Tag Archives: fourth

Buy The Fourth Quarter Of The Third Year Of The Presidential Cycle

The best time to buy the Presidential Election Cycle is from September of the second year to April of the third year. Nevertheless, the fourth quarter of the third year is strong, particularly after a weak third quarter. In the past, it was better to buy near the end of October than at the end of September. How does the fourth quarter do in the third year of the Presidential election cycle? ‘Everyone knows’ that the third year of the Presidential cycle is incredibly reliable, and has returns that far exceed the other three years. Even Grantham has touted it, which I thought must be tongue-in-cheek, because he is a macro-guy. So I decided to go back and check, and found his letter written at the end of the third quarter in 2014 for GMO. It turns out he was quite serious. Regular readers know the score: +2.5% a month for the seven months from October 1 to April 30, in year three on average since 1932 (a total of +17%). This is now the 21st cycle. The odds of drawing 20 random 7-month returns this strong are just over 1 in 200 according to our 10 million trials. But 17 of the actual 20 historical experiences were up, and the worst of the 3 downs was only -6.4%, so the odds of this consistency plus the high return would be much smaller. The remaining 5 months of the Presidential year have a good but not remarkable record, over .75% per month, but the killer here is that the remaining 36 months since 1932 averaged a measly +0.2% a month!” Reference to the remaining 5 months means that Grantham views the third year of the Presidential cycle as running from September to September. More importantly, we have missed the key months from September 30 to April 30. From 2014 to 2015, that time span had the S&P 500 rising by 11.39%, which is not too shabby given what the market has done since. Yahoo Finance only had S&P 500 data as far back as 1950. So my analysis is for the 16 third years since then (see the table below). We have completed 17 years from his September to April time frame, however, and I calculated an average 19.72% return for those time periods, with a median return of 19.49%. There was only one decline of -.76% in 1978-79. But dividends have not been included. So every period actually had a positive total return. For the full calendar third year, the average return was 17.12%, with a median return of 18.08%. That’s very good also, but not as good, and that is a 12-month return versus Grantham’s 7-month return. For all years since 1950, the average calendar year gain was 9.18%. Therefore, the average gain in the other 3 years of the Presidential cycle works out to 5.69%. Out of the 16 third years, 15 were up, and one was unchanged (2011). With stocks down YTD, the odds would appear to be good that we will get a nice rally over the last three months. I say ‘appear to be good’, because statistically we can’t calculate the odds. This is a small sample. It is not a random sample. And there is no solid theory to support why the pattern of the recent past should hold in the future. Let’s see how the last three months of the third year have done since 1950. From 9/30 to the end of the year, the average gain in the S&P has been 3.04%, with a median return of 4.39%. The mean is lower because of the skew created by 1987. Third Year Pres. Cycle %ch. Oct. 31 to end of yr % ch. Sept. prev. yr to April 3rd yr % ch. Full 3rd year % ch. April to Sept. 3rd yr % ch. 9/30 to end of 3rd yr % ch. Sept. low to end 3rd yr % ch. Oct. low to end 3rd yr % ch. Sept. 30 to Oct. low % ch. Sept. low to Oct. low 1951 3.62 15.32 16.35 3.7 2.19 2.19 4.9 -2.58 -2.58 1955 7.42 17.49 26.40 15.04 4.14 6.74 11.47 -6.57 -4.25 1959 4.12 15.04 8.48 -1.23 5.29 8.61 6.95 -1.55 1.56 1963 1.36 24.04 18.89 2.72 4.63 4.63 4.38 .24 .24 1967 3.40 22.79 