Boston College Investment Club

1
Miguel Hendrickson October 30, 2006
2
Hypothetical Question

• Two companies announce earnings on the same day,
  how would their stock prices move?
• Company A
• Sales up 20
• Net Income up 10
• Earnings per share 1.00
• Company B
• Sales down 10
• Net Income down 5
• Earnings per share .05

3
Earnings Update

• In the middle of 3Q Earnings season
• Public companies report on a quarterly basis
• Required to do so by the SEC
• How to find a 10k or 10q
• www.sec.gov
• As of Friday, 309 companies in the SP 500 Index
  had reported results, with 94 reports scheduled
  for this week.
• So far, according to Thomson Financial, 74 of
  companies have beat earnings estimates, 11 have
  matched, and 15 have fallen short of
  expectations.

4
Earnings Update

• AVAYA (AV) 10/24/06
• NI 448MM, down from 600MM YOY
• Revenue up 5
• EPS .17/share, beating expectations of
  .13/share

5
Earnings Update

• Anheuser-Busch (BUD) 10/26/06
• Net Income up 26 to 637.5MM from 504.8MM, YOY
• .82/share versus .65/share from 3Q 2005
• Beat Wall Streets estimates of .81/share

6
Earnings Update

• Caterpillar (CAT) 10/20/06
• Revenue of 10.517b, and NI of 769M. 17
  increase and 21 increases compared to 3Q 2005,
  respectively.
• EPS 1.14

• Missed Wall Street targets and cut forecasts
• for profitability and growth

7
Earnings Update

• FEMSA (FMX) 10/30/06
• Sales up 13.9,
• NI of 176MM, up 11.3 from 2005
• EPS 1.486
• Announced they
• would buy another
• 8 stake in Coca-
• Cola FEMSA (KOF)

8
Earnings Update

• IHOP (IHP) 10/25/06
• NI 11.3M, down 5.4 from 11.9M
• EPS was .62, unchanged from 2005
• How is this possible??
• Raised full-year guidance to a range of 2.35 to
  2.40 per share, from 2.25 to 2.35

9
Earnings Update

• Regis Corp (RGS) 10/25/06
• 4 increase in profits compared to 2005
• EPS of .50 beating forecasts of .48
• Cut full year forecasts and was downgraded by
  analysts at KeyBanc CM from buy to hold

10
Earnings Update

• Winnebago (WGO) 10/12/06
• Revenue falls 11
• NI fell from 15.4MM to 9.3MM
• Analysts expected profit of .40 per share but
  their EPS was only .30.
• Increased dividends gt what does this signify?
• Shares fell about 7.7

11
Key Takeaways

• Results have to beat the Street for stock price
  to rise
• Disappointing forecasts for the future lead to
  decreases in stock price (even if current quarter
  was great)
• Managements forecasts are used by research
  analysts to model the companies profitability and
  to make sell, hold, buy recommendations