For Immediate Release
Chicago, IL – November 18, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Home Depot (HD), Ford (F), TRW Automotive (TRW), Revlon (REV) and Estee Lauder (EL).
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Here are highlights from Tuesday’s Analyst Blog:
Home Depot Sales Dip
Home Depot (HD), the largest home improvement retailer in the world, reported net income of $689 million or 41 cents per share in the third quarter of fiscal 2009, compared to net income of $756 million or 45 cents per share in the year-earlier quarter.
The company witnessed severe stress from declining market fundamentals during the quarter in a challenging macroeconomic environment and weakness in the U.S. housing sector. Total sales decreased 8.0% year-over-year to $16.4 billion, while overall same-store sales decreased 6.9%.
In order to tide over the storm, Home Depot has decided to focus on core retail activities and has exited businesses like EXPO, THD Design Center, Yardbirds, and HD Bath. In addition, the company has taken strict cost-control measures and has initiated prudent inventory management policies.
Industrial Production Rebound Stalls
A major factor in the surge in August and September was the rebuilding of inventories of autos by companies like Ford (F) and its suppliers like TRW Automotive (TRW) that were depleted by the Cash for Clunkers program. It looks like that bounce is over.
Production fo business equipment fell by 0.2%, following a decline of 0.4% in September and a 1.1% increase in August. On a year-over-year basis, overall production of finished goods is down by 4.5%. However, production of consumer goods has held up much better than that of business equipment, with consumer goods down byt 2.9% year over year and business equipment down by 6.8%.
Keep in mind that the consumer share of the overall economy surged to a record high 70.98% in the third quarter, while the investment share of the economy languished at a near record low of just 11.04%. Businesses simply see no reason to buy more equipment to expand production. The reason why businesses have no desire to invest in new plants and equipment is that they have so much existing equipment that is just sitting around and gathering dust.
The other information in the report is capacity utilization. The good news is that overall capacity utilization edged up to 70.7% in October, marking the fourth straight month of improvement. The bad news is that it is simply an awful absolute level. The long-term average total capacity utilization is 80.9%. Even after four months of increases, we are still below the all-time record low prior to this downturn of 70.9% set in December of 1983 (data on capacity utilization goes back to 1967).
The other bad news is that the rate of improvement is slowing dramatically. Overall capacity utilization bottomed out in June at 68.3%. It then gained 0.7% in July and 1.0% in August. The rate of improvement slowed to 0.5% in September and was just 0.2% in October. That is not a good trend.
Further, over the past year, overall capacity has shrunk by 0.8%, which helps goose the numbers and makes them look better, although I don’t think that Revlon (REV) and Estee Lauder (EL) combined have enough lipstick to make this pig look good. All of the improvement was due to higher capacity utilization by utilities, which is the one area that has actually increased capacity over the last year (by 1.8%). Utility utilization rose to 79.0% from 77.9% in September. Since it is so weather dependent, utility utilization is by far the least important measure, and it is actually not too far below its long-term average of 86.8%.
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