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

Earnings

Earnings are also known as profits. At the most basic level, a company’s earnings consist of what’s left over after all costs are taken out from the revenue generated. Earnings are also the basis for corporate taxes. Many corporations report EBITDA, or earnings before interest, taxes, depreciation and amortization. The most important thing to watch for when researching a company is where earnings are forecasted to move. Investors want to see that the future expectations are for the earnings to grow over time.

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

Plunging Oil Prices Next Big Investment Opportunity?

By for Profit Confidential

Declining Oil Prices the Market’s CatalystWhile corporate earnings continue to come in solid, stocks continue to be sold.

It’s not all the time that stocks follow oil prices, but they certainly have this time around and the selling momentum has gained on deflationary pressures from producer prices to declining expectations for global economic growth.

And the selling is happening to companies that beat consensus with their earnings, like J.B. Hunt Transport Services, Inc. (JBHT), which beat Wall Street estimates for sales and earnings in what was a very solid quarter for the trucking company.

For J.B. Hunt, sentiment just wasn’t strong enough to carry the stock materially higher, even in the face of declining prices for diesel fuel, which is a big bonus for that company’s bottom-line.

The autumn sell-off also flies in the face of reduced pressure on the Federal Reserve to begin raising rates as recent data shows a softening of economic activity on a global basis.

If oil was the catalyst and economic data the accelerator, it’s important to remember where stocks have come from. The equity market has been due for a material correction for a number of quarters. It didn’t even need a reason for a correction only because share prices have come so far over the last several years.

The breakdown in oil prices has been truly spectacular and is now seriously affecting the business case for many energy producers.

And the breakdown isn’t just due to increasing domestic production; it’s a breakdown in sentiment based on declining expectations for the global economy.

So stocks have sold off and they may go further, but a five to 10% price … Read More

Why Stock Prices Will Continue to Fall

By for Profit Confidential

Stock Prices Will Continue to FallNow that the Dow Jones Industrial Average has fallen 1,035 points (six percent) from its mid-September peak, the question investors are asking is “how far will she go?” For small-cap investors, the drama is greater, as the Russell 2000 Index has fallen 12.5% from its July peak.

Since 2009, every market pullback presented investors with an opportunity to get back into stocks at discounted prices. Even some editors here at Lombardi Publishing Corporation see the recent pullback in stocks as an opportunity.

But what happens if it is different this time? How about if stocks just keep falling?

If you have been a long-term follower of my column, you know I have been adamant about an economic slowdown in the global economy.

And let’s face it: the American stock markets have been addicted to the easy money policies of the Federal Reserve, namely money printing and record-low interest rates. But that is all coming to an end now. The Fed will be out of the money printing business soon and it has warned us on several occasions that interest rates will need to rise.

The International Monetary Fund (IMF) is now (or should I say, is finally) warning about an economic slowdown in the global economy. In its most recent global growth forecast, the IMF said, “With weaker-than-expected global growth for the first half of 2014 and increased downside risks, the projected pickup in growth may again fail to materialize or fall short of expectation.” The IMF also said the global economy may never see the kind of expansion it experienced prior to the financial crisis. (Source: “IMF says economic … 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

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