Possible trends to be watching

One advantage of reading conference call transcripts is that they can alert you to current trends in the economy, at least as viewed by company management.   I've noticed several trends emerging the last few weeks that may be worth watching as earning season gears up next week:

The strengthing dollar in the last few months is materially affecting current and projected earnings of multinational companies.

The effect of the rising dollar has been demonstrated in a couple of recent conference calls.  TIBCO, a software company, reported in its conference call that the stronger currency reduced its earnings per share by $.03 in the most recent quarter.    Further, it announced that it expected a 5 to 6 percent currency headwind in the next quarter.  http://earningscallsummaries.blogspot.com/2012/07/summary-of-tibco-software-q2-2012.html

Nike's recent conference call reflected similar concerns going forward.  In its outlook for fiscal year 2013, Nike projected earnings per share significantly lower than its targeted growth, explaining that the lower EPS projections were due in part to the significant negative impact of weaker international currencies.  http://earningscallsummaries.blogspot.com/2012/07/summary-of-nike-nke-q4-2012-earnings.html.

If these two reports are any indication, we are likely to see a lowering of EPS estimates from multinationals during the upcoming earnings season.

Inflation in the food and commodities sector is declining, but we are not experiencing deflation.

A lot of companies in various sectors have reported higher cost input inflation.  This has been a challenging environment, as the companies have also reported that the consumer is remaining very frugal, especially in the food sector.

In the food sector, however, it appears that companies believe the worst is over on the inflation front, at least in the near term.  For instance, Conagra reported commodity inflation in the last 3 quarters was 11 percent, but it expects a more modest 4 to 6 percent cost inflation rate in the next year.  http://earningscallsummaries.blogspot.com/2012/06/summary-of-conagra-foods-cag-q4-2012.html. 

Last month, Kroger reported a similar trend.  It reported the rate of inflation was 3.9 percent last quarter, but projected the inflation rate to be between 2 and 3 percent by the end of the year.  It expressly stated there was no deflation overall, although there was deflation in produce prices.  http://earningscallsummaries.blogspot.com/2012/06/summary-of-kroger-q1-2012-earnings.html.

A lot of drugs are going off patent this year. 

Kroger management remarked in its most recent conference call that there are more drugs coming off patent this year than any other year in which it is has been in the pharmacy business.  Consequently, it is expecting a reduction in pharmacy sales for the remainder of the year.  http://earningscallsummaries.blogspot.com/2012/06/summary-of-kroger-q1-2012-earnings.html. 

RiteAid also discussed the effect of the number of drugs coming off patent in its recent conference call.  Like Kroger, it expected a reduction in pharmacy sales for the next fiscal year due to the increase in generic drugs.  It noted that with generic drugs, reimbursement rates are very challenging and declining year over year.  http://earningscallsummaries.blogspot.com/2012/06/summary-of-rite-aid-rad-q1-2013.html.

The increase in the use of generic drugs could negatively impact the drugstores and the drugmakers.  However, it may improve prospects for the generic drug makers.  It will be interesting to hear what these companies have to say during earnings season.

Copyright 2012 Jaygo's Earnings Conference Call Summaries


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