The Day Ahead: Earnings Overload

 | Apr 25, 2013 | 8:15 AM EDT
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Over the course of my career, I have logged 36 earnings seasons. The in-season insanity, and the beforehand prep, has become part of life on Earth.

I have memorized approximate dates for when companies announce, the structure of their 8-Ks and the lines of questions from analysts covering the company for 27 years. Sometimes, I wonder why they haven't ventured off on their own to seek new, exciting opportunities. Mostly, I don't care about them one single bit. Fitting in with that dry, clubby crowd, despite my superbly outgoing nature, was never a strong suit.

I am left wallowing in the thoughts emanating from a dark internal place. Naturally, I am holding back the urge to rip a face off from the sheer self-imposed stress of endless news flow. Every earnings season I reach a point that gives way to roughly two days of rage. I am nearing that point once again, but at least the predominant clues from numbers and earnings calls support the bearish view I hold on the market. No need to be "on," just let the data speak for itself. And is it speaking loud and clear to this caped crusader, although to not many others in financial services?

I feel as if my skills are best served at the moment presenting stuff you are likely overlooking because reading the The Wall Street Journal assumes precedence to a review of a Yum! Brands (YUM) earnings transcript. Sure, I can offer a stock pick or two, but that has a waning degree of value inside a sphere where emails extol the virtues of 15 free stock picks and regurgitated SEC filing information.

Here are the organically sourced notes from my long in operation earnings bunker.

AK Steel (AKS)

  • Lower volume for electrical steel products globally.
  • Linkages: Dovetails all too well with the caution expressed by General Electric (GE) and seen in European Union PMIs. Calls into question the absurd amount of optimism on display from Caterpillar's (CAT) CEO regarding China.

Discover Financial (DFS)

  • Increase in promotional rate balances.
  • Linkages: It is healthy that consumers continue to be cool on re-leveraging their balance sheets. Unfortunately, we should be receiving more of a willingness to assume credit at this juncture in the recovery.

Ethan Allen (ETH)

  • Partners in China had accumulated inventory in anticipation of even higher sales.
  • Linkages: Domestic consumption seems quite mixed. Ethan Allen's  China demand is below plan, Coach (COH) raised its fiscal year China guidance, and Nike (NKE) has said inventory conditions have improved. Cohesion in the China investment thesis is lacking.

Panera (PNRA)

  • Sales by month: +5.4% January; +0.8% February; +4.6% March.
  • Linkages: Let's average March and February given the timing of tax checks. It's clear that sales have slowed at a discretionary restaurateur alongside a moderation in GDP. Concerned on first quarter 2013 guidance for retailers, notably teens, and the subsequent market reaction.

Broad Areas of Interest

  • The only "wow"-type earnings reports are housing derivatives: Owens Corning (OC) and Lumber Liquidators (LL); look for a strong quarter from Home Depot (HD) (risk: sales of outdoor goods); I don't believe Lowe's (LOW) will be there with the numbers the market demands.
  • Whirlpool (WHR) has a solid quarter, reiterates guidance for adjusted earnings and cash flow. However, the market didn't buy into the guidance, which is predicated on acceleration in global demand as 2013 unfolds. Red Flag.

P.S. -- These talking points Twitter friendly via hashtag #overload. Engage with me, let's learn together.

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