Expedia Beats on Higher Volumes

Expedia's (EXPE) third quarter earnings beat the Zacks Consensus Estimate by 15 cents. Revenue beat by 2.8%.

Revenue

Revenue for the quarter was $852.4 million, up 10.7% sequentially and 2.3% year over year. Acquisitions had a 1.7 pecentage point positive impact on revenue in the last quarter.

Leisure customers remained the largest revenue contributors, generating 86.1% of revenue. Corporate customers (Egencia) generated 3.0%, while TripAdvisor brought in the remaning 10.9%. The three categories increased 11.4%, 0.0% and 83.0%, respectively from the June quarter of 2009. They also increased 2.7%, 0.0% and 67.2%, respectively from the year-ago quarter.

Around 70% of total revenue was generated through the merchant business, another 20% came from agency and roughly 10% from Advertising and Media. The merchant business grew 12.9% sequentially and 1.7% year over year. The agency business grew 6.1% sequentially and 3.6% year over year. Advertising and Media revenue grew 6.4% sequentially and 5.1% year over year.

The relative strength in advertising was due to lower competition in the online advertising market. The sequential and year-over-year increases in other segments are a clear indication of the company exiting the recession.

Hotel and Air, the two main product lines, experienced mixed results. Compared to the year-ago quarter, hotel room nights grew 27.6%, while air tickets sold grew 27.0%. The higher volumes were primarily on account of various promotions, helped by management's decision to waive hotel and ticket booking fees, as well as cancellation fees.

However, the higher volumes in hotels were partially offset by a 14% decline in the average daily rate and a 19% decline in revenue per night, which ultimately resulted in a mere 3% year-over-year increase in hotel revenue. The increase in ticket volumes were more than offset by an 18% decline in airfares and 28% decline in revenue per ticket, resulting in an 8% year-over-year decline in ticket revenue.

By geography, around 61% of third quarter revenue was generated from the domestic market, while 39% came from international sources. The sequential increase in revenue from the domestic and international markets were 5.9% and 19.5%, respectively. The lower growth rate in domestic revenue was on account of a greater impact of fee reductions and promotional offers in the U.S.

Bookings

Gross bookings were $5.9 billion in the last quarter, a sequential increase of 5.2% and a year-over-year increase of 9.3%. Acquisitions had a 3.6% positive impact on gross bookings. The percentage of bookings converted to revenue (revenue margin) was 15.1%.

The total revenue margin was up 141 basis points (bps) sequentially, but down 31 bps year over year. All segments except Egencia saw revenue margins increase sequentially and decline year over year. Egencia revenue margin decreased sequentially and increased year over year.

Operating Results

The pro forma gross margin for the quarter was 80.2%, down 56 bps sequentially and up 145 bps year over year. Despite volume increases, fee waivers and other promotions impacted the gross margin negatively compared to both sequential and year-over-year periods.

The operating expenses of $422.6 million were higher than the previous quarter's $403.7 million. The operating margin was 30.6%, up 230 bps sequentially and 290 bps from the year-ago period. The largest contributor to the sequential increase was the 184 bp decline in selling and marketing expenses (as a percentage of sales).

Lower technology and content expenses (down 84 bps) and general and administrative expenses (down 18 bps) also contributed. These positive changes were partially offset by a 56 bp increase in cost of sales.

On a pro forma basis, EXPE generated a net income of $155.7 million, or an 18.3% net income margin compared to a $145.0 million, or 18.8% in the previous quarter and net income of $125.7 million or 15.1% net income margin in the same quarter last year.

The fully diluted pro forma earnings per share (EPS) was $0.53, compared to $0.50 in the June quarter and $0.43 in the prior-year quarter. Our pro forma estimate excludes restructuring expenses, deferred stock compensation and intangibles amortization charges in the last quarter. Our pro forma calculations may differ from management's presentation due to the inclusion/exclusion of some items that were not considered by management.

On a fully diluted GAAP basis, the company recorded a net income of $117.0 million ($0.40 per share) compared to $40.9 million ($0.14 per share) in the previous quarter and $94.9 million ($0.33 per share) in the prior-year quarter.