20.09 2.87 -.25 2.98 3.4 -3.53 -.41 1971 8.34 23.31 10.79 -5.4 3.81 4.58 8.85 -4.63 -3.92 1975 1.29 37.39 31.55 -3.93 7.54 9.86 8.75 -1.12 1.02 1979 5.91 -.76 12.2 7.43 -1.35 1.35 7.84 -8.53 -6.02 1983 .84 36.55 17.27 1.00 -.69 .43 .95 -1.63 -.52 1987 -1.87 24.66 2.03 11.61 -23.2 -20.4 9.89 -30.1 -27.6 1991 6.28 22.64 26.31 3.31 7.56 8.73 10.69 -2.83 -1.77 1995 5.92 11.24 34.11 13.54 5.39 8.28 6.65 -1.18 1.53 1999 7.8 31.28 19.53 -3.93 14.54 15.84 17.78 -2.75 -1.65 2003 5.83 12.47 26.38 8.62 11.64 11.64 9.20 2.23 2.23 2007 -5.23 10.97 3.53 2.99 -3.82 1.15 -2.15 -1.71 3.37 2011 0.34 19.49 -.003 -17.0 11.15 11.34 14.41 -2.5 -2.69 2015 11.39 -7.93 Mean 3.46 19.72 17.12 1.96 3.04 4.87 7.75 -4.32 -2.59 Med. 3.87 19.49 18.08 2.87 4.39 5.68 8.30 -2.67 -1.09 (The median date of the September low is the 21st. The median date for the October low is the 17th.) The average fourth quarter gain for all years since 1950 is 4.06% with a median of 4.92%. So the third year of the Presidential cycle has a lower average using both measures. The much lower mean is probably because of 1987, but clearly the fourth quarter of the third year is actually not as good as other years. There were 5 down quarters out of 16. They were 1967, 1979, 1983, 1987 and 2007. But all 5 years that declined from April to September 30 (1959, 1971, 1975, 1999, and 2011) had good gains in the fourth quarter . This augurs well for 2015, but 5 out of 5 does not mean we have to get 6 out of 6. The average gain for the two months following October 31 was 3.46% with a median of 3.87%. I don’t know what the comparable percentages are for all years. Two years had declines – 1987 and 2007. So the return is better for the last two months than the last three months. This should not be a surprise. I compared the October lows with the September lows, and found that on average (in the third year), the October low was 2.59% lower than the September low (see the table). October had a lower low in 10 out of 16 years. If you can identify the October low, then the average gain from there to the end of the year was 7.75% with a median of 8.30%. 2007 was the only down year with a loss of -2.15%. Locating the vicinity of the October low is not as stupid as it sounds. The median low date was October 17th. Unfortunately, the 1987 crash was on the 17th, 18th and 19th with the huge losses on the 19th (I remember it well. I was 100% invested and canoeing a river in Missouri.). Eight of the 16 lows were on the 19th or later. Three of the lows were on the second to last or last day. So if you buy at the close on the third to last day, you should be able to beat that average return dated from the end of October. The last two days in October are pretty good on average. I will buy stocks when Financial Select Sector SPDR ETF (NYSEARCA: XLF ) hits a twenty-day high (adjusted for dividend payments). The levels are posted in my Instablog. I actually buy small caps when XLF hits a twenty-day high. I compared the Russell 2000’s performance in the fourth quarter of the third year with the S&P 500 since 1987, and found that on average the S&P did slightly better. The R2000 is more volatile. In strong fourth quarters, it beat the S&P. In weak fourth quarters, it underperformed badly; e.g. 1987. I’m pretty optimistic about the last two months of the year. There is a strong possibility that October will be bad, because of all the negative macro- indicators. Risky high-yield investments like MLPs, mREITs, and junk bonds have been hammered. Sentiment is very negative as indicated by Investors Intelligence, Hulbert’s sentiment measures, Rydex, and Citigroup’s Euphoria/Panic model. I think sentiment follows the market. If October brings further drops in stock prices, then these measures will become even more negative, but that will set us up for a bigger bounce into the end of the year.

