Mattel to AutoNation Show Consumers Drive S&P 500 SalesChris Burritt
Consumer companies from Mattel Inc. to AutoNation Inc. are beating analysts’ sales estimates by the broadest margin in the Standard & Poor’s 500 Index as shoppers help spur growth in the U.S. economy.
About 70 percent of consumer companies beat sales projections in the early stages of first-quarter earnings reports, compared with less than half in most other industry groups, according to data compiled by Bloomberg. Through yesterday, 111 of the S&P 500 companies had reported results.
The strongest consumer spending in two years probably helped the economy accelerate in the first quarter, according to the median estimate of economists surveyed by Bloomberg. The U.S. unemployment rate last month reached a four-year low while existing-home prices jumped the most since 2005. The benchmark S&P 500 index posted its biggest quarterly gain in a year, giving more people the ability to buy toys, cars or houses.
“The consumer has more wiggle room,” said Patricia Edwards, chief investment officer for Bellevue, Washington-based Trutina Financial, which owns stakes in Coca-Cola Co., Kimberly-Clark Corp. and Starbucks Corp. among $357 million in assets. “A lot of little things are making it just a little better.”
Mattel, the world’s largest toymaker, posted its biggest revenue growth in 1 1/2 years on demand for Monster High and American Girl toys while Hasbro Inc. yesterday recorded its first sales gain in a year. Low interest rates helped auto sellers AutoNation and CarMax Inc. and homebuilder Lennar Corp.
Netflix Inc., the online video-subscription service, and Coach Inc., the biggest U.S. luxury handbag maker, were today’s biggest gainers in the S&P 500 after both reported earnings that exceeded estimates and sales growth. Netflix surged as much as 25 percent to become this year’s top performer in the index.
“The housing rebound has given consumers a sense of worth and stability around their biggest asset: their home,” AutoNation Chief Executive Officer Mike Jackson said in a Bloomberg Television interview on April 18. “For the automotive recovery, we still think we’re in the early innings,” he said in a separate telephone interview.
Growth is uneven, with some Americans limiting purchases to basics. Analysts estimate Wal-Mart Stores Inc., the world’s largest retailer, will increase first-quarter sales 2.8 percent, its slowest growth in nine quarters, in next month’s report. And while dollar-store chain Family Dollar Stores Inc. beat analysts’ revenue estimates, it trailed profit forecasts as customers focused on necessities, Chief Executive Officer Howard Levine told analysts April 10.
The positive sales surprises are occurring in both main consumer groups: the staples category that includes food and beverage companies, and the discretionary category that includes retailers, hotels and makers of cars, clothing and appliances.
Analysts probably expected more of a negative effect from increases in payroll taxes and talk of government spending cuts, said Nick Raich, chief executive officer of the Earnings Scout, an independent economic research firm based in Cleveland.
“The U.S. consumer has been fairly resilient despite the uncertain macroeconomic backdrop,” Raich said.
Commerce Department data this week may show consumer spending, which accounts for about 70 percent of the economy, grew at a 2.8 percent annual rate from January through March, the most since the first quarter of 2011. Gross domestic product may have risen at a 3.1 percent rate after a 0.4 percent pace in 2012’s final quarter, based on the median estimate of 67 economists surveyed by Bloomberg ahead of the April 26 report.
There’s a risk the consumer spending may not hold up. Retail sales fell in March by the most in nine months, pointing to a slowdown as the quarter drew to a close. Economists on average project GDP growth of 2.4 percent in the second half.
At Bentonville, Arkansas-based Wal-Mart, sales returned to normal by the end of February after being hurt by delayed tax returns the previous month, Chief Financial Officer Charles Holley told analysts March 12. A Feb. 12 internal e-mail reported by Bloomberg News had called month-to-date sales a “total disaster.”
Of 10 main groups in the S&P 500, only three have a majority of their companies beating sales estimates so far: the consumer-discretionary and consumer-staple sectors, each at about 70 percent, and information technology at 56 percent.
The consumer groups are posting a higher percentage of sales surprises than in the previous quarter, when 61 percent topped estimates, according to the data compiled by Bloomberg. In terms of earnings, 73 percent of companies reported through yesterday exceeded forecasts, in line with the previous quarter.
The benchmark S&P 500 index ended the first quarter with a gain of 10 percent, its best performance in a year, and reached a record closing price of 1593.37 on April 11.
“Investors are once again feeling their way into the market, but they are doing so by favoring the more defensive consumer sectors, staples and discretionary in particular,” Stanley Nabi, vice chairman of Silvercrest Asset Management Group in New York, said by e-mail last week. He helps manage more than $11 billion.
With low interest rates and improving stock markets, analysts predict Miami-based homebuilder Lennar may boost sales 41 percent this year, its biggest gain in 13 years, according to the analysts’ average estimate.
New-home construction in the U.S. climbed in March to the highest level in almost five years, the Commerce Department reported on April 16.
“We believe we are still in the beginning stages of a recovery that will be sustained for several more years,” Lennar CEO Stuart Miller told analysts on a conference call March 20.
Fort Lauderdale, Florida-based AutoNation, the largest U.S. retailer of new cars and trucks, reported $4.1 billion in sales for the quarter, exceeding the average estimate of $4.03 billion. Hasbro, based in Pawtucket, Rhode Island, reported yesterday it boosted sales 2.3 percent, more than analysts predicted, on demand for My Little Pony dolls and Play-Doh clay.
Coca-Cola shares jumped the most in more than four years when the Atlanta-based company’s first-quarter earnings and sales topped estimates on April 16.
Coca-Cola is “optimistic, guardedly optimistic, that the consumer is coming back,” Steve Cahillane, president for the Americas, told analysts on a conference call. The company expects “continued good performance as we go out into the next three quarters.”