Slim sales mean plump corporate profits aren't built to last
Filed under: Earnings
The economy may still be in the dumps -- don't let yesterday's early reading on gross domestic product fool you into thinking otherwise. But that hasn't kept U.S. companies from posting bigger-than-expected profits. In fact, four out of every five members of the S&P 500 that reported third-quarter earnings in recent weeks exceeded analysts' estimates, according to data compiled by Thomson Reuters. But what seems like great news at first glance looks a lot less impressive upon closer inspection. Just as many market observers feared before earnings season got underway, plenty of these companies are trimming costs rather than boosting sales, which means they probably won't be able to outperform expectations much longer.
The S&P 500 is vast, but looking at the much smaller Dow Jones industrial average provides a clear view of what's going on. Through this week, 24 of the 30 companies that make up the Dow had reported their quarterly results. And a whopping 21 of them outpaced analysts' predictions in terms of earnings per share.
Yet just 13 reported higher revenue than the market expected. And of the companies that did report sales that beat estimates, not a single one could brag that the margin was as wide there as it was for EPS.
Thus far, Caterpillar (CAT), DuPont (DD), General Electric (GE), IBM (IBM), Intel (INTC), Coca-Cola (KO), McDonalds (MCD), AT&T (T), Travelers (TRV) and Wal-Mart (WMT) all reported surprising strong quarterly profit along with disappointingly weak sales.
Out-of-Balance Results
The figures for the S&P 500 are similarly skewed. Some 81 percent of the companies that had reported results so far disclosed EPS that outpaced expectations, versus just 62 percent that could say the same about revenue.
Take Travelers. The insurance giant said it earned $1.61 a share in the third quarter, compared with $1.31 that analysts expected. However, it reported revenue of just $5.34 billion, while analyst estimates averaged $5.82 billion. In other words, Travelers beat EPS estimates by nearly 23 percent while missing revenue forecasts by 8.25 percent.
That's not to say investors were disappointed. Travelers' stock has risen 3.9 percent since the earnings report on Oct. 22, compared with a 4 percent decline for the S&P 500.
All the companies that are pumping up profits while sales shrink will need to get back to top-line growth before investors can be sure any recovery is real. And there's scant sign of that happening anytime soon.
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Reader Comments (Page 1 of 3)
10-30-2009 @ 10:33PM
Bob said...
What do you expect. I wet to Home Depot tonight and tried to find anything made in the US and the answer is no. The wood comes from China, they did have some duck tape from 3M but it was made in Canada. They want China to take over the credit card business. Wise up folks or it will be over quicker than you think. Store hide the made in China labels with their price tags.
I checked my girlfriends butt and she had a tag ...guess what?
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11-01-2009 @ 10:37AM
Bob said...
And your daughter will have a dating ad seeking a Chinese guy with a job so she can move to Bejing instead of living in a backwater, broken down country like the post-Obama USA.
11-01-2009 @ 9:25AM
AnimalsHaveCars said...
Of course this is a bubble and watch out when it "BURSTS". With unemployment at about 15%-20% (This is reality) and sales going down 25% it does'nt take a genius to figure that for at least a few months(especially around holidays) that profits will be up as buisness owners get a last hurrah before sales really plummet and no one gets hired back. This will now be a level playing field and for better or worse America now has to sleep in the bed it has made. Personally I see nothing but Angst and Anger in my daily travels around the country(travel for a living). At such levels I have never seen within our own country. We are ready to destroy our country to spite it.
"OUR ENEMIES OUR FROM WITHIN"
11-01-2009 @ 10:53PM
davidrep1 said...
Yep. You can thank Regan and the rest of the republican pukes who broke up the unions in this country and sent our good paying jobs overseas to China, and also down to Mexico. We don't make anything anymore in this country, and we are quickly turning into a third world nation. Regan, G.H.W.Bush, and Bush Jr. ruined this country with their deregulation of Wall St and their greed to make the oil companies richer and richer. They busted all of the unions and sent our jobs overseas! They are all TRAITORS to this country, and those still alive along with their minions should be brought up on charges IMMEDIATELY and stand trail for their actions. The republicans destroyed this country over the last 29 years more than any terrorist ever could.
