A Review of U.S. Earnings Week, April 23-27, 2012 (XLF, XLE, XLK, DIA, XLY)
This week’s US earnings reports were led by the Financial and Tech Sector companies, with the Energy and Industrial Sector companies reporting negative results
The week of April 23, 2012 resulted in more U.S. companies reporting earnings. During earnings season, the stock market can be greatly influenced by how well companies are performing on their balance sheets. Analysts continue to hope that the earnings season will provide a tailwind to help propel the markets back toward the highs they were achieving earlier in 2012.
Beginning with the Financials sector (NYSEARCA:XLF), Zions Bancorporation (NASDAQ:ZION) reported its Q1 2012 earnings late on Monday, April 23. Its first quarter net income was $25.5 million, $0.14 per share. This was a 42.6% decline from Q4 2011 when it reported net income of $44.4 million, $0.24 per share, though it was a 72.2% increase from Q1 2011 when it reported net income of $14.8 million, $0.08 per share. Zions reported net operating earnings of $60.1 million, $0.33 per share, which beat the consensus EPS estimate of 25 cents. Still, the fact that it declined from its Q4 2011 earnings made this more of a downer on earnings as compared to many of the other companies reporting their earnings.
SunTrust Banks Inc. (NYSE:STI) reported Q1 2012 earnings on Monday, April 23. The company stated that its first-quarter earnings increased by 38.8% from the same period in 2011 due to lower loan charge-offs and delinquencies, as well as from moderate improvements on new lending. Its reported net income was $250 million, $0.46 per share, as compared to $180 million and $0.38 per share in the first quarter of 2011. This easily beat analysts’ estimates of $0.33 per share. As with other regional banks, SunTrust was also helped by higher mortgage income totaling $63 million in the first quarter as compared to a $62 million loss in Q4 2011 and $1 million loss in Q1 2011.
Turning to the Energy sector (NYSEARCA:XLE), Conoco (NYSE:COP) reported on Monday, April 23 that its first-quarter profit fell 3% due to declines in production and in lower refining earnings. Its net income dropped to $2.94 billion, $2.27 per share, as compared to $3.03 billion, $2.09 per share, in Q1 2011. When you exclude one-time costs and gains related to asset sales and write-downs, the profits were $2.02 per share, which was 6 cents less than what analysts were forecasting.
Further disappointing news came from Conoco’s refining profit, which slipped 6.2% from Q1 2011 to $452 million, far below Raymond James’ estimate of profits over $600 million. Raymond James’ estimate of $500 million for general and administrative estimates was also far off of the mark as compared to actual expenses, which totaled $685 million, increasing 37% over this same period in 2011.
Chevron (NYSE:CVX) reported its Q1 2012 earnings on Friday, April 27. Analysts were expecting $3.27 per share, and Chevron matched that exactly. Its world production of oil was down to 2.63 million barrels of oil-equivalent per day from the 2.76 million from Q4 2011. This made it fall below analyst expectations of $2.7 million. However, revenue was slightly up from last quarter, rising from $60.3 billion to $60.7 billion.
Exxon Mobil (NYSE:XOM) did not have a good Q1 2012 either, as it reported less than stellar earnings on Thursday, April 26. Exxon produced less natural gas and oil, its profits dropped at U.S. refineries and chemical plants, and the company’s overall profits dropped 11%; this decline was the first time there was a decline in quarterly earnings since late 2009.
Exxon reported earnings of $9.45 billion, $2.00 per share, which was far below Wall Street’s expectations of $10.7 billion, $2.14 per share, the amount Exxon made in Q1 2011. Exxon’s revenues did increase by 8.8% to $124.1 billion, but even this was short of Wall Street’s forecasts.
Turning to the Tech sector, Texas Instruments (NASDAQ:TXN) reported Q1 2012 earnings late on Monday, April 23. Net income declined to $265 million, $0.22 per share, from $666 million, $0.55 per share, in Q1 2011. This was considerably lower than analysts’ expectations of $0.29 per share. However, Texas Instruments did beat analysts’ estimates for revenues of $3.06 billion, as it reported revenues of $3.12 billion.
