Consumer Products

Earnings Warnings Foreshadow Less-Robust Earnings Season Ahead (AA, BTU, LIZ, LOCM, YHOO, AMZN, EBAY, XRTX, TGT, BBY, TRID, WMT, AAPL, GOOG, MSPD, CSCO, JNPR, FDO)

The next round of earnings officially kicks off next week with Alcoa Inc. (NYSE: AA) first out of the blocks on Monday. We’re taking advantage of the occasion to preview some developments in a number of business sectors.  We have seen some warnings and many other quasi-warnings from companies such as Liz Claiborne Inc. (NYSE: LIZ), Corp. (NASDAQ: LOCM), Peabody Energy (NYSE: BTU), Xyratex Ltd. (NASDAQ: XRTX), Target Corp. (NYSE: TGT), Best Buy Inc. (NYSE: BBY), Trident Microsystems Inc. (NASDAQ: TRID), EMC Corp. (NYSE: EMC), Mindspeed Technologies Inc. (NASDAQ: MSPD), Family Dollar Stores, Inc. (NYSE: FDO) and others.  All of these may set the robust expectations a bit softer than the most wildly bullish expectations for earnings season.

Alcoa Inc. (NYSE: AA) has seen its shares climb back out of a deep hole, returning to the high end of their 52-week range of $9.81-$17.60. The company announced last week that it was restarting production at three of its smelters, creating about 260 new jobs. The company expects to boost production by 137,000 metric tons in 2011.

Alcoa’s outlook for 2011 is positive as well, as aluminum on the London Metal Exchange, LME, reached a two-and-a-half-year high on January 4th of $2,485/metric ton. Prices are expected to climb higher as automakers look to increase fuel economy. Reducing a car’s weight will require more aluminum and less steel, and that’s good for the aluminum industry.

The coal mining business, though, is taking a hit from the flooding in Queensland, Australia. Peabody Energy (NYSE: BTU) has said that it expects 2010 EBITDA to be near the middle of its forecast range of $1.7-$1.9 billion. The previous estimate was $1.9 billion. The rains will eventually stop and the mines will re-open. The question remains how long will that take, and will the price for coal continue to rise once the mines re-open. At least one estimate for metallurgical coal has the price rising in the second quarter of 2011 to $250/metric ton, about 20% higher than today’s price. That should be good news for coal miners everywhere, not just in Australia.

Fashion house Liz Claiborne Inc. (NYSE: LIZ) lowered its outlook for the second half of 2010 and the fourth quarter, from an $80 million operating profit to a range of flat to a -$10 million loss. The company blames the weather and very competitive pricing. The weather will change, of course, but the competitive pricing will remain a factor for the apparel business. Corp. (NASDAQ: LOCM) reported that it posted an EPS loss of -$0.04 on revenue of $19.9 million, far short of its guidance for revenue of $22-$23 million and EPS of $0.20-$0.21. The company attributed the loss to a reduction in advertising revenue from Yahoo Inc. (NASDAQ: YHOO). Competition for local advertising will heat up even more in 2011, as start-ups like Groupon, Foursquare, and others, like (NASDAQ: AMZN) and Ebay Inc. (NASDAQ: EBAY) compete even harder for local businesses’ advertising dollars.