Peloton produces profit for the first time amid pandemic-demand spike, stock pushes toward new record

Peloton Interactive Inc. reported fiscal fourth-quarter earnings Thursday afternoon.

MarketWatch photo illustration/iStockphoto

A year after its initial public offering, Peloton Interactive Inc. is pedaling toward new highs amid a pandemic that is forcing people into their homes and away from gyms, creating demand for at-home fitness equipment.


on Thursday wrapped up its fiscal year by reporting that sales and subscribers roughly doubled in the 12-month period, and revealed its first profitable quarter as a public company and record quarterly revenue a little less than a year after its September 2019 IPO. Shares fell 3.8% Thursday from Wednesday’s record closing price of $91.17 — more than three times the IPO price of $29 a share — but pushed back toward record highs in after-hours trading following the release of the report, with gains of more than 7%.

Peloton reported fiscal fourth-quarter profit of $89.1 million, or 27 cents a share, on sales of $607.1 million, up from $223 million a year ago. Peloton reported a net loss of $47 million in the fiscal fourth quarter a year ago, just ahead of its IPO. Analysts on average expected earnings of 10 cents a share on sales of $586 million, according to FactSet.

“It has been another staggering year of growth, and I know all parts of the organization have had to work together to do everything possible to meet the incredible demand for our products and services,” Chief Executive James Foley said in a conference call Thursday. “The strong tailwind we experienced in March as the COVID-19 pandemic took hold has continued to propel demand for our products into the fourth quarter and first couple of months of Q1 fiscal year 2021.”

While still attempting to catch up to a flood of orders amid the COVID-19 pandemic — Peloton said Thursday it does not expect order-to-delivery times to normalize until around the end of the calendar year — the company is also looking to expand its customer base. On Monday, Peloton announced that it will reduce the price of its standard exercise bike and introduce a lower-priced treadmill, which could clear a path for potential buyers who were not willing to pay the large upfront costs for its products. It will also introduce a premium bike for fans who want top-of-the-line equipment.

Wedbush analysts noted that in a previous survey of 1,200 people, they found that Peloton could “dramatically improve” sales at a lower price point, especially in treadmills.

“42% of non-Peloton owners that were interested in fitness and familiar with the brand showed some level of interest in a $2,500 Tread, compared to just 30% showing interest in the current Tread,” the analysts wrote in a Sept. 9 note, after Peloton announced its new lineup. “Among existing Peloton bike owners, the number of respondents saying they would be ‘very interested’ in owning a treadmill from Peloton doubles based on the lower price, from 14% based on the $4,295 price point to 28% assuming a theoretical (at the time) $2,500 price point.”

While lower sales prices could hurt hardware margins and average selling prices, much of Peloton’s long-term prognosis focuses on the subscriptions for interactive workout media that owners continue to pay after they have received the equipment. Peloton announced Thursday that it now has 1.09 million subscribers, nearly doubling the 511 million that it reported at the end of its last fiscal year, topping its forecast of 1.04 million to 1.05 million.

In total for the fiscal year, Peloton collected revenue of $1.46 billion from the sale of equipment and $363.7 million from subscription services, up from $719 million and $181 million, respectively, in the previous fiscal year. Combined with other revenue from merchandise and other offerings, Peloton ended the year with $1.83 billion in sales, up from $915 million.

“By the end of FY 2020 our Peloton membership base grew to approximately 3.1 million, compared to 1.4 million members in the prior year,” Peloton detailed in a letter to shareholders Thursday. “Fueled in part by the challenges associated with COVID-19, member engagement reached new highs with 164 million Connected Fitness Subscription workouts completed in FY 2020.”

For the current fiscal year, which began in August, Peloton predicted htat subscribers and revenue would roughly double yet again. The company guided for revenue of $3.5 billion to $3.65 billion, with connected subscribers swelling to 2.05 million to 2.1 million. Analysts on average were predicting revenue of $2.74 billion and subscribers of 1.78 million ahead of the report, according to FactSet.

Peloton stock has gained more than 260% since its IPO; the S&P 500 index

has returned 17.7% in that time. In after-hours trading Thursday, shares topped $94 following the release of the report.

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Pandemic pushes U.S. insurers to avoid already strained senior care market By Reuters

© Reuters. FILE PHOTO: Outbreak of the coronavirus disease (COVID-19) in Massachusetts

By Suzanne Barlyn

(Reuters) – The coronavirus pandemic has made it even harder for senior-care centers in the United States to find or afford standard liability insurance, with rates soaring by as much as 300%, insurance brokers said.

