May 13, 2011
About two-thirds of the first-quarter earnings season is in the books, and it has been another good one. For S&P 500 companies reporting so far, income growth surged 21 percent from a year ago while revenue growth clocked a solid 9 percent gain, a sign that demand is expanding across most sectors of the economy. In my mind, two companies stand out, not because they led the pack but because they are comeback stories.
• General Motors posted earnings in 2010 that were its highest in more than a decade, and last week the company reported first-quarter profit that more than tripled from a year ago to $3.15 billion while revenue surged 15 percent to $36.2 billion. Excluding $1.5 billion of special items – primarily the sale of its interests in Delphi Automotive and Ally Financial – the company’s earnings were $0.95 per share, which beat consensus estimates of $0.93. GM’s performance was fueled by strong demand for new, fuel-efficient vehicles such as the Chevrolet Cruze. Earlier this week, GM announced it will invest $2 billion in 17 factories across eight states and add 4,000 workers by 2014. The U.S. Treasury plans to further reduce its stake in GM this summer and reportedly wants to offload its entire stake by year end. GM has become an important driver of the manufacturing renaissance in the Midwest.
• Macy's, like GM, more than tripled its first quarter earnings versus last year. Earnings per share of $0.30 handily beat the consensus of $0.18 and last year’s performance of $0.09 as the company’s initiatives and merchandise offerings finally paid off. Same-store sales in the quarter rose 5 percent, and Internet sales increased 38 percent. Management increased the dividend, and share repurchases could begin next year. Macy’s performance is good news for the many malls that it anchors, which are seeing increased foot traffic. For years, the story has been retailers at the upper and lower ends of the price-point spectrum capturing market share from the shrinking middle. While that trend is still in place, Macy’s is showing that savvy management, aided by a modest rebound in consumer spending, can establish a beachhead against further erosion and perhaps recapture some of that market share.
The revitalization of these iconic brands remains a work in progress, but they have come a long way from 18 or 24 months ago when the future looked a lot bleaker.
Have a great weekend.
Best regards,
Bob
Robert Bach
SVP, Chief Economist
Grubb & Ellis
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