Smucker Beats Earnings But Cuts Guidance
Posted by Eddy Elfenbein on November 22nd, 2019 at 1:23 pm

This morning, JM Smucker (SJM) reported fiscal Q2 earnings of $2.26 per share. That beat Wall Street’s forecast of $2.13 per share, but adjusted net sales fell 1%. Cash from operations was up by 10%.

The bad news is that Smucker again lowered its full-year guidance. The previous guidance range was $8.35 to 8.55 per share. Now Smucker sees earnings of $8.10 to $8.30 per share. This is the second time they’ve cut guidance. The original guidance was $8.45 to $8.65 per share.

“While our second quarter sales performance did not meet our expectations, we delivered EPS growth ahead of our projection, reflecting our commitment to maintain financial discipline and strengthen our bottom line,” said Mark Smucker, President and Chief Executive Officer.

“Despite continuing softness for our premium dog food offerings, we were pleased with the performance for the balance of our portfolio, as the momentum for our cat food and pet snacks businesses continued with year over year sales increases, our high growth coffee brands improved household penetration and market share, and Smucker’s Uncrustables grew 19 percent, helping accelerate growth in snacking. Looking ahead, the actions we are taking across the Company, including the recently announced leadership changes, position us well for future long-term growth and shareholder value creation.”

The problem has been their premium dog food business. Smucker has said that other parts of the business will help soften the blow from bad pet food sales.

J.M. Smucker Co on Friday signaled that improving demand in its coffee and snack segments would counter weakness in its premium dog food business, helping investors look past the Jif peanut butter maker’s lowered full-year forecast.
The company’s shares reversed course from premarket losses to trade up 5%, as company executives also said the decline in its dog food business in the second quarter was isolated.

The rest of the business is doing well. Shares of Smucker initially looked to drop today, but the earnings call has helped spark a rally. SJM is currently up 4.6%.

CWS Market Review – November 22, 2019
Posted by Eddy Elfenbein on November 22nd, 2019 at 7:08 am

“The whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people so full of doubts.” – Bertrand Russell

So true, Berty. Consider this scenario: If someone told you that come November, there would be impeachment hearings in Congress, and violent street demonstrations in Chile, Iran and Hong Kong, what would the stock market be doing?

Well, we know that answer. It’s as calm as ever. In fact, the S&P 500 has made several new all-time highs recently. The stock market has once again entered one of its somnolent rally phases.

Here are some facts. In the 19 trading days ending on Monday, the S&P 500 closed higher 15 times. Many of those daily gains were tiny. In fact, the 20th day was broken by a decline of just 0.05%. The S&P 500 hasn’t had a daily drop of more than 0.4% in six weeks. In 10 of the last 13 days, the S&P 500 has closed, up or down, by less than 0.28%. Compare that to August when it happened just four times in 22 days.

In this week’s issue of CWS Market Review, I’ll discuss Jay Powell’s apparent victory over the bond market. I’ll also cover the strong earnings report we just got from Ross Stores. Plus, we have upcoming earnings from Hormel and Smucker. But first, let’s take a closer look at how the Federal Reserve has prevailed against the doubters.

Jay Powell Faced the Bond Market and Won

On Wednesday, the Federal Reserve released the minutes of its most recent meeting. This was the meeting where the Fed decided to cut interest rates. That was its third rate cut in three months.

First, I have to explain that reading the Fed’s minutes involves taking a deep dive into the artful use of indefinite pronouns. The minutes never say who said what. Rather, we’re told that “many” said this, or “several” countered that. “Some” and “a few” make frequent appearances as well.

These last minutes were important because they suggested that the Fed may be done with cutting interest rates. If so, that’s very good news. It also is a big victory for the Fed, and particularly for Fed Chairman Jay Powell.

Last year, the Fed had been consistently hiking rates, but gradually this year, the market started to call for rate cuts. As I’ve pointed out before, the two-year Treasury is a good proxy for Fed policy. As a very general rule, the central bank doesn’t like to get too far from the two-year yield. As that yield started to plunge, the Fed had to act.

This meant that the Fed had to withstand a lot of criticism, especially from President Trump. Still, despite what the president said (and tweeted), he couldn’t do anything to stop them. There were also many doubters on Wall Street. I know a lot of folks were expecting several more rate cuts. We were told that the Fed would be out of bullets by the time of a real emergency. However, Powell consistently said that these were “mid-cycle adjustments.”