Residential care communities like nursing homes and assisted-living facilities had already faced escalating prices and a dearth of insurance providers for years. Outbreaks of the novel coronavirus and a related respiratory disease called COVID-19 in such centers only exacerbated the problem.

“It was already on an upward trajectory but COVID accelerated it,” Deepa Desai, who heads insurance broker Aon Plc’s (N:) healthcare practice, said about rates.

Senior care facilities need general and professional liability insurance, which protect against everything from slip-and-fall incidents to staff-member mistakes that harm patients.

Senior-care providers with expiring policies have struggled to find insurers that will offer coverage in recent months, as some imposed moratoriums on new business deals and others jacked up prices to unaffordable levels, brokers said.

For instance, insurance company Chubb Ltd (BN:) imposed a moratorium on new senior-community clients in March, two sources familiar with the matter said. Chubb recently ended the moratorium but is being highly selective about terms and clients it accepts, they said. A Chubb spokesman declined to comment.

Senior-care communities who can renew policies are paying far more for less coverage, industry sources said. Some insurers are adding exclusions not just for the novel coronavirus, but for communicable diseases at large. Exclusions for costs related to class-action lawsuits are also cropping up.

On June 19, families of three patients who died from COVID-19 at Summit Manor sued the Columbia, Kentucky-based nursing home, saying it failed to protect residents. A spokeswoman for Signature HealthCare, which owns the facility, declined comment.

To mitigate those risks, insurers are requiring customers to answer “COVID-19 questionnaires” that ask about previous outbreaks, visitation procedures and preparations for a second wave, said Joanne Wankmiller, national senior care practice leader for Marsh, insurance brokerage unit of Marsh & McLennan Companies Inc (N:).

Church Mutual Insurance Co’s five-page questionnaire asks about personal protective gear supplies.

“We have concerns about new shortages being able to emerge again,” said Jim Ketterson, the company’s senior living director.

It is not yet clear how higher insurance rates are impacting the U.S. senior care industry, but pandemic-related expenses have already pushed some entities into the red.

Hallworth House, a Providence, Rhode Island-based nursing home, said last month that it would close in August after losing more than $1.3 million during the past two years. The pandemic sickened more than half of its 51 residents and 20 staff members in recent months, and 12 residents died.

The industry is also experiencing lower revenue, as the pandemic keeps prospective customers away.

Nursing home occupancy fell nearly 6 percentage points to 79% in April from 85% in February, according to the National Investment Center for Seniors Housing & Care. That is partly because of state and local lockdowns and fewer referrals for care by some insurance plans due to federal restrictions.

The senior-care industry is lobbying for broad federal immunity from lawsuits and also pinning its hopes on efforts in at least 21 states to grant various forms of immunity, including to nursing homes and health care providers.

In the meantime, some senior care companies are thinking about creating insurance cooperatives to offset surging rates, said Barbara Duffy, a Seattle-based lawyer who advises senior communities on insurance.

“These staggering bills could bring the profession to a breaking point,” Duffy said.

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Campari shares rise as investor pushes for drinks group’s move to Netherlands By Reuters

© Reuters. Campari bottles are seen in a bar downtown Milan


MILAN (Reuters) – Shares in Campari (MI:) rose 2% on Friday after the drinks maker’s controlling investor pledged to buy shares ahead of a vote next week on the group’s plan to shift its registered office from Italy to the Netherlands.

As part of the change of domicile plan, shareholders who oppose it have the right to exercise withdrawal rights.

Controlling investor Lagfin, which supports the change in domicile, said in a statement late on Wednesday that it was willing to buy up to 38 million more shares from shareholders who oppose the move, at a price of 8 euros each for a total of 304 million euros ($341 million).

The transaction was due to end Friday at 1600 GMT and Campari shares were up 2% at 7.80 euros by 1443 GMT.

Lagfin’s pledge to buy additional shares is expected to reduce the cost for the group to liquidate withdrawn shares and increase the chances that the redomiciliation is approved at next week’s shareholders’ meeting, Berstein analysts said in a comment.

The Aperol maker announced in February that it planned to move its registered office to the Netherlands and introduce an enhanced loyalty share scheme, in a move aimed at increasing M&A opportunities.

Shareholders approved the plan at a meeting in March, subject to several conditions. They are due to vote again on the move on June 26.

