demand, its driven by wages:Earnings Drop Worldwide as Job Losses Hurt Consumers, how can their be a recovery, where is the fuel for hyper-inflation, can bubbles survive without the fuel?, unemployment can be a leading indicator:)
Nickname unavailable
Consumers, how can there be a recovery, where is the fuel for hyper-
inflation, can bubbles survive without the fuel?, unemployment can be
a leading indicator:)
credit is being destroyed faster than it can be injected. nothing has
been done to heal demand. i see more deflation ahead.
http://www.bloomberg.com/apps/news?pid=20601087&sid=apzVRyR2Nbp0
Earnings Drop Worldwide as Job Losses Hurt Consumers
By Jack Kaskey and Melita Marie Garza
July 6 (Bloomberg) -- Earnings at such companies as Ford Motor Co. and
ArcelorMittal may continue to decline in the next three months as the
highest unemployment in a quarter-century keeps consumers from
spending.
The year-over-year profit slide for Standard & Poor’s 500 Index
members may narrow to 21 percent from July through September, after
declines of an estimated 34 percent in the second quarter and about 60
percent in the year’s first three months, according to data compiled
by S&P and Bloomberg. Earnings may rise by year-end based on
comparisons to late 2008, which was roiled by the meltdown in
financial markets.
Consumers in the U.S., the world’s largest economy, remain concerned
about jobs after unemployment reached a 26-year high in June, analysts
and investors said. Until Americans start spending again on cars, cell
phones and clothes, most U.S., Asian and European companies may keep
squeezing out costs.
“So long as unemployment keeps rising, the consumer will continue to
be very conservative,” said Walter “Bucky” Hellwig, who helps manage
$30 billion at Morgan Asset Management in Birmingham, Alabama. “Any
improvement will come from cost cutting, and that’s not sustainable.
If you have no anticipation of top-line growth -- it will be a little
tougher to generate that enthusiasm into the fourth quarter.”
Consumer Confidence
U.S. consumer confidence slipped unexpectedly in June, reflecting
unemployment that rose to 9.5 percent and wealth destruction triggered
partly by a drop in property values. U.S. employers slashed 467,000
jobs last month, and about 6 million jobs have been eliminated since
the recession began in December 2007. June’s jobless rate was the
highest since August 1983.
Almost 67 percent of S&P 500 members topped analysts’ estimates for
first-quarter earnings after eliminating jobs and closing plants,
Bloomberg data shows. That helped the S&P 500 index rally 15 percent
in the second quarter, the most since 1998.
The benchmark MSCI Asia Pacific Index surged 28 percent in the
quarter, the largest gain since the gauge started in 1988, while
Europe’s Dow Jones Stoxx 600 Index rose 17 percent, the biggest
advance since 1999.
The second-quarter earnings barrage begins in the U.S. on July 8 with
aluminum producer Alcoa Inc., the first member of the Dow Jones
Industrial Average to report results. Alcoa is based in New York.
‘What’s Your Potential?’
“The analysts will probably lowball things once again and the
companies will be able to jump over it again,” said Charles Smith,
chief investment officer for Fort Pitt Capital Group Inc. The
Cleveland-based firm has $800 million assets under management. “If the
teacher expected you to get a “C-” and you get a ‘C,’ then the
question is: what’s your potential as a student?”
Railcar shipments and other U.S. shipping data provide scant hope that
manufacturers are gearing up for increased demand, said Mark Demos, a
Minneapolis-based portfolio manager who helps manage $21 billion at
Fifth Third Asset Management. Railcar shipments are down 19 percent so
far this year and 18 percent in the week ended June 20.
Demand is best described by the title of the 1966 novel, “Been Down So
Long It Looks Like Up to Me,” said Andrew Bartels, an analyst at
Cambridge, Massachusetts-based Forrester Research Inc. Technology
purchases in the U.S. will decline 5.1 percent this year, with a
recovery in the fourth quarter, he said in a report last month.
Slow Profit Growth
Mountain View, California-based Google Inc., the biggest Internet
advertising company, may post its second-slowest rate of profit growth
since selling shares to the public. Chief Executive Officer Eric
Schmidt said June 30 the economy is bottoming and will be better in a
month.
