The Choice-Select spread has widened sharply in recent weeks, which is the typical seasonal tendency at this time of year. The latest boxed beef values increase the Choice-Select spread to $12.15/cwt., about double the $6.03 spread this time last year. The spread is also above the five year average level of $10.13/cwt. (for this time of year), which represent the first time the spread has exceeded the five year average weekly level since the first week of January. Thus, the Choice-Select spread has gone from a seasonal low in late March of $0.30/cwt. (well below the average seasonal low) to current levels above the average level for this time of year.
What do the increase in both Choice and Select boxed beef values from year ago levels and the widening of the Choice-Select spread in recent weeks tell us about beef market conditions and, in particular, about beef demand? Total beef production is down 2.8 percent so far this year so higher prices would be expected with steady beef demand. Thus, higher boxed beef prices do not necessarily reflect increased beef demand, though they do suggest that demand is holding steady in the face of reduced supplies and higher prices. However, the increase in Choice relative to Select prices does suggest stronger demand for high quality beef. This is borne out in the changing values of various wholesale cuts. At the current time, Choice wholesale values for Ribeye and Tenderloins are up 27 and 24 percent year over year while Chucks and Rounds are up 13 and 6 percent compared to last year.
The increase in wholesale beef prices from year ago levels could be due mostly to reduced beef production so far this year. However, the sharper increase in middle meat values relative to end meat values and the wider Choice-Select spread suggest that beef demand is improving. Wholesale values are expected to increase further with sharper year over year beef production decreases in the third quarter. Continued improvement in beef demand will determine how much higher wholesale beef prices may go.
Source: Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist
Costco Wholesale's Third Quarter Earnings Report - Yahoo Finance
Costco Wholesale (Nasdaq: COST) announced its results for the most recent quarter on May 24, 2012. Costco Wholesale operates membership warehouses that offer a selection of nationally branded and selected private-label products in categories such as food, appliances, and sporting goods, at low prices.
In most situations, when earnings do not meet analyst estimates, a business' stock price will tend to drop. On the other hand, when actual earnings beat estimates by a significant amount, the share price will likely surge.SEE: 5 Tricks Companies Use During Earnings Season
The Numbers:
Costco Wholesale's EPS outpaced analyst estimates while the company's revenues came in below predictions. The company reported 88 cents per share versus the 87 cents per share estimate and revenues of $21.85 billion versus the $22.11 billion estimate. EPS rose 20.5% while revenue climbed 5.9% from the same period last year. Costco Wholesale's revenue has grown during each of the past four quarters on a year-over-year basis. The company's net income for the quarter rose 19.1% to $386 million. Last quarter marked the third in a row of rising net income.
A Look Back:
Last quarter was the fifth in a row that the company saw shrinking gross margins, as they fell 1.8 percentage points from the year-earlier quarter to 10.6%. In that span, margins have contracted an average of 0.7 percentage point per quarter on a year-over-year basis.
Net income has increased 10.3% year-over-year on average across the last five quarters. The biggest gain came in the most recent quarter, when income climbed 19.1% from the year-earlier quarter.
Looking Ahead:
For next quarter, analysts have a more positive outlook about the company's expected results. The average estimate for the fourth quarter is $1.29 per share, up from $1.28 90 days ago. Increasing earnings estimate is a positive sign about the company and it typically leads a increase in the stock price. For the fiscal year, the average estimate has moved down from $3.85 a share to $3.84 over the last 60 days.
(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)
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