With more and more companies reporting, earnings results are a mixed bag. There’s outperformance, underperformance, and some just plain awful sales results.
Coach, Inc. (COH) got hit hard after the company missed consensus big-time on a dramatic drop in North American comparable store sales. The famous handbag manufacturer also said second-half domestic sales would fall comparatively. The company is experiencing significant competition; Michael Kors Holdings Limited (KORS) is an example.
Abbott Laboratories (ABT) is a benchmark pharmaceutical stock. The company’s fourth-quarter revenues missed consensus, while earnings excluding special items matched the Street. The only saving grace for the stock was the company’s announcement that it plans to buy back $2.0 billion of its own shares this year. Buybacks are a strategy employed by all kinds of large-cap companies that can’t beat consensus estimates.
Good news came from the railroad sector, and even if you aren’t interested in owning a railroad stock, what the industry reports is material to the U.S. economy and the domestic outlook.
Norfolk Southern Corporation (NSC) generated earnings growth of 24% in the fourth quarter of 2013 to $513 million, or $1.64 per diluted share.
The company said its fourth-quarter operating revenues grew a solid seven percent to $2.9 billion, with a 21% gain in chemical shipments, a 12% gain in metals and construction, and a 10% gain in automotive shipments. Coal was down only two percent, which was a surprise. The company experienced strong “crude by rail” shipments, as did other railroad companies.
For all of 2013, the company’s operating revenues grew two percent to $11.3 billion on a three-percent gain in overall traffic.
Annual earnings were $1.9 billion, or $6.04 per diluted share, up a solid nine percent from $1.7 billion, or $5.37 per diluted share. The railroad’s cash position improved substantially by year-end; so did shareholders’ equity.
Norfolk Southern’s share price moved up five percent on the day of its earnings release. Railroad stocks have been strong across the board, although CSX Corporation (CSX) was recently hurt by declining shipments of coal.
Most railroad stocks have actually led the main stock market indices, providing price strength and price consolidation in advance. On balance, I think we’ll likely get more consolidation from the group followed by another upward move in share prices.
Most railroad companies have experienced a boost to their year-end earnings estimates from Wall Street analysts. No doubt it’s a bet on a strengthening U.S. economy later in the year.
My two favorite railroad stocks are Union Pacific Corporation (UNP) and Canadian National Railway Company (CNI), whose largest individual shareholder is Bill Gates. (See “Railroad Stock to Own for 10+ Years the Next in Series of Core Holdings?”)
They aren’t the highest-yielding income stocks, but valuations aren’t off the map, either. With a material price retrenchment, a railroad company could be a welcome addition to a balanced equity portfolio.
These are old economy industrial stocks, but they still have significant earnings power when business conditions are good. Over the last few years, these stocks have been extremely profitable.