Welcome to the July 3 Monday Business Briefing, your private business intelligence digest from Insider Louisville.
Stocks of five Louisville-based companies outperformed the market by a significant margin in the first six months of the year – while six companies, including three bank holding companies, suffered steep declines.
From Dec. 30 to June 30, the Dow Jones Industrial Average gained 8 percent, closing at 21,349.63 on Friday. The broader Standard & Poor’s 500 gained 8.2 percent. Both indices hit several records this year, most recently on June 19. The tech-heavy Nasdaq had a first-half rise of 14.1 percent, which MarketWatch said would represent the best rally to a year’s halfway mark since the index surged 43.9 percent in 2009, according to WSJ Market Data Group.
Shares of Sypris Solutions rose a whopping 88 percent in the first six months of the year. A good first quarter brought a gain of 20 percent, followed by an even better second quarter, during which the stock price soared 56 percent. Shares closed at $1.65 on Friday.
It’s a remarkable turnaround for Sypris, which faced being removed from the Nasdaq index earlier this year because its stock price was below the minimum bid price of $1.
Sypris provides cybersecurity solutions for the aerospace and military industries and axle components for the automotive market. It has manufacturing operations in the U.S. and Mexico and employs about 1,200.
The company posted big stock gains after its earnings reports in March and May.
In mid-May, the company’s shares spiked 23 percent despite posting a first-quarter loss, as CEO Jeffrey Gill said that significant restructuring actions were starting to show results.
The company has lost some big customers in the last couple of years, which has prompted significant restructuring, including plant closures, job and pay cuts. Those actions included the closing of the company’s Broadway plant in Louisville.
Kindred Healthcare shares have jumped almost 48 percent for the year so far, with nearly 40 percent of that gain coming in the second quarter.
Kindred, too, is undergoing some significant restructuring.
Late last year, the hospital and rehab center operator said that it would exit the skilled nursing business because of “significant headwinds … and labor cost challenges.” Kindred this year said a shortage of registered nurses was hamstringing profitability in one of its largest business units.
Shares rose sharply at the end of February when Kindred CEO Benjamin Breier said that the company was getting plenty of interest for the skilled nursing facilities that it is trying to sell. On April 21, the stock price jumped 8.4 percent, to $9.70, after Reuters announced that Kindred was working with investment banks to explore a sale, but lost all of that gain the following day.
Shares rose in early May, after the company posted a first-quarter loss but reaffirmed its outlooks for 2017 and 2018. Shares fell again in late May, but then jumped 9.7 percent on June 1, to $10.75, and another 5.8 percent on June 22, closing at $10.95 percent. The share price climbed another 5 percent in the last week of June.
On Saturday, the company announced that it had reached a deal with BM Eagle Holdings to sell its skilled nursing facility business for $700 million in cash. BM Eagle Holdings is a joint venture led by affiliates of BlueMountain Capital Management.
The sale includes 89 nursing centers with 11,308 licensed beds and seven assisted living facilities with 380 licensed beds, which collectively have approximately 11,500 employees in 18 states, according to a press release.
Previously, the company said 36 of the skilled nursing facilities were leased from Ventas and that Kindred had an option to buy them. In the deal announced Saturday, Kindred said that it would pay to Ventas the allocable portion of the $700 million purchase price for the Ventas Properties and Ventas would convey the real estate for the applicable Ventas Property to BlueMountain.
Kindred said it hoped to realize $910 million in total value after deducting estimated transaction and severance costs and that it hoped to realize net value of approximately $210 million, subject to post-closing adjustments, and after the $700 million payment to Ventas.
The company also said that the transaction would cut its annual expenditures by more than $200 million, including lower rent obligations, capital expenditures and skilled nursing facility overhead.
Breier said in the release: “Exiting the skilled nursing facility business, in its entirety, has been a long-stated goal of our enterprise. After more than two decades of nursing center operations, this announcement clears the way to closing that chapter of Kindred’s story, and turning the page to the future of integrated post-acute care.”
Shares of Churchill Downs have galloped forward nearly 22 percent this year, outperforming broader markets in both quarters – and that after a slow start to the year.
