Generating Higher Value at IBM (A): EPS Forecasting Model

Benjamin C. Esty; Scott   Mayfield

Supplement | HBS Case Collection | June 2015

Generating Higher Value at IBM (A): EPS Forecasting Model

Abstract

This case analyzes IBM's financial performance and its capital allocation decisions over a 10-year period from 2004-2013, during which IBM returned more than $140B to shareholders through a combination of dividends and share repurchases. During this time, CEO Sam Palmisano created, announced, and then regularly updated a long-term financial "roadmap" as part of the firm's strategic transformation. The roadmap showed both a destination (a target EPS number) and a detailed path to that destination in terms of revenue growth, margin expansion, and share repurchases. After successfully achieving its first roadmap, the firm announced a second 5-year roadmap known as the "2015 EPS roadmap".
The case is set in May 2014, just after IBM's annual investor briefing. Despite more than 10 years of strong financial performance, IBM reported relatively weak financial results in the first quarter of 2014. Sophia Johnson, an equity analyst, must decide whether to revise her investment recommendation based on what she heard that day.

Keywords: dividends; Share Repurchases; Earnings Guidance; financial statement analysis; Financial ratios; Payout policy; Earnings per Share (EPS); Earnings Management; Change Management; Leadership; Transformation; Financial Strategy;

Language: English

Format: Electronic

Purchase

Citation:

Esty, Benjamin C., and Scott Mayfield. "Generating Higher Value at IBM (A): EPS Forecasting Model." Harvard Business School Spreadsheet Supplement 215-711, June 2015.

Teaching Note | HBS Case Collection | April 2019

The a2 Milk Company

Benjamin C. Esty and Daniel Fisher

The a2 Milk Company (a2MC) became the most valuable company listed on the New Zealand stock exchange in 2018 by capitalizing on a biochemical discovery related to the protein composition of cow's milk. Because many people find the A1 protein difficult to digest, and that protein may be related to other health problems (e.g., diabetes), a2MC sells dairy products containing the A2 protein only primarily in Australia and China. With sales of NZ$730 million in 2017 and a desire to grow, a2MC formed a strategic relationship with Fonterra, the world's sixth largest dairy company, in February 2018. But one month later, Nestle, the world's largest dairy company, confirmed that it had begun selling A2 infant formula in China and people speculated that it would start selling A2 products in Australia and New Zealand later in the year. a2MC's retiring CEO Geoffrey Babidge and newly appointed CEO Janyne Hrdlicka must decide how to respond to Nestle's entry. Can this successful entrant become an incumbent with a sustainable competitive advantage?

Keywords: Judo economics; Market entry; innovation; barriers to response; industry attractiveness; advantage horizon; sustainability; first-mover advantage; scope; strategy execution; strategic evolution; biochemistry; genetics; branding; commodity; milk; Dairy; infant formula; Farming; Porter's Five Forces; Market Entry and Exit; Disruption; Innovation and Invention; Competitive Advantage; Corporate Strategy; Value Creation; Competition; Brands and Branding; Five Forces Framework; Consumer Products Industry; New Zealand; Australia; China;

Citation:

Esty, Benjamin C., and Daniel Fisher. "The a2 Milk Company." Harvard Business School Teaching Note 719-428, April 2019. View Details

Cite View Details Purchase

In August 2017, MoviePass dramatically lowered its subscription price from $50 per month to just $10 for up to one movie per day. The idea was to rapidly scale the business to the point where they could generate incremental revenue streams from related businesses (e.g., a share of ticket and concession revenues from theaters, advertising revenue from movie studios, and revenue from ride-sharing companies). Within two days, Moviepass had gotten 150k new subscribers; within six months, they had more than 2 million. But as of February 2018, the company faced three challenges: theaters were resisting the concept, investors were shorting the stock in record numbers, and competitors were beginning to appear. Could CEO Mitch Lowe convince investors that they did, indeed, have a viable business model and could monetize their growing subscriber base? At the same time, Lowe had to decide whether to raise subscription prices to cover the growing losses or keep prices low to attract subscribers as quickly as possible.

Approximately 80% of the wineries in the U.S. break even or lose money. An even greater percentage lose money on an economic basis (i.e., after a charge for the cost of equity). Tegan Passalacqua is a successful, young, Californian winemaker who specializes in making “old vine” wine (i.e., wine from vines that are at least 60 and up to 100+ years old). By day, he is the head winemaker at Turley Wine Cellars, a leading Zinfandel producer. In his spare time, however, he runs his own winery called Sandlands, which produces premium wines using historic, out-of-favor grape varieties such as Carignane, Mataro, and Chenin Blanc. Despite the odds, Sandlands appears to be succeeding. The question is why and whether his performance is sustainable. The case is set in December 2017 as Passalacqua was deciding whether to buy a building and develop a winery at a cost of up to $500,000. Because he already owns an old vine vineyard, and has limited resources, he must decide if this is the right investment to make next.

Faculty & Research

Generating Higher Value at IBM (A): EPS Forecasting Model

Abstract

Citation:

About the Authors

More from these Authors