Watch for companies to claim 'Jack Frost ate our profits'

CHICAGO Wed Feb 19, 2014 1:20am EST

A car that is completely inundated by snow and ice that have accumulated from recent storms is pictured in the Manhattan borough of New York February 16, 2014. REUTERS/Carlo Allegri

A car that is completely inundated by snow and ice that have accumulated from recent storms is pictured in the Manhattan borough of New York February 16, 2014.

Credit: Reuters/Carlo Allegri

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CHICAGO (Reuters) - Sick of hearing Americans complain about the winter weather? Too bad. Because the corporate kvetching has only just begun.

While meteorologists say warmer temperatures finally are on the way, savvy investors know a cold front could still be looming when it comes to the profits of publicly traded U.S. companies.

Indeed, if history is any guide, CEOs will still be moaning about the recent cold snap well into spring, when they report first-quarter earnings. Why? Because the coldest winter in a quarter century provides them with a handy -- and reasonably plausible -- excuse for any results that fall short of expectations.

For some companies, such as those in transport-dependent businesses, the explanations may be valid. For others, it may well be a case of the (chilly) dog ate their homework.

After Hurricane Katrina slammed into the U.S. Gulf Coast in 2005, a host of companies with not especially big exposures to the affected region - including Avon Products Inc., Books-A-Million Inc and Tempur-Pedic International Inc, now a unit of Tempur Sealy International Inc - blamed the disaster for poorer-than-expected results. When their rivals did just fine despite the hurricane, analysts cried foul.

The latest weather-related claims have begun to come in. Recent U.S. economic indicators, including unexpected drops in retail sales and manufacturing output in January, showed the deep freeze is having an impact.

Last week, McDonald's Corp partly pinned a fall in January sales at its established U.S. restaurants on the frigid cold and snow, while vitamin and nutritional supplements retailer GNC Holdings Inc warned that its first quarter results would fall short of expectations because of bad weather.

Earlier this month, Ford Motor Co, CSX Corp and United Continental Holdings Inc have also warned that the severe cold weather is wreaking havoc on their operations in the first quarter.

Analysts say experience shows it is inevitable some companies will use the severe temperatures and serial snow and ice storms as a cover to conceal problems, such as management missteps and other internal shortcomings.

"While managers will be quick to use weather as an excuse for soft earnings ... most sectors of the economy aren't impacted," said Matthew Patten, the president, Cutler Investment Counsel LLC.

BEYOND RETAIL

To be sure, this winter will go down in the record books as one of the coldest in recent history.

"The last one that was this cold was the winter of 1993, 1994 - and this one is edging that one out," said Dale Mohler, a senior meteorologist with Accuweather, the private weather forecasting company. "This is something that comes around maybe once every 25, 30 years."

Temperatures across a vast area of the United States, stretching east from the Great Plains through the Midwest and into the northern Appalachians, have been running 6 to 10 degrees Fahrenheit (3.3 to 5.5 degrees Celsius) below normal for two-and-a-half months straight.

The weather clearly has discouraged some consumers from heading out to shop. U.S. retail sales fell 0.4 percent in January, led by a tumble in automobile sales and categories such as clothing, furniture stores and restaurants that depend on foot traffic.

But the impact of the cold snap has extended beyond the retail industry. A number of U.S. companies, including Ingersoll Rand Plc and Emerson Electric Co, have complained about transportation and logistical problems that the snow and sub-zero temperatures have triggered.

"We're all losing days of production, we're losing days of shipments," Emerson Chief Executive Officer David Farr told an investor conference last Thursday.

U.S. airlines have been especially hard hit, with flight cancellations and delays soaring. In January alone, nearly 40,000 U.S. flights were canceled and another 136,000 delayed, according to FlightAware.com - four times the number affected by weather in any of three previous Januaries.

As a result, most big airlines, including Delta Air Lines Inc, American Airlines Group Inc and United Continental have waived change fees and relaxed rebooking rules for customers who had tickets to fly through storm-hit airports.

United Continental said the storms and sub-zero temperatures cost United $60 million in January alone. They "were among the worst weather events in our history," said company spokesman Luke Punzenberger.

SOUP SALES UP

Mike Englund, chief economist at Action Economics, points out that the prolonged bad weather has been good news for some industries. For example, it has boosted demand for the power that publicly traded utilities generate, as well as for the industries that supply the power plants.

Campbell Soup Co, the world's largest soup maker, reported a higher-than-expected quarterly profit on Friday, helped in part by the cold weather.

But Miles Yourman, a portfolio analyst with Knightsbridge Asset Management LLC, warned investors not to assume the weather will have a positive effect just because a company is in one of the industries that stand to benefit. He cited Chesapeake Energy Corp, one of the stocks in the Knightsbridge portfolio, as an example.

"The cold weather has obviously been very good for natural gas prices, but on the other hand it's interfered with their production. So they haven't enjoyed the benefit," he said.

And weather-related downturns, like the cold weather itself, may soon melt away. A company like motorcycle maker Harley-Davidson Inc may see a drop in foot traffic to its showrooms in the current quarter, but wind up benefiting in the next few quarters, Yourman said.

"After being cooped up after a long winter, that's when you really want to go out and buy a new bike to get the wind in your face," he said.

(Additional reporting by Lewis Krauskopf, Dhanya Skariachan, Phil Wahba and Luciana Lopez in New York, Lisa Baertlein In Los Angeles, and Shailaja Sharma and Siddharth Cavale in Bangalore; Editing by David Greising and Tiffany Wu)

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A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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