Balance Sheet

Cash and short-term investments totaled $887 million at quarter-end, down $22.7 million during the quarter, converting the net cash position to a net debt position of $7.5 million. Including long term liabilities, the debt to total capital ratio was 34.2%. The company used $24.2 million of cash in operations. Day sales outstanding (DSOs) went down from 44 to 39 days.

Management did not provide guidance for the next quarter or for 2009.

Newmont's Profit Picking Up

Gold producing company Newmont Mining Corporation (NEM) recorded a net income of 79 cents per share in the third quarter, beating the Zacks Consensus Estimate of 60 cents. Year on year, earnings grew by a robust 88% on strong gold and copper prices as well as lower costs.

Revenues for the quarter climbed 50% to over $2 billion, driven by a 29% rise in gold sales to $1.6 billion and about a fivefold increase in copper revenues to $396 million. Newmont sold 1.7 billion ounces of gold in the quarter, up 15% year over year. The company sold 141 million pound of copper compared with 44 million pound in the same period of the previous year.

On a regional basis, gold sales were slightly above expectations as higher-than-expected sales at Yanacocha in Peru, Batu Hijau in Indonesia and Australia were partially offset by lower sales in Nevada. However, costs applicable to sales per ounce were lower than expected in Nevada, Australia, Peru and Indonesia, partially offset by higher costs at Ahafo in Ghana and at La Herradura in Mexico. For full year 2009, the company anticipates total gold sales of 5.2 to 5.4 million ounces, at $400 to $440 per ounce. During the third quarter, gold sales at Nevada were 505,000 ounces at costs applicable to sales of $541 per ounce.

Gold sales at Yanacocha in Peru were 285,000 ounces at costs applicable to sales of $294 per ounce. The company increased its 2009 gold sales outlook to 1.0 million - 1.05 million ounces from 0.975 million - 1.02 million ounces estimated earlier at Yanacocha. The company also increased its 2009 outlook for costs applicable to sales to $300 - $320 per ounce from the previous guidance of $290 - $310 per ounce, primarily due to higher royalties and workers' participation costs.

Gold sales during the third quarter in Australia/New Zealand were 289,000 ounces at costs applicable to sales of $526 per ounce. Newmont lowered its sales guidance expectation to 1.4 and 1.5 million ounces from its previous expectation of 1.5 to 1.6 million ounces in Australia/New Zealand, primarily related to lower expected gold sales at Boddington on the back of a delay in start-up. Costs of sales are expected at $500 to $520 per ounce, up from the initial guidance of $460 to $500 per ounce.

Gold and copper sales at Batu Hijau in Indonesia were 93,000 ounces and 64 million pounds, respectively, at costs applicable to sales of $178 per ounce and 50 cents per pound, respectively. Gold and copper sales from this mine are expected at 225,000 ounce to 250,000 ounce and 210 million pounds to 230 million pounds, respectively, in 2009.

Due to an assumed higher gold price than copper, the company lowered its expected costs applicable to sales for gold to be $200 to $220 per ounces from $280 to $320. Gold sales at Ahafo in Ghana were 136,000 ounce at costs applicable to sales of $446 per ounce. At Ahafo, Newmont maintained its gold sales guidance of 500,000 ounces to 525,000 ounces and costs applicable to sales between $425 and $450 per ounce in 2009. For the full year 2009,

Newmont expects gold sales to be about 5.2 million ounces, at the lower end of the previously estimated range due to the extended start-up of Boddington mine. For 2009, Newmont expects gold sales of 1.9 and 2.0 million ounces at Nevada, up from the initial guidance of 1.8 to 2.0 million ounces. The company has narrowed its outlook for 2009 costs applicable to sales to between $400 and $425 per ounce for gold from $535 to $575 per ounce.

For 2010, Newmont expects gold production to improve 5% to 10%, primarily as a result of higher production from Boddington in Australia and Batu Hijau in Indonesia, partially offset by lower production in Nevada and Yanacocha in Peru. The company also expects 2010 costs applicable to sales to be modestly higher by about 5%, partially as a function of higher expected energy costs and adverse changes in exchange rates.