Microsoft Corp., based in Redmond, Washington, may report its second
straight sales drop, according to a Bloomberg survey of 22 analysts.
Prior to the quarter ended in March, sales at the world’s largest
software maker had never declined.
Mobile-phone users are trading down toward lower-priced phone plans
that don’t require buying a new handset, said Andreas Mark, a
Frankfurt-based fund manager at Union Investment GmbH with about 30
billion euros ($42 billion) of equity assets under management.
Espoo, Finland-based Nokia Oyj, the world’s biggest handset maker, may
report a 67 percent slide in net income, analysts estimate, as
customers concerned about losing their jobs postponed phone upgrades.
“Companies are laying off people and not hiring them back,” said Roger
Kubarych, chief U.S. economist at Unicredit Global Research in New
York, who forecast payrolls would decline by 450,000. “This leaves us
with a weak, irregular recovery.”
Rising unemployment in Europe is trimming as much as 10 percent of
industry sales, said Amsterdam-based Simon van Veen, who helps manage
a global portfolio of 2.2 billion euros at the Fortis Global High
Income Equity Fund.
‘Sluggish’ Consumer Spending
“The outlook for electronics companies isn’t clearing,” said Tetsuro
Ii, president of Commons Asset Management Inc. in Tokyo. “Consumer
spending continues to be sluggish in the U.S. and elsewhere,
pressuring prices.”
Global sales still will bolster results at U.S. multinational
companies, said Michael Williams, managing director of New York-based
Genesis Asset Management, which has assets of about $2 billion. “The
struggling U.S. consumer will be more than offset by the massive
number of people in China, Brazil, Russia and India that are moving up
the consumption ladder,” he said.
Chinese Economic Growth
China’s Purchasing Managers’ Index climbed for a fourth month in June,
the latest sign the country’s 4-trillion yuan ($585 billion) stimulus
is reviving its economy. China’s economy is forecast to grow 7.8
percent this year, according to a Bloomberg survey. That compares with
a decline of 2.7 percent in the U.S. and 4.3 percent in Europe’s 16-
nation euro zone.
PetroChina Co., the world’s largest company by market value, and China
Petroleum & Chemical Corp., or Sinopec, may post increased second-
quarter profit after oil prices rebounded from December lows and
China’s economy grew, said Gordon Kwan, head of energy research at
Mirae Asset Securities in Hong Kong.
Second-quarter earnings at Exxon Mobil, Chevron Corp. and
ConocoPhillips, the largest U.S. oil companies, probably fell after
the recession sapped fuel demand, causing crude-oil prices to drop by
half from the record set last July.
At Irving, Texas-based Exxon Mobil, net income may drop 64 percent
from a year earlier to $4.21 billion, according to analyst estimates
compiled by Bloomberg. The profit would be the company’s smallest for
any quarter since 2003.
‘Excess Production’
“There’s a lot of excess production and not that much demand,” said
Barry R. James, who holds Exxon Mobil, Chevron and ConocoPhillips
shares among the almost $2 billion in investments he manages at the
James Advantage Funds in Dayton, Ohio. “We don’t see much of a
recovery.”
Toyota Motor Corp., Honda Motor Co., Nissan Motor Co., Japan’s three
largest automakers, will likely post losses in the three months ended
June 30 because of the lower demand in the U.S., traditionally their
most profitable market, according to three analysts surveyed by
Bloomberg. Honda and Nissan are based in Tokyo, and Toyota in Aichi
prefecture in central Japan.
“The numbers will look really ugly,” said Mamoru Kato, an analyst at
Tokai Tokyo Research Center in Nagoya, who expects Toyota to post a
loss comparable to the 766 billion yen ($8 billion) loss in the
quarter ended in March.
Ford Motor Co., the only major U.S. automaker that hasn’t filed
bankruptcy, is gaining market share from its distressed domestic
rivals, said Brian Johnson, a Chicago-based auto analyst for Barclays
Capital.
