Monday, April 15, 2013

This Weeks Key Earnings

After a quiet opening week to earnings season, this week brings a torrent of earnings reports from Dow components and industry bellwethers.


Monday starts with Citigroup reporting, and it’s going to kick off a big week for financials.


The banking theme continues on Tuesday with Comerica and Goldman Sachs reporting numbers. We also have three bellwethers reporting.

In healthcare, Johnson & Johnson (NYSE: JNJ) will update investors on how its revival in pharmaceuticals is going. Within pharma, I would look for ongoing strength with Remicade (rheumatoid arthritis) and growing Stelara (psoriasis) sales. However, the real question will be over its consumer products division.

A brief look at the previous results reveals that it is still under performing, and it needs to get the brands affected by quality problems back into production. Similarly, OTC/Nutritionals and skin care have been weak in recent quarters. The third major division is medical devices & diagnostics. The company is ‘evaluating options’ with its diagnostics operations, and continues to integrate Synthes in to its orthopedics offerings. In summary, the focus in these results should be on execution with its consumer products.

The key things to look out for in Intel’s (NASDAQ: INTC) results will be its gross margin outlook and inventory situation. Historically, the stock has tended to trade in the direction of its gross margins, and the declines last year have mirrored poor stock performance. While these issues will govern the short to mid-term performance, investors should also focus on the development of its longer-term plans to invest in solutions for ultrabooks and tablets. Intel is somewhat late to the party with some of these things, but it has the scale and financial firepower to get back on track.

The Coca-Cola Company is the third major bellwether to give results today. In addition, industrial play W.W. Grainger will give more color on current conditions.


This day will see numbers coming out from Abbott Labs, American Express, Bank of America, Core Labs, Crown Holdings, Sandisk, and Textron. Alcoa recently talked of better conditions for business jet orders, so it will be interesting to hear what Textron has to say because it too gave a good forecast late last year.

I’m also looking out for Dover’s results. It has had some difficulty with its sound solutions division, and it will be interesting to hear what it says about is smartphone-based sales because Nokia is a major customer.

In rather obscure fashion, I am going to focus on Quest Diagnostics (NYSE: DGX). This is not the sexiest stock nor is it in the most fashionable industry, but, I think there is an interesting value case here. It generates a lot of cash and is a dominant player within an industry in need of consolidation.

Moreover there are a number of management initiatives in place in order to try get to the kind of growth rates that its rival Lab Corp (which reports on Friday) has been able to achieve. It’s a boring stock, but it's cheap and if a turnaround can be achieved, it will surely appreciate.


There are some interesting health care plays reporting today with results from Baxter, Cepheid, and Intuitive Surgical. Banking is represented by Morgan Stanley.  Industrial giant Danaher reports, as does Tier 1 telco carrier Verizon. PepsiCo is a company with a strategy that lacks coherence in my humble opinion. It is also a decent yielding stock in a hot category right now. The market has been very keen to bid up food stocks lately.  

There are also some interesting housing and construction plays reporting. I’m not convinced by Restoration Hardware’s valuation justifies the uncertainty over its growth strategy. As for PPG and Sherwin-Williams, the former has significant exposure to China and the latter is attractive thanks to its U.S. housing exposure, but the stock is hardly cheap.

Google (NASDAQ: GOOG), IBM (NYSE: IBM), and Microsoft also give numbers. As ever, the market will focus on the relationship between cost per click and paid clicks growth at Google.

Google doesn’t give guidance, so its results always cause a lot of volatility and this time won’t be any different. I think Google is managing the transition to tablet and mobile internet usage very well, and investors often underestimate its international growth prospects.

There is no reason why it can’t reach the kind of metrics generated in the U.S. with its international operations. Moreover, we are in the early infancy of the big data revolution and its search facility is something actively used by people. Long-term growth is inevitable.

IBM’s chief rival Oracle gave disappointing results recently, so there are some concerns over what IBM will report. Oracle insisted that this was more of a sales execution issue rather than macro weakness. In addition, I think Oracle is going through some product transition issues as well, as it's relatively underexposed to cloud-based offerings.

IBM investors should expect good System Z hardware sales, and I suspect we are about to find out whether it is taking share from Tibco Software in middleware and analytics after that company reported a horrible set of results recently.


The big news on Friday will come from General Electric. Its last results were strong and contained some upside surprise from health care in emerging markets, plus some impressive order growth overall. Baker Hughes, Honeywell, and Rockwell Collins also have activities that cross over with parts of GE. 

Last but not least, Kimberly Clark and McDonald’s will update us on the mass consumer market.

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