We maintain our Neutral recommendation on the stock.

FTE Hurt by Economy & FX

French telecom giant France Telecom (FTE) has reported operating results for third-quarter 2009 with revenue falling 6.4% year over year to €12.69 billion (US$18.1 billion), primarily due to unfavorable exchange rate fluctuations (British pound versus Polish zloty) and reduced mobile termination rates (inter-operator fees). Revenue was also hurt by the recession-driven discontinuation of landline phone use by customers.?? ???

EBITDA & Margin

France Telecom, which operates two of the leading telecom brands in Europe (Orange and Wanadoo), reported EBITDA of €4.6 billion (US$6.6 billion) which declined 8% from the year-ago quarter, resulting in a fall in EBITDA margin to 35.9% from 36.6%. This decline is a result of stringent price regulation and adverse currency exchange swings.

Revenue by Key Markets

Reported revenue in France (46% of group sales), the company's largest market, declined 1.6% year over year to €5.9 billion (US$8.4 billion) largely due to a decline in legacy fixed-line business, partly offset by growth in wireless and data services.

The company's second largest market, UK posted 15% year over year decline in revenue to €1.3 billion (US$1.9 billion) as a result of beleaguered economic conditions and regulatory pressure. The company's UK operation (Orange UK) remains challenged by the cutthroat price competition as bigger rivals such as Telefonica's (TEF) O2 UK and Vodafone (VOD) continue to boost their respective market share. Revenue in Spain and Poland fell by 4.7% and 29.3%, respectively.

Subscriber Trends

At the end of the quarter the company had 189.1 million subscribers across its vast operating territories, a 6.6% year over year increase, equating to 11.7 million net additions. Total cellular customer base grew 9.5% year over year to 128.8 million. Wireless subscriber accretion in the third quarter was healthy with 3.3 million net additions.

The company's European subscriber base increased 35.5% year over year to 3.8 million (including 2.1 million in France). Momentum for ADSL broadband Internet also remains strong with 6% year over year growth in total customer base to reach 13.4 million at the end of the quarter.

Broadband usage was healthy as the Digital TV subscriber base increased 67% year over year to 2.9 million, while the VoIP customer base increased 22% to 7.3 million. ?

Outlook & Action Plans

France Telecom has reaffirmed its expectation of generating stable cash flow at the 2008 level of €8 billion (US$11.4 billion). Capital expenditure as a proportion of revenues is forecasted to be less than 12% in 2009 and the company is expected to spend more in the fourth-quarter. Revenue is expected to remain pressured due to economic and regulatory factors.

The company remains firm in its aggressive cost cutting initiatives as it aims to prevent EBITDA margin from further declines and to cope with the tighter regulatory environment.?

France Telecom plans to retain its dividend policy with a distribution rate of 45% or more of organic cash flow while maintaining a healthy liquidity position. The company will continue its debt reduction policy as it targets to achieve a net debt to EBITDA ratio of less than 2. Moreover, France Telecom will continue to pursue acquisitions in high-growth markets.

To strengthen its foothold in the UK's wireless market, France Telecom is merging its Orange UK operation with Deutsche Telekom's (DT) subsidiary T-Mobile UK (fourth-largest mobile carrier in the UK) under a 50-50 joint venture. The combined entity would dethrone O2 UK as the largest wireless operator in the UK with roughly 37% market share. Orange UK is currently the third-largest operator in the British mobile market with roughly 21% share.

Orange UK also has won the rights to market Apple Inc's (AAPL) iPhone (3G and 3GS) in the UK. iPhone represents a significant opportunity for the company to further bolster its presence in the UK's mobile market by attracting new high-end subscribers.

France Telecom recently postponed all corporate restructuring initiatives until at least the end of 2009. The company is increasingly under pressure following a series of suicides by its employees, believed to be the result of continuous workforce restructuring. France Telecom recently revealed its plan to earmark €1 billion (US$1.5 billion) on account of a part-time job scheme to mitigate stress among its French workforce.

