Today has already been a momentous day for the Dow Jones Industrials (INDEX: ^DJI), which briefly made a run at the 13,000 mark before falling back. Yet among the biggest movers in the Dow today were the three stocks that announced their quarterly earnings.
With good news from Greece, investors seem optimistic about the future. Let's see whether the Dow stocks that reported earnings today share that optimism.
Home Depot (NYSE: HD)
Housing has been a difficult part of the economy for years now. But looking at Home Depot, it certainly looks like the sector is poised for a big rebound.
The home improvement giant reported fourth-quarter net income that jumped by 32%, beating estimates handily. Even as cash-strapped homeowners have cut back on major renovation projects, Home Depot has adjusted by slashing costs and trying to make its services more convenient through online shopping.
Weather also had a major impact, with an unusually warm winter extending the construction and remodeling season in many areas of the country. Combined with major weather events like Hurricane Irene that caused minor damage to many homes, the unseasonable temperatures allowed many homeowners to make minor repairs, boosting same-store sales by 5.7% worldwide and 6.1% domestically. Moreover, Home Depot said it expected 2012 earnings to come in slightly ahead of analyst estimates on a revenue increase of 4%.
It's far too early to say housing is back on track for good. But Home Depot's results paint a pretty picture, and shareholders are bidding up the stock accordingly.
Wal-Mart (NYSE: WMT)
On the other side of the spectrum, Wal-Mart gave investors a grave disappointment today. Just before 3 p.m. EST, the shares were down more than 4%.
The problem didn't come from same-store sales. In fact, the company managed to see 1.5% growth in comps, its best growth rate in nine quarters. The problem, though, is that Wal-Mart has had to discount its goods even more than usual, hurting gross margins and thereby reducing overall earnings. The retailer missed estimates on both margins and earnings.
Even more troubling is Wal-Mart's guidance for 2012, which set a range that just barely included the consensus estimate. The guidance suggests that Wal-Mart will continue its margin-squeezing strategy. In the long run, that's probably a positive, as it re-establishes the retailer's reputation as the low-price leader. But from a short-term perspective, it may well make Wal-Mart disappointing to investors for the near future.
Kraft Foods (NYSE: KFT)
With Home Depot's earnings beat and Wal-Mart's big miss, Kraft split the difference with a performance that matched what analysts had expected. Net income posted a big gain of 54% for the quarter, and adjusted earnings of $0.57 per share came in exactly in line with estimates.
Overall, Kraft expects 5% revenue growth for 2012. The company confirmed that it would split itself into two pieces, with its North American grocery business composing one part and its global snack division as the other. The split will create costs of $1.6 billion to $1.8 billion, along with another $400 million to $800 million in fees to move debt into the North American grocery division.
The key to Kraft's future will be its mix of growth. On an organic basis, sales jumped 7% in North America and more than 7% in developing markets, with just 3.1% growth in Europe. If emerging markets can continue to play a major role in the company's success, then it gives Kraft's global snack division a chance to outshine the other half of the business.
Looking beyond the next quarter
Whether you liked or hated these results, there's always next quarter. Moreover, it's often the unexpected news from companies that determines their long-term success.
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