Lagfin already committed in February to spend 76.5 million euros to buy withdrawn shares at the withdrawal price of 8.376 euros each and support the group, which said it would reject the redomiciliation if the cost to liquidate withdrawn shares was too high.

Campari plans to set up a registered office in the Netherlands but keep its headquarters in Milan and its listing on the Milan bourse.

($1 = 0.8904 euros)

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Gerdau Flattened As Covid-19 Pushes Brazil’s Long Steel Recovery Out At Least A Year (NYSE:GGB)

This had been shaping up as a good year for Gerdau (GGB), with good underlying evidence of growing steel demand on improving vehicle production in Brazil, increasing non-residential construction investment, and recovering industrial and consumer markets. Then Covid-19 swept the globe, and now Brazil’s looking at a year of GDP contraction, and probably not much GDP growth until late 2021 or 2022. On top of that, the U.S. non-residential market doesn’t look all that healthy to me over the next few years.

I do believe Gerdau is one of the better emerging market steel companies, but the headwinds in Brazil, the U.S., and the rest of LatAm are real. That makes Gerdau a riskier call in the short term, but I also do think the current share price underestimates the company’s long-term potential.

Okay Results Despite Weaker Conditions In Brazil

Brazilian demand fell off more sharply than expected, and Gerdau didn’t do as well as expected with its export business (exporting from Brazil), but overall results weren’t too bad. Revenue missed by about 6%, and good expense management held the EBITDA miss to just 1%. Gerdau ended the quarter with more debt than I’d like (R$14.1 billion), but the company’s cash and debt maturity position is okay and I don’t see much risk of meaningful negative free cash flow during this downturn.

Revenue declined 8% from the prior year and 3% from the prior quarter, with weak volume (down 11% / down 13%) driving the weakness. Price realizations were okay, up 2% yoy and 11% qoq overall, helped by healthy price realizations on exports from Brazil. Gerdau saw double-digit increases in cash COGS per tonne, and coupled with weaker utilization that drove a 340bp yoy decline in gross margin (but a 220bp qoq improvement). Reported EBITDA fell 25% yoy and rose 4% qoq, while adjusted EBITDA declined 33% yoy and 9% qoq.

Gerdau saw revenue fall 11% yoy and 16% qoq in Brazil, driven overwhelmingly by the weaker export business. Domestic revenue was flat yoy and down 5% on broadly similar shipment trends and flattish pricing, but export revenue fell by more than half (both yoy and qoq) as steep shipment declines offset better realized pricing (helped by the depreciation of the Brazilian currency). Gross margin fell about two points from the prior year, but rose about five points sequentially, while EBITDA fell 21% yoy and came in flattish qoq and EBITDA per tonne fell 18% yoy and rose 10% to $108/mt.

The North American business fared better, with 3% yoy and nearly 18% qoq growth on stronger than expected shipments (up 7% qoq) and mixed pricing (up 10% qoq in BRL). Gross margin fell 350bp yoy and improved almost three points sequentially, while EBITDA declined 16% yoy and jumped 61% qoq, with EBITDA per tonne up 44% qoq to $85/mt.

The South American business saw revenue fall 5% yoy and 23% qoq, with EBITDA up 5% yoy and down 11% qoq. The Specialty steel business reported 22% yoy revenue contraction and 3% revenue growth, with EBITDA down 50% yoy and up 4% qoq.

The Relaunch Of Brazil’s Economy Gets Scrubbed For 2020

This was supposed to be the year in which Brazil finally showed some real economic recovery and progress, but with the Covid-19 outbreak that’s no longer in the cards. Obviously nobody really knows how the next six and a half months are going to go for any country, but it seems unlikely to me that Brazil will manage a strong second-half rebound given recent trends in infection rates and the state of global commodity markets.

Brazilian construction had been picking up, but with long steel shipments down 12% in the month of April and demand continuing to weaken in May, I think it is safe to assume that many of the construction projects that were going to help propel Gerdau are now on hold. I do think “on hold” is a relevant consideration though, as I’m not seeing much yet in terms of cancelations (though it’s harder to get current data for Brazil). I think, then, that Gerdau is going to still see the expected steel demand recovery, just later than originally modeled.

Likewise, after years of underinvestment, I believe Brazil needs a prolonged period of non-residential construction investment. That, in turn, could support a multiyear recovery at Gerdau and a meaningful improvement in operating rates from the sub-70% levels the company has being seeing (even worse recently given the temporary shutdowns of mills in Brazil). As steel company capacity utilization improves, there’s typically a disproportionate positive improvement in margins. One key “but” is the political situation in Brazil; the government was controversial before and its conduct during the Covid-19 crisis hasn’t helped public or business confidence, and that could be a barrier to increased fixed asset investment in the near term.