Cleco (CNL) Bruce A. Williamson on Q4 2014 Results – Earnings Call Transcript

Cleco Corp. (NYSE: CNL ) Q4 2014 Earnings Call March 02, 2015 9:30 am ET Executives Robbyn Cooper – Manager, Investor and Public Relations Bruce A. Williamson – Chairman, President & Chief Executive Officer Thomas R. Miller – Senior Vice President and Chief Financial Officer Darren J. Olagues – President, Cleco Power LLC Analysts Paul T. Ridzon – KeyBanc Capital Markets, Inc. Brian J. Russo – Ladenburg Thalmann & Co., Inc. (Broker) Operator Welcome to the Cleco Corporation Fourth Quarter 2014 Earnings Call. My name is Laura, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Ms. Robbyn Cooper, Manager of Investor and Public Relations. Robbyn, you may begin. Robbyn Cooper – Manager, Investor and Public Relations Good morning, and welcome to Cleco Corporation’s 2014 fourth quarter and year-end earnings call. You can access this call and slide presentation live via the Internet from Cleco’s website at www.cleco.cominvestors. Telephone and Internet replays can be accessed through our website. The dial-in number for the telephone replay is 888-843-7419 if in the U.S., or 630-652-3042 if outside the U.S. The conference ID is 38458256. With me on the call today is Bruce Williamson, Chairman, President, and Chief Executive Officer of Cleco Corporation; and Tom Miller, Senior Vice President, Chief Financial Officer and Treasurer; along with other members of Cleco management. Before we begin, please keep in mind that during the conference call, we will make some forward-looking statements. These statements are subject to many risk and uncertainties. Actual results may differ materially from these contemplated in our forward-looking statements. Please refer to our cautionary note regarding forward-looking statements and risk factors in various reports filed with the U.S. Securities and Exchange Commission, including our 2014 Annual Report on Form 10-K and current reports on Form 8-K. In addition, please note that the date of this conference call is March 2, 2015, and any forward-looking statements that we may make today are based on assumptions as of this date. And with that, I will turn the call over to Bruce. Bruce A. Williamson – Chairman, President & Chief Executive Officer Thanks, Robbyn. Good morning and thank you for joining us. This morning, we’ll review the 2014 fourth quarter and full year results. Let’s start with the agenda for today’s call, which is on slide 3 of our presentation for those of you following along via the webcast. I’ll begin today’s call with an update on the merger transaction and a recap of 2014 accomplishments. Tom will then discuss fourth quarter and year-end financial results and I’ll finish up the call with a discussion of our objectives for 2015 and then we’ll move to Q&A. Please turn to slide 4. As discussed in our previous call last October, the company announced an agreement to be acquired by a group of North American-based long-term infrastructure investors led by Macquarie Infrastructure and Real Assets or MIRA and British Columbia Investment Management Corporation, also known as BCIMC. In February, we were pleased to receive notification that all four corporate governance and shareholder advisory firms had joined our board in recommending that both the merger-related votes be approved. Last Thursday, we held a meeting of our shareholders to vote on the proposals related to the merger. I’m pleased to report that our shareholders overwhelmingly approved the merger transaction. The merger proposal passed with a vote of more than 94% of votes cast, which is equal to approximately 77% of all shares outstanding. This overwhelming vote of confidence for management, the board of directors and the transaction shows that we structured a transaction that our shareholders see value in. We’ll now turn our focus towards the remaining regulatory approvals needed to close the transaction. On February 10, we filed our merger application with the Louisiana Public Service Commission and that filing can be found on our homepage. Independent consultants and legal counsel selected by the LPSC in December will help them review the application. The LPSC staff has begun the discovery phase of the review and, in the coming months, an administrative law judge will set a procedural schedule for the timetable for the application process. The remaining applications, including among others the Federal Energy Regulatory Commission or FERC, Hart-Scott-Rodino or HSR are expected to be filed later this month. In structuring the merger agreement, we work to ensure that Cleco will remain a Louisiana-based company with local operations and local management. We believe our proposed regulatory commitments