Trading action in this stock market is a little worrisome. We’re getting decent earnings, but the stock market just yawns. There’s been a few misses on revenues so far, but the bottom line is showing real strength.
Of course, some of the yawning is due to the fact that many of the brand-name companies already have done well on the stock market and earnings expectations were previously reduced. In today’s market, surprising news doesn’t always mean that a company’s share price is going to advance. It is the age of austerity, and a definite malaise has set in. I view the stock market’s reaction to corporate earnings so far as sounding something like, “Oh good, this thing hasn’t fallen apart just yet.”
The Wendys Company (NASDAQ/WEN) perfectly illustrates the kind of earnings season we’re having among non-financial companies. (The big banks are reporting excellent earnings based on better capital markets and strong cost control.) The company beat consensus on its bottom-line, but revenues came in just shy of consensus. According to the company, fourth-quarter revenues were $630 million, up 2.4% from $615 million in the comparable quarter. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) from continuing operations were $95.9 million, for a gain of about 19%. Wendys’ forecasts five- to eight-percent earnings growth in adjusted EBITDA in 2013, but it increased its quarterly dividend forecast by 100% to $0.04. Wendys’ stock chart appears below:
Chart courtesy of www.StockCharts.com
So business is basically stable, according to Wendys. Same-store sales were down just slightly in the fourth quarter of 2012. Like many other companies, real economic growth is a tough thing to produce. Any excess cash is being returned to shareholders. Wendys also instituted a share repurchase program, which it didn’t have in the fourth quarter.
In terms of the competition, Burger King Worldwide, Inc. (NYSE/BKW) did pretty well since relisting on the stock market. The company doesn’t report its fourth-quarter earnings until the second week in March. Burger King offers a small dividend to shareholders. It will be interesting to see what the company reports.
One restaurant firm that I do like is Cracker Barrel Old Country Store, Inc. (NASDAQ/CBRL). This business has been around for ages and all of its stores are corporate-owned, which I like. It means total control on how things are run. Cracker Barrel has been an excellent performer on the stock market and a top wealth creator in recent years. The company’s dividend yield is approximately three percent, and its last quarter produced very good earnings results. The company’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
Once we get into the heart of earnings season with large-cap, technology stocks reporting, we’ll have a better sense as to where the stock market might go near-term. So far, the trading action is lackluster, but the numbers are decent.
I don’t expect a thing from the stock market this year. If we get a double-digit return in the S&P 500, we’ll be lucky. (See “Stock Market Success: Why It All Comes Down to the Fed.”) What I do expect is exactly what Wendys is doing—increasing dividends—because corporations are still reticent to invest in this economy. What we need is more certainty on a lot of issues, and then, perhaps, corporations will make new investments again.
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