Trader Talk

Markets: Are Estimates For Refiners Too High?

Bonds are a bit stronger, dollar a bit weaker this morning, though stocks are still up. The S&P/CaseShiller Home Price index of 20 large metropolitan markets fell 10.7 percentyear over year in January, about in line with expectations.

Monsanto has just increased its fiscal 2009 guidance to $3.15-$3.25 vs. prior guidance of $2.70-$2.80. Up 9 percent pre-open. The seed business is exceptionally strong (gross profits should be up 20 percent) as are Roundup sales.

Some rather weak guidance from two giants in their respective fields.

Valero, the largest gasoline refiner in the U.S., shocked the Street by providing guidance ($0.10 to $0.35) for the first quarter that is way below analyst estimates ($0.98).They blame lower margins and "operating and equipment issues" (in plain English: unplanned maintenance) at a number of refineries. Down 3 percent pre-open.

It's not just the maintenance issues that's a problem for refiners. Here's what Oppenheimer had to say: "Gasoline inventories are at a 15-year high and, given the state of the economy and low consumer confidence, the driving season is likely to be a bust, at best, compared with last year or the previous three years."

Bottom line: refining is a margin business--but refiners are having a hard time passing on the higher prices they are paying for oil to consumers who are already under pressure.

If Street estimates for Valero are too high, isn't it likely that estimates for other refiners might be too high as well?

Phillips Van Heusen, the number one shirt maker in the U.S., provided full year guidance of $3.30-$3.40, below previous guidance was $3.55-$3.65. They're not just a shirt maker--they are the manufacturer for big brand names like Calvin Klein, Bass, and IZOD, and other licensed names like DKNY, Kenneth Cole, and Geoffrey Beene.

Retailers seem to be placing very conservative orders. International business is about 25 percent of sales, so the company is still very dependent on the U.S. market.

Questions?  Comments?