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Housing and Jobs in the Spotlight - Earnings Preview

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Earnings Preview 11/25/11

There will only be a handful of firms reporting next week, as the third quarter reporting season is almost over. A total of 69 firms are scheduled to report, including 4 of the S&P 500.

The firms reporting next week include Big Lots ( BIG ), H&R Block ( HRB ), Bank of Nova Scotia ( BNS ), Kroger's ( KR ), Royal Bank of Canada ( RY ), Toronto Dominion ( TD ) and Tiffany's ( TIF ).

While there will not be that much going on with the earnings front, it will more than be made up for on the economic data front. We start the week with New Home Sales and finish the week with the all-important jobs report.

Along the way we get the usual precursors to the employment report, like the ADP survey. We also get the second look at productivity and unit labor costs in the third quarter, the ISM Manufacturing Survey, and the Case-Schiller Index of housing prices. Any of those has the potential to move the market, and combined with the ongoing saga in Europe, it could make for an interesting week.

Monday

  • New Home Sales are expected to fall ever so slightly to a 312,000 rate from a very weak 131,000 in September. That is simply a pathetic level, even if it is slightly off the record low set in January. The records go back to the Kennedy administration. If we do come in at 312,000, that is still lower than any month prior to 2010. Unlike used home sales, each new home sold represents a lot of economic activity. Thus this is a very important report. Normally, new home sales are what leads the economy out of recessions, but they have been a huge drag this time around.

Tuesday

  • The Case-Schiller Home Price index, the gold standard of housing price indexes, is likely to show a year-over-year decline of 3.00% for September. In August, the decline was 3.80%. On a month-to-month basis, the index was up on a non-seasonally adjusted basis, but down when seasonally adjusted in both July and August. Given that there are now 8.0 months worth of used home inventories on the market, when normal is about six months, I think we are going to see a continuation of home price declines for the rest of the year. That is particularly true for the more widely reported non-seasonally adjusted figures (I prefer to work off of the seasonally adjusted numbers, since there is significant seasonality in home prices). However, given very high levels of affordability due to low mortgage rates, and normal -- as opposed to wildly inflated -- prices relative to rents and incomes, the declines should be relatively modest. Continued weakness in used home prices is a big part of the reason that new home sales have been so weak.
  • Consumer Confidence is expected to edge up to a reading of 43.0 from 39.8 in October. That is still a very weak reading, so don't get too excited about the increase. Since the Consumer is 71% of the economy, this should be an important indicator. Unfortunately, what consumers say in the surveys and what they actually do, are often very different. Mostly it is a coincident indicator reflecting gasoline prices and the unemployment rate. The situation in Europe played a role in the very soft reading in October, and will probably do so again this month. I think that it, and the similar University of Michigan Survey, are very over rated data points. Still, that is a very low level, and is consistent with the other data we have been seeing. The debt-ceiling circus and the S&P downgrade probably hurt confidence despite falling gas prices and a tick down in the unemployment rate last month.

Wednesday

  • We get the first clue as to how the big Friday jobs report will come in with the ADP employment survey. Last month it reported growth of 110,000 private sector jobs, slightly above the 104,000 reported by the BLS. While ADP, the largest payroll processor, should be in a very good position to judge the employment trends, its numbers are often quite different than the "official" government numbers. However over time they do tend to track pretty well, and the government often revises their numbers in the direction of the ADP numbers. This month, the consensus is looking for ADP to report growth of 120,000 private sector jobs. I will take the "over" on that.
  • The Chicago PMI report, one of the mini-regional ISM's, is expected to fall to 57.4 from 58.4. This is a "magic 50" index, so any reading over 50 indicates expansion. Thus, it is expected to show that the industrial economy in the upper Midwest is still expanding at a solid pace, but not quite as strong as last month.
  • The Federeal Reserve releases its' Beige Book, a compilation of mostly anecdotal evidence from the 12 Federal Reserve districts around the country. It is likely to indicate continued growth in the economy, but at a frustratingly slow pace.

