Firms are Facing Rising Pressure To Meet High Shareholder Expectations
Christine Short | Oct 15, 2021 03:39PM ET
Executive Summary
-
Inflation fears, supply chain hiccups and labor challenges are top issues for many companies this earnings season
-
We profile three firms that have been active on the acquisition front, yet face rising pressure to meet high shareholder expectations
-
Unusual reporting dates and preliminary earnings guidance are key events traders must keep on their radar
The big banks began earnings season last week. We now look ahead to other sectors and industries for a pulse on the business environment. A consumer stock, a domestic utility company, and a well-known materials name all feature key corporate events that are likely to drive share price volatility.
Earnings Outliers
PriceSmart, Inc (NASDAQ:PSMT) manages and operates membership warehouse clubs in North America. It’s the largest price club in Central America with more than 1.6 million membership accounts. The $2.4 billion market cap consumer staples stock listed on the S&P MidCap 400 has seen its share price decline by nearly 30% since the February peak. The most violent drop occurred immediately following its April 8th Q2 earnings release. July’s Q3 report saw a muted reaction. The stock price trend is not the friend of the bulls heading into this Thursday’s Q4 confirmed earnings date.
Acquisition Activity
There has been important recent corporate action. On Oct. 1, PriceSmart announced the sale of its Aeropost Package forwarding and online marketplace business. PSMT acquired Aeropost in 2018 to develop its e-commerce platform and to improve firm logistics. For retailers post-pandemic, maintaining a robust omni-channel sales operation is becoming a must. Perhaps investors were not keen on this divestiture as shares of PSMT have fallen to fresh year-to-date lows.
Figure 1: PriceSmart Stock Price History (1-Year)
Outlier Analysis
PriceSmart normally reports fourth-quarter earnings late in October whereas other quarters feature an earnings date around the 8th of the month.
On Sept. 10, PSMT announced via press release that it would report Q4 earnings on Thursday, Oct.21 AMC. An earnings conference takes place on Friday.
Get The News You Want
The much earlier than usual earnings date resulted in a very high Z-score of -3.52. Wall Street Horizon also has an A-rating confidence level for this event.
Earnings Date Revision
Next up is NorthWestern Corporation (NASDAQ:NWE) with an earnings revision that resulted in a materially later than usual reporting date. NWE engages in generating and distributing power to customers in the Upper Midwest and the Northwest United States. It also has a significant natural gas business. The $3.0-billion market cap firm in the utilities sector boasts an attractive price-to-earnings ratio in the mid-teens and a hefty dividend yield above 4%. The share price, however, has sunk to multi-month lows as energy volatility builds. Rising natural gas prices and an uncertain winter are fundamental risks facing the firm.
Figure 2: NorthWestern Stock Price History (1-Year)
Supply Chain Woes, Labor Cost Rising
Issues facing NWE—and so many other firms—include materials sourcing problems and labor shortages. Some of the strongest job markets in the U.S. are in the Upper Midwest. Recently, the firm announced that it withdrew an application for approval of a new 175-megawatt generation station due to “timely availability of critical components and escalating labor and construction costs due to the COVID-19 pandemic.”⁴
Traders should be on guard for more news considering a later than normal upcoming earnings date. NWE is also slated to present at the Wells Fargo Hosted Meetings - EEI Conference 2021 on November 7.
Revision Analysis
NorthWestern has a rare Sunday evening confirmed earnings date. While not always the case, firms sometimes choose to disclose earnings on a Friday afternoon or the weekend when they have unusual (usually poor) news to report. At the very least, it’s a warning sign traders should closely monitor.
-
On Oct. 4, NWE announced via press release that it revised its Q3 reporting date to the evening of Sunday, Oct. 24. An earnings conference takes place on the following Monday afternoon.
Preliminary Earnings
We wrap up this week’s Event Data Outlook with a household name: The Sherwin-Williams Company (NYSE:SHW). The $78-billion market cap specialty chemicals company in the materials sector has been volatile lately amid several important corporate events.
A Slew of Events, High Trading Volume
First, a 3-for-1 stock split took place earlier this year. Splits are sometimes a bullish sentiment indicator from company management that they expect a higher share price in the coming months and years. Then in June, SHW issued preliminary earnings, but that event was met with selling pressure in the market. The stock bottomed in mid-June near $265. A price uptrend began in the summer despite somewhat disappointing quarterly earnings in July.
Figure 3: Sherwin Williams Stock Price History (1-Year)
Recently, trading volume has been elevated in the wake of a preliminary earnings announcement on Sept. 28. Sherwin-Williams CEO, John G. Morikis, cited industry-wide raw materials availability constraints and pricing inflation as causes for lowering third-quarter and full-year 2021 earnings guidance. What’s more, the profit forecast was impacted by yet another corporate action—the acquisition of Specialty Polymers, Inc.
Earnings Date Analysis
Looking ahead, the SHW event calendar shows a same-store sales report confirmed on Tuesday, Oct. 26. That same day, the company reports Q3 earnings BMO with a conference later in the morning. To say things have been busy for SWH is an understatement!
Considering a recent acquisition and high uncertainty amid a very inflationary environment, traders should closely monitor this earnings report for exceptional share price volatility.
Conclusion
Earnings season is in full swing. While companies are sending positive semiconductor space last month, and logistical challenges indeed face firms today (as shown by unusual earnings dates from NorthWestern and Sherwin Williams). Money managers need to quickly pivot when important corporate event data is released.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.