Earnings wrap: Tractor Supply, Franklin Synergy

Ranch retailer's outlook disappoints; community bank's Q4 dips on fee income comparisons

Shares of Tractor Supply are set for a big down day after the farm and ranch products retailer guided its 2014 profits below what analysts had been looking for.

Brentwood-based Tractor Supply said it earned $95.9 million in the fourth quarter, an increase of almost 21 percent from late 2012. Per diluted share, profits were 68 cents, three cents higher than the Street's expectations. Sales climbed 10 percent to almost $1.42 billion, same-store sales grew 3.5 percent and gross margins climbed 90 basis points to 33.9 percent.

But analysts and investors were more focused on what CEO Greg Sandfort and CFO Tony Crudele had to say about the coming year. Net income is expected to grow from $328 million last year to between $360 million and $370 million, or $2.54 to $2.62 per diluted share. The latter is a couple of percentage points below analysts' consensus of $2.67 per share and led investors to push down shares of Tractor Supply by more than 7 percent in the after-hours session Wednesday. The stock (Ticker: TSCO) ended the day at $63.76, its lowest level since mid-September.

On the team's conference call, Crudele detailed the forecasts, saying that capital spending is expecting to increase to about $250 million, up from $218 million in 2013 and $153 million the year before. That's due to the construction of Tractor Supply's new home office in Maryland Farms, work on a new distribution center in the Southwest and a $20 million increase in store growth and maintenance budgets.

Crudele also said the Tractor Supply team expects to fight deflationary pressures of up to 1 percent in 2014.

"That will be at the higher end of that range in the first half of the year and slightly less in the second half of the year," he said. "This will obviously be a headwind to comp sales as this could be up to 170 basis points swing year-over-year."

Those two factors led Deutsche Bank analysts Adam Sindler to downgrade Tractor Supply to 'hold' from 'buy' and drop his price target to $65 from $78. Sindler said the company's capital spending plans are "making the beat-and-raise aspect of the story a bit more cloudy over the next few quarters." Dan Wewer at Raymond James also lowered his rating on Tractor Supply to 'market perform' from 'outperform.'

The parent company of Franklin Synergy Bank posted a Q4 profit of $1.4 million, down from more than $1.5 million a year earlier, as a big drop in fee income offset the benefits of lending growth.

Franklin Financial Network's net interest income for the quarter came in at $5.9 million versus $4.1 million in late 2012 as the bank's loan book grew by more than $44 million during the quarter and assets climbed to almost $800 million. President Richard Herrington said his team is "well positioned in the residential and construction loan market."

But weighing against that growth on the income statement were gains on the sale of mortgages of only $792,000 versus $1.7 million the year before and the absence of a $606,000 one-time gain in late 2012 on bank-owned life insurance. That led to a pre-tax profit of $2.2 million, in line with the Q4 2012 number.

For the year, Franklin Financial posted a profit of almost $4.6 million, up from $4.1 million in 2012. The company also signed an agreement to buy Murfreesboro-based MidSouth Bank.

“It has been a truly remarkable year for our bank, our shareholders and team,” Herrington said. “We continue to find growth opportunities in our market and expand our banking team through the addition of the best banking and investment professionals in the market.”