price to sales ratio

AGRIUM INC. $53 (Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 157 million; Market cap: $8.3 billion; Price-to-sales ratio: 0.7; SI Rating: Average) earned $370 million, or $2.35 a share, in the three months ended June 30, 2009 (all amounts except share price and market cap in U.S. dollars). Low fertilizer prices have forced Agrium to write down some of its inventories. If you exclude all unusual items, the company would have earned $387 million, or $2.43 a share. That’s 39.2% less than the $636 million, or $4.00 a share, that Agrium earned a year earlier. Sales rose 5.7%, to $4.1 billion from $3.9 billion, mainly because Agrium bought U.S.-based farm-products retailer UAP Holding Corp. in May 2008, and this business is making a larger contribution to its results. Poor weather conditions have hurt fertilizer demand. Farmers have also had problems getting credit during the recession. As a result, many have put off buying fertilizer and other supplies. These factors have contributed to lower fertilizer prices, particularly for potash. However, demand for other products, such as seeds and crop-protection chemicals, is rising. Agrium is still a hold.

LOBLAW COMPANIES LTD. $33 (Toronto symbol L; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 274.2 million; Market cap: $9 billion; Price-to-sales ratio: 0.3; SI Rating: Above Average) is Canada’s largest supermarket operator, with over 1,000 stores. The company’s major banners include Loblaws, Real Canadian Superstore, Provigo and Zehrs. Franchisees operate about 40% of its stores. Loblaw ran into trouble earlier this decade when it expanded into non-food merchandise as part of a plan to compete with bigger retailers like Wal-Mart. However, supply problems led to shortages of basic food items at Loblaw’s stores.

Strong sales, but erratic earnings

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H&R BLOCK INC. $17 (New York symbol HRB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 334.1 million; Market cap: $5.7 billion; Price-to-sales ratio: 1.4; WSSF Rating: Above Average) is the world’s largest provider of income-tax-preparation services. It operates 12,923 offices in the U.S., as well as 1,193 in Canada and 378 in Australia. Franchisees own 34% of H&R Block’s U.S. tax-preparation offices. The tax-services division accounts for 74% of the company’s revenue. The company gets 22% of its revenue by selling tax-consulting and accounting services to businesses though subsidiary RSM McGladrey Inc. The remaining 4% comes from banking services, including chequing accounts, loans and credit cards that H&R Block issues to its tax-preparation clients. H&R Block’s earnings fell from $1.88 a share (or a total of $635.9 million) in 2005 to $1.15 a share (or $374.3 million) in 2007. (H&R Block’s fiscal year ends April 30.) The drop was mainly caused by losses at its Option One subsidiary, which specialized in subprime mortgages to H&R Block’s tax clients and other borrowers. In 2008, the company sold Option One, along with its brokerage and wealth-management subsidiary, as part of its plan to focus on its more profitable tax and accounting operations. These moves helped H&R Block’s earnings improve to $1.53 a share (or $513.1 million) in fiscal 2009. The company’s revenue rose from $4.4 billion in 2005 to $4.9 billion in 2006, but dropped to $4.0 billion in 2007. It recovered to $4.4 billion in 2008, but fell to $4.1 billion in 2009....

H&R Block’s tax-preparation business has seen less traffic as more tax filers switch to do-it-yourself software. While the company’s own software is selling well, it generates fewer profits than serving clients directly. That’s partly why the stock is down 40% from the $28 it reached in September 2008. However, tax software works best for those with simple tax situations, and upcoming changes to the U.S. tax code should prompt more people to seek professional advice. As well, the company recently sold its mortgage and brokerage businesses. This lowers its volatility. H&R BLOCK INC. $17 (New York symbol HRB; Conservative Growth Portfolio, Finance sector; Shares outstanding: 334.1 million; Market cap: $5.7 billion; Price-to-sales ratio: 1.4; WSSF Rating: Above Average) is the world’s largest provider of income-tax-preparation services. It operates 12,923 offices in the U.S., as well as 1,193 in Canada and 378 in Australia. Franchisees own 34% of H&R Block’s U.S. tax-preparation offices. The tax-services division accounts for 74% of the company’s revenue. The company gets 22% of its revenue by selling tax-consulting and accounting services to businesses though subsidiary RSM McGladrey Inc. The remaining 4% comes from banking services, including chequing accounts, loans and credit cards that H&R Block issues to its tax-preparation clients....

Growth by acquisition is a risky strategy, but wisely chosen takeovers can bring big gains. Here are two that make sense to us. INTERNATIONAL BUSINESS MACHINES CORP. $117 (New York symbol IBM; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.3 billion; Market cap: $152.1 billion; Price-to-sales ratio: 1.6; WSSF Rating: Above Average) will buy SPSS Inc. (Nasdaq symbol SPSS), whose software helps companies predict changes in customer buying habits and other trends. The price is $1.2 billion, or about 39% of IBM’s second quarter 2009 earnings. IBM is a buy....

