Consumer Spending May Be Returning to Normal

 

When the economy screeched to a halt late last year, so did consumer spending, which accounts for 70 percent of all U.S. economic activity. That’s why the latest string of quarterly reports will be closely watched for any indication that consumers feel more confident about parting with their money.

Consumers curbed their spending to an unprecedented degree as they worried about declining home values, tight credit and unemployment. But recent data indicates the worst may be over. The government reported last month that consumer spending rose in February. It was the second month in a row spending rose, following half a year of declines.

Among the major companies reporting earnings, Visa Inc. and MasterCard Inc. will likely offer some insight into spending habits. VF Corp. is scheduled to report, too, providing some visibility into overall apparel sales.

Furthermore, next week is set to bring significant economic data, including first-quarter gross domestic product figures and consumer confidence estimates, giving an even better picture of the economy.

Sam Stovall, a chief investment strategist of U.S. equity research for Standard & Poor’s, said quarterly reports and economic indicators next week will help investors who are trying to look six months down the line for any let up in the recession.

“If they feel good about what they see, chances are they are going to be voting with their wallets,” he said.

Whirlpool Corp.

— Why it’s important: Whirlpool is the world’s largest manufacturer and marketer of major home appliances, and its performance is often reflective of the industry as a whole. Consumers can keep their major kitchen and laundry equipment for 10, 15, 20 years or more, so there is strong competition for their dollars among appliance makers.

— When it will report: Mon., April 27.

— What the experts say: On average, analysts polled by Thomson Reuters expect Whirlpool to post a loss of 18 cents per share on revenue of $3.95 billion. In the same quarter of last year, the company recorded a profit of $1.22 per share on revenue of $4.6 billion.

— You’ll know the economy is improving if: Whirlpool reports that contractors are buying more of its appliances. Many of the company’s appliances are purchased by contractors that build new homes. If home builders are buying more appliances, it could mean the domestic housing industry is starting to rebound.

— You’ll know the economy is not improving if: Appliance sales continue to falter. As large-ticket items, appliances are one of the first purchases consumers put off during a downturn, especially if their older appliances can be repaired. If Whirlpool’s sales show no improvement here, it could indicate that the economic recovery hasn’t arrived yet.

— The quote: “We believe appliance sales in Europe or North America are unlikely to show positive year-over-year growth until 2010,” said Ken Leon, homebuilders analyst with Standard & Poor’s Equity Research.

VF Corp.

— Why it’s important: Jeans are an American staple, and VF’s results should provide a good indication of how they’re selling. The company makes jeans under brands ranging from low-priced Wrangler to premium Seven for All Mankind. One of the largest apparel makers, VF also makes North Face outerwear and Vans footwear.

— When it will report: Tues., April 28.

— What the experts say: On average, analysts polled by Thomson Reuters expect VF to post a profit of 94 cents per share on revenue of $1.74 billion. In the same quarter of last year, the company recorded a profit of $1.33 per share on revenue of $1.85 billion.

— You’ll know the economy is improving if: VF says retailer destocking of inventory has bottomed out or that consumer demand has stabilized or increased. Any uptick in sales could indicate shoppers are spending more on basics such as jeans, a category that has been weak for VF.

— You’ll know the economy is not improving if: The company reports a slowdown in its outdoor division, which includes Jansport backpacks, North Face, Vans and other brands. That division is the company’s strongest, and any weakness there could signal consumers are still cutting back.

— The quote: “I expect good results from VF driven by their brands like North Face outperforming,” said Wedbush Morgan analyst Jeff Mintz. “But the bigger jeans brands like Wrangler and Lee will provide a good read into how the overall consumer is doing.”

Time Warner Inc.

— Why it’s important: The media giant has a large presence in cable TV networks with CNN and TBS; movies with its Warner Bros. studio; the Internet through AOL; and magazines run by Time Inc. That makes it a good barometer of the health of the advertising market and a gauge of how consumers are choosing to entertain and inform themselves during tough times.

— When it will report: Wed., April 29.

— What the experts say: On average, analysts polled by Thomson Reuters expect Time Warner to post a profit of 38 cents per share on revenue of $6.8 billion. In the same quarter of last year, the company recorded a profit of 66 cents per share on revenue of $11.42 billion. But the company spun off Time Warner Cable Inc. last month, so the two quarters aren’t directly comparable.

— You’ll know the economy is improving if: Advertising trends improve, which would indicate that companies are betting consumers will loosen their pursestrings. Movie theater revenues in the U.S. and Canada are up 17 percent so far this year, so some of the gloom may already be lifting.

— You’ll know the economy is not improving if: Time Warner’s advertisers pull back on ads, suggesting they expect smaller returns for their marketing dollars or are tight on cash. If home video sales worsen, it could mean consumers are cutting back on discretionary spending.

