JOYG Joy Global Inc. (MM)

Earnings Preview 8/19/11

The second quarter earnings season is almost over. Mostly we are down to the retailers, many of which have fiscal quarters ending in July, not June. There are a few significant non-retailers that will report this week as well. There will be just 70 firms reporting, but 5 of those are in the S&P 500.

By next Friday afternoon, almost 100% of the S&P 500 will have reported. Earnings season has been very strong with seven S&P 500 firms reporting positive surprises for every two that have disappointed. The firms reporting next week include: Brown-Foreman (BF.B), Campbell Soup (CPB), H&R Block (HRB), Joy Global (JOYG) and SAIC Inc. (SAIC).

It will be a very heavy week for economic data. We get key data in the form Personal Income and Spending, Consumer Confidence, Productivity and Unit Labor Costs, Auto Sales and the Case-Schiller Home Price Index. All of that is prelude to the big Jobs report on Friday. Taken together, the data could well help answer the question that the market has been asking lately: Are we falling back into a recession or not?

Monday

• Personal Income is expected to have risen by 0.4% in July, up from a 0.1% increase in June. 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 (actually falling in June), with most of the growth we have seen coming from government transfer payments, along with rental income and higher dividends. Personal Spending is expected to rise to 0.5% after falling 0.2% in June. I’ll take the under on both of those. If we hit the consensus expectations it would be pretty solid growth, at least if it were maintained for a full year. Of course, if spending rises by more than income, the savings rate will fall. Over the long term, the economy needs a higher savings rate. A falling savings rate tends to boost the economy. Given the loss of confidence lately, I think it is unlikely that the savings rate fell in July, as the consensus numbers imply.

Tuesday

• The Case-Schiller Home Price index -- the gold standard of housing price indexes -- is likely to show a year-over-year decline of 4.7% for June. In May the decline was 4.5%. On a month-to-month basis, the index was up on a non-seasonally adjusted basis, but flat when seasonally adjusted in both May and April. Given that there are now 9.4 months worth of used home inventories on the market, when normal is about six months, I think we are going to see a continuation of home price declines for the rest of the year. However, given very high levels of affordability due to low mortgage rates, and normal as opposed to wildly inflated prices relative to rents and incomes, the declines should be relatively modest.
• Consumer Confidence is expected to fall to a reading of 52.0 from 59.5 in July. Since the Consumer is 71% of the economy, this should be an important indicator. Unfortunately, what consumers say in the surveys and what they actually do are often very different. Mostly it is a coincident indicator reflecting gasoline prices and the unemployment rate. Thus I think that it, and the similar University of Michigan Survey, are very overrated data points. Still, that is a very low level, and is consistent with the other data we have been seeing. The debt ceiling circus and the S&P downgrade probably hurt confidence despite falling gas prices and a tick down in the unemployment rate last month.

Wednesday

• We get the appetizer for the employment report in the form of the ADP employment survey. The consensus is looking for ADP to report a gain of 100,000 private sector jobs, down from the 114,000 it estimated in July. As the firm that actually cuts the checks of most companies payrolls, ADP is in an excellent position to gauge the strength of the job market. However, its numbers are often quite different than the private sector jobs numbers that are reported by the BLS on Friday. The BLS numbers do tend to be revised in the direction of the ADP numbers. I suspect that the consensus might be a little bit light and the number might match last month's number.
• The Chicago Purchasing Managers Index, one of the regional "mini-ISM’s," is expected to drop to 52.5 from 58.8. It is a "magic 50" index where 50 is the dividing line between growth and contraction. Thus it would mean slower, but still positive growth for manufacturing in the Midwest. Given how the other “mini-ISM’s” have been coming out of late, the risk is that it will be even weaker than the consensus is expecting.

