percent to 1,865.40.

Leading and Lagging Sectors
Utilities sector was the only gainer in the US market on Friday. Leading the sector was strength from FirstEnergy (NYSE: FE) and Wisconsin Energy (NYSE: WEC). Technology shares declined around 1.53 percent in Friday's trading.

Top losers in the sector included CommVault Systems (NASDAQ: CVLT), off 28 percent, and Mellanox Technologies (NASDAQ: MLNX), down 13 percent.

Top Headline
Ford Motor Co (NYSE: F) reported a drop in its first-quarter profit. Ford's quarterly profit slipped to $989 million, or $0.24 per share, versus a year-ago profit of $1.61 billion, or $0.40 per share. Its revenue rose to $35.9 billion versus $35.6 billion. However, analysts were projecting earnings of $0.31 per share on revenue of $34.54 billion.

Equities Trading UP
Gigamon (NYSE: GIMO) shares shot up 7.77 percent to $17.33 after the company announced Q1 results. Gigamon reported a Q1 loss of $0.07 per share on revenue of $31.80 million. Needham upgraded the stock from Buy to Strong Buy.

Shares of Weatherford International (NYSE: WFT) got a boost, shooting up 10.02 percent to $20.25 after the company reported upbeat quarterly earnings. Weatherford reported its Q1 earnings of $0.13 per share on revenue of $3.60 billion.

SunPower (NASDAQ: SPWR) shares were also up, gaining 5.15 percent to $33.67 after the company reported stronger-than-expected first-quarter results. SunPower reported its earnings of $0.49 per share on revenue of $683.70 million.

Equities Trading DOWN
Shares of CommVault Systems (NASDAQ: CVLT) were 28.32 percent to $49.16 after the company reported downbeat quarterly revenue. CommVault reported earnings of $0.52 per share on revenue of $156.80 million. However, analysts were expecting a profit of $0.47 per share on revenue of $160.16 million.

Pandora Media (NYSE: P) shares tumbled 13.01 percent to $24.53 on weak Q1 earnings and Q2 outlook. Pandora reported a Q1 loss of $0.13 per share.

Yingli Green Energy Holding Co (NYSE: YGE) was down, falling 14.25 percent to $3.62 after the company priced follow-on public offering of 25 million ADSs at $3.50 per ADS.

Commodities
In commodity news, oil traded down 1.08 percent to $100.84, while gold traded up 0.84 percent to $1,301.50.

Silver traded up 0.01 percent Friday to $19.72, while copper rose 0.05 percent to $3.09.

Eurozone
European shares were lower today.

The Spanish Ibex Index dropped 1.47 percent, while Italy's FTSE MIB Index fell 2.07 percent.

Meanwhile, the German DAX tumbled 1.53 percent and the French CAC 40 fell 0.80 percent while U.K. shares declined 0.38 percent.

Economics
The preliminary reading of Markit Services PMI came in at 54.20 in April, versus economists' expectations for a reading of 55.50.

The final reading of Reuter's/University of Michigan's consumer sentiment index rose to 84.10 in April, versus a prior reading of 82.60. However, economists were expecting a reading of 83.00.

Posted-In: Earnings News Guidance Eurozone Futures Forex Global Econ #s Economics Intraday Update Markets Movers Tech

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Verizon Earnings Preview

The U.S. telecom player Verizon (VZ) is slated to release its third quarter earnings on October 21. Analysts project the wireless player's earnings to rise to $0.92 a share from $0.77 a share reported a year before, delighting its investors. The New York headquartered company is the top U.S. national carrier on the basis of subscriber base, offering communication services in the U.S. Fellow rival AT&T (T) is scheduled to release its earnings the next day of Verizon, i.e., October 22.

What are the expectations that investors can draw from the current quarter earnings release? Can the results make Verizon's share going north of its current price?

Diving into the key metric – Earnings In the past three out of four quarters, Verizon has pleasantly surprised its investors with earnings going north of expectations. In the second quarter of this fiscal year, earnings came in at 1.11% higher than analyst expectation. What remains to be seen is if the company will be able to maintain this positive surprise element this quarter too.

While the earnings estimate of $.092 a share looks quite good when compared with last year, Forbes says that it is down from the consensus estimate of $0.93 a share made initially. However, this is reasonably ahead of AT&T's earnings estimate of $0.64 a share, a plunge of 3% from a year ago comparable period. For the entire fiscal year, analysts predict the Big Red to register $3.54 in earnings.

Top line to keep going steady As far as the top line is concerned, analyst estimate it to hover around $31.58 billion for the quarter, registering a rise of 4% over last year same period when the company recorded $30.28 billion in revenue. For the full year, analysts estimate the mobile provider to book a revenue of about $126.08 billion. Revenue growth should be aided by the company's strong penetration in wireless and wireline services.

