LOOK AT THE GRAPH:The October Surprise? Corporate America’s Backward Slide
By Joseph B. White
The October run of stinko corporate financial results is bad news for stocks. It’s also bad news for people who want a new or better job, and the prospects for a quick bounce-back aren’t looking good. Analysts today are scrambling to skin back their forecasts for fourth quarter revenue and profits as some 22 companies have warned that fourth quarter numbers will fall short of Wall Street’s estimates, says ThomsonReuters analyst Greg Harrison.
One sign of how the outlook has soured, Mr. Harrison says, is how far Q4 profit estimates have fallen this year. In April, analysts were expecting, on average, 16.3% earnings growth for the current quarter. At the beginning of October, the outlook had fallen to 9.9% growth. Now, the consensus is for 8.9% growth, and based on what companies are saying, “maybe those estimates need to come down,” he says.
As the WSJ’s Kate Linebaugh and others have highlighted, the big problem behind Corporate America’s backward slide is that third quarter revenues are coming in well below expectations. John Butters, an analyst at FactSet, said in an Oct. 19 report that of 98 companies that had reported at that point, 70% reported earnings above the mean Wall Street estimates. But only 42% reported sales above Street estimates. The latter measure is getting worse, he says. As of today, it looks like about 62% of companies reporting are undershooting revenue forecasts. This could be the first time in 11 quarters that Corporate America’s collective earnings decline, Mr. Butters says.
A company that’s taking in less revenue than expected, but struggling to beat Wall Street’s profit forecasts, is doing at least one of the following things: Propping up reported earnings through accounting maneuvers; raising prices or slashing costs, including people. The unexpectedly steep corporate revenue slump and the resulting stock market slide together could become the 2012 campaign season’s “October Surprise.”
Companies that aren’t growing the “top line,” or sales, are unlikely to do a lot of hiring, even if profits are holding up. That’s bad news for President Barack Obama, who could use a robust pickup in job creation to blunt Republican candidate Mitt Romney’s attacks on his economic policies. DuPont DD -9.06% today made the connection between poor financial results and job insecurity unpleasantly explicit today, saying it plans to cut 1,500 positions worldwide after sales and profits plunged in the third quarter.
Some companies appear to be holding their own, in part by relying on the relative improvement in the U.S. economy compared to Europe. But even these companies aren’t really celebrating. Home appliance giant Whirlpool Corp WHR +8.69%., for example, beat the Street estimates, and its stock was up more than 5% earlier today after it raised its forecast for 2012 citing an improved outlook for the U.S. housing market. But delve deeper into Whirlpool’s third quarter press release and charts and you’ll see this comment about North America:
”Third-quarter sales of $2.4 billion increased approximately 2 percent from the prior year. Overall, North America unit shipments decreased approximately 5 percent. The North America region reported operating profit of $227 million, exceeding 9 percent of sales, compared to $62 million, approximately 3 percent of sales, in the previous year. Product price and mix combined with cost and capacity-reduction actions more than offset higher material costs to expand operating margins. This marks the fourth consecutive quarter of year-over-year operating profit margin improvement.”
Translated: Yes, we sold fewer washing machines, but we raised prices and cut costs to roughly triple our profit margins.
A similar message comes through in a statement from the International Air Transport Association, which represents big airlines. Europe is rubbish, Asia’s treading water, but North America is on track to post a 46% increase in profits for 2012 compared to last year.
“This is the largest improvement among all the regions, owing primarily to the impact of tight capacity management. Over the first eight months of the year, passenger demand grew by 1.3% while capacity expanded by just 0.2%. As a result, the region has also maintained consistently high load factors—averaging 83.2% for the January to August period.”
Translated: Those ridiculous flight schedules and overcrowded planes are how we make money in this business now. Don’t like it? Have some more peanuts.
To the Wavering Voter
Mitt Romney won't make war on women, the Middle East or the middle class
Dear Wavering Voter:
No, abortion rights and access to contraception will not be jeopardized if Mitt Romney becomes president. Not remotely, not vaguely, not even close. No woman in America, including Sandra Fluke, will have war made upon her by a President Romney.
Maybe you think the job of a president is to be our DJ-in-Chief and set the mood music for the country. In that case, the slow-jam Obama administration has everything to recommend it, while a Romney presidency may get on your nerves like a hokey country song. But it won't get in your way.
How am I so sure? It's not a question of Mr. Romney's sincerity on social issues. It's the fact that since Roe v. Wade became the law of the land almost 40 years ago, Republican presidents have named seven justices to the Supreme Court, while Democratic presidents have named only four. Guess what? Roe v. Wade is and will remain the law of the land.
