This Week's Most Important Earnings Releases

The symbolic start to the new earnings season takes place this week when aluminum producer Alcoa (NYSE: AA  ) gives results. It's going to be a very interesting season of results, and the key stocks this week should give good color on certain sections of the global economy.

Tuesday
Alcoa always gives good guidance on the global economy, and last quarter's report was quite positive. In fact, the surprising thing was that it maintained its outlook for China, even while companies like FedEx have been lowering their global growth forecasts throughout the year.  Furthermore, FedEx recently lowered its U.S. GDP forecasts inline with economists' thinking. All of this suggests that an economically sensitive company like Alcoa could lower some of its end-market forecasts. We shall see. 

Two important things to look out for are its outlook for the Chinese automotive sector, and the U.S. building and construction sector. Here are the growth rates for automotive sales and production in China. 


Source: China Association of Automobile Manufacturers.

Production rates have been strong in the last few months, but production has outpaced sales throughout 2013. So is it time for a moderation in production growth?

Turning to the U.S. construction and building sector, the architectural building index has perked up in recent months. It will be interesting to see if Alcoa upgrades its expectations accordingly.


Source: American Institute of Architects.

The second key report on Tuesday will come from Yum! Brands (NYSE: YUM  ) . All eyes will be on its outlook for KFC same-store sales in China because it has lost a lot of ground thanks to fears over its chicken supply quality in China, and then an outbreak of avian flu in the spring.


Source: company presentations

The good news is there are some signs that the worst is over. First, on its last conference call, Yum! pointed out that its July same-store sales declined 13% versus a 26% decline in the second quarter. Furthermore, McCormick (a spice and seasonings company that is a major supplier to KFC) stated that its sales to quick-service restaurants in China were "better than we had expected." This is a good sign for Yum!'s earnings.

Wednesday
The attention shifts to the U.S. retail scene on Wednesday when big-box retailer Costco Wholesale (NASDAQ: COST  ) and discounter Family Dollar Stores  (NYSE: FDO  ) release earnings.

It's been a tricky year for U.S. retailers as consumers seem highly responsive to pricing and promotions. The pattern appears to be that retailers hike prices only to be met with a drop in volumes; then they are forced to take action to regain market share. Then the cycle is repeated.

However, Costco stands out because it has managed to generate sales growth, as well as margin expansion.


Source: company presentations.

The key things to look out for with Costco are its new membership signups and whether traffic and frequency (the rate that its customers return) remain in growth mode.

Turning to Family Dollar, its forecasts for the upcoming results are that same-store sales growth will come in at 2% and gross margins will be flat. The latter is somewhat of a victory because its margins have been under pressure due to its expansion in sales of lower-margin items such as tobacco and groceries.  

However, the key thing to look out for will be its core discretionary sales. At the last results, Family Dollar spoke of some stabilization in these sales. Discretionary sales at the dollar stores tend to be higher-margin items. Unfortunately, the dollar stores have struggled to deliver consistent discretionary sales growth in a difficult economy. Have they turned the corner?

Industrial-supply company Fastenal (NASDAQ: FAST  ) also reports Wednesday. The company has long been a good barometer for U.S. industrial conditions, and investors would do well to listen carefully to what it says.

The key thing to look out for with Fastenal will be how its plan to recruit 600-900 new in-store staff by year end is transgressing. The idea is that the new support staff should free up time for its managers to make more customer visits and help expand sales. Interestingly, Fastenal reported that its stores open for more than five years had sales growth of 0.6% in July, and then 4.7% in August. This implies that the plan is starting to work, and investors will want to see more improvements in September's numbers as well as some positive news on U.S. industrial conditions.

Looking beyond earnings season
Every good investor wants to build that perfect portfolio that they can set and forget forever. Fortunately, it's easier than anyone ever knew. We've uncovered the pillars of such a portfolio today and we're willing to share The Motley Fool's 3 Stocks to Own Forever. Simply stated, we think they're the best stocks for true long-term investors to know about, and you can uncover them for free today, instantly; just click here now.

 


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2673053, ~/Articles/ArticleHandler.aspx, 11/27/2014 5:15:17 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement