The Economy and Earnings in the Week Ahead
October 29, 2012

Stock Market Earnings Continue To Pour In!

The Economy and the Monthly Jobs Report!

by Ian Harvey


The Key Events in the Week Ahead

October 27, 2012


The economy will be on the front burner in the week ahead, as we get the widely anticipated monthly jobs report. Overall, the economic calendar is quite full, with the Dallas Fed Manufacturing Survey on Monday, followed by the S&P Case-Shiller Home Price Index and Consumer Confidence on Tuesday.

On Wednesday we get the ADP Employment Report, as well as the Employment Cost Index. In addition to the jobless claims on Thursday, the Productivity and Costs, ISM Manufacturing Index, and Construction Spending are also going to be released. On Friday, we also get the latest report on factory orders.

Third-quarter earnings will also continue to pour in. Bellwether companies scheduled to report include Hertz (HTZ), Ford (F), Pfizer (PFE) and Exxon Mobil (XOM).

Earnings in the Week Ahead

We have a great deal of earnings reports still to come. In fact, we have 716 companies coming out with results this week, including 106 S&P 500 companies. This means that by the end of this week we will have seen 75% of third quarter earnings results. The aggregate metrics will change over the coming days as more and more companies release results.

But it is unlikely that earnings will have toned down from the ‘disappointingly weak’ outcomes so far for this reporting season. When even companies like Apple (AAPL), Google (GOOG), Amazon (AMZN), Caterpillar (CAT) and DuPont (DD) come short of expectations, then you know that the earnings picture can’t be good.

Here is the current status of the 270 S&P 500 companies that have reported third quarter results as of Friday, October 25th. Total earnings for these companies are down 2.8% from the same period last year and only 61% of the companies are beating earnings expectations. Total revenues are down 2.3%, but only 30.7% of the companies are able to beat revenue expectations.

In a typical quarter, roughly two-thirds of the companies would beat earnings expectations, and close to 60% would come ahead of revenue expectations. In the second quarter of 2012 -- which by no means was a strong earnings season -- we had 68.3% of the companies that have already reported Q3 results beat earnings expectations.

On the revenue side, the ‘beat ratio’ was 39.3% in the second quarter. The average earnings and revenue ‘beat ratios’ over the last four quarters for this same cohort of 270 companies is 69% and 58.2%, respectively.




Investors have come to expect an ‘earnings surprise’ since management teams have fine-tuned expectations by under-promising and over-delivering. The third quarter earnings season thus far runs counter to this narrative, as the surprise this time around has predominantly been on the negative side. May be the redeeming feature of this earnings season is that the underperformance this time around restores our confidence in the earnings surprise all over again.

Total earnings for the 241 S&P 500 companies still to report results are expected to be up 1.2% from the same period last year. The composite growth rate for third quarter total earnings -- where we combine results for the 270 companies that have reported results with what is expected for the 241 companies – is for a decline of 1.1% and revenue decline of 2.5%.

Modestly down Tech sector earnings (down 0.3%) add to seven other sectors that have negative year-over-year comparisons. The predominantly negative tone of company guidance has started showing up in estimate revisions, but overall estimates for the fourth quarter and beyond remain elevated at present.

Total earnings are expected to grow 6.1% in the fourth quarter and in excess of 11% of in 2013. These growth expectations have come down from a few months back, but they still have more room to fall.

Major Earnings in the Week Ahead




Company Earnings and News in the Week Ahead

Monday, October 29

Burger King Worldwide (BKW) is scheduled to report its quarterly earnings results ahead of Monday’s opening bell. Is this fast food restaurant operator is taking share from rival McDonald’s (MCD).

This may help explain McDonald’s poor performance of late.

Cirrus Logic (CRUS) is also slated to report Monday. The semiconductor maker is rumored to be a supplier to Apple (AAPL). Its forecast could provide clues as to what product Apple might release next.

Tuesday, October 30

On Tuesday, earnings results from Allergan (AGN) will be presented.

This favorite drug companies spends more on research and development as a percentage of its sales than just about anyone else and has successfully extended the Botox franchise to a host of other uses. The stock’s been a poor performer this year … but it is possible that Allergan’s bladder and migraine drugs will have a huge 2013.

Meanwhile, Ford Motor (F) is also expected to deliver its earnings results Tuesday. The automaker recently announced a second round of European job cuts and plant closures in a bid to halt regional losses that it now expects to surpass $3 billion over two years. This appears to have been necessary.

For every step forward that Ford takes here, it takes one step backward in Europe and another half step backward because of Latin America -- with the downside quantified from Europe now we wait to hear the downside from South America.

Nevertheless, Ford’s stock might finally have a chance to push higher.

Sirius XM Radio (SIRI) will also announce earnings Tuesday. Earlier, the company announced CEO Mel Karmazin will step down in February, a move that comes at a time when media mogul John Malone's Liberty Media (LMCA) is trying to wrest full control of the satellite radio broadcaster. This may provide more information about Sirius’ future.

Wednesday, October 31

Clorox (CLX) will deliver its quarterly numbers before Wednesday’s opening bell. Its stock usually pushes higher going into the quarter, only to sell-off on disappointing slow growth results. Expect this pattern to continue this time around, too.

Take profits and buy Clorox back if you aren’t concerned about short-term tax considerations!

Exelon (EXC), the biggest nuclear power operator in the United States, is also scheduled to announce earnings Wednesday.

This huge utility, the old Philly Elec and Commonwealth Eds combined, has an almost 6 percent yield.

General Motors (GM) will deliver earrings on Wednesday, too. The automaker’s stock has pushed higher because Chinese consumers seem to be avoiding Japan-made cars, such as Toyota Motor (TM). It will be important to know if the Chinese are buying GM cars instead and to what degree.