address the LPSC’s concerns and represent our commitment to our employees, retirees, customers, and the communities we serve. We’re exceptionally pleased with the outcome of the shareholder vote and will continue to work through the approval process to obtain the remaining regulatory approvals. We still expect the transaction to close in the second half of 2015. I’ll now turn to slide 5 to recap 2014 accomplishments. In addition to announcing the strategic transaction, we also delivered on key regulatory and strategic initiatives. We produced another strong year and reported operational earnings of $2.74 per share, up $0.21 per share when compared to 2013, which puts us near the top-end of our earnings guidance range of $2.65 per share to $2.75 per share. Positive drivers for the year included higher revenues associated with the start of the wholesale contract with Dixie Electric Membership Corporation or DEMCO, a favorable multi-year settlement with taxing authorities and ongoing cost management efforts. These positive drivers helped to offset mild weather for the year, and the rate decrease and customer refund associated with our formula rate plan extension that began in July. Our strong financial position prompted us to raise the annual dividend on the company’s common stock to $1.60 per share, which represents a 10% increase. This marks the sixth dividend increase in the last 4.5 years. Finalizing the formula rate plan was perhaps the most important regulatory accomplishment. The rate plan extension, which went into effect July 1, extends our previous rate plan design by four years. The extension did reduce our target ROE to 10% from 10.7%, but it also retained some customer sharing provisions. Importantly, the extension finalized the rate treatment of the Coughlin Power Station, which we transferred to our regulated utility in March. And overall it reduced forward rates to customers by about $34 million annually, which is in large part due to cost management efforts of the last 3.5 years along with the reduction in target ROE and thereby reset our earnings downward to the guidance range that we issued in late 2014. Coughlin Power Station was the last remaining asset in our unregulated business. Following the completion of the transfer, our company is streamlined to focus on the regulated utility subsidiary. Coughlin is a combined cycle gas-fired unit and it increases the efficiency of the generation fleet and provides low-cost power for all retail and wholesale customers. Moving on, last year we were successful in negotiating a tax settlement with a state taxing authority. The settlement produced a benefit to earnings that was recorded in the third quarter of 2014 and the settlement is favorable for both the company and the state, and will provide clarity on future tax treatment of agreed-upon items. And with that, I’ll now turn the call over to Tom to discuss our fourth quarter and year-end financial results. Thomas R. Miller – Senior Vice President and Chief Financial Officer Thanks, Bruce. (7:24-7:29) of our fourth quarter operational results. GAAP earnings were $0.35 per share for the fourth quarter of 2014, a $0.06 decrease compared to the fourth quarter of 2013. Operational earnings for the quarter were $0.60 per diluted share, a $0.19 increase compared to the fourth quarter of 2013. Lower O&M related to outages at our generation facilities and a gain on the sale of property drove operational earnings for the quarter. Operational earnings exclude items associated with tax levelization expense, which was $0.05, and merger transaction cost, which were $0.20 in the fourth quarter. Looking from left to right on the operational reconciliation chart, Cleco Power’s non-fuel base revenue declined $0.09 per share from this time last year. Higher revenues primarily to a new wholesale customer increased earnings by $0.06 per share. A lower rate refund associated with site specific customers increased earnings by a $0.01. These increases were offset by $0.09 per share as a result of lower retail customer usage and milder weather. And the 2014 formula rate plan extension decreased revenue by $0.07 per share. Other expenses increased earnings by $0.21 per share due to $0.13 per share related to fewer planned outages at our generation facilities this past quarter compared to the fourth quarter last year; $0.06 per share related to a gain on the sale of property, $0.05 per share of lower taxes other than income and $0.03 per share related to lower depreciation and amortization expense. These increases were partially offset by $0.03 per share from the absence of the recovery of capacity expense related to the Coughlin tolling agreement, $0.02 per share related to higher capacity cost