Going back to the lackluster corporate earnings from early reporters that I talked about in my last article, today, I’m taking a closer look at NIKE, Inc. (NKE), which appears to be outperforming the market so far in 2015.
Current Economic and Stock Market Action
In the fourth quarter of 2014, corporate earnings didn’t particularly sway market sentiment. For the most part, investors just yawned at the numbers, even if results beat Wall Street consensus.
Investor sentiment then was very much dictated by the dramatic drop in oil prices and lingering growth worries in global economic data. The same issues are still intact today, but the market is much more focused on Fed language.
In the current environment, there’s not a lot of new action to take. Corporate earnings estimates for this calendar year are going down (and have been for a while in the energy patch), but there is considerable hope for 2016 in terms of a financial rebound in corporate earnings.
Financial reporting so far has been particularly lackluster with the stronger U.S. dollar having a detrimental effect, slightly offset by lower oil prices, which is helping transportation-related businesses tremendously.
We know that the interest rate cycle is about to change soon. If economic data and corporate earnings continue to come in softer, we may not get the first interest rate increase until next year.
So, with the marketplace expecting a change in rates but unsure when, the continuing focus should be on corporate earnings and outlooks from businesses.
NIKE: Early Earnings Reporter
One company that tends to be quite good with its forecasting is NIKE, Inc. (NKE). The stock is up approximately five-fold (not including dividends), since the market low in early 2009. For the most part, management has reported very good financial growth.
NIKE is a benchmark stock that for such a mature brand, has really outdone itself in producing period after period of decent comparable growth. This stock is typically fully or expensively priced on the stock market, but for good reason—it delivers on its promises.
For its third fiscal quarter of 2015 (ended February 28, 2015), NIKE reported numbers right along the same lines as so many other large, international businesses. (See “Early 1Q15 Earnings Forecast: Decent Bottom Line, Disappointing Sales.”) Sales grew seven percent to $7.5 billion (or 13% currency neutral), which was slightly below Wall Street consensus. Earnings grew 16% comparatively to $791 million, with earnings per share growing 19% to $0.89. The U.S. dollar is taking a bite out of future orders, which is the company’s outlook indicator.
This market needs first-quarter corporate earnings to take its mind off falling oil prices, lackluster global growth, and a general uneasiness with the current state of things.
We’re still seeing the Dow Jones Transportation Average, the NASDAQ Biotechnology Index, and the Russell 2000 Index of small-caps trading right at their all-time record-highs. That’s a confirming indicator that the secular bull market is still intact.
The market may very well keep yawning at corporate earnings in the face of tightening monetary policy and a weak market for oil. In any case, business cycles are soon about to change. The fundamental backdrop for equities, though, remains intact, as the Federal Reserve has proven to be (right or wrong) Wall Street’s best friend.