Zacks Analyst Blog Highlights: California Pizza Kitchen, Brinker International, American Capital Agency, Valspar and Shire

CHICAGO, Feb. 15, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: California Pizza Kitchen, Inc. (Nasdaq: CPKI), Brinker International Inc. (NYSE: EAT), American Capital Agency Corp. (Nasdaq: AGNC), Valspar Corporation (NYSE: VAL) and Shire plc (Nasdaq: SHPGY).

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Here are highlights from Monday's Analyst Blog:

California Pizza Kitchen Tops

California Pizza Kitchen, Inc. (Nasdaq: CPKI) recently posted fourth-quarter 2010 adjusted earnings of 17 cents per share, above the Zacks Consensus Estimate of 9 cents.

On a GAAP basis, including litigation and settlement costs, store closure cost, expenses related to review of strategic alternatives and tax benefit, California Pizza Kitchen recorded earnings of 2 cents compared with the loss of 41 cents in the year-ago quarter.

The pizza restaurant chain said that total revenues for the fourth quarter dropped 5.9% year-over-year to $157.9 million, but inched up slightly from the Zacks Consensus Estimate of $157.0 million. However, sales jumped 3.2% during the quarter, excluding the benefit of an additional week in the prior year quarter.

The company's adjusted earnings per share for the full year were 69 cents. However, on a GAAP basis the company reported a loss of 2 cents in 2010 versus earnings of 19 cents in full fiscal 2009. Revenues were $642.2 million in full fiscal 2010, representing a year-over-year decline of 3.4%.

Inside the Headlines Numbers

Comparable-store sales fell 1.1% in the quarter, as bad weather conditions and holiday shift adversely impacted same restaurant sales growth by 140 basis points.

In order to revive its top-line growth and improve its comparable-store sales, California Pizza Kitchen plans to introduce new menu offerings and create brand awareness. Moreover, to expand margin, the company continues to focus on cost savings.

California Pizza Kitchen said that restaurant sales tumbled 6.0% to $154.6 million and royalties from the licensing agreement dropped 18.2% to $1.9 million, partially offset by international franchise revenues that rose 20.3% to $0.8 million and domestic franchise revenues leaped 16.9% to $0.7 million.

The restaurant operating margin contracted 90 basis points (bps) to 17.4%, due to the 20-bp rise in food, beverage and paper supplies cost, 140-bp upside in direct operating and occupancy expense, partially offset by a 70-bp plunge in labor cost.

Financial Position

The company ended the year with cash and cash equivalents of $21.2 million and shareholders' equity of $194.4 million. As of January 2, 2011, California Pizza Kitchen's total debt liability was nil.

The company is also focused on optimizing shareholder value by increasing its free cash flow and returning the same to shareholders in the form of dividend or share repurchase.

Store Update

During the quarter, California Pizza Kitchen opened one company (net) owned full service domestic restaurant and 1 company owned full service international restaurant in China. California Pizza Kitchen also opened two franchised international restaurants in Mexico and Dubai.

Management expects to open two international full-service franchised restaurants and one company-owned full service restaurant in first-quarter 2011.

Outlook

The casual dining operator expects first-quarter 2011 earnings in the range of 3 cents to 5 cents per share, in line with the current Zacks Consensus Estimate of 4 cents. Comparable-store sales are forecasted between negative 1.0% to negative 2.0% in first-quarter 2011.

Our Take

The company's comparable restaurant sales during the quarter were negative and it expects the trend to continue in the next quarter. Moreover, California Pizza Kitchen's earnings outlook for the first quarter of 2011 seems to be conservative as it is below the Zacks Consensus Estimate of 11 cents, estimated 7 days ago. Thus, estimates for the next quarter are most likely to decline in the coming days.

Estimates have not budged in the last 7 days for 2011 and 2012, implying that the analysts do not see any meaningful catalyst for the time being. The Zacks Consensus Estimates for 2011 and 2012 are earnings of 71 cents per share and 85 cents, respectively.

One of California Pizza Kitchen's primary competitors, Brinker International Inc. (NYSE: EAT) reported second quarter 2011 adjusted EPS of 38 cents, surpassing the Zacks Consensus Estimate of 32 cents.

American Capital Agency 4Q Rocks

American Capital Agency Corp. (Nasdaq: AGNC), a real estate investment trust (REIT) that focuses on investments in mortgage pass-through securities and collateralized mortgage obligations (CMOs), reported earnings of $2.50 per share during fourth quarter 2010, compared to $1.79 in the year-earlier quarter. Excluding one-time items, recurring net income for the reported quarter was $1.26 per share.

For full year 2010, the company reported net income of $7.89 per share compared to $6.78 in the previous year. Excluding the one-time items, recurring net income for fiscal 2010 was $4.50 per share.

