CAG ConAgra Brands Inc

Earnings Preview 12/16/11

There will only be a handful of firms reporting next week as the third quarter reporting season is almost over. A total of just 34 firms are scheduled to report, including 13 of the S&P 500. Most of the firms reporting have November fiscal period-ends, which means that they are reporting fourth quarter results.

While few in number, some of the reports come from firms that are highly significant in that they will give clues to the overall direction of earnings in the fourth quarter.

The firms reporting next week include: Bed Bath & Beyond (BBBY), Carnival Cruise Lines (CCL), ConAgra (CAG), General Mills (GIS), Micron Technology (MU),  Nike (NKE) and Walgreens (WAG).

There will, however, be plenty of economic data for the market to chew on. The theme for the week will be housing. Just about all of the key housing numbers will come out next week, starting with the Homebuilders index and followed by Housing Starts and Building Permits, Existing Home Sales and New Home Sales. Non-housing data due include the final word on 3rd quarter GDP, Durable Goods Orders and Personal Income and Spending.

Monday

• The National Association of Homebuilders index is expected to slip back to a dismal level of 19 in December from 20 in November.  This is a “magic 50” index, so any reading below 50 indicates that homebuilders see conditions as poor. The index had been mired in the mid-to-low teens for over two years now, but has lately been trending upwards -- from “atrocious” to just “awful.” In every previous recovery, residential investment has led the economy out of the swamp. This time it has been pulling us further into it, and remains one of the key reasons why the recovery is anemic.

Tuesday

• We find out if the Homebuilders pessimism is well founded when the data on Housing Starts are released.  In October, they ran at an annual rate of only 628,000, about a quarter of the level at the peak of the bubble. They have been extraordinarily distressed for over two years now and show little sign of improvement.  In some ways, the low level of starts is a blessing in disguise, since it indicates that few housing units are being added to the glut of unsold homes. However, that is very cold comfort to the unemployed construction workers, a group harder hit than almost any other in the Great Recession. It is hard to see how we have a robust recovery until housing starts start to rebound significantly. The consensus is looking for starts to fall edge up to 631,000 in November. Given that Permits were much higher than starts last month, I would not be surprised to see things a little bit higher than that, perhaps a rise towards the 640,000 level, but that is still downright ugly.
• The best leading indicator of Housing Starts is Building Permits. In October they ran at an annual rate of only 653,000. That was higher than the starts rate -- which is one reason that the starts number is likely to rise in November -- but it is still a very low level.  In November, the consensus is looking for Permits to fall back to just a 633,000 annual rate, which seems about right to me.

Wednesday

• In October, Existing Home Sales ran at a 4.97 million annual pace. In November, they are expected to edge up slightly further to a 5.04 million rate. However, the National Assoication of Realtors has indicated that it will be revising several years’ worth of Sales and Inventory data -- both downward -- so that might be a bigger story than the rate for November. Of at least equal concern is the level of inventories available for sale relative to the sales pace. In Ocober there were 8.0 months of supply on the market, well above the normal level of about 6 months. That suggests continued moderate downward pressure on existing home prices. As sales of used homes are just the transfer of an existing asset, they do not represent that much in the way of economic activity. However, as the major store of wealth for the middle class, existing home prices are vital. Also, the more prices fall, the greater the number of people who are underwater on their mortages and thus vulnerable to foreclosure.

Thursday

• Weekly Initial Claims for Unemployment Insurance have been plunging over the last two weeks. Last week they dropped by 19,000 to 366,000. That is comfortably below the key 400,000 level (which they were above two weeks ago). The consensus is looking for them to bounce back to 380,000 this week. A rebound after such a big drop is reasonable to expect, as this does not tend to move in a straight line. Even that big a rebound would not be terrible news, as it would indicate that the last two weeks of declines were not a fluke. The 400,000 level is important in that it has historically been the inflection point below which we tend to create enough jobs to bring down the unemployment rate. The week-to-week numbers can be very volatile, so the four-week average is the thing to focus on (it was 387,750 last week). Keep an eye on the prior week’s revision as well.
• Continuing Jobless Claims have been in a downtrend of late, but the road down has been bumpy. Last week they rose by 4,000 to 3.603 million. That is down 563,000, or 13.5%, from a year ago. The consensus is looking for a bounce to 3.650 million. Some (most?) 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 rose by 293,000 to 3.642 million last week but are down 1.189 million, or 25.4% 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 7.449 million. The total number of people getting benefits is now 1.743 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. Unless the program is renewed, all extended benefits will end in January. Make sure to look at both sets of numbers! Many of the press reports will not, but we will here at Zacks.
• In the last look at GDP it was estimated that the economy grew at a 2.0% pace in the third quarter, well above the 1.3% growth rate of the second quarter and the nearly non-existent growth of just 0.4% in the first quarter. The quality of the growth was also quite high as that growth included a 1.55% drag from the change in inventories. The overall growth rate is not expected to change; however, the quality of the growth and the sources of growth might shift.  Put this in the category of old -- but important -- news. Most of the focus is now on fourth quarter growth, and it looks like it should be substantially higher than in the third quarter.
• The University of Michigan Consumer Sentement index for Decmber is expected to rise to 69.0 from 67.7. That is up off the lows of the summer, but still very depressed by any historical standard. Personally, I think this is one of the most overrated economic statistics around, since what consumers say in the survey is often very different that what they actually do. Still, better seeing it go up than down.
• The index of Leading Economic indicators is expected to increase by 0.3% after rising 0.0% for October. While this is the leading index, most of its components are already known by the time it is released, so this number does not normally have a major market impact. Indeed, the stock market itself is one of the key leading indicators.

