EARNINGS WATCH
From Factset:
With 18% of the companies (90 reports) in the S&P 500 reporting actual results for Q4 to date, more companies are reporting actual EPS above estimates (79%) and fewer companies are reporting actual sales above estimates (54%) compared to recent historical averages.
However, the amount by which companies are reporting earnings above estimates (0.2%) is well below recent historical averages due to large downside earnings surprises reported by a small number of companies in the index.
As a result of these downside earing surprises and downward revisions to estimates for companies yet to report, the blended (combines actual results for companies that have reported and estimated results for companies yet to report) earnings growth rate for Q4 2014 is 0.25%. This growth rate is below the estimate of 1.7% at the end of the fourth quarter (December 31). If this is the final growth rate for the quarter, it will be the lowest earnings growth rate since Q3 2012 (-1.0%).
If the Energy sector is excluded, the estimated earnings growth rate for the S&P 500 would rise to 3.2% from 0.25%.
Due to companies missing revenue estimates in aggregate and analysts continuing to revise revenue estimates downward for companies yet to report, the blended revenue growth rate for Q4 2014 is 0.63%, which is below the estimate of 1.1% at the end of the fourth quarter (December 31).
Looking at future quarters, analysts have lowered estimates for Q1 2015 and Q2 2015. The estimated earnings and revenue growth rates for both of these quarters are lower today compared to the estimates on December 31. Most of these downward estimate revisions have occurred in the Energy sector. Despite the estimates reductions, analysts are looking for record-level EPS over three of the next four quarters. Analysts also expect net profit margins to continue to rise to record levels (based on per share estimates) in 2015.
At this point in time, 14 companies in the index have issued EPS guidance for Q1 2015. Of these 14 companies, 12 have issued negative EPS guidance and 2 have issued positive EPS guidance.
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Most U.S. Businesses Will See a Boost From Cheap Oil, Economists Say Most U.S. businesses will benefit from lower oil prices this year, but the cheaper energy bill also threatens to derail a recent driver of economic growth, according to a new survey of business economists.
Three-fourths of economists said their business or industry will feel the effects of the price drop, with 57% expecting a positive impact, and 18% anticipating a negative impact, according to a survey from the National Association for Business Economics released Monday. (…)
Overall, economists reported improving conditions at their businesses in the fourth quarter.
Just 16% reported rising prices, compared with 25% in the October and July surveys, NABE said. The share of respondents who reported no change in prices increased, to 74% from two-thirds. And 65% said they expect no change in the prices their firms will charge in the first quarter of 2015.
A third of economists reported increased wages in the fourth quarter, compared with 24% who said the same in the previous survey. And more than half said they expect wages and salaries to increase in the next three months, compared with 34% previously.
Sales growth improved slightly, with 54% of economists reporting rising sales compared with 49% in the October survey.
(…) Several companies reported fourth-quarter results this week with significant foreign-exchange hits.
McDonalds Corp.MCD -1.49% said Friday that foreign currencies had a negative impact of 8 cents a share in the fourth quarter and 12 cents for all of last year. Chief Financial Officer Pete Bensen expects another blow of 10 cents per share for the first quarter and up to 40 cents a share for the full year.
Specialty materials maker Celanese Corp.CE -8.23% on Friday said a penny drop in the euro typically has a per-share effect of 3 to 4 cents. However, CFO Chris Jensen said recent fluctuations would likely lead to a higher impact this year.
International Business Machines Corp. on Tuesday reported a $1.2 billion negative impact due to currency. Finance Chief Martin Schroeter said in a call that the impact equated to 10 percentage points of the 12% drop in revenue.
IBM hedges a portion of its cross-border cash flows, but that doesn’t eliminate the impact, Mr. Schroeter said.
“Our hedges are designed to provide stability around the receipt of cash, but there is no year-to-year benefit in the income statement when a currency’s direction is sustained over a longer period,” he said during a conference call. “And that’s what we’ve been dealing with.”
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Venezuela’s currency woes an increasing threat to U.S. corporate profits Venezuela’s deepening economic troubles, and in particular the weakness of the bolivar and restrictive currency controls, have hurt U.S. corporate profits for the fourth quarter of 2014 and are set to inflict further pain this year.
In a likely sign of things to come from a number of companies this results reporting season, Ford Motor Co on Friday said it was taking a pre-tax charge of $800 million for its Venezuelabusiness. It blamed Venezuelan exchange control regulations that have restricted the ability of its operations in the country to pay dividends and obligations in U.S. dollars. Ford also said that it was unable to maintain normal production in Venezuela with the availability of vehicle parts constrained.
Also on Friday, diaper and tissue maker Kimberly-Clark Corp said it took a fourth-quarter charge of $462 million for its Venezuelan business. That was after it concluded that the appropriate rate at which it should be measuring its bolivar-denominated monetary assets should be a Venezuelan government floating exchange rate – currently at around 50 bolivars to the dollar – rather than a fixed official rate of 6.3 to the dollar that it had previously been using. Kimberly-Clark blamed increased uncertainty and lack of liquidity in Venezuela for the move. (…)
Venezuela President Nicolas Maduro said on Wednesday he was shaking up the complex currency controls in the socialist-run country, where dollars are sold on the black market for about 184 bolivars to the U.S. dollar instead of the country’s three-tiered exchange rate system that has ranged from the 6.3 official rate to two other rates, currently at about 12 and the one at around 50.
Those latter two tiers of the system would be merged, he said, though it is not immediately known at what rate that would happen. Maduro also announced that another new rate would be introduced into the system to offer dollars via private brokers to vie with the black market rate.