So how's it all working out for you? Huh? Go ahead and keep voting for the republican freaks who want to make sure our country is completely destroyed!
10-31-2009 @ 12:57AM
Ray said...
If you can follow simple instructions you can use most of these machines. They give you the instructions verbally, in writing and pictorially. "Scan your first item,." It means, scan your first item. "Please place the item in the bag," it means, please place the item in the bag. I work these things 40 hours a week and if I had my druthers, they would go away, however, they are like self service gas stations; they're here and they're not going away, it saves the corporations too much money.
I see lots of people who hate them, but just as many who love them. My guess is that in five to ten years cashiers will be a thing of the past except at mom & pops and some specialty stores.
Off of the floor, we refer to them as "the lens," because they are cosmic lenses that focus stupidity to that point on earth. Otherwise normal people have their brains run right out their ears when they get in there. "It's a scale, Ma'am, you have to place the item there so the machine knows you rang the correct item up." "Ma'am, it is a scale, you can't put your purse there, the machine thinks it's something you haven't rung up." "Ma'am your child can't sit up there either, it's a scale, it compares what you ring up to what you put in the bag." "No don't take it off yet, the machine thinks you are taking it without paying, you need to leave it on the scale until you finish paying." "No, you haven't finished paying, if you take it off it will stop the machine." "No, it's not broken, you need to put the merchandise back up there until you finish paying."
I envision these customers going out to their car, turning the key, stepping on the gas..."I did just what I was supposed to do, why isn't the car moving?"
"Ma'am you need to put the car in gear, it's a machine, it only works if you follow the instructions."
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11-01-2009 @ 8:21AM
kelly said...
I do not use self scan isles at stores for the very reason that they take away a job. They quite simple to use and slower than an actual clerk. When unemployment is reaching 10% I find it unfathomable why people use them.
11-01-2009 @ 9:12AM
michale collins said...
Personally I would rather employ an out of work American than a machine. You see machines don't need to eat, etc. But on the other hand the single mom, or the guy next door does.You must be a generation x playstation kind of guy.
10-31-2009 @ 2:18PM
marcuss said...
B0 will just keep telling lies and the brain dead liberals will belive him.
we are screwed as a country and the liberal morons will encurage more government spending.
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10-31-2009 @ 3:15PM
John said...
Ok american's here's the deal trust it or not. countries have been trying to take over the U.S. for years but we have been to strong in the past to let that happen. (military,Democrocy,ect.) now they have found how to do it IF A COUNTRY CONTROLS YOUR MONITARY SYSTEM THEY HAVE ALL THE POWER THEY NEED TO CONTROL YOU. and now check out who owns most of everything in the U.S. and right now we will lose our freedom and rights we have fought to keep and maintaine. so if y'all want to keep your rights and your country better get rid of the washington way of doing buisness.
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10-31-2009 @ 3:17PM
andy said...
"strong earnings" nothing strong about my earnings, they've been stagnant for years, but my taxes haven't, my propertytax has doubled in the past 3 years, that's two thousand dollars that could have been used on some much needed home repairs, car repairs, inflated prices for everything from food to other taxations, or more help for the kid with college, still isn't enough left for a vacation not even a dinner out!
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10-31-2009 @ 3:23PM
Tony said...
This writer certainly knows how to make the comples quite understandable
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10-31-2009 @ 3:36PM
John said...
This can't be true. Obama is president and he has already fixed everything. Also, he is already campaigning for his next term in office so everything is already done and finished for his first term. SILLY BILLIES! I have a gold mine in my back yard with an oil well right next to it so everything is just fine.
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11-01-2009 @ 10:46AM
CaptainAmerica said...
