Stocks: What the Earnings of Microsoft and Texas Instruments Tell Us About the Year Ahead
There is a collective nervousness to stocks and the market’s still in its consolidation that began last September. But what’s interesting is that both the NASDAQ Composite and the Dow Jones Transportation Average are still outperforming the other major indices. This is an optimistic technical trait for the stock market, as leadership from technology and transportation stocks reinforces the primary trend, which still has positive potential in a super-low-interest-rate environment.
Microsoft Reported Good 4Q14 Numbers on Back of Nokia Acquisition
Microsoft Corporation (MSFT) slightly beat Wall Street consensus on sales and matched on earnings. For its fiscal second quarter of 2015 (ended December 31, 2014), the company’s sales grew eight percent comparatively, while diluted earnings per share were down nine percent, as was expected.
Microsoft is sitting on an enormous amount of cash. It’s buying about $2.0 billion per quarter of its own shares.
The company’s bread and butter is its commercial licensing of software, but this business is mature and slowing. In the company’s most recent quarter, total commercial licensing was $10.7 billion, down from $10.9 billion comparatively.
Most of the company’s gain in total sales was due to the recent purchase of Nokia’s phone hardware business. Without contribution from this new business unit, the company’s total sales would have been down slightly compared to the second fiscal quarter of 2014.
Without the Nokia device business acquisition, it wasn’t a great quarter for Microsoft. While it’s still a good dividend payer, this stock is likely to drift without operational momentum.
Texas Instruments Finished Off Year Strong
Reporting a solid quarter was Texas Instruments Incorporated (TXN), which also produced an eight-percent gain in comparable sales growth to $3.27 billion in the fourth quarter of 2014. The company’s earnings increased substantially (as expected) to $825 million, representing a gain of 61% over the fourth quarter of 2013. This year, Texas Instruments expects to produce sales growth of approximately seven percent. (See “Why I Expect a Big Boost in This Company’s 2015 Dividend Payout.”)
The company’s shares have done extremely well since early 2013, and it should be able to keep ticking higher based on the expectation for double-digit earnings growth this year and next.
What 4Q14 Numbers Mean for 2015
The Dow Jones Transportation Average and the NASDAQ Composite have been moving closely together the last five years. This market is tired and investors are yawning at earnings, but it’s still a fundamentally positive backdrop for equities, with very low interest rates and strong corporate balance sheets.
If a company isn’t beating the Street on sales this reporting season, it wouldn’t be too dissimilar to the financial reporting of the fourth quarter of 2013. Last year at this time, stocks had a difficult time gathering any momentum, and it was only towards the end of the year when they garnered gains.
It’s certainly been a slow start to 2015; where it will end up is anyone’s guess. But financial reporting, so far, is yielding two trends: sales are coming in light, while earnings are unremarkable.
