Thursday, October 24, 2012
A lot of the weakness in the ongoing third quarter earnings
season is attributable to problems in the Chinese economy. Europe
obviously is also an issue, but it's the loss of growth momentum
in China that is showing up in a range of industries this
earnings season.
We have heard the China growth issue mentioned on earnings
calls from companies as diverse as
FedEx
(
FDX
) and
General Electric
(
GE
) to
Caterpillar
(
CAT
) and
Yum Brands
(
YUM
) and
Coach
(
COH
). The domestic economic picture is not that pretty either, but
it is in far better shape compared to what is going on beyond the
U.S. shores.
Given this China fixation, it would make sense for the market to
feel some ease on the sign that the country's manufacturing
sector may be improving. This morning's preliminary October PMI
by the
HSBC Bank
(
HBC
) shows the measure improving to a three-month high,
though it still remains below the '50' level. This comes after
other key measures of economic activity, particularly export
growth and industrial production, also showed signs that the
economy may have bottomed already and will start stabilizing in
the coming quarters. Conclusive evidence on that front should
offset the earnings deterioration trend currently in play. But we
will likely have to wait a bit longer for that evidence to
emerge.
On the earnings front, the positive looking numbers from
Boeing
(
BA
) and
Facebook
(
FB
) are not enough to change the overall weak tone of this
reporting season. In terms of a running scorecard, we have third
quarter results from 179 companies in the S&P 500 as of this
morning (Wednesday, October 24th). Total earnings for these 179
companies are down 2.9% from the same period last year, with only
57% of the companies beating earnings expectations. On the
revenue side, the growth rate is a bit better, though only 33% of
the 179 companies have come ahead of revenue expectations.
This is a materially weaker performance than what these same
companies did in recent quarters. Importantly, the tone and
substance of guidance has been on the weaker side, which means
that we will likely see an acceleration in negative estimate
revisions over the coming days and weeks.
Sheraz Mian
Director of Research
BOEING CO (BA): Free Stock Analysis Report
CATERPILLAR INC (CAT): Free Stock Analysis
Report
COACH INC (COH): Free Stock Analysis Report
FACEBOOK INC-A (FB): Free Stock Analysis
Report
FEDEX CORP (FDX): Free Stock Analysis Report
GENL ELECTRIC (GE): Free Stock Analysis
Report
HSBC HOLDINGS (HBC): Free Stock Analysis
Report
YUM! BRANDS INC (YUM): Free Stock Analysis
Report
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