Falling Revenue Dings Stocks
U.S. Companies on Track to Report Lower Sales for First Time in Three Years; Dow Falls 205 Points
October 28, 2012
From The Wall Street Journal
Dr. Pinna says…
It is becoming very obvious that there are too
many companies producing products that consumers
can no longer buy.
With technology within anyone’s grasp, and
enormous amounts of capital available from all
the central banks, overproduction was the obvious
More importantly, the consumer can no longer
consume in the flagrant manner of the last century.
Buying hamburgers and French fries at Big Mac
was as easy as blinking your eyes. Eating became
the national obsession and fat people popped out of
But as the world recession drifted on, year after
year, the consumer began to realize his available
purchasing power was becoming less and less.
Simultaneously, the cost of commodities rose,
the cost of insurance and governmental taxes
also rose, and food chains like McDonalds lifted
The consumer could no longer comfortably
A three dollar hamburger could be made
at home for less than a dollar. When money is tight
people begin to realize that small items can add up to big bucks.
ARTICLE FROM WALL STREET JOURNAL
America’s largest companies are on track to report lower quarterly sales for the first time in three years, a broad and gloomy verdict on the health of the global economy.
McDonald’s Corp. said on Friday its revenue slipped in the third quarter as all of the fast food giant’s major markets came under pressure at once. Earlier in the week, technology giant International Business Machines Corp. IBM -0.82% said its revenue fell by 5.4%, and noted the governments and big companies it counts as customers kept a closer eye on spending.
Investors reacted on Friday by sending U.S. stocks to their biggest one-day drop in four months. The Dow Jones Industrial Average fell 205.43 points, or 1.5%, on Friday, and technology stocks were particularly hard hit, with the Nasdaq Composite Index down more than 2%.
The drumbeat of weaker revenue is particularly troubling to investors looking for a read on the health of the global economy because it reflects underlying demand. Companies have a lot of levers to pull to improve profits: They can sell assets, buy back stock or cut costs. But it is hard to improve sales unless consumers and companies spend more of their money.
The news on that front hasn’t been good. U.S. multinationals selling everything from soda to computer chips to industrial gear are reporting that demand remains uncertain, highlighting the precarious state of the global economy and suggesting a recovery will be slower to take hold than had been hoped.
The earnings reports are providing a counterweight to optimism triggered by a string of improvements in U.S. retail sales and home sales, data that pointed to an end to the slump in the housing market and a recovery in consumer confidence.
Executives say the confluence of Europe’s debt crisis, slowing growth in China and a still sluggish U.S. recovery are making it hard to boost sales. Other negatives include industry-specific trends like the decline of PC sales, which weighed on stalwarts likeIntel Corp. INTC -1.87% and Microsoft Corp., MSFT -2.90% and the shift of online ads to less-lucrative mobile devices, which hit Google Inc. GOOG -1.90%
The stronger dollar also is hurting, causing overseas sales to be worth less when converted to dollars. Foreign-exchange effects lowered IBM’s earnings by $1 billion in the past quarter.
Those pressures have been building for months. The earnings reports rolling in now are giving a fresh reading on how they have affected corporate sales and strategies. More than 100 of the companies that make up the S&P 500 index have reported results for the June to September quarter. Their revenue is running less than 1% higher than the same period a year ago, according to Thomson Reuters. But nearly six in 10 companies are reporting weaker sales than Wall Street expected, and revenue for the S&P 500 is expected to slip slightly below where it was a year earlier by the time all the reports are tallied.
Profit at McDonald’s fell 3.5% in the third quarter from a year earlier, as food costs rose and its customers’ confidence weakened. Sales were weaker than Wall Street had expected, and pressure bled into October, with sales at restaurants open at least a year down so far for the month. McDonald’s hasn’t seen a drop in monthly sales by that measure in nearly a decade.
A number of other companies said growth slowed toward the end of the quarter. IBM, which sells consulting services, software and mainframe computers saw growth rates drop in September, with slowdowns in previously fast-growing markets like Mexico, Brazil and Canada, Chief Financial Officer Mark Loughridge said.