Texas Instruments believes it will have a strong second quarter of 2012, estimating earnings per share of $0.30-$0.38, translating into revenues of $3.22-$3.48 billion. Analysts’ estimates for Q2 2012 fall in that range, estimating $3.29 billion, though a higher earnings per share of $0.40 per share.
Xerox (NYSE:XRX) reported its Q1 2012 earnings on Monday, April 23, and it beat analysts’ estimates. Earnings were at $0.23 per share, slightly higher than analysts’ expectations of $0.22 per share. However, net income did drop from $281 million, $0.19 per share, in 2011 to $269 million, also $0.19 cents per share, in 2012. Xerox is being aided by its 2010 acquisition of Affiliated Computer Services, Inc., as it attempts to expand into markets that manage and automate electronic payments for governments and processing claims for insurers. Xerox stock rose 0.1% to $7.88 at the closing bell. Xerox stock has declined 23% over the past 12 months.
Apple (NASDAQ:AAPL) reported its Q1 2012 earnings after the closing bell on Tuesday, April 24, and it essentially blew the lid off of analysts’ estimates. All the talk about Apple’s doom and gloom after the recent fallback in its stock prices look to be just talk for now – Apple reported $39.2 billion in revenue and $11.6 billion in profit, resulting in $12.30 per share. This blew away analysts’ expectations of $36.81 billion in revenue and $10.06 earnings per share. This was also a marked increase from Q1 2011 when Apple reported $24.7 billion in revenue and $6 billion in profit, increases of 58.7% and 93.3% respectively.
The major reasons why Apple excelled so much: 35.1 million iPhones and 11.8 million iPads were sold in Q1 2012, increases of 88% and 151% respectively over Q1 2011. These sales more than compensated for just the 7% percent growth in Mac unit sales and a 15% decline in iPod unit sales. Analysts had predicted sales numbers of 30 million iPhones. One important note is that Apple’s iPhone sales seemed to be stronger outside of the U.S., as both Verizon (NYSE:VZ) and AT&T (NYSE:T) showed pretty sharp declines in its quarter-to-quarter iPhone activations.
Speaking of AT&T (NYSE:T), the company reported Q1 2012 earnings on Tuesday, April 24 as well. It was a mixed bag, as AT&T did not add many new monthly contract customers (only 186,000, and most of those purchasing iPads), but it still managed to post a profit due to the fact that it is making considerable money from the data plans of existing customers. AT&T reported net income of $3.6 billion, $0.60 per share, a bit higher than the $3.4 billion from Q1 2011. Revenues climbed 1.8% to $31.8 billion.
Revenues from wireless data increased by 19.9% to $6.1 billion from Q1 2011. AT&T reports that 60% of its data customers are paying for their tiered data plans, with 70% of those choosing the more expensive plans.
Corning (NYSE:GLW) reported its Q1 2012 earnings on Wednesday, April 25. It reported sales of $1.9 billion, being led by a 13% sales increase in its Specialty Materials business, including the popular Gorilla Glass. This is on par with its report from the same quarter in 2011, a well as a 2% increase over its report from Q4 2011. The EPS was $0.30, lower than both Q1 and Q4 2011, but higher than analysts’ earnings by 1 to 2 cents. Several of its other sections, including telecommunications sales and Environmental Technologies sales, also saw increases.
However, the news wasn’t all good for Corning, as its largest business, Display Technologies, only recorded sales of $705 million, an 11% decline from Q1 2011 and a 10% decline from Q4 2011.
Amazon (NASDAQ:AMZN), much like Apple (NASDAQ:AAPL), blew away analysts’ expectations with its Q1 2012 earnings report after the closing bell on Thursday, April 26. This is despite a drop in 35% earnings for Q1 2012. After a regular session gain of 0.8% to $195.99, Amazon stock gained over 13% in after-hours trading.
How was Amazon able to do so well despite a significant drop in earnings? This was largely due to a growing number of third-party sales on Amazon’s site. While Amazon only gains a small percentage of these sales, the percentage offers higher profit margins than on many of the items that Amazon sells itself.