Apparel maker Ralph Lauren (RL) will also announce earnings Wednesday. This company is doing well, but there are fears it might have been hurt by Europe’s sluggish economy, as competitor VF Corp (VFC) recently indicated it was.

There’s massive put buying on this stock, so it better disappoint!




Thursday, November 01

Oil and gas giant Exxon Mobil (XOM) is expected to report its earnings results Thursday. Its numbers should be “just fine.”

Also look for earnings results from engineered equipment maker Chart Industries (GTLS) on Thursday.

This company is key to the nation’s attempts to harness natural gas as a fuel for surface vehicles.

Food giant Kellogg (K) will also deliver earnings Thursday.

You may want to own this stock going into this number as the company’s restructuring is really taking off and it’s beginning to grow again -- Kellogg boasts a safe, juicy dividend yield – it is an anti-‘fiscal cliff’ stock!

Earnings report from Chesapeake Energy (CHK) are expected on Thursday, too. The CEO, Aubrey McClendon, said the company has raised a lot of cash and can grow its production by roughly 20 percent.

Friday, November 02

Liquor maker Beam (BEAM) will report earnings before Friday’s opening bell. Competitor Diageo (DEO) is probably a better buy, however, Beam does represent a decent value at current levels.

Finally, Chevron (CVX) is scheduled to post its quarterly results on Friday.

Chevron is far too often undervalued given its much better growth profile than most of the other majors, including Exxon. If it’s down going into the quarter and oil’s strong the day before, it might be a good deep in the money near month call option play.




Economy in the Week Ahead

While earnings may no longer have much “newsy” value, we do have a bunch of market-moving economic reports on deck as well. The most important economic report coming out this week is the October non-farm payroll report coming out on Friday, but we also have the manufacturing ISM report and other key reports.

Here is a brief list of some of the key events in the week ahead.

All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates.


Earnings: Cirrus Logic (CRUS), Baidu (BIDU), Yamana Gold (AUY), Burger King Worldwide (BKW), Red Robin Gourmet Burgers (RRGB), and Loews Corporation (L)


• 8:30 am: Personal income
• 10:30 am: Dallas Fed survey
• 2:00 pm: Fed senior loan officer survey


Earnings: Ford Motor (F), Pfizer (PFE), BP (BP), Sirius XM Radio (SIRI), U.S. Steel (X), Valero Energy (VLO), Automatic Data Processing (ADP), JDS Uniphase (JDSU), TripAdvisor (TRIP), TD Ameritrade (AMTD), and Ashland (ASH).


• 9:00 am: S&P/Case-Shiller HPI
• 10:00 am: Consumer confidence
• 10:00 am: Housing vacancies
• 12:30 pm: New York Fed President William Dudley speaks
• 2:00 pm: Minneapolis Fed President Narayana Kocherlakota speaks


Earnings: General Motors (GM), MasterCard (MA), Visa (V), MGM Resorts (MGM), Clorox (CLX), Metlife (MET), and Ralph Lauren (RL).


• 8:30 am: Employment cost index
• 9:45 am: Chicago PMI
• 10:30 am: Oil inventories
• 12:45 pm: San Francisco Fed President John Williams speaks


Earnings: Exxon Mobil (XOM), Yelp (YELP), Kellogg (K), Marathon Petroleum (MPC), Newmont Mining (NEM), Teva Pharmaceutical Industries (TEVA), Plains Exploration & Production (PXP), Royal Gold (RGLD), R.R. Donnelley & Sons (RRD), and Estee Lauder (EL).


• Monthly vehicle sales
• 8:15 am: ADP employment report
• 8:30 am: Initial claims
• 8:30 am: Productivity and costs
• 10:00 am: ISM manufacturing
• 10:00 am: Construction spending
• 10:30 am: Natural gas inventories
• 12:30 pm: Atlanta Fed President Dennis Lockhart
• 5:00 pm: Boston Fed President Eric Rosengren speaks


Earnings: Chevron (CVX), Alcatel-Lucent (ALU), Alpha Natural Resources (ANR), and Cooper Tire & Rubber (CTB).


• 8:30 am: Employment report
• 10:00 am: Factory orders
• 2:45 pm: San Francisco Fed’s Williams speaks




Reports for the Economy to Watch in the Week Ahead

Friday, November 02

The U.S. government's October jobs report will give a current labor market.

Investors won’t be the only ones anxiously awaiting the week ahead monthly labor report due on Friday. The October job numbers could have a big impact on the presidential election just four days later.

The last two reports – August and September – offered surprises, showing the unemployment rate had unexpectedly dipped below 8% for the first time in about four years.

Another positive report for October would be viewed as beneficial to President Barack Obama in his bid for re-election. A disappointing report would offer Republican challenger Mitt Romney ammunition in his efforts to paint Obama as ineffective in pulling the U.S. out of its economic slump.

Economists aren’t expecting much – an increase of 120,000 jobs, not much more than the 114,000 created in September. But that’s not the number most people will be watching. Everyone will be watching the rate itself.

Last month due to technicalities in how the rate is configured it fell to 7.8% from 8.1%. Skeptics, most of them Romney supporters, suggested the government was manipulating the numbers in favor of Obama. The White House and the Labor Department have dismissed the allegations.

The rate is expected to stay at 7.8%.

Polls currently indicate that President Obama is a slight favorite to win on Nov. 6, but the race will be tight. The most recent Reuters/Ipsos poll of likely voters shows the president ahead - 47 percent to 46 percent.




Other Important Articles Relating to the Week Ahead

1. The Past Week Stock Market Results – October 29, 2012

2. The Week Ahead in the Stock Market – October 29, 2012

3. The Major ETFs in the Week Ahead – October 29, 2012

4. Companies Reporting Earnings in the Week Ahead - October 29, 2012

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