What GE, UPS, MCD, SBUX Are Telling Us!
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I write about what bloviating central bank bureaucrats are saying, not because I want to, but because I HAVE to. Their policy actions are a huge determinant of market action these days, so you can’t afford to miss out.
But thankfully, actual corporate earnings take center stage on days like today. So what are America’s biggest corporations saying about recent results — and what does it mean for markets?
First, the diversified industrial conglomerate General Electric (GE, Weiss Ratings: B) turned in an adjusted rise in profit of 4 percent to $5.64 billion. That worked out to 56 cents a share, or slightly above analyst forecasts.
|Strength in its power, water, aviation and transportation units boosted GE’s 4Q numbers.|
Sales gained 4 percent thanks to strength in its power, water, aviation, and transportation businesses. But sales in the energy business that GE has bulked up recently fell 6 percent. Investors generally viewed the results positively, especially after GE reiterated its forecast of 2 percent to 5 percent industrial sales growth in 2015.
Second, UPS (UPS, Weiss Ratings: A-) laid an egg in the fourth quarter. The global package delivery company warned that it would earn just $1.25 a share in the quarter, well below the average analyst forecast of $1.47.
Interestingly, UPS didn’t blame package volume or sales — that was roughly in line with pre-holiday expectations. But overtime and training expenses were higher, while productivity was lower, hurting the bottom line.
The stock got pummeled on the news, falling by more than $11 on the day.
Third, McDonald’s (MCD, Weiss Ratings: C+) delivered another lackluster quarter worth of results. The fast food giant earned $1.1 billion, or $1.13 a share, down from $1.4 billion, or $1.40 a share, in the year-ago period. But on an adjusted basis, profit topped estimates by a couple of pennies.
Investors are keen for any sign that disappointing same-store sales trends will turn around. They fell 0.9 percent company-wide, and 1.7 percent in the U.S. in the most recent three-month period, and the stock slipped on the day.
Fourth, Starbucks (SBUX, Weiss Ratings: B) proved you can make a gusher of dough from selling beverages and food if your concept and execution are solid. Fourth-quarter earnings soared to $983.1 million, or $1.30 a share, from $540.7 million, or 71 cents a share, in the year-earlier period.
Revenue topped expectations, with same-store sales gaining 5 percent. Company executives also noted strong gift card activity, pointing out that 1 in 7 Americans received a Starbucks card during the holidays. The news helped send SBUX shares to a fresh all-time high.
|“That’s just one more reason to focus more on companies whose business is largely domestic.”|
If there’s an overall message here, it’s that corporate earnings are in fairly good shape outside of the energy sector. The problems at McDonald’s and UPS seem more like self-inflicted wounds to me, while the broad-based strength at GE speaks to an improved economic backdrop.
That doesn’t mean there aren’t pitfalls out there, particularly for companies exposed to currency-related woes. Kimberly-Clark (KMB, Weiss Ratings: A-) is a good example of a multinational firm getting hammered by the dollar’s rise. The company warned that it would hurt revenue to the tune of 8-9 percent in 2015.
That’s just one more reason to focus more on companies whose business is largely domestic. One of my favorite Safe Money Report stocks that fits the bill just surged to an all-time high this week, handing my subscribers open profits of more than 20 percent!
So what do you think about the results from GE? Starbucks? And what about the rising dollar — is it going to be a major headwind for large U.S. companies? Or is it just an excuse for bad management?
What companies are you particularly enthused about this earnings season — and which are you running from as fast as you can?! Share your answers with me at the Money and Markets website.
|Our Readers Speak|
The debate over President Obama’s prescriptions for what ails the U.S. continues to rage online, and for good reason. What Obama proposes, and Congress decides to pass, will have an impact on all of us in the coming months!
Reader Lorraine W. said: “Taking from the rich and giving to the poor only works in Robin Hood movies. It is like taking brilliant children and children of average intelligence and placing them in the same class: Many studies have shown that the top students lose their edge, and everyone aims toward the ‘average.’
“Removing incentives by taxing the rich (who, by the way, support our charities, the arts, hospitals, colleges, etc.) is a rather short-sighted approach. Remember the old saying: ‘Give them a fish and they eat for a day; teach them to fish, and they eat for a lifetime.'”
But Reader Windlake responded by saying: “The tax rates for the rich were much higher in the past — say, 1950s era. Since then we keep passing tax cuts for the rich, and what has happened? The super rich are accumulating all of the world’s wealth!
“Will you be happy when the rich hold 100 percent of the world’s wealth and everyone else is dirt poor (including you)? You won’t have a job — or if you do, you won’t make enough to get by.”
Continuing that thread, Reader The Bishop noted that yes, the rich pay a lot of taxes … but that’s because the poor can’t afford to! The additional comments:
“The reason the 1 percent are paying 38 percent of the taxes, and the bottom 50 percent only pay 2 percent of the taxes, is because the 1 percent have got all the money. The 50 percent are not getting a free ride, they cannot afford the ride period. It isn’t rocket science.”
Meanwhile, on the topic of central bank policy and the utter lack of coordination that’s becoming apparent from country to country, Reader Fred said:
“There is the whiff of fear in the air as each country goes its own way, does its own thing and does not tell anyone until their moves hit the wire with a loud ‘BAMMM!!’ — a la Canada a few days ago. And I think you are right about: They don’t know what to do. Again, a lot of fear behind those doors.”
Finally, Reader Jim weighed in on news of the latest energy sector acquisition by Kinder Morgan (KMI, Weiss Ratings: B). His take:
“Richard Kinder has a habit of doing the right thing. At $1.80 a gallon, my son is driving the wheels off of his Tundra. With oil at $45, I also see where four hundred or more major oil and gas development projects are being cancelled. Reports of the death of shale are premature.”
Thanks everyone! We’re definitely in for a wild ride if we get more of these unscripted central bank events. And I agree: If Kinder is buying, maybe we should be too!
Do you have more to add? Still haven’t posted your first comment on these or other topics? Then don’t wait — head over to the website and weigh in!
Other Developments of the Day
The leader of Saudi Arabia, King Abdullah bin Abdulaziz al Saud, passed away overnight at the age of 90. His half-brother, Crown Prince Salman, will ascend to the throne.
But one of the most important questions for investors is whether this will have an impact on the Saudi’s recent oil policies. In particular, they’re wondering whether new leaders will continue to over-produce crude despite a steep drop in prices. I believe the Saudis have every reason to back an OPEC production cut, and probably will before long.
Meanwhile, elsewhere in the Middle East, the U.S.-allied president of Yemen resigned after being threatened by Shiite rebels. The abdication of Abed Rabbo Mansour Hadi could force the U.S. to ease up on drone strikes and other efforts designed to contain al-Qaeda in the Arabian Peninsula.
The euro currency continued to plummet in the wake of the European Central Bank’s most recent money-printing program announcement. It fell to a fresh 11-year low near 1.11 to the dollar earlier today, though I continue to maintain we are getting wildly overextended — and I’ve jumped off this one-way train!
Super Bowl Sunday is just over a week away, if only we can stop talking about slightly-deflated footballs long enough to focus on the game! The bad news is, you can expect to pay more for those chicken wings you’ll eat during the game.
That’s because chicken slaughtering activity dropped last year, helping push wholesale wing prices up more than 8 percent just since the beginning of the year. That’s the biggest early-year rise since 2012, according to Bloomberg.
Fed up about paying more for wings? Worried those $2-per-gallon fill ups will go away thanks to the Saudis? Have any thoughts about other news stories you’ve read? Then hit up the website and weigh in this weekend!
Until next time,