The latest moves may catch some companies flat-footed – particularly regarding the size of the hit they may have to take to their earnings as they revalue assets at a much weaker bolivar exchange rate. (…)
Before the move by Maduro, some well known U.S. companies, including Procter & Gamble, General Motors, Baker Hughes Inc and Brink’s had already reported financial hits related to the bolivar over the past year. (…)
Overall, foreign companies have an estimated $16 billion in outstanding dividends listed on their balance sheets that they have not been able to return to headquarters, according to Caracas-based research firm Ecoanalitica. The actual value of those assets could, though, be considerably less, depending on the exchange rates.
At the end of the third quarter, for example, American Airlines Group Inc, had $721 million held in the Venezuelan currency, at a weighted average exchange rate of 6.41 bolivars to the dollar.
Theoretically, if the airline tried to repatriate all of that money into dollars at the current black market rate of 184 bolivars per U.S. dollar as quoted by the website dolartoday.com, it would only receive about $25 million. (…)
It’s Official: First-Time Home Buyers Held Back in 2014
First-time buyers purchased nearly one-third of previously owned homes sold in 2014 –the same share as 2013, according to a report released Friday by the National Association of Realtors.
That’s the lowest share, 29%, since NAR began tracking the data in 2008, said Lawrence Yun, the Realtors’ chief economist. It was down from 31% in November but up from 27% a year ago, NAR said.
Mounting student debt, higher rents and tight credit conditions continue to make it tough for first-time borrowers to save enough money for a down payment and qualify for a mortgage.
Another measure of first-home home buyers from NAR that surveys recent buyers found the annual share had fallen to its lowest level in nearly three decades.
The Greek Warning
(…) The rest of the eurozone is less vulnerable to Greek contagion than it was two or three years ago, which may make Berlin and Brussels less willing to bend to Greek demands. But if they’re too inflexible, they could create the possibility of an accidental exit if Mr. Tsipras sees little alternative. The rest of the eurozone would survive but the breakup would still be ugly. The best outcome of a renegotiation would be more debt relief in return for more pro-growth reforms, rather than antigrowth tax increases.
The larger lesson for Europe is the volatility of politics without economic growth. Radical parties rise when mainstream parties lack solutions, especially when they see economic pain imposed from far-away capitals. Portugal, Italy and even France could see similar political uprisings if they don’t do more to break their unsustainable welfare-state models and adopt supply-side economic reforms.
Brazil Wanes: BNP Predicts First GDP Decline Since 2009
BNP Paribas cut its 2015 Brazil GDP growth forecast to minus 1 percent from zero because of the prospect of U.S. Fed tightening, the Chinese slowdown and the commodity slump.”Monetary and fiscal tightening, energy and water rationing and the knock-on effects of the Petrobras corruption scandal are set to pull 2015 growth into negative territory,” said the bank in a Jan. 23 note. “With a fair wind, the H2 2015 should be better than H1 and set the stage for a recovery going into 2016,” said BNP. (Bloomberg Briefs)
Weak Yen Lifts Japan Exports
Exports grew 13% in December from a year earlier in yen terms, while imports rose only 1.9%, a result of lower global-oil costs and weak domestic demand. The trade deficit fell to ¥660.7 billion ($5.6 billion), the 30th straight month of shortfalls, but half the figure from the previous year and better than a deficit of ¥735.1 billion forecast by The Wall Street Journal and the Nikkei. (…)
Stronger exports also mean the economy is likely to return to growth in the final three months of 2014, after two quarters of contraction following the decision to raise the nation’s sales tax on April 1, which has crimped local spending. (…)
Export volumes grew 3.9% on year in December. That is important because volumes weakened in November, even as export values in yen terms grew because of the local currency’s weakness. (…)
The U.S.’s mounting economic recovery is a major factor. Japanese exports to the U.S. rose 24% on year in December, while exports to Europe grew 7% and overseas shipments to China were up 4%. Volumes to the U.S. did especially well, rising 8.4%, with exports from Japan’s auto industry a leading beneficiary. Exports volumes to China were down almost 7%.
There are also signs that big Japanese exporters are starting to cut sales prices in foreign currencies to build market share, rather than simply book higher profits because of the yen’s fall. An index of Japanese export prices fell in December to its lowest level in three decades, the Bank of Japan said this month. (…)
China’s yuan fell sharply Monday to its weakest level in seven months, pushed lower by the central bank as Beijing adds to a host of measures aimed at spurring growth.
The People’s Bank of China set the morning reference rate—which typically sets the daily direction—weaker, with traders then pushing the yuan down to the closest it has ever been to the weak side of its 2% daily trading band. The band was widened in March last year.
China’s move comes as many other large economies seek to boost growth with weaker currencies.
U.S., EU Threaten New Russia Sanctions
U.S. and European leaders threatened new sanctions against Moscow after a missile attack blamed on pro-Russian separatists killed 30 civilians in the eastern Ukrainian city of Mariupol, the latest escalation in violence that has brought Kiev’s fight with rebels back toward full-scale war.
Russia reacted with defiance, blaming Kiev and its Western backers for the surge in fighting, but it also called for urgent talks on implementing a September cease-fire. Separatists backed off earlier threats of a broad offensive on Mariupol and other targets, but shelling along the contact line between the two sides was extremely heavy over the weekend, Ukrainian military officials said. (…)
Diplomats said it isn’t yet clear whether the West is unified enough to agree on substantial new sanctions against Russia. The latest explosion in violence came as a surprise, just as the EU had begun considering the conditions under which it could start to ease some limits on Russia. The U.S., meanwhile, is wary of taking major new steps without Europe’s support. (…)
Kremlin insiders say the leadership is giving mixed signals on whether it is seeking to win an easing of sanctions by pressuring Kiev into a truce or preparing for further escalation. (…)