August 19, 2009

US Retailers Go Up

The markets rebounded during the August 18 trading session, following better than expected earnings reports from a few of the nation’s largest retailers. Tuesday’s trading follows the previous day’s in which the major indices all slipped 2% or more, as investors remain cautious concerning the strength of the country’s economic recovery.

In a report released by the Labor Department, wholesale prices decreased substantially in July, falling 0.9% last month, more than triple than the 0.3% decline economists were anticipating. The monthly drop was propelled by larger-than-expected reductions in food and energy costs.

Wholesale prices surged 1.8% in June, its largest one month gain since November 2007.

In July, wholesale energy prices fell 2.4%, following a 6.6% jump in the previous month. Gas prices plunged more than 10%, while heating oil used in homes plummeted nearly 12%.

Meanwhile, food costs retreated by 1.5% in July, counteracting a 1.1% jump in prices during the prior month. The decline in prices was bolstered by a reduction in costs related to vegetables, beef and egg prices.

During the past year, the Producer Price Index (PPI) saw prices for products prior to reaching retail shelves plunge 6.8%, the largest annual decline since the government began tracking such records in 1947. The previous record for a yearly decline in wholesales prices was a 5.2% drop in August 1949.

Core inflation, which excludes the price of energy and food, slipped 0.1% in July, much better than the 0.1% increase economists were expecting. Over the course of a year, core prices have advanced 2.6%. As the country continues to struggle to emerge from the economic recession, the Fed believes that inflation will remain in-check for some time.

The Commerce Department announced early Tuesday morning that construction of new homes declined in July, falling 1% to a seasonally adjusted rate of 581K units, while coming in just shy of market expectations. Economists were looking for constructing figures to increase to a pace of 600K units.

July’s decline in construction activity reminds investors that the building industry’s recovery will most likely be unhurried and plodding. The biggest deterrent to the monthly decline was a 13% decrease in apartment construction, while single-family construction increased 1% for the month, its largest advance since October 2008 and the fifth consecutive monthly increase.

Included in the government report, applications for building permits in July receded 1.8% to an annual rate of 560K, well below economists’ projected annual rate of 580K units. Following the lowest point in nearly 25 years for housing starts this past April, construction numbers have improved marginally since then, advancing to its highest level in seven months in June, prior to July’s decline.

In corporate news, one of the nation’s largest discount retailers, Target Corp. (TGT), confirmed results prior to the August 18 trading session in which the company’s profits for the 2Q declined year-over-year, although coming in ahead of expectations.

For the recent period, Target booked net income of $594M, or $0.79 per share, in contrast to the previous year’s 2Q earnings of $634M, or $0.82 per share, a drop in profits of more than 6%. Despite the overall decline in company earnings, Target was successful in cost-cutting measures and improvements within their credit-card business.

Quarterly revenues slipped during the period as well, falling from $15.47B a year ago to $15.07B, a decrease in sales of 2.6%. On average, analysts within the industry were looking for Target to post quarterly earnings of $0.66 per share on overall sales totals of $15.1B.

Gregg Steinhafel, Chairman, President and CEO commented on the company’s announcement, "Second-quarter earnings were stronger than expected due to very strong operating margin in our retail segment and credit card segment performance in line with expectations."

Through the first two quarters of the year, Target managed to generate $1.12B, or $1.48 per share in net earnings, albeit down from last year’ six-month tally of $1.24B, or $1.56 per share. Revenues, meanwhile, were only slightly off from the previous year, coming in at $29.9B, down marginally from $30.27B.

Steinhafel added, "Looking forward to the second half of the year, we are focused on initiatives to drive incremental traffic and sales in our stores while maintaining disciplined execution in both of our business segments."

Following the pre-market earnings release, shares of TGT jumped in trading, gaining 7.5%, or $3.11, to end the session at $44.32 per share. During the course of a year, the company’s stock price has reached a high of $59.55 and a low of $25 per share.

As one of world's largest home improvement retailer, Home Depot Inc. (HD) reported before the opening bell that the company’s profits for the 2Q slipped marginally, yet managed to come in above market projections. Although the company was affected by the closure of their Expo business, HD lifted their yearly projections for earnings.

During the recent period, Home Depot posted net earnings of $1.12B, or $0.66 per share, down slightly from last year’s earnings of $1.2B, or $0.71 per share, a decrease in net income of 6.7%. Withholding charges related to the Expo closings, HD would have posted a profit of $0.67 per share.

