CAG ConAgra Brands Inc

Earnings Preview 6/17/11

Earnings season is over for the first quarter, and we are starting to see the early second quarter firms report, those with May fiscal periods. Its still very light, with a total of just 36 firms due to report. However, that includes 14 from the S&P 500.

The firms reporting next week include: Adobe (ADBE), Bed Bath & Beyond (BBBY), ConAgra (CAG), Discover (DFS), Federal Express (FDX), Oracle (ORCL) and Walgreen's (WAG). That is a nice cross section of industry, and should provide some nice clues as to how the overall second quarter earnings season will go.

It will also be a relatively light one for economic data. The focus will be on housing with both new and existing home sales due out. Of the two, new home sales are much more important to economic growth. The level of inventories relative to sales is the key thing to look at with existing home sales since those give a good clue to the direction of existing home prices, which are extremely important.

We also get data on new orders for durable goods, and the final look at first quarter GDP -- a very important measure, but very stale at this point. Along the way the Fed is meeting and will probably do nothing with regard to either the Fed Funds rate or additional quantitative easing. Analysts will, however, parse the statement closely, looking for any changes from the last one.

Monday

• Nothing of significance.

Tuesday

• Existing Home Sales are expected to fall to a seasonally adjusted annual rate of 4.78 million from 5.05 million in April. What is more significant will be the level of inventories, and if the April months of supply rate of 9.2 months will continue to trend up. While down from last summer, the level is still extremely high and has been rising again in recent months (it was 8.3 in March) and indicates strong downward pressure on home prices. That really is what to watch in the existing home sales numbers, since the amount of economic activity generated by an existing home changing hands is not really that big a deal. Home prices are a very big deal. Unfortunately, it looks like they are falling again.

Wednesday

• The Federal Reserve is universally expected to keep the Fed Funds rate in the 0 to 0.25% range it has been in since December 2008. Of more interest will be the commentary at the end of the meeting and how it has changed since the last meeting. I would expect that it will make more references to economic softness than the prior statement, but that it will continue to see the weakness as temporary. They will also probably continue to reinvest the proceeds of the securities they have bought in the first two rounds of quantitative easing, but are unlikely to embark on a third round. Essentially, the Fed is going to be on hold for some time -- at least through the end of the year, if not longer.

Thursday

• Weekly initial claims for unemployment insurance come out. They had a very nice decline early in they year, but then had a very rough month or so in April and May. Last week they fell by 16,000 to 418,000. A slight increase is expected next week, rising to 418,000. The four-week moving average will probably stay well above the 400,000 level, where it has been for the last eight weeks (and weekly claims have been above the level for 10 weeks now). The sharp rise in initial claims were an early warning of the weak jobs report for May. Robust job expansion is generally associated with initial claims below the 400,000 level.  
• Continuing claims have also in a downtrend of late, but the road down has been bumpy. Last week they fell by 21,000 to 3.675 million. That is down 910,000 from a year ago. I would expect a small decline this week. The consensus is looking for a level of 3.680 million, a slight increase. Some of the longer term decline is due to people simply exhausting their regular state benefits, which run out after 26 weeks. Those, however, don’t last forever either. Federally paid extended claims fell by 115,000 to 3.885 million, and are down by 1.410 million over the last year. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now given the unprecedentedly high duration of unemployment figures. A better measure is the total number of people getting unemployment benefits, currently at 7.401 million, which is down 209,000 from last week (there are some timing issues so the change in continuing and existing claims does not exactly match the change in the total). The total number of people getting benefits is now 2.200 million below year-ago levels. What is not known is how many people have left the extended claims via the road to prosperity -- finding a new job -- and how many have left on the road to poverty, having simply exhausted even the extended benefits. Given the differential between job growth and the decline in total people getting benefits, it looks like about 1 million people have simply run out of benefits, and have not found new work. Make sure to look at both sets of numbers!  Many of the press reports will not, but we will here at Zacks.
• New Home Sales are expected to fall to a 305,000 rate from 323,000 in April. That is simply a pathetic level, even if it is slightly off the record low set in January. The records go back to the Kennedy administration. If we do come in at 305,000, that is still lower than any month prior to 2010. Unlike used home sales, each new home sold represents a lot of economic activity. Thus this is a very important report. Normally, new home sales are what lead the economy out of recessions, but they have been a huge drag this time around.

Friday

• New Orders for Durable Goods are expected to rise by 1.0% after falling 3.6% in April. Previous months are often revised significantly for this data, and those revisions can be just as important as the current month’s data. Much of the strength expected comes from the highly volatile transportation equipment segment (which was also a big factor in last months decline). Since they are so high-priced, a few orders for jetliners can really push around the total number, but the orders tend to be lumpy. Excluding transportation equipment, new orders are expected to rise 0.6% partially reversing a 1.5% decline last month.
• The third (and final) look at GDP growth in the first quarter will be released. Both of the earlier reads were a disappointing growth rate of just 1.8%, down from growth of 3.1% in the fourth quarter. The consensus is looking for no change in the number this time around. That is an anemic rate, particularly coming out of a deep recession. The composition of the growth rate is just as important as the overall growth rate itself. Growth that comes from the build-up of inventories, for example, is of much lower quality than business investment in new equipment and software. We will provide a complete breakdown of which parts of the economy are adding to growth, and which are serving as brakes on economic growth, and how the contributions have changes since the first look at the numbers last month.

