For Immediate Release
Chicago, IL – September 16, 2010 – Zacks.com Analyst Blog features:BP (BP), Ford (F), Freeport McMoRan (FCX), Peabody Energy (BTU) and Cracker Barrel Old Country Store Inc. (CBRL ).
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Here are highlights from Wednesday's Analyst Blog:
Industrial Production Up Again
Total Industrial Production rose by 0.2% in August, which was a tick less than the 0.3% rise that was expected. It was also slower than the 0.6% rise in July. The July number was revised down from a 1.0% increase, but June was revised to an increase of 0.1% from a decline of 0.1%.
Relative to a year ago, total Industrial Production is up 6.2%. These numbers are slightly disappointing, but far from a disaster, as much of the weakness can be traced to some seasonal adjustment problems.
Total Industrial Production includes not only the output of the nation's factories, but of its mines and utility power plants as well. The production and consumption of electricity generally has as much to do with the weather as it does with overall economic activity.
Manufacturing Output
Thus it is important to look at just how the manufacturing sector is doing alone. It, too, increased at 0.2% down from a 0.7% increase in July. The July number was revised down from an increase of 1.1%, and June was revised to a decline of 0.4% from a decline of 0.5%. Year over year, factory output is up 6.3%.
Much of the big swing between July and August can be traced to some seasonal adjustment factors related to the Auto industry. Normally Detroit shuts down for a few weeks during July for model changeovers. That did not happen this year. As a result, the seasonal adjustment showed a big increase in the July numbers, and then since the seasonal adjustment expects a jump in August as the Auto Factories come back on line, we see a decline in the August seasonally adjusted numbers. Excluding Autos, manufacturing output was up 0.5% in August after being up just 0.2% in July.
Utility Output
Utility output fell by 1.5% in August following a 0.3% decline in July, but that came after a 4.0% jump in June. June was the hottest June on record nationwide (and worldwide for that matter), but the weather was more seasonally normal in late July and August. If the weather is hotter than normal in the summer, electricity demand shoots up as people run their air conditioners more. Year over year, utility output is up 6.0%.
Mining Output
The third sector tracked by the report is Mining (including oil and natural gas). The output of the nation's mines rose by 1.2% after a 0.9% rise in July, but a 0.6% decline in June. The June decline was partially due to the BP (BP) oil spill disaster in the Gulf of Mexico, and some of the increase in July and August is a rebound from that. However, it probably also reflects the increasing output of shale natural gas as well.
Capacity Utilization
The other side of the report is Capacity Utilization. This is one of the most under-appreciated economic indicators out there, and one that deserves a lot more attention and ink than it usually gets.
Total capacity utilization suffers from the same weather related drawback as does industrial Production. However, it ticked up to 74.7% from 74.6% in July and 74.1% in June. July, though, was revised down from 74.8%, so from the perspective of where we thought we were, it is actually a tick down in August.
The revival of capacity utilization has been going on for more than a year now. A year ago, just 70.0% of our overall capacity was being used, and that was up from a record low of 68.2% in June 2009.
The basic rule of thumb on total capacity utilization is that if it gets up above 85%, the economy is booming and in severe danger of overheating. This effectively raises a red flag at the Fed and tells them that they need to raise short term interest rates to cool the economy. It is also a signal to Congress that it is time to either cut spending or raise taxes, also to cool down the economy (Congress seldom listens to what capacity utilization is saying, but the Fed does.
Capacity utilization of around 80 signals a nice, healthy economy, sort of the "Goldilocks" level -- not too hot, not too cold. The long-term average level is 80.6%. A level of 75% is usually associated with a recession. The Great Recession was the only one on record where it fell below 70%. Thus a 6.5% improvement in overall capacity utilization from the lows is highly significant and very good news.
On the other hand, we still have a very long way to go for the economy to be considered healthy.
Factory Utilization
Factory utilization rose to 72.2% from 72.1% in July and 71.6% in June. July was revised down one tick from 72.2%, so in that sense we are flat month to month, but June was revised up two ticks from 71.4%. That is up from 67.6% a year ago, and the cycle (and record) low of 65.4%. That is still well below the long-term average level of 79.2%, so as with total capacity, we still have a long way to go on the factory utilization level.
The increase in utilization over the last year -- both total and factory -- has been aided by a decline in capacity, with the total falling 0.5% and factory capacity dropping 0.6%. If some factories are closed and dismantled, it is easier to run the remaining ones closer to full time. However, the increase for the month was probably bigger than reported (and the increase in July smaller than reported) due to the seasonal adjustment effects of the non-summer shutdown at General Motors and Ford (F).
Mines were working at 86.3% of capacity in August, up from 85.3% in July and 84.6% in June. A year ago they were only operating at 81.7% and the cycle low was 79.6%. We are almost back to the long-term average of 87.4% of capacity. Since there is a lot of operating leverage in most mining companies, this probably means very good things for the profitability of mining firms with big U.S. operations like Freeport McMoRan (FCX) and Peabody Energy (BTU). Mine capacity was unchanged year over year.
Cracker Barrel Beats Estimates
Cracker Barrel Old Country Store Inc. (CBRL ) reported its financial results for the fourth quarter and fiscal year 2010.
Net income from continuing operations increased to $27.4 million or $1.14 per share from $22.8 million or $0.99 in the comparable quarter of 2009. The company's results also surpassed the Zacks Consensus Estimate of $1.12. The upside was primarily due to higher operating income, lower interest expense and lower taxes.
For fiscal year 2010, earnings per share were $3.62 compared with $2.89 in 2009.
Outlook
For fiscal year 2011, Cracker Barrel expects total revenue growth to range approximately between 3.0% to 4.5% year over year. The guidance is premised on the opening of eleven new units during the year, comparable store restaurant sales would increase within the range of 1.5%-3.0% and comparable store retail sales would go up between 2.0%-4.0%.
Depreciation is expected to be roughly $64-$66 million, operating margin within the 7.1%-7.3% range, net interest expense within $48-$49 million, effective tax rate within 27.0%-28.0% and diluted shares outstanding approximately 23.5-24 million.
Earnings per share are expected to be approximately $3.95 to $4.10 and capital expenditures to be between $110 and $120 million. The company will continue its share repurchase activity in 2011 and repay $25 million of its long-term debt.
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