Checking banks’ bottom lines

No industry sector will be more closely watched this earnings season than the financial firms, many of which are releasing their third-quarter financial statements this week and next.

Aside from their perch as keepers of the coffer in your territory, the health of your region’s banks is a good barometer of other economic pressures in the area. Sound loans and deposits make for sound banks; when business sours on either end it’s worth finding out who’s slumping, and why.

If you haven’t already, jot down a list of regional and national financial firms in your area and determine when the critical mass of earnings releases will be out. The dates of course are available on corporate Web sites, or use a handy calendar like this one from Bloomberg.

If you aren’t sure of the players in your area, use this handy tool from the Federal Deposit Insurance Corp. (FDIC), which allows you to run a report ranking banks by market share. You can sort by ZIP code, county or state, depending on the snapshot you seek. The ranking is based on deposits as of June 30, 2008 – a tad old but barring any major failures since then, a good read on financial institutions you should be watching.

One thing to keep in mind is that by the nature of their business, banks’ financial statements read somewhat differently than those of industries that sell tangible goods and services. Those companies report revenue (sales) and their net profit or loss after expenses.

Since banks don’t make “sales,” per se – they move money around between borrowers and depositors – their financial ratios are a bit different, and are roughly counted in terms of “assets” (deposits) and “liabilities” (loans.) Here’s a primer on reading bank financial statements from Investopedia.com.

While you have time to prepare, consider a large info graphic or spreadsheet-oriented story (if news hole is tight, refer to the Web) comparing and contrasting key financials at your market’s major financial institutions. A forensic accounting firm or finance/accounting experts at nearby business schools can help you decipher the balance sheets and point out red flags that you can take forward into interviews with the banks’ executives.

CNNMoney.com notes in this analysis that four of the nation’s six largest banks are expected to post profits, despite ongoing delinquencies by retail and commerical borrowers.

Marketwatch.com outlines more of what to look for in third-quarter results in this video. Specific line items include credit-card losses related to unemployment, other troubled assets including commercial real estate, which still looms as major liability for lenders.

If things seem really dire, you may wish to review this previous Tipsheet on how to cover bank failures.

Come back to Your Daily Tipsheet each morning for advice on where to find sources, background and creative ways to make financial news and trends relevant to your audience.

Eying pizza pies

Experts have released a report noting that if the number of original-crust pizzas consumed in the U.S. each year were stretched end to end, they would reach from Earth to Pluto and back. Actually, I just made that up. You know how it is – you’ve got a tasty story subject but no hot news peg.

Fortunately, earnings season is in full steam this week, and at least until the end of the month there’ll be no shortage of financial updates and other timely tidbits on which to hang colorful and informative stories. (If you haven’t already, check out Yahoo!’s excellent earnings calendar.)

Tomorrow, for example, Domino’s Inc. releases its third-quarter financial report, which is as good a time as any to pause for a look at the nation’s pizza industry.

There’s no shortage of angles: Local mom & pop shops, giant delivery chains, national eat-in chains, frozen grocery pizzas, take-and-bake chains, novelty pizza bites and upscale ready-to-use crusts. By some estimates, pizza is a $41 billion a year industry in the U.S. – with some 69,000 retail pizza purveyors nationwide.

If you don’t have a pizza empire in your territory, you might have a supplier. One real concern to the pizza industry is the volatile wholesale cost of cheese, as illustrated in this University of Wisconsin graph. In fact, DairyReporter.com says in this recent article that non-dairy, rather scary-sounding cheese substitutes are being developed to help pizza makers evade cheese-price fluctuations.

Aside from dairy products, the pizza biz kneads through who-knows-how-many bushels of wheat each year and its other toppings - from pineapple to anchovies to garlic - have to come from somewhere. Poke around and discover your regional link to the pizza supply chain.

So far, signs are mixed regarding the recession’s effect on pizza sales. One school of thought has it that people are turning to the comparatively inexpensive pies as an alternative to more costly dining-out options; other analysts indicate that consumers are eschewing prepared food in favor of cheaper home-cooked meals. Pizza Hut, a division of Yum! Brands, reported last week that its sales were off 13 percent in the third quarter, and California Pizza Kitchens said its sales were down 8 percent in the same period.

Perhaps that’s why you’ve noticed a flood of two-for-one pizzeria coupons and other promotions in your junk mail, which is one place to look for indications of how your local pizza scene is coping.

Other resources:

Pizza Magazine
Pizza Today
PizzaWare.com, a compilation of global industry statistics and recipes.
Food Industry News

Come back to Your Daily Tipsheet each morning for advice on where to find sources, background and creative ways to make financial news and trends relevant to your audience.

Why wholesale prices matter

Ever wonder what KFC is forking out for “processed young chickens” these days, or how much a paper maker pays for a pound of wood pulp? Me neither.

But wholesale prices do affect the costs of consumer goods, not to mention corporate earnings – or lack thereof - and hence jobs, the stock market and other tangible aspects of our fiscal well-being.

For the fundamentals on the monthly Producer Price Index, which will be released Tuesday by the Bureau of Labor Statistics, check out its comprehensive Web site and tutorial. Like the CPI discussed in a previous tipsheet, the PPI measures the cost of goods and services – in this case, raw or semi-finished materials sold to businesses.

For your corporate coverage, talk to executives about how their financial strategies fluctuate with the inflation rate. Many airlines, for example, have been recording profits or losses based more on the outcome of their fuel-price hedging rather than on the fares we pay for our munchkin-sized coach seats. Other industries stock up on or speculate in the raw goods that make up their products; see if major local employers will they’ll share economic forecasts and the reasoning behind them.

Housing data mania next week

Just a heads up that, as usual, the last two weeks of the month teem with housing data that can help you layer anecdotal stories with statistics. Among the releases coming up:

Aug. 17: National Association of Homebuilders housing market index
Aug. 18: Commerce Dept. housing starts, building permits
Aug. 19: Mortgage Bankers Association applications
Aug. 21: National Association of Realtors existing home sales
Aug. 25: S&P Case/Shiller home price index
Aug. 26: Commerce Dept. new home sales

This Reynolds Center centerpiece by Stephanie Riel offers invaluable hints for covering today’s residential real estate market. And here’s a past tipsheet with related advice.

Bored with the same-old, same-old? Try writing from a non-consumer point of view. It must be pretty grim trying to earn a living as a Realtor these days -- talk to some about their livelihood, fallback plans and whether they’re moonlighting to keep the cash coming in. Imagine the irony of finding a real estate agent who’s in foreclosure herself, or a mortgage broker who can’t make his own house payment. People in those lines of work were all but beating off business with a stick a few short years ago, but when you’re in commissioned sales the downturns really sting.

Also feeling the pain: Homeowners’ associations. Strapped consumers are withholding condo maintenance fees, leaving association boards hamstrung when it comes to paying vendors and repair firms. That starts a downward spiral of declining amenities and sub-par maintenance which doesn’t exactly help move real estate in a stagnant market.

Come back to Your Daily Tipsheet each morning for advice on where to find sources, background and creative ways to make financial news and trends relevant to your audience.