The company generated total revenues of $101.0 million during fourth quarter 2010 compared to $41.1 million in the year-ago quarter. For full year 2010, American Capital Agency reported total revenues of $253.1 million compared to $127.9 million.

American Capital Agency's fourth quarter results were positively affected by non-recurring net realized and unrealized gains on its derivative instruments, and net realized gains on available-for-sale securities. The derivative instruments, such as to-be-announced (TBA) mortgage short positions and payer swaptions, are primarily utilized by the company to hedge increases in interest rates.

Valspar Beats Estimates

Valspar Corporation's (NYSE: VAL) net earnings moved up 3 cents to 39 cents from last year's 36 cents and beat Zacks Consensus Estimate of 37 cents. Adjusted net earnings excluded charges relating to its Wattyl acquisition and restructuring actions of 5 cents and 2 cents per share respectively. Including these charges earnings per share was 34 cents -- flat year over year.

Revenues

Quarterly sales jumped about 25.3% year over year to $842.4 million driven by stronger volumes on the back of new business efforts and Valspar's new Australian paints acquisition, and surpassing the Zacks Consensus Estimate of $795 million.

Sales in Valspar's Coatings segment increased 16.6% year over year to $456.4 million and sales in the Paints segment shot $336 million up 43.9% from the prior year quarter. Sales from intersegment business increased 5.1% year over year to $50.1 million.

Operating expense as a percentage of net sales slightly decreased to 23.2% from last year's 23.4%. Gross margin decreased to 30.7% versus 32.3% in the prior year quarter.

Financial Review

Cash and cash equivalents at the end of the first quarter of 2011 increased 30.3% year over year to $168.3 million. Long-term debt of $949.8 million increased 8.8% from $873.3 million in the prior year.

Outlook

Valspar expects to continue to benefit from new businesses. Valspar expects adjusted net income per share to be in the range of $2.45 to $2.65 per share in fiscal 2011. However, the company expects raw material costs to increase in 2011 due to pricing and productivity.

Our Take

Valspar's solid results and robust margin gains in the past few quarters stem from dramatic cost reduction, increasing product prices and productivity gains. We are more optimistic on Valspar's long-term performance, which is likely to be driven by volume increases in both the Paint and Coatings categories.

Mixed Bag at Shire

Shire plc's (Nasdaq: SHPGY) fourth quarter 2010 earnings (excluding special items) of $1.03 per ADS, though in line with the Zacks Consensus Estimate were 7% below the year-ago earnings. The year-over-year decline was attributable to higher operating expenses which more than offset the increase in revenues during the reported quarter.

Quarter in Detail

Quarterly revenues increased 4.2% to $931.2 million, well above the Zacks Consensus Estimate of $894 million. Increased product sales helped boost revenues. The rise in product sales more than offset the decline in royalties during the final quarter of 2010.

Product sales went up 10% to $851 million. Product sales were pushed by strong performances of Vyvanse (up 25% to $181 million), Replagal (up 80% to $109 million), and Lialda (up 27% to $84 million). Recently launched Intuniv and Vpriv also performed well, registering sales of $43 million and $59 million, respectively.

During the fourth quarter of 2010, reported operating expenses climbed 17.5% to $735.2 million. Higher research and development (R&D) expenses (up 27.3% to $185.6 million) and selling, general and administrative (SG&A) expenses (up 13.8% to $419.7 million) fueled the rise in operating costs during the quarter.

The inclusion of the operating expenses of Movetis, acquired late last year, also led to the rise. While continued investment in the pipeline led to the rise in R&D expenses, the costs incurred by Shire to market newly launched products increased SG&A expenses.

Annual Results

For full year 2010, Shire earned $4.23 per share on an adjusted basis, in line with the Zacks Consensus Estimate but 21% above the year ago earnings. Earnings were boosted by higher revenues which climbed 15% to $3.5 billion. 2010 revenues surpassed the Zacks Consensus Estimate of $3.4 billion. Higher product sales (up 16% to $3.1 billion) and royalties (up 12.2% to $328.1 million) contributed to the rise in revenues.

Outlook

In addition to disclosing financial results, Shire also provided an outlook for 2011. For 2011, Shire is anticipating impressive revenue and earnings growth. Product sales are expected to register growth in line with that witnessed in 2010. The company expects the 2011 combined R&D and SG&A expenses (adjusted) to increase in the range of 10% - 13% on a year-over-year basis.

Our Recommendation

We currently have a Neutral recommendation on Shire, which is supported by a Zacks #3 Rank (short-term Hold rating). We believe Shire needs to expand its pipeline in order to maintain growth beyond 2015, as there are very few projects to be launched thereafter.

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