The Key Earnings to Look Out For This Week

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Earnings season really kicks off this week as some market heavyweights start giving results. This wil help us to create a viewpoint for where the global economy is headed going into the last quarter. I will try and highlight the salient points to look out for in these results so existing and potential investors can better prepare for them.

 

Alcoa and YUM! Brands

These two give earnings on Tuesday. Superficially they have nothing in common but actually both are going to point the way to prospects for investing in China. I will cover Alcoa (NYSE: AA) with an article write up in due course. I last looked at the company in an article linked here. The key thing to look out for is its geographic commentary with regards to its end markets and specifically any adjustments to its full year forecasts. I’m expecting a weaker outlook on China. Automotive is interesting because US new car sales have been strong, but Europe and China are weaker so I wouldn’t be surprised to see a downgrade here.

Incidentally, investors in General Electric should watch closely because what Alcoa says about Aerospace and industrial gas turbines has a clear reference to two important divisions for GE.

Yum! Brands (NYSE: YUM) is going to provide some clues as to whether food can be a way to still get upside surprise from emerging markets. I covered developments in the fast food sector in an article linked here.  McDonald’s has been weaker in China, but Yum has reported some very strong same store sales numbers there. We shall see if that run continues or not and whether its rival's promotional efforts are starting to hurt its growth. China and emerging markets are the focus for Yum so any hiccup here will not be well received by the markets.

 

Costco, Fastenal and JB Hunt

I will be particularly interested in Costco Wholesale (NASDAQ: COST). I’ve discussed the company and the other big box retailers in an earlier article here. The key metric to look out for here is gross margins. I argued previously that I thought there was a good chance that we could see some improvement and they all remain attractive businesses, if not necessarily cheaply priced. Don’t expect fireworks from Costco because the US consumer continues to be cautious, but some more positive commentary on higher discretionary spending will be well received. As will a reduction in the need to market or promote in order to hold market share.

Fastenal (NASDAQ: FAST) is a company that provides a good indication for the state of the residential and construction markets. I like the company but have never found it to be cheap. The key things to look out for here are how its revenue growth is tracking in relation to historical trends and, how much it has managed to increase its non-store sales as a percentage of total revenues. The latter is a big part of its growth strategy as it is higher margin and less capital intensive. The company has a clear growth plan which I outlined in an article linked here and I strongly recommend readers to read it before preparing to analyze the results.

JB Hunt Transportation will provide details in the transportation market in the US. It’s an interesting company because it focuses on intermodal trucking and if you look at the rail car load statistics this part of transportation has been doing very well this year.

 

Google, Wells Fargo and JP Morgan

Three heavyweights report on Friday. We should see some additional color on the US housing market from Wells Fargo and JPMorgan. In addition perhaps we can see a quarter where the banking system doesn’t display ineptitude in the one thing that the taxpayer expects them to do? In other words manage risk.

It strikes me that the banks only seem to make money when the direction of the economy is in their favor and the US taxpayer has paid a heavy price in order to get that working for them. Their part of the ‘bargain’ is to manage risk and get lending to households and industry going again. Neither of which they appear to have the ability to do well especially when it challenges their desire to earn a large bonus for loading up on risk. Of course, this risk is then dumped on the taxpayer or shareholder when it all goes wrong. This is what happens when you leave the same people in charge of the banks.  I hold a position in Wells Fargo because I know the politicians will go on supporting the banks and the housing market. That’s just the way it is. Rant over.

Google’s (NASDAQ: GOOG) results will be as closely followed as ever. Google doesn’t do guidance so expect the usual volatility over earnings. The key thing to look out for will be the relationship between paid clicks and cost per click. The former is rising strongly while the latter has declined as Google changes its ad structure and shifts revenues to platforms such as mobile and tablet. I think there is a chance that Google could report good news on the cost per click front. They rose sequentially in the last quarter and it should start to anniversary the period when it started to make changes.

Forgive my humble input here, but I checked my own blog’s ad revenues and I was surprised to see that click through rates, compared to desktop, are notably higher from tablet devices but lower on mobile devices. Interestingly, the combination of tablet and mobile is higher than desktop. My guess is that tablet users are people who would have had higher click through rates on desktop anyway. The challenge to generate revenue from mobile ads goes on, but it will be interesting to see whether analysts and Google start to differentiate tablet revenues from the mix.


SaintGermain has a position in Wells Fargo. The Motley Fool owns shares of Costco Wholesale and Google. Motley Fool newsletter services recommend Costco Wholesale and Google. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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