3 Dow Earnings In Review

October has come to a close, and most Dow Jones Industrial Average components have announced their quarterly results. It's time to take a look back and see how three Dow components fared: Intel (NASDAQ: INTC  ) , Johnson & Johnson (NYSE: JNJ  ) , and Coca-Cola (NYSE: KO  ) .

Intel reported earnings per share of $0.59 versus an estimate of $0.54 .

The first things I was watching for last month were a reverse in the decline of net revenue and a control over rising cost of sales. For the quarter ending June 29, net revenue declined 5.1% year over year and cost of sales rose 8%, and this contributed to a 29.3% net-income decline. The company attributed much of its declining sales to increased competition from tablets. This trend of sinking net income began in fiscal 2011, and a sustained gradual decline over a long period is a red flag that a company is losing its edge to competition. The results ended up being mixed. For the quarter ending Sept. 28, revenue rose 0.2% from last year, but gross profit fell 1.2% and net income fell 0.7%. The trend of falling gross margins dates backs even further.

The final thing I was watching was the company's debt-to-equity ratio. Its June 29 ratio of 0.59 wasn't alarming and was even a slight improvement from the 0.65 of the previous quarter. The reason I was watching it was because there is a good chance the company may need to take on debt in the future. If net income continues to decline or the company unveils plans for heavy investment as part of a turnaround strategy, Intel will require money. The better shape the company keeps its debt in now, the more leeway it will have in the future. Unfortunately, the ratio worsened as a result of higher liabilities, rising to 0.63.

Johnson & Johnson
Analysts expected earnings at $1.36 per share for the most recent quarter, but JNJ disappointed with EPS of $1.04.

The first thing I was keeping an eye on was the "other (income) expenses, net" line of the income statement. This line has been notorious for ruining otherwise good quarters or years. While it covers various expenses, they have primarily consisted of litigation expenses. Given continued recalls, these costs are likely to continue for the near to medium term. Absent substantial growth in revenue, it is essential that these costs fall for Johnson & Johnson to keep up with the broader market. For the third quarter, this line was a disappointment, totaling $943 million in expenses compared to income of $90 million a year ago.

The next issue is the gradually falling gross margins. For fiscal 2010, Johnson & Johnson's gross margin was 69.5%. This number decreased to 67.8% for fiscal 2012. For the third quarter, gross margins rose to 69.6%, a definite improvement.

Coca-Cola announced earnings that met expectations with diluted EPS of $0.54.

As with Intel, I was paying close attention to revenue and net income, but unlike Intel, Coca-Cola has only suffered for the past two quarters. For the quarter ending June 28, net revenue fell 3% from a year ago and net income fell 4%. For the quarter ending March 29, net revenue fell 1% from a year ago and net income fell 14.4%. The company attributes some of its Q1 results to having two fewer days than usual in the quarter. The company attributed some of its Q2 results to poor consumer conditions in Europe and poor weather conditions in North America. While these reasons may grant the company some leeway, certain trends (such as growing concern over obesity) pose long-term challenges. For the quarter ending Sept. 27, the company suffered revenue declines of 2.5% from the same time last year. This continuing decline is worrisome and may be enough to make me recommend against purchasing shares for the time being.

The second thing I was watching for was the gross margin. Despite the turbulence, gross margin has remained relatively steady. Gross margin for the latest quarter was 60.2%, down from 60.7% the same quarter a year ago..

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9/26/2016 11:55 AM
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