WAKE-UP AMERICA!
Quit listening to the major "news" outlets! All they are doing is towing the current administrations line od deceit. The era of "investigating journalism" is O-V-E-R! The government has even allowed ACORN (racist, corrupt company) the ability to sue those young undercover reporters...is ther NO LIMIT these days?! This administration is as corrupt and cancerous as Van Jones, Nancy Pelosi, Harry Reid and Barney Frank ever were! Obama is the TOTAL destruction of America.
REAL-AMERICANS ACT NOW!
1. VOTE
2. BUY A GUN & LEARN HOW TO USE IT
3. SUPPORT THE TEA PARTIES...ATTEND ONE
4. QUIT WATCHING THE ABC, CBS, NBC and CNNs
5. QUIT BUYING THE "MADE IN CHINA" CRAP...PERIOD
6. STAND UP, SPEAK OUT, BRING UP THESE TOPICS
7. GET EDUCATED ON POLITICS, KNOW YOUR STUFF
8. STUDY YOUR CANDIDATES
9. CALL YOUR SENATORS/CONGRESSMEN OFTEN
10. DO NOT BE AFRAID!!!!
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10-31-2009 @ 4:57PM
luette said...
Things are not going to get better, Obama has used the recession to now own banking, corporations, and will go for Energy next......crisis will allow further encroachment by his government.....and now he will sign away Americas Soveriegnty in Dec. and No One elected later will be able to undo that one.....what American would allow that? but he can and he will......he has his own agenda.......like the million dollars of our money has gave to his Marxist cousin in Kenya for a failed power grab--also called "Change" how ironic.....he even helped him campaign.....lucky US
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10-31-2009 @ 7:47PM
Yazz said...
Corporations have been looking good because of all the assets they've been selling off and all the employees they've been getting rid of. They are truly lean and this is how they've been able to look so good at the bottom line. Now they are down to executive salaries. Pity
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10-31-2009 @ 8:01PM
beware of the new world order said...
the hard truth is there are masonic elite at the top this started in england ,they are satanic this whole thing is evil a demonic take over.they are trying to destroy the usa and make it into the war dog,there is a plan for depopulation and the rest will be micro chip implanted and mind controlled manipulated by elf waves going into the micro chips like in the bible the mark of the beast ,the bilderburg group are controlled by this as well ,they will pump up the stocks and then drop them down stealing the wealth ,but there is light hope that will save us and it is not obama !he is controlled by these groups the are evil .do your research the dots connect all over the place ,monsanto control the food you control the population ,gmo food,chemtrails ,fluoride and toxins in the water,poison vaccines ,man made viruses , false flag attacks like 911,war the list goes on ,i believe these slim as a well put word there days are numbered and the must be jailed and there wealth they stole and the power taken away so we can live in peace for once ,i get drained even thinking about this ,but you imagine waking up with a micro chip implant cashless society they are con artist liers trying to twist things make what they are doing appear good when it is demonic !
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10-31-2009 @ 7:59PM
RJ said...
Can you spell : C:O:O: K_T:H:E:_B:O:O:K:S_??????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????
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10-31-2009 @ 8:41PM
Jim said...
The reason companies are reporting hgher profits on lower sales is simple: All the lay-offs, and cost reductions, make it possible to make $ on smaller volume. The cuts are starting to have an effect. In order to stay profitable, these compaies have to resist hiring. Jobs will not be based on profits, but on sales volume.
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10-31-2009 @ 8:35PM
Denny said...
Ford's UAW workers have voted on contract changes that the Union leaderfship agreed to 2 weeks ago. The UAW workers overwhelmingly rejected the changes! Talk about overwhelming IGNORANCE! Ford is barely holding on, and had mortgaged the entire chicken farm a few years back to stay afloat, and now that they just actualy might pull off a small profit, the laziest, scum-sucking, moronic, assembly line workers in the world, will once again bring Ford to its knees. I WILL NEVER EVER AGAIN BUY ANY AMERICAN OR ANY CAR SO MUCH AS TOUCHED BY A GREEDY LOUSY UAW WORKER!
