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Although demand has softened noticeably in recent weeks, inflation will take longer to cool down and the Fed is expected to continue hiking rates when it meets next month. But the way things stand right now, with oil prices receding and the heat coming off the housing market, the ‘soft landing’ may even be possible.
The latest earnings reports from retailers shows an expected but disappointing trend of weaker sales and bigger inventories, discounts and so forth that seem to indicate that consumers are turning away from non-essentials in the face of high inflation rates. But the retail sector is very broad-based and not all industries within it are seeing the same softness.
A closer look at these three relatively small players proves the point:
TravelCenters of America Inc.
TravelCenters operates 276 travel centers in 44 U.S. states and in the Ontario province of Canada; three truck service facilities and one restaurant.
Other than diesel fuel and gasoline, a range of truck repair and maintenance services, and diesel exhaust fluids, these travel centers also offer a whole range of general merchandise that you may need on the road, such as electronics, oil and additives, hardware and tools, clothing, and cab and bunk supplies; convenience products like cold beverages, candy, salty snacks and sweet treats; grocery items, such as meal solutions, pet supplies, and health and beauty products; as well as fresh food, pre-packaged meal solutions, snacks, freshly brewed coffee, cold fountain drinks, and gifts and regional souvenirs. The travel centers also include full-service restaurants, quick service restaurants and various customer amenities.
Its customers include trucking fleets and their drivers, independent truck drivers, highway and local motorists and casual diners. Additionally, it collects rents, royalties and other fees from tenants and franchisees.
Fuel sales account for around 80% of revenue, with most of the balance coming from other products and a fraction of revenue from rent and royalties. Therefore, the strength in fuel prices led to the 90% growth in fuel revenues in the last quarter, partially offset by a slight reduction in volumes.
One factor driving sales of other goods that also supports fuel sales is the condition of the general economy. Therefore, the company also benefited from the post-lockdown reopening, as more of its stores and restaurants became operational, as well as inflation-driven price increases at its restaurants and truck services.
The biggest driver in the last quarter was increased sales of diesel exhaust fluid (DEF) that when injected into the exhaust stream converts the harmful emissions into nitrogen and water. There is an increase in the number of trucks that need DEF, a positive factor in its growth.
TravelCenters also has plans to greatly increase its network of stores through the franchising model and has plans to have 42 more of these stores over the next couple of years.
The company’s earnings estimates have increased substantially in the last 30 days. For the current quarter, they’re up nearly 46%, for 2022 they’re up 113% and for 2023, they’re up 8%.
The shares carry a Zacks Rank #1 (Strong Buy) and an A grade for both Value and Growth. The Retail - Convenience Stores industry, to which it belongs, is in the top 2% of Zacks-classified industries, which along with the Zacks #1 rank is itself a strong indication of upside potential.
Titan Machinery owns and operates a network of full-service agricultural and construction equipment stores in the United States and Europe, through which it sells both new and used equipment. The company operates through the Agriculture, Construction and International segments. Agriculture is the largest segment (about two-thirds of revenue) with Construction and International splitting the rest more or less equally.
Its agricultural equipment includes machinery and attachments for use in the production of food, fiber, feed grain and renewable energy; home and garden applications; and for maintenance of commercial, residential and government properties. The strength in Agriculture continued from prior periods but better supplier deliveries and solid operating leverage in the last quarter allowed Titan to generate segment revenue growth of 39% and segment earnings growth of about 47%.
Its construction equipment includes heavy construction machinery, light industrial machinery for commercial and residential construction, road and highway construction machinery, and energy and forestry operations equipment. It also offers maintenance and repair services and replacement parts. The Construction segment was soft with profitability improvement coming from management’s prior asset optimization actions.
International is still impacted by the pandemic, but grew slightly in the last quarter (1Q23), as the impact of the Ukraine conflict appears to be less than originally anticipated with Ukrainian customers continuing to farm.
As a result, management substantially raised the fiscal 2023 revenue outlook for all three segments and also raised the overall earnings outlook.
As may be expected, analysts raised their estimates: by 11% for 2023 and 9% for 2024 since that report. The company reports tomorrow before the bell.
The Zacks Rank #1 stock has Value and Growth Scores of B, according to the Zacks Style Score system. The Automotive - Retail and Whole Sales industry to which it belongs is in the top 24% of Zacks-classified industries.
Tecnoglass offers low emissivity, laminated/thermo-laminated, thermo-acoustic, tempered, silk-screened, curved and digital print glass products. It also provides the aluminum products, including bars, plates, profiles, rods, and tubes that are used in the manufacture of architectural glass settings, including windows, doors, spatial separators and so forth. Its products are sold into commercial and residential construction industries in Columbia, Panama and other international regions.
This company is in the limelight because of the strength that it continues to see despite the softening demand for new housing. And this has been possible because of its focus on the remodel and renovation segment. Management said that the demand remains strong across the single-family and multifamily residential projects, as well as the commercial projects even during the month of July.
Single-family outshone the others (with revenue growth of 86% from last year) because of share gains and the remodel business that now accounts for 65% of the segment’s total revenue. Another strong data point is in commercial, where revenue has grown sequentially every month of 2022. In the last quarter, it was up 15% year over year. There is also improving visibility with a record backlog of multifamily and commercial projects that now stretches well into 2023.
In response, the Zacks Consensus Estimate has increased 20% for the current quarter, about 15% for 2022 and 13% for 2023.
The shares carry a Zacks Rank #1 and an A grade for both Value and Growth. The Building Products – Retail industry, to which it belongs, is in the top 29% of Zacks-ranked industries.
