| We talked last week how corporate earnings were not going to pull us out of the financial mess the globe has made for itself. It's going to have to come from real spending in the form of capex which then provides more production (jobs) which then sustains consumption (spending). But, corporate earnings sure could throw a wrench into things. Two main things are afoot here. Back in September 2014, corporate Q1 2015 EPS was forecasted to be 10% year over year. That was quickly revised to a more modest 4%. We now stand at -2.8%. What gives? Two things: Crude Oil prices and an overly strong dollar. It's no secret how Crude as had a less than net positive effect on the US economy. Lower capex in the US Shale sector and the accompanying job losses there are the two main things that come to mind. Next, the strong dollar's effect. Let's take a look at some text taken from a few companies' latest earnings reports: --Finally, we do see currency as a continued headwind. We factored into our guidance the headwind of approximately $0.15 to $0.20, which was roughly the same rate of devaluation we experienced in FY 2014." –Monsanto (Jan. 7) -- "Before I share with you some of the highlights from the quarter, let me provide some background on the impact to our business from the volatile foreign exchange rates. Nearly every currency we do business in weakened against the U.S. dollar when compared against Q3 last year, last quarter or against guidance…These rate changes negatively impacted both the income statement, where we use an average rate for the quarter and the balance sheet, which is translated using spot rates at the end of the quarter. For instance, total revenue would have been $13 million higher using Q3 rates from last year, a $11 million higher using rates from last quarter, and $3 million higher using the rates given in September for guidance." –Red Hat (Dec. 18) -- "Turning now to revenues, net revenues for the quarter were $7.9 billion, an increase of 7% in U.S. dollars and 10% in local currency, reflecting a negative 3% FX impact compared to the negative 2% impact provided in our business outlook last quarter." –Accenture (Dec. 18) -- "Our Consumer Foods segment operating profit, adjusted for items impacting comparability, was $310 million or up about 7% from the year-ago period…Foreign exchange had a negative impact of $8 million on net sales and about $6 million on operating profit for this segment this fiscal quarter." –ConAgra Foods (Dec. 18) -- "And as I mentioned, foreign exchange lowered reported sales by 2 percentage points." –General Mills (Dec. 17) -- "The as reported numbers were heavily impacted by the strengthening of the U.S. dollar in comparison to other currencies. Total revenue saw a 4% currency headwind which would double what it was at the time of my guidance." –Oracle (Dec. 17) From FactSet: "And with all variable costs already trimmed out of existence in the past 5 years, this can mean only one thing -millions more in layoffs, especially if the companies that comprise the above sample are also eager to maintain their record pace of corporate buybacks: something they would be unable to do with the residual cashflow that lower sales generate." I cannot wait to see how the BLS comes up with new and improved ways to seasonally adjust and revise the numbers as we go through the next few quarters! | 
No comments:
Post a Comment
Keep a civil tongue.