Earnings Review - What Did We Learn by Ignoring CNBC & Government Reports?

First the market - we continue to cling in a tiny range... can't get over that S&P 1400 level no matter what. All week everyone sits on their hands and waits for the Gods from D.C. to tell us what they do with the peons... we expect 25 basis point and then statements saying balances are risked, we care about inflation blah blah. Or maybe even no cut. Either way it doesn't matter much - these are long term situations yet not a trader on Wall Street can hit buy or sell this week until they see the action. This has to be the most telegraphed "we are stopping after this meeting" I've ever seen but still the blackjack players are waiting to see the knee jerk reaction before placing chips. Will anyone care in October 2008 if rates are 2 or 2.25%? No. But for tomorrow it's the most important thing in the world. I'm more interested in Friday's piece of fiction from the government - you know, the monthly "no seriously - unemployment is not an issue" report.

A quick look back at some of the names I mentioned I was looking at earlier this week, all important data points for our forming our macro point of views so we can ignore CNBC blather and government reports which are useless.

In the restaurant biz, Buffalo Wild Wings (BWLD) shows why you don't want to be short or long going into earnings - too much risk, up 10% in after hours on ok earnings - when expectations begin to get so low, it becomes easy to pass the low bar. Their costs rose 22%. If this were a government report their costs would only be up 3%. That's like dog years. I actually like this company, so it's one reason I watch it; but just in a tough neighborhood (restaurants). Domino's Pizza (DPZ) did not far so well. Stop if you've heard this before but United States of Subprime sales down 5.2%, but international sales up 8.8%. In an interesting tidbit the CEO is saying they need to focus on the lower price market, something they've ignored for years.... translation - the pooring of America continues as real wages (adjusted for inflation) continue to eat away our middle class - and companies need to adjust. More and more people are entering the "lower class" so companies need to move "down market". What does it mean for companies? Lower profits. Folks, these are secular issues (not cyclical) . If you believe inflation is permanently going to be a higher issue in my "World of Shortages" scenario than profit margins will be permanently squeezed, and the living wage in America is simply not going to keep up - our lower class will only grow and the gap between rich and poor, already at levels last seen in 1929 will only widen. That's how you lead to social unrest. Unlike the late 1970s where workers were able to get wage increases of 10%+ to compensate for sky high inflation, we are in a new era where employers simply say, we'll find another you if you don't take this 3.2% wage increase. Bad for Main Street. Great for Wall Street.

In the pharmacy benefit space (names I like), MedcoHealth Solutions (MHS) did ok but since they did not give the lemmings what they wanted on guidance, the stock traded down. Express Scripts (ESRX) continues to hot home runs. If it's what the lemmings like or not in the near term, who knows.

Burlington Northern (BNI) - well they run a railroad - 3 words - ethanol, coal, fertilizer. I do want to highlight some points because as I keep saying, this railroad strength has nothing to do with "US strength in 6 months". The rest of the world continues to charge forward (although they will slow to some degree) while the United States of Subprime wallows.

• Burlington Northern Santa Fe Corp., which operates the nation's second-largest railroad, said Tuesday that its first-quarter earnings jumped 30 percent on more rail shipments of farm products and coal, as well as larger fuel surcharges.
• Chairman and Chief Executive Matthew K. Rose said, however, that the company continued to see softness in shipments of consumer products and housing supplies.
• "It is hard to see any significant decline in commodity prices coming in the second, third or fourth quarters," Chief Executive Matt Rose told Reuters in a telephone interview. "But we're seeing a real dichotomy out there in the economy." "It really is a tale of two cities," he added
• Freight volumes rose in the company's coal (up 6.7 percent), agricultural (up 15 percent) and industrial products (up 3.3 percent) divisions. But volumes at BNSF's consumer products division -- which includes hauling consumer goods and automotive shipments -- were down 8.7 percent, due to economic softness related to the slowdown in the U.S. housing sector, the railroad said.
• CEO Matt Rose said that while he expects commodities will continue to perform well throughout the year, sagging U.S. consumer confidence and the housing slowdown will remain a drag on the economy for the remainder of 2008. "We're not expecting any significant breakout on the economic front," he said. (but Mr Rose - they promised me... in... 6 months... )

In the contract research organization space, US player Covance (CVD) was solid but shares were down early hard (recovered all day), whereas Irish player ICON (ICLR) had a very good report and the market rewarded it. From watching these guys over the years, ICON just seems to be best of breed.

US Steel (X) saw a MASSIVE gain from the US Peso - 59 cents. Considering they made under $2, over 25% of their profit is US Peso. No matter, it was only down 1%. People can't be bothered with details like that. Just imagine if we still had a manufacturing base how much of a boom town Pittsburgh would be nowadays. Actually much of PA and OH would be booming...

Valero (VLO) is a quality company but this refiner is simply stuck between a rock and a hard place. The sector has been decapitated, so investing here should be relatively low risk of an entry but one has to hope for crude to meaningfully fall (and I don't mean for a week or two) and/or things to reach a level akin to financial, homebuilders or retailers where as long as you assure investors you won't be out of business the stock can jump 20% on (any) earnings. These were some amazing stocks in spring 2007, not so much this year.

• But Valero chairman and chief executive Bill Klesse said the fundamentals for gasoline are improving, including demand. On the Gulf Coast, he noted, the average "crack" spread for gasoline -- the difference between what refiners pay for crude and get for the gasoline they make -- has more than doubled in April versus March, from about $3 to $6.50 a barrel. At one point last spring, crack spreads reached as high as $37 a barrel.
• The company noted the average price of the benchmark West Texas Intermediate crude increased nearly $40 a barrel in the quarter, while the average wholesale price of Gulf Coast conventional gasoline rose by about $34 a barrel.

Under Armour (UA) is a disaster - every time I think about buying them I have to remind myself... Nike (NKE) = global brand. Under Armour = United States of Subprime brand. End of discussion

Last, but not least, is a stock a reader mentioned Titan International (TWI) which is a derivate play on the global boom/ag boom - they make huge tires for agriculture and mining companies. Business is booming and they are jacking up prices, from 4-35%. In government terms that means they are dropping/raising prices from "-8% to 4%". But I try to stick to the real world. Keep in mind the below results are that good even with a huge share count increase

• Titan International the Quincy, Ill., holding company for interests in wheels, tires and assemblies for equipment for agricultural, construction and consumer applications, swung to a first-quarter profit from a year-earlier loss on 12% higher sales. Earnings were $8.1 million, or 29 cents a share, compared with a net loss of $2.5 million, or 12 cents, in the year-earlier period.
• Revenue reached $253.5 million from $226.3 million. Demand in the agricultural market was "huge," driven by increases in grain-based ethanol and soybean-based biofuel and the resulting higher commodity prices, Chairman and Chief Executive Maurice Taylor Jr. said in a statement
• Titan Tire Corporation, a subsidiary of Titan International, Inc. (NYSE:TWI - News), will implement a price increase on Titan, Goodyear and General branded off-the-road (OTR), farm and construction tires in the aftermarket, effective June 1, 2008. The increase will range from 4 percent to 35 percent to offset rising natural and synthetic rubber, carbon black, fabric, energy and transportation costs. (no inflation here, move along)
  

No positions