One-Month Price Performance
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Although demand has softened noticeably in recent weeks, inflation will take longer to cool down and the Fed is expected to continue hiking rates when it meets next month. But the way things stand right now, with oil prices receding and the heat coming off the housing market, the ‘soft landing’ may even be possible.
The latest earnings reports from retailers shows an expected but disappointing trend of weaker sales and bigger inventories, discounts and so forth that seem to indicate that consumers are turning away from non-essentials in the face of high inflation rates. But the retail sector is very broad-based and not all industries within it are seeing the same softness.
A closer look at these three relatively small players proves the point:
TravelCenters of America Inc.
TravelCenters operates 276 travel centers in 44 U.S. states and in the Ontario province of Canada; three truck service facilities and one restaurant.
Other than diesel fuel and gasoline, a range of truck repair and maintenance services, and diesel exhaust fluids, these travel centers also offer a whole range of general merchandise that you may need on the road, such as electronics, oil and additives, hardware and tools, clothing, and cab and bunk supplies; convenience products like cold beverages, candy, salty snacks and sweet treats; grocery items, such as meal solutions, pet supplies, and health and beauty products; as well as fresh food, pre-packaged meal solutions, snacks, freshly brewed coffee, cold fountain drinks, and gifts and regional souvenirs. The travel centers also include full-service restaurants, quick service restaurants and various customer amenities.
Its customers include trucking fleets and their drivers, independent truck drivers, highway and local motorists and casual diners. Additionally, it collects rents, royalties and other fees from tenants and franchisees.
Fuel sales account for around 80% of revenue, with most of the balance coming from other products and a fraction of revenue from rent and royalties. Therefore, the strength in fuel prices led to the 90% growth in fuel revenues in the last quarter, partially offset by a slight reduction in volumes.
One factor driving sales of other goods that also supports fuel sales is the condition of the general economy. Therefore, the company also benefited from the post-lockdown reopening, as more of its stores and restaurants became operational, as well as inflation-driven price increases at its restaurants and truck services.
The biggest driver in the last quarter was increased sales of diesel exhaust fluid (DEF) that when injected into the exhaust stream converts the harmful emissions into nitrogen and water. There is an increase in the number of trucks that need DEF, a positive factor in its growth.
TravelCenters also has plans to greatly increase its network of stores through the franchising model and has plans to have 42 more of these stores over the next couple of years.
The company’s earnings estimates have increased substantially in the last 30 days. For the current quarter, they’re up nearly 46%, for 2022 they’re up 113% and for 2023, they’re up 8%.
The shares carry a Zacks Rank #1 (Strong Buy) and an A grade for both Value and Growth. The Retail - Convenience Stores industry, to which it belongs, is in the top 2% of Zacks-classified industries, which along with the Zacks #1 rank is itself a strong indication of upside potential.
Titan Machinery Inc. (TITN - Free Report)
Titan Machinery owns and operates a network of full-service agricultural and construction equipment stores in the United States and Europe, through which it sells both new and used equipment. The company operates through the Agriculture, Construction and International segments. Agriculture is the largest segment (about two-thirds of revenue) with Construction and International splitting the rest more or less equally.
Its agricultural equipment includes machinery and attachments for use in the production of food, fiber, feed grain and renewable energy; home and garden applications; and for maintenance of commercial, residential and government properties. The strength in Agriculture continued from prior periods but better supplier deliveries and solid operating leverage in the last quarter allowed Titan to generate segment revenue growth of 39% and segment earnings growth of about 47%.
Its construction equipment includes heavy construction machinery, light industrial machinery for commercial and residential construction, road and highway construction machinery, and energy and forestry operations equipment. It also offers maintenance and repair services and replacement parts. The Construction segment was soft with profitability improvement coming from management’s prior asset optimization actions.
International is still impacted by the pandemic, but grew slightly in the last quarter (1Q23), as the impact of the Ukraine conflict appears to be less than originally anticipated with Ukrainian customers continuing to farm.
As a result, management substantially raised the fiscal 2023 revenue outlook for all three segments and also raised the overall earnings outlook.
As may be expected, analysts raised their estimates: by 11% for 2023 and 9% for 2024 since that report. The company reports tomorrow before the bell.
The Zacks Rank #1 stock has Value and Growth Scores of B, according to the Zacks Style Score system. The Automotive - Retail and Whole Sales industry to which it belongs is in the top 24% of Zacks-classified industries.
Tecnoglass Inc. (TGLS - Free Report)
Tecnoglass offers low emissivity, laminated/thermo-laminated, thermo-acoustic, tempered, silk-screened, curved and digital print glass products. It also provides the aluminum products, including bars, plates, profiles, rods, and tubes that are used in the manufacture of architectural glass settings, including windows, doors, spatial separators and so forth. Its products are sold into commercial and residential construction industries in Columbia, Panama and other international regions.
This company is in the limelight because of the strength that it continues to see despite the softening demand for new housing. And this has been possible because of its focus on the remodel and renovation segment. Management said that the demand remains strong across the single-family and multifamily residential projects, as well as the commercial projects even during the month of July.
Single-family outshone the others (with revenue growth of 86% from last year) because of share gains and the remodel business that now accounts for 65% of the segment’s total revenue. Another strong data point is in commercial, where revenue has grown sequentially every month of 2022. In the last quarter, it was up 15% year over year. There is also improving visibility with a record backlog of multifamily and commercial projects that now stretches well into 2023.
In response, the Zacks Consensus Estimate has increased 20% for the current quarter, about 15% for 2022 and 13% for 2023.
The shares carry a Zacks Rank #1 and an A grade for both Value and Growth. The Building Products – Retail industry, to which it belongs, is in the top 29% of Zacks-ranked industries.
One-Month Price Performance
Image Source: Zacks Investment Research