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business newsDecoding the Wall Street Journal: Earnings Season Edition
By
Brian Sozzi
Jan 25, 2012 11:40 am
Here, a taste of the mental madness that ensues during earnings season.
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Editor's note: This newsletter originally appeared on Decoding The Wall Street Journal, a new website based on a book co-authored by former CNBC anchor Nicole Lapin and former Wall Street analyst Brian Sozzi. Like the book, this newsletter aims to unlock hidden financial clues embedded in world news.
Earnings Season: “Yes, It’s a Season, but Just for Investors and Traders”
Headline decoding: Earnings season is on like Donkey Kong this week, so be prepared to stay up late and burn the midnight oil reading financial statements.
We actually imagined that title, no cause for alarm if you don’t find it in the morning Wall Street Journal. Earnings season has thunderously commenced, well, like real-life thunder. For the most part companies are raining down profits on the heads of Wall Street’s movers, shakers, and deal makers. Strong profits (sound smart: “earnings”) from all sorts of companies, from a motorcycle maker (Harley Davidson (HOG)) to a restaurant operator (McDonald’s (MCD)) have been the name of the game, though not for every single company. Earnings season has been partly cloudy over the home bases of another restaurant operator (Brinker (EAT)), which runs baby back rib specialist Chili’s and the Olive Garden knock-off Italian cuisine concept Maggiano’s) and a tissue maker (Kimberly-Clark (KMB), the Kleenex people).
Instead of bringing you one or two decoded stories from the Wall Street Journal, we will kick it into tenth gear from ninth gear and try and serve up a taste of the mental madness that ensues during earnings season. It’s a month long period of twists, turns, and plot changes and of course, gains and losses in those wild things we call stocks.
Verizon Swings to a Loss
Headline decoding: Yes, this is the phone company that charges exorbitant rates. And yes, this is the same phone company that despite charging exorbitant rates, managed to post a loss instead of its usual profit.
Insider-y tip for members, Verizon (VZ) actually had two quarters within a three-month timespan. What you talkin' 'bout Willis (decoded statement: 1980s classic Different Strokes)? The first quarter in the quarter was Verizon’s financial results clocking in at a loss, as per the title above. That loss reflected a geeky accounting adjustment called an “asset valuation charge.” Briefly, due to lower estimated values on assets held inside a portfolio designed to pay the pensions of older workers, it required an adjustment; no need to understand the mechanics on this, it’s very slippery and won’t have to be explained after five drinks on a first date. Let’s move along. Verizon’s second quarter inside a quarter was ok because Wall Street tends to disregard geeky accounting charges when evaluating a company’s financial performance (sound smart: “back out”). In that regard, Verizon profited from selling oodles of new iPhones to throngs of Apple (AAPL) faithful. However, it made less money on those phones as it had to discount them to entice consumers. And who says consumers have no power.
Decoding Toolbox
Headline decoding: The company doesn’t really sell many fish filets, not sure what ocean it’s pulling its net from.
“Net income” was up. As so often is the case in the title, the word income is left out. The land of the golden arches sold more meat-like hamburgers, fries, coffee, and healthy-type stuff in the quarter to hungry mouths worldwide. McDonald’s is planning to open a whopping 1,300 stores globally in 2012; decoded, the process is the same as building homes right on top of one another.
Decoding Toolbox
Headline decoding: The tissue and diaper maker may not sell as many of each as it planned to in 2012.
The quarter was financially weak, as was comments on the future (sound smart: “forward-looking”), and combined stunk like a soiled one-month-old's diaper. First, consumers remain hesitant to buy name brand products because they are not working (sound smart: “unemployed”) or their paycheck is miniscule at the new gig. Or, perhaps they have been stuck on the same weekly wage for the past five years. Either way, these economic realities hurt a company trying to sell its premium, name brand products through Wal-Mart (WMT) and Target (TGT). Second, lower birthrates are hampering diaper sales for the company. Kimberly-Clark may be wishing men could reproduce so it could sell more diapers, or maybe not.
Decoding Toolbox
Earnings Season: “Yes, It’s a Season, but Just for Investors and Traders”
Headline decoding: Earnings season is on like Donkey Kong this week, so be prepared to stay up late and burn the midnight oil reading financial statements.
