Tag: Morgan Stanley

LATAM Airlines Posts Steep Third-Quarter Profit Fall

November 21, 2018 / WIL BALDWIN

SANTIAGO (Reuters) – LATAM Airlines (LTM.SN), the biggest airline group in Latin America, reported a steep fall in third-quarter profit due to lower passenger demand in Argentina and Brazil as well as higher fuel prices and competition from low-cost airlines.

LATAM reported a net profit of $53 million for the quarter, down from $160 million a year earlier, according to a securities filing.

But it said it was maintaining its guidance for the year, expecting an overall operating margin for 2018 of between 6.5 and 8 percent. It is focused on cost-cutting to offset higher expenses.

“We are transporting more passengers with a leaner organization,” a company executive told analysts on a conference call.

Morgan Stanley raised its target price for LATAM shares traded in the New York stock exchange to $9 following the earnings release, from a previous target price of $8.80.

Shares were up 3.4 percent at $9.26 on Wednesday morning.

Demand in the quarter slowed in Brazil due to a weaker local currency, and demand fell significantly in Argentina, where the local currency faced an abrupt devaluation during the quarter, reducing passengers’ purchasing power.

“We carried more passengers in all our markets except Argentina, where we cut capacity this year,” an executive said.

Lower demand and increased fuel expenses due to higher oil prices has slashed profits across regional airlines. One of LATAM’s biggest competitors, Brazil’s Gol Linhas Aereas Inteligentes SA (GOLL4.SA), reported a loss of $110 million during the quarter.

Market conditions prompted LATAM to renegotiate commitments for future aircraft purchases, achieving a reduction of $2.3 billion in fleet expenses through 2021, the company said.

The airline will also boost the number of available seats in some of its aircraft by 3 percent as improving utilization and seat count may allow it to grow with fewer aircraft.

Revenue declined by 5 percent to $2.5 billion in the quarter compared with the same period in 2017.

In the quarter, LATAM spent the equivalent of 30 percent of its revenue on fuel, compared with 21 percent a year earlier.

In comparison, Gol spent 37 percent of its revenue on fuel in the same quarter, up from 26 percent a year earlier.

(Reporting by Antonio de la Jara in Santiago and Marcelo Rochabrun in Sao Paulo; Writing by Marcelo Rochabrun; Editing by Bernadette Baum)

Harris & L3 To Merge, Become 6th Largest US Defence Contractor

October 15, 2018 / WIL BALDWIN

By Jarrett Renshaw and Harry Brumpton

(Reuters) – Military communication equipment providers Harris Corp (HRS.N) and L3 Technologies Inc (LLL.N) announced on Sunday an all-stock merger that will create the United States’ sixth-largest defence contractor with a market value of $34 billion.

Increased defence spending under U.S. President Donald Trump and the Republican-led Congress is driving contractors to pursue mergers so they have more scale to bid on bigger projects, spanning everything from upgrading computer systems to space exploration.

In August, Trump signed a defence policy bill that authorized $639 billion in military spending such as buying weapons, ships, aircraft and paying troops.

“We are in an environment where the economy is pretty strong, we know defence spending is coming up, the 2019 (federal) budget is up 3 percent over 2018, 2018 was up 9 to 10 percent over the prior year,” Harris Chief Executive William Brown said in an interview.

“I think there is an increasing need for more investment, more end-to-end solutions,” Brown added.

The transaction values L3 at $15.7 billion, slightly above its market capitalisation at the end of trading on Friday of $15.3 billion. Harris has a market capitalisation of $18.2 billion.

L3 shareholders will receive 1.3 shares of Harris common stock for each of their shares. As a result, Harris shareholders will own about 54 percent of the combined company, with the remainder owned by L3 shareholders.

The combined company, L3 Harris Technologies Inc, will have about 48,000 employees and customers in over 100 countries, the companies said. The merger is expected to close in midyear 2019, they added.

The new company’s board of directors will have 12 members, consisting of six directors from each company. Brown will serve as chairman and chief executive officer, and L3 CEO Christopher Kubasik will serve as vice chairman, president and chief operating officer for the first two years following the closing of the deal, the companies said.

In the third year, Brown will transition to executive chairman and Kubasik will become CEO. After that year, Kubasik will be both chairman and CEO.

“The aerospace and defence industry is continuing to see a lot of change over the last year or so, and many people have believed for a long time this combination made sense and we have worked hard to make that happen,” Kubasik said in an interview.

