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Market Update 02-16-10

The European Union’s plans for aiding the ailing Greek economy continue to dominate the financial headlines this week. Last Thursday, EU member states pledged to come to Greece’s rescue—should they ask for it—without offering solid details on an aid package. That news settled equity markets while simultaneously hurting rather than helping the euro. The news also buoyed precious metals.Read more...

Mid-Week Update 02-10-10

Earnings season is well underway with two thirds of S&P 500 companies already having reported. It appears that fourth quarter numbers are even better than what most analysts had anticipated, with roughly three quarters of those reporting having exceeded analysts’ expectations.
 
However, even with estimate-beating numbers, the market has not cheered results like we saw during 2009’s historic rally. This is likely due to the continued stagnant sales in developed countries where consumers are still in a state of shock following the recession (and continued high unemployment). However, those companies that have a strong presence outside of the developed world, or aren’t exposed to the consumer market, are now in the best position to take advantage of the continued global recovery.
 
Take Coca Cola (KO), for example, which is part of our Growth Portfolio. Yesterday the company announced that its net income had risen 55 percent to $1.54 billion, or 66 cents a share, from $995 million a year earlier. We see signs of the recovery, not so much in the increased net income, but in improvements in its top-line sales. Coke’s net revenues were up 5.4 percent year-over-year to $7.51 billion.
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Mid-Week Update 01-13-09

It’s obviously still very early, but earnings season has not gotten off to a good start. Aluminum giant Alcoa kicked off the fourth quarter reporting period on Monday after the market close and got it off on the wrong foot. Revenues were up together with higher metals prices, but profits failed to meet expectations. The Street had expected a profit of six cents per share, but Alcoa earned just one cent per share, excluding one-time charges, thanks to higher energy costs that cut into margins. Including the charges, Alcoa lost twenty-seven cents per share. Alcoa shares dropped sharply on the news, but we’re more concerned for what the report will mean for other companies.
 
As we noted on Monday, energy costs have climbed rapidly and have put our long-term key in the negative-to-neutral range, and edging closer to a sell signal. Copper and other major materials are well off their lows too, and as we’ve written extensively rising energy and commodity costs act as a brake on any economy, let alone one that just may be starting to recover.
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Mid-Week Update 11-18-09

As we head into holiday shopping time, third-quarter earnings season is coming to a close with 95 percent of S&P 500 companies having reported. There have been many upside surprises (80 percent), but as consumer spending and the underlying economy have remained weak – most have been due to maneuvering by management, including inventory controls and cost cutting, as well as lowered analyst expectations. 
 
The market has cheered estimate-beating results, but we’re hardly convinced that the US economy is in the clear.
 
Wal-Mart (WMT), a Growth Portfolio resident and consumer bellwether has been no exception, as evidenced by the company’s recent earnings report. The retail giant saw U.S. same-store sales fall 0.4 percent versus the same period last year, short of the management’s expectations of flat to a 2 percent increase in sales. Earnings were up to $3.24 billion (84 cents a share) from $3.14 billion (80 cents a share) a year earlier as. Like so many others recently, the company beat profit expectations of EPS of 81 cents as CEO Mike Duke cut inventory by 4.1 percent and accelerated other expense-cutting mechanisms.
 
Looking towards the fourth quarter, management sees comparable sales flat (plus or minus 1 percent), but thinks even with the recession officially behind us, shoppers will continue to flock to Wal-Mart for value. We agree.
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Mid-Week Update 11-11-09

Earnings season marches on, with over 90 percent of S&P 500 companies having reported. Over 80 percent of those reported have had positive earnings surprises, but we can attribute much of that to the same cost-cutting measures we’ve seen over the last few quarters. What has been somewhat surprising is that almost half those reporting have also beat estimates with their top-line or revenue numbers, while only 30 percent have fallen short of estimates. 
 
Two of our health care picks recently also reported earnings, however, their stocks displayed distinctly different trading after their releases. 
 
