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Industrial, Housing Data In Focus

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Center-stage in this week of lighter Q1 earnings headlines, economic data, etc. we see the largest amount of activity this Wednesday. Housing Starts and Permits, as well as Industrial Production and Capitalization — all for the month of April — are hitting the tape this morning. So is one major big-box retailer, Macy’s (M - Free Report) .

Starting with Starts, which were expected to be down from March’s 11-year high, fell more than 2 1/2 times expectations to -3.7% from the -1.4% estimate. The total number of seasonally adjusted annualized housing starts last month reached 1.287 million, still a healthy number though down from the previous month’s 1.32 million. Permits fell a more in-line 1.8% to 1.35 million units in April.

When we see a relative disconnect in these sorts of reads — Starts down but Permits steady — it points fairly directly to weather issues: Permits indicate the business of building a new house is still there, but physically breaking ground is being delayed somewhat. We have seen an unseasonably cool (cold!) spring this year, especially in the Midwest, where Housing Starts fell 16% from April of last year.

Industrial Production and Capitalization reads for last month came in mixed, with Production +0.7% and Utilization down from expectations to +78.0%. Both figures are indicative of a strong domestic economy, of course, and this may be the bigger takeaway than the Cap Utilization number coming in 40 basis points short of its estimate. In fact, today’s 78.0% is the highest we’ve seen since last month (which got revised downward to 77.6%) but before that, 2015. Production not only beat on the headline, but March was revised up to 0.7% from its original 0.5%.

Macy’s Inc. blew away Q1 estimates on both top and bottom lines, while posting higher guidance for its full fiscal year. Earnings of 48 cents per share well outperformed the 36 cents in the Zacks consensus, on revenues of $5.54 billion in the quarter that surpassed our estimate of $5.44 billion. But what really shot the stock up 9% in the pre-market (it has since simmered down to a +7% level) was its full-year guidance: $3.75-3.95 put its bottom end of the range more than a dime ahead of the current Zacks consensus estimate.

Beating earnings estimates has been overall pretty commonplace for Macy’s, having now posted an earnings surprise in 4 out of the last 5 quarters, 9 of the past 12. But this morning marks the first beat-and-raise since 2011. Also, its 33% beat today is far ahead of the trailing 4-quarter average of +0.28%. Same-store sales grew roughly 4% in the quarter, gross margins were improved and inventories have gotten leaner — all great things for a company like Macy’s.

Even with the company’s big gains in today’s pre-market, the stock is still off its multi-year highs back in late 2015. That said, it’s already up fairly significantly from its most recent nadir in November of last year. Ahead of the earnings report, Macy’s held a Zacks Rank #3 (Hold) with a Style Score (Value - Growth - Momentum) of A. For more on M’s earnings, click here.

All in all, these figures this morning suggest healthy consumer confidence, leading to higher sales. It also is leading to higher bond yields (3.07% yesterday on the 10-year was its highest point in years) and even some talk of a fourth interest rate hike from the Fed.




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