— The quote: “We’re entering 2009, I think we all know it, with the most economic uncertainty and the least visibility in most of our memory,” said Time Warner CEO Jeffrey Bewkes.

Visa Inc. and MasterCard Inc.

— Why they’re important: Visa and MasterCard get most of their revenue from processing payments made with credit, debit and prepaid cards that carry their brand names. Their results are a good indicator of overall transaction volume and, by extension, consumer spending.

— When they will report: Visa reports fiscal second-quarter results Wed., April 29. MasterCard reports first-quarter results Fri., May 1.

— What the experts say: On average, analysts polled by Thomson Reuters expect Visa to post a profit of 64 cents per share on revenue of $1.61 billion. In the same quarter of last year, the company recorded a profit of 52 cents per share on revenue of $1.45 billion.

On average, analysts expect MasterCard to post a profit of $2.61 per share on revenue of $1.21 billion. In the same quarter of last year, the company recorded a profit of $2.59 per share on revenue of $1.22 billion.

— You’ll know the economy is improving if: The companies say payments volume and the number of processed transactions, two key metrics, are stronger in the current quarter. That would be a sign that the consumer spending falloff is slowing or reversing.

— You’ll know the economy is not improving if: The companies provide data on the current quarter that suggests credit card usage isn’t improving from last quarter. That would indicate that consumers are still keeping their wallets shut.

— The quote: “The emergence and resilience of the growth of debit (card usage) has been a major reason why we have been able to sustain growth over this long period of time and even during this very challenging economic period,” said Byron Pollitt, Visa’s chief financial officer. “The type of payment volume that appears on debit is much more nondiscretionary than what you see with credit.”

Procter & Gamble Co.

— Why it’s important: Cincinnati-based P&G is the world’s largest consumer products maker, with a broad portfolio of famed household brands such as Pampers diapers, Crest toothpaste, Tide detergent and Gillette razors. Its products are largely nondiscretionary but because they are in nearly every household, they provide a good reflection of how severely consumers are curbing spending.

— When it will report: Thurs., April 30.

— What the experts say: On average, analysts polled by Thomson Reuters expect P&G to post a profit of 80 cents per share on $18.88 billion in revenue. In the same quarter of last year, the company recorded a profit of 82 cents per share on revenue of $20.46 billion.

— You’ll know the economy is improving if: Sales improve for P&G’s more discretionary products, such as CoverGirl cosmetics and fragrances such as Hugo Boss and Dolce & Gabbana. Discretionary items are the first purchases consumers trim from their budgets during a downturn. A recovery there would indicate rising consumer confidence.

— You’ll know the economy is not improving if: The company’s budget brands, such as Gain detergent and Luvs diapers, again increase sales while the likes of Tide and Pampers struggle, or if P&G reports more competition from private-label brands. That would suggest price is dictating household purchasing.

— The quote: “We believe that the road ahead for P&G (as well as for the rest of the U.S. household and personal products industry) will likely remain difficult as calendar 2009 progresses, straining the top line and causing the company to accelerate cost-cutting efforts,” said Ali Dibadj, an analyst with Sanford C. Bernstein & Co.

Exxon Mobil Corp.

— Why it’s important: Exxon Mobil is the world’s largest publicly traded oil company, and it produces about 3 percent of the world’s oil. It also is the largest global refiner and marketer of petroleum products such as gasoline, but it generates more than two-thirds of earnings from oil and gas production.

— When will it report: Thurs., April 30.

— What the experts say: On average, analysts polled by Thomson Reuters expect Exxon to post a profit of 94 cents per share on revenue of $54.03 billion. In the same quarter of last year, the company recorded a profit of $2.03 per share on revenue of $116.85 billion.

— You’ll know the economy is improving if: Exxon Mobil maintains or even accelerates its aggressive investment in new oil and gas projects. That would indicate the company sees signs of a recovery in oil prices, and indirectly, consumer spending. Crude prices are now about a third of what they were last summer, pulled down by the global financial crisis.

— You’ll know the economy is not improving if: The company delays or cancels some projects, which would suggest Exxon Mobil thinks the worst is still to come.

— The quote: “The energy industry is a long-term business that requires decisions to be made with a time horizon that is measured in decades rather than months or years and that spans multiple business cycles,” the company said in its recently released 2008 Financial & Operating Review.

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Associated Press Business Writers James Prichard in Grand Rapids, Mich.; Ryan Nakashima in Los Angeles; Eileen AJ Connelly in New York; Dan Sewell in Cincinnati; and John Porretto in Houston contributed to this report.

4/25/2009 1:01 PM MAE ANDERSON AP Business Writer NEW YORK