For Immediate Release
Chicago, IL – May 28, 2010 – Zacks.com Analyst Blog features: Costco Wholesale Corporation (COST), BJ’s Wholesale Club Inc. (BJ), Wal-Mart Stores Inc. (WMT), Deere & Co. (DE) and Caterpillar Inc. (CAT).
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Here are highlights from Thursday’s Analyst Blog:
Costco Quarterly Earnings Rise
Costco Wholesale Corporation (COST), a leading U.S. warehouse club operator, recently posted better-than-expected third-quarter 2010 results. The quarterly earnings of 68 cents a share outpaced the Zacks Consensus Estimate of 66 cents, and rose 41.7% from 48 cents in the prior-year quarter.
The quarterly earnings topped the Zacks Consensus Estimate by 3%. With respect to earnings surprises, Costco has performed across a wide range of earnings expectations over the preceding four quarters from a negative 3.7% to a positive 7.8%. Costco has beaten the Zacks Consensus Estimate by an average of 1.1% in the last four quarters.
The double-digit increase in the bottom-line was buoyed by a double-digit rise in improved sales of discretionary items, as consumers started flocking to warehouse clubs. The company’s international operations have been the major driver.
The warehouse retailer said that total revenue, which includes net sales and membership fees, climbed 12.5% to $17,780 million from the prior-year quarter. Net sales jumped 12.3% to $17,385 million, whereas membership fee rose 20.1% to $395 million.
Costco’s comparable-store sales for the quarter rose 10%, reflecting a comparable sales growth of 6% at its U.S. locations and 26% at its international divisions. The results were favorably impacted by rising gasoline prices and a weaker U.S. dollar during the quarter.
Excluding the effects of gasoline prices and a softer dollar, Costco’s comparable-store sales rose 4% with U.S. comparable sales up 3%, while international comparable sales were up 8%.
The Issaquah, Washington-based company’s operating income surged 36.8% to $491 million, whereas operating margin showed a marginal expansion of 50 basis points to 2.8%.
Costco ended the quarter with cash and cash equivalents of $4,413 million, and long-term debt of $2,132 million, reflecting a debt-to-capitalization ratio of 16.3%.
Costco, which faces stiff competition from BJ’s Wholesale Club Inc. (BJ) and Sam’s Club, a division of Wal-Mart Stores Inc. (WMT), currently operates 568 warehouses, including 414 in the United States and Puerto Rico, 78 in Canada, 32 in Mexico, 21 in the United Kingdom, 9 in Japan, 7 in Korea, 6 in Taiwan, and 1 in Australia.
Deere Continues Dividend Hikes
Deere & Co. (DE), in an effort to enhance value for its shareholders, hiked its quarterly dividend by 2 cents to 30 cents. This translates to a 7% increase from the prior dividend of 28 cents. The increased dividend will be paid on August 2, 2010, to stockholders of record on June 30, 2010. This brings the new dividend yield to 2.1%.
The dividend increase does not come as a surprise. During the earnings call on May 19, management had said that it would make use of its cash balance of $3.6 billion toward investments in growth opportunities. Management expressed its intentions to moderately increase and pay steady dividends to its shareholders and also explore the possibilities of share repurchases, once it becomes comfortable with its liquidity position given the external market environment, particularly in the capital markets.
Deere has a consistent track record of paying quarterly dividends, supported by its cash position and its ability to generate healthy cash flow. The current dividend comes after a hiatus of one year. The last dividend hike of 12% to 28 cents was announced on May 28, 2009. The company has increased its dividend payout from 11 cents in 2003 to the current 30 cents in 2010, a total dividend growth of 173% through the years.
Deere’s current annualized dividend yield of 2.14% lags its nearest peer Caterpillar Inc.’s (CAT) annualized dividend yield of 2.84% by a small margin. Deere’s dividend payout ratio of 48.02% is much less than Caterpillar’s 83.71%.
However, Deere is in a cash-rich position compared with Caterpillar. It is armed with cash and cash equivalents of $3.6 billion compared with the latter’s $3.5 billion. Further, Deere commands industry leading net margins, its trailing twelve months’ net margin of 4.31%, surpassing Caterpillar’s 3.85% and the industry margin of 2.62%. We thus believe Deere has ample scope to increase its dividend yield and payout ratio.
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