No One ‘Sneering Anymore’
Ford, based in Dearborn, Michigan, is boosting third- quarter output
16 percent to meet rising demand. Detroit-based General Motors Corp.,
which filed for Chapter 11 bankruptcy protection June 1, is selling
controlling interest in its European operations. Chrysler LLC, which
filed Chapter 11 on April 30, has emerged from bankruptcy as Chrysler
Group LLC, 20 percent owned by Italy’s Fiat SpA.
“People used to sneer at me for owning Ford, but no one is sneering
anymore,” said Bernie McGinn, president of McGinn Investment
Management of Alexandria, Virginia, which owns about 300,000 Ford
shares. “The market is rewarding them for not going to the government
to get money.”
Ford, which had a 33 percent decline in U.S. auto sales through June,
may lose $718.3 million in the second quarter, an improvement from an
$8.7 billion loss a year earlier, according to the mean estimate of
four analysts surveyed by Bloomberg.
U.S. Air Carriers
The nine biggest U.S. air carriers, including Delta Air Lines Inc.,
American Airlines parent AMR Corp. and United Airlines parent UAL
Corp., may have a combined quarterly loss of $1 billion, estimated
Michael Derchin, an analyst at FTN Equity Capital in New York. Derchin
said he previously expected a $600 million loss. AMR is headquartered
in Forth Worth, Texas, and UAL in Chicago.
Delta, based in Atlanta, and American Airlines both plan to trim
additional flights when the peak travel season ends after the Labor
Day holiday. U.S. carriers have eliminated 31,700 jobs and parked more
than 500 jets since the start of 2008 as air travel plummeted amid job
losses and tighter credit.
Large banks in general will report lower earnings than in the first
quarter, though analysts said companies such as Charlotte, North
Carolina-based Bank of America Corp. and New York-based Goldman Sachs
Group Inc. will still post profits. Credit losses will offset some
gains in trading and underwriting, said Rochdale Securities LLC
analyst Richard Bove.
‘Difficult to Decipher’
“You’re going to get a quarter that is going to be very difficult to
decipher,” Bove said. “If people look at operating earnings, they’re
going to be tremendously pleased with everything associated with the
capital markets area, but you also have these losses in the retail
banking area.”
Earnings per share will likely decline as many banks sold shares,
including Bank of America’s $13.5 billion total, after the
government’s stress tests determined 10 of the biggest lenders needed
more capital to withstand a prolonged recession. The 19 largest
lenders have announced plans to raise more than $100 billion since the
stress tests were completed.
In retail, discounters such as Wal-Mart Stores Inc., based in
Bentonville, Arkansas, have fared better than higher-priced
competitors.
Luxury retailers such as Saks Inc. and Nordstrom Inc. have been among
the hardest-hit by the slowdown in consumer spending, said Sarah
Henry, an analyst with MFC Global Investment Management. “People are
shopping for value, and Wal-Mart’s message is very resonant right
now,” she said.
Raw Materials
Sliding consumer demand from the retail sector to manufacturing has
ultimately affected raw-materials providers, leaving producers of
commodities such as aluminum and chemicals struggling to remain
profitable.
Steelmakers are grappling with prices that have yet to rebound after
demand plunged the most since World War II. Luxembourg-based
ArcelorMittal, the world’s largest steelmaker, may report its third
consecutive loss before returning to profit in the third quarter,
analysts estimate.
Melbourne, Australia-based BHP Billiton Ltd., the world’s biggest
mining company, may report its first profit decline in nine years for
the 12 months ended June 30, because of a drop in commodity prices,
according to analyst estimates. The Reuters/Jefferies CRB Index of 19
materials has plunged 46 percent in 12 months.
Dow Chemical Co., the largest U.S. chemical maker, may report a second-
quarter loss and a 94 percent profit decline in the current quarter,
according to analysts’ estimates, as falling demand for paints and
plastics prompt the industry to shut factories. The Midland, Michigan-
based company announced three plant closures and 2,500 job cuts on
July 1.
“There is no pricing power in chemicals,” Fifth Third’s Demos said.
“That area is a disaster.”
To contact the reporter on this story: Jack Kaskey in New York at
jka...@bloomberg.net; Melita Marie Garza in Chicago at
mga...@bloomberg.net.
Last Updated: July 5, 2009 11:01 EDT