Last week, many US-listed companies started reported results for the first quarter of 2021. Here are highlights from some of the companies I have a vested interest in, through the investment fund I co-founded, that reported this week.
Tractor Supply Company (NASDAQ: TSCO)
The US retail chain focusing on the “out here” lifestyle started the year on a strong footing. Comparable sales increased by a staggering 38.6%, the result of traffic growth of 21% and average ticket size growth of 17.6%. The latter was driven by sales of big-ticket items such as safes, fencing, and utility vehicles. Diluted earnings per share (EPS) was up by 118% to US$1.55. And the company is now projecting full-year diluted EPS for 2021 of between US$7.05 and US$7.40, a step up from previous guidance of US$6.5o-US$6.90, and from US$6.38 in 2020.
During Tractor Supply’s earnings call for the latest results, CEO Hal Lawton highlighted increasing millennial home-ownership, migration to urban areas, and greater pet adoption as long-term trends that will benefit Tractor Supply. He said:
“Over the last 12 months, we’ve seen a 400 basis point shift in the customer age cohorts of 18 to 45 years old. This demographic has long resisted many of the traditional generational norms, things like household formation and homeownership. But the pandemic has shocked this generation and accelerated their embracement of these types of activities. There continues to be a net migration out of urban areas largely driven by the millennial segment.
The most robust homeownership growth is in the millennial cohort, with the growth coming in suburban and rural areas. We believe growth in this customer segment has staying power and could be a structural game changer for us.
Another structural customer trend that is working to our advantage is the significant increase in pet-owning households and number of pets adopted. Compared to the overall U.S. household pet ownership of approximately 2/3, our customers over-index in pet ownership by about 10 points. And our current survey work with our customers indicate 25% have recently acquired and adopted a new pet. New companion animal ownership acts as an annuity for our business as these puppies and kittens grow up and have growing life cycle needs. We’re also uniquely positioned to offer a growing menu of services such as pet wash, vet clinics, prescriptions and tele-vet services.
Whether it’s more food, treats, toys, containment and more, the humanization of pet provides us with future opportunities for growth. These customer trends are an indication that we continue to benefit from the numerous tailwinds such as pet ownership, the millennial urban exodus, backyard poultry, homesteading and home as an oasis. We believe many of these consumer trends will be enduring shifts well into the future. Our brand momentum is stronger than ever, and we’re investing to ensure we continue to play offence in the context of these trends. We are making excellent progress on our Life Out Here strategy and initiatives.”
Intuitive Surgical Inc (NASDAQ: ISRG)
The robotic surgery company which manufactures and sells the da Vinci brand of robotic surgical systems also had a strong start to 2021.
New system placements increased by 26% year on year from 237 to 298 and the installed base of da Vinci systems grew by 8% from the first quarter of 2020 to 6,142. Worldwide da Vinci procedures grew by 16%. Revenue was up 18% to US$1.29 billion and net income surged 36% to US$426 million, with diluted EPS up 34% to US$3.51. With 2020 procedure growth coming in at just 1% due to the COVID-19 pandemic, the company anticipates a swift rebound in 2021 with full-year procedure growth of between 22 and 26%.
As COVID-19 infections begin to subside in parts of the world, more non-emergency surgeries which were postponed due to the pandemic will eventually have to be performed.
Gary Guthart, Intuitive Surgical’s CEO, is bullish on the impact of the company’s two new platforms (Da Vinci SP and Ion), and the rebound in business as COVID numbers decline. He said the following in Intuitive Surgical’s 2021 first-quarter earnings call:
“We’re in the early innings of commercialization of two new platforms for Intuitive while advancing digital enablement of our ecosystem. Our teams are making good progress in all three areas. Overall, we’re seeing some pandemic recovery, but improvement has been uneven with significant regional variation. Our experience shows that our business rebounds as COVID drops…
…Overall, capital strength indicates anticipation of future procedure opportunity by our customers. A significant number of systems were part of multisystem deals by hospitals and integrated delivery networks, supporting a theme in which customers who know robotic-assisted surgery well continue to invest with us.”
Chipotle Mexican Grill, Inc (NYSE: CMG)
The Mexican fast-casual food chain was off to a promising start in 2021. Revenue was up 23.4% to US$1.7 billion, driven by staggering comparable restaurants sales growth of 17.2%. The company’s restaurant-level operating margins improved by 4.7 percentage points from a year ago to 22.3%. Digital sales were up 133.9% and the company opened 40 new restaurants during the quarter, bringing its total to 2,764. All these helped bring adjusted diluted EPS to US$5.36, up 74% from a year ago.
As Chipotle laps pandemic-induced closures last year in the second quarter of 2021, it expects comparable restaurant sales to be high in the range of high-20s to 30%.
