Earnings Preview: Martin Marietta, Foster Wheeler, Disney Could Issue Positive Surprises

The stage is set for the Fed to leave rates unchanged. The Federal Open Market Committee will hold a one-day meeting on Wednesday, May 9. The weaker-than-expected April jobs report combined with the better-than-expected first-quarter productivity report alleviates concerns about inflation.

The problem with the economic data, however, is that it continues to point to an unsteady pace of expansion. Job and wage growth slowed in April according to the Department of Labor, yet the Institute for Supply Management’s April manufacturing and services indexes suggested notable improvements in employment. Core rates of inflation are tame, but food prices are higher and prices at the pump are obnoxiously high.

Given a PCE (personal-consumption expenditures index) of 2.1%, the Fed does have the ability to soften its stance about inflation. Nonetheless, the committee is likely to still express some hawkishness about the threat of inflation while acknowledging a moderating pace of economic growth. In other words, pretty much more of the same. This said, any change in wording in the statement will be analyzed closely.

The economic calendar will be pretty light outside of the Fed. Consumer credit figures will be released on Monday afternoon. March wholesale trade data will be published on Tuesday morning. Thursday will feature the March trade balance, April import prices and the weekly initial jobless claims report. The week ends with April PPI, April retail sales and March business inventory figures being published.

Earnings season continues though the number of companies reporting is dwindling. Approximately 580 companies are on deck, including Dow component Walt Disney (DIS). Also of note will be tech giant Cisco Systems (CSCO). Both companies will report on Tuesday afternoon.

Median S&P 500 first-quarter profit growth is running at 10.1% with 384 companies having reported. Positive surprises are outnumbering negative surprises by a margin of 3.4:1. For the broader S&P 1500 (S&P 500, S&P Midcap 400 and S&P Smallcap 600), median growth is running at a 9.5%. Based on over1,000 reports, positive surprises are outnumbering negative surprises by a margin of 2.2:1.

So how does this all impact the markets? It’s hard to see the Fed doing anything that would spook investors. Plus, investors are ignoring the old adage of “sell in May and go away” so far and instead are remaining bullish. As a result, the Dow is on pace to extend its streak to 23 gains in 26 trading days. Credit the combination of sustained economic growth, better-than-expected earnings news, merger and acquisition activity and share repurchases for the bullish sentiment

Winning streaks don’t last forever, so enjoy the ride while it lasts.

Companies That Could Issue Positive Earnings Surprises During the Week of May 7 - 11

Martin Marietta Materials (MLM) credited a combination of contained costs and good pricing as the reasons for dramatically increasing its first-quarter guidance. The construction products company now expects to report earnings within a range of 70 to 73 cents per share versus its previous forecast for profits within a range of 36 to 52 cents per share. Analysts quickly adjusted their projections and pushed the consensus estimate up to 72 cents per share from 50 cents per share. MLM has delivered positive surprises for four consecutive quarters. Martin Marietta Materials is scheduled to report on Tuesday, May 8, before the start of trading.

One of the five covering analysts recently raised his first-quarter forecast on Foster Wheeler (FWLT). The revision caused the consensus estimate to rise by two cents to 75 cents per share. The Most Recent Consensus is more bullish at 81 cents per share. The engineering company has exceeded expectations for three consecutive quarters. Foster Wheeler is scheduled to report on Wednesday, May 9, before the start of trading.

Three brokerage analysts have raised their forecasts ahead of Walt Disney’s (DIS) first-quarter report. The entertainment conglomerate is expected to report profits of 36 cents per share, a penny above the average forecast of a month ago. The Most Recent Consensus is more bullish at 39 cents per share. DIS has exceeded expectations for 15 consecutive quarters. Walt Disney is scheduled to report on Tuesday, May 8, after the close of trading.

Companies That Could Issue Negative Earnings Surprises During the Week of May 7 – 11

Alcatel-Lucent (ALU) recently preannounced a year-over-year decline in first-quarter revenues of 12% (based on constant currency rates). The company also expects to report an adjusted operating loss of approximately €260 million ($341 million). Three of the eight covering brokerage analysts have revised their forecasts, causing the consensus estimate to drop to a loss of one cent per share. The company missed fourth-quarter profits by two cents per share. Alcatel-Lucent is scheduled to report on Friday, May 11, before the start of trading.

Weakness in the housing sector, and winter weather, caused Beacon Roofing (BECN) to warn. The company expects to report a fiscal second-quarter loss of 14 to 16 cents per share; analysts had been expecting a profit of two cents per share. Four analysts cut their projections following the warning, causing the consensus estimate to fall to a loss of 15 cents per share. BECN has missed estimates for two consecutive quarters. Beacon Roofing is scheduled to report on Tuesday, May 8, before the start of trading.