Amazon reported a net income of $130 million, $0.28 per share. This was a drop-off from Q1 2011, as Amazon reported a net income of $201 million, $0.44 per share (35.3% and 36.4% decline, respectively). Amazon’s operating income for Q1 2012 was $192 million, a decline of 40%, which implied an operating margin of 1.5%. Revenue, however, rose by 34% to $13.18 billion, beating analysts’ forecasts of $12.9 billion, $0.06 per share.
Many categories of products sold on Amazon increased for Q1 2012, including 19% for media products, 43% for electronics and other general merchandise sales, and 61% for its “other” category (which includes its new and growing cloud-based Web services business).
One cautionary note: Amazon is still heavily spending in order to support its growth, as it plans to open 13 new distribution centers during 2012. It also added 9,400 employees to increase its overall employee number to 65,600. This led to operating expenses increasing by 36% to $13 billion for Q1 2012, slightly ahead of revenue growth.
Turning to the Industrials sector (NYSEARCA:DIA), Caterpillar (NYSE:CAT) reported its Q1 2012 earnings on Wednesday, April 25. Earnings were $1.6 billion, $2.37 per share, which was a 33% increase from the $1.2 billion, $1.84 per share, in Q1 2011. However, revenue was lower than analysts had expected: Caterpillar announced revenue of $16 billion, whereas analysts were expecting $16.2 billion. Caterpillar estimates that it will have annual revenues of $68 to $70 billion during 2012, resulting in $9.50 per share. Shares of Caterpillar were lower by around 2.4% after this announcement.
General Dynamics (NYSE:GD) reported earnings on Wednesday, April 25, and both the revenues and earnings were lower than what analysts were predicting. Revenue was at $7.58 billion, which was considerably lower than the $7.91 billion analysts were projecting. Earnings fell by 8.7% due to two of General Dynamics’ three divisions’ decline; the information systems and technology and combat-systems divisions weakened. Only the aerospace business grew in Q1 2012. Overall profit was reported at $564 million, $1.57 per share, down considerably from $618 million, $1.64 per share, in Q1 2011. Operating margin dropped from 11.9% to 11.3%.
Boeing (NYSE:BA) also reported its Q1 2012 earnings on Wednesday, April 25. Contrary to the last two companies, Boeing beat analysts’ expectations, as it earned $923 billion, $1.22 per share, considerably higher than the $586 million, $0.78 per share, from Q1 2011. Boeing’s revenue of $19.4 billion beat expectations of $18.4 billion. Overall in 2012, Boeing expects to gain revenues of between $78 to $80 billion, $4.35 per share.
Dow Chemical (NYSE:DOW) announced its Q1 2012 earnings on Thursday, April 26, and due to a pre-tax charge of $357 million in order to close some of its plants, Dow’s earnings fell 50%. It reported $412 million in income, $0.35 per share, which was down considerably from the $625 million, $0.54 per share, from Q1 2011. If the restructuring costs from the plant closures and other special items are excluded from the report, Dow earned $0.61 per share, slightly higher than analysts’ expectations of $0.59 per share. Dow is closing some of its plants in Brazil, Europe, and the United States due to weak European demand.
Lockheed (NYSE:LMT) reported Q1 2012 earnings on Thursday, April 26, and saw that its earnings increased by 26% due to a 6% rise in revenue. Its net income increased from $530 million, $1.50 per share, in Q1 2011 to $668 million, $2.03 per share, in Q1 2012. Its earnings from continuing operations increased by 28.7% from $1.57 per share to $2.02 per share. Revenue increased from $10.63 billion to $11.29 billion, significantly higher than the $10.56 billion and $1.70 per share expected by analysts. Lockheed is expecting 2012 earnings between $45 to $46 billion, a range of $7.70 to $7.90 per share.
Goodyear (NYSE:GT) reported its Q1 2012 earnings on Friday, April 27, and despite making record sales of $5.5 billion, a 2% increase from Q1 2011, tire unit volumes decreased by 8% from Q1 2011 to help Goodyear lose 5 cents per share. This greatly fell short of Wall Street’s expectations of a 7 cent per share profit.
