Weak Earnings: China to Blame? - Analyst Blog
24 Octubre 2012 - 4:24AM
Zacks
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), 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.
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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