Quarterly earnings alone are rarely enough to provide any sort of meaningful information of the true quality of a business. However, paying attention to various earnings reports from various business, can help add a little color to what the state of the economy is currently like, and what the folks on the front line see for their industries and the economy, in the months and year ahead. With third quarter earnings season peaking this week, there are some notable reports to pay attention to.
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How Happy is the Consumer
The biggest drag on the economy today is the lack of consumer confidence. Confident U.S. consumers buy houses, dine out and shop. This week retail giant Macy's (NYSE:M) will report its third quarter results. Analysts are expecting EPS of 16 cents a share and revenues of $5.89 billion, versus $5.62 billion a year ago. While stronger profit growth is always a plus, the real focus will be on revenues. Cost cutting can produce higher profits, even if sales are stagnant. Stronger than anticipated sales would suggest that consumers are getting out more than expected.
Ralph Lauren (NYSE:RL) is also announcing earnings during the week. RL has been on a tear over the past few quarters, thanks to strong online sales growth. Analysts are expecting profit growth of nearly 7.1% quarter over quarter, backed by strong revenue growth of over 20%. Those are lofty expectations, but if RL can deliver that could mean consumers aren't as frugal as many expect.
Another important retailer reporting is Kohl's (NYSE:KSS). If all three of these businesses report strong results and quality forecasts, that combined data would certainly lend itself to a feeling of optimism. (Financial discipline is the key to successful growth in the retail industry. For more, see The 4 R's Of Investing In Retail.)
Small but Important
Even small-cap companies can offer meaningful insight. Infrastructure construction company Sterling Construction (Nasdaq:STRL) is a pure play provider of infrastructure work in Texas, Utah and Nevada. A lot of buzz has been generated recently, about the value of infrastructure work on creating jobs in the U.S. Texas is one of the most populous states in the union and a lot of jobs could be created, if infrastructure construction increased there, as well as throughout the nation. Any color from Sterling on the health of the industry is worthwhile information. The company is certainly expecting a healthy quarter: EPS estimates of 26 cents are nearly 25% higher than the year ago quarter. A 17% expected increase in revenue, is also a sign of a healthy operating environment. (For related reading on EPS, see The 5 Types Of Earnings Per Share.)
The Bottom Line
Whether you are interested in the business or not, earnings reports are a vital part of understanding industries, which in turn is helpful in getting a feel for the economy. While the blue chip multi-national companies offer the best insight into the broad overall health of the economy, even reports from not so global businesses can be important.
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At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.