Ford (NYSE:F) also reported its Q1 2012 earnings on Friday, April 27. It met analyst expectations with its earnings announcement of $1.4 billion, $0.35 per share. However, if you consider the after items profit, Ford actually beat analysts’ expectations, earning $0.39 per share. This is down from the $0.61 per share in Q1 2011. Revenue also declined from last year, as it fell to $32.4 billion, though this was slightly better than analysts’ expectations of $32.3 billion.
Turning to the Consumer sector (NYSEARCA:XLY), Coca-Cola (NYSE:CCE) reported its Q1 2012 earnings on Thursday, April 26. Its earnings increased by 2.8% thanks to higher price increases of 5% offsetting higher costs of 6.5% and 0.5% lower volume. Profits were reported at $109 million, $0.35 per share, an increase from $106 million, $0.31 per share, from Q1 2011. Revenues increased by 1.3% to $1.87 billion.
Starbucks (NASDAQ:SBUX) reported its Q2 2012 earnings on Thursday, April 26. Thanks to its sales in China and more traffic coming through its stores, earnings rose by 18% to $309.9 million, $0.40 per share. This was higher than the $261.6 million, $0.34 per share from Q2 2011. Revenues increased from $2.8 billion to $3.2 billion, a gain of 14.7%, while same-store sales increased by 7%. Starbucks’ sales in China, where it enjoys its highest profit margins, increased by over 20% for the seventh straight quarter. Starbucks plans to open more stores in China at a faster pace to take advantage of this growing market.
UPS (NYSE:UPS) reported its Q1 2012 earnings on Thursday, April 26. While its earnings did rise 6%, this was lower than Wall Street was forecasting. The main reasons for the shortfall were weaker Asian demand and low-value, e-commerce shipments fueling its U.S. domestic growth. UPS stock fell 3.4%, $2.72, to $76.93 after this announcement. Despite missing forecasts, UPS predicts U.S. domestic package volume to increase by 3.5% to 4% in 2012, an increase in its earlier forecast of 2% to 3% growth.
Executive Summary:
Breaking down the earnings reports by sectors, the Financials sector (NYSEARCA:XLF) was mostly positive, though Zions Bancorporation net income did decline despite exceeding Wall Street’s expectations.
In the Energy sector (NYSEARCA:XLE), the news was mostly negative, outside of Chevron, which managed to meet Wall Street’s earnings estimates.
The Tech sector (NYSEARCA:XLK) was mostly positive, especially because Apple and Amazon blew the covers off of analysts’ estimates. Only Texas Instruments really disappointed with its lower-than-expected net income and earnings per share.
The Industrials sector (NYSEARCA:DIA) was split almost 50/50, with Caterpillar, Boeing, and Lockheed beating analysts’ earnings expectations, Ford meeting them, and General Dynamics, Dow Chemical, and Goodyear falling short of analysts’ expectations.
The Consumer sector (NYSEARCA:XLY) was mostly positive thanks to Coca-Cola and Starbucks beating analysts’ expectations, but UPS did fall short due to weaker Asian demand.
Just as with last week, more companies than not are reporting stronger-than-expected earnings, which could serve as a catalyst to boost the stock market and get it moving on a positive streak again. Combine this with the fact that the stock market broke through some resistance, such as the S&P 500 breaking through the 1390 mark and hovering just under the 1400 mark, the potential is there to go on another positive streak similar to what occurred a few weeks ago. This is despite the fact that May is just around the corner, as this could be one of those Mays where stocks actually go up and not down.
The one real fly in the ointment is the EuroZone crisis, particularly Spain, which had its credit rating dropped from an “A” to a “BBB+.” However, Friday futures were not severely hampered by this downgrade, and as of the time of this writing, stocks are up by slim margins, with the S&P 500 currently back over 1400.
Bottom Line: As was written last week, the long-term outlook is still bullish thanks to most companies performing better than expected in terms of earnings. Market performance could be influenced soon however by the “sell in May” phenomenon and any European hick-up.
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