Note: France Telecom does not disclose net profit figure at the first-quarter and third-quarter stages.

First Solar on the Right Track

First Solar Inc. (FSLR) swept past Zacks Consensus earning per share (EPS) estimate of $1.73 by 6 cents to $1.79 in the third quarter of fiscal 2009. However, it rose 59 cents over the year-ago figure of $1.20 in the third quarter of fiscal 2008.

First Solar's revenues rose to $480.9 million in the reported quarter from $348.7 million in the year-ago quarter. However it came a cropper when compared to the previous quarter revenue of $525.9 million. The downside was due to increased module shipments to Sarnia project, the reduction in pricing driven by the rebate program and the lower blend of foreign exchange rate of approximately $11 million.

Gross margin in the reported quarter fell 5.8 percentage points from the prior quarter to 50.9%. The downside was mainly due to rebates allowed to customers, a change in customer mix and foreign exchange rates. Net income for the reported quarter fell to $153.3 million from $180.6 million in the previous quarter and up from $99.3 million in the year-ago quarter.

First Solar reported $179 million in cash from operating activities in the reported quarter, besides free cash flow of $114 million. The company reported $364.8 million of cash and cash equivalents at the end of the reported quarter from $716.2 million at year-end fiscal 2008. Long term debt remained unchanged at slightly above $163 million as compared to year-end fiscal 2008. However the company was able to improve upon its debt-to-equity ratio from 10% to 8%.

First Solar now expects its revenue for fiscal 2009 to be in the upper end of the range of the guidance range of $1.975 billion – $2.025 billion. We maintain our market Neutral recommendation on the shares.

Chevron Tops on Plunging Earnings

Chevron Corporation (CVX) posted significantly better-than-expected third-quarter 2009 earnings, driven by robust upstream volumes and cost cutting initiatives. Earnings per share (excluding gains from asset sales and tax items, as well as foreign-currency effects), came in at $1.80, well above the Zacks Consensus Estimate of $1.42.

However, compared to the third quarter of 2008, Chevron's adjusted earnings per share plunged 51.5% (from $3.71 to $1.80), while revenue declined 40.9% to $46.6 billion, reflecting lower commodity prices and weak refining environment.

Upstream Earnings Plummet: Increased Volumes Offset by Lower Prices

Chevron's total production of crude oil and natural gas increased 10.6% from the year-earlier level to 2.7 million oil-equivalent barrels per day (MMBOE/d), driven by new project start-ups, together with the restoration of Gulf of Mexico volumes that were offline in September 2008 due to hurricanes.

Partly offsetting these positives were factors such as the effect of civil unrest in Nigeria. U.S. volumes rose more than 15%, while Chevron's international operations experienced an approximately 9% rise in output.

Gains on the production front were offset by lower realized oil and natural gas prices, resulting in a roughly 41% year-over-year drop in upstream earnings to $3.6 billion.

Production Outlook Remain Strong

Chevron's production outlook remains one of the most robust in its peer group, with a number of major deepwater projects scheduled to come online later this year. Major start-ups during the last few months include Tahiti in the Gulf of Mexico, Frade offshore Brazil and Tombua-Landana in Angola.

Downstream Segment Affected by Weak Refining Margins

Chevron's downstream segment earned $194 million during the quarter, a steep fall from $1.8 billion in the previous-year period. Demand for refined products continued to remain depressed in the face of plentiful supply, resulting in weak margins on the sale of gasoline and other refined products.

The results were also affected by decreased refinery crude-input in the company's U.S. operations, primarily due to the planned shutdown at the facility in Richmond, California.

Chemicals

Earnings in the chemicals business increased 134.3% year-over-year to $164 million, reflecting higher margins on the sale of lubricant and fuel additives in tandem with lower utility costs.

Capital Expenditure & Balance Sheet

Chevron spent $4.6 billion in capital expenditures during the quarter, down from last year's 5.5 billion. Approximately 73% of the total outlays pertained to upstream projects.