Third-Quarter Earnings Season Rosier Than It Appears?

Third-Quarter Earnings Season RosierThere are countless factors that support the case that the bull market for stocks can continue.

Interest rates are low, inflation is modest, monetary policy is very accommodative, and new initial public offerings (IPOs) are opening up well above their offering prices.

There are even some decent earnings results, which you wouldn’t necessarily expect given the headlines and economic data.

Snap-On Incorporated (SNA) is a $6.0-billion company that sells small tools and equipment to vehicle technicians. The Kenosha, Wisconsin-based company beat Wall Street consensus on revenues and earnings in its most recent quarter.


Third-quarter sales grew 5.8% to $753.2 million, while diluted earnings per share grew 13.5% to $1.43. The stock is up 25% year-to-date and 50% over the last two years.

PPG Industries, Inc. (PPG) is a Pittsburg-based company that supplies coatings and specialty products to industrial customers in the automotive, military, and aerospace industries.

The $24.0-billion company announced record third-quarter financial results. Total sales grew 17% to $4.0 billion, while earnings beat the Street by a wide margin.

And Winnebago Industries, Inc. (WGO) surprised once again by beating expectations on both revenues and earnings. The Forest City, Iowa-based manufacturer of recreational vehicles said that sales in its fiscal fourth quarter (ended August 31, 2013), jumped 32% to $214.2 million. Earnings grew to $10.6 million compared to adjusted earnings of $4.0 million (excluding a one-time tax benefit).

This is the company’s sixth consecutive quarter of increased sales in its order backlog. Management expects gross margins to improve throughout fiscal 2014.

Not everything is rosy, but in many cases so far, those numbers are about a company not meeting Wall Street consensus (, Inc. [OSTK] is just one example). That doesn’t mean there isn’t growth out there.

Corporations are continuing to do what they’re good at—hoarding cash, squeezing costs, and keeping expectations for the future as modest as possible.

Like the second quarter, investor expectations were brought down considerably, so it doesn’t take much for a company’s shares to soar if they slightly beat consensus.

And not all financial metrics have to beat the Street for a company’s share price to take off. Chipotle Mexican Grill, Inc. (CMG), which has been a hot stock over the last 12 months, soared on the stock market after announcing that sales at existing restaurants rose an industry-beating 6.2% during the third quarter. Earnings grew to $83.4 million, or $2.66 per share, compared to $72.3 million, or $2.27 per share. This was below Wall Street consensus of approximately $2.78 per share for the third quarter of 2013. (See “Two Old Restaurant Stocks Offer Investors Growth.”)

The action is the action, and there remains a positive disposition to this market now that there is some near-term certainty from Washington. With several key stock indices pushing new highs, it won’t take much for the stock market to keep ticking higher on a short-term basis.