Thursday

  • Weekly Initial Claims for Unemployment Insurance recently they broke below the psychologically important 400,000 level. Last week they rose by 2,000 to 393,000, but only after the previous week had been revised upward by 3,000, so it was really more like a 5,000 rise. The consensus is looking for 390,000 this week, although the Thanksgiving holiday might skew it lower, so don't get too excited if we have a very low number for the week. The 400,000 level is important in that it has historically been the inflection point, below which we tend to create enough jobs to bring down the unemployment rate. The week-to-week numbers can be very volatile, so the four-week average is the thing to focus on. Keep an eye on the prior week's revision as well as the change from the revised number.
  • Continuing Jobless Claims have been in a downtrend of late, but the road down has been bumpy. Last week they rose by 68,000 to 3.691 million. However, that is down 735,000 from a year ago. I would expect a small decline this week. The consensus is looking for a bounce to 3.650 million. Some (most?) of the longer-term decline is due to people simply exhausting their regular state benefits which run out after 26 weeks. Those, however, don't last forever either. Federally paid extended claims fell by 7,000 to 3.452 million last week and are down 1.013 million over the last year. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now, given the unprecedentedly high duration of unemployment figures. A better measure is the total number of people getting unemployment benefits -- currently at 6.729 million -- which is down 44,000 from last week (there are some timing issues, so the change in continuing and existing claims does not match the change in the total). The total number of people getting benefits is now 1.824 million below year-ago levels. What is not known is how many people have left the extended claims via the road to prosperity -- finding a new job -- and how many have left on the road to poverty, having simply exhausted even the extended benefits. Unless the program is renewed, all extended benefits will end in January. Make sure to look at both sets of numbers! Many of the press reports will not, but we will here at Zacks.
  • The ISM Manufacturing index is expected to rise to 51.0 from 50.8 in October. This is also a "magic 50" index, so if we come in as expected, it will indicate that the manufacturing economy nationwide is still expanding, but at an anemic pace, just a bit faster than in October.
  • Construction spending is expected to have increased by a very slight 0.2% in October, matching the increase in September. Hey, at least it is growth.
  • Auto and Light Truck Sales are likely to rise slightly from the 13.26 million seasonally adjusted annual rate they posted in October. While that is up nicely from the recession low of under 10 million, it is a far cry from the over 17 million pace that was often seen before the recession started.

Friday

  • The most important report of the week is without a doubt the employment report. It is expected to show that the total number of jobs the economy produced in November rose to 118,000 from 80,000 in October. The October report came in weaker than expected, but the miss was offset by very big upward revisions to the two previous months. Once again, the private sector alone is expected to do better than that, producing 133,000 jobs, up from 104,000 last month. That implies an expected loss of 15,000 government jobs for the month. I suspect that the private sector will do better than the consensus is looking for, given the recent fall in initial claims to below the 400,000 mark, although I also expect more than 15,000 government jobs lost for the month.
  • The Unemployment Rate, wich is derived from a separate survey than the job creation number, is expected to remain at 9.0%. The number of jobs created according the the household survey was much stronger than that indicated by the establishment survey in both September and October. The key to how much the unemployment rate will change is the participation rate, which rose for the third month in a row, but it is coming off a 27-year low in July. The increasing participation rate is a good sign, and if the unemployment rate ticks up only due to an increase in participation, it is not all that bad. However, if the participation rate starts to decline again, that would be very bad news, even if it resulted in a slightly lower unemployment rate.
  • Average hourly earnings are expected to rise by 0.2%, the same pace as in October. The average workweek is also expected to remain stuck at 34.3 hours. If employers were seeing more demand, and thus more profitable business oppurtunities, but were holding back on hiring due to uncertainty about regulations or taxes, you would expect them to work their existing workforce longer hours. That has decidedly not been the case over the last year.

Potential Positive or Negative Surprises

The best indicators of firms likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises. Similarly, a recent history of earnings disappointments, cuts in the average estimate for the quarter in the month before the report is due and a poor Zacks Rank (#4 or #5) are often red flags pointing to a potential disappointing earnings report.

