By James B. Kelleher and Nivedita Bhattacharjee
CHICAGO Feb 19 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.
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
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
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
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
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.