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5 Big Stocks: The Rest Of The Earnings Story

Posted: Jul 24, 2009 14:58 PM by James Brumley

Tickers in this Article: KO, PEP, PFE, BA, LII, OSTK

As usual, the onset of earnings season has given us much to talk about. However, as investors, we need to recognize that earnings aren't the only thing worth reviewing. Here we'll dig a little deeper into some of the big names that released quarterly results this week.

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PepsiCo Inc. (NYSE:PEP)
Last quarter's top line of $10.6 billion was a little less than the $10.9 billion analysts had guessed, but PepsiCo still managed to increase its second-quarter EPS from $1.05 to $1.06. A one-time charge pulled the actual figure down to $1.02 per share this most recent quarter, which was still 2 cents better than estimates.

A spokesman for the company said disadvantageous exchange rates pushed total earnings down 8% from what they could have been otherwise. However, the company's revenue from international business was actually higher by 12 percent, suggesting the company was doing "less with more" on that front. (Take a deeper look at a company's profitability with the help of profit-margin ratios in The Bottom Line On Margins.)

Like PepsiCo, Coca-Cola (NYSE:KO) mirrored PepsiCo's international results: higher sales, but lower profits. The implication is simple - PepsiCo wasn't making whiny excuses. If the dollar continues to strengthen, the earnings headache is likely to grow for both companies.

Pfizer Inc. (NYSE:PFE)
Pfizer beat forecasts by a penny last quarter, earning 48 cents per share before accounting for one-time charges. With charges, net income was only 34 cents per share. Revenue was down 9%, thanks to a stronger dollar. Had the dollar's value remained unchanged during the quarter, revenue would have been flat as well.

Does the "strong dollar" excuse ring a bell? It's clearly becoming a problem for companies with major overseas market exposure. (Transaction, translation and economic risks can affect a company's balance sheet, read Corporate Currency Risks Explained.)

Boeing Co. (NYSE:BA)
Boeing's per-share profit for the second quarter improved from $1.16 to $1.41, easily topping analysts' forecasts of $1.21 per share. Revenue increased to 17.1 billion. However, the bar was actually set pretty low to begin with; last year's EPS of $1.16 would have been $1.38 had it not been for a late-delivery penalty. So, the numbers aren't all that impressive.

Moreover, after the quarter was completed but before the results were announced, the Senate voted to cancel the F-22 fighter plane program, and not take delivery of any more jets. Although Boeing does not manufacture the F-22, it does make some parts for the Lockheed-Martin (NYSE:LMT) fighter jet.

The F-22's cancellation isn't likely to have a significant immediate impact on Boeing's numbers. However, the new presidential regime may have set a new tone regarding defense spending in the future. Considering that the bulk of Boeing's improved bottom line stemmed from the 9% increase in defense sales, investors had better hope the F-22's cancellation is an isolated incident. Given President Obama's agenda and fiscal reallocation efforts so far though, further defense spending cuts are likely.

Lennox International Inc. (NYSE:LII)
Lennox earned an adjusted 67 cents per share last quarter from its continuing operations, beating forecasts of 60 cents. The number fell short of last year's earnings of 89 cents; revenues were also down by 21%. Even so, the company expects a drastic reduction in this year's revenue and earnings.

Overstock.com Inc. (Nasdaq:OSTK)
Overstock overcame a 7% decline in last quarter's revenue by earning 2 cents per share. The company lost 32 cents per share in Q2 of the prior year. On a total dollar basis, the company earned $389 million last quarter versus the loss of $7.36 billion during Q2 of 2008.

I confess I was fully prepared to label last quarter's encouraging numbers a a fluke. I can't though. The loss-making Overstock we knew from 2006 and 2007 has actually turned a profit in two of the last three quarters. The annual losses have also been getting incrementally smaller. And, the company has topped analysts' earnings estimates in four of the last five quarters that estimates were posted. So, maybe the numbers are as encouraging as they seem.

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By James Brumley

James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.

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