A string of deals have taken place in the sector. In June, U.S. defence contractor Northrop Grumman Corp (NOC.N) acquired Orbital ATK Inc for about $7.8 billion, giving it greater access to lucrative government contracts and expanding its arsenal of missile defence systems and space rockets.

In April, weapons maker General Dynamics Corp (GD.N) bought CSRA Inc for $9.7 billion to expand its government services business, after CACI International Inc (CACI.N) withdrew its offer for CSRA following a bidding war.

Morgan Stanley (MS.N) is acting as financial adviser to Harris and Sullivan & Cromwell LLP is serving as principal legal counsel, with Paul, Weiss, Rifkind, Wharton & Garrison LLP acting as special counsel to the board of directors. Goldman Sachs Group Inc (GS.N) is acting as financial adviser to L3 and Simpson Thacher & Bartlett LLP is serving as legal counsel.

(The story adds expected closing date in paragraph 8, detail about new company’s leadership in paragraph 10)

(Reporting by Jarrett Renshaw and Harry Brumpton in New York; Additional reporting by Chris Sanders in Washington; Editing by Sandra Maler and Peter Cooney)

Chinese EV Maker NIO Stock Rises On U.S. debut

September 12, 2018 / WIL BALDWIN

(Reuters) – Shares of Chinese electric carmaker NIO Inc (NIO.N) recovered sharply from a 15 percent fall in their market debut on Wednesday, a day after the company’s IPO was priced at the lower end of the expected range.

NIO shares rose as much as 11 percent to $6.93 in afternoon trading, giving it a market capitalization of $7.11 billion.

The rebound in shares was a welcome relief for NIO, whose offering came under pressure as investors have turned wary about electric carmakers due to struggles at its chief rival Tesla Inc (TSLA.O).

Investors have worried about Tesla’s cash-burn rate as the company struggles to meet its production targets amid its efforts to become a mass-market automaker.

NIO began deliveries of its ES8 SUVs in June and in August sold 1,121 units. The company plans to launch a second, lower-priced electric sport-utility vehicle, the ES6, by the end of this year.

NIO, founded by Chinese entrepreneur William Li in 2014, incurred a net loss of $502.6 million in the first six months of 2018 on $6.95 million in revenue. It has $677 million in cash and cash equivalents as of June 30.

The listing – the third-biggest in the United States by a Chinese firm this year – comes as Chinese EV makers seek fresh capital to develop new products and finance investments in areas including autonomous driving and battery technologies.

NIO, formerly known as NextEV and backed by Chinese tech heavyweight Tencent Holdings Ltd <0700.HK>, is one of several largely Chinese-funded EV startups betting on the benefits of local production to compete with firms such as Tesla.

Having begun promoting EVs in 2009, China aims to become a dominant global producer as it bids to curb vehicle emissions, boost energy security and promote high-tech industries.

Several EV makers such as WM Motor Technology Co and Xpeng Motor have also raised funds from heavyweight investors including tech giants Alibaba Group Holding Ltd (BABA.N), Baidu Inc (BIDU.O) and Tencent.

Goldman Sachs, JPMorgan and Morgan Stanley led the IPO. Bank of America Merrill Lynch, Credit Suisse, Citigroup, Deutsche Bank and UBS were also part of the process.

(Reporting by Diptendu Lahiri in Bengaluru; Editing by Sriraj Kalluvila and Anil D’Silva)

Should Berkshire Hathaway buy Southwest Airlines?

August 13, 2018 / WIL BALDWIN

Warren Buffett’s Berkshire Hathaway Inc. (BRK.B) could use its controversial cash hoard to purchase Southwest Airlines Co. (LUV), according to Morgan Stanley.

In a research note, reported on by CNBC and MarketWatch, analysts at the bank noted that Berkshire now has a thing for airline stocks, over a decade after Buffett dismissed them as “the worst sort” of businesses. Within the sector, Morgan Stanley identified Southwest Airlines as the best fit, adding that the Dallas, Texas-based low-cost carrier’s “consistent earnings power,” strong balance sheet, good management, “simple” business model, low cost structure, “significant competitive advantage” and attractive price are exactly the type of characteristics that Berkshire usually looks for.

Click the link below for the full story!

Should Berkshire Hathaway Buy LUV?

LATAM Airlines Posts Steep Third-Quarter Profit Fall

Harris & L3 To Merge, Become 6th Largest US Defence Contractor

Chinese EV Maker NIO Stock Rises On U.S. debut

Should Berkshire Hathaway buy Southwest Airlines?

Archives