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Earnings Season Almost Complete
Earnings season is winding down, but that does not mean it is over. Next week will bring 296 earnings reports, though just 11 members of the S&P 500. Some of the higher profile firms to report will be Progressive Insurance (PGR), Costco (COST) and Big Lots (BIG). While the earnings news will be lighter next week than it has been recently, there will be lots of economic data released, starting with data on personal income and spending, both ISM indexes and ending the week with the always extremely important employment report on Friday. Monday Personal Income will be reported and it expected to rise by 0.4% for January, matching a 0.4% rise in December Personal spending is expected to have risen 0.4% (seasonally adjusted) in January, up from a 0.2% rise in December. If Income and Spending both rise at the same rate, the savings rate will remain unchanged. The Savings rate is substantially higher than it was a few years ago, but well below where we need to see it long term. However, a rising savings rate is a serious near-term headwind for the economy Construction spending is expected to have fallen 0.6% on top of a 1.2% decline in December. Given the weakness we have seen in new home sales, and the ongoing slump in commercial real estate, I think the number will come in weaker than the consensus expectations, closer to a 1.0% decline The ISM manufacturing survey is expected to slip to 58.0 for February, from 58.4 in January. That will still be a fairly strong reading, as anything over 50 indicates economic expansion. The index is made up of ten sub-indexes. Pay close attention to the new orders and employment sub-indexes, as they provide the best clues about the future Tuesday The Auto companies report car and truck sales. While sales have started to revive, they are doing so from extraordinarily depressed levels. Given the ongoing negative press that Toyota (TM) has been getting, look for Ford (F) and GM to pick up some market share Wednesday ADP provides the appetizer for the employment report main course, which comes out on Friday. ADP, the largest payroll processor, is expected to say the economy lost 10,000 private sector jobs in February, an improvement over their assessment of a loss of 22,000 jobs in January The ISM Services index is expected to show a slight improvement to 51.0 for February from the 50.5 reading in January. Since 50 is the dividing line between expansion and contraction, this would be consistent with extremely anemic -- but positive -- growth in the huge service sector of the economy. In recent months, the service index has been significantly weaker than the manufacturing index Thursday Weekly initial claims for unemployment insurance come out. They rose 22,000 in the last week, to 496,000. The overall trend for the last several months had been down. However, that has reversed over the last two months, with seven of the last 8 weeks seeing increases. We probably need for weekly claims (and the four-week moving average of them) to get down to near 400,000 to signal that the economy is on-balance adding jobs. We are a lot closer now than we were last spring when they were running north of 600,000 on a consistent basis, but still have a ways to go. The recent trend is very troubling Continuing claims have also been in a steep downtrend of late. However, that is in part due to people simply exhausting their regular state benefits, which run out after 26 weeks. If one factors in the extended claims paid by the Federal government as part of the Stimulus program, claims soared last week. 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. Last week regular continuing claims were 4.617 million, up 6,000 from the previous week. Extended claims (paid from Federal ARRA funds) were 5.684 million, a decrease of 320,000. Make sure to look at both sets of numbers! The second look at productivity for the 4th quarter will be released. In the first report productivity soared by 6.2%, and the consensus looks for that to be unchanged. Given todays upward revision to the GDP number, I would not be surprised to see the productivity numbers be revised slightly upwards. Also in the report will be the second look at unit labor costs, which were estimated to have dropped 4.4% in the 4th quarter on the first look, and are also expected to be unrevised. Falling unit labor costs is a very good thing for corporate profits Factory orders are expected to have risen by 1.2% in January on top or a 1.0% rise in December Pending Home Sales are expected to show a rise of 1.7% on top of a 1.0% increase in December. I am skeptical about this, given the most recent housing numbers, and suspect the number will be below the December increase Friday The most important report of the week is the employment report. In it, the Unemployment rate is expected to have ticked up to 9.8% from 9.7% in January Non-farm payrolls are expected to fall by 20,000, matching the drop in January. However, the snowstorms may well make the report much weaker than that. Other things to look for in the report will be the duration of unemployment numbers and the number of temporary worker jobs The report will also show the length of the average work week, which is expected to have dropped to 33.7 hours from 33.9. That would be a bad sign if it were to happen Average hourly earnings are expected to have increased by 0.2% in February, matching the 0.2% rise January Consumer Credit (excluding mortgages) is expected to have declined once again in January, with a drop of $4.1 billion expected on top of the $1.7 billion decline in December. Historically, falling consumer credit has been extremely rate, but if the projections come true, this will be the 12th month in a row that it has declined. Consumers are trying to restore their balance sheets, and are making progress, but still have a long way to go Potential Positive Surprises Historically 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. While normally firms that report better-than-expected earnings rise in reaction, that has not been the case so far this quarter. Some of the companies that have these characteristics include: Arena Resources (ARD) is expected to report EPS of $0.35, up from $0.27 per share a year ago. Last time out, ARD posted a positive surprise of 19.2%, and over the last month the mean estimate for its fourth quarter earnings is up 5.53%. ARD has a Zacks #1 Rank. Big Lots (BIG) is expected to report EPS before non-recurring items of $1.29, up from $1.00 a year ago. In the 3Q, BIG posted a positive surprise of 50.0% and over the last month, the consensus estimate for its 4Q earnings is up 4.34%. BIG is a Zacks #1 Ranked stock. Costco (COST) is expected to earn $0.71 per share this year, up from $0.65 a year ago. In the third quarter, the company posted a 1.69% positive surprise. Over the last month the mean estimate for the 4Q is up 0.46%. COST holds a Zacks #2 Rank. Potential Negative Surprises Arcsight (ARST) is expected to post $0.16 a share, an improvement over the $0.11 a share a year ago. Last time they reported 12.50% expectations. For this Zacks #4 Ranked stock, analysts have cut the estimates for this quarter slightly over the last month by 0.89%. Churchill Downs (CHDN) looks like a losing bet. It is expected to lose $0.18 a share this quarter, which is an improvement over the $0.26 they lost a year ago. They had a negative surprise of 68.0% last time out, and analysts have cut their estimates for this quarter by 12.9% over the last month. The stock holds a Zacks #4 Rank. U.S. Concrete (RMX) is expected to report a loss of $0.31, an improvement over the loss of $0.34 last year. Last quarter they reported 50.0% short of expectations. Over the past month, analysts have cut the estimate for this Zacks #4 Ranked stock by 5.14. Article Directory: http://www.articledashboard.com Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market-beating Zacks Strategic Investor service. For more information, visit www.zacks.com. |
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