The proposed “cap-and-trade” bill making its way through the U.S. Congress aims to limit the amount of greenhouse gases (particularly carbon dioxide) that companies can emit. This will almost certainly drive up their costs. However, many businesses stand to profit as consumers look for ways to cut their energy use. We’ve examined three below. While all are leaders in “green” technologies, only two are buys right now. TOYOTA MOTOR CO. ADRs $83 (New York symbol TM; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.6 billion; Market cap: $132.8 billion; Price-to-sales ratio: 0.6; WSSF Rating: Above Average) recently overtook General Motors as the world’s largest carmaker. That was partly due to its success with gasoline-electric hybrid cars. Toyota started selling its Prius mid-sized hybrid car in 1997, and now dominates this market. Besides the Prius, the company has launched hybrid versions of its larger cars and trucks. Hybrids account for less than 10% of Toyota’s sales, but they generate much higher profit margins than its gasoline-powered cars. The company owns patents on over 2,000 hybrid-engine parts. That makes it difficult for other carmakers to develop their own hybrids. As a result, many have licensed the technology from Toyota. This generates royalty income for the company....

NEWMONT MINING CORP. $39 (New York symbol NEM; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 490 million; Market cap: $19.1 billion; Price-to-sales ratio: 3.4; WSSF Rating: Average) earned $213 million, or $0.43 a share, in the three months ended June 30, 2009. That’s down 3.6% from the $221 million, or $0.50 a share, it earned the previous year. The latest figures exclude one-time costs related to Newmont’s purchase of the remaining one-third interest in Australia’s Boddington gold mine. Revenue rose 6.6%, to $1.6 billion from $1.5 billion. Gold sales (86% of revenue), rose 4%, as Newmont’s realized gold price climbed 1.7%. Copper sales (14% of revenue) rose 25% as higher production offset a 39% drop in prices. Newmont’s revenue should continue to rise in the second half of 2009, as Boddington reaches full production. (The mine officially opened on July 23.) The company is also doing a good job of lowering its production costs. Newmont is a buy.

FPL GROUP INC. $57 (New York symbol FPL; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 410.8 million; Market cap: $23.4 billion; Price-to-sales ratio: 1.4; WSSF Rating: Average) gets 70% of its revenue from wholly owned Florida Power and Light Co., a regulated utility with 4.5 million customers in eastern and southern Florida. FPL Group is also a leading producer of wind power. Its NextEra Energy Resources, subsidiary accounts for 25% of the U.S.’s wind-power capacity. NextEra also operates unregulated electrical-power plants in 25 states and Canada. It sells its power to wholesale customers, not individuals. In the three months ended June 30, 2009, FPL Group’s earnings rose 6.9%, to $400 million, or $0.99 a share, from $375 million, These figures do not include a charge the company incurred for losses on the hedging contracts it uses to lock in the price of fuel. FPL Group’s revenue rose 6.3%, to $3.8 billion from $3.6 billion. NextEra started up a number of new wind-power projects during the quarter; this increased its windpower capacity by 9%, and helped push up its earnings by $48 million. The new projects helped offset lower power output at its existing facilities due to lighter-than-normal winds. NextEra’s revenue rose 37.4% in the quarter....

THE BOEING CO. $43 (New York symbol BA; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 726.4 million; Market cap: $31.2 billion; Price-to-sales ratio: 0.5; WSSF Rating: Above Average) is focusing on improving the fuel-efficiency of its passenger jets. That should help it increase sales to cost-conscious airlines. Boeing’s new 787 Dreamliner plane uses lightweight materials, like titanium and carbon fibre. That makes it 20% more fuel-efficient than current planes. The 787 also features new energy-efficient interior lighting systems, which will lower its operating costs further. However, Boeing had to delay the initial test flight last June because it found structural weakness where the plane’s wings connect to the body. The company feels it can fix this without redesigning the plane, and hopes to resume testing in the next few months. Despite this setback, Boeing still has 851 orders for the 787. These are worth around $151 billion....

WAL-MART STORES INC. $49 (New York symbol WMT; Conservative Growth Portfolio; Consumer sector; Shares outstanding: 3.9 billion; Market cap: $191.1 billion; Price-to-sales ratio: 0.5; WSSF Rating: Above Average) uses its clout as the world’s largest retailer to pry big price discounts from its suppliers. The company is also putting pressure on its suppliers to help it pursue several “green” initiatives aimed at improving its image and sales. For example, Wal-Mart now wants its suppliers to put an “eco-rating”on all groceries it sells. These would make it easier for consumers to compare the environmental impact of various products. Like nutritional labels, Wal-Mart hopes these ratings will become an industry standard. The plan will add to suppliers’ costs, which means they will likely resist, at least at first. But most will probably comply rather than risk losing Wal-Mart as a customer. Wal-Mart is a buy.