Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Earnings Season

Public companies, firms that have their shares trade on an exchange, must make their financial reports available for investors to research every quarter, or four times a year. In an earnings report, a firm must supply revenue, expenses, net income, earnings per share, and all of the details in an income statement, cash flow, and balance sheet. Usually the months following the quarter-end are busiest, as this is when most companies will report their earnings.

Why This Company Is a Consistent Winner for Investors

By for Profit Confidential

One Company That’s Proven It Can Adapt to the MarketplaceAmid all the turmoil in capital markets, I’m reminded of all the good corporate earnings being released.

Of course, the stock market is a system of discounting future business conditions and the recent sell-off has been pronounced, but stocks have come so far over the last several years. If the catalysts were deflationary pressures among oil prices and global economic activity, a little haircut in share prices is well deserved.

One of the first businesses to show a real turnaround after the financial crisis sent stocks and the economy tanking was Winnebago Industries, Inc. (WGO).

The first thing that dries up when there’s a shock to the economy is spending on luxury items and/or non-essential products. Likewise, the recreational vehicle market is very sensitive to prevailing economic conditions. For a number of years now, however, Winnebago Industries has been on a turnaround roll.

Based in Forest City, Iowa, the company’s fourth fiscal quarter of 2014 (ended August 30, 2014) saw revenues improve a solid 15% to $246 million, up from $214 million in the same quarter last year.

The company reported that it experienced a 15% improvement in total motorhome sales. A 25% comparable gain in motorhome unit growth was offset by lower average selling prices.

Earnings came in solid with management noting particular bottom-line strength in towable recreational vehicles. Total fourth-quarter operating earnings grew 19% to $18.3 million. Net earnings grew to $12.9 million for a comparable quarterly gain of 22%, while net earnings per diluted share improved 26% to $0.48.

All in all, it was another very good financial report from Winnebago Industries and the company just reinstated … Read More

Is This Stock Sell-Off Just a Blip?

By for Profit Confidential

Is This Stock Sell-Off Just a BlipIf there’s one thing the stock market needs, it’s a distraction from global growth worries and geopolitical events. And corporate earnings are the ticket for that as this season’s numbers are starting to pour in.

Pharmaceutical benchmark Johnson & Johnson (JNJ) once again beat Wall Street consensus, generating another good quarter of both sales and earnings growth.

The company completed a major divestiture of its ortho-clinical diagnostics division during its latest quarter; even so, it was able to generate domestic sales growth of 11.6% over the same quarter last year. Total consolidated sales grew 5.1% to $18.5 billion. Excluding the impact of the company’s recent divestiture, domestic sales would have increased 14.8% comparatively.

Excluding gains, litigation accrual, tax adjustments, and integration costs from the large acquisition of Synthes, Inc., Johnson & Johnson’s bottom-line earnings grew 9.5% to $4.5 billion, or 10.3% to $1.50 on a diluted earnings-per-share basis.

Once again, global pharmaceutical sales, including over-the-counter products, were the driver of growth, up 18.1% over the same quarter last year.

Johnson & Johnson clearly continues to have operational momentum. Positive price action in the stock may be slow near-term commensurate with the broader market, but this company is still delivering the goods.

Management increased its full-year earnings guidance and a $5.0-billion share repurchase program is still available at their discretion.

Another big-name corporation reporting solid earnings results was Wells Fargo & Company (WFC), the largest U.S. mortgage lender. The company beat Street consensus on revenues and matched the earnings estimate.

And Citigroup Inc. (C) experienced a big increase in its revenues, too, coming in at $19.6 billion, up from $17.9 billion. … Read More

Off-the-Radar Company Delivering Attractive Earnings

By for Profit Confidential

One Off-the-Radar Company with Attractive ResultsOn the day that the DOW, S&P 500, and NASDAQ Composite dropped two percent on global growth worries, once again, several companies reported very good numbers.

But investors are paying less attention to corporate results and more attention to economic news from around the world that suggests that the only mature economic engine running at any positive speed currently is the U.S. economy.

