Two Big Trends to Emerge This Earnings Season?

The Two Big Themes This Earnings SeasonLots of companies have broken out of their previous long-term trends on the stock market, and it’s a positive, contributing signal to a secular bull market.

One company that recently beat Wall Street consensus and just broke out of its previous price trend is A. Schulman, Inc. (SHLM) out of Akron, Ohio.

This business deals with resins and plastic compounds. It’s not very exciting, but the company is growing, it pays a dividend, and its corporate guidance is rising.

A. Schulman is one of the few companies that actually file their SEC Form 10-Q commensurate with their earnings press releases. It’s something that’s very much appreciated because this information is typically more in-depth than a plain earnings report. Even if you aren’t interested in the resins and plastics business, what a company like A. Schulman says about its business conditions is helpful in shaping your own market view.


The company just reported solid growth in its second fiscal quarter of 2014 (ended February 28, 2014). Management said that business in Europe is getting better, with noticeable sales gains in the automotive and electronics markets.

Most of the company’s sales come from Europe, the Middle East, and African regions, which is often described by the acronym EMEA. Sales to these countries gained 12% in the most recent quarter to $383 million.

Sales in the Americas grew nine percent to $157 million, but they would have been stronger if not for foreign currency impacts, particularly in Argentina. Management is also de-emphasizing commodity-related sales, which are less profitable. Asia Pacific (APAC) sales grew 67% to $48.4 million, mostly due to an acquisition.

Last October, the company increased its quarterly cash dividend 2.6% to $0.20, and management bought back 40,327 of its own shares in the fiscal first quarter of 2014 at an average price of $27.68 per share. The stock is currently trading around $37.00.

Going through the details provided in its Form 10-Q, you can see the company’s operational strength in Europe. Not only is there decent volume growth and better capacity utilization, but profitability has been going up substantially as well.

Fiscal second-quarter earnings were lower than the same quarter of the previous year due to tax adjustments. Excluding these items, adjusted earnings from continuing operations grew 39% in the most recent quarter to $11.3 million, or $0.39 per diluted share.

Company management boosted its fiscal 2014 adjusted earnings outlook to between $2.23 and $2.28 per share, which would represent a gain of about 25% over prior results at the high end of the range.

This stock hasn’t done much over the last 10 years, and now it seems to have broken out of its pattern of nonperformance. (See “Why These Four Rail Picks Are on My Radar.”)

Other companies have been reporting improving business conditions in the European market, and the news is helpful for investors.

Management reported that weather conditions had an effect on U.S. demand for its products and that currency translation from Latin America is a material problem that isn’t going away anytime soon.

These are themes likely to be present in a number of forthcoming earnings reports.