Existing Home Sales beginning to gain momentum

Sales of existing homes rose a modest 0.4 percent in January from December to a seasonally adjusted 4.92 million, according to a report released Thursday by the National Association of Realtors.

January’s level is more than 9 percent above the 4.51 million units sold the same period last year.

The report shows signs of life for the housing market, which got off to a discouraging start with last month’s 8.5 percent drop in new home construction.

Foreclosures and short sales combined for 23 percent of existing home sales last month, down substantially from 35 percent this time last year.

Last month, the U.S. median existing-home price rose 12 percent to $173,600 from the year-ago period, the largest surge since November 2005. The swell was assisted by several factors, most notably a drop in distressed homes on the market, emptying inventories and progressing buyer demand.

Total housing inventory fell 5 percent in January to 1.74 million units. At its current rate, inventory amounts to a 4.2-month supply of homes, 2 months fewer than a year ago.

Savings realized in purchases of distressed homes remains noticeable. Foreclosures were reduced 20 percent in January and short sales sold 12 percent below market value.

The reduction in foreclosures and housing inventory could point to a shift in momentum for the housing market.

“Buyer traffic is continuing to pick up, while seller traffic is holding steady,” said Lawrence Yun, chief economist at the National Association of Realtors.

“In fact, buyer traffic is 40 percent above a year ago, so there is plenty of demand but insufficient inventory to improve sales more strongly.”

There has been a regional rise in home sales prices since January 2012. While the West has not experienced a rise in total sales, the 26.6 percent sales price increase is welcomed news for a region that has been flooded by foreclosures since 2009.

The Midwest saw a modest rise in existing home sales in January, specifically Illinois. The state has experienced a recent boon in existing home sales, a more than 31 percent surge from this period a year ago.

The median price for existing homes in the state also increased during the past year, ending January at $125,000, or up 1.2 percent from January 2012’s total of $123,500.

But analysts contend that the housing recovery on the national, regional and local levels could be negatively impacted by how Capitol Hill responds to our current national debt.

“The higher probability that sequestration will be realized means U.S. growth in 2013 likely will be about a quarter point slower than previously estimated,” Michael Feroli, chief U.S. economist at JPMorgan Chase in New York, said in a Feb. 14 research note.

Leading indicators index: Moving forward, but moderate momentum

Scott Kitun/The Medillian

Scott Kitun/The Medillian

The Conference Board Leading Economic Index rose slightly in January, forecasting a slow but steady growth for the nation’s economy.

The Index rose 0.2 percent in January to 94.1, down from a 0.5 percent rise in December.

“The indicators point to an underlying economy that remains relatively sound but sluggish,” Ken Goldstein, economist at The Conference Board said.

For consecutive months, the index rose, suggesting a slow but deliberate expansion in economic activity. Manufacturers’ new orders and consumer expectations were weak in January, but improvements in housing permits and financial components contributed to the modest index boost.

“Credit use has picked up, driven in part by relatively strong demand for auto loans. The biggest positive factor is housing. The housing market is now at twice the level reached during its recessionary lows,” Goldstein said.

The index is constructed to identify turning-point patterns in economic data in a more efficient manner than any individual components.

The leading economic index is a composite average of several individual leading indicators. Some of those indicators include manufacturers’ new orders, nondefense capital goods excluding aircraft orders and building permits.

“The higher probability that sequestration will be realized means U.S. growth in 2013 likely will be about a quarter point slower than previously estimated,” Michael Feroli, chief U.S. economist at JPMorgan Chase in New York, said in a Feb. 14 research note.

The Standard & Poor’s 500 Index fell 0.7 percent to 1,500.89 following the release of the Conference Board Leading Economic Index.

Slowing global economy stalls Cummins profit engine

Cummins Inc CMSCummins Inc., pinched by a slowing global economy,said Wednesday that fourth quarter earnings dropped 30 percent, with sales declining in most of the engine maker’s core business segments.

Cummins reported net income of $381 million, or $2.02 per diluted share, down from $548 million or $2.86 per diluted share, in the year-ago quarter. Revenue fell 13 percent to $4.29 billion, from $4.92 billion a year ago.

While Cummins’ fourth quarter was far from stellar and its sales prospects remain ambiguous given the uncertain global economy, Wednesday’s results significantly outperformed Wall Street predictions.

Analysts polled by Thomson Reuters had expected Cummins’ fourth quarter earnings of $1.75 per share, on revenue of $4.04 billion.

“We knew what the US economy was doing, but we really had to wait cautiously to see how the global economy would hit them [Cummins],” High-Point Financial analyst Brad Schaffnit said.

The heavy-duty truck engine maker blamed its revenue decline on a weak global economy.