Thursday

• Weekly initial claims for unemployment insurance come out. They had a very nice decline early in the year, followed by a rough few months, and have recently been bouncing around. Last week they rose by 5,000 to 417,000 (after an upward revision to the prior week of 4,000). Part of the rise in the last two weeks was due to the Verizon (VZ) strike, which is now on hiatus. The 400,000 level is important psychologically in that it has historically been the inflection point below which we tend to create enough jobs to bring down the unemployment rate. Thus the dip below that level was very good news and was greeted by the market with a big rise, the rebound above it was met with a big sell-off this week. The consensus looking for it to fall back to the 408,000 level. The four-week moving average will probably stay above the 400,000 level, where it has been for the last four months. The week-to-week numbers can be very volatile, so the four-week average is the thing to focus on. The sharp rise in initial claims were an early warning of the weak jobs report for June. Keep an eye on the prior week’s revision as well as the change from the revised number.
• Continuing claims have also in a downtrend of late, but the road down has been bumpy. Last week they fell by 80,000 to 3.641 million. That is down 820,000 from a year ago. I would expect a small decline this week. The consensus is looking for 3.660 million. Some (most?) of the longer term decline 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 20,000 to 3.638 million. 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 7.290 million, which is down 46,000 from last week (there are some timing issues, so the change in continuing and existing claims does not match the change in the total). The total number of people getting benefits is now 2.867 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 (unlikely, given the current Congress) then 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.
• The ISM manufacturing index is expected to continue its downward trend, falling from 50.9 in July to 48.5 expected for August. It was as high as 61.2 level in April, which indicated extremely fast growth. As another “magic 50" index, any reading over 50 means that manufacturing is growing. Thus the consensus is looking for an actual decline in manufacturing activity. Given the very poor readings from many of the regional mini-ISM’s, I would say the risk is to the downside on this one.  In addition to the overall index, pay close attention to how some of the key sub-indexes which cover production, new orders and employment are faring.
• Construction Spending rose by 0.2% in June. The consensus is looking for an increase of 0.1% in July. That seems a tad optimistic to me, but construction has been hit hard for a long time, so maybe it will just stay near the current very depressed levels.
• Auto and light truck sales probably rebounded a bit from the very weak 12.23 million seasonally adjusted annual rate they posted in July; that is well over the under 10 million pace at the depths of the Great Recession, but a far cry from the 16 to 17 million annual rates that were the norm before the recession. It will be a very long time before we hit those levels again, but we will continue to see vehicle sales slowly recover. The supply chain disruptions (from the Japan disaster) to auto production partially explain the weakness, but that is in addition to a tapped-out consumer. Those supply disruptions have been easing up, which should lead to better results for August. The consumer, however, remains tapped out. I would expect a rate of about 12.8 million units.
• Productivity is expected to actually declined by 0.3% in the second quarter. Given the big revision to GDP growth, I would expect to see a downward revision to the second-quarter number. The consensus is looking for a decline of 0.5%. While over the long run productivity is probably the most important number there is, since it ultimately governs income per capita, fast productivity in a time of high unemployment is far from an unmixed blessing. The consensus is also looking for unit labor costs to jump by 2.4% in the second quarter, up from the initial read of 2.2%.

Friday

• The most important report of the week is the employment report. July was better than expected with 154,000 added in the private sector offset by the loss of 37,000 Government jobs (mostly State and Local). Growth should continue in August, but total payrolls will likely again be lower than private sector payrolls, as State and Local governments continue to lay people off to deal with their dismal fiscal situations, and the Federal Government is starting to let people go as well. Consensus estimates expect total growth of about 75,000 in total and 111,000 on the private side. I think the total will be somewhat above where the consensus is, based on the initial claims data we had during the month. I think that August will look a lot like the July report. Revisions to prior month’s numbers will also be important. The last month's revisions were nicely positive, but that was after  two months they were negative. The unemployment rate is expected by the consensus to be unchanged at 9.1%. That was down from its 9.2% June level, but the improvement was an illusion. Much of the change in the unemployment rate will depend on the civilian participation rate, which fell to 63.9% in June, continuing its downtrend. If it continues to decline, the unemployment rate may also decline. If the participation rate starts to rebound, as usually happens in a recovery, the unemployment rate will likely drift upwards. That would not really be all bad. The key measure will be the percentage of people who are actually working. That was at 58.1% in June (down from 58.4%). It is at its lowest level since 1983. The consensus is expecting the report to show that average hourly earnings increased 0.4% in August, after being up 0.4% in July. The average workweek is expected to be unchanged at 34.4 hours. Overall, that adds up fairly weak report, but not as bad as May or June. Keep an eye on the duration of unemployment numbers, which remain at historically very high levels.

