Connecting The Dots

By: Tony Sagami | Thu, Jul 14, 2005
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Acxiom announces Q2 shortfall, job cuts.
Coachmen warns of Q2 loss, cuts jobs
Foamex "significantly" cuts Q2 expectations

The big story of the day was not the extensive damage to Gulf of Mexico oil rigs or the sharp spike in the price of oil back over $60. The most important story of the day is how Wall Street continues to follow the Mr. Magoo see-no-evil strategy of investing.

Oil prices jumped by $1.70 to $60.62.

After all, the bulls figure, there's no reason to let something as insignificant as sky-high energy prices put a damper on the stock market party.

Instead, the bulls focused their attention on the good earnings reports from Pepsi, Genentech, and Ameritrade.

Let me give you an idea of how discombobulated the Wall Street thinking are these days. The S&P 500 Retail index jumped by 1.1% today, which is completely insane on a day that the price of oil soared above $60 a barrel.

What do the Wall Street knuckleheads think that Americans fill their gas tanks up with? Don't they understand that whatever extra money Americans spend on gasoline doesn't get spent at Wal-Mart or Target or Toys R Us?

Some retailers may be doing just fine, but it makes zero sense to me to jump on the retail bandwagon when such an obvious and strong wind is blowing in their faces.

The Dow Jones closed the day with a 5-point loss but the Nasdaq managed to advance by 7 points.

I heard a couple "experts" describe the market's ability to shrug off $60 oil today as proof that the bull market is intact. I consider it proof that Wall Street is run by people more interested in trading paper than understanding the underlying businesses they are investing in.

Acxiom announces Q2 shortfall, job cuts. Acxiom makes marketing and security software for businesses. Apparently, Acxiom isn't selling much software because it announced today that its Q2 profits would fall short of expectations and that it will reduce its workforce by 250 workers.

Acxiom said it expects to report 6 cents of profit on $310 million of sales, well below the 16 cents of $324 million of sales that Wall Street was expecting. And that is a far cry from the 14 cents Acxiom made last year.

The problem? Acxiom blames weak European sales.

"Our European business experienced revenue erosion that led to a reduction of approximately $4 million in profit compared to the first quarter a year ago."

What I think you're seeing is the first casualty of the dollar's 13% YTD rebound against the euro. Without the currency wind at its back, U.S. exporters are going to suffer the other edge of the currency sword.

I think you're going to hear a lot of other heavy exporters complaining about their European sales in the next few weeks.

By the way, Acxiom may not be a household name, but it is can count Accenture, Hewlett Packard, TransUnion, and IBM as it corporate partners.

Coachmen warns of Q2 loss. Gee, that sounds awful familiar.

Motor home maker Coachmen warned last night that it expects to report a $500,000 to $1.5 million Q2 loss.

What's the problem? Weak end demand, which is an excuse that I expect you're going to hear a lot more of in the next few weeks.

"During the second quarter, the RV Group continued to experience sales and margin pressure due to an industry-wide softening of wholesale shipments."

Coachman also admitted that its will fall short of Wall Street's full-year 2005 expectations of $1 to $1.05.

"Due to the current uncertainty in both of our core businesses, at this point, the second half of 2005 cannot be forecast with any degree of accuracy."

Coachmen's Q2 hairball isn't a surprise to anybody that has paid attention to the industry. I say that because:

==> In May, Coachmen laid off 13% of its salaried positions and 10% of its hourly work force.

==> Last week, Fleetwood Enterprises -- the largest motor home manufacturer in the country -- warned of a slowdown in shipments to dealers.

For those of you playing connect the dots at home, be wary of Fleetwood Motor Homes, Monaco Coach, Winnebago, and Thor Industries.

Foamex "significantly" cuts Q2 expectations. As the name implies, Foamex makes foam rubber, such as the blue padding that goes underneath carpets.

The foam business, however, is not very robust.

Foamex told Wall Street today to "significantly" reduce its Q2 expectations.

The problem? An excuse that you should be pretty used to hearing these days: soaring raw materials prices and weak demand.

"For the past year, Foamex has encountered rising chemical raw material costs and unrelenting market pressures."

"As a result, the Company said that it has significantly reduced its earnings expectations for the second quarter of 2005."

Foamex is a fairly small company and I don't think it has any special connect-the-dots significance.

However, you should pay attention to their lament about rising raw materials costs because you're going to hear the same thing from a lot of other companies.


 

Tony Sagami

Author: Tony Sagami

Tony Sagami
Harvest Advisors.

Tony Sagami

Tony Sagami is the owner and founder of Harvest Advisors, an investment research and money management company. Sagami has been managing money for more than 20 years and is one of the early pioneers in the application of technical and quantitative analysis to mutual funds and stocks.

Tony is a man that wears several hats. In addition to Harvest Advisors, he has launched several successful technology companies. Tony is the owner of Monocle Systems, a popular investment analytical software program that has been used by thousands of professional money managers and sophisticated individual investors. Tony is also co-owner of AdvisorSquare, one of the largest web design and hosting companies in the world.

Tony is a frequently quoted expert, appreciated for his frank and unconventional view. Tony has appeared in publications such as the Wall Street Jouranl, Barrons, Kiplingers, Smart Money, Business Week, New York Times, Washington Post, Investors Business Daily, Bloomberg, Financial Planning Times, Mutual Funds Magazine, Chicago Tribune, LA Times, and many others.

A graduate of the University of Washington, Tony enjoys coaching youth sports, serving his community as an active Rotarian, and exploring the all the beauty that Montana has to offer. Tony is a Paul Harris Fellow, an Eagle Scout, and married to his first-and-only wife and father of 4 wonderful kids.

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