The Day Ahead: Tying Earnings Season Together

 | Jul 24, 2013 | 8:00 AM EDT  | Comments
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On Tuesday, I tweeted out that I had an exclusive post-Apple (AAPL) earnings pool party -- but, to gain access, you had to know the company's quarterly gross margin. Clearly, earnings season has descended upon my brain. Instead of pontificating on a market that will probably go up forever over the long term, just be aware of these 17 things that may or may not make you a couple of dollars. The goal: tying earnings season together.

1. I will be on the Fox Business Network today at 11:00 a.m. EDT. Watch, and then ask me tons of questions on Twitter (@BrianSozzi). Looking forward to answering them!

2. There are surprising positives in the industrial complex, which has been under-owned by investors. I think this is a function of analyst estimates assuming a continued leg lower in European demand from the challenging first quarter. Broadly speaking, European demand conditions are being described as "stabilizing."

3. Global multinationals that have continued to find ways to reduce costs. For instance, United Technologies (UTX) had a few positive surprises.

4. Exposure to the U.S. auto market still preferable

5. Group that continues to underwhelm: semiconductors. See: Texas Instruments (TXN).

6. United Parcel Service (UPS) and Ryder (R) didn't come out and slash guidance, but they didn't inject enthusiasm on the global economy in the second half of the year. UPS and FedEx (FDX) clearly have structural issues in their businesses -- a shift to slower moving, lower priced shipping solutions and reduced package weight. These will all make it necessary to aggressively slash costs for the remainder of 2013. UPS has now begun that, and FedEx started last summer.

7. I chatted with Chipotle (CMG) execs Tuesday, and I'm digging the company's plan to remove genetically modified food from its offerings. By doing so, I believe the company can charge higher prices in the longer term. I also think that consumer awareness of this will truly help set the brand apart in 2014. (In most instances, products will be reformulated.)

8. China's economic growth has obviously moderated. Be on the watch for profit-killing excess inventories. The rule of thumb is that, when supply and demand are misaligned, a company needs two to three quarters before its inventory levels normalize.

9. Keep it simple on Apple (AAPL): The company has to shed light on when profit growth stands to grow again, and that will only happen with greater clarity on fundamentally transformative products (iWatch, Apple TV and so on). That light remains a bit dim for my investment selection preferences.

10. The S&P 500 has logged 23 new highs in 2013.

11. Congrats, Discover (DFS) -- you delivered net interest margin expansion in a low-rate environment. Take that, banks!

12. Yes, Norfolk Southern (NSC), the railroad, had weak pricing. True story. (Railroads have consistently shown robust pricing gains.)

13. Apple's quarterly unit/revenue breakdown table, decoded: The company has undergone textbook market-share loss, with prices down in all areas.

14. McDonald's (MCD) said it is unable to raise prices enough to keep pace with the consumer price index. That's no good. I am beginning to ponder whether the company will have to acquire a casual-dining establishment in order to reignite growth -- which would be ironic, seeing as it spun off Chipotle a few years ago.

15. Panera (PNRA) shares are headed lower post earnings. Whenever I hear a restaurant operator note that it's having "throughput" issues, it's a signal they will have to implement new processes that constrain profit margins.

16. VF Corp. (VFC) has no expectations built into its guidance for harsh winter weather, which would spur retailer-reorder activity. Quite possibly, there could be upside to fourth-quarter numbers.

17. I have a sell rating on Aeropostale (ARO) for clients, but the stock continues to act well. We could very easily land a sell-side upgrade pre-August earnings on optimism regarding new, trendier merchandise assortments. Aeropostale's years of product disappointment and overexposure to core basics remain fundamental issues that will require time to correct. In the meanwhile, as well, this keeps margin risk elevated.

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