Also, Verizon has been able to evolve faster than any of its fellow players in adapting to the changing requirements as data usage gets heavier. The company boasts of an unparalleled 4G LTE network coverage that gives it an edge over competitors including AT&T, Sprint (S) and T-Mobile (TMUS). Its efforts in developing the network infrastructure to cater to its subscribers robust data demand, expanding the FiOS network and solid enterprise strategic services has helped it to attract more and more subscribers opting for its services. Verizon stays pretty active in areas including cloud computing, global IP, security and managed services.

However, there are a few issues that shall slightly mellow down the positive impact. The latest version of Apple's (AAPL) flagship product, the iPhone 6 and iPhone 6 Plus, went on sale in the third quarter. While this looks like a positive trigger pulling up contract subscribers and revenue, it has a negative impact as well. While carriers buy the iPhone at full price, they have to provide subsidies to their customers to lure them into a two-year contract. This is w

Why Is Costco The Best Pick In Retail Sector?

I have always been highly optimistic about the prospects of Costco (COST) as the retailer has been successful in beating the headwinds facing the brick-and-mortar retailers. The weak economy and increasing presence of e-commerce players has hampered the margins of brick-and-mortar stores but Costco has defied these circumstantial factors with a robust membership model and extreme focus on quality and cost of products sold. The evidence of these claims can be easily found in the solid fourth quarter results reported by the company.

Strong earnings

Costco has always had remarkable results by focusing on its revenue, the main reason being that it operates at low margins, and turning stock to cash as fast as possible is the only source to generate better profits. The company's top line surged 9.3% in its fourth quarter to $35.52 billion compared to $32.49 billion in the prior year period. For the full year, it reported revenue of $112.6 billion, narrowly beating the consensus estimate of $112.5 billion, representing 7% growth for the fiscal year. Comp sales increased 6% for the quarter and 4% for the year, considering currency impacts and gasoline price decreases, which reduced the comps by one to two percentage points.

The big box warehouse retailer surprised everyone with its impressive net income for the quarter. Compared to last year, net income increased 13%, pushing earnings per share to $1.58, edging out analysts' estimates by $0.06 per share. For the fiscal year, the company earned $2.06 billion, 1% higher than its last year's earnings before adjusting for a one-time tax benefit. Most importantly membership fees revenue climbed 7% to $768 million for the quarter and $2.43 billion for the full fiscal year. Membership fee hardly accounts for almost 70% of its operating profits. Therefore, this surge in membership fee revenue is a boon to the company. Costco continues to enjoy string renewal rates, rounding up to 91% in the U.S. and Canada, and little over 87% worldwide. New member signups in Q4 overall number a little over 2 million. This was about a 7% increase year over year. This was helped, of course, by strong new signups and a few overseas openings in Australia, Korea and Spain over the past year.

Attracting youngsters

Based on the current results, it is quite clear that the membership model is at the heart of Costco's profitability and hence, the company constantly puts in credible efforts to provide fuel to this area. However, Costco has a potential weakness when it comes to customers and that is its aging customer base. A good chunk of Costco's customer base is the baby boomers, and the company has traditionally located its stores near wealthy suburban communities in the U.S. and Canada. However, the company is now putting efforts into bringing the young customers to its stores and, somehow, appealing to them. The most recent tactic was a LivingSocial deal. For $55 (the regular cost of a membership), people who signed up also got a $20 cash card, a rotisserie chicken, an apple pie and a package of Kirkland Signature toilet paper, plus some other offers. In other words, the LivingSocial deal provided a whole lot of extra value, making the effective cost of the membership close to $0.

Taking on e-commerce

At the onset of this article, I mentioned the advent of e-commerce and how it has encroached the profits of traditional retail chains. As such, big box retailers like Walmart (WMT) and Target (TGT) have already entered the web space in collaboration with the tech companies to get a slice of this pie. Well, Costco is also not lagging in this race as this warehouse-club chain is also moving largely to e-commerce. Last year, Costco's e-commerce sales totaled just under $3 billion: less than 3% of total sales thereby representing a reasonably big growth opportunity for the company. Costco is trying out a few strategies to drive e-commerce growth. One tool is simply expanding to new countries. Costco only operates e-commerce sites in the U.S., U.K., Canada and Mexico today. However, it has warehouses in several other countries, including Japan, South Korea and Australia. Costco plans to add 1-2 countries to its e-commerce operations in the upcoming year.

