Zacks Analyst Blog Highlights: Boeing, Textron, United Technologies, Honeywell and Saks Incorporated

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Feb 25, 2011, 09:30 ET

CHICAGO, Feb. 25, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Boeing (NYSE: BA), Textron (NYSE: TXT), United Technologies (NYSE: UTX), Honeywell (NYSE: HON) and Saks Incorporated (NYSE: SKS).

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Here are highlights from Thursday's Analyst Blog:

Ugly Durable Goods Report

New Orders for Durable Goods rose 2.7% in January. That was in line with the consensus expectations.

In some ways, this report as the exact opposite of the December report, or the December report as originally reported. The December numbers were all very heavily revised, and revised upwards. It was first reported as a decline of 2.5%, but now they say new orders only fell 0.4%. That does not give me a lot of confidence in this month's numbers.

The good news can be pegged on the extremely volatile Transportation Equipment side, and more specifically, from the Non-Defense Aircraft component, which is often the case when we get an unusually good (or bad) headline durable goods number. That is mostly orders for big 777's and 747's from Boeing (NYSE: BA), which are very expensive items. It also includes orders for business jets from firms like Textron (NYSE: TXT). A few orders for new jumbo jets can really skew the numbers for the month.

Excluding transportation equipment, new orders fell 3.6%, far below expectations for a 0.6% increase. Overall transportation equipment orders were up 27.6%, and more specifically, non-Defense aircraft orders rose a stunning 4900%. No I didn't forget to put in a decimal point. It's just a case of dividing by almost zero.

The non-Defense aircraft numbers are beyond volatile. In December, aircraft orders dropped to almost nothing, falling 97.1% (revised from a 99.5% decline) and that came on the heels of a 59.6% drop in November.

If one want to gauge how much demand for long lasting goods is coming from the private sector, then one needs to strip out orders from the Pentagon. Excluding Defense, orders for durable goods were up 1.9% in January, after falling 0.2% in December. The first read on the ex-Defense number was a decline of 2.5% in December.

Last Month Revised Up Again

While this month's numbers are extremely disappointing -- especially if that aircraft component is stripped out -- last month's numbers were revised sharply higher, and that is the second month in a row that has happened. The December revisions, though, are some of the largest I can recall seeing, and I have been looking at this data and writing about it as it comes out for five years now.

Usually the revisions to the prior month are a few tenths of a percent, not over 2 full percent. The changes in the base for month-to-month changes makes interpreting the current month numbers more difficult.

Looking at the ex-transportation numbers, for example, clearly a drop of 3.6% when a 0.6% increase was expected is a huge disappointment. But the base increased by 3.0% last month, not 0.5%. Net-net, it was still worse than expected, but nowhere near as big a disappointment as the raw number would suggest.

Core Capital Goods

One of the most significant details of this report is what is known as "core capital goods." Those are orders for non-Defense capital goods, excluding aircraft. That is a very good proxy for what businesses are investing in equipment and software.

That investment is a direct input into the GDP growth calculations, and one of the real bright spots for the economy in the first half of the year. That is the sort of spending that is a bet on the economic future of the country, and is also one of the areas that trends to swing with overall economic conditions. Those swings are a big factor in determining if the economy is growing or shrinking.

On that front, the news in January was just plain ugly. Core capital goods orders fell by 6.9%. On the other hand, December was revised up to a gain of 4.3% from the initial report of a 3.1% rise. Still, this has to be counted as a disappointment. If it is not revised away next month, it would be a sign that businesses are pulling in their horns on new investment, and that sure will not help the recovery.

What Else Is Depicted?

While the rebound of non-Defense aircraft is the biggest sector story in this report by a very wide margin, it is not the only one of note. While a total lack of orders for last month can hardly be good news not only for the big names like Boeing, and the big name suppliers like United Technologies (NYSE: UTX) and Honeywell (NYSE: HON), but eventually it is bad news for thousands of much smaller sub-contractors as well.

It is not surprising to see a rebound, as even with higher fuel costs, I don't think the civilian aviation industry was going to disappear entirely, which was what was implied by the December numbers. The Aerospace industry also got some help this month from the Defense side. Orders for defense aircraft rose by 20.6% in December, more than reversing a 11.0% decline in December.

Saks Surpasses Zacks Estimates

Saks Incorporated (NYSE: SKS) delivered fourth-quarter 2010 earnings (excluding one-time items) of 13 cents per share, compared with 6 cents in the year-ago quarter. The Zacks Consensus Estimate was a net loss of 8 cents. The year-over-year improvement in the quarter reflects same-store sales growth and gross margin rate expansion.

On a reported basis, the company posted net loss of 14 cents per share, compared with net loss of 3 cents in the year-ago quarter.

For fiscal year 2010, the company reported earnings of 30 cents per share. Excluding the non-recurring items, the net gain was 19 cents per share compared to a net loss of 40 cents. The Zacks Consensus Estimate was for a net loss of 14 cents.

Guidance Update

Saks anticipates same-store sales to progress at the mid-single digit rate for the full year. Similarly, the company projects inventories on the basis of same-store sales to go up by a mid single digit range throughout the year.

The company forecasts a gross margin of 40.1% for full fiscal year 2011. The company's gross margin is typically higher in the first half than in the second half of the fiscal year.

With respect to the current capital structure, Saks expects an interest expense of $51 million to $53 million for the fiscal year 2011. The company's effective tax rate is expected to be 40.0% at the end of fiscal 2011.

Saks anticipates net capital expenditures to be in the range of $65 million to $75 million for the full year.

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