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Over the past week, Morningstar's equity analysts have been busy assessing the latest earnings reports and interim management statements. Here are their initial thoughts on numbers from these seven FTSE 100 players.
Anglo American (AAL)
We expect Anglo American's 2013 to bring generally stronger production numbers, reflecting growth projects and better results at some existing operations that underperformed in 2013. We saw early signs of improvement in the quarterly figures, although labour and weather setbacks weighed on results. We don't expect to change our fair value estimate or our moat rating.
BHP Billiton (BLT)
In a similar vein to Rio Tinto (RIO), BHP retained fiscal year 2013 production guidance, despite sharply lower third-quarter sales volumes. Compared to 2012's fourth quarter, petroleum volume fell 7%, iron ore 8%, copper 16%, coking coal 10% and thermal coal was down 6%. Rare bright spots were aluminium—steady, and nickel—up 23%, though these are both low-margin commodities. Cyclone-related downtime hit iron ore, and heavy rains impacted Queensland coal. Despite the declines, most segments performed better than expected, considering the poor weather.
Diageo (DGE)
Diageo’s interim management statement for the nine months ended March 31, 2013 shows that the wide-moat firm continues to steadily grow revenues as its strong portfolio of brands continues to maintain its pricing power. During the first nine months, volumes organically grew 1% and sales climbed 5% as the company raised prices and consumers increasingly opted for more premium spirits. Given that the company's performance is largely in line with expectations, we are maintaining our fair value estimate and believe the shares are slightly overvalued at this time.
Reckitt Benckiser (RB.)
Despite the ills faced by consumers, Reckitt Benckiser actually benefited from the strong cold and flu season, as evidenced in its first-quarter trading update. Adjusting for acquisitions, divestitures and foreign exchange rate movements, Reckitt's sales popped 7% as compared to last year's first quarter. We believe that today's announcement reinforced our take that Reckitt's competitive advantages (which reflect the firm's solid brand portfolio and expansive scale and drive our narrow moat rating) are intact.
Rexam (RXM)
Consumer packaging company Rexam released an interim trading statement and results that were in line with their expectations. We're encouraged to see that Rexam's Belem, Brazil beverage can plant has begun commercial production. With Rexam's specialty can production currently sold out in Brazil, the new standard can volume from the Belem plant should free up Rexam's other regional plants to produce more higher-margin specialty cans and support full-year margins. After reviewing these results, we do not expect to make any changes to our per share valuation or to our narrow moat rating for Rexam.
Rio Tinto (RIO)
Rio Tinto’s March quarter production performance, the first under new CEO Sam Walsh, wasn’t one for the record books. While most product segments showed improvement on the previous corresponding period, seasonal weather put paid to bettering the fourth quarter 2012 result.
To some extent the result is overshadowed by the pit wall failure at Bingham Canyon copper mine in the US–an embarrassing and potentially costly event. Our positive inclination stands as the shares are still significantly undervalued; no change to our narrow-moat rating.
Tesco (TSCO)
Tesco reported fourth-quarter results that were below our expectations, as pressures in Europe, regulatory changes regarding store operating hours in Korea, and several write-downs had a greater impact on profitability than we anticipated. For the full year, like-for-like sales declined in the UK, Europe and Asia, although the sequential improvement in the UK between the third (down 0.6%) and fourth quarter (up 0.5%) may again suggest that Tesco’s price investments are yielding results. Our long-term view remains unchanged, but we may revise our fair value estimate as we incorporate the firm’s recent results and guidance into our forecast.
