Easy Kickoff to Earnings Season

Earnings Preview 1/6/12

There will only be a handful of firms reporting this week, even though it is considered the kickoff of the earnings season when Alcoa reports. A total of just 27 firms are scheduled to report, including 4 of the S&P 500. While few in number, some of the reports come from firms that are highly significant in that they will give clues to the overall direction of earnings in the fourth quarter.

The firms reporting next week include: Alcoa (AA - Analyst Report), J.P. Morgan (JPM - Analyst Report), Lennar (LEN - Analyst Report) and Supervalu (SVU - Analyst Report).

It will also be a fairly light week for economic data, particularly early in the week. We get Consumer Credit on Monday and the Fed releases its Beige Book on Wednesday. Thursday brings the Initial Jobless Claims data as well as Retail Sales. We learn about the Budget Deficit on Thursday and the Trade Deficit on Friday.

Monday

• Consumer Credit, not including real estate backed loans like mortgages is expected to have risen by $7.0 billion in November, down slightly from the $7.6 billion rise in October. Since the onset of the Great Recession growth of consumer credit has been very low, but is starting to show signs of picking up again.

Tuesday

• Nothing of significance as far as data is concerned. All eyes will turn towards the Granite State as New Hampshire holds the first primary of the election season.

Wednesday

• The Fed releases its January Beige Book, a compilation of mostly anecdotal evidence on the state of the economy from the twelve Fed districts. It will probably indicate slow but steady expansion in the economy and very little in the way of inflation pressure.

Thursday

• Weekly Initial Claims for Unemployment Insurance have been plunging. Last week they dropped by 15,000 to 372,000. That is comfortably below the key 400,000 level (that they were above two weeks ago). The consensus is looking for them to bounce back to 385,000 this week. A rebound after such a big drop is reasonable to expect as this does not tend to move in a straight line. Even that big a rebound would not be terrible news, as it would indicate that the last two weeks of declines were not a fluke. The 400,000 level is important in that it has historically been the inflection point, below which we tend to create enough jobs to bring down the unemployment rate. The week-to-week numbers can be very volatile, so the four-week average is the thing to focus on (372,250 last week). Keep an eye on the prior week’s revision as well as the change from the revised number.
• Continuing Jobless Claims have been in a downtrend of late, but the road down has been bumpy. Last week they fell by 22,000 to 3.595 million. That is down 532,000, or 12.9% from a year ago. The consensus is looking for a further decline to 3.588 million. Some (most?) of the longer-term decline is due to people simply exhausting their regular state benefits which run out after 26 weeks. Those, however, don’t last forever either. Federally paid extended claims rose by 5,000 to 3.503 million last week but are down 1.033 million, or 22.8% over the last year. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now, given the unprecedentedly high duration of unemployment figures. A better measure is the total number of people getting unemployment benefits -- currently at 7.223 million. The total number of people getting benefits is now 1.565 million below year-ago levels. What is not known is how many people have left the extended claims via the road to prosperity -- finding a new job -- and how many have left on the road to poverty, having simply exhausted even the extended benefits. Unless the program is renewed, all extended benefits will end in January. Make sure to look at both sets of numbers! Many of the press reports will not, but we will here at Zacks.
• Retail Sales are expected to rise by 0.4% in December, up from a 0.2% rise in November. If Auto sales are stripped out the rise is also expected to be 0.4% up from 0.2%. This data is adjusted for seasonal variations like the number of shopping days, but not for price changes. Thus if the rise is due to increased sales at gas stations it is not really good news.
• The Budget Deficit for December will be announced. The deficit is highly seasonal but the data is not seasonally adjusted, so it is best to look at it relative to the year-ago level. The month-to-month change can be highly misleading. So far in fiscal 2012 (started in October) the budget deficit is down 18.9% from the first two months of fiscal 2011. Given the absolute hysteria about the budget deficit earlier in the year, one might have expected that news to have been mentioned somewhere. Last December, the Federal Government spilled $78.1 billion of red ink. I suspect the number this year will be closer to $70 billion.

