The second half of the calendar year has begun, and earnings return to the spotlight this week. As usual, Alcoa Inc. (NYSE: AA) is among the first of the S&P 500 to report quarterly results. For the second quarter in which Alcoa agreed to sell its wire harness and electrical distribution business and its fastening systems business expanded into Morocco, analysts surveyed by Thomson Reuters expect the New York-based aluminum producer to report swinging to a net loss of $0.34 per share from a profit of $0.66 per share in the year-ago period. Second quarter revenue is expected to have fallen 48.3% to $3.9 billion. The full-year forecast is currently for a loss of $1.04 per share and revenue of $16.7 billion (-38.0%). Alcoa has missed expectations in the past three quarters, by as much as 17 cents per share. The long-term EPS growth forecast is 10.0%, which is better than the sector average. Alcoa slashed its dividend earlier this year, and the First Call consensus recommendation remains to hold AA. However, TheStreet.com recommends it as an against-the-grain pick. At $9.86, shares are down 12.4% since the beginning of the year, and recently have been bumping up against the 200-day moving average.
Among the S&P 500 companies reporting this week, analysts have the highest hopes for Family Dollar Stores Inc. (NYSE: FDO), which continues to benefit from frugal consumers in recession mode. For a fiscal third quarter that saw two new executives, the operator of the nation's number two dollar-store chain is expected to report a profit of $0.59 per share, which is 22.0% higher than a year ago. Revenue is expected to be 8.3% higher to $1.8 billion. For the full-year, analysts so far are looking for earnings of $2.00 per share (+17.0%) on sales of $7.4 billion (+6.3%). This dividend-paying company has met or topped earnings expectations in the past five quarters. The long-term EPS growth forecast is 12.2%, which is better than the retail industry average, and the forward PE ratio estimate is 13.0, the same as that of rival Dollar Tree Inc. (NASDAQ: DLTR). The consensus recommendation is to hold FDO, but Jim Cramer calls it the best in the sector. After hitting a 52-week high of $35.00 in April, shares have fallen 20.1%, slipping below the 200-day moving average, to $27.95.
Progressive Corp. (NYSE: PGR), which specializes in high-risk personal auto insurance, seems to be holding its own despite the recession. Analysts expect the Ohio-based insurer to report earnings of $0.36 per share for its second quarter, which is the same as in the year-ago period. Revenue is also expected to be about the same as last year, or $3.5 billion. The profit and sales forecast for the third quarter and the full year, however, are predicting very modest growth. Earnings have fallen short of estimates in recent quarters, but only by 4 cents or less per share. The long-term EPS growth forecast is only 6.9% and the forward PE ratio estimate is 10.0. Yet, analysts on average recommend buying PGR; Investopedia included it on a list of companies buying back shares. Shares are 5.3% higher than three months ago to $14.48, but still 25.5% lower than a year ago.
Pepsi Bottling Group Inc. (NYSE: PBG), the world's largest distributor of Pepsi brand beverages, is expected to report that second-quarter earnings slipped a nickel a share from a year ago to $0.73, offering ample opportunity to excite investors should it provide an upside surprise and/or positive guidance. And for the full year, analysts currently are looking for earnings that are 3.8% higher to $2.36 per share. Revenue for the quarter is expected to have fallen 2.0% to $3.5 billion, but for the full year to be down just 1.0% to $13.7 billion. This dividend-paying company has topped earnings estimates in recent quarters, doubling expectations in the first quarter. The long-term EPS growth forecast is 6.1% and the forward PE ratio estimate is 14.0. The analysts' consensus recommendation is to hold PBG; one analyst upgraded PBG for its growth potential and that of PepsiCo Inc. (NYSE: PEP), which has offered to purchase the bottler. Pepsi Bottling's share price is 50.2% higher year to date, trading near its 52-week high of $34.80.