Potential Positive or Negative Surprises

Historically the best indicators of firms likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises. Similarly, a recent history of earnings disappointments, cuts in the average estimate for the quarter in the month before the report is due and a poor Zacks Rank (#4 or #5) are often red flags pointing to a potential disappointing earnings report.

In the Earnings calendar below, $999.00 should be read as N.A. In light of the small number of firms reporting, I am omitting the potential Positive and Negative Surprises section this week.

Earnings Calendar

Company	Ticker	Qtr End	EPS Est	Year Ago EPS	Last EPS Surprise %	Next EPS Report Date	Time	Daily Price
CASELLA WASTE	CWST	201107	-0.16	-0.11	-157.58	20110829	AMC	$5.02
CHINA CORD BLD	CO	201106	0.05	0.04	0	20110829	AMC	$3.13
CNINSURE IN-ADR	CISG	201106	0.29	0.36	8.7	20110829	AMC	$10.93
DONALDSON CO	DCI	201107	0.8	0.65	9.72	20110829	BTO	$51.67
GLOBAL EDUC&TEC	GEDU	201106	0.03	999	-25	20110829	AMC	$4.90
LDK SOLAR CO	LDK	201106	-0.2	0.36	13.1	20110829	BTO	$5.96
PROSPECT CAP CP	PSEC	201106	0.37	0.25	3.85	20110829	AMC	$8.71
WINN-DIXIE STRS	WINN	201106	0.08	0.25	0	20110829	AMC	$6.50
1800FLOWERS.COM	FLWS	201106	0	-0.02	42.86	20110830	BTO	$2.38
ABM INDUSTRIES	ABM	201107	0.47	0.41	3.7	20110830	AMC	$19.31
ACCURAY INC	ARAY	201106	0.05	0.08	-75	20110830	AMC	$4.54
BANK OF NOVA SC	BNS	201107	1.14	0.93	-1.75	20110830		$52.77
BARNES & NOBLE	BKS	201107	-0.94	-1.12	-7.22	20110830	BTO	$10.83
CHINA FIN ONLIN	JRJC	201106	0.01	0.02	0	20110830	AMC	$2.69
CONCURRENT NEW	CCUR	201106	0	0.11	700	20110830	AMC	$6.02
DOLLAR GENERAL	DG	201107	0.48	0.42	-4	20110830	BTO	$32.23
DSW INC CL-A	DSW	201107	0.62	0.52	13.33	20110830	BTO	$43.14
EDAP TMS SA-ADR	EDAP	201106	-0.11	-0.12	10	20110830	BTO	$2.26
FIRST MARBLEHD	FMD	201106	-0.12	-0.1	-457.14	20110830	AMC	$1.29
GORDMANS STORES	GMAN	201107	0.11	0.2	5.56	20110830	AMC	$14.58
NOAH EDUCATION	NED	201106	0.01	-0.32	559.26	20110830	AMC	$1.84
PVH CORP	PVH	201107	0.95	0.72	6.03	20110830	AMC	$57.70
SHANDA INTERACT	SNDA	201106	0.24	0.33	-18.52	20110830	AMC	$32.92
SOC QUIMICA MIN	SQM	201106	0.49	0.4	-2.33	20110830		$58.44
SWS GROUP INC	SWS	201106	-0.02	-0.01	88.89	20110830	BTO	$4.07
UNILIFE CORP	UNIS	201106	-0.15	-0.18	-53.85	20110830	AMC	$4.72
VERA BRADLEY	VRA	201107	0.28	0.26	3.7	20110830	AMC	$27.11
AMER SOFTWARE A	AMSWA	201107	0.08	0.05	42.86	20110831		$6.97
BLUEPHOENIX SOL	BPHX	201106	0.02	-0.02	100	20110831		$0.87
BROWN FORMAN B	BF.B	201107	0.83	0.76	25	20110831	BTO	$70.55
CALAVO GROWERS	CVGW	201107	0.23	0.41	-48.39	20110831	BTO	$18.97