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11-01-2009 @ 4:51AM
Dee said...
I recall a bumper sticker that my Father had on one of his vehicles, when I was a child. It read "buy a foreign car, put 10 American's out of work"!! And at no time, more so than now, does that statement ring true! But nowaday, it's not just vehicles, but anything made by a foreign country!
My Father worked for 30 years for GM. He was in the UAW. And they stood up for the rights of the employees, when back in the late 70's early 80's. GM wanted to go to a "Chinese work model" for the plant and it's employees! The work model was to build "cookie cutter" houses. That the employees lived in for a small monthly rent. In exchange for their wages to be reduced to the then Federal Minimum Wage scale. You didn't have to live in their "housing project", but your wages would be reduced just as the rest of the employees, if you so chose not too! They also wanted to lessen health, dental coverage to the point that it was almost not worth having! That was for the "hard working assembly line employees"!! That gave their all to this company! My Father worked many 16 hour shifts, 6 or 7 days a week! He did his all for GM! With this new "Chinese business model" it only affected the plant workers! NOT the upper management, who would continue to get the pay, benefits and incentives that they enjoyed! ONLY the "worker drones" would be "punished" under this new plan! The UAW stood up for the employees and that did not happen, as GM wanted! And I do understand that there is good and bad in all things. Be it Unions, the Government, even daily life! We all suffer in one way or another for decisions that we may, or may not have had a vote in! But to condemn an entity as you have, only helps the "haves" have more than the "have nots"
As I stated earlier, my Father worked for GM for 30 years. He retired in the late 90's. And he was making $20.00 an hour, when he did retire. His retirement pension was around $1200.00 per month for him and my Mother. Not alot. But better than nothing! Unfortunately, his retirement did not last long. About 4 years. He passed away 9 days after Sept 11, 2001! He had been diagnosed as terminally ill, around Easter of that year! His biggest concern was for my Mother! He read and reread his union book. And found that if he divorced my Mother before he passed, she would be able to collect MORE of his retirement income! But, he did not do that! And now, because of greed by many! My Mother along with many other hard working auto manufacturing employees, will be loosing her health and medical benefits at the end of this year. Some may have taken effect already! These are benefits that people depend on, due to income levels etc. That they "believed" they would be covered by the companies that they gave their blood, sweat and tears to for so many years! Now you tell me, if you were in her position, you would be pretty upset that you were loosing benefits that you were made to believe would be there for you! I understand that there has to be change in order for growth. But why is it always the lower/middle class that is having to bleed for the greed of the upper classes? They would not HAVE what they have, or have a job for that fact, IF the lower/middle classes did not do the actual "in the trenches" work for them to manage! When did it become expected that management would, or should garner so much in wages? When in actuality, they wouldn't be managing that particular situation WITHOUT the people that ACTUALLY do the work? WHY aren't the upper management people taking larger pay cuts to help get through this? And they definetly would NOT be looking out for the workers! That's where the union comes in!
Oh and I personally have had experience with the IUE union for part of Chrysler Corp! Our hourly wage in the late 90's was $8.00 per hour. And according to our union book. It would take us 9 YEARS working the assembly line to get to $9.00 per hour! The going joke at the plant was, "we can work for the company, but we can't afford to buy the products we build"!!! That was not far above Federal Minimum Wage standards! So, you tell me? Where was all the money going to from car sales etc? It wasn't to the employees at that time!
All in all, we as a country are in quite the mess. Some due to circumstances, other due to self inflicted pursuit of things, houses, cars etc that really weren't in their budget range! But we need to find a way back to stability. My personal opinion of the government is that it's all gone VERY wrong, when the needs of the "People" don't seem to be at the forefront of their choices. And it is up to US as a country to make better choices as to who we feel will do the better job, with the peoples interests at the front of the line!