In the Earnings calendar below, $999.00 should be read as N.A.

Earnings Calendar

Company	Ticker	Qtr End	EPS Est	Year Ago EPS	Last EPS Surprise %	Next EPS Report Date	Time	Daily Price
ADOBE SYSTEMS	ADBE	201105	$0.42	$0.33	-8.33	20110621		$30.80
AEROVIRONMENT	AVAV	201104	$0.69	$0.71	36.84	20110621	AMC	$27.31
AMER SOFTWARE A	AMSWA	201104	$0.07	$0.06	-12.5	20110621		$7.63
APOGEE ENTRPRS	APOG	201105	($0.11)	($0.13)	-33.33	20110621	AMC	$12.03
BARNES & NOBLE	BKS	201104	($0.97)	($0.90)	-11.5	20110621	BTO	$19.84
CARNIVAL CORP	CCL	201105	$0.22	$0.32	0	20110621	BTO	$34.76
COMMERCIAL METL	CMC	201105	$0.20	($0.10)	-471.43	20110621	BTO	$13.51
FSI INTL	FSII	201105	$0.08	$0.18	30	20110621	AMC	$4.01
GERBER SCIENTIF	GRB	201104	$0.06	($0.04)	500	20110621	BTO	$11.00
JABIL CIRCUIT	JBL	201105	$0.50	$0.28	2.27	20110621		$18.60
JEFFERIES GP-NW	JEF	201105	$0.41	NA	16.67	20110621	BTO	$21.10
LA-Z-BOY INC	LZB	201104	$0.19	$0.23	30	20110621	AMC	$10.13
WALGREEN CO	WAG	201105	$0.62	$0.47	0	20110621	BTO	$44.38
BED BATH&BEYOND	BBBY	201105	$0.62	$0.52	15.46	20110622	AMC	$52.86
CARMAX GP (CC)	KMX	201105	$0.47	$0.44	0	20110622	BTO	$28.76
FEDEX CORP	FDX	201105	$1.72	$1.33	-1.22	20110622		$86.48
FLOW INTL CORP	FLOW	201104	$0.03	$0.00	50	20110622	AMC	$3.60
FULLER(HB) CO	FUL	201105	$0.46	$0.39	-9.38	20110622	AMC	$21.65
HERMAN MILLER	MLHR	201105	$0.26	$0.10	0	20110622		$22.47
IHS INC-A	IHS	201105	$0.63	$0.60	4	20110622	AMC	$83.50
PAYCHEX INC	PAYX	201105	$0.33	$0.32	2.86	20110622	AMC	$29.52
RED HAT INC	RHT	201105	$0.16	$0.14	6.25	20110622	AMC	$40.94
ROBBINS & MYERS	RBN	201105	$0.53	$0.25	29.17	20110622	BTO	$41.87
SONIC CORP	SONC	201105	$0.18	$0.15	-33.33	20110622	AMC	$10.80
STEELCASE INC	SCS	201105	$0.05	($0.06)	37.5	20110622	AMC	$9.75
TECHPRECISION	TPCS	201103	$0.03	$0.03	N/A	20110622	AMC	$1.76
ACCENTURE PLC	ACN	201105	$0.89	$0.73	5.63	20110623		$53.98
BLOCK H & R	HRB	201104	$2.15	$2.11	700	20110623	AMC	$15.38
CONAGRA FOODS	CAG	201105	$0.48	$0.39	8.7	20110623		$24.67
DISCOVER FIN SV	DFS	201105	$0.66	$0.33	58.49	20110623	BTO	$23.27
FINISH LINE-CLA	FINL	201105	$0.30	$0.25	0	20110623	AMC	$22.40
LENNAR CORP -A	LEN	201105	$0.04	$0.21	0	20110623	BTO	$17.24
ORACLE CORP	ORCL	201105	$0.69	$0.57	8.51	20110623	AMC	$30.80
RITE AID CORP	RAD	201105	($0.12)	($0.09)	-14.29	20110623	BTO	$1.03
TIBCO SOFTWARE	TIBX	201105	$0.13	$0.10	18.18	20110623	AMC	$23.74
COMMAND SEC CP	MOC	201103	$0.05	$0.02	-28.57	20110624		$1.46

 
ADOBE SYSTEMS (ADBE): Free Stock Analysis Report
 
BED BATH&BEYOND (BBBY): Free Stock Analysis Report
 
CONAGRA FOODS (CAG): Free Stock Analysis Report
 
DISCOVER FIN SV (DFS): Free Stock Analysis Report
 
FEDEX CORP (FDX): Free Stock Analysis Report
 
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