FOCUS ON THE 15: Earnings reports give investors a wake-up call

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By Jim Victor | Saturday, April 19, 2008 6:26 PM CDT | () comments

Two cups of coffee help me start every business day. If one is a wake-up, two make me even more alert. And last week’s investors seemed alerted by the same sort of double shot of waking up. With a full week of corporate profit reports, two wake-up responses spread through Wall Street. Number one came from major bank reports. After major writedowns reflecting the value of questionable mortgages one quarter earlier, the banks seemed to try to sweep up any remnants of trouble. And a number of big banks beat estimates. With this, investors awakened to the possibilities of improved results ahead and bought bank stocks.

The second cup of wake-up came with a host of American multinational companies posting profit growth that beat expectations. Names like IBM, Intel and Pepsi posted profits that reflected a rise in international or export sales. Remember that just one week earlier, the Commerce Department reported that March export sales across the U.S. were up a startling 20.8 percent. Last week’s investors bid up the shares of a number of companies that enjoyed the export boom.

By week’s end, our Quad-City Times Key 15 had gained 71.58 to 1,428.70. Agribusiness, metals and banking stocks led the list.

Remarkably, it also was a week of major economic reports. Inflation reports reflected recently rising food and fuel prices. Industrial

production is increasing, though more slowly now. Those were expected.

Closer to home, air travel growth continues. But like some other areas of the economy, it is slower growth. The Metropolitan Airport Authority says enplanements at Quad-City International climbed again in March, up

3 over one year ago. But this is slower growth than the 7 percent gains seen a couple months ago. We’re still traveling more for business and pleasure.

Among the banks reporting and rousing investors last week was Wells Fargo (a) (b) with major operations here. The bank posted earnings per share of 60 cents, down from 66 cents a year ago. Revenues rose to a record, up 12 percent in that time. Average loans in force were up 19 percent. And average earning assets were up 21 percent, another big increase. Average core deposits climbed 9 percent. All this pleased investors, despite Wells taking a $500 million provision for any possible loan losses that could come. And Wells took a $326 million write-down on the posted paper value of mortgage-related loans. Wells Fargo shares gained 2.43 to 30.40.

Also releasing results was HNI Corporation with headquarters and manufacturing in Muscatine, Iowa. HNI earlier warned of a slow quarter, hurt by slowness in new office and new home situations across the country. HNI says earnings from continuing operations, excluding restructuring and transition costs, were just 21 cents per share compared with 43 cents last year. These lower results came from lower revenues, down 7.5 percent, and from higher costs including transportation. During the quarter, HNI successfully completed the acquisition of HBF, a provider of premium upholstered seating. And HNI gave investors a look ahead, predicting current growth sales would remain 2 percent to 5 percent below last year. HNI shares were off .11 at 23.45.

Monsanto (b), with Muscatine herbicide manufacturing, is enjoying growing agribusiness profits. Some of that will be used to buy back company stock. Monsanto says it will buy up to $800 million in shares over the next three years. The buyback will follow an earlier planned $800 million repurchase program not yet finished. Says Terry Drews, chief financial officer, “Our share repurchase initiative reinforces our continued commitment to return value to our shareholders.” Buybacks reduce the number of shares among which future profits must be divided. Monsanto shares leaped 8.07 to 129.19 last week, setting a new record high midweek at 132.36.

Quanex, parent of Nichols Aluminum, will begin trading as two companies on Thursday. Quanex will make the previously announced spinoff of its building products operations into a new company. That new company, Quanex Building Products Corporation, will be separate from Quanex’s vehicular products operations. Quad-City operations will be with building products. Quanex shares were up 3.04 to 55.01.

More economic reports come out this week. And expect a host of Quad-City Times Key 15 companies to release their own results. A look at the quarter past — and sometimes at the quarter ahead — will provide yet more investor guidance. Grab your coffee.

Jim Victor is senior vice president-wealth management and financial advisor for Smith Barney, Davenport. Smith Barney is a division and service mark of Citigroup Global Markets Inc. and its affiliates and is used and registered throughout the world.

The information contained herein has been obtained by the writer from sources believed to be reliable, but he does not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. a) The firm is a market maker in the publicly traded equity

securities of this company. b) Within the past 3 years, Citigroup or its affiliates has acted as manager or co-manager

of a public offering of securities

of this company.