A slowdown in agriculture is putting a dent in John Deere. In fact, the whole rural economy is starting to slow, which you can see in the results for the Yonder 40 stock index.
The economy may be as nasty as rusted wire, but, hey, you can always hunt.
With economic collapse in every direction, one bright spot could be found at Cabela’s, the outdoor and hunting outfitter. The company reported “encouraging trends” in its business and expectations for 2009 only slightly below 2008.
“A significant amount of our business is driven by a group of core customers who we have found to be very resilient during a recession,” President and Chief Executive Dennis Highby said in a release. “Just as we have seen in previous recessions, these customers are continuing to shop at Cabela’s.”
“For the fourth quarter and the year we realized significant growth in hunting equipment, which is consistent with our experience during the last recession,” Highby said. Translation: “If we eat beans, I can still afford that new scope for my deer rifle.”
Cabela’s shares were up 28% by Friday, but the company was one of the few among the Yonder 40 that reported any positive news last week: the worst for stocks since the five day period last October when the Dow Industrials dove 18 points. The Dow Industrials lost 6.2% last week. The S&P 500 index was down 6.9%.
And the Yonder 40 — 40 stocks picked to reflect the rural economy — was off by 7.8% in just one week.
The Yonder 40 has still done better than the other major indexes since it began in July 2007. The 40 is down 42.9% over that period. The Dow is off 45.1%.
But signs that the recession is beginning to hurt rural America more than the cities are appearing. Besides Cabela’s, the only other Yonder 40 stock to show an appreciable rise last week was Wal-Mart, which projected that next year’s sales would top 2008 by at least 6%. Wal-Mart’s stock price rose 7.5% last week.
Similarly, Family Dollar Stores was up 1.5% last week, as discount stores continued to be popular shopping destinations for families trying to save money.
Two other companies had positive news in a week that had little good to report about the economy. Lifepoint Hospitals, the rural hospital operator, forecast that its 2009 revenues would be above analysts’ estimates. Around the country, hospitals are putting off capital construction because of decreased revenues. Lifepoint’s projections run counter to the trend.
Also, Dean Foods reported that its fourth quarter net income more than doubled, as the company benefited from lower prices for raw milk and for energy. The company still had declining revenues (down 4.7% from the fourth quarter of 2007), but the company has been cutting costs and reducing its workforce. And Dean Foods is paying farmers less for milk, reducing the company’s costs but putting a crimp on the revenues for dairy farm owners.
The rest of the news around the Yonder 40 was just plain bad:
• A federal agency issued a $345 million penalty to Burlington Northern rail lines, saying the company had overcharged two power companies by tens of millions of dollars since 2004. The Surface Transportation Board ruled that Burlington Northern had charged unlawfully high rates to Western Fuels Association, inc. and Basin Electric Power Cooperative Inc.
• Deere & Co. reported a drop in quarterly earnings and cut its full-year profit forecast by more than 20%, saying there was weaker demand for farm and construction equipment. The company’s strongest market continues to be North America, according to Deere, where it expects retail sales to be flat next year.
“While the company’s results and outlook do not support the view that the North American ag cycle is in trouble, every other part of the business seems to be,” write analysts at Merrill Lynch. “Deere lowered its earnings outlook with production tonnage declines across the board, concentrated primarily outside of the North American ag business.”
• The company that owns the Grand Ole Opry, Gaylord Entertainment, saw its stock price drop by more than 17% last week, as the entertainment and travel business continued to lose customers to the recession.
• Hormel Foods reported a 7.7% decline in net income, as slow sales of meat products has led to an oversupply in the market. The maker of Spam and Dinty Moore stews had slightly higher sales, but higher feed and fuel costs have cut into profits.
• Smithfield Foods, the country’s largest seller of pork, said it plans to close six plants and cut 1,800 jobs. It promises to cut production by 10% for the fiscal year ending in April as it battles the oversupply of pork and poultry in the United States.
• Coal, oil and gas producers continued to suffer. Peabody Energy saw its stock price drop more than 15% last week. And Cimarex Energy reported a net loss in the fourth quarter after it took a $1 billion write-down on its oil and gas properties. Cimarex reported that it “significantly” cut back on its drilling because of a drop in oil and gas prices. By the end of the first quarter, the company expects to have five rigs drilling, compared to a peak of 42 in the third quarter of last year.
Here is how the entire Yonder 40 fared in the week ending February 20, 2009: