RAMCO Weekly Jun. 9, 2015
Paul Resnik operates Resnik Asset Management Co. (RAMCO), a registered investment advisor.
The stock market may be slipping into a "good news is bad news" mode. Last week May car sales were reported at a strong 17.8 million annual rate, the Institute of Supply Management Manufacturing Index for May rose from 51.5 to 52.8 (vs. expectations of 52.0), and the nonfarm payrolls increase for May, which was forecast to be about flat with April at 223,000, spiked to 280,000. All this good news increased expectations that the Federal Reserve will make its long-awaited first increase in the federal funds rate in September rather than waiting for early next year (the International Monetary Fund Chief Christine Lagarde said "The economy would be better off with a rate hike in early 2016). The never-ending Greek drama also weighed on the market as Greece delayed until the end of the month repayment of an IMF loan due last Friday. The delay, which pushes Greece closer to default and possible expulsion from the euro zone, came after talks in Brussels between Athens and its creditors broke down without a deal. Elsewhere overseas, Iran (according to the New York Times) has increased its stockpile of low-enriched uranium in recent months while the worst violence to hit east Ukraine in months broke out Wednesday in Marinka, a satellite suburb of apartment buildings outside Donetsk. An official account by monitors from the Organization for Security and Cooperation in Europe describes movements of rebel forces in Donetsk on the eve of the battle that suggest the initiative may have been with them. In other news, the Environmental Protection Agency concluded that there is no evidence that hydraulic fracturing (fracking) has a "widespread systematic impact on drinking water." One doubts that this finding will do much to weaken opposition to fracking by many environmental groups.
In the News
Navistar International (NAV-23.89) Another Profit Engine Breakdown
Navistar International reported a second (April) quarter adjusted loss of $0.78 per share, better than the $1.45 per share loss of the year-earlier period but significantly worse than the consensus estimate of an $0.18 loss. While cost-cutting initiatives and margin improvements helped the Company narrow its loss compared to last year, Navistar's 1.9% drop in revenue to $2.69 billion represented a shortfall relative to the average estimate of $2.82 billion. The commercial truck market in North America has been strong, but Navistar (which is the fourth largest player in this market) has had market share problems since 2012 when the company’s engines weren’t able to comply with tougher federal standards for diesel-engine exhaust. Navistar subsequently fixed its engine problems and began using exhaust-treatment components and popular engine models built by Cummins Inc., moves that were expected to help Navistar recover market share. Although the Company stated that it expects to take advantage of a strong truck market in 2016, the stock finished the week down about 10%.
Zumiez Inc. (ZUMZ-24.00) Downhill Profits
On Thursday, Zumiez, an action sports equipment and apparel retailer, said that it expects second (July) quarter EPS in a range of $0.12 to $0.15 ($0.13 to $0.16 on an adjusted basis). Revenue was forecast between $179 million and $183 million. The consensus estimates had been for EPS of $0.30 on revenue of $192.8 million. The guidance was driven by weak traffic and soft demand for men's seasonal products. The Company now expects second quarter same store sales to fall 3%-5%. The stock was down about 20% for the week.
The Week Ahead
In economic news this week, May retail sales are expected to show solid improvement aided by the best auto sales in 10 years while the May Producer Price Index will likely rise as energy costs have bounced off recent lows. The earnings calendar will be light. The leaders of the seven largest industrialized countries arrived in Krun, Germany yesterday for a summit that will have both Greece's financial crisis and the future of Russian sanctions on the agenda. The Greek Finance Minister Yanis Varoufakis (an expert on game theory) is scheduled to give a speech on Monday on Greece's future in the European Union. On Wednesday, Russian President Vladimir Putin is meeting the Pope in Rome. The Treasury auctions scheduled for this week are on: Monday: $24 billion three-month bills and $24 billion six-month bills; Tuesday: $24 billion three-year notes; Wednesday: $21 billion nine-year, 11-month notes; and Thursday: $13 billion 29-year, 11-month bonds. Yields on all the offerings are expected to be higher than in the last auctions.
Resnik Asset Management Co., Inc. 69 Fairfield Road, Yonkers, New York 10705 (914-423-5733)