In the Earnings Calendar below, $999.00 should be read as N.A. Given the very small number of firms reporting next week, there are few good cadidates to make good predicitions of potential positive or negative surprises and thus I omit this section this week.

If you want to follow me on Twitter, I am @DirkHvanDijk

Company Ticker Qtr End EPS Est Year AgoEPS Last EPSSurprise % Next EPS Report Date Time Daily Price
ALEXCO RESOURCE AXU 201109 0.19 -0.01 -25 20111128 AMC $6.25
CHINA CORD BLD CO 201109 0.05 0.05 60 20111128 AMC $2.32
COPART INC CPRT 201110 0.58 0.45 0 20111128 AMC $42.10
HILLENBRAND INC HI 201109 0.37 0.4 -2.56 20111128 AMC $19.87
TAOMEE HOLDINGS TAOM 201109 0.09 999 8.33 20111128 AMC $5.08
BEACON ROOFING BECN 201109 0.53 0.37 10.87 20111129 BTO $18.19
FIFTH STREET FI FSC 201109 0.26 0.21 -7.69 20111129 AMC $9.02
GLOBAL EDUC&TEC GEDU 201109 0.15 0.28 25 20111129 AMC $10.79
KONGZHONG-ADR KONG 201109 0.1 0.06 -90.91 20111129 AMC $4.39
LENTUO INT-ADS LAS 201109 0.09 0.16 -62.5 20111129 BTO $3.07
OMNIVISION TECH OVTI 201110 0.25 0.5 9.68 20111129 AMC $10.91
RALCORP HLD-NEW RAH 201109 1.39 1.26 0 20111129 AMC $79.21
SIMULATION PLUS SLP 201108 0.02 0.02 40 20111129 $3.10
THOR INDS INC THO 201110 0.42 0.41 10.17 20111129 AMC $23.41
TIFFANY & CO TIF 201110 0.59 0.46 22.86 20111129 BTO $69.12
UNIVL TECH INST UTI 201109 0.28 0.29 28.57 20111129 AMC $12.34
ZOLTEK COS INC ZOLT 201109 -0.02 -0.05 -20 20111129 AMC $5.77
AEROPOSTALE INC ARO 201110 0.27 0.67 33.33 20111130 AMC $15.01
AMER EAGLE OUTF AEO 201110 0.27 0.29 -9.09 20111130 BTO $12.93
AVANIR PHARM AVNR 201109 -0.15 -0.1 0 20111130 BTO $2.07
CAMELOT INF-ADS CIS 201109 0.05 0.21 -47.37 20111130 BTO $1.78
CASELLA WASTE CWST 201110 0.05 -0.04 25 20111130 AMC $5.56
COLDWATER CREEK CWTR 201110 -0.32 -0.13 -68.75 20111130 AMC $0.88
EXPRESS INC EXPR 201110 0.35 0.3 -6.67 20111130 AMC $20.13
FINISAR CORP FNSR 201110 0.18 0.39 0 20111130 AMC $16.87
FRESH MARKET TFM 201110 0.2 0.23 N/A 20111130 BTO $36.97
GORDMANS STORES GMAN 201110 0.19 0.23 36.36 20111130 AMC $11.70
GUESS INC GES 201110 0.74 0.75 3.7 20111130 AMC $26.60
JOHNSON OUTDOOR JOUT 201109 -0.35 -0.62 -23.85 20111130 BTO $13.73
JOS A BANK CLTH JOSB 201110 0.51 0.45 8.82 20111130 BTO $50.24
KRISPY KREME KKD 201110 0.06 0.03 0 20111130 AMC $6.39
LA-Z-BOY INC LZB 201110 0.14 0.07 -33.33 20111130 AMC $9.39
ORCKIT COMM ORCT 201109 -0.15 -0.28 4.35 20111130 BTO $0.90
REX AMERICAN RS REX 201110 0.34 0.36 0 20111130 BTO $16.81