More specifically, it pointed to the economy’s impact on truckengine demand. Cummins is heavily reliant on international construction, power generation, truck and mining engine demands. Compared to the $2.96 billion in total engine sales this time last year, Cummins’ sales slipped 18 percent to $2.51 billion.

“Like every other company in that industry, until the global economy shows signs of growth, Cummins is in wait and see mode,” Schaffnit noted.

While analysts polled by Thomson Reuters have been forecasting a 2 percent rise in 2013 revenue from Cummins, the company on Wednesday said it expects revenue to remain relatively flat, or even decline slightly, in the new year.

“Unlike what we saw in 2012, with a strong first half and weak second half of the year, I expect this year to be the opposite. It would not be unreasonable to expect first half sales to be down 10 percent year over year and first quarter could be tougher than that, but then we expect some recovery in the second half, possibly up 5 percent over last year,” Executive Director of Investor Relations Mark Smith said in a conference call with analysts Wednesday.

Company executives recently outlined cost-saving methods to combat the declining engine demands caused by a weakened global economy.

The Columbus, Ind. company announced Wednesday it has scaled its workforce back 3 percent by cutting 650 employees.

“The work we have undertaken to reduce costs and lower inventory should benefit the company when the global economy improves,” Linebarger said in a conference call with analysts.

Engine demand is not much better at home for Cummins, given the commercial truck sector’s reduction in truck purchases due to the US economic uncertainty, especially as it relates to freight volume.

“There is uncertainty surrounding the timing and pace of improvement in end markets in 2013,” Linebarger added.

Net income for full-year 2012 was $1.66 billion or $8.74 per diluted share, down from $1.85 billion or $9.55 per diluted share last year. Revenues for the full year were $17.3 billion, down 4 percent from 2011.

In New York Stock Exchange trading Wednesday, Cummins shares closed up $2.99, or 2.6 percent, at $120.38.

Constellation Brands ride trading roller coaster Wednesday

Constellation Brands, whose portfolio includes Mondavi Wines and Svedka Vodka brands, reported stronger than expected fiscal third-quarter earnings Wednesday, helped by a sharply lower tax bill. Shares of Constellation Brands Inc. rose in morning trading then fell to close lower.

The company boosted advertising for Modelo, a Mexican beer that Constellation distributes. It was the first ever English-language campaign for Modelo, company executives said.

“We are gaining market-share and have strong marketplace momentum,” CEO Rob Sands told analysts in a conference call. “We are well on our way to reaching our financial goals for the year.”

In the quarter ended Nov. 30, Constellation earned $109.5 million, or 58 cents per diluted share, a 4.5 percent increase from $104.8 million, or 47 cents per diluted share, in the year-ago period. Sales rose 9.4 percent to $766.9 million from $700.7 million last year.

Excluding one-time items, Constellation would have earned 63 cents per diluted share. Analysts surveyed by Yahoo Finance were expecting to earn 55 cents on an adjusted basis.

Although sales were up 5 percent to $2.86 billion from $2.73 billion in 2011, income was down 7 percent to $415.6 billion from $446.8 million last year. According to Constellation executives, the depressed income was a result of large investments in beer marketing and the impact of an increase in bulk wine purchases as a result of poor raw grape harvests in 2012.

Sands also pointed to the affects the fiscal cliff had on the holiday selling period, more specifically the drop in the number of retail shoppers. But, while the overall bottom line was down from a year ago, Constellation executives remain optimistic about the upward trend in wine sales, which Sands said he expects to continue.

“Wines premium and super premium are still up 3 percent and our business performed on par with our holiday season expectations,” Sands said in a conference call with analysts.

Third quarter sales were up 9 percent according to Sands, in large part due to the continued performance of the Mark West brand, which makes the top-selling Pinot noir and had volume growth of 30 percent.

According to Sands, the Mark West brand was acquired with no hard assets, just the brand and its established grape contracts.

“The returns can be better because it gets plugged into an existing winery and it leverages current fixed costs,” Sands said.

Mark West Wines was acquired from Benham’s Purple Wine Co. in late June for $160 million.

Also contributing to the rise in wine sales is the excellent performance of the Opus One brand, particularly in Asia and Europe. According to Constellation executives, Opus One usually sells out of its vintage stock and this year the California based winery experienced a strong harvest, yielding more raw grapes, resulting in more salable product.

For the first nine months, Constellation earned $306.1 million, or $1.62 per diluted share, down 10.5 percent from $342 million, or $1.62 per diluted share, the nine-month period last year. Sales rose 3.7 percent to $2.1 billion from $2 billion last year.

Constellation closed down $1.43, trading at $35.82 per share. Despite a clumsy day of trading, possibly due to poor holiday sales, Constellation is still up 51 percent from a 52-week low of $18.50.