Post June Jobs Report, Eyes on Earnings and SEMICON West This Week

Last Week
Friday’s job report, which was simply bad in many different ways in my view, capped a quiet week on Wall Street in terms of trading volume if not data flow. To me one of the most illuminating ways to look at the recent string of employment reports is to view them on a trailing quarterly basis. When viewed from that perspective we see that only 225,000 non-farm jobs were created in 2Q2012, down significantly from 677,000 jobs in 1Q 2012. Simply put the vector or direction and magnitude of job creation is in the wrong direction and does not support the would be view of “moving forward.”

The June Employment report was the latest report that showed a deceleration is occurring in the U.S. economy. Early last week, we learned the manufacturing economy contracted in June, marking the first time this has happened since July 2009 according to The Institute for Supply Management. Add in the string of weaker data on the European and Asian economies in recent weeks and I am surprised that it took even the always “blue skies” International Monetary Fund this long to cut its global economic forecast.

Speaking in Tokyo, IMF Managing Director Christine Lagarde said “The global growth outlook will be somewhat less than we anticipated just three months ago.” While many have their eyes turned on Europe and it current economic contraction and increasingly on the U.S. following last week’s dismal indicators, Lagarde correctly warns that Brazil, China and India are showing signs of slower growth as well. Per IMF data, those three countries along with Russia will comprise more than 20% percent of the world economy this year.

Already we have ample proof that the slowing global economy is taking its toll. During the last weeks in June, a number of companies – including Procter & Gamble Co. (PG), Best Buy Co. Inc. (BBY), O’Reilly Automotive Inc. (ORLY), AK Steel Corp. (AKS), FedEx Corp. (FDX), Family Dollar Stores Inc. (FDO) and Nike Inc. (NKE) – have warned of weaker-than-expected results or adjusted their outlooks in a downward fashion. Characteristic of most corporate earnings seasons, the number of reports will trickle in and then several days in we will be hit with a landslide of companies reporting second-quarter results. If what we have heard thus far is any indication of what is to come, fasten your seat belts as it’s going to be a bumpy ride over the next few weeks. While some investors like to close their eyes and shut their ears once they have made their stock selections, that is simply foolish behavior. Competitors, customers and suppliers of the companies in which we invest provide timely, crucial information that helps give confirmation or warning ahead of when our held companies report their results.

The Week Ahead

Monday marks the official start of 2Q 2012 corporate earnings as Alcoa (AA) reports its second quarter results. As tends to be the case, corporate earnings reports will start off with a trickle and build into an avalanche of reports. Even if none of the companies an investor owns is broadcasting its results this week, I find it worthwhile to breakdown any and all customer, supplier or competitor earnings reports in order to double check my investing theses. With this in mind, investors will be watching Yum! Brands (YUM) closely as a gauge for growth prospects in China, which also happens to be a key growth area long-term for Burger King (BKW) as well as Starbucks(SBUX). Similarly, commentary from SemiLEDS on light emitting diode (LED) volumes and pricing will weigh heavy on Cree (CREE) as well as Rubicon Technology RBCN).

Aside from formal earnings announcements (see below for some of the more noteworthy ones), investors will also be listening to management presentations this week at SEMICON West 2012, which runs through July 10-12 in San Francisco. While keynotes will be heard from Intel (INTC), Applied Materials (AMAT) and Xilinx (XLNX) over the three days, a flurry of press releases touching on industries and companies that serve them — semiconductors and semiconductor capital equipment, LEDS, photovoltaics/solar, and more — are likely ahead this week. Given improving demand for semiconductor capital equipment, particularly for next generation 28 nanometer equipment, commentary from Applied Materials, Lam Research (LRCX), KLA-Tencor (KLAC) and others will be closely watched and dissected.

Monday, July 9
Consumer Credit (May)
Alcoa Inc. (AA)
PriceSmart Inc. (PSMT)
WD-40 Co. (WDFC)
Yum! Brands Inc. (YUM)

Tuesday, July 10
SEMICON West 2012
Helen of Troy Ltd. (HELE)
SemiLEDS Inc. (LEDS)

Wednesday, July 5
SEMICON West 2012
MBA Mortgage Index (Weekly)

Thursday, July 12
SEMICON West 2012
Weekly Initial & Continuing Jobless Claims (Weekly)
Fastenal Inc. (FAST)

Friday, July 13
Producer Price Index (June)
Michigan Sentiment Index (July)
Educational Development Corp. (EDUC)
JP Morgan Chase & Co. (JPM)
National Beverage Corp. (FIZZ)
Wells Fargo & Co. (WFC)


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