associated with wholesale contracts and $0.01 per share of higher miscellaneous expenses. Interest expense was lower and increased earnings by $0.03 per share. $0.02 were related to the absence of a surcredit customer giveback, which is now included in base rates as a result of the FRP extension, and $0.01 per share of lower miscellaneous charges. And finally, lower income taxes increased earnings by $0.04 per share due to $0.03 per share of miscellaneous tax items and $0.02 per share of tax expense to reflect the annual projected tax rate. This was partially offset by $0.01 per share due to lower tax credits. Now, please turn to slide 7 for a review of year end results. For 2014, GAAP earnings were $2.55 per diluted share, a $0.10 decrease compared to 2013. Operational earnings for 2014 were $2.74 per share, a $0.21 increase compared to 2013. As a reminder, operational earnings exclude non-operational items associated with $0.01 benefit from Acadia Unit 2 indemnifications, a $0.03 gain from insurance policies and $0.23 associated with the merger. Again, looking from left to right on the reconciliation chart, Cleco Power’s non-fuel base revenue was up $0.08 per share from this time last year. Higher revenues primarily from wholesale business growth including the contract with DEMCO increased the earnings by $0.35 per share. These increases were offset by a $0.22 decrease related to the one-time customer refund in September as part of the formula rate plan extension and $0.05 per share related to lower customer usage and mild weather for the year. Other revenue increased earnings by $0.03 per share due to transmission revenue as a result of joining MISO. Other expenses decreased earnings by $0.15 per share, primarily due to $0.18 per share from the absence of the recovery of capacity expense related to the Coughlin tolling agreement. As Bruce stated earlier in the call, Coughlin Power Station has now included base rates as part of the FRP extension. $0.04 per share related to higher depreciation and amortization expense, $0.04 per share related to higher capacity cost associated with wholesale contracts, and $0.02 per share related to higher planned outages at our generation facilities. These decreases were partially offset by $0.06 per share of lower taxes other than income, and lower taxes related to favorable settlement with taxing authorities. $0.06 per share related to the gain on the sale of property, and $0.01 per share, related to lower loss on disposal of assets related to the Coughlin outage. Interest expense was lower and increased earnings by $0.11 per share due to $0.06 per share from favorable settlements with taxing authorities, $0.04 related to the absence of a surcredit credit customer give back, and $0.01 per share of lower miscellaneous charges. AFUDC earnings – increased earnings by $0.02 per share due to MATS capital spend. And finally, lower income taxes increased earnings by $0.12 per share, primarily due to $0.18 per share of lower taxes due to favorable settlements with taxing authorities, and $0.02 per share of lower miscellaneous tax items. These benefits were partially offset by a $0.08 per share due to lower tax credit. I will now turn to slide 8 to discuss our 2015 earnings guidance. On last quarter’s earnings call, we issued our 2015 consolidated operational earnings guidance of $2.28 to $2.38 per diluted share. This earnings guidance is based on normal weather, reflects a full year of operations under the new FRP extension, assumes an effective tax rate of approximately 36%, and excludes adjustments related to life insurance policies and merger transaction cost. Cleco will continue to operate in the ordinary course of business until the merger closes. Prior to the closing of the transaction, Cleco’s ability to buy back stock or make tax-based investments without the consent of the new owners is generally limited to the ordinary course of business. Bruce will give some closing marks. Bruce A. Williamson – Chairman, President & Chief Executive Officer Thanks, Tom. Before going to Q&A, I want to take a few minutes to address our near-term strategic objectives and then we’ll take your questions. Our most important task for 2015 is obviously to finalize the regulatory and other approvals required to complete the merger transaction. As I stated earlier on the call, we anticipate a closing date in the second half of 2015. Over the last four years, our shareholders have received an exceptional return on their investment as shown by an approximate 90% total shareholder return, including the premium associated with the upcoming merger. Another way to think about the value of the transaction is when you apply 2015 earnings to the offered share price of $55.37, we’re