Winding Down Fourth-Quarter Earnings
Damon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
We are awaiting results from numerous companies, including many in positively-trending industries. The residential construction market is showing signs of a further recovery, a factor that could spark a broader economic upturn. Meanwhile, retail and consumer spending is treading water but is climbing in certain sectors. Finding the right areas to invest in for the near and long term has become important. A suggestion is to keep track of earnings results and make decisions accordingly.
Here are some to anticipate.
Pool Corp. (NASDAQ: POOL), reporting Feb. 14:
The swimming pool supply company derives only about 8% of its business from landscaping products and other items related to new pool production. Still, that operation, tied substantially to the housing market, can sway profits to a considerable degree. Favorably for Pool Corp., the residential building rebound, along with market share gained from a failing competitor, spurred segment income growth during 2012. In tandem with rising sales from the core maintenance business, consisting of chemicals and other offerings, Pool’s earnings have gained positive momentum.
Keep in mind that sales fluctuate on weather as well as the environments in a few key regions. Four states (Florida, California, Texas, and Arizona) contribute a large portion of revenue and thus housing conditions in those geographies are crucial. On that note, Pool’s earnings are highly seasonal, generating the most earnings in the pre-pool opening spring quarter.
Analysts are estimating an improved deficit of $0.19 versus the prior-year’s $0.21 loss in the December quarter. For 2013, they look for share net to advance 15% to 20%.
Big Lots (NYSE: BIG), reporting Feb. 22:
I had brushed over this company in an overview of Costco with an earlier blog. Big Lots likely realized a return to positive earnings comparisons in the January quarter, behind an expanding store base. A pick-up in gross profitability would support better results in 2013. In all, this likely turnaround is the basis for my recommendation of these shares.
A discussion of Big Lots’ business indicates the opportunity for improvement. Sales in its two largest product categories, namely Consumables and Furniture, are holding steady or growing slowly. The company also offers so-called Home, Play n’ Wear, Hardlines & Other, and Seasonal merchandise, with some experiencing top-line declines of late. In response, management is aiming to enhance its product assortments and transition to higher growth categories, as well as testing coolers and freezers and refurbishments.
In my belief, this stock is worth considering as a turnaround candidate for risk-tolerant accounts.
B&G Foods (NYSE: BGS), reporting Feb. 14:
The New Jersey-based maker of processed foods is in a solid growth stage, as share earnings likely increased about 30% last year. For the December-quarter alone, analysts think earnings climbed 30%, to $0.39 a share. The strong progress has assisted a 41% jump in the stock price over the past 12 months. Moreover, the shares yield an alluring 3.8%. B&G’s results have been benefiting from the November 2011 acquisition of Culver Specialty Brands. So, the pace of bottom-line gains is apt to slow, as this purchase is lapped. Nevertheless, further upside is likely in 2013.
Management remains focused on growth by way of acquisition, and earnings accretion ought to result from these efforts. For instance, it recently completed the buyout of the New York Style deli snack and Old London brands from Chipta America. It is pursuing this strategy despite an elevated debt-to-equity ratio.
Such a buyout strategy can make for a company that exceeds expectations in some cases. Current share-net estimates for 2013 of about $1.50 a share may be proven conservative. Because of this rationale, these shares are also a decent selection at this time. Income and growth investors alike may consider the equity.
Lorillard (NYSE: LO), reporting Feb. 13:
Fellow tobacco company Altria’s earnings outperformance should draw some attention to Lorillard. Another high-dividend paying entity, it yields 5.2%. Moreover, the producer of Newport cigarettes has a sound earnings outlook. Share repurchases have been another use of cash, driving up share net comparisons. In all, this is another company with growth prospects that also distributes an attractive payout.
Investors are advised to purchase LO stock at the current quotation.
Given the earnings gains posted by these firms’ industry counterparts and the potential for upside surprises, this may be a good time to add POOL, BIG, BGS, and LO to a portfolio. Pool is reliant on a bright housing market and may thus be in a cyclical uptrend. The other three could well be good long-term holdings.
dctotal has no position in any stocks mentioned. The Motley Fool owns shares of Big Lots. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!