by David Aurelio.
A historic week saw the Dow Jones Industrials Average (.DJI) close above 20K for the first time, President Trump’s first week in office, and a flood of fourth quarter earnings from 108 S&P 500 constituents. Earnings for the group topped estimates by $9.0 B (+1.2%) and grew 7.3% from 2015 Q4. Revenue was roughly in-line (+0.1%) with expectations and grew 2.8%. The flood of earnings reports provided insight on industrials, homebuilding, and foreign markets.
Capital Goods company United Rentals, Inc. (URI.N) beat 16Q4 earnings expectations by $0.43 with $2.67 per share, up 21.9% from the prior year. Revenue of $1.52 B was flat, but came in 1.8% above consensus. In addition to the top and bottom line beats, United Rentals announced plans to acquire NES Rentals. Shares climbed on the news to $128.26, up 15.4% from the prior week’s close on Jan. 20, 2017.
From a regional perspective, Canada continued to be depressed, but the resurgence in oil and gas were cited as reasons for cautious optimism. United Rentals had positive outlook for growth within the United States that could further strengthen by administrative action.
Mark Kneeland, United Rentals, Inc. – CEO, said in the conference call, “In the US, there’s obviously some industry optimism about the focus of the new administration. In our opinion, it’s too early to call. If the government spending stimulates construction, it will be incremental to a cycle that we already see as positive for our business.”
Mr. Kneeland went on to say, “There are a number of favorable US indicators for 2017, including the Dodge Construction Outlook, contractor backlogs, national surveys by key trade groups, and importantly, CEO confidence surveys. These are the people making spending decisions to create jobs for our customers. IHS Market, our industry’s primary forecasting firm, projects 3% to 4% growth for the US equipment rental industry this year.
This is particularly true in the Southeast, where double-digit revenue growth was driven by commercial construction of warehousing, data centers, and mixed-use facilities. Further up the coast, we are on a casino project, power plants, as well as a major airport expansion.
Out West, we saw nearly $7 B of large multi-year projects start up in California last quarter, with Washington, Oregon, and Arizona expected to follow suit for March. These range from stadiums and transit projects to healthcare, solar, automotive, and corporate campuses.”
Homebuilder PulteGroup Inc. (PHM.N), which is part of the Consumer Durables & Apparel industry group, beat top and bottom line consensus by health margins, 14.0% and 7.3% respectively. 2016 Q4 earnings of $0.67 per share grew 4.7% from the prior year and revenue of $2.49 B was up 20.9%. Home Sales for the quarter came in $2.4 B vs. expectations of $2.26 B. Sales were helped by higher average deliveries price of $391 K that beat the $381.22 consensus, and grew 11% from the prior year.
Ryan Marshall, PulteGroup Inc – President and CEO, provided some insight to the U.S. housing market, “Fourth quarter and full-year 2016 results for PulteGroup and the overall US housing market point to continued growth in housing demand. After several years of strong job formations and low unemployment, supported by favorable demographics, there are signs that housing demand is now being bolstered by an improving economy and recent gains in consumer sentiment.
Against this increasingly positive background, we are mindful that interest rates have been rising over the past couple months. However, coming off such a low starting point, it is certainly reasonable to expect that housing demand can continue to expand, especially if the rise in rates truly reflects increased expansion of the US economy. We are fortunate that the initial increase in rates took place during the seasonal slow point for housing sales.”
Within the Consumer Services industry group, Casino & Gaming operator Wynn Resorts Ltd. (WYYN.O) missed 2016 Q4 earnings expectations by 41.3% with $0.50 per share, which were down 51.5% from the prior year. Despite the substantial miss, shares closed 13.5% higher from Jan. 20, 2017 at $103.08 per share. The strength came from strength in Macau, which helped put 16Q4 revenue of $1.30 B above the $1.26 consensus.
During the conference call, Steve Wynn, Wynn Resorts Ltd. – Chairman & CEO, provided a bullish outlook on China when he said, “I have said this before and I want to repeat it again. It is very important to keep the long view of China. The leadership of that country, and this is also true of Macau, it is a meritocracy, and there are smart people running the government. They don’t move as fast as we do in the United States, especially these days with our new administration. But there is a steady program afoot. You know Xi Jinping decided that it was a priority of his administration to eliminate the perception of corruption that was held by the people with regard to government, and that effort was vigorous and protracted and it did have an effect. But it seemed to be the right thing to do for the right reasons. And it had an effect on luxury brands such as gaming and Louis Vuitton and Chanel and Mercedes Benz and that sort of thing. But the long term thrust of China is inexorable and undeniable, and that’s why we built what we built, and we’re going to build more in the future, because we have real estate to do it. We have a very, very bullish, bullish attitude about China long term for our company. And as we manage our properties, in anticipation of that kind of movement in the general economy, we’re being rewarded. And I think it’s probably a sound way of looking at China and our business long term.”
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