Teva Pharmaceutical Industries (TEVA), the Israel-based generic drug company, saw its profits rise 28 percent in the 3rd quarter versus the year-earlier period. Excluding one-time items, net income rose to $806 million, or 89 cents a share, from $630 million or 77 cents, in the year-earlier period. Revenue, which increased 25 percent to $3.55 billion, actually fell slightly short of analysts’ expectations, but the earnings per share did beat those expectations by a penny.
 
The company’s third quarter operations were helped by sales of the company’s most important name-brand drug, Copaxone, which is used to treat multiple sclerosis. In addition, savings relating to last year’s $7.4 billion acquisition of Barr Pharmaceuticals were also a factor.
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Mid-Week Update 10-28-09

Earnings season rolls on. Despite still less-than-compelling economic readings, earnings reports have largely been good. With exactly half of the S&P 500 companies already having reported, we’ve seen 75 percent of them meet or beat expectations. Granted, many of these upbeat results stem from cost-cutting rather than strong top-line results, but we’ll take whatever we can get.
 
The earnings reported by some TCI portfolio holdings this week weren’t off the charts, but they left a positive long-term picture for these companies intact. Let’s take FPL Group (FPL), a member of both our Growth and Income portfolios. Before the market opened yesterday, FPL reported earnings and forward-looking guidance that underwhelmed investors. Excluding one time items, the U.S.’s largest producer of wind and solar power reported earnings per share of $1.38, four cents below consensus estimates.
 
The reasons for the miss were two-fold. First, the company’s Florida utility business was punished by the recession, as the state has been one of the hardest hit. Florida’s unemployment rate has reached 11 percent – its highest since records began in 1976. The company has expanded its wind farms and solar projects to compensate for lost Florida business, but earnings during the quarter were hurt by poor wind resources in Texas.
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Mid-Week Update 08-19-09

The consumer continues to be under duress. Job losses continue to mount; while weekly readings are down from their highs, initial unemployment claims are still running above expectations. For those already out of work, they face only a finite amount of unemployment benefits. Housing prices continue to fall, again, at a slower pace, but the effect is still the same as Americans can no longer draw on their home values for spending or count on the ever-rising house price for future wealth increases. Credit lines are being drawn in by card issuers and consumers face high fees for their outstanding debt balances. Without question, these factors have had their effect on consumer spending (and saving). Retail sales continue to contract more than economists have expected. The savings rate, at 4.6 percent, remains close to the 13-year high it reached in May.   Read more...

Mid-Week Update 08-05-09

            While recent economic data has pointed to things getting “less worse,” we’ll continue sorting through company earnings reports for any signs of fundamental weakness. Today we cover the quarterly report from one of the recent (August issue) additions to the Growth Portfolio. With 1.7 billion branded cards outstanding worldwide, Visa (V) operates the world’s largest electronic retail payment network. The company supplies financial institutions with its credit, debit and prepaid cards which operate via VisaNet, Visa’s centralized payment processing system. Revenues are primarily derived from fees assessed on card usage. Further, the company licenses it payment brands Visa, Visa Electron, PLUS and Interlink to its customers, banks, for use in their credit card programs.
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Mid-Week Update 07-29-09

We’ve reach the midpoint of earnings season and companies’ quarterly reports continue to be digested by the market. To date, about 75 percent of those S&P 500 companies who have reported earnings have beat consensus estimates. Unfortunately, many of these positive surprises have come on cost-cutting measures and other one-time items that are not sustainable ways of supporting earnings. The real earnings strength has come from companies with exposure to the developing world – countries whose economic engines have once again started churning. However, today we’ll highlight two of our portfolio picks that recently published results that beat estimates despite relying much on the domestic market – remarkable exceptions to the rule.
 
FPL Group (FPL), the country’s largest producer of wind power, reported profits that beat analysts’ expectations. Excluding one-time items, which included energy price hedges, the Florida-based company reported earnings per share of 99 cents, 2 cents better than estimates.
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