No, we will not have another war in the Middle East. Not even if President Romney orders Iran's nuclear sites bombed to smithereens.
Remember "Operation Desert Fox"? Probably not. That was a four-day, full-on bombing campaign against Iraq ordered by Bill Clinton in December 1998, on the eve of his impeachment. The ostensible purpose of the campaign was to degrade Saddam's WMD capabilities, which then-Secretary of State Madeleine Albright called "the threat of the 21st century."
It must have worked beyond anyone's wildest dreams. Air strikes may be acts of war, but not the kind of war President Obama is warning will be our lot if Republicans are elected. Incidentally, Mr. Obama also says "all options are on the table" when it comes to Iran. If he isn't serious about keeping a nuclear weapon out of the hands of the ayatollahs by any means necessary, he should come out and say so.
No, America will not once again become the global pariah it supposedly was under George W. Bush if Mr. Romney is elected.
That's because, as we've lately discovered, we never ceased being a pariah in places like Cairo and Karachi. The Pew Research Center finds that positive attitudes toward the U.S. are broadly lower today throughout the Middle East than they were in the last year of Mr. Bush's presidency. True, Mr. Obama has made America somewhat more popular again in Europe, so you can visit Paris again without fear of a political harangue at Les Deux Magots cafe.
But there's a rub: Fewer people can afford the trip. Travel by U.S. citizens to Europe has declined every year of the Obama presidency. We'll always have Paris, dear—we just can't afford to go there this year.
No, your taxes will not go up by a couple of grand. They especially won't go up "to pay for huge new tax breaks for millionaires," as the Obama campaign keeps insisting.
The $2,000 figure is based on a study by an outfit called the Tax Policy Center. Of the study itself, Don Marron, the center's president, concedes: "I don't interpret this as evidence that Governor Romney wants to increase taxes on the middle class in order to cut taxes for the rich. Instead, I view it as showing that his plan can't accomplish all his stated objectives."
Discerning readers may note that there's a difference between saying a tax plan isn't going to achieve everything it sets out to do and claiming it will jack up your taxes. As for the $5 trillion tax cut the Obama campaign insists Mr. Romney is offering, Obama campaign spokesperson Stephanie Cutter admitted on CNN that "it won't be near $5 trillion" once deductions and loopholes are closed.
It would be nice if the Romney campaign showed a more Reaganesque zeal for tax cutting. It doesn't. In the meantime, the questions raised by the Obama campaign are: How stupid does it think the electorate is? And how stupid are we, really?
No, your grandmother will not be thrown off a cliff.
Then again, she might just be if you think that we can retire 76 million baby boomers over the next 18 years without adjusting to a world of longer lifespans and potentially lower trend growth.
This is the ugly reality unfolding at stunning speed throughout Europe today, and it could soon be our future, too. Depending on how you count (and on what happens with ObamaCare), Medicare will go broke sometime in the next four to 12 years. Ask yourself how old you'll be in 2024: If you think you'll probably be dead by then, you can relax. Otherwise your choice is to reform the programs, or watch them explode.
"Lawmakers should not delay addressing the long-run financial challenges facing Social Security and Medicare. If they take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare." That's from the 2012 annual report of the Social Security and Medicare Board of Trustees, not some hack partisan study.
Yes, the rich will probably get richer.
And if you're eaten alive by the thought that someone, somewhere, is doing better than you, then you surely know how to vote.
But then, what is this election about? If you're a wavering voter, it might be worth asking yourself what matters to you more: bringing yourself up, or bringing millionaires and billionaires down?
Write to [email protected]
m
John L. Mariotti, President & CEO, The Enterprise Group, http://www.mariotti.net, http://mariotti.blogs.com/my_weblog/
**********************
GET HOPE IS NOT A STRATEGY IN BOOK OR KINDLE VERSION AT:
OR OTHER EBOOK FORMATS AT:
Smashwords.com https://www.smashwords.com/books/view/142287
AND GO SEE THE WEB SITE to see the Chapter titles and much more information:
John L. Mariotti, President & CEO, The Enterprise Group, http://www.mariotti.net, http://mariotti.blogs.com/my_weblog/
****CONFIDENTIALITY NOTICE: This e-mail message, including any attachments, is for the sole use of the intended recipient(s) and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. If you are not the intended recipient, please contact the sender by reply e-mail and destroy all copies of the original message. --The comments in this message are the sole opinion of the author, or of the attributed sources, and of no other persons or organization.
Comments