The Fed was also able to do something that large organizations have a tough time doing: it admitted it made a mistake. Mind you, the Fed never came out and said so, but its actions certainly suggest that its last few hikes were wrong.

Now here we are a few weeks later, and the bond market has chilled out. The yield curve is no longer inverted. The stock market has made several new highs, and volatility is quite low. The Fed meets again in December, and the market doesn’t foresee any change to interest rates. At least, not for another eight months, and even at that point, it’s barely in favor of a rate cut.

To show you how much things have changed, here’s the bent-up yield curve from August 28 (blue) and the more normal one from November 21 (red).

We’re also seeing better news from the housing market. At this time last year, new-home sales dropped sharply, but this week’s report was quite good. This is key for the Fed. Housing is important for the economy, but the Fed has an indirect hand over the industry when it moves interest rates. The difficulty is that there tends to be a lag time.

This week, Freddie Mac said that the 30-year fixed-rate average fell to 3.66%. That’s a six-week low. A year ago, it was at 4.81%. That bodes well for housing and construction-related stocks. For example, Sherwin-Williams (SHW) made another new high last week. It’s a 44% winner for us this year.

Now let’s look at the big earnings beat we got from Ross Stores.

Ross Stores Beats and Guides Higher

After the bell on Thursday, Ross Stores (ROST) reported fiscal Q3 earnings of $1.03 per share. That easily beat the company’s own forecast range of 92 to 96 cents per share. Ross always gives low guidance and most always beats it.

Quarterly sales were up 8%, but the really impressive stat was comparable-store sales. For Q3, that was up 5%. That’s very good. The company had been expecting a gain of 1% to 2%.

Barbara Rentler, Chief Executive Officer, commented, “We are pleased that our third-quarter results were ahead of expectations. Operating margin of 12.4% was also above-plan mainly due to better-than-expected sales and merchandise margin.

Looking ahead, Ms. Rentler said, “As we enter this year’s holiday season, we are up against multiple years of strong comparable-store sales gains. In addition, we expect another fiercely competitive retail landscape, along with ongoing uncertainty surrounding the macroeconomic and political environment. As such, while we hope to do better, we continue to project fourth-quarter comparable-store sales gains of 1% to 2%, versus a 4% increase last year.”

I like that operating-margin number. Again, Ross almost always says it sees comparable-store sales growth of 1% to 2%. I’m pretty confident that they can top that. Remember that Q4 is the biggie for Ross. That covers November, December and January.

Ross now expects Q4 earnings of $1.20 to $1.25 per share which includes a tax benefit of two cents per share. So Ross is keeping its Q4 guidance the same, but it effectively is higher guidance because it incorporates the beat for Q3. Before, Ross expected earnings this year of $4.41 to $4.50 per share. Now they see earnings of $4.52 to $4.57 per share. That’s up from $4.26 per share last year.

This was a very good quarter for Ross. I’m raising our Buy Below to $118 per share.

Earnings Preview for Smucker and Hormel

We have two more earnings reports this month. This is for companies with quarters that ended in October.

JM Smucker (SJM) is due to report later today. The last earnings report was a dud. For the August quarter, comparable net sales fell 4%, and earnings fell 11% to $1.58 per share. That was 16 cents below expectations.

What went wrong? The company was hurt by poor sales in its pet-foods business. Smucker owns Milk Bone and Meow Mix. In recent years, the company has been working to build up this business. That’s why they bought Ainsworth, but the competition has been stronger than they thought. Management has conceded the difficulties in this sector. Smucker’s coffee business was weak last quarter as well.

Previously, the company was expecting sales to rise by 1% to 2%. Now they expect sales to be flat to -1%. Smucker had been expecting full-year earnings of $8.45 to $8.65 per share. Now they see earnings of $8.35 to $8.55 per share. Wall Street expects fiscal Q2 earnings of $2.13 per share.

Hormel Foods (HRL) is due to report on Tuesday, November 26. This will be for their fiscal Q4. Like Smucker, this has been a tough year for Hormel. In May, the Spam people lowered their full-year guidance due to African swine fever and other issues. I think that rattled investors.

