Friday, October 28, 2005

Pattern Recognition

Earnings season is in full swing and here's what companies from various industries have said:

Lancaster Colony (salad dressing, candles, auto supplies):

The company will likely incur higher than previously anticipated costs for freight, natural gas, petroleum wax, synthetic rubber and plastic packaging due to the impact of the recent Gulf Coast hurricanes. The magnitude and duration of this trend remains unclear, although our Glassware and Candles segment will undoubtedly be the most sensitive to these changes. We are striving to implement selected price increases as well as further reduce costs, but these efforts may lag the adverse effect of higher energy-related costs.

Grey Wolf, Inc (land-based drilling rigs):

We have seen a significant increase in demand for the larger horsepower rigs and correspondingly, the day rates for these rigs have increased. The South Texas market remains strong with continuing increases in day rates and positive mobilization recoveries across all rig classes.

Furniture Brands (furniture, obviously):

The remainder of the decrease in gross margins is related to raw material cost increases…. As you are all aware by now, we, along with the rest of the industry, are facing dramatic cost increases in polyurethane foam…. In the past few weeks we have seen the price of foam increase 25%-30%.

Agco (farm equipment):

You know pricing is up year-over-year really in all our markets. We were in a situation where the whole industry--we're pricing to offset the higher material costs that we started seeing last year, particularly on the steel. I think that we have been successful in adding price. I think that we have seen some relatively good pricing improvements in all markets.

CSX (railroad):

Revenue growth for surface transportation was once again strong, up 9% or $182 million compared to the same period last year. Our pricing, fuel surcharge, and yield management continued to drive revenues, while volumes held steady at near record levels. The team's focus on productivity also contributed to financial improvement. As a result, our overall operating ratio improved more than four points from last year to an 83% operating ratio this year.

Anybody else see a pattern to all this?

Jeff Matthews
I Am Not Making This Up

© 2005 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.


Tahoe Kid said...

Overstock Q3 loss bigger than expected. The tradition continues. One risk is that they may run out of excuses and people to blame.

BlackLab said...

Cost push inflation in things people need; eventually, eroding margins for companies who make things people want.

Caveat venditor.

BelowTheCrowd said...

I think Jeff Saut at Raymond James put it well, in saying that he continues to see the market favoring stocks that benefit from "physical stuff" and less from stocks that derive income from everything else.


Sam S. Park said...

All aboard, we're going on an inflation ride all the way to oilville.

Counter Trey said...

There has to be a contrarian in every group-think. Here is why you are wrong:

Sam S. Park said...

Inflation isn't a huge threat as long as monetary policy does its job. But pressures are there. If you want my comment on this, you can goto my little blogsite link.

Aaron Koral said...

Hi Jeff - the pattern I see is that the higher costs for materials and fuel are being passed on to end users, albeit reluctantly, by companies sensitive to their customer's needs. As Sam Park and others have mentioned, it looks like inflation is here, and the bond market is going to be in for a bumpy ride, in my opinion (I could be wrong though...)

Sam S. Park said...

Another point to consider here is the impact of automobile prices. I would say that these "employee discount programs" contributed to the deflationary pressures in the recent past. I really, and I mean really, doubt that these car manufacturers can keep up with these lower price programs. Realistically, this trend is bound to reverse. And I say again, you can't just look at the present numbers.

Sam S. Park said...
This comment has been removed by a blog administrator.
White Oak Systems said...

Inflation is real, here, and now.

I just completed my annual office supply order. Yes, it came delivered, with free shipping, in less than 24 hours. CPI-calculators could view that as getting more for my money than last year. But the bill was a surprise - surely price increases are feeding thru.

Then, my wife goes thru a catalog. Every price I guessed was significantly below the offer. Knit caps for $42? I feel there has been a significant price increase across the board. The CPI does not seem to be tracking what we are paying for things...