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

Many Public Companies Predicting Soft
Earnings for Balance of 2012

Friday, April 27th, 2012
By for Profit Confidential

Over 80% of the S&P 500 companies that have reported earnings so far for the first quarter of 2012 have beaten analyst earnings expectations. But the rest of the year doesn’t look that rosy…

The Coca-Cola Company (NYSE/KO), an S&P 500 company, beat first-quarter analyst earnings expectations, but stated that prices for aluminum, juice and plastic—commodity prices—increased its costs by 10% over last year, decreasing their profit margins.

The company stated that the U.S. market seemed fine and certainly much better than Europe, which will continue to be an issue in 2012. The company also cited a slowdown in its business in China.

Kellogg Company (NYSE/K), an S&P 500 company, did not meet analyst earnings expectations because of its European business. It foresees a difficult 2012 with commodity prices remaining high. Although the company cited higher commodity prices as impacting its current earnings, the company stated that, at least to this point, they have been able to raise prices to offset higher commodity prices.

WD-40 Company (NASDAQ/WDFC) reported better earnings, but noted that Europe was still a major concern. The company mentioned how high oil prices were reducing its margins, while higher commodity prices in general impacted its business.

Nestle S.A. (Pink Sheets/NSRGF) warned that 2012 would be a difficult year, as its U.S. and European businesses remain challenging. The company has experienced higher commodity prices, which impacted their business by 10%-11%, but partially offset this by raising prices.

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PACCAR Inc. (NASDAQ/PCAR), also an S&P 500 company, is the second-largest maker of large trucks in North America. The company is viewed as an economic indicator. If large truck demand is high, it means that more goods are moving across this country, which translates to a strong U.S. economy.

In the past two years, the company hired people to build trucks, as it ramped up production in anticipation of demand in the U.S. economy, in spite of higher commodity prices. Now the company is planning to reduce the number of workers it employs by 10%. This seems to suggest that the demand the company was expecting from a stronger U.S. economy has not developed.

Watch out for that stock market rally, dear reader. Commodity prices were an issue in the first quarter of 2012 and could continue to be a problem.

Where the Market Stands; Where it’s Headed:

I remain steadfast in my opinion: We have simply been in a bear market rally (often referred to as a bounce) since March of 2009.

The rally has been supported by artificially low interest rates, record government debt and a record increase in the money supply. There have been structure improvements to the economy. The lifespan of the rally is limited.

What He Said:

“Why Google stock will go higher: Most investors in Google, surprisingly, are retail investors. And that’s why the stock can go higher—because only 20% of the stock is owned by institutions. If the institutions jump in and buy Google, the stock will certainly move higher.” Michael Lombardi in PROFIT CONFIDENTIAL, June 2, 2005. Michael recommended Google stock as a buy on June 2, 2005 when the stock was trading at $288.00. On November 5, 2007, when Google reached $700.00 U.S. per share, Michael advised his readers to sell their Google stock and to put the proceeds into gold-related investments. Coincidentally, gold bullion was also trading at about $700.00 per ounce in November 2007. Michael’s message was to trade each $700.00 share of Google into $700.00 of gold, because he saw gold as a much better investment.

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Michael Lombardi - Economist, Financial AdvisorMichael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Some of the stock recommendations in Michael's various financial newsletters have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter or Add Michael Lombardi to your Google+ circles