So when does beating low expectations stop counting as good news?
It’s an important question for the stock market and for the economy as a whole. After easy to beat earnings comparisons in the first and second quarters, stocks face a bigger challenge in the third and fourth quarters of 2010 as they pass the absolute bottom for the economy. For more on how earnings comparisons get tougher as 2010 goes along see my post https://jubakpicks.com/2010/01/22/2010-well-the-first-half-anyway-looks-good-for-stocks-despite-the-current-correction/ )
Today, February 22, before the stock market opened Lowe’s (LOW) reported fourth quarter 2009 earnings of 14 cents a share and revenue of $10.17 billion. The results were above Wall Street expectations of 12 cents a share in earnings and $10 billion in revenue, but below the company’s own guidance for 15 cents a share and $10.3 billion in revenue.
Confusing picture, no?
Well, it doesn’t get any better if you dig a little deeper. Comparable store sales fell 1.6%, but Wall Street had expected that comparable sales would fall by 2%. This is the smallest drop in comparable sales since the second quarter of 2006.
Lowe’s CEO Robert Niblock told investors that the worst is behind the company.
Which isn’t, apparently, the same as saying that things are actually going to be good.
The company guided Wall Street to expect same store sales to be flat to down 2% in the first quarter of 2010. That compares with the current Wall Street consensus of a 1.5% decline in first quarter comparable sales. For the full year Lowe’s projects comparable store sales to climb 1% to 3%. The consensus before the conference call was for a 1% to 2% increase for the full year.
Earnings guidance for the full 2010 year of $1.30 to $1.42 per share compares to Wall Street expectations for $1.37 a share.
Don’t know about you but an increase of 1% to 3% in comparable store sales isn’t exactly the huge growth I’d expect coming off a bottom for the home building sector.
All of which leaves me asking Was this good news or bad?
Full disclosure: I don’t own shares of any company mentioned in this story.
the big question is what multiple do you now pay for these companies which were growth stories but are clearly no longer growth stories. Would argue paying more that 15 x earnings for a stock like LOW is far to rich.
Some optimisim. Tampa area. existing hsng up on sales and price three mos running. New hsng up and down on volume but price is down to $100 a sq ft…could go lower. competition is fierce. Some subs are working for less and happy to get work…others (more elite ie. pools,lanais etc) are still holding out for big money. Current new inventory homes are not top quality and do not have any upgrades consequently having trouble competing with existing homes. LOWES and HD have limited inventories but have brought down prices on what they do have, defensive business posture I think. Haven’t waited in line at either in quite a while.
In the financial fracus the 1st mort holders seem more cooperative but the 2nd holders are not as subject to govt control and are mucking up a lot of short sales. Insisting on full payment. Kind of foolish as after foreclosure the 1st holder has all the say and the 2nd has zip.
Realtors working much more for less but helping things move along despite lack of govt support (free enterprise at work). Investors buying cheap for renting or resale, home owners getting nice homes for good prices. All and all…THINGS LOOK OK.
DJ,
Good links there! Even though I check Bloomberg daily, I seem to miss some articles that you catch. Thanks for keeping me informed!
My European short ETF’s are looking better every day…
Oh, forgot the link back to the article…
http://articles.moneycentral.msn.com/Investing/JubaksJournal/ride-this-bull-but-be-ready-to-jump.aspx?page=2
“Jubak’s Journal2/22/2010 5:00 PM ET
Ride this bull, but be ready to jump” (MSN Blog)
Jim, I look forward to reading your ideas, I have been feeling more and more that the “winds of change” for this market are just around the courner
“Over the next couple of weeks I’m going to tweak the holdings in Jubak’s Picks just a bit to see whether I can get something closer to the best mix for the end stages of a rally that I expect to peter out somewhere near the middle of the year.”