The August earnings report was a relief, and Hormel stood by its full-year forecast for earnings of $1.71 to $1.85 per share. Since Hormel has already earned $1.33 through the first three quarters, the guidance implies a range for fiscal Q4 of 38 to 52 cents per share. Hormel also sees full-year sales of $9.5 billion to $10 billion. Wall Street expects 46 cents per share.

After that, we only have one more earnings report this year. FactSet (FDS) is due to report on December 19. RPM International (RPM) has a November quarter, but it will report earnings in early January. Soon after that, Q4 earnings seasons will begin.

That’s all for now. There will be no newsletter next week. I’m taking my traditional Thanksgiving break. The U.S. stock market will be closed on Thursday for Thanksgiving, and it will close at 1 p.m. on Friday, November 29. On Wednesday, the government will update its report on Q3 GDP. The initial report showed growth of 1.9%. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

Morning News: November 22, 2019
Posted by Eddy Elfenbein on November 22nd, 2019 at 7:07 am

Lagarde Calls for Government Help in First Major ECB Speech

China’s Xi Stresses Need for ‘Mutual Respect and Equality’ in Trade Deal

Henry Paulson Sounds Alarm: U.S.-China Relations May Only Get Worse

Trump’s Fed Pick Judy Shelton Cast Doubt on Central Bank Independence

Personal Loans Are ‘Growing Like A Weed,’ A Potential Warning Sign For The U.S. Economy

The Market Loves the Idea of a Schwab-TD Ameritrade Merger. Regulators May Not.

General Motors Declares Corporate War on Chrysler

Tesla’s Electric Pickup Breaks the Mold With Angular Design and Armored Glass

Target and TJMaxx Are Killing Department Stores

It May Already Be Too Late for Macy’s

Marie Kondo Wants To Sell You Nice Things. What’s Wrong With That?

WeWork Will Lay Off 2,400 Workers

Accused of a Crime, and Falling Into the ‘Technology Gap’

Joshua Brown: The Five Greatest Investors of All Time

Jeff Carter: Structured Note Investing

Ben Carlson: Rituals and Routines

Be sure to follow me on Twitter.

Morning News: November 21, 2019
Posted by Eddy Elfenbein on November 21st, 2019 at 7:31 am

The World May Have a Bigger Problem Than a Potential Recession

China’s Top Negotiator ‘Cautiously Optimistic’ About Reaching Trade Deal

German Exports to United States Jump Despite Trade Tensions

Trump Administration to Miss 2019 Target for Alaska Refuge Oil Lease Sale

Trump Floats Tariff Exclusions for Apple at Texas Manufacturing Plant

Charles Schwab to Buy TD Ameritrade for $26 Billion, Reports Say

Media Workers Call Out Pay Gaps in Crowdsourced Spreadsheets

Amazon Throws Spaghetti at the Grocery Wall

PayPal is Buying Deal-Finding Service Honey for $4 Billion, Its Biggest Acquisition Ever

Tesla Picks a Fight With Detroit by Going After the Pickup Market

UAW President Gary Jones Abruptly Resigns Amid Corruption Scandal

Google Wants to Do Business With the Military—Its Employees Don’t

Michael Batnick: 20 Signs That The Stock Market Is About To Top

Howard Lindzon: Apple Continues to Crush And The New 16 Inch MacBook Pro Is Delightful

Ben Carlson: Animal Spirits: Worst Call Ever? & Would the Stock Market Crash if Elizabeth Warren Became President?

Be sure to follow me on Twitter.

Dow by Decade
Posted by Eddy Elfenbein on November 20th, 2019 at 2:01 pm

This decade is about to run out so here’s how the Dow has performed by decade.

It tends to be a lot or a little. Note that these numbers aren’t adjusted for dividends or inflation. There was also a break in the data series during WW1.

Still, it gives you an idea of what the market did over the long run. So after a good decade following a lousy one, are we due for another good one?

Morning News: November 20, 2019
Posted by Eddy Elfenbein on November 20th, 2019 at 7:36 am

U.S. Senate Passes Hong Kong Democracy Bill, Drawing China’s Ire

Congress Gets a Lesson in MMT Even as Deficit Nears $1 Trillion

Junk Loan Market Tensions Signal End of Buyout-Led Binge

As Oil Prices Drop And Money Dries Up, Is The U.S. Shale Boom Going Bust?

