What to Look for in Earnings this Week

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It’s a relatively light week for earnings but many of the companies that will report are very interesting. This is purely a random event but it seems that many of them have a common theme. Specifically they appear to be companies that have their own idiosyncratic profit drivers that are somewhat outside the economy. These sorts of stocks are always good to research because they allow you to create a nice balance in your portfolio. In other words, you are not just constructing a portfolio loaded with cyclical or defensive stocks that move in line with the economy.

Cal-Maine Foods

I’ve covered Cal-Maine Foods (NASDAQ: CALM) extensively and you can find my last article on the company linked here.  The stock has had a great run into Monday’s results and investors should look out for a few things in order to see if the fundamentals can drive it higher. As ever with Cal-Maine, it is important to see how it is dealing with input costs, which tend to pressure margins. In addition the company’s industry commentary is usually very useful. Look out for what it is saying about chick hatching numbers and its specialty egg sales. The former tends to guide future margins (investors should want the national chick hatch number to go down) and the latter is becoming an increasingly important part of Cal-Maine’s revenue.

Acuity Brands and Mosaic

On Tuesday another favorite of mine, Acuity Brands (NYSE: AYI), will report. It recently hit my target price so I no longer hold it although it has got a bit weaker recently so the earnings will be an interesting time to reassess its prospects. I like Acuity because it has good exposure to US residential and commercial construction lighting plus it has the opportunity to grow revenues from the long-term potential of LED lighting. Thanks to falling LED prices and technological developments we are moving towards a period where LED lighting becomes price competitive with traditional lighting, and I think this will drive top line growth for lighting companies with LED offerings.  Look out for commentary on how its end markets are faring and LED lighting take up.

Mosaic (NYSE: MOS) also reports on Tuesday and investors will get an early look at what is trending within agriculture. Everybody loves the long-term food story but not everyone can tolerate the inherent volatility in the sector. For example, the year started with historically high US corn planting only to move into a drought that caused corn prices to soar; it will be interesting to hear what Mosaic has to say about what farmers will do in response. Will they plant more to take advantage of high prices or will they accept that these are unusual conditions and keep acreage the same? The answer is critical to future price expectations. Maybe Mosaic will have some clues?


Monsanto and Family Dollar

Mosaic’s fellow agricultural play Monsanto reports on Wednesday but my main interest will be in Family Dollar Stores (NYSE: FDO). I’ve discussed the company in an article linked here. Prospects look very good for the dollar stores in general but it’s hard to argue that they are good value at the moment.  As ever with retail, the key number is same store sales. Family Dollar has an aggressive expansion plan laid out for this year and investors will want to see that nothing is causing management to lose focus in existing store sales growth. This is particularly relevant because Family Dollar currently has lower sales per store than Dollar General or Dollar Tree, so the opportunity to play ‘catch-up’ is there. In addition its commentary on the state of the US mass spending market will be worth listening to.

 

International Speedway and Robbins & Myers

On Thursday International Speedway will give earnings and I find this stock interesting because it gives some color on US discretionary spending.  However its main profit driver is the popularity of motor sports and specifically NASCAR in the US. This means the stock could offer some extra growth upside.

Robbins & Myers (NYSE: RBN) gives results on Friday. National Oilwell Varco has already agreed to buy the company so the interest isn’t in Robbins & Myers itself, but rather what it is saying about things like shale gas capital expenditures and the oil rig count in the US. The former has driven growth in all sorts of industries (not least in reducing costs at potash producers like Mosaic as discussed above) and the latter is one of the key determinant of revenue growth at US oil service companies in the US. Oil prices have been weak so I wouldn’t expect too much good news here.


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