Earnings outlook for Georgia's biggest companies is one of caution

By Péralte C. Paul

The Atlanta Journal-Constitution

A little more than halfway through 2010, how is the year shaping up for the 10 largest Georgia-based publicly traded companies?

In a word: Cautiously.

While many of the top companies have been profitable in the first half of the year and give signs they expect that trend to continue, they do so with guarded optimism.

"I would say they are being a little cautious in their estimates," said Ted Parrish, director of investments at Kennesaw-based Henssler Financial Group. "Domestic business in general hasn't been as robust as they would have liked. The growth hasn't piped up as everyone thought it would."

Some companies, like Columbus-based supplemental insurance firm Aflac and Genuine Parts, have raised their profit expectations.

But most say they expect to eke out a profit for the full year, not wanting to over-promise in a still shaky domestic economy.

Combined, the Top 10, which include Coca-Cola Co., SunTrust Banks, Southern Co. and Home Depot, represent a broad spectrum of industries ranging from banking to agriculture to home improvement.

And though many reported anticipated or better-than-expected profit in the second quarter, it wasn't because of rising sales. In fact, sales contracted for several of them.

Coca-Cola Enterprises, for example, reported second-quarter profit fell half a percent, but profit rose because of lower costs.

That was the mantra for several big Georgia firms: Profit remained steady or grew because largely because of cost cuts elsewhere.

The cautionary nature of the companies' expectations for the year suggests they don't expect the economy to significantly worsen, Parrish said.

"They're indicating a slight slowdown in the level of growth for the next quarter, but not a contraction," Parrish said. "We believe the growth cycle is going to last longer and we're not going to see a double dip. We do have enough adrenalin in the economy to keep it positive."

Even so, analysts note that job growth is still lagging and companies are still focused on reining in costs.

"Companies by and large have done an excellent job at expense control," said Michael A. Mohr, Atlanta-based managing director of Wilmington Trust's southeast region.

They did so by shedding jobs, scaling back operations and reducing inventory in the last several quarters.

Largely a defensive move, the belt-tightening came amid expectations of a another severe downturn, Mohr said. But it wasn't as bad as anticipated.

"Very quickly, companies rationalized their cost structure," Mohr said. "And when top-line revenue didn't crater, they found themselves, layoffs notwithstanding, in the best of both worlds."

After several muddling quarters for the various indices, investors saw room for optimism for the rest of the year and the broader economy with UPS' second-quarter earnings results. The Sandy Springs-based shipping giant improved its guidance for 2010 adjusted earnings to a 45-50 percent increase over last year after reporting second-quarter profit nearly doubled.

"Their numbers were kind of a litmus test and I thought they were setting the tone," Parrish said. But UPS' good fortune and upbeat forecast has not been the bellwether for a better economy investors hoped for.

"They did so well partly because international did so well for well them, but also companies have been replenishing their inventory and a lot of consumers are shopping," Parrish said.

UPS and other companies that have heavy international exposure should continue to do well, Mohr said.

"I think more globally focused companies like Coca-Cola and UPS are going to continue to have an easier time of it," he said. "Assuming a dollar that behaves, you're going to see these multinational companies continue to do well."

But for many of Georgia's Top 10, domestic growth remains the area of focus and concern.

Aflac, AGCO, the Duluth-based agricultural equipment maker, and Coca-Cola Co. are all focused on domestic operations.

Coke, for example, announced a $12 billion deal for the North American operations Coca-Cola Enterprises, the world's largest soft drink bottler.

"Clearly they want to take more control over how products are marketed and distributed. That was a very smart move on their part," Mohr said. "They saw an opportunity not so much to increase the top line but they thought to improve margins. That’s the kind of thing you're seeing well-run companies begin to do."

HOW THE TOP 10 PERFORMED

Home Depot:

Current year Revenue/Profit (6-month perform.): $36.2 billion/$1.14 per share

Prior year (6-month perform.): $35.2 billion/$0.96 per share

Outlook: Lowered revenue guidance to an increase of 2.6 percent from prior expectation of 3.5 percent. Also raised profit guidance to $1.90 per share up from $1.88.

Most important quarter (MIQ): Second quarter.

UPS:

Current year Revenue/Profit (6-month perform.): $24 billion/$1.37 per share

Prior year (6-month perform.): $22 billion/$0.84 per share

Outlook: Increased its full-year adjusted earnings guidance to 45-50 percent above 2009.

MIQ: Fourth quarter.

Coca-Cola Co.

Current year Revenue/Profit (6-month perform.): $16.1 billion/$1.71 per share

Prior year (6-month perform.): $15.4/$1.46 per share

Outlook: Long-term (multiyear projections) case volume growth of three to four percent; operating income of six to eight percent and earnings per share growth in the high single-digits.

MIQ: Second and third quarters

Delta Air Lines:

Current year Revenue/Profit (6-month perform.): $15 billion/$.025 per share

Prior year (6-month perform.): $14 billion/(-$1.27) per share

Outlook: Forecast operating margin of 10 percent to 12 percent in the 3rd quarter and capacity to rise just over one percent for the full year.

MIQ: Second and third quarters

Coca-Cola Enterprises:

Current year Revenue/Profit (6-month perform.): $10.8 billion/$0.91 per share

Prior year (6-month perform.): $10.9 billion/$0.77 per share

Outlook: Expects full-year earnings per share to be $1.73 to $1.77 and operating income to increase to between 10 and 12 percent.

MIQ: Second and third quarters

Southern Co.

Current year Revenue/Profit (6-month perform.): $8.36 billion/$1.22 per share

Prior year (6-month perform.): $7.55 billion/$0.77 per share

Outlook: Sees positive economic growth signs, particularly with its industrial and manufacturing customers.

MIQ: Third quarter

Aflac:

Current year Revenue/Profit (6-month perform.): $10 billion/$2.58 per share

Prior year (6-month perform.): $9.1 billion/$1.89 per share

Outlook: Expects to meet full-year sales expectations in Japan and projects operating earnings growth of 9 to 12 percent.

MIQ: Fourth quarter.

SunTrust Banks

Current year Revenue/Profit (6-month perform.): $4 billion/(-$0.58) per share

Prior year (6-month perform.): $4.4 billion/(-$2.77) per share

Outlook: None given.

MIQ: Company says no one quarter drives bulk of sales or profit.

Genuine Parts:

Current year Revenue/Profit (6-month perform.): $5.4 billion/$1.42 per share

Prior year (6-month perform.): $5 billion/$1.21 per share

Outlook: Full-year sales expected to rise between 7 and 9 percent. Profit projections revised upward to be between $2.70 and $2.80 per share.

MIQ: Second and third quarters.

AGCO:

Current year Revenue/Profit (6-month perform.): $3.1 billion/$0.76 per share

Prior year (6-month perform.): $3.3 billion/$0.98 per share

Outlook: Expects South American sales to remain strong in the second half of 2010 but stay relatively flat compared to latter half of 2009. Western Europe is to remain weak but stabilize in the second half of the year.

MIQ: Fourth quarter.