Though the price at the pump inched upward during its second quarter, oil giant Chevron Corp. (NYSE: CVX) is expected to report that per-share earnings plummeted 59.3% from a year ago to $1.18. Revenue for the quarter is likewise forecast to have fallen, by 54.3% to $37.9 billion. The outlook for the full year isn't much better: $4.47 per share (-60.7%) on $205.2 billion (-24.8%). In the past four quarters, Chevron's profit has missed expectations by pennies per share in two and beat by dimes per share in two. The long-term EPS growth forecast is 4.6%, which is in the ballpark with rivals BP (NYSE: BP) and Exxon Mobil Corp. (NYSE: XOM). Chevron's forward PE ratio estimate is 10.0, which is less than the industry average. The consensus recommendation remains to buy CVX, and the Motley Fool considers it as good as gold for its steady dividend and stable sector. Shares are higher than the 52-week low of $55.50 back at the end of May, closing Friday at $64.42, but that's still 34.7% lower than a year ago.
Also coming up this week is the FDIC's 2009 Interagency Minority Depository Institutions National Conference, which offers an opportunity for federally-insured minority depository institutions, regulatory officials, and private industry representatives to discuss challenges they face and developments that are key to ensuring their long-term success and viability. FDIC Chairman Sheila Bair is scheduled to give a keynote address Wednesday at noon, while Federal Reserve Board Governor Elizabeth Duke speaks Thursday morning.
Friday morning, Treasury Secretary Timothy Geithner is scheduled to testify before a congressional panel on over-the-counter derivatives.
Economic data scheduled to be released this week include:
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ISM Nonmanufacturers Survey Index for June on Monday morning
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Job vacancies in May on Tuesday morning
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Treasury securities outstanding (public debt) in June on Tuesday afternoon
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Consumer credit outstanding for May on Wednesday afternoon
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Wholesale trade for May on Thursday afternoon
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Import Price Index for June on Friday morning
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University of Michigan Consumer Sentiment Index for June on Friday morning
Why is gold marching higher? Ask the central bankers
Newspaper ad revenue of 28%, 8 quarters of double-digit drops
Closing Bell: Earnings working against stocks (BCRX, DELL, DHI, INTC, LEAP, PCS)
Reader Comments (Page 1 of 1)
7-06-2009 @ 6:59AM
Steve said...
Does the fall in commodity prices is the major reason behind the earnings fall in Alcoa?
7-08-2009 @ 3:55AM
Bob said...
TO STEVE:
You said:
"Does the fall in commodity prices is the major reason behind the earnings fall in Alcoa?"
Is that English? Did you sleep in school?
Try:
"Is the fall in commodity prices the major reason behind the earnings fall in Alcoa?"
ANSWER:
Are you being serious?
Lets look at what you said for a minute. Let us say that you sell orange juice on the corner for a $1.00 a cup. And you buy oranges for $0.33 a pound. And you use one orange per glass. Now, with sales being equal, no drop off in customers, oranges (a commodity) goes to $0.25 a pound (a drop in commodity prices).
What would that do to earnings?
You would make more money, have more profit, have higher earnings.
A drop in commodity prices alone (as long as your producer prices stay the same) is good for companies that use them, not negative. If we just had a drop in commodity prices, lets say due to a country finding a major source and dumping it on the market, it would be good to the producer and consumer.
What is hurting Alcoa is:
1) They purchased raw materials to produce aluminum last year at this time when commodity prices where at the top (HIGH). These raw materials are stuck in inventory.
2) There was a massive drop in demand for the products that they produce over the past year. (Hello!? Haven't you watched the news the last year or did you just return from Saturn?) Alcoa sells aluminum products, like sheet aluminum to Boeing to manufacture the 787, etc. But, what are there customers doing now? Car makers (GM, Ford, Chrysler, Toyota, etc.), appliance makers (Westinghouse, etc), home builders and building contractors (aluminum studs, conduit, ducting for HVAC, etc.) All of their customers are in the toilet. They are not buying.
So, end result Alcoa is stuck with last years raw materials (at high prices), with little to no sales (demand for finished aluminum) to pull that inventory through. Hence they have been squeezed hard at both ends.
Economics 101: Demand is low/supply is high, but cost basis is high for raw materials, while sales prices are low.
Now, that said, if Alcoa can work through the raw materials that it purchased last year during the remainder of this year, and in conjunction, demand would return to 2006 levels a year from now, what would happen?
Alcoa will be 180 degrees from where we are today: Low raw material prices with high demand for sheet and molded aluminum. Hence, earnings through the roof. Stock goes to $25.00. But, that is predicated on those two things happening.
So, you must try to figure out when this 180 will occur.
That was the long answer.
SHORT ANSWER: NO