American International Group Inc (AIG), Becton & More: Earnings Preview

First quarter earnings season is well underway, and a clear trend has yet to emerge among the various reports so far. Companies that have a majority exposure to the United States have fared well, while multinationals with European exposure have provided a lukewarm outlook.

Market participants also received significant economic data within the last week. Gross domestic product rose at a 2.5% pace during Q1, driven in large part by increased consumer spending. In conjunction with higher spending, the U.S. personal savings rate dropped to 2.6%, indicating that Americans are only saving $2.60 out of every $100 earned from their take-home pay. This amount is down from $4.70 at the end of 2012 and $6.9 during the peak of the recession.

I expect the primary beneficiary of increased spending to be retail and service-related companies, although it’s difficult to make an investment thesis from a single data point. Investors are also keeping their sights on the Berkshire Hathaway Inc. (NYSE:BRK.B) annual meeting, which is scheduled to take place on May 4 in Omaha.

Here are three noteworthy companies that report earnings in coming days, and which details investors should be looking for.

American International Group Inc (NYSE:AIG)
Thursday, May 2 after market close; EPS $0.87 / Revenue $8.64 billion

AIG is an international insurance company that serves commercial, institutional, and individual customers within property-casualty and life segments. The insurance giant came to the forefront in December when it announced the U.S. Treasury would be selling its remaining interest in the company at a $22.7 billion profit.

Shares of American International Group Inc (NYSE:AIG) have risen 16% since the announced offering on Dec. 12, a sign of renewed confidence in the insurer following the government’s exit. I highlighted AIG’s improving fundamentals in my piece Insiders Love This Back from Dead Financial, citing discounted book value, a low P/E multiple, and benefits from future inflation.

American International Group Inc (NYSE:AIG)Fast forward to present date, and the fundamental bull story is still intact. However, insurance stocks fell sharply on April 26 on a report that insurers are now concerned about a difficult transition to a rising interest environment. Insurance companies earn a return by investing the premiums received on the policies sold. If rates rise too quickly, analysts believe it could have a detrimental effect on American International Group Inc (NYSE:AIG) and others. The best recovery would be a gradual one.

Ahead of the upcoming earnings release, Bank of Montreal initiated coverage of AIG with an “outperform” rating and $50 price target on April 18. In others news, competitor Metlife Inc (NYSE:MET) announced its first dividend increase since 2007 on April 23, which should bode well for the entire sector.

Becton, Dickinson and Co. (NYSE:BDX)
Thursday, May 2 before market open; EPS $1.35 / Revenue $1.99 billion

Becton Dickinson is a global medical technology company that operates in three segments: Medical, Diagnostics, and Biosciences. The company is experiencing success in all three lines of business, driven by growing revenues, expanding margins, and improved earnings quality. Management has also made smart bolt-on acquisitions in recent months, with the purchase of Safety Syringes in December and most recently Cato Software Solutions in March.

Shares of the New Jersey-headquartered company have risen more than 21% year-to-date through April 26. BD reported better-than-expected Q4 earnings on Feb. 5 and raised the lower end of its full year guidance, causing investors to applaud the news. Management also presented at a series of investor conferences in March, highlighting the company’s focus on growth areas such as infectious diseases and emerging markets.

Looking ahead to upcoming Q1 results, investors will be focused on revenue growth, earnings quality, and continued operating margin improvement. Revenue in China grew at a 24.4% pace during 2012, while the emerging markets safety division grew at an impressive 19.6%. I will be looking for these growth figures to continue.

Becton, Dickinson and Co. (NYSE:BDX) also announced the FDA approval of three key products during April. The company also plans to purchase $500 million of common stock during fiscal 2013, approximately 3% of outstanding shares.

I continue to view the BD story positively and believe long-term fundamentals are strong. Shares should maintain their run higher, even in a difficult market environment.

Kellogg Company (NYSE:K)
Thursday, May 2 before market open; EPS $1.03 / Revenue $3.94 billion

Kellogg, the brand conglomerate of ready-to-eat cereal and convenience foods, has seen its shares rise nearly 18% year-to-date and currently trades at fresh all-time highs. The owner of Special K cereal, Pringles potato chips, and Keebler crackers has seen a premium value placed on its stock price as investors seek dividend income in a continuous low interest rate environment.

Ahead of Thursday’s upcoming earnings release, Kellogg Company (NYSE:K)’s announced on April 26 that the board of directors approved a 4.5% dividend increase to $0.46 per share beginning in the third quarter of 2013. The new dividend rate gives Kellogg’s stock a 2.8% forward yield based on recent market prices.

On a fundamental basis, Kellogg Company (NYSE:K) provided fiscal 2013 guidance that exceeded expectations when it reported Q4 earnings on Feb. 5. Specifically, management estimates the company will earn between $3.82 and $3.91 in earnings per share for the full year. Food inflation is being calculated at a 5% annual rate, with any additional amount having a negative impact on operating margins.