The Silver Lining in This Earnings Season’s Numbers

The Silver Lining in This Earnings Season’s Numbers image 270613 PC clarkSilver Lining in This Earnings Season’s NumbersMore earnings are hitting the market and the news is as mixed and confusing as the U.S. economy these days. But they are showing a trend that smart investors can take advantage of.

Lennar Corporation (LEN), one of the U.S. market’s largest new homebuilders, bounced higher on the stock market after reporting solid financial growth.

The company reported revenues from home sales grew 58% in the second quarter of 2013 to $1.26 billion, way up from $796.4 million comparatively. The company experienced a 39% increase in the number of home deliveries and a 13% increase in the average sale price of homes delivered.

Management said that fundamentals in the homebuilding industry are being driven by affordability, favorable monthly payment comparisons to renting, and supply shortages.

Earnings before income taxes (Lennar had a major tax-related gain in last year’s second quarter) were $162.3 million compared to earnings before income taxes of $52.1 million.

Lennar’s order backlog grew to 6,123 homes, up 55% over the second quarter of 2012. In terms of dollar value, the company’s backlog was up 76% to $1.9 billion.

So if Lennar is any indication, there is definitely continued recovery in new homebuilding.

But earnings for retail giant Walgreen Co. (WAG) disappointed. The company improved its bottom line over last year, but the number fell short of Wall Street consensus.

In its fiscal third quarter of 2013 (ended May 31, 2013), Walgreen’s company revenues grew 3.2% to $18.3 billion. Customer traffic in comparable stores fell 3.9%, while prescription sales (63% of total revenues) grew 3.4%.

The company’s generally accepted accounting principles (GAAP) net earnings grew 16.2% to $624 million, or 4.8% to $0.65 earnings per share. Excluding some items, the company earned $0.85 a share with the consensus estimate of $0.91.

Walgreen’s cash balance and shareholders equity jumped significantly.

Similar to first-quarter earnings season, the numbers so far are coming in light, but there continues to be improvement in the overall health of larger corporations.

Barnes & Noble, Inc. (BKS) said its quarterly revenues fell 7.4% to $1.3 billion. Net loss doubled to $118.6 million, compared to $56.9 million last year.

Today, some important brand-name companies report their earnings results. This includes McCormick & Company, Incorporated (MKC), NIKE, Inc. (NKE), ConAgra Foods, Inc. (CAG), and Winnebago Industries, Inc. (WGO). (See “One Company, Two Vital Themes for Investors to Consider.”)

There has being a repositioning of global expectations when it comes to interest rates and monetary policy, but I still feel that what is most important is what a company says about its business. Central banks are the arbiters, but companies are the players.

What is clear in the numbers so far this year is that balance sheets are improving and dividends are going up. According to FactSet, aggregate dividends per share for the S&P 500 grew 15.1% year-over-year. Within this index, 409 companies paid a dividend over the last 12 months—a 14-year high, according to the data.

If a company isn’t growing but cash balances are rising, dividends and share buybacks go up. Corporations don’t want to invest in new plants, equipment, or employees, and equity shareholders are the beneficiaries.

Last quarter, NIKE impressed with its earnings results. We’ll see if the company can do it again.

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