Portfolio Updates

Air Transport Services Group

The company reported second-quarter 2016 earnings on Aug. 8 that were in line with analysts’ expectations. Earnings per share for the quarter were 13 cents, which beat analyst estimates by a penny. And second-quarter 2016 revenue of $176.5 million was up 19% from second-quarter 2015 revenue of $148.5 million.

Air Transport Services Group’s (NSDQ: ATSG) leasing business increased 4% to $47.5 million in the second quarter. CFO Quint Turner said that half of the 20 scheduled Boeing 767s leased by Amazon were operational as of the end of the first half of 2016 and that five more would be operational by the end of the year. In July, Air Transport delivered a Boeing 767 to Amerijet and plans to deliver another 767 to DHL in September. That would make for a total of five Boeing 767s leased to Amerijet and 17 to DHL.


On July 28 Brunswick (NYSE: BC) announced its second-quarter numbers, in which it beat earnings estimates by 2 cents ($1.19) but missed revenue by 0.6%. The stock price has remained unchanged.

The company’s financials continue to increase steadily. Second-quarter revenue increased 8.8% compared with the same quarter a year ago. This growth was led by a 32% increase in Fitness sales. Recent acquisitions of Cybex and SCIFIT helped boost growth. Brunswick also announced last week that it was acquiring Indoor Cycling Group, a maker of stationary bikes. Stationary biking, known as “spinning,” has become increasingly popular in recent years, with gyms dedicated solely to spinning classes popping up in major cities. This acquisition makes sense for Brunswick to continue increasing sales in its Fitness business.

The company also declared a 15-cent dividend per share that will be paid Sept. 15 to shareholders holding Brunswick stock on Aug. 23. Management held annual earnings guidance steady at $3.40 to $3.50 but tweaked up revenue growth goals to 10.5%, up from 10%.

Charles River Laboratories

Shares of Charles River Labs (NYSE: CRL) edged up from $86 to $88 on Aug. 4 on positive earnings results. Second-quarter 2016 earnings per share of $1.20 beat analyst expectations of $1.10. Revenue of $434 million beat analyst expectations of $425 million. Second-quarter 2016 revenue was up 28% over second-quarter 2015 revenue of $340 million.

The most substantial revenue increase came from Charles River’s Discovery and Safety Assessment business. The business’ second-quarter revenue of $221 million increased 45.6% compared with $153 million for the same quarter last year. The acquisitions of WIL Research and Oncotest contributed 35% to the Discovery and Safety Assessment business’ second- quarter sales growth. The recent acquisition of Blue Stream Laboratories also allows Charles River to provide comprehensive safety testing for products from the discovery to production phases. Management edged up guidance and now looks for revenue growth of 22%, versus an earlier expectation of 21%, and earnings of $4.40 to $4.50 compared with the company’s earlier estimates of $4.32 to $4.45.


On Aug. 3 Criteo (NSDQ: CRTO) reported second-quarter earnings per share of 32 cents, beating analyst expectations by 4 cents. Revenue of $166 million for the quarter increased 36% year-over-year.  Despite that performance, the stock traded down due to disappointment over guidance. The lower end of revenue guidance for the third quarter trails estimates slightly. We note that the company has continually beaten the upper range of its estimates each quarter, and we don’t consider the latest guidance a risk.

Revenue from mobile advertising represents over half of Criteo’s business. Facebook, Criteo’s most high-profile customer (though it only accounts for 9% of business), reported another blowout quarter in mobile advertising. Mobile ad revenue for Facebook rose 80% to over $5 billion and now represents 84% of all advertising.

Criteo also added a record 900 new clients in the second quarter bringing the total number of clients to 12,000. For 20 consecutive quarters the company has retained 90% of its clients. Criteo went live on popular mobile app Instagram in June, which will help feed strong growth. Revenue from the company’s Match solution accounted for 47% of revenue, up from 40% in the previous quarter.

Drew Industries

RV component supplier Drew Industries (NYSE: DW) posted strong second-quarter earnings Aug. 4, sending shares up nearly 7% from $89.50 to $96.50. The company’s earnings per share of $1.51 beat analyst expectations of $1.35 by almost 12%.

Acquisitions and increased after-market sales have allowed Drew to grow faster than the 12% average growth rate of the RV industry.  Second-quarter revenue of $441 million beat analyst expectations by $39 million and represented a 22% increase over last year’s second-quarter revenue of $362 million. Most importantly, this represents the second quarter in a row that Drew’s growth rates have accelerated.

CEO Jason Lippert said that the RV industry’s sales increase of 12% outpaces the single-digit projections for 2016 that the RV Industry Association gave at the end of last year. Lippert attributes this increased sales momentum to a new generation of enthusiasts “embracing the RV lifestyle.” Towable RV sales are up 14% in North America despite sales of towable RVs falling 19% in Canada in the second quarter.


After an anticipated huge earnings beat didn’t materialize, Masonite (NYSE: DOOR) dropped 7% Aug. 11. A lower tax rate added 20 cents to the quarter’s earnings per share, cruelly raising hopes that EPS would beat estimates by 13 cents. Instead, Masonite missed those estimates by 7 cents. However, the miss was due to higher investments in manufacturing and software that have already begun generating higher sales. Management kept basic guidance for the year unchanged and added the quarter’s tax benefit of 20 cents per share to bring 2016 estimates up to $3.08.

We think the sell-off is overdone. Pricing and volume both contributed to growth in the quarter. Volume was up 8% and pricing rose 4%.  The investments made this quarter give the company a competitive edge in quick delivery and custom design for customers.


SolarEdge (NSDQ: SEDG) can’t seem to catch a break, with its share price falling 10% to $16.80 after running up more than 12% to $18.60 this past week. On Aug. 9 fourth-quarter fiscal 2016 earnings results of 44 cents per share beat analysts’ expectations of 41 cents.  Although this earnings beat is smaller than previous ones, it is remarkable considering that most players in this industry are reporting gaping losses and declining revenue. Earlier in August, competitor Enphase reported a 23% drop in revenue and a loss of 36 cents per share versus a loss of a penny the year before. So concerns that Enphase is “turning up the heat on SolarEdge” have no merit. On a year-over-year basis, SolarEdge’s revenue grew nearly 27% and earnings ballooned 42%.

We believe SolarEdge’s long-term growth prospects are intact. Although 2017 estimates have fallen since my original recommendation, the stock price reflects numbers that are far worse than those estimates.  SolarEdge trades for 8 times 2017 estimates (June 2017 year-end) and holds $3.00 per share in cash.

Investors have been bearish on solar energy so far in 2016 and have reacted negatively to any disruptions in the industry or signs of weakness. As we said last week, Tesla’s acquisition of SolarCity has a far smaller effect on SolarEdge’s revenue than it used to. SolarCity used to account for 28% of SolarEdge’s revenue, now it accounts for less than 10%. 

CEO Guy Sella said that a slowdown in residential solar-panel business in the U.S. is affecting the largest installers but that overall residential demand has begun to improve. Although we initiated a stop loss of $16 for SolarEdge last week to protect investors, we believe the stock has hit a bottom.

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