Friday

• New Orders for Durable Goods are expected to rise 2.0% in November after falling 0.5% in October. Previous months are often revised significantly for this data, and those revisions can be just as important as the current month’s data. The weakness last month came from the highly volatile transportation equipment segment. 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 be up 0.3% after being up 1.1% in October due to some large orders at Boeing (BA).  Given the tone of the other data, I will take the “over” on both headline and ex-transportaion.
• Personal Income is expected to rise 0.2% In November, after it rose 0.4% last month. Just as important as the total amount of personal income is the source of that income. Recently, growth in income from wages and salaries has been very weak, with most of the growth we have seen coming from with rental income and higher dividends. That suggests that most of the meager total income growth is going to the top of the income distribution. Personal Spending is expected to rise 0.3% after rising just 0.1% in October. Of course, if spending rises by more than income, the savings rate will fall. In October, the savings rate rose, but to just 3.5% from a very low 3.3% in September. Over the long term, the economy needs a higher savings rate. Short-term, though, a falling savings rate tends to boost the economy.
• New Home Sales are expected to rise to a 314,000 rate from a very weak 307,000 in October. 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 314,000, 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 leads the economy out of recessions, but they have been a huge drag this time around.

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

Company	Ticker	Qtr End	EPS Est	Year Ago EPS	Last EPS Surprise %	Next EPS Report Date	Time	Daily Price
NORTHWEST PIPE	NWPX	201109	$0.44	$0.07	147.83	20111219	AMC	$23.63
OXYGEN BIOTHERA	OXBT	201110	($0.10)	($0.09)	-230	20111219	BTO	$1.90
RED HAT INC	RHT	201111	$0.19	$0.15	15.79	20111219	AMC	$46.23
CARNIVAL CORP	CCL	201111	$0.28	$0.31	4.91	20111220	BTO	$33.07
CINTAS CORP	CTAS	201111	$0.48	$0.38	10.64	20111220	AMC	$30.52
CONAGRA FOODS	CAG	201111	$0.43	$0.45	-6.45	20111220	BTO	$25.55
CPI CORP	CPY	201110	($0.95)	($1.05)	-97.37	20111220	BTO	$5.26
FSI INTL	FSII	201111	($0.06)	($0.06)	-28.57	20111220	AMC	$3.24
GENL MILLS	GIS	201111	$0.79	$0.76	3.23	20111220	BTO	$39.96
JABIL CIRCUIT	JBL	201111	$0.58	$0.52	10.2	20111220	AMC	$19.51
JEFFERIES GP-NW	JEF	201111	$0.14	$0.31	-56.52	20111220	BTO	$12.36
NAVISTAR INTL	NAV	201110	$3.21	$0.68	-41.48	20111220	BTO	$37.35
NIKE INC-B	NKE	201111	$0.97	$0.94	12.4	20111220	AMC	$94.08
ORACLE CORP	ORCL	201111	$0.55	$0.49	2.27	20111220	AMC	$29.03
PAYCHEX INC	PAYX	201111	$0.38	$0.37	7.89	20111220	AMC	$29.35
SANDERSON FARMS	SAFM	201110	($0.71)	$2.08	-113.79	20111220	BTO	$51.51
SHUFFLE MASTER	SHFL	201110	$0.17	$0.14	13.33	20111220	AMC	$11.52
ACTUANT CORP	ATU	201111	$0.43	$0.36	6.38	20111221	BTO	$20.57
BED BATH&BEYOND	BBBY	201111	$0.88	$0.74	10.71	20111221	AMC	$61.17
CARMAX GP (CC)	KMX	201111	$0.38	$0.36	-3.92	20111221	BTO	$30.05
FINISH LINE-CLA	FINL	201111	$0.11	$0.08	2.63	20111221	AMC	$20.66
HERMAN MILLER	MLHR	201111	$0.41	$0.29	27.27	20111221	AMC	$20.57
KB HOME	KBH	201111	$0.04	$0.20	23.53	20111221	BTO	$7.27
LINDSAY CORP	LNN	201111	$0.46	$0.34	-28.13	20111221	BTO	$50.34
LUBY'S INC	LUB	201111	($0.05)	($0.06)	150	20111221	AMC	$4.40
SHAW GROUP INC	SHAW	201111	$0.43	$0.26	-174.58	20111221	BTO	$22.53
STEELCASE INC	SCS	201111	$0.19	$0.18	-11.76	20111221	AMC	$6.80
TIBCO SOFTWARE	TIBX	201111	$0.30	$0.26	6.25	20111221	AMC	$23.60
WALGREEN CO	WAG	201111	$0.67	$0.62	3.64	20111221	BTO	$34.11
AMER GREETINGS	AM	201111	$0.81	$0.78	2.63	20111222	BTO	$16.60
CALAMP CORP	CAMP	201111	$0.03	$0.00	100	20111222	AMC	$4.69
CHRISTOPHER&BNK	CBK	201111	($0.34)	$0.00	2.63	20111222	AMC	$2.48
MICRON TECH	MU	201111	($0.06)	$0.24	-1400	20111222	AMC	$5.55
NEOGEN CORP	NEOG	201111	$0.27	$0.26	-3.85	20111222	BTO	$34.24

 
BED BATH&BEYOND (BBBY): Free Stock Analysis Report
 
CONAGRA FOODS (CAG): Free Stock Analysis Report
 
CARNIVAL CORP (CCL): Free Stock Analysis Report
 
GENL MILLS (GIS): Free Stock Analysis Report
 
MICRON TECH (MU): Free Stock Analysis Report
 
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