We actually imagined that title, no cause for alarm if you don’t find it in the morning Wall Street Journal. Earnings season has thunderously commenced, well, like real-life thunder. For the most part companies are raining down profits on the heads of Wall Street’s movers, shakers, and deal makers. Strong profits (sound smart: “earnings”) from all sorts of companies, from a motorcycle maker (Harley Davidson (HOG)) to a restaurant operator (McDonald’s (MCD)) have been the name of the game, though not for every single company. Earnings season has been partly cloudy over the home bases of another restaurant operator (Brinker (EAT)), which runs baby back rib specialist Chili’s and the Olive Garden knock-off Italian cuisine concept Maggiano’s) and a tissue maker (Kimberly-Clark (KMB), the Kleenex people).
Instead of bringing you one or two decoded stories from the Wall Street Journal, we will kick it into tenth gear from ninth gear and try and serve up a taste of the mental madness that ensues during earnings season. It’s a month long period of twists, turns, and plot changes and of course, gains and losses in those wild things we call stocks.
Verizon Swings to a Loss
Headline decoding: Yes, this is the phone company that charges exorbitant rates. And yes, this is the same phone company that despite charging exorbitant rates, managed to post a loss instead of its usual profit.
Insider-y tip for members, Verizon (VZ) actually had two quarters within a three-month timespan. What you talkin' 'bout Willis (decoded statement: 1980s classic Different Strokes)? The first quarter in the quarter was Verizon’s financial results clocking in at a loss, as per the title above. That loss reflected a geeky accounting adjustment called an “asset valuation charge.” Briefly, due to lower estimated values on assets held inside a portfolio designed to pay the pensions of older workers, it required an adjustment; no need to understand the mechanics on this, it’s very slippery and won’t have to be explained after five drinks on a first date. Let’s move along. Verizon’s second quarter inside a quarter was ok because Wall Street tends to disregard geeky accounting charges when evaluating a company’s financial performance (sound smart: “back out”). In that regard, Verizon profited from selling oodles of new iPhones to throngs of Apple (AAPL) faithful. However, it made less money on those phones as it had to discount them to entice consumers. And who says consumers have no power.
Decoding Toolbox
- Churn: Term for phone companies, denotes how many customers they lost in a quarter.
- 4G broadband: Fancy wiring that makes download speeds on an internet enabled phone faster.
- CFO: Chief Financial Officer. Head person for a company’s financial management and reporting.
- Conference call: Held by management after an earnings release is issued as a means to discuss the quarter with Wall Street analysts, as investors listen in (decoding outcry: investors should be allowed to ask questions on these conference calls!).
Headline decoding: The company doesn’t really sell many fish filets, not sure what ocean it’s pulling its net from.
“Net income” was up. As so often is the case in the title, the word income is left out. The land of the golden arches sold more meat-like hamburgers, fries, coffee, and healthy-type stuff in the quarter to hungry mouths worldwide. McDonald’s is planning to open a whopping 1,300 stores globally in 2012; decoded, the process is the same as building homes right on top of one another.
Decoding Toolbox
- Competitive pricing: Company lowers prices because others are lowering theirs to bring in customers. No customer left behind is the motto here.
- Guest traffic: The number of customers that visit the drive thru and checkout lanes inside. Guest traffic sounds much cooler.
- Value offering: Think the low priced Snack Wrap; it offers a ton of calories for not a ton of cash.
- Same-store sales: Sales from restaurants open longer than a year. Why do we care? Older restaurants are old and should have repeat business. No repeat business as measured by same-store sales, could be a problem with the food or service.
Headline decoding: The tissue and diaper maker may not sell as many of each as it planned to in 2012.
The quarter was financially weak, as was comments on the future (sound smart: “forward-looking”), and combined stunk like a soiled one-month-old's diaper. First, consumers remain hesitant to buy name brand products because they are not working (sound smart: “unemployed”) or their paycheck is miniscule at the new gig. Or, perhaps they have been stuck on the same weekly wage for the past five years. Either way, these economic realities hurt a company trying to sell its premium, name brand products through Wal-Mart (WMT) and Target (TGT). Second, lower birthrates are hampering diaper sales for the company. Kimberly-Clark may be wishing men could reproduce so it could sell more diapers, or maybe not.
Decoding Toolbox
- Developed market: Any country that is growing slowly, such as the US and the UK. Or, any country not named China, India, or Brazil.
- Mixed guidance: A sales outlook may be optimistic, but profits not so, or vice versa.
- Organic sales: Sales excluding the influence of acquisitions (which would add sales).
No positions in stocks mentioned.
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