Earnings Reports That Matter Most
Earnings season is here again.
Earnings season is here again. Is the quarterly ritual of poring over reports of corporate America’s profit-making prowess still warranted? We think so.
If you’re looking for information about the overall health of corporate America rather than opportunistic trading ideas, earnings reports are still significant. Their value is in the details (pay attention not just to the actual reports but also to the conference calls with company officials and their Wall Street inquisitors). You get to hear what executives are saying or thinking about sales, orders, consumer behavior and more. What we’re eager to learn -- and raw earnings figures don’t say -- is whether the people running these major businesses have bright ideas to revive U.S. economic growth or they’re just hanging on for dear life.
Here are 14 companies whose third-quarter earnings reports deserve special scrutiny, in our judgment. They are listed in order of expected earnings-release date.
Reporting date: Oct. 17
Actual earnings: $3.28 per share, versus an average estimate of $3.22 per share and actual earnings of $2.82 per share in the same quarter last year
Beyond the stock’s importance in the most closely watched barometer of the stock market, the fortunes of IBM are an indicator of global commerce -- especially in emerging markets, where economic growth is slowing.
Post-earnings update: Shares declined after the earnings report was released because IBM merely met expectations and didn’t announce any golden surprises. But there weren’t any red flags, either. The stock’s fine, and so is the company.
3 Regional Banks
Reporting date: Oct. 19
Actual earnings: $1.55 per share, versus an average estimate of $1.48 per share and actual earnings of $2.07 per share in the same quarter last year
Reporting date: Oct. 20
Actual earnings: 52 cents per share, versus an average estimate of 49 cents per share and actual earnings of 30 cents per share in the same quarter last year
Reporting date: Oct. 21
Actual earnings: 39 cents per share, versus an average estimate of 35 cents per share and actual earnings of 17 cents per share in the same quarter last year
Since the last recession ended in 2009, banks’ results have improved, but bank stocks have performed poorly. Shares of these three regional banks have fallen hard since the companies released second-quarter results over the summer, even though each company is consistently setting aside less money to cover bad loans and all banks benefit from super-low short-term interest rates. Of the three, PNC is the healthiest and SunTrust the weakest. At some point, brave bottom-fishers (besides Warren Buffett, who has bet billions on Bank of America) will decide that these and other comparable banks aren’t going away, and they’ll cast their net for their unloved shares.
Post-earnings update: This part of the financial-services industry is clearly climbing out of a hole. Loan losses are easing, share prices are cheap and regionals are slowly boosting dividends. Buy now if you’re patient.
General Electric (GE)
Reporting date: Oct. 21
Actual earnings: 31 cents per share, matching the average estimate, versus an actual earnings of 18 cents per share in the same quarter last year
GE’s stock hit a 52-week low of $14.02 on October 4. Nothing CEO Jeff Immelt says or does -- or the company’s legendary affinity for minimizing taxes -- seems to be helping the share price for long. GE operates in many economic sectors. But it is still viewed as a bellwether for industrial America. Good results from GE might stop the bears from attacking shares of Caterpillar and other big industrial companies.
Post-earnings update: The industrial and financial-services giant met earnings expectations and remains one of America’s best and biggest companies. If the global economy does well, so will GE. But GE can do better than the overall economy by boosting its market share in key segments. Analysts, on average, see the stock hitting $20 in a year, which would be a decent gain from today’s level. But because of GE’s low share price, the stock isn’t a major driver in the performance of the price-weighted Dow industrials.
Reporting date: Oct. 24
Actual earnings: $1.71 per share, versus an average estimate of $1.55 per share and actual earnings of $1.22 per share in the same quarter last year
Caterpillar’s lackluster second-quarter earnings announcement, which was unexpected, helped spread the summer stock swoon to other industrial powers, such as DuPont and 3M. A better showing by Cat in the third quarter will help those and all big industrials get back into favor with investors.
Just be sure to read beyond the numbers of its earnings statement. Cat had a fine first quarter and drastically raised its sales and earnings guidance for full-year 2011. But CEO Douglas R. Oberhelman hinted at doubts when he issued his second-quarter comments.
Post-earnings update: Caterpillar bemoaned weakness in China in its second-quarter report, and the stock took a hit. In the third quarter, the Chinese were again good to CAT, so the stock jumped. Stay with it if you are at all hopeful about a worldwide economic recovery.
Reporting date: Oct. 25
Actual earnings: $1.52 per share, versus an average estimate of $1.61 per share and actual earnings of $1.53 per share in the same quarter last year
Analysts had expected this multi-faceted member of the Dow industrials to show earnings growth of just 4% in the second quarter. Yet 3M still came up shy of forecasts, prolonging a disappointing stretch for the stock.
Post-earnings update: 3M’s reduction in its profit outlook hurts because this is both a big chunk of the Dow industrials and a one-time growth stock that isn’t showing much growth nowadays. Looks like dead money now for 2012, so if you have any better ideas, sell this one and put the proceeds to work elsewhere.