Friday

• The Trade Deficit is expected to rise to $44.3 billion in November from $43.5 billion in October. In general, the country has been doing a good job of increasing its exports, but imports also continue to rise. Over half of our trade deficit is due to our addiction to imported oil. The Trade deficit is what is responsible for our being in debt to the rest of the world, not the budget deficit. An increasing trade deficit directly lowers economic growth. As such I consider the trade deficit to be a much more important economic problem than the budget deficit is.
• The University of Michigan Consumer Sentiment index for January is expected to rise to 71.0 from 69.9. That is up off the lows of the summer, but still very depressed by any historical standard. Personally I think this is one of the most over rated economic statistics around, since what consumers say in the survey is often very different that what they actually do. Still, better seeing it go up than down.

Potential Positive or Negative Surprises

The best indicators of firms likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises. Similarly, a recent history of earnings disappointments, cuts in the average estimate for the quarter in the month before the report is due and a poor Zacks Rank (#4 or #5) are often red flags pointing to a potential disappointing earnings report.

In the Earnings Calendar below, $999.00 should be read as N.A.  Given the very small number of firms reporting next week, there are few good candidates to make good predictions of potential positive or negative surprises and thus I omit this section this week.

Company	Ticker	Qtr End	EPS Est	Year Ago EPS	Last EPS Surprise %	Next EPS Report Date	Time	Daily Price
ACUITY BRANDS	AYI	201111	$0.67	$0.56	0	20120109	BTO	$52.62
ALCOA INC	AA	201112	$0.04	$0.21	-36.36	20120109	AMC	$9.36
AUGME TECH INC	AUGT	201111	($0.05)	($0.05)	-200	20120109	BTO	$1.26
CALAVO GROWERS	CVGW	201110	$0.21	$0.32	19.05	20120109	BTO	$25.89
MISTRAS GROUP	MG	201111	$0.25	$0.21	10	20120109	BTO	$23.87
OCZ TECHNOLOGY	OCZ	201111	$0.06	($0.03)	-233.33	20120109	AMC	$7.63
PENFORD CORP	PENX	201111	$999.00	$0.03	-533.33	20120109	BTO	$5.12
SCHNITZER STEEL	SCHN	201111	$0.23	$0.64	9.02	20120109	BTO	$44.71
STANDARD MICROS	SMSC	201111	$0.17	$0.52	71.43	20120109	AMC	$25.55
VOXX INTL CP	VOXX	201111	$0.31	$0.17	-34.62	20120109	AMC	$8.75
WD 40 CO	WDFC	201111	$0.54	$0.53	12.96	20120109	AMC	$40.05
ZEP INC	ZEP	201111	$0.16	$0.27	-35.14	20120109	BTO	$14.49
CORUS ENTMT-B	CJREF	201111	$0.56	$0.56	9.37	20120110		$20.92
SYNNEX CORP	SNX	201111	$1.13	$1.04	20.22	20120110	AMC	$31.13
99 CENTS ONLY	NDN	201112	$0.41	$0.38	-4.55	20120111	AMC	$21.96
DRAGONWAVE INC	DRWI	201111	($0.18)	$0.00	-20	20120111	AMC	$3.28
EXFO INC	EXFO	201111	$0.04	$0.05	0	20120111	AMC	$6.08
FULLER(HB) CO	FUL	201111	$0.60	$0.44	0	20120111	AMC	$23.61
INFOSYS TEC-ADR	INFY	201112	$0.80	$0.69	4.35	20120111	AMC	$54.01
LENNAR CORP -A	LEN	201111	$0.18	$0.17	0	20120111	BTO	$20.77
RICHARDSON ELEC	RELL	201111	$0.09	$0.01	-44.44	20120111	AMC	$12.20
SEMILEDS CORP	LEDS	201111	($0.30)	$0.11	-117.39	20120111	BTO	$3.40
SUPERVALU INC	SVU	201111	$0.24	$0.24	40	20120111	BTO	$8.28
ESSEX PPTY TR	ESS	201112	$1.52	$1.28	0	20120112	AMC	$140.57
SEALY CORP	ZZ	201111	$0.01	$0.03	0	20120112	AMC	$1.81
SHAW COMMS-CL B	SJR	201111	$0.44	$0.36	-2.86	20120112	BTO	$19.81
JPMORGAN CHASE	JPM	201112	$0.94	$1.12	9.68	20120113	BTO	$35.68
PENFORD CORP	PENX	201111	$999.00	$0.03	-533.33	20120109	BTO	$5.12

Read the full analyst report on LEN

Read the full analyst report on AA

Read the full analyst report on JPM

Read the full analyst report on SVU