trading CNL through the transaction at a PE multiple of approximately 23.8 times the midpoint of our 2015 operational earnings guidance, which is about 50% to 60% higher than where the electric utility industry trades today. Lastly, another way to think about it is our earnings or rate base which drives the earning power would need to be 50% to 60% higher than what it is today to realize enough earnings to support this price point. In summary, we achieved a very full valuation for our public shareholders and their support of the merger vote shows they understand this. Importantly, however, this transaction also benefits all of our stakeholders. Our new owners will ensure that Cleco remains to be locally managed and operated, and the transition for our customers and communities will be seamless. Our employees and retirees will retain the same pay and benefits and Cleco will remain dedicated to its core business of safe operations and reliable power and prompt customer service. And with that, we’ll open the call for questions. Question-and-Answer Session Operator And our first question comes from Paul Ridzon. Paul, your line is open. Paul T. Ridzon – KeyBanc Capital Markets, Inc. When do you expect the procedural schedule to be filed? I’m sorry, I missed that. Bruce A. Williamson – Chairman, President & Chief Executive Officer Paul, I’ll let Darren answer that one. Darren J. Olagues – President, Cleco Power LLC Paul, we have to get through the intervention period first, right, which ends on March the 10. Then we’ll proceed towards that as part of the next step. So I don’t have a specific answer for you right now, but I guess the next milestone, if you will, now that the application has been filed with the 30-day window for the interveners, is this March 10 date. Paul T. Ridzon – KeyBanc Capital Markets, Inc. Okay. And then, is there some weather sensitivity at the industrial side? They were down I think 13% this quarter or is that just some planned outage or something? Bruce A. Williamson – Chairman, President & Chief Executive Officer One of our customers has a planned outage that brought down some of the industrial use, that is true. Paul T. Ridzon – KeyBanc Capital Markets, Inc. Okay. Thank you. Operator And our next question comes from Brian Russo. Brian, your line is now open. Brian J. Russo – Ladenburg Thalmann & Co., Inc. (Broker) Hi. Good morning. Bruce A. Williamson – Chairman, President & Chief Executive Officer Hey, Brian. Brian J. Russo – Ladenburg Thalmann & Co., Inc. (Broker) Just curious on the independent consultant review of the merger agreement. Is there some sort of formal process there, meaning will that analysis be made public and/or be discussed in some sort of upcoming open meeting? Bruce A. Williamson – Chairman, President & Chief Executive Officer Darren? Darren J. Olagues – President, Cleco Power LLC Yeah. I mean, ultimately we – like our past practices, we hope to have a settlement proceed towards the commission ultimately for the vote. And in that, there is testimony that’s provided by the consultants in that, and so, the essence of their analysis will be reflected in that testimony. Brian J. Russo – Ladenburg Thalmann & Co., Inc. (Broker) Got it. Okay. Great. Thank you very much. Operator Okay. And I’m actually seeing no questions at this time. Bruce A. Williamson – Chairman, President & Chief Executive Officer Okay. Thank you for your questions this morning. As we close this investor call, I’d like to recognize the work of Sybil Montegut and Mallory Biegler who comprise our investor team. They were nominated as finalists by institutional investors to be an all American IR team, and it’s an honor to have them be named as finalists by the input and voting of our largest institutional investors. Obviously, if anyone has any questions after the call today, please give Mallory or Sybil a call. I’d also like to commend (19:38) and the rest of the safety department along with all of our employees for their continued focus on employee safety. We initiated a complete top to bottom rework of our safety program in late 2011 and they’ve continued to seek best practices over historic practices in all facets of safety, and today we’re firmly among the best performing utilities in terms of safety performance. We do not take this performance improvement lightly, however, and we want every employee to continue to focus in 2015 and strive for Target Zero. I also would like to end the day with just a final thanks for our shareholders to their resounding support for the strategic transaction with Macquarie and the BCIM led investor group. Thank you. Operator Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. 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