Sales throughout the quarter totaled $19.07B, down just over 9% to $19.07B. Analysts, on average, were looking for Home Depot to post quarterly earnings of $0.59 per share on total sales of $19.23B. Quarterly results were bolstered by a $50M tax benefit that propelled earnings by $0.03 per share.

Frank Blake, Chairman and CEO avowed, "Concerns about the housing market, rising unemployment and softness in the overall economy continue to pressure consumers. Our business performed well in a down market, we captured market share and drove operating productivity. The combination made for a solid quarter relative to our plan."

With an encouraging earnings release, Home Depot upwardly adjusted their outlook for fiscal 2009 in which earnings from continuing operation should range from flat to a 7% gain over last year’s results. On an adjusted basis, the company is now looking for earnings per share to decline between 15% and 20%, slightly better than the 20% to 26% decrease previously mentioned.

Analysts are expecting the company to post annual earning of $1.44 per share with overall sales coming in at $65.4B. Analysts’ projections represent an 8% decline in earnings year-over-year, as HD posted earnings of $1.78 per share on sales of $71.29B in 2008.

By the sound of the closing bell, shares of HD jumped 3.1%, adding $0.82 to end the day at $26.93 per share. Throughout a 52-week period, shares of Home Depot have topped out at $30.74 per share, while bottoming out at $17.05 per share.

One of the leading providers of products and services to healthcare providers and manufacturers in order to help them improve the efficiency and quality of healthcare, Cardinal Health Inc. (CAH) affirmed early Tuesday morning that the company’s earnings during the 4Q retreated. Results were altered by higher costs and the effects from the economic impact on the company’s sales within their medical and clinical product segments.

As the quarter winded down, Cardinal Health recorded net earnings of $273.2M, or $0.75 per share, compared to the prior year’s net income of $318M, or $0.88 per share, a decrease in profits of more than 14%. Excluding one-time charges, amounting to $64.5M, CAH would have posted quarterly earnings of $0.86 per share.

In the meantime, revenues advanced just over 10% year-over-year, climbing from $22.89B to $25.2B. Gross sales were led by an 11% increase in sales from their healthcare supply chain services, which amassed $24.3B in revenues, while generating $341M in profits from the segment, up 8% year-over-year.

Analysts were projecting that the healthcare products and services company would book quarterly earnings of $0.86 per share on total sales figures of $24.33B.

Full-year results were also released, showing Cardinal Health recording net earnings of $1.15B, or $3.18 per share, compared to annual earnings of $1.3B, or $3.57 per share in 2008, a decrease in profits of almost 12% year-over-year. Revenues did manage to increase over 2008 totals, from $90.98B to $99.51B, an advancement of more than 9%.

For the upcoming fiscal 2010 year, Cardinal Health is looking to post annual earnings between $1.90 and $2.00 per share, up from a previously stated range of $1.87 to $1.91 per share. The company is also looking to post revenue gains in the low single-digit range.

Analysts are looking for yearly results of $1.91 per share on total revenues of $97.55B.

With the August 18 session concluded, shares of CAH jumped 2.5% by the close, adding $0.85 to end the day at $34.21 per share. Over the past year, shares of CAH have traded as high as $56.37 and as low as $27.75 per share.

After a 5% drop in the price of crude over the past two trading session, oil prices rebounded by the end of the August 18 session, adding $1.44 to settle at $69.19 a barrel. Monday’s contract slipped $0.76 to settle at $66.75.

In additional NYMEX trading, gasoline for September delivery added $0.0487 to $2.0017 a gallon, while heating oil gained $0.0385 to $1.865. Natural gas for September delivery declined $0.047 to $3.115 per 1,000 cubic feet, the ninth consecutive decline in price.

Looking inside the Forex markets, the 16-nation Euro advanced in value versus the U.S. Dollar, buying $1.4125, up from Monday’s price of $1.4085. The British pound also increased in value against the greenback, buying $1.6553, higher than last night’s price of $1.6340.

Additional Forex trading witnessed the Dollar increase in price against the Japanese yen, now valued at 94.76, up from the previous session’s price of 94.49.

By the sound of the closing bell, the Dow Jones Industrial average gained 0.9%, or 82.60 points, to end the session at 9,217.94, while the broader market indicators concluded the day in positive ground as well.

The S&P 500 index advanced by 9.90 points, or 1%, to close out the day at 989.67, while the tech-heavy NASDAQ composite index garnered 23.48 points, or 1.2%, finishing trade at 1,955.92.

2009 Better Trades Article

brought to you by

BRIAN MULLIN