This week's sign of the impending apocalypse: Hooters of America, the restaurant known for -- well, you know what it's known for -- reportedly has bid to take over Vanguard Airlines, creating Hooters Air Inc.
Hooters in the Sky. Too many jokes. We could go on all weekend, but we won't. Have a good Friday the 13th, everybody!
In today's Motley Fool Take:
- Retail's False Positive
- Quotes of Note
- Top Financial Worries of a Don's Wife
- Discussion Board of the Day: Television Banter
- Honeywell Down, Not Out
- Shameless Plug: Choosing Stocks With The Motley Fool
- Quick Takes: Lucent, Qwest, Adobe, pies, more
- And Finally...
Retail's False Positive
Shiny happy headlines abounded this morning on word that August retail sales came in stronger than expected. August's 0.8% increase marked the third straight month of rising consumer spending. The U.S. consumer is alive and well, so they say.
But we should be careful about equating the strength of consumer spending with that of consumer financial health. The current strong spending appears to be more a result of cheap credit than anything else.
We're all aware of the fact that record-low mortgage rates and rising home values are keeping the consumer flush with cash. According to Freddie Mac(NYSE: FRE), homeowners took out about $50 billion of equity in the first six months of the year through refinancing. Assuming mortgage rates can't go much lower, the re-fi party may already be over.
In addition to the benefit of cash-out refinancings, the U.S. consumer has been fueling his spending with an ever-increasing debt balance. Consumer debt is now at or near record levels based on a variety of statistics. A recent article from BusinessWeek includes several illuminating facts on this subject:
- The amount that Americans owe on loans for houses, cars, credit cards, and other purchases adds up to nearly 100% of their annual income after taxes. That's up from 75% in 1992, after the last recession ended.
- Delinquencies on non-mortgage consumer debt reached 1.86% of debts at the end of 2001, up a third from 1.4% a year earlier and the highest in a decade, according to the Consumer Bankers Association.
- The Federal Reserve says that household debt-service payments were more than 14% of disposable income in the first quarter, near the highest level in 22 years.
These are some scary facts considering that the economy hasn't yet shown any strong signs of recovery. Initial jobless claims rose last week to 426,000, the highest level in almost five months, demonstrating that companies are still laying off workers.
So while retail sales may look rosy now, the consumer spending will be much more closely tied to income growth and job security going forward. Don't be surprised if the retail sales news turns negative in the months ahead.
Quotes of Note
"What we think, we become." -- Buddha
"Just what you want to be, you will be in the end." -- The Moody Blues
Top Financial Worries of a Don's Wife
This Sunday The Sopranos kicks off another highly anticipated season on HBO. According to The New York Times, a part of the first episode deals with Carmela's emerging concerns over the family's finances:
On the home front, Tony's wife, Carmela, is pressing him to diversify their holdings beyond cash stuffed in mattresses "at zero growth."
"Stocks?!" he snorts, as if bowing to a better class of criminal. "We don't have those Enron-type connections!"
In honor of Carmela's budding Foolishness, we've compiled a Top 10 list of what we think might be on her mind.
10. Are brass knuckles tax deductible?9. Is investing in horse head futures too risky?
8. What's the difference between bail bonds and government bonds?
7. Where's a better investment, my 401(k) or my .357?
6. Those "dark" stains on Tony's clothes never seem to come clean, and the dry-cleaning bills are killing me.
5. What if drugs become legal?
4. How can we possibly afford my husband's life insurance premiums?
3. Concrete shoes are now priced by the pound.
2. Now how am I going to cover our short of The Olive Garden?
And the number one thing on Carmela's mind:
1. Which of the five families should I ask for help? Pricewaterhouse, Deloitte and Touche, Andersen, KPMG, or Ernst and Young?
Discussion Board of the Day: Television Banter
Are the Sopranos the best thing since Seinfeld? Should Conan O'Brien take over when Leno retires? Gather with the rest of the Foolish couch potatoes on the Television Banter discussion board. Only on Fool.com.
Honeywell Down, Not Out
Friday the 13th is indeed an unlucky day for New Jersey-based Honeywell(NYSE: HON) and its shareholders. The Dow component was whacked by about 17% today. The trouble behind this beat-down? The earnings warning it issued yesterday after the market's close.
The company warned that third-quarter and full-year 2002 earnings will be below expectations. This is the second time it has warned about full-year earnings. Back in July, it lowered guidance and cited weakened demand for its airplane parts, thanks to the general malaise afflicting the travel and airline industry.
That frailness is still troubling Honeywell, which is not particularly surprising. Until the commercial airline industry starts rebounding, it will likely find itself struggling to sell its aftermarket aerospace parts. Other divisions of the company are being affected by the economy's weakness, too. It now expects earnings per share for the third quarter to come in between $0.50-$0.52. For the year, it projects $2.00-$2.05. Analysts were looking for $0.60 for the third quarter and $2.27 for 2002.
Here's an interesting thing about yesterday's announcement: While the company is reducing earnings guidance, it is keeping its free cash flow projections both for the year and the third quarter squarely in place, which is encouraging. Its 2002 free cash flow should come in at $1.8 billion, which is about $400 million more than 2001. For the third quarter, it will be somewhere around $500 million, compared to the $353 million it generated in 2001's third quarter.
While it is certainly having a difficult time at the moment, all hope's not lost for Honeywell. It is tightening its belt, cutting costs, and still generating cash. Once the commercial airline industry begins turning around, and the economy starts righting itself, the company should benefit. Until then, it is plugging along, keeping lean, and adding to its free cash flow.
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Quick Takes
Lucent (NYSE: LU) let loose some bad news this morning, predicting up to a 25% sequential decline in fourth-quarter revenue. It also says it will lose about $0.45 a share on a pro forma basis, far worse than estimates of a $0.16 loss. The telecom equipment maker is blaming "continuing market softness and ongoing uncertainty in customer spending levels, particularly in North America." The stock fell about 20% today.
The Global Crossing investigation has now expanded to include Qwest Communications(NYSE: Q). The House Energy and Commerce Committee has subpoenaed Global Chairman Gary Winnick to hear what he has to say about deals that may have inflated revenue at Qwest.
Adobe Systems (Nasdaq: ADBE) reported better-than-expected earnings after the bell yesterday. Excluding restructuring costs and write-offs, the software maker earned $0.22 a share in the third quarter and raised guidance for the fourth quarter.
The Internal Revenue Service says it's shifting its auditing focus to concentrate more on higher-income outlaws who hide income or fail to report it entirely. Our question: Why hasn't this been the policy all along?
In local news, Mrs. Wilson won the blue ribbon for the pie-baking contest for the third straight year. The judges say her minced-meat pie just edged out Aunt Matilda's peach cobbler.
And Finally...
Today on Fool.com: Learn to love index funds that trade like stocks.... Insurance, taxes, sex, and you, in our Tax Center.... In Fool's School, get the most bank for your buck.
Contributors:
Bob Bobala, Robert Brokamp, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Jackie Ross, Reggie Santiago, Dayana Yochim