In the first quarter, the gambling and gaming company’s shares rose 8.4 percent, while in the second, the stock price rose 15.4 percent, closing at $183.30 on Friday.
Churchill Downs’ shares ended 2016 at $150.45. They fell 4.7 percent in January, closing at $143.35 on Jan. 31. Since then, however, shares have trodden steadily upward, posting gains in five consecutive months.
In June alone, Churchill Downs’ shares gained 9.3 percent, boosted in part by a repurchase of 1 million shares. On June 20, Churchill Downs said that it would invest $60 million to create an 85,000-square-foot electronic gambling facility in Louisville after getting conditional approval for the venture from the Kentucky Horse Racing Commission.
Humana and Yum both had poor first quarters in terms of stock price, each rising less than 1 percent, compared with the S.&P. 500’s gain of 5.5 percent.
Shares of both companies took off in the second quarter, though, with Humana’ stock price advancing 16.7 percent and Yum’s gobbling up 15.4 percent.
The start of the year for Humana’s was marred by uncertainty about its proposed merger with rival Aetna. Federal regulators had sued to stop the deal on antitrust grounds, and a judge blocked it on Jan. 23.
In February, Humana said that it would exit the Affordable Care Act health exchanges in 2018, because it had lost hundreds of millions of dollars from customers it had gained through the health law.
In the second half of March, Humana’s shares fell more than 7 percent, around the time that the U.S. House passed a bill to repeal the ACA. The Congressional Budget Office said that the bill would kick about 24 million people off health insurance through 2026.
Humana’s shares rose in early May after the insurer booked a $1.1 billion first-quarter profit, boosted by the kill fee that Aetna had to pay its rival over the failed merger.
Humana’s shares on Friday closed at $240.62, up nearly 18 percent for the year.
Yum saw its shares gain more than 10 percent in May alone. The company said on May 3 that first-quarter earnings per share, adjusted for special items, rose 17 percent. Yum’s shares closed on Friday at $73.76, up 16.5 percent for the year.
Brown-Forman Corp. shares in the first six months of the year gained 8.1 percent, in line with broader markets, closing at $48.60 on Friday. PharMerica’s shares gained 4.5 percent in the first half of the year, suffering a 7 percent loss in the first quarter, but recording a 12 percent gain in the second, closing at $26.25 Friday.
Shares of financial services companies recorded significant gains after the presidential election, as investors expected Donald Trump and the Republican-controlled U.S. Congress to loosen banking regulations and to make changes to the tax code, which should increase financial institutions’ earnings potential.
However, gridlock in the nation’s capitol has investors worried about the prospects of such legislation, and bank stocks, including three local ones, have fallen out of favor.
Through the first six months of the year, shares of Republic Bancorp were down nearly 10 percent ($35.70 close), while both Porter Bancorp, ($10.27) the holding company of PBI Bank, and Stock Yards Bancorp ($38.90) were down about 17 percent.
Shares of Papa John’s also got sliced in the first six month, declining more than 16 percent. The pizza company’s stock price fell 7 percent on Feb. 22, to $79.40, after it announced disappointing fourth-quarter sales growth. It had regained nearly all of that declined by early June, when shared hit $84.75, but for the rest of June, shares steadily declined, because analysts are projecting lower than expected sales growth in the second quarter. Shares closed on June 30 at $71.76, the company’s lowest closing price of the year.
CafePress ($2.59 close) saw its stock price fall by nearly 16 percent in the first six months of the year. Shares fell and rose by significant amounts in March and May after earnings announcements. Shares jumped 14 percent, to $3.32, on May 8 after the company reported rising revenue and profits for the fourth quarter. However, shares plunged 9.5 percent, to $2.56, on May 3 after the company said first-quarter revenue and profits fell compared to a year earlier.
Shares of Louisville’s two largest employers also did not fare well the first six months of the year. UPS shares closed at $110.59 on June 30, down 3.5 percent. Ford Motor Co. saw its stock price fall 7.8 percent through June, closing at $11.19 on June 30. Though the automaker has posted solid sales numbers, especially for the Louisville-made Escape and Super Duty, shares have fallen, likely because of falling profit margins. Even the announcement of a new CEO failed to impress investors.