America is more pessimistic about the prospects for short-term earnings growth
than at any time since the start of the financial crisis, as a slowing global
economy weighs on demand for U.S. companies’ goods and
Even as the U.S. stock market hit a four-year high, year-on-year earnings growth for the S&P 500 slowed to just 0.8 per cent in the second quarter while the consensus forecast among analysts is for growth to turn negative in the current quarter for the first time in three years.
Companies are even more downbeat. During the latest reporting season S&P 500 groups were three times more likely to say they would miss analysts’ expectations of third-quarter earnings instead of beating them. That was the worst guidance ratio since the final quarter of 2008, immediately after the collapse of Lehman Brothers.
“Historically, we have only seen numbers like this during times of recession,” said Christine Short, who tracks earnings at S&P Capital IQ. “It tells you something about how American executives see the world.”
Several leading U.S. companies have been warning of their vulnerability to a global economic slowdown with the eurozone on the edge of recession and deteriorating data in China.
Manufacturer Honeywell saw a contraction of growth in its short-cycle businesses of orders for immediate delivery in Europe and fall sharply in China in the second quarter.
Chief executive David Cote bemoaned a “challenging macro environment, particularly in Europe” as he issued a third-quarter forecast that missed analyst expectations.
Twenty-four technology firms have guided expectations below analysts’ previous forecasts for the third quarter, including Apple, whose chief executive Tim Cook said flat performance in Europe had “really hampered our total results”.
Other blue-chip U.S. companies have been scaling back guidance issued to investors just a few months ago.
On Friday, chipmaker Intel lowered its forecast for third-quarter revenue by almost 8 per cent from its July estimate, blaming “weaker than expected demand”.
Three days earlier FedEx, the express delivery company, cut earnings guidance for its recently completed quarter by 8 percent from its June forecast, pointing to “weakness in the global economy”.
Sales outside the U.S. account for almost a third of revenues of S&P 500 companies, while in the technology sector the figure is over 50 per cent, according to FactSet.
Since the financial crisis, U.S. companies have prospered despite patchy global growth, with those on the S&P 500 reporting eight consecutive quarters of double-digit earnings growth from the end of 2009, largely as a result of cost-cutting;
But with margins now near record levels but showing little sign of further growth, U.S. companies need increased sales to drive further profit increases.
According to S&P Capital IQ, 72 companies in the S&P 500 said third-quarter earnings will miss consensus analyst expectations, the most since the third quarter of 2009. Just 22 S&P 500 companies said they expect to beat analyst forecasts this year, the fewest since the company started collecting data in 2006.
Nearly 400 companies did not offer any guidance at all, suggesting uncertainty about future growth prospects, the most since the third quarter of 2009. FT