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.