CDN IMPL BK	CM	201107	1.9	1.55	-3.8	20110831	BTO	$73.01
CHINAEDU CP-ADR	CEDU	201106	0.03	0.13	300	20110831	AMC	$6.00
COLDWATER CREEK	CWTR	201107	-0.16	0.02	3.03	20110831	AMC	$0.94
COOPER COS	COO	201107	1.08	0.91	9.68	20110831	AMC	$69.38
D MEDICAL INDUS	DMED	201106	-0.91	-0.26	42.5	20110831	BTO	$2.29
DELTA APPAREL	DLA	201106	0.93	0.64	30	20110831	AMC	$16.01
DRYSHIPS INC	DRYS	201106	0.18	0.3	-5.88	20110831	AMC	$2.66
DYNAVOX INC-A	DVOX	201106	0.13	0.09	50	20110831	AMC	$5.41
FRESH MARKET	TFM	201106	0.18	0.31	40	20110831	BTO	$32.98
GENESCO INC	GCO	201107	0.1	-0.02	42.55	20110831	BTO	$45.88
G-III APPAREL	GIII	201107	0.2	0.15	-175	20110831	BTO	$24.88
GREIF BROS-CL A	GEF	201107	1.33	1.34	8.33	20110831	AMC	$52.46
IMMUNOMEDICS	IMMU	201106	-0.06	0.01	150	20110831		$3.69
JOS A BANK CLTH	JOSB	201107	0.68	0.59	-3.03	20110831	BTO	$43.52
JOY GLOBAL INC	JOYG	201107	1.52	1.13	12.59	20110831	BTO	$73.33
LTX-CREDENCE CP	LTXC	201107	0.28	0.33	26.32	20110831	BTO	$6.00
OXFORD INDS INC	OXM	201107	0.53	0.44	7	20110831	AMC	$33.00
QUALSTAR CORP	QBAK	201106	-0.04	-0.05	0	20110831	AMC	$1.70
REX AMERICAN RS	REX	201107	0.2	0.2	377.78	20110831		$14.37
SAIC INC	SAI	201107	0.35	0.42	9.09	20110831	AMC	$14.33
SHUFFLE MASTER	SHFL	201107	0.15	0.13	0	20110831	AMC	$8.18
ZALE CORP NEW	ZLC	201107	-1.12	-1.02	36.73	20110831	BTO	$4.05
ZUMIEZ INC	ZUMZ	201107	0.05	0	200	20110831	AMC	$18.35
ANGEION CORP	ANGN	201107	0.04	0.03	-200	20110901	AMC	$3.84
BLOCK H & R	HRB	201107	-0.39	-0.36	2.33	20110901	AMC	$13.55
CASCADE CORP	CASC	201107	1.3	0.6	67.07	20110901		$39.83
CHARMING SHOPPE	CHRS	201107	-0.01	-0.07	70	20110901	BTO	$2.89
CIENA CORP	CIEN	201107	-0.21	-0.09	-50	20110901	BTO	$10.45
ESTERLINE TECHN	ESL	201107	1.2	1.3	33.64	20110901	AMC	$67.32
FLOW INTL CORP	FLOW	201107	0.02	0	-66.67	20110901	AMC	$2.40
METHODE ELECT-A	MEI	201107	0.1	0.11	45.45	20110901	BTO	$8.97
MET-PRO CORP	MPR	201107	0.12	0.11	-9.09	20110901	BTO	$9.62
MITEL NETWORKS	MITL	201107	0.13	0.18	21.43	20110901	AMC	$2.91
MOVADO GRP INC	MOV	201107	0.04	-0.04	133.33	20110901	BTO	$12.05
QUIKSILVER INC	ZQK	201107	0.08	0.08	28.57	20110901	AMC	$3.70
TORONTO DOM BNK	TD	201107	1.63	1.42	1.24	20110901		$75.60
ULTA SALON COSM	ULTA	201107	0.32	0.22	19.35	20110901	AMC	$53.48
UTI WORLDWIDE	UTIW	201107	0.22	0.19	0	20110901	BTO	$12.21
CAMPBELL SOUP	CPB	201107	0.37	0.33	9.62	20110902	BTO	$30.71

 
BROWN FORMAN B (BF.B): Free Stock Analysis Report
 
CAMPBELL SOUP (CPB): Free Stock Analysis Report
 
BLOCK H & R (HRB): Free Stock Analysis Report
 
JOY GLOBAL INC (JOYG): Free Stock Analysis Report
 
VERIZON COMM (VZ): Free Stock Analysis Report
 
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