PepsiCo, Inc. (PEP) had another good quarter. The company’s two businesses, food/snacks and beverages, produced modest single-digit growth in consolidated sales.

Net earnings grew five percent, while earnings per share grew seven percent over the third quarter last year. Management also increased its expected constant currency earnings-per-share growth for this year from eight to nine percent.

The company expects to return a total of some $8.7 billion to shareholders this year, comprising approximately $3.7 billion in dividends and $5.0 billion in share buybacks.

PepsiCo is on track to deliver what investors expect. The stock just hit a new all-time record-high still with a 2.8% dividend yield.

Getting into third-quarter earnings season a little further should help focus the stock market’s attention but clearly, sentiment has really turned.

If the trading action continues to wane, good businesses are going to become more attractively priced and equity investors looking for new positions will have better choices.

I do believe that for the investment risk, sticking with existing winners is a good strategy regarding large-cap, dividend-paying blue chips.

Dividend income really matters in a slow-growth environment, and corporations would still rather return cash than take on major new ventures.

Previously in these pages, I’ve written that for long-term investors, I … Read More

Another Solid Earnings Season Ahead for Existing Winners?

By for Profit Confidential

Solid Earnings SeasonOne large-cap that always reports early is Costco Wholesale Corporation (COST). The company’s numbers came in solid.

Costco hit a wall not too long ago and was hard pressed to produce growth. But the company’s latest quarter beat the Street with considerable sales strength in the month of September.

In its most recent quarter, there was considerable growth in the company’s cash position and shareholders’ equity improved significantly.

For the 16 weeks ended August 31, 2014, Costco’s total sales grew nine percent to $35.5 billion, which is an impressive performance in retail. Of these total sales, membership fees (which are total gravy) grew 7.3% to $768 million.

Comparative store sales in the most recent quarter grew six percent in the U.S. market and the same internationally. If it weren’t for weaker gasoline prices and the stronger U.S. dollar, international comparative store sales would have improved by eight percent.

Earnings in the company’s fiscal fourth quarter grew to $687 million, or $1.58 per diluted share, representing a 13% gain on a per share basis compared to the same quarter last year.

Costco has been consistently ticking higher on the stock market since this time in 2010. The position hit a high in late 2013, then retreated commensurately with its financial growth. It’s only in the last couple of months that the company’s stock has reaccelerated.

For a new price trend, the stock needs to convincingly break out above $130.00 a share, which I think is probable.

The company’s latest quarter was very good and a reflection of solid management execution.

On the day that Costco reported, the Federal Reserve released the … Read More

These Two Companies Set to Report Strong 3Q14 Results

By for Profit Confidential

Strong 3Q14 ResultsMore good numbers are coming down the earnings pipeline, and if the broader stock market is going to take a well-deserved rest, corporate results are a positive indicator going into 2015.

Global Payments Inc. (GPN) is a very good business in terms of its financial growth. The Atlanta-based company is one of the world’s largest processors of credit and debit card payments and business is growing by the double-digits.

The company’s first fiscal quarter of 2015 (ended August 31, 2014) produced total sales of $705 million for a comparable quarterly gain of 12%. GAAP diluted earnings grew 26% to $1.10 per share or 18% to $84.4 million.

Management increased its fiscal 2015 full-year sales estimate to between $2.74 and $2.79 billion, representing comparative growth of between seven and nine percent. Plus, the company expects margin expansion going forward, which will go right to earnings.

Global Payments has been in a prolonged consolidation on the stock market and finally broke out of this trend about this time last year. Given the company’s solid fiscal first quarter, further price appreciation from this position is likely.

Also announcing better-than-expected numbers was McCormick & Company (MKC). The iconic spice and condiment manufacturer is often cited as a more risk-averse stock for income-seeking investors.

This business is very mature and no one expects it to grow by double-digits. But the company just experienced very good growth in its bottom-line and the stock jumped on the news.

McCormick’s third-quarter sales grew three percent to $1.04 billion. The company’s Chinese operations produced 15% comparative growth in the most recent quarter.

Higher operating income and a lower tax … Read More

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