Reporting date: Oct. 25
Actual earnings: 69 cents per share, versus an average estimate of 56 cents per share and actual earnings of 40 cents per share in the same quarter last year
DuPont had a fair second quarter but its shares are down 7.4% anyway since the last earnings release, following the overall market. It sounds like a buying opportunity.
Post-earnings update: A great company puts up good numbers, and the stock posts a strong gain on a generally good day for the market. Wonder of wonders, isn’t it nice to see something behave according to plan?
Reporting date: Oct. 25
Actual earnings: 14 cents per share, versus an average estimate of 24 cents per share and actual earnings of 51 cents per share in the same quarter last year
Amazon is rare among retailers in that its fiscal year ends on December 31, and it thus reports in the middle of earnings season. It beat its sales and earnings forecasts handily in the second quarter despite bad employment and consumer-confidence readings. It was one of the few companies of note whose stock has been a winner pretty much all year. The stock is near its 52-week high and sells at a hefty 74 times estimated 2012 earnings.
Post-earnings update: The stock got clobbered because shareholders have made so much money of it that any sign of weakness scares investors into taking their profits. But the news here isn’t troublesome. People are buying stuff, they’re still going to buy big lots of it from Amazon, and the consumer economy isn’t as dead as you may think. Amazon still has big advantages over the traditional retail business.
Reporting date: Oct. 27
Actual earnings: A penny loss per share, matching expected average estimates, versus an eight-cent loss per share in the same quarter last year
America’s largest publicly traded homebuilder (by revenue) is suffering. Its cash position is weakening, and all reports say Americans are still reluctant to buy homes despite the current buyer’s market. At least the volume of new-home sales has stabilized. We believe Pulte will be one of the survivors once the building industry’s shakeout ends.
Post-earnings update: Pulte’s performance verifies that homebuilding may be on the mend. And in such a volatile industry, the early buyers end up with the best returns.
Reporting date: Nov. 3
Actual earnings: 47 cents per share, versus an average estimate of 36 cents per share and actual earnings of 37 cents per share in the same quarter last year
Shares of Starbucks, like those of Amazon, somehow hung tough during the dreadful third quarter. And this despite analysts forecasting that Starbucks’s earnings fell 3% in the period. Maybe investors perceive Starbucks to be unassailable in the caffeine business, much the way McDonald’s is in the burger biz. Trouble is, Starbucks shares are trading near their all-time high -- even though the stock market sure isn’t.
Post-earnings update: Starbucks’s shares got an after-hours boost following its post-close earnings release that handily beat analyst expectations. To end its fiscal year, the company turned in record results, giving it a good buzz to carry into 2012.
General Motors (GM)
Reporting date: Nov. 9
Actual earnings: $1.03 per share, versus an average estimate of 92 cents per share and actual earnings of $1.20 per share in the same quarter last year
The reorganized GM beat second-quarter estimates by 35%, and the company is proving that it’s again a global force by announcing surging foreign car sales. (They love Buicks in China. Who knew?) GM is also showing that it can sell vehicles at home without offering Oldsmobiles, Pontiacs, Saturns or Hummers. The stock has fallen 11% since the August earnings report, but you can blame much of that on robotic traders that trashed all industrial stocks. Perhaps more good news from Detroit will attract serious buyers.
Post-earnings update: Despite a good third quarter, GM shares fell after its earnings release due to another big drop in the markets over European distress. But Asia and South America matter more to GM's business than Europe, so stick around. GM reported some nice surprises for the quarter, such as a rising share in China's market and lower delinquencies on car loans GM Financial made in the U.S.
Berkshire Hathaway (BRK.B)
Reporting date: Nov. 4 (tentative)
Actual earnings: 92 cents per share, versus an average estimate of $1.17 per share and actual earnings of $1.21 per share in the same quarter last year
Warren Buffett made more news than usual during the past three months, some of it -- his call for higher taxes on the rich -- straying from discussion of his enormously successful conglomerate. He also committed enormous capital to help out the beleaguered Bank of America, and he assailed Standard & Poor’s for its downgrade of America’s credit rating, saying the U.S. should be quadruple-A.
Post-earnings update: Warren Buffett went on a stock-buying binge this past quarter, but the rising market in October cost Berkshire $2.1 billion in losses on put options. This company is so hedged and larded with derivatives of all kinds that it’s awfully hard for an ordinary investor to understand. But you can still take your cues from Warren.
Reporting date: Nov. 10
Actual earnings: 59 cents per share, versus an average estimate of 54 cents per share and actual earnings of 45 cents per share in the same quarter last year
Disney’s second-quarter news twinkled with positive comments about hotel occupancy, theme-park attendance and the splendid performance of movies such as “Cars 2.” More important to investors, Disney is a window on the popular mood. People will tell a pollster that they have little confidence in the economy and none at all about our politicians. But the same folks will then spend $50 at the movies and upgrade their cable packages with all sorts of bells and whistles. Disney’s shares are up 1.6% since the company’s last earnings release, on August 9.
Post-earnings update: Disney posted solid results across the board and gave us more evidence that consumers aren’t as broke as surveys suggest. If the economy continues to improve even slightly, you’ll see even better earnings and a continued recovery in the shares.