America's big companies are spending their lazy, hazy days of summer reporting their quarterly earnings. J.P. Morgan blows the lid off consensus expectations once again, and Sears appears to be coming out of its slump.
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First to shore is Foolish Four Portfolio holding J.P. Morgan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JPM)") else Response.Write("(NYSE: JPM)") end if %>, which last week reported another sterling quarter, smashing through analyst estimates like Mark McGwire catapulting a fast ball out of the park. It reported second-quarter net income of $542 million, up from $504 million in the second quarter of 1999. Earnings per share of $2.90, an increase of 15% from $2.52 a year ago, made consensus estimates of $2.45 look like the analysts struck out big time.
Its surprise power surge came from unpredictable momentum in asset management services, equities, and investment banking. Profit from trading and investing the bank's money was $230 million before taxes, up from $132 million in the previous quarter, and turning around a loss of $20 million a year ago. And, what was J.P. Morgan buying? Why, financial companies of course.
These gains were a blessing for the company, and offset the impact of depressed fixed-income and currency markets. As a result of the Federal Reserve's campaign to raise interest rates during the past year, investors have been discouraged from dabbling in the currency and bond markets, and corporate clients have been wary of issuing bonds. Interest and currency market pretax income declined to $104 million from $239 million, while profits from bond market trading and underwriting fell to $184 million from $281 million.
Icing on the cake for shareholders is the company's repurchase of $480 million of common stock (3.8 million shares) during the quarter.
However, all these stellar numbers haven't quelled the questions about J.P. Morgan's ability to sustain this kind of performance. While some analysts have come out bullish on the company, others wonder if it can really be this successful quarter after quarter. Also, according to an analyst at Ryan, Beck Southeast Research, these trading gains go counter to the bank's strategy of reducing its own risk and relying on customer orders to make money.
Only time will tell who's right.
Our other Foolish Four stocks will be reporting earnings this week or next week. We'll keep you informed as they come in.
This earnings roundup presents a good opportunity to check up on Goodyear Tire <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GT)") else Response.Write("(NYSE: GT)") end if %> and Sears <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S)") else Response.Write("(NYSE: S)") end if %>, two of the stocks that were booted from the Dow 30 in last year's shake-up, but which many Foolish Four followers are still holding in their portfolios.
Goodyear has continued to suffer financial flats. Most recently, it announced a blowout in second-quarter profits, falling 36% short of estimates. This encourages the downward stock price trend that shareholders have been suffering through during the past year. While the company expects second-quarter earnings to be about level with last year, investors are leery that Goodyear will leave them stranded on the side of the road.
The tire and rubber company's most recent problems started when it increased prices last March and April. While it expected volume would fall somewhat as a result, it was optimistically planning to regain business as competitors took their own pricing actions. It was very wrong.
"Despite rising costs, the marketplace has actually seen reductions," said Samir G. Gibara, chairman, chief executive officer, and president. "In this environment, our price increases impacted our volumes and made it more difficult to recover cost increases." Meaning customers deserted Goodyear in droves and the company wasn't making enough on its remaining business to cover increased production costs.
So, what does a company do when everything goes wrong? Goodyear announced last Friday that it's playing musical chairs with management in an attempt to improve the company's growth and performance. Hopefully, the guy who decided to raise prices will be left standing when the music stops.
Summer's haze has caused consumers to increase warm-weather equipment purchasing in the hardware and lawn and garden area, leading Sears to announce that it will most likely exceed consensus estimates when it reports second-quarter earnings.
Investors cheered the announcement, as this would be the third straight quarter in which Sears beats estimates. Considering that Sears is up 10% this year, as compared to the Standard & Poor's department store index, which has dropped 4.3%, investors have a lot to be happy about. Although the stock still has a ways to go before it reaches last year's high of $52 (where a number of Foolish Four investors bought), it is certainly heading in the right direction.
Enjoy your lazy, hazy days. For big American companies, it's business as usual. (And that's the way investors like it!)