North America Not Likely To Be A Big Help

I’m frankly more concerned about Gerdau’s North American operations than the Brazilian or South American operations. I’ve addressed my thoughts on Brazil, and I think Gerdau’s very profitable operations in Peru and Argentina will be fine, even though GDP growth is likely to be pressured for a couple of years (though Peru should still stand out from the pack in a positive way).

In North America, though, Gerdau’s operations are heavily skewed toward non-residential construction, with merchant bar and structural steel making up the large majority of the output. Gerdau is one of the largest long steel producers in North America, and I believe non-residential construction could be in for a two-to-three-year downturn. Moreover, while companies like Nucor (NUE) and Commercial Metals (CMC) have offsetting leverage to infrastructure projects (if there’s an infrastructure stimulus package passed), I don’t see that being as helpful to Gerdau.

The Outlook

I think it’s worth remembering that the correction we’re seeing in 2020 isn’t so unusual for steel companies in general or Gerdau in particular. Peak-to-trough drops of 15% to 30% are not that unusual, although the speed of this one is different, and the more compressed timeline certainly creates challenges in adjusting costs and capex to the new near-term realities.

I expect Gerdau to return to growth in 2021, and I believe better conditions in Brazil can help drive a healthy recovery in the following years. All told, I still believe low-to-mid single-digit long-term annualized revenue growth is attainable, with Brazil being the stronger initial driver, contributions from Peru and other LatAm countries a little later, and then a recovery in North America. With improved utilization rates in Brazil in the coming years, I also expect better margins and cash flows to follow. Long-term revenue growth in the neighborhood of 4% and FCF margins in the mid-to-high single-digits should be enough to support a double-digit annualized total return from here. EV/EBTIDA (using the long-term average multiple on 2021 EBITDA) and ROE-P/BV also support a higher valuation today.

The Bottom Line

Gerdau isn’t my favorite steel pick (that would be Mexico’s Ternium (TX)), but I think Brazil will be the better economy/steel market over the next couple of years, and I think Gerdau has meaningful leverage to improved capacity utilization in Brazil. To my thinking, Gerdau is as much a play on renewed investor confidence in Brazil at some point down the line as on its qualities as a steelmaker. That’s okay, as I think Brazilian stocks have been hit too hard, but investors should be prepared for underlying volatility in Brazil’s economic situation to impact this stock even in a post-Covid-19 recovery scenario.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Europe Pushes Higher as Trade War Threat Recedes By

© Reuters.

By Peter Nurse – European stock markets pushed higher Friday, helped by a lessening of tensions between China and the U.S. ahead of key employment data.

At 4 AM ET (0800 GMT), the in Germany traded 0.8% higher, and 40 rose 0.6%. The U.K.’s index was closed due to a holiday.

China’s Vice Premier Liu He talked with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin by phone on Friday Beijing time, according to China’s Xinhua News Agency. The two sides pledged to cooperate on the economy and public health, the report said.

The two sides have traded barbed comments about the origin and spread of the Covid-19 pandemic over recent days, with the Trump administration at one point threatening trade sanctions as a punishment for China’s perceived part in the outbreak.

In corporate news, ING  (AS:) stock climbed over 5% despite the Dutch bank posting a drop in first quarter profit of 35% on the back of higher provisions taken for the potential fallout from the coronavirus outbreak. The numbers were still better than expected.

However, activity is likely to be limited Friday ahead of the key U.S. employment report for April, which will capture an entire month of lockdown measures that brought large parts of the economy to a standstill.

Economists expect that plunged by 22 million last month, when the data are released at 8:30 AM ET (12:30 GMT).

“That bad report tomorrow is actually going to understate how bad the damage has been,” Minneapolis Federal Reserve Bank President Neel Kashkari explained, adding that the reported unemployment rate could be as high as 17%, but he says the true number may be as high as 24%. “It’s devastating.”

Oil futures pushed higher Friday, with investors cautiously optimistic as lockdown measures continue to be loosened in the U.S. leading to slow but steady increases in demand.

At 4 AM ET, June futures traded 4.8% higher at $24.69 a barrel. The international benchmark contract rose 2.8% to $30.28.

Elsewhere, rose 0.2% to $1,729.80/oz, while traded at 1.0828, largely flat.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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