Adverse Weather - Is it a Buying Opportunity?
Zain is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A cooler-than-expected spring and delayed tax refund tickets emerged as surprising themes for some retail companies in the recent earnings season. It affected different business lines in different ways. The ways were different but the end result was the same – earnings results that missed the estimates.
Let’s have a look at some of the examples for hardware and garden players:
How did cool weather disturb Scott Miracle-Gro?
The management at The Scotts Miracle-Gro Company (NYSE: SMG) blamed the company’s steep revenue miss of 9.7% in the second quarter ended Mar. 30 entirely on colder weather and a delayed start to the spring season.
Scotts produces lawn products which range from pest control sprays to seeds and fertilizers of various qualities. Fiscal year 2013 has not been kind to the company. Consumer purchases of Scotts products at U.S. retailers were down more than 25% on a fiscal year-to-date basis at the close of the quarter. However, the management pointed out the bright prospects at its conference call, saying that as the weather improved, consumer purchases for the first five weeks of its third fiscal quarter were up 19% (on a year-over-year basis), leaving consumer purchases of Scotts products down just 9%, year-to-date, through May 5.
Despite the headwinds the company experienced, the company kept full year top-line guidance as management was encouraged by (1) the strong performance of non-weather impacted areas (for instance, second quarter consumer purchases in California were up 43%, exemplifying the overall solid sales performance seen on the West Coast); and (2) the recent acceleration in sales in weather impacted markets.
However, the company acknowledged that there is a chance the shorter season leads to some lost sales. In addition, there was no mention of contingency planning for the impact of cicadas.
Stanley story similar to Scotts
Results of Stanley Black & Decker’s (NYSE: SWK) Construction & Do It Yourself (CDIY) segment got hurt by the unfavorable weather. The performance of CDIY is a pure-play on the outdoor season.
While the CDIY segment does include international sales, the majority of the segment’s sales are in the U.S. and, when discussing the weaker-than-expected sales management identified the four-week later start of the U.S. outdoor season (due entirely to weather) as the biggest culprit in the miss, explaining that weather negatively impacted organic growth by 2%. Organic revenues for Stanley’s CDIY segment were flat, missing consensus expectations by 5.6% and decelerating on a two- and three-year stack by 11% and 12%, respectively.
Commentary from Stanley matches commentary from Husqvarna’s management on April 24, when the company stated that “in March, the sales [in the U.S.] dropped down… due to even in the mid-part of U.S., it was extreme cold weather suddenly”. That said, Stanley’s management did reiterate full year guidance for the CDIY segment, implying the company would recoup (not lose) those sales.
Whirlpool affected by delayed tax refunds
Taxpayers will get refunds later than usual this year partly as a result of national lawmakers who’ve lurched from crisis to crisis as the two major political parties argue over spending and fiscal priorities, including earlier this year when they reached a last-minute deal to avoid another debt ceiling debacle.
As a result, retailers like Whirlpool (NYSE: WHR) have suffered in the first quarter of the year. Whirlpool’s North American sales declined 0.2% this past quarter, accelerating sequentially on a two-year basis by 1.4%, which included the probable drag that the delay in tax refunds had on big ticket items.
The company projects the appliance market to heat up in the second half, as “the company continues to expect full-year 2013 U.S. industry unit shipments to increase in the range of 2 to 3%” I like the company given its attractive valuations. I still say this despite the fact that the stock has doubled in the last 12 months. The stock pays an attractive dividend yield of just above 2%. The earnings of the company are expected to rise by 30% per year over the next five years.
The adverse climatic conditions and delay in tax refunds have led to a dip in the hard-line stocks. However, common sense and results of April and May sales suggest that the benefits of a ‘proper’ weather haven’t disappeared – rather they have been pushed 2-3 months further into the year.
Zain Abbas has no position in any stocks mentioned. The Motley Fool recommends The Scotts Miracle-Gro Company. 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!