This week is the start of “earnings season”. Drawing far-reaching conclusions from individual earnings reports is a popular game, but it is a dangerous one. Just because one company does well over one quarter doesn’t mean that things are generally looking up, even in the sector in which that particular company operates. While overall economic conditions are important to each company’s results, that is just one of many variables that affect performance in any given quarter. However, information on earnings calls can illustrate how an influential company views prospects for broad economic strength, and when multiple companies in different industries are considered a fairly reliable big picture view can be formed.
For most people this week will be about the releases of Alcoa (AA) tomorrow morning and three of the big four banks, JPMorgan Chase (JPM), Citibank (C), and Wells Fargo (WFC) on Friday. They will all no doubt be interesting, but those looking for clues as to the health of and prospects for the U.S. economy may be better off looking elsewhere. Here are three earnings reports due this week that could easily provide such clues.
Fastenal Company (FAST): Reporting; Tuesday A.M. Consensus EPS Forecast; $0.45:
Construction, and in particular home construction, has been an important driver of growth in the U.S. as we have clawed our way out of recession, so results there have implications outside of the sector itself. People, and businesses, only spend money on construction when they are feeling confident about the future, meaning that prospects for a company like Fastenal have wide reaching implications on a much wider scale.Tomorrow morning, when all eyes are on Alcoa’s earnings, the report from Fastenal will also be released. It will garner a lot less media coverage than Alcoa’s results, but could well be more significant. The company distributes industrial fasteners of all kinds, quite literally the nuts and bolts of industry and the building sector. Demand for their products is an early sign of the strength of manufacturing and construction, both of which are relevant, but for different reasons.
At the opposite end of the spectrum, manufacturing has been the big drag on the recovery. Alcoa is usually seen as an indicator of prospects there, but in order to gear up production manufacturers need supplies of all kinds and, while not everybody uses aluminum, fasteners of some kind are involved in most manufacturing processes. FAST’s guidance could well give a better picture of manufacturing as a whole than AA’s.
Delta Airlines (DAL): Reporting; Thursday A.M. Consensus EPS Forecast; $1.65
Even in these days of online meetings and virtual conferences air travel has relevance when it comes to the general level of economic activity. In fact it could even be argued that the existence of a cheaper alternative to travel actually makes it more so, as neither individuals nor businesses will spend money on travel unless they feel that a) They can afford it, and b) It is worth it.
This is no big secret and Delta’s results will probably be the most closely watched and widely reported on Thursday, but in this case it will pay to seek out a transcript of the subsequent earnings call. What investors should be looking at here is not the overall results from last quarter, but rather the prospects going forward for the U.S. market in particular, and that should become clear on the call.
PNC Financial Services Group (PNC): Reporting; Friday A.M. Consensus EPS Forecast; $1.78
Once again, for investors looking for clues as to the health of the U.S. economy, the most widely reported reports due on Friday may not give the best indication. The focus of the media will be on the big three banks mentioned above, and that is understandable.
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