The long-term outlook for Chipotle looks promising too. During Chipotle’s 2021 first-quarter earnings call, Brian Niccol, who became the company’s CEO in 2018, described some of the company’s strategies to achieve its long-term goals of having more than 6,000 restaurants, average unit volume (revenue per restaurant) of more than US$2.5 million, and a restaurant-level operating margin of more than 25%. He commented:
“These are one, making the brand visible, relevant and loved. Two, utilizing a disciplined approach to creativity and innovation. Three, leveraging digital capabilities to drive productivity and expand access, convenience and engagement. Four, engaging with customers through our loyalty program. And five, running successful restaurants with a strong culture that provides delicious food with integrity while delivering exceptional in-restaurant and digital experiences.”
Netflix Inc (NASDAQ: NFLX)
It was a mixed bag of results in the first quarter of 2021 for global streaming giant Netflix. Although revenue was up 24% from a year ago to US$7.16 billion, the company only added 4 million global net new subscribers during the quarter – 2 million below analyst expectations – bringing the total to 208 million. The company also forecasts just 1 million net new subscribers in the second quarter. According to Netflix’s management, there were two reasons for this. First, there was pull-forward of new subscribers in 2020 due to COVID-induced shelter-in-place measures, and second, there was the delays in the release of hit programs due to production pauses (again because of COVID-19). Nevertheless, I think the long-term growth story remains intact.
And on a bright note, the company was free cash flow positive in the quarter, producing US$692 million, up significantly from US$162 million a year ago. Netflix also announced that it will be buying back shares and said it is on track to be free-cash-flow neutral this year and positive in the years ahead.
Ted Sarandos, Netflix’s co-CEO and chief content officer, explained in the latest earnings call why he thinks subscriber growth should return in the latter half of the year. He said:
“And we think we’ll get back to a much steadier state in the back half of the year and certainly in Q4 where we’ve got the returning seasons of some of our most popular shows like The Witcher, You, and Cobra Kai as well as a big temple movie that came to market a little slower than we’d hope like Red Notice with The Rock and Ryan Reynolds and Gal Gadot and Escape from Spiderhead with Chris Hemsworth, a big event content. Now, all that being said, in every quarter of the year, we release more content than we did in the previous quarter and in the previous year quarter by quarter and every — in every region. It’s just that I think the shape of the mix of the content is, you know, become a little more uncertain, and then the long-term impacts of the corporate shutdown are also becoming a little more uncertain in that — in that timeframe in the first half of this year.”
Reed Hastings, co-CEO and co-founder, added that despite the slowing net adds, Netflix still has a long runway to grow into. He mentioned:
“So outside of China, I think, pay television peaked about 800 million households. So you know, lots of room, and that was several years ago that at peak, lots of room to grow.”
ASML Holding NV (NASDAQ: ASML)
The supplier of lithography machines to semiconductor manufacturers extended its recent run of fine results.
During the first quarter of 2021, revenue was up 78% to €4.4 billion. Net income growth was even more impressive at 240% to €1.1 billion. In the quarter, ASML also repurchased 3.5 million shares. The undisputed leader in lithography expects overall revenue in 2021 to be 30% higher compared to 2020, when there was already healthy growth of 18%.
ASML CEO Peter Wennink believes that the company is benefiting from cyclical semiconductor demand in 2021 due to COVID-disruptions in 2020. At the same time, there is a long-term secular trend that should benefit ASML too. He shared the following in a video interview on the company’s 2021 first-quarter results:
“I would like to separate the growth profile into three trends. One trend is more a cyclical trend. 2020 – the COVID year- was really a year where also customers were cautious. Looking back, too cautious. So that underspend you could call is now translating into demand for 2021. Of course, that will take some time before we have our output done. So second half will be indeed higher and that trend you could argue should go away or should taper off in 2022.
There is a second trend. That’s a secular trend, the underlying trend. I think it is the continuous innovation and the drive for innovation driven by the rollout of 5G, its artificial intelligence, its High-Performance Computing. That underlying trend is the digital transformation. We see it everywhere. Leading to distributed computing. That will be there for years to come. That trend will also lead to higher demand for semiconductors and for our equipment. Which is one of the reasons why we’re stepping up our capacity.
He also mentioned a third long-term driver which is governments wanting their own countries to be able to produce semiconductors independently. This could be a blow to major foundries such as Taiwan Semiconductor Manufacturing Company, but will open the door for other companies to manufacture for their country’s needs. Wennink explained:
“The third trend is driven by the geopolitical situation which actually leads to major regions looking for technological sovereignty. Basically being able to be self-sufficient when it comes to electronics and semiconductors. We’ve seen announcements, governments, but also companies, focusing on expanding capacity. In the US, there are significant talks in Europe, in Asia. Well, that will lead to higher capital intensity because it’s decoupling as a worldwide eco-system. But it also leads to some capital inefficiency. Well there is a beneficiary of that capital inefficiency and that’s us.“
Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. I currently have a vested interest in the shares of ASML, Chipotle Mexican Grill, Intuitive Surgical, Netflix, and Tractor Supply. Holdings are subject to change at any time.