The Zacks Analyst Blog Highlights: Visa, MasterCard, Washington Post, The New York Times and Kraft Foods

News provided by

May 09, 2011, 09:30 ET

CHICAGO, May 9, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Visa Inc. (NYSE: V), MasterCard Inc. (NYSE: MA), Washington Post Company (NYSE: WPO), The New York Times Company (NYSE: NYT) and Kraft Foods Inc. (NYSE: KFT).

(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Friday's Analyst Blog:

Visa Gains Big Year Over Year

Visa Inc.'s (NYSE: V) fiscal second quarter 2011 (ended March 31, 2011) operating earnings of $1.23 per Class A common share were three pennies ahead of the Zacks Consensus Estimate of $1.20 per share, but substantially exceeded 96 cents reported in the year-ago quarter on lower share count.

Visa's GAAP net income for the quarter came in at $881 million, increasing 23.6% from $713 million in the year-ago quarter. Operating income climbed 23.3% year over year to $1.38 billion. Meanwhile, total GAAP operating expenses jumped 3.0% year over year to $862 million, in the reported quarter.

Total operating revenues for the reported quarter were $2.25 billion, up 14.6% from $1.96 billion in the year-ago quarter and slightly higher than the Zacks Consensus Estimate of $2.23 billion. While growth was driven by strong performance across segments, currency fluctuations contributed a positive 2% to the top line.

Service revenues increased dramatically by 23.5% year over year to $1.09 billion and are recognized based on payments volume in the prior quarter. All other revenue categories are recognized based on current quarter activity.

Data processing revenues grew 13.0% over the prior-year period to $823 million. International transaction revenues, which are driven by cross-border payments volume, climbed 14.5% over the prior-year quarter to $624 million. Other revenues, earned through Visa Europe's licensing fee, were $156 million, declining 9.8% over the year-ago quarter. Client incentives, which are a contra-revenue item, were $451 million, representing 20% of gross revenues.

On a constant dollar basis, payments volume increased 13% year over year to $861 billion. Total processed transactions carrying the Visa brand increased 13% year over year to 12.0 billion. Cross border volume, on a constant dollar basis, grew 13% year over year.

As of March 31, 2011, cash and equivalents, restricted cash and available-for-sale investment securities were $6.6 billion, up from $5.9 billion as of September 30, 2010, including $3.0 billion of restricted cash for litigation escrow.

Long-term debt reduced to $25 billion from $32 billion at the end of September 2010. Total shareholders' equity was recorded at $26.2 billion, up from $25.0 billion as of September 30, 2010.

Visa's operating cash flow improved dramatically to $1.61 billion from $580 million as of March 31, 2010.

Guidance

Visa reiterated its projections for fiscal 2011, anticipating annual net revenue growth in the range of 11%-15%; annual operating margin of about 60%; GAAP tax rate of 36.5%-37.0% and capital expenditures of $250-$275 million.

Further, the company re-affirmed its client incentives within the range of 16.0%-16.5% of gross revenue; advertising, marketing and promotional expenses to be less than $900 million; annual earnings per share growth to surpass 20% and annual free cash flow to exceed $3 billion in fiscal 2011.

Our Take

Visa continues to drive growth through increased payment volumes along with consistent growth in processed transactions. The company benefits from strong secular demand growth, meaningful international exposure, high barriers to entry, excellent pricing power and impressive operating leverage.

Although regulatory compliances as a result of the ongoing financial overhaul in the U.S. and litigation are expected to weigh on the financials of the company in fiscal 2011 and ahead, Visa aims to retain its strength by exploring newer growth avenues that include mobile, eCommerce and money transfer services. The company is also generating strong cash flow and maintains a healthy capital position.

Meanwhile, Visa's prime peer, MasterCard Inc. (NYSE: MA) reported its first quarter earnings on Tuesday, with operating earnings per share of $4.29 that were significantly ahead of the Zacks Consensus Estimate of $4.10 and $3.46 in the year-ago quarter.

Washington Post Misses Estimate

The Washington Post Company (NYSE: WPO) recently posted first-quarter 2011 results. The quarterly earnings of $4.31 per share showed a substantial decrease from $5.58 delivered in the prior-year quarter due to sluggishness witnessed in the students' enrollment and weak advertising demand.

The quarterly earnings also missed the Zacks Consensus Earnings Estimate of $4.35 per share.

On a reported basis, including one-time items, quarterly earnings came in at $1.87 per share, reflecting a sharp decline from $4.91 posted in the year-ago quarter.

Revenue for the quarter dropped 7.0% to $1,063.6 million from the prior-year quarter, reflecting sluggish performance in the Education and Television Broadcasting division. However, the quarterly revenue came in line with Zacks Consensus Revenue Estimate.

Education division's revenue went down 10.0% to $640.6 million, reflecting 18.0% decrease in Higher Education revenue partially offset by an 11.0% rise in Kaplan International revenue and 7.0% rise in Kaplan Ventures revenue. Total operating income for the division plunged 73.0% to $15.5 million.