What Is End-to-End Encryption? Another Bull’s-Eye on Big Tech

Alibaba Raises Up to $12.9 Billion in Landmark Hong Kong Listing

PG&E Struggles to Find a Way Out of Bankruptcy

A Sea Change for Plastic

The Era of Fast-Food Toys Begins to Melt Away

Target Extends Its Sales Streak

WeWork’s Legal Floodgates May Have Just Opened

The World’s Wealthy Are Rattled and Looking to Stash Their Riches in Safe-Deposit Boxes

Nick Maggiulli: The Greatest Money-Making Machine of All Time

Jeff Miller: Stock Exchange: Good Trade Yet You Lost Money?

Roger Nusbaum: Should Asymmetric Risk Be Its Own Asset Class?

Be sure to follow me on Twitter.

Morning News: November 19, 2019
Posted by Eddy Elfenbein on November 19th, 2019 at 7:33 am

China Scrutinizes U.S. Bid to Control Chinese Chipmaker

SEC Chairman Cites Fishy Letters in Support of Policy Change

Trump Says He ‘Protested’ to Powell About U.S. Interest Rates

Trump’s ‘Section 232’ Autos Tariff Authority Runs Out of Time, Experts Say

Sustainable Investors Face Squeeze as Larger Firms Move In

Silicon Valley’s Biggest Foe Is Getting Even Tougher

Aramco Failure to Win Foreign Money Makes IPO Local Event

T-Mobile’s Longtime C.E.O., John Legere, Will Step Down

One Week In, Netflix’s Stock Is Weathering Disney+

Google Stadia Wants You to Replace Your Video Game Console. Don’t.

FCC Chairman Wants Public Auction to Repurpose Satellite Bands for 5G

Popeye’s Did Not Convince Chick-fil-A to Stop Controversial Donations

Ben Carlson: What Would You Have Done in 2009? & Wealth Inequality and the Anti-Risk Bubble

Michael Batnick: Animal Spirits Talk Your Book: Defined Outcome Investing With Jason Barsema of Halo Investing

Howard Lindzon: Momentum Monday – All News Is Good News and The Kominsky Method

Be sure to follow me on Twitter.

Morning News: November 18, 2019
Posted by Eddy Elfenbein on November 18th, 2019 at 7:27 am

Unequal and Irate, Latin America Is Coming Apart at the Seams

Saudi Aramco In Race For IPO Record With $1.7 Trillion Top Value

Morgan Stanley Sees U.S. Underperforming in 2020 Across Markets

These Are America’s New Top Tech Hubs

Parts With Passports: How Free Trade Drives GM’s Engines

Ford Bets On An Electric Mustang to Charge Its Turnaround

The Streaming Era Has Finally Arrived. Everything Is About to Change.

TikTok’s Chief Is on a Mission to Prove It’s Not a Menace

How FedEx Cut Its Tax Bill to $0

HP Rejects Xerox Takeover Bid

Women Desert Trading Floors as Bias Blocks Path to Management

SoftBank to Create $30 Billion Tech Giant with Yahoo Japan, Line Corp Merger

Joshua Brown: Two Predictions For The Wild Week Ahead

Jeff Miller: Weighing the Week Ahead: Is It Time to Worry About Debt?

Jeff Carter: Conflicts And The Board

Be sure to follow me on Twitter.

Q3 2019 Earnings Calendar
Posted by Eddy Elfenbein on November 17th, 2019 at 4:33 pm

Twenty of our 25 Buy List stocks are reporting their Q3 earnings during this earnings season. Here’s a list of reporting dates, Wall Street’s consensus estimates and actual reported results.

Happy Consumers, Sad Factories
Posted by Eddy Elfenbein on November 15th, 2019 at 12:49 pm

We had two economic reports this morning. They basically show more of the same: consumers are happy while factories are not.

Let’s start with retail sales for October. This is often a good proxy for consumer spending. The report showed an increase of 0.3% which was 0.1% better than expected. When you take out sales of vehicles and gasoline, then retail sales were up 0.1%. So far this year, retail sales are up 3.1%. Overall, consumers are holding up the economy.

The other report showed that industrial production fell 0.8% last month. Much of that was due to the GM strike. Even when we exclude auto output, industrial production was still down 0.5% in October. Over the last year, industrial production is down 1.1%.