Again, to give you a big example on this, Costco has already made its way into one of the largest retail markets in the world i.e China, even without opening a single store. The company has opened a store on T-Mall, an online marketplace Chinese e-commerce giant Alibaba (BABA) operates alongside the Taobao bazaar. The store, where consumers can buy Costco baby care goods, beauty items, dietary supplements as well as household products, will mail purchases directly from the U.S. to consumer doorsteps, a process that takes five to 20 days, according to the store website. Though the competitive pressure is quite high in the market yet, the fact that Costco has entered the market is a big win.

Takeaway

Costco's latest earnings demonstrate that the company is a solid long-term investment opportunity due to its steady high single-digit growth rate and consistent profitability. At a time of weakening economic growth and shrinking margins, Costco has proved its tremendous ability and hence, it is the best pick in retail sector.

About the author:Riddhi KharkiaA practicing Chartered Accountant based out of India. I have keen interest in analyzing tech stocks that are driven by value.

Thursday, October 9, 2014 Can Apple Convince Music Labels It's Still Smarter Than They Are? Apple (NASDAQ: AAPL  ) thinks spending $10 per month on a premium music subscription is too much for the average listener. The average music consumer spends only around $60 per year on CDs, vinyl, downloads, and streaming services. What's more, that's been true for the last 15 years when we've seen a huge transformation in the music industry. That's why Apple is talking with record labels to revamp its Beats Music service with a lower price.  When Apple approached record labels at the turn of the century to unbundle the album and sell individual song downloads through the iTunes Store, the labels were quite hesitant. Even with their industry spiraling downward, Apple had to work hard to convince them that digital downloads would ultimately benefit them. Now, in the age of music streaming, Apple is trying again to convince record labels that they're forcing too high of a price for streaming services like Beats Music, Spotify, and Google Play Music All Access. Even Pandora (NYSE: P  ) is forced to charge $5 per month for its Internet radio service in order to make a profit. Can Apple convince them that lowering the price is what's best? Who sets these prices anyway? If Apple thinks $10 a month is too much, why doesn't it just go ahead and lower the price? The company can certainly afford to operate Beats Music near break even or take a loss if it helps promote its other products -- like those that end in "phone." Actually, Apple doesn't set the price. Neither do Spotify or Google or anyone other streaming service. The record labels actually set the minimum price these services are able to charge through their licensing agreements. This makes it practically impossible for a company like Apple to explore the price elasticity of digital music. According to the record labels, there is none -- people either like a song and will pay any price for it, or they don't and they won't. That's a ridiculous notion, though. Look at music piracy -- the very thing the music industry says is a huge problem for them. When music is free, people will grab it even if they have no desire to listen to it. This is what makes quantifying the impact of music piracy so difficult. One album download does not equal one lost album purchase. Is it too big of a risk? Back when Apple was talking with the record labels about the iTunes Store, digital downloads were a minuscule portion of the music industry's revenue. In fact, companies like Nielsen didn't even start tracking digital downloads until a couple months after Apple unveiled iTunes. Today, streaming represents a large chunk of total music listening. Nielsen's mid-year music report showed that over 20% of U.S. album listens (1,500 streams to one album) are from on-demand music streams. Pandora accounts for 8.9% of U.S. radio listening. And IFPI reported that 28 million people around the world paid for music subscriptions as of the end of 2013. Overall, music streaming is a $1.6 billion industry. What's more, those subscription rates continue to climb. In 2011, only 8 million people paid for a music subscription. So, the labels face the risk of missing out on revenue and the chance to determine the absolute size of the market at $10 a month should they concede to Apple. It will be very difficult for the labels to maintain their terms with other streaming services if they give special treatment to Apple. Finding a middle ground There may be room to compromise. Earlier this year, Amazon.com (NASDAQ: AMZN  ) bundled a music streaming service into Amazon Prime. The service features a select catalog of music that's at least six months old. It's also notably missing Universal's catalog, the largest of the big three labels. It's a very limited catalog, but that also means Amazon is able to bundle it with Prime for no additional cost to subscribers. Still, Amazon's limited catalog and subpar user interface seem to have limited its adoption. Apple may be able to work out deals with labels to offer a less expensive on-demand service that features a catalog of older songs. And it could certainly improve upon Amazon's user experience. It could bundle this service with iTunes Radio and iTunes Store to round out its catalog with newer songs that aren't yet available on-demand via such a new service. It could also lead to more easily upselling users from the cheaper service to the full-featured Beats Music for $10 a month -- which is what the labels really want anyway. Apple, with its insider knowledge of digital music consumers, seems to know that charging half the price of current subscription rates will ultimately benefit both the labels and the service providers. It's a tough sell for Apple to make though, considering the risks involved for the labels. Apple Watch revealed: The real winner is inside Apple recently revealed the product of its secret-development "dream team" -- Apple Watch. The secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see where the real money is to be made, just click here! 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