CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended April 26, investment grade funds posted a net inflow of $4.699bn. Per Lipper data, the year-to-date net inflow into investment grade funds was $48.036bn. Per Bloomberg, investment grade corporate issuance for the week was $22.4bn, while volume for the month of April was $78.45bn. IG corporate bond issuance started the year at a robust pace but that has now somewhat abated, still, issuance is slightly outpacing last year and is up 1% year over year.

(Bloomberg, Conference Call) Masco Corporation Reports First Quarter 2017 Results

• Masco Corporation (NYSE: MAS), one of the world’s leading manufacturers of branded home improvement and building products, reported strong net sales and operating profit growth in the first quarter of 2017.
• “Our strong operating performance continued in the first quarter of 2017 as our leading brands coupled with our innovative products and programs drove demand with consumers and pros alike, resulting in profitable growth across our portfolio,” said Masco President and CEO, Keith Allman.
• Conference Call Highlights:
  
  • Masco has no exposure to Canadian lumber tariffs
  • The company is seeing some cost inflation; however, it takes two quarters to flow through the financial statements
  • The company is seeing strong demand in their Repair & Remodeling products across all product lines and price points. R&R accounts for 83% of total sales (unchanged)
  • Masco is still focusing on bolt-on strategies in either their plumbing or decorative architecture segments, which has been unchanged over the past several quarters
    
    • The company looked at the paint assets divested from the Valspar/Sherwin-Williams transaction, but they weren’t a good strategic fit
  • Masco returned $124mm to its shareholders through dividends and share repurchases for the quarter

(Bloomberg) Comcast Leaps to a Record as ‘Get Out’ Helps Film Unit Shine

• Comcast Corp.’s foray into Hollywood is paying off, with box-office hits “Get Out” and “Fifty Shades Darker” boosting first-quarter profits and sending shares to a record.
• The shares rose as much 3.9 percent to $40.29 in New York Thursday, the highest price since at least 1983.
• The results offer the latest proof of Comcast’s ascent to the heights of the American entertainment industry, a trajectory that seemed unlikely when the Philadelphia-based company bought NBCUniversal in 2011. Comcast is showing it can compete head-on with Walt Disney Co. for TV audiences, moviegoers and theme-park tourists.
• Comcast executives attributed the turnaround largely to the company’s new video platform, called X1, which makes it easier to search for shows and movies, as well as YouTube and Netflix, from their cable set-top box. X1 is in about half of Comcast homes.
• At the same time, the company is continuing to add residential high-speed internet subscribers. Comcast signed up 397,000 new broadband customers in the quarter, shy of the average prediction of 400,000 from three analysts. It signed up 403,000 broadband subscribers in the same quarter a year ago.

 
(Bloomberg) Microsoft Momentum Slows on Weaker Sales of Surface Tablets

• Satya Nadella’s plan to reshape Microsoft Corp. as a cloud-computing company hit a snag in the third quarter, when lackluster sales of Surface tablets and weaker demand for corporate services kept revenue growth in check.
• Adjusted sales in the period that ended in March rose to $23.56 billion, falling slightly short of analysts’ average estimate. The miss was enough to give investors pause — the software maker’s shares slipped 1.9 percent following the report, after rising to an all-time high at Thursday’s close in New York.
• Even as some non-cloud businesses underperformed, the company posted another quarter of brisk demand for internet-based versions of Office software and its Azure service for running and storing customers’ data and applications. Azure sales rose 93 percent, while commercial Office 365 — cloud-based versions of Word, Excel and other productivity software — increased 45 percent. Microsoft spent last year pouring billions into data centers to run these services and is now signing up customers to fill them. Meanwhile, the personal-computer market, a drag on Microsoft results for the past several years, has begun to stabilize.