”
German Business Confidence Unexpectedly Declines (Update2) ”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aB0PF.Eg5OCo
Harvard’s Rogoff Sees ‘Bunch’ of Sovereign Defaults (Update2)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aaeViPPUVSw4&pos=2
Jim,
I think this one counts as bad news…. and really bad for some
The bad – Housing prices are going to continue to decline unless we get some solid inflation numbers (which in my opinion would be welcome to help give enough time for the housing problem to unwind). Everyone has their favorite indicators here but the best research I have been able to find estimates 3-4 years before prices start to increase.
The really bad news is that the growth in this sector for 4-5 years created jobs, factories, and wealth for many. Most of which was a trade skill. These people are forced to go back to the market to be retrained. This takes time…. Also I would argue that these are the same people who have 4-5 investment properties and are going to have to start cutting loses to survive (back to point 1).
I’ve also been in the market for a house and the psychology of the situation is quite interesting. The brokers say things are recovering but I think they say this mostly because if it doesn’t they are in a poor position.
I’m shopping in the Pacific NW market and my agent was shocked when I said I wouldn’t buy now unless they offered at least 30% of current market value. If they don’t give it now give it a few years.
“8 reasons for investors to worry”
“Worry No. 2. ”
“China Politburo Signals No Policy ‘U-turn,’ Merrill Lynch Says ”
http://www.bloomberg.com/apps/news?pid=20601068&sid=aweHmh52UunE
What we have here is ‘disinflation,’ soon to turn into deflation. We are doomed!
By Krugman:
“I find this a scary picture. For one thing, it suggests that deflation may not be too far in the future. But beyond that, there’s a growing belief among sensible economists that we need higher, not lower inflation. What we’re doing now is moving in the wrong direction, with real interest rates rising even as the nominal rate remains at zero.”
http://krugman.blogs.nytimes.com/2010/02/19/disinflation/
in order to sell in charlotte nc the house should be clean and up to date. Too many houses on the market to choose from. At least that’s what were being told, hope to find out in a few months
Those who claim there is inflation in this country must be really into chicken!
Krugman is left-wing liberal; so, he must be biased and the numbers he gives, they are all make-believe.
http://krugman.blogs.nytimes.com/2010/02/21/inflation-perceptions/
Yeah, I agree about the pre-boom success comment. This housing bubble was probably (hopefully) a once in a lifetime event. Once the money printing stops, we will all hope we got short. Elect Ron Paul!!!
One thing I noticed when I sold my house last year is that I was competing in price with foreclosed homes.
During the housing boom, if you were selling, it behooved you to make home improvements to make your house more presentable. Not anymore. Price is king now.
That’s why companies like Lowes and Home Depot will not make it back to pre-boom success. They just lost part of their customer base. And if there’s never another housing boom, you can say they will NEVER see the kind of success they enjoyed.
Beware the Alt-A/Option resets that are coming. I think housing is in for another dose of pain, further pushing down prices. People used to remodel as an investment in their home, I don’t think that mentality will rebound strongly in the near-term due to falling prices.
People are barely buying now at historically low interest rates. Rates go up, prices go down, but I don’t see real affordability improving.
One item I keep in the back of my mind is the age of all the housing built recently. There’s been a lot of spec homes built with cheap carpeting, paint, flooring etc.. I suspect a lot of it is nearing 7 years and older. It’s gonna get replaced which might improve Lowe’s bottom line for the next couple of years. I don’t own Lowes or Home Depot at the moment. If I think I found a bargain I will buy it. I much prefer Lowes because I think Home Depot is on the ropes and just doesn’t know it yet. Nardelli sure killed that company IMO.
interesting numbers. Dont let any body tell you new home construction is going to improve. There are still to many unsold ,forclosed homes out there. Where you are going to see improvement is in the renovation and remodel area. People will spend 3-12,000 to improve there home. Which would show up as mildly better numbers for lowes and home-depot.
I think the housing market will be flat for a while. Young people cannot afford housing which is still artificially inflated with low interest rates.