Due to lower student enrollments total Kaplan Higher Education enrollments plunged 23.0% to 92,293 as of March 31, 2011.

Moving ahead, the company expects the operating income in Higher Education segment to continue to decline significantly in the current fiscal due to lingering lower student enrollments.

Kaplan Higher Education recently launched a new program called 'Kaplan Commitment', under which the students of Kaplan University, KaplanCollege and other Kaplan Higher Education schools may register to undergo classes to evaluate whether their educational experience commensurate with their needs before incurring a financial obligation. Kaplan will also carry out academic evaluation in order to gauge the probability of the student's success in the chosen field of study.

The company also notified that those students who wish to withdraw from the program during the stipulated period, defined as risk-free period, and students who do not clear the academic assessments will not be required to pay for the coursework.

New student enrollments dropped 48.0% during the quarter, negatively impacted by number of students that chose to discontinue after the risk-free period along with sluggish demand.

Television Broadcasting revenue inched down 2.0% to $72.2 million during the quarter, whereas operating income decreased 6.0% to $19.6 million, reflecting a significant decline in advertising demand. Additionally, Political advertising revenue also went down $1.8 million during the quarter.

Cable division revenue saw a marginal increase of 0.5% to $190.3 million from $189.4 million in the year-ago quarter, reflecting revenue growth in the cable modem and telephone offset by the rise in promotional money offs. The division's operating income was $37.7 million, down 11.0% compared with the previous-year quarter.

Newspaper Publishing revenue came in at $155.0 million, marginally down from $155.8 million in the year-ago quarter. Print advertising revenue at The Washington Post declined 8.0% to $63.2 million, reflecting a fall in classified and retail advertising.

Revenue from newspaper online publishing activities, principally washingtonpost.com and Slate, jumped 8.0% to $25.7 million, whereas display online advertising revenue rose 9.0%. Online classified advertising revenue on washingtonpost.com climbed 6.0%.

During the reported quarter, the company marked a 2.9% decrease in daily circulation coupled with a 3.4% decrease in its Sunday circulation year over year.

The Newspaper divisions operating loss stood at $12.8 million, reflecting a slight improvement from an operating loss of $13.8 million witnessed in the prior-year quarter.

Currently we maintain our long-term Neutral recommendation on the stock. Moreover, The Washington Post which faces stiff competition from The New York Times Company (NYSE: NYT) holds a Zacks #3 Rank, which translates into a short-term Hold rating.

Kraft Foods Beats Estimate

Kraft Foods Inc. (NYSE: KFT) posted first quarter 2011 operating EPS of 52 cents a share, which was well above the Zacks Consensus Estimate of 47 cents by 10.6%.

Management credited the benefits of increased investments behind the Power Brands, strong productivity and disciplined cash management. Also the company is said to have been making good progress in capturing the synergies from the Cadbury acquisition.

Highlights From The Quarter & Year

Revenues in the quarter soared 11.1% to $12.5 billion, while organic growth was 4.6% driven by strong top-line growth in all regions. Pricing accounted for 3.7 percentage points of growth and volume and mix contributed 0.9 percentage points. However, Easter-related shipments partially offset the growth by 1.5 percentage points.

Revenue grew in each of the geographies with the Developing Markets leading the race with an increase in revenue of 24.0%. It was followed by an increase of 11.3% in Europe and 4.4% in North America.

As on December 31, 2010, Kraft Foods had $2.09 million of cash and cash equivalents compared with $2.48 million at the end of year 2010.

New Investments

Kraft has recently invested approximately $200 million for expansion in Brazil. Out of which $80 million was invested in a manufacturing facility that is initially expected to produce chocolate and powdered beverages. The company also expects to add a biscuit line by fiscal 2012.

The Way Forward

Kraft is stated to drive confidence from the belief of continuing strong business momentum in the challenging environment of weak consumer and category growth as well as significant input cost inflation.

The confidence is thus reflected in its 2011 outlook and the company expects to have an organic net revenue growth of at least 5%, or roughly 4% after excluding the impact of accounting calendar changes. Management expects the operating EPS growth in the range of 11-13%.

Zacks Consensus Estimate projects the EPS for next year to be $2.20 and revenue to be $52.4 billion.

Conclusion

Estimates for the quarter had been stable in the run-up to the earnings release, though one analyst gave a negative revision in the last 7 days.

We believe, over the past four to five quarters, the strong dollar and volatile commodity markets, especially dairy, had affected the top and bottom lines of the company. However, the company has implemented several turnaround plans to increase profitability, and revive organic growth.

The company has also strengthened its business model by increasing investments in promotion and marketing that increased its pricing power and improved product positioning. These initiatives are paying off now, and margins are improving.

Furthermore, the combination of Kraft Foods and Cadbury is expected to provide meaningful revenue synergies. The combined company expects long-term organic net revenue growth of more than 5%.

Kraft currently has a Zacks #3 Rank which translated into short-term Hold rating. On a long term basis we are Neutral on the stock.

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5515.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leon Zacks. As a PhD from MIT Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
[email protected]
http://www.zacks.com

SOURCE Zacks Investment Research, Inc.