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Hey Mr. Market! Why So Glum?
Posted by: ABN (IP Logged)
Date: September 1, 2013 12:28PM
Investors had a pretty miserable week to round off a pretty miserable month as markets were spooked by the prospect of war in Syria and weak economic data.
The wider implications of a military strike against Syria weighed heavily, especially on Tuesday, as uncertainty surrounded the possible reactions of Russia, China and Iran led to sharp increases in oil and commodity prices. Whilst the Commerce Department reported on Friday that consumer spending was only able to tick up by 0.1% in July compared to 0.4% in June.
However, those with a brighter disposition may be encouraged by the upward revision of second quarter GDP growth rate to 2.5% from 1.7% due to a lower trade deficit than originally estimated. Furthermore inflation figures remained well below the Fed’s 2.0% target at 1.4% meaning the Fed will be cautious when deciding on, or perhaps delaying, a possible exit from quantitative easing.
There were also some pretty positive earnings reports showing that, even with weak macro economic news and generally poor retail results, there are still companies that are able to pull something special out of the bag.
On Tuesday, Tiffany (TIF) reported a 16% increase in second quarter earnings per share to $0.83 as sales increased 4% (or an 8% increase if foreign exchange effects are excluded). Sales growth in Asia Pacific was particularly strong at 20%. The earnings figure comfortably beat consensus forecasts of $0.74 as sales growth was accompanied by reduced gold and diamond prices that meant the cost of sales remained almost flat at $393.4 million. The company raised full year earnings guidance to $3.50-$3.60 per diluted share from previous range of $3.43-$3.53.
On Wednesday, Guess Inc (GES) comfortably beat analyst forecasts when it reported earnings per share of $0.47. Excluding restructuring charges the performance was even stronger with adjusted earnings per share of $0.52 comparing to consensus forecasts of $0.36. The company increased its own guidance with adjusted diluted earnings per share now expected to range between $1.78 and $1.92 (previously $1.70 and $1.90). (full report)
On Thursday, Campbell’s Soup (CPB) announced a 10% increase in adjusted fourth quarter earnings to $0.45 as sales increased 13% driven by a strong performance by the core U.S. Soup business. The company is bullish about future prospects and remains focused on increasing sales from faster-growing segments in North America with the launch of more than 200 new products while also accelerating growth in markets like China, Indonesia, Malaysia and Mexico. Denise Morrison, Campbell’s President and Chief Executive Officer, said the company had “...added a trio of growth engines through our acquisitions of Bolthouse Farms, Plum Organics and the Kelsen Group. These acquisitions have combined annualized sales of approximately $1 billion and give us exciting new brand platforms to create value and attract new consumers.”(full report).
Next week may see a reversal of August’s malaise as a strike against Syria is unlikely to occur before Congress reconvenes on September 9th. This assumes there are no downside surprises for auto sales figures on Tuesday or unemployment and payroll figures due out Friday.
Two companies reporting this week and worth watching are Dollar General Corp on Wednesday and Zumiez Inc on Thursday.
Dollar General (DG), the largest discount retailer in the United States, has seen annual earnings per share growth average 50% for the last five years and is currently priced on a PE of 18.7. Net income increased 24% in 2013. Consensus earnings forecasts for the third quarter are $0.74, up from $0.64 last year. However the company has beaten forecasts for three out of four of the latest quarters and should benefit from an expansion plan to open 600 new stores in 2013. (Dollar General analysis)
Zumiez (ZUMZ) is a leading retailer of action sports wear targeting teenagers and students while differentiating itself by offering both apparel and sports equipment in store. The company has built its brand and offers products that have strong appeal but, critically, also maintains a low level of product cross over with on line retailers thereby enabling decent margins. Earnings growth has averaged almost 25%. PE on Friday was 20.6. (Zumiez analysis)
The author ABN is a blogger for SurgingEarnings.Com
Risk Disclaimer: This article does not constitute a recommendation to buy or sell. Investing in stocks or other securities and derivatives is a high risk activity and not suitable for everyone. It is strongly recommended that individuals should consult with a SEC registered investment advisor prior to making any investment decisions.
Disclosure: The author holds no positions in the above mentioned stocks
Stocks Discussed: TIF, GES, CPB, DG, ZUMZ,