Earnings Preview 3/16/12
Earnings season is just about over. While there will be 79 firms reporting -- 15 of them members of the S&P 500 -- most will be February fiscal period ends, which actually makes them the leading edge of the first quarter reports, not the trailing edge of fourth quarter reports.
Firms reporting this week include: Adobe (ADBE), ConAgra (CAG), Discover Financial Services (DFS), Darden Restaurants (DRI), General Mills (GIS), Nike (NKE) and Oracle (ORCL). That is an interesting cross-section of the economy and might offer some clues as to how the first quarter earnings season will go.
Not a lot of economic data due out next week, but what we get will mostly be about housing, including the NAHB index, Starts and Permits, and both New and Used Home sales. In most recoveries, it is housing that leads the way, but not this time. If housing does start to kick in, the economy could very well turn out to be much stronger than most people are now expecting.
- The National Association of Home Builders index has increased sharply over the last five months and was at 29 in February. The upward momentum is expected to continue as the consensus is looking for a reading of 31. However, this is a “magic 50” index, where any reading below 50 means that more home builders see conditions as poor than good. Until a few months ago, the index was mired below 15, so this shows that the Home Builders are not as despondent as they used to be, thought they are hardly exuberant.
- We see if the Homebuilders (relative) optimism is well founded when we get the Housing Start numbers. Starts are expected to inch up to an annual rate of 705,000 from 699,000. While off the lows, that is still far below the average level of starts going back to the early 1960’s. Also, most of the recent strength has come from the very volatile multi-family (apartment and condo) sector, not from single family starts.
- The best leading indicator of housing starts is building permits. They also are expected to edge up, to an annual rate of 695,000 from 676,000 in January.
- Existing Home Sales in February are expected to have increased to an annual rate of 4.61 million from 676,000 in January. Of more importance that the absolute level of sales it the level relative to the available inventory. In January, that had declined to 6.1 months, which is close to normal, from a high of a year at its worst point. Seasonally, inventory will probably increase a bit, but year over year it will probably be down about 20%. This is very important since it is a good clue as to the future direction of existing home prices. Existing home sales do not generate a lot of economic activity, so in isolation are not that important, but since home equity is still a very important repository of wealth for the middle class, prices are critical.
- Weekly Initial Claims for Unemployment Insurance were down 14,000 to 352,000 last week, and the prior week was revised up by 3000, so the number was effectively down 11,000. The consensus is looking for a slight rise to 355,000 this coming week. The drop in weekly claims well below the key 400,000 level was the first clue that the jobs situation was getting significantly better. If they fall again it would be a powerful sign that the momentum is continuing. The big seasonal adjustments are all in the rear view mirror, so last week’s level is probably about right, but we have recently seen a lot of volatility in the weekly numbers. Thus the four-week average is the thing to focus on (at 354,250 last week). We are actually now well below the average level of claims for the last 35 years. Keep an eye on the prior week’s revision as well as the change from the revised number.
- Continuing Jobless Claims have been in a downtrend of late, but the road down has been bumpy. Last week they fell by 81,000 to 3.343 million. That is down 954,000, or 22.2% from a year ago. The consensus is looking for a slight increase to 3.363 million. Some (most?) of the longer-term decline is due to people simply exhausting their regular state benefits which run out after 26 weeks. Those, however, don’t last forever either. Federally paid extended claims fell by 74,000 to 3.329 million last week and are down 1.028 million, or 23.4% over the last year. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now, given the unprecedentedly high duration of unemployment figures. A better measure is the total number of people getting unemployment benefits -- currently at 7.424 million. The total number of people getting benefits is now 1.529 million below year-ago levels. What is not known is how many people have left the extended claims via the road to prosperity -- finding a new job -- and how many have left on the road to poverty, having simply exhausted even the extended benefits. Unless the program is renewed, all extended benefits will end at the start of March. Make sure to look at both sets of numbers! Many of the press reports will not, but we will here at Zacks.
- The Index of Leading Economic Indicators is expected to have increased by 0.6% in February after rising 0.4% in January. The strong stock market and a steepening yield curve will probably be big contributors to the index.
- New Home Sales are expected to be unchanged at a very low annual rate of 321,000. Each new home sold represents a huge amount of economic activity. A positive surprise here would be a very good sign for the economy.
Potential Positive or Negative Surprises
The best indicators of firms likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises. Similarly, a recent history of earnings disappointments, cuts in the average estimate for the quarter in the month before the report is due and a poor Zacks Rank (#4 or #5) are often red flags pointing to a potential disappointing earnings report. Given how few companies are reporting, we omit this section this week.
In the Earnings Calendar below, $999.00 should be read as N.A.
|Company||Ticker||Qtr End||EPS Est||Year Ago EPS|| Last EPS |
|Next EPS Report Date||Time||Daily Price|
|DOCUMNT SEC SYS||DSS||201112||($0.03)||($0.05)||20||20120319||AMC||$3.83|
|FEIHE INTL INC||ADY||201112||$0.22||$0.07||-30||20120319||BTO||$3.22|
|FOCUS MEDIA HLD||FMCN||201112||$0.51||$0.36||26.32||20120319||AMC||$26.34|
|CHINA XINIYA FS||XNY||201112||$0.23||$0.27||-14.29||20120320||BTO||$2.00|
|DSW INC CL-A||DSW||201201||$0.49||$0.41||10||20120320||BTO||$56.70|
|JA SOLAR HOLDGS||JASO||201112||($0.11)||$0.54||-1700||20120320||BTO||$1.83|
|TIFFANY & CO||TIF||201201||$1.41||$1.44||16.67||20120320||BTO||$68.95|
|DAQO NEW ENERGY||DQ||201112||($0.06)||$0.95||-22.73||20120321||BTO||$2.79|
|DISCOVER FIN SV||DFS||201202||$0.88||$0.84||4.4||20120321||AMC||$32.02|
|LRR ENERGY LP||LRE||201112||$0.51||$999.00||N/A||20120321||AMC||$21.20|
|CHINA GERUI ADV||CHOP||201112||$0.40||$0.23||5.71||20120322||BTO||$3.91|
|COST PLUS INC||CPWM||201201||$1.50||$1.24||0||20120322||AMC||$14.97|
|LONE PINE RSRCS||LPR||201112||$0.14||$999.00||-15.38||20120322||AMC||$7.05|
|MANITEX INT INC||MNTX||201112||$0.09||$0.08||50||20120322||AMC||$7.50|
|PERRY ELLIS INT||PERY||201201||$0.37||$0.69||-34.43||20120322||BTO||$18.32|
|SIGNET GRP PLC||SIG||201201||$1.77||$1.55||50||20120322||BTO||$49.53|
|WET SEAL INC -A||WTSLA||201201||$0.03||$0.07||25||20120322||AMC||$3.43|
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