RUE21 INC RUE 201110 0.33 0.29 -3.13 20111130 AMC $23.26
SEADRILL LTD SDRL 201109 0.72 0.79 -1.47 20111130 BTO $31.31
SEMTECH CORP SMTC 201110 0.38 0.4 5 20111130 AMC $21.05
SIGMA DESIGNS SIGM 201110 -0.35 0.31 -237.5 20111130 AMC $6.78
SYNOPSYS INC SNPS 201110 0.45 0.3 5.88 20111130 AMC $26.31
UTD NATURAL FDS UNFI 201110 0.41 0.39 0 20111130 BTO $33.17
AMER SOFTWARE A AMSWA 201110 0.08 0.06 12.5 20111201 $7.55
ASCENA RETAIL ASNA 201110 0.64 0.63 -2.04 20111201 AMC $25.74
AVAGO TECHNOLOG AVGO 201110 0.69 0.74 6.56 20111201 AMC $28.97
BARNES & NOBLE BKS 201110 0.02 -0.22 0 20111201 BTO $16.12
BLOCK H & R HRB 201110 -0.35 -0.35 0 20111201 AMC $14.56
CDN IMPL BK CM 201110 1.86 1.64 2.63 20111201 BTO $66.30
CHARMING SHOPPE CHRS 201110 -0.09 -0.14 0 20111201 BTO $3.32
DESCARTES SYS DSGX 201110 0.13 0.09 -46.15 20111201 BTO $6.60
FLOW INTL CORP FLOW 201110 0.01 0 -50 20111201 AMC $2.34
GILDAN ACTVWEAR GIL 201109 0.4 0.48 8.45 20111201 BTO $22.85
ISLE OF CAPRI ISLE 201110 0 -0.06 -185.71 20111201 BTO $4.45
KROGER CO KR 201110 0.31 0.32 -4.65 20111201 BTO $21.82
LULULEMON ATHLT LULU 201110 0.25 0.18 18.18 20111201 BTO $46.70
MAGMA DESIGN LAVA 201110 0.08 0.01 -42.86 20111201 AMC $5.32
MITEL NETWORKS MITL 201110 0.15 0.14 7.69 20111201 AMC $2.34
MOVADO GRP INC MOV 201110 0.43 0.5 350 20111201 BTO $14.41
PVH CORP PVH 201110 1.81 1.55 12.63 20111201 AMC $64.94
SHANDA INTERACT SNDA 201109 0.22 0.26 -91.67 20111201 AMC $40.27
SYNOVIS LIF TEC SYNO 201110 0.17 0.13 13.33 20111201 BTO $17.27
TALBOTS INC TLB 201110 -0.15 0.27 -15.91 20111201 BTO $1.98
TORONTO DOM BNK TD 201110 1.51 1.34 7.98 20111201 BTO $66.03
ULTA SALON COSM ULTA 201110 0.38 0.23 18.75 20111201 AMC $65.97
UTI WORLDWIDE UTIW 201110 0.28 0.26 9.09 20111201 BTO $13.82
ZUMIEZ INC ZUMZ 201110 0.41 0.4 60 20111201 AMC $21.22
BANK OF NOVA SC BNS 201110 1.1 0.99 0 20111202 BTO $46.56
BIG LOTS INC BIG 201110 0.1 0.23 11.11 20111202 BTO $36.83
FEMALE HEALTH FHCO 201109 0.11 0.19 -83.33 20111202 BTO $3.92
ROYAL BANK CDA RY 201110 1.05 0.81 -7.89 20111202 BTO $41.78
TEAVANA HOLDING TEA 201110 0.02 999 N/A 20111202 BTO $19.47

BIG LOTS INC ( BIG ): Free Stock Analysis Report

BARNES & NOBLE ( BKS ): Free Stock Analysis Report

BLOCK H & R ( HRB ): Free Stock Analysis Report

KROGER CO ( KR ): Free Stock Analysis Report

ROYAL BANK CDA ( RY ): Free Stock Analysis Report

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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