(WSJ) Southern’s Georgia Power Objects to Westinghouse Bankruptcy Loan

• Georgia Power Co. has taken issue with Westinghouse Electric Co.’s proposed $800 million bankruptcy loan, saying the financing could threaten the construction of the first new nuclear reactors to be built in the U.S. in decades.
• Westinghouse filed for chapter 11 bankruptcy at the end of March and wants to borrow money to keep its other businesses healthy, while it contends with the fallout of nuclear construction projects that are years behind schedule and billions of dollars over budget.
• With a Friday deadline looming for Georgia Power to decide whether to continue construction at the Vogtle Electric Generating Plant, it and other plant owners are protesting Westinghouse’s efforts to pledge intellectual property as collateral for the loan deal.
• If Westinghouse’s bankruptcy loan goes through as planned, the company’s lenders would be in position to “foreclose on the intellectual property, which could seriously disrupt or even potentially halt construction,” lawyers for Georgia Power, the largest subsidiary of Southern Co., warned in a court filing.
• Based on Westinghouse’s AP1000 nuclear power plant design, the new Vogtle reactors are the first of what is supposed to be a new generation of commercial nuclear plants to be built in the U.S.
• U.S. Commerce Secretary Wilbur Ross told The Wall Street Journal this week that the fate of Westinghouse’s nuclear business is a matter of national security. Asked if he would consider using public funds to assist Westinghouse, Mr. Ross said he believed the company’s bankruptcy funding was “adequate” for the immediate future. Any change to the financing, however, could change that assessment.

 
(FBN) Crown Castle International Corp. Makes a Big Bet on Small Cells

• Crown Castle exceeded the high end of management’s guidance ranges on many metrics, including revenue and AFFO profits.
  
  • Site rental revenue showed 4% organic year-over-year growth, with the remaining increases coming from new site acquisitions.
  • Small-cell revenue jumped 41% higher and now accounts for 15% of Crown Castle’s total sales. That’s up from 11% in the year-ago quarter.
  • Crown Castle is emphasizing its small-cell operations in a big way, backed by large capital investments. Sixty-one percent of this quarter’s discretionary capital expenses, or $151 million, were funneled into construction and infrastructure improvements in the small-cell segment. That’s up from 43% or $79 million in the first quarter of 2016.
  • Crown Castle is planning to double its network of small-cell stations over the next 28 to 24 months. The network model of small wireless stations supported by direct fiber-optic backbone connections promises to match the traditional cell tower market in terms of long-term revenue footprint.

(WSJ) Coke to Cut 20% of Corporate Workers as It Battles Soda Slump

• Coca-Cola Co. executives said Tuesday they plan to eliminate roughly 20% of corporate staff, as the beverage giant battles a slump in soda sales and expands a long-running cost-cutting program.
• James Quincey, a company veteran who will take over as chief executive from Muhtar Kent next week, said the Atlanta-based company will cut 1,200 jobs to run a “more focused, lean corporate center.”
• Coke’s beverage volumes were flat in the first quarter globally, dragged down by the macroeconomic conditions in some Latin American markets and the shift of the Easter holiday into the second quarter. Soda volumes world-wide fell 1%.
• Mr. Kent said the company remains on track to meet its revenue and profit targets for the year.
• The beverage giant has been aiming to cut sugar from its products and diversify beyond soda as more countries consider special taxes on high-calorie drinks to combat rising obesity and diabetes, and as consumers switch to healthier beverages.
• On Tuesday, Mr. Quincey said the company is adjusting its growth model to meet people’s changing tastes and preferences.

(Bloomberg) Spirits Maker Castle Said to Eye Sale Amid Takeover Interest

• Castle Brands Inc., a producer of whiskey, vodka and other spirits, is exploring a sale and may draw interest from potential buyers including Corona-maker Constellation Brands Inc. and Sazerac Co., according to people familiar with the matter.
• The New York-based company is working with advisers at Perella Weinberg Partners on a potential sale, the people said, asking not to be identified as the information is private. Castle Brands may also attract bigger rivals, such as Diageo Plc, the world’s largest distiller, and Pernod Ricard SA, the people said. Heaven Hill Distilleries Inc. may also consider a bid, the people said. Castle Brands had a market value of about $260 million at the close of trading on Tuesday.
• Sales of distilled spirits in the U.S. may outperform the 3.7 percent annual growth rate they’ve maintained since 2007 on the back of reduced regulatory restrictions on product availability under the Donald Trump administration and new emphasis on luxury and super-premium products, according to a report from Bloomberg Intelligence.

(Bloomberg) Entergy Sees ‘Strong’ Power Demand by Refiners in Rest of 2017

• Entergy CFO Drew Marsh cites wider crack spreads and end to turnarounds for forecast, commenting on 1Q earnings call.
  
  • Says “premature” to lower 2017 forecast after 1Q EPS miss; adds no change to spending plan if federal taxes cut
  • CEO Leo Denault says co. may propose smaller peaker, renewables in New Orleans
  • Seeking to lower CO2 emissions regardless of President Trump’s executive order
  • Co. says all steps on track for Indian point closing; litigation ended