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I’ve been writing a lot about earnings, and for good reason! Several of the biggest companies in the U.S. are weighing in on the state of their operations. So I want to make sure you know what they’re saying — and what it means for your money!
Just in the past 24 hours …
General Motors (GM, Weiss Ratings: C+) reported that profit jumped to $1.38 billion, or 81 cents a share, from $698 million, or 45 cents a share, in the year-earlier period. EPS slightly beat expectations when you strip out one-time items. But revenue only inched up to $39.3 billion from $39 billion — missing forecasts.
The problem? Strong domestic results were offset by weak foreign earnings. Just consider: While North American operating earnings rose 12 percent to $2.45 billion, international profit tanked 20 percent to $259 million. The company lost a boatload of money in Europe and South America. It has also spent $700 million on recall-related repairs.
|3M 3rd-quarter net income up 5.9 percent.|
MMM (MMM, Weiss Ratings: A-), the diversified mega-cap manufacturer, reported net income of $1.3 billion, or $1.98 a share. That was up 5.9 percent year-over-year, and slightly above forecasts. But sales rose a paltry 2.8 percent to $8.14 billion, missing estimates.
The strongest growth came from its electronics and energy division, where sales gained around 4 percent. Safety and graphics revenue growth was the weakest, at 1 percent, with consumer products sales growth only slightly better at 2 percent.
And Caterpillar (CAT, Weiss Ratings: B-), the world’s largest maker of mining and construction equipment, reported net income of $1.02 billion. That worked out to $1.72 a share excluding items, topping the average estimate of $1.35 a share.
But again, sales were lackluster. They rose to just $13.5 billion from $13.4 billion a year ago, with weakness in mining offsetting strength in construction. Weak pricing for iron ore, gold, copper and other commodities is causing miners to slash capital spending. So it’s basically cost cutting and share buybacks that are boosting the bottom-line, reported results.
Among other big names that reported today, biotechnology giant Celgene (CELG, Weiss Ratings: B) said third-quarter earnings jumped 37 percent on the back of strong sales of its multiple myeloma drug Revlimid. Sales climbed 19 percent to a better-than-expected $1.3 billion.
Mega-cap railroad Union Pacific (UNP, Weiss Ratings: A-) was another standout, reporting $1.37 billion, or $1.53 per share, in profit. That topped forecasts. Unlike many of the other companies I already mentioned, UNP’s results were driven by a healthy 11 percent climb in revenue to $6.18 billion. The firm cited strong demand for intermodal, industrial and agricultural shipping.
But Top 3 home builder PulteGroup (PHM, Weiss Ratings: A-) couldn’t get much done. Earnings failed to inspire investors. Revenue inched up just 0.8 percent to $1.59 billion, while orders for new homes flatlined.
If I had to sum up the messages from today’s profit reports — and the ones I’ve seen earlier this week — they would be:
|“Financial engineering and cost cuts are boosting bottom line results, resulting in plenty of earnings beats.”|
1. Financial engineering (share buy backs) and cost cuts are boosting bottom line results, resulting in plenty of earnings “beats.”
2. But underlying revenue growth just isn’t all that impressive. Since sales are the hardest quarterly numbers to fudge, that speaks to the difficulty companies are having when it comes to generating growth outside of a few select industries.
3. The economic slowdown overseas is very real — and it’s hurting multinationals. Here in the U.S., companies are still reporting fairly robust business … but the key question is sustainability. I’ve phrased it this way: “Will the rest of the world’s ‘Anchor Economies‘ drag us down, or will we bring them up?”
The verdict isn’t in yet. But the earnings reports I’m reading suggest it’ll be hard for us to keep chugging along forever without more help from China, Europe, South America and other overseas economies. That’s why I’m relatively skeptical that the V-Shaped Recovery we’ve seen the past several days can sustain itself for long!
So what do you think? Are earnings in a sustainable uptrend? Or are the latest reports making you more worried about corporate profits? Would you rather see strong sales driving results … or do you not really care how companies make their profit numbers, as long as they do make them? Let me know here.
|Our Readers Speak|
The 100- and-200-point-plus daily swings in the Dow are showing no sign of going away — and that has a lot of you commenting at the website. Is it a sign of serious trouble? Or are we still in a bull trend?
Reader Mike P. said: “The U.S. is in a long-term bull market. Many asset management firms are predicting high volatility in equities, but overall annual returns in the range of two to six percent. The nimble trader would seem to be the big winner going forward.”
Reader Greg added that: “I’ve been saying since the first appearance of irrational exuberance in the late 1990s that Mr. Market is a ‘head case.’ Violent swings from depression to euphoria? Not so unusual at all. It’s called Manic-Depressive Schizophrenia.”
To protect yourselves, Reader Rick H. offered the following advice: “Anyone who calls themselves ‘investors’ should understand some basic premises when making a decision as to where to allocate their money. Diversification, stop losses or trailing stops, and position sizing are key to any successful retirement portfolio. Ignoring any one of these considerations is begging for failure.”
Finally, when it comes to protecting against downside risks, Reader Dianne had a few questions. Her comments: “I would find it helpful if you would explain how you hedge a market that you reasonably expect may do a 15-20 percent nosedive. I know about inverse ETFs but knowing the term is about the extent of my knowledge. What to purchase, when to do it, how to calculate how much you need to hedge what percentage of your portfolio … Lots of questions. No answers.”
Dianne, you can find my best advice on what to buy, when to buy it, and how to hedge in my Safe Money Report. That’s where I offer specific advice, and I recommend you check it out if you haven’t already. But you’re on the right track if you’re doing some homework on how inverse ETFs work!
Any other questions or comments? Don’t be afraid to share them in the comment section!
|Other Developments of the Day|
Yesterday’s shooting in Ottawa, Canada took two lives — the shooter’s and an army reservist. Authorities are sorting out details, including the killer’s motivation and how he carried it out. But it’s clear that homegrown terrorism in Western nations like Canada, the U.K., and the U.S. remains a serious threat.
Initial jobless claims popped 17,000 to 283,000 in the most recent week. But the four-week moving average of claims fell to its lowest level since May 2000 — right around the start of the great Tech Wreck.
The European Central Bank is poised to release the results of the multi-month “stress tests” it has been conducting this weekend. How many institutions will fail? How much capital will those banks be required to raise? What will the market impact be? Stay tuned!
I’m a big fan of J.R.R. Tolkien’s Middle Earth books and Peter Jackson’s film adaptations of them. So I love the crazy safety videos that Air New Zealand does to commemorate the various movie releases. Here’s a link to the newest, just for fun.
Until next time,
P.S. If you missed Part I of Martin’s online retirement course – you’re in danger of missing Part II as well! In Part II he gives you ten easy-to-follow steps that will not only protect you but also instantly explode the size of your nest egg or income. Click here to enroll before you miss this FREE valuable information!