For Immediate Release
Chicago, IL – August 04, 2010 – Zacks.com Analyst Blog features: J.P. Morgan (JPM), Macy (M), Carnival Cruise Lines (CCL), Ford (F) and Procter & Gamble Co. (PG ).
Here are highlights from Tuesday’s Analyst Blog:
Savings Rate Rising
A large part of the decline in the savings rate can be tied to rising asset prices, particularly for houses. People figured that if the value of the house they were living in was growing quickly, they could save less and consume more today, and then be able to spend the gains in the value of the house when it came time to retire or put the kids through college. Large numbers of people started to use their houses as if there were an ATM in the kitchen, using Home equity lines of credit, and cash out refinancing to support current consumption, such as go on vacation or buy a new car.
The popping of the housing bubble changed all that. Housing wealth, which is the only real wealth that millions in the working and middle classes had, has evaporated. For 14.75 million homeowners in the first quarter, not only do they have no housing wealth anymore, but they owe more than the house is worth.
As a result they have to put away more of their current income and repair their shattered personal balance sheets. The balance sheet repair operation has begun, but it is a long way from finished. As a result, the savings rate will probably continue to rise (not necessarily in a straight line, but trending up over time).
If the rise in the savings rate occurs because income is rising faster than spending, it will be less painful than what we saw during the recession, when it was spending that simply fell off a cliff, and income declined more slowly. Still, it means that economic growth will be lower than it otherwise would have been, had the savings rate stayed stable. Holding more money in the bank might be nice for the likes of J.P. Morgan (JPM), but it is bad news for retailers like Macy's (M).
It will be the more discretionary parts of the economy that will grow more slowly. Less money spent on vacations means that fewer people will take cruises on Carnival Cruise Lines (CCL). People will tend to hold on to their cars longer, meaning fewer new cars sold by Ford (F). The economy can handle this if it happens gradually, but it still means lower growth than what would have occurred. In essence, at least some of the economic growth between 1982 and 2006 was a mirage -- a case of living large on the credit card. Now comes the part where we have to pay off the bill.
This will be a long-term headwind for the economy, just as the falling savings rate provided a tailwind that lasted for a quarter of a century. The headwind will probably not last that long, but don’t expect it to be over in just a few months, or even a few years, for that matter.
P&G Misses Zacks Estimates Procter & Gamble Co. (PG) registered disappointing fourth quarter 2010 net earnings from continuing operations of 71 cents a share, which dipped 5% from 75 cents posted in the year-ago period. Earnings also missed the Zacks Consensus Estimate of 73 cents.
However, P&G’s net earnings from continuing operations in fiscal 2010 surged 4% to $3.53 per share from $3.39 delivered in fiscal 2009, though well below the Zacks Consensus Estimate of $4.12 per share. The upswing came on the back of sales growth, expansion of operating margin and share buybacks, partly offset by higher tax rate.
From a year ago, core earnings per share in the quarter plunged 9% to 71 cents in the quarter, but climbed 6% to $3.67 in the reported year.
Procter & Gamble forecasts first-quarter 2011 net earnings from continuing operations and core earnings to be in the range of 97 cents to $1.01 per share, reflecting a 0%–4% growth rate. The guidance implies that P&G will continue to invest in innovation and various marketing program.
For fiscal 2011, the company anticipates net earnings from continuing operations and core earnings to be in the range of $3.91–$4.01 per share, 11%–14% growth on a continuing operations basis and 7%–9% growth on a core basis.
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