How Big Institutional Investors Will React to This Quarter’s Weak Earnings Results

How Big Institutional Investors Will React to This Quarter’s Weak Earnings Results image 100713 PC clarkHow Big Institutional Investors Will React to This Quarter’s Weak Earnings ResultsOne company that I use as a benchmark stock in manufacturing is Fastenal Company (FAST). The Street is looking for just a 6.5% gain in quarterly revenues and a three-penny improvement in comparable earnings. The company reports today.

Many corporations have reported similar guidance. Among many investors, there is little expectation in the way of revenue growth and even less in terms of earnings growth.

In an unscientific read of countless forecasts, Wall Street seems to be lumping the bulk of corporate profits into 2014. This year is still very much a recovery year in terms of the bottom line. It’s all about getting back to pre-recession levels.

As a publicly traded company, I find Fastenal to be expensively priced given its growth prospects. With a trailing price-to-earnings ratio of approximately 31 and a forward (2014) price-to-earnings ratio of approximately 25, this company isn’t cheap.

Alcoa Inc. (AA), another benchmark, reported numbers that were a little better than the first quarter. To me, Alcoa is not as much of an important benchmark as it used to be, but the company is still viewed by the Street as an important barometer of manufacturing.

The company slightly beat consensus by reporting sales of $5.85 billion and adjusted earnings per share that beat by a penny at $0.07. But what was truly notable about Alcoa’s numbers was the resilience the company saw in key markets, particularly in aerospace applications.

Over the last month or so, forward-looking earnings estimates for Alcoa have come down across the board. But that may change.

In terms of sales, the company has been treading water since 2011. And earnings have been all over the map.

Expectations for corporate earnings this season are low, and the numbers are likely to fit in the weaker global economic news we’ve seen, especially abroad. Big investors definitely aren’t expecting much, but once again, it’s likely that they will be rewarded with consistency from the safest names.

Another benchmark, WD-40 Company (WDFC) reported very solid financial results. For the fiscal third quarter (ended May 31, 2013) sales were $93.1 million. The company generated a solid seven-percent gain in revenues. Year-to-date fiscal revenues also grew seven percent.

Earnings gained 12% over the comparable quarter, reaching $10.3 million. Year to date, they reached $31.7 million, for an increase of 19% comparatively.

So basically what we have so far from benchmarks are modest, but decent, earnings results, with the exception of NIKE, Inc. (NKE), whose numbers were strong. (See “The One Stock That Always Seems to Keep on Rising.”)

The stock market has been due for a correction (which would be a very healthy development) for a number of months, but it’s all about financial results now.

Weak second-quarter earnings could be the catalyst. But the numbers so far are strong enough for institutional investors to stay in the game.

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