I say that because the early warnings we got from the likes of FedEx (FDX), Hewlett Packard (HPQ) and Caterpillar (CAT) are being followed up by even more disappointments from a wide swath of Corporate America.
DuPont (DD) kicked things off late Monday when it warned that full-year operating earnings would come in at just $2.75 a share — compared with a previous forecast of $3.10 a share. Sales plunged 11% in the second quarter amid weakness in emerging markets, agricultural product demand and foreign exchange-related losses.
DuPont shares actually rose because of hopes for more financial engineering. That’s because CEO Ellen Kullman announced plans to step down and be replaced by an interim CEO who would be more amenable to business spin offs or a corporate break up. But that doesn’t change the lousy underlying revenue and profit trends, which signal serious problems in the global economy.
|Worries increase over disappointing U.S. corporate profits.|
Then overnight, Yum! Brands (YUM) really dropped a hammer on shareholders. The owner of the Taco Bell, Pizza Hut and KFC fast food chains warned that 2015 per-share earnings growth would miss its own 10% target, and the even more ambitious 14% estimate of analysts.
China was a key area of weakness. Same-store sales there rose a paltry 2%, compared with forecasts for 9%. Yum singled out Pizza Hut as a key area of weakness among its brands.
Seed and agricultural chemicals company Monsanto (MON) piled on, saying it would earn as little as $5.10 a share in the fiscal year that ended Sept. 1. That’s far below the $6 that analysts were expecting. The company also said it would eliminate 2,600 jobs, slash research and development spending, and exit some operations.
Finally, we got some disturbing profit news out of Adobe Systems (ADBE), the software company known for its Photoshop and Acrobat products. It said it would earn an estimated $2.70 a share in 2016 on $5.7 billion in revenue.
Analysts were expecting $3.19 a share and $5.93 billion, meaning this was a pretty sizable miss. The company blamed currency problems, sales weakness associated with moving its business to the cloud, and more.
Look, estimates for profits and sales have been falling for months. Both overall and ex-energy numbers are sinking like a stone.
A bounce over the past few days in commodities prices and the week-long closing of Chinese stock markets have allowed the bulls some breathing room. But unless the global economy and corporate earnings pull out of their serious funk, the oversold rally is going to run out of juice quick. And nothing I’ve seen or heard in the past 48 hours suggests that is happening. So I remain cautious and conservative here.
|“Estimates for profits and sales have been falling for months.”|
Now, let’s hear your take. What do the warnings from the likes of DuPont, Yum!, Monsanto, and Adobe say about the state of Corporate America? Are these just isolated examples, or is the broader trend in profits negative for stocks? Do any of these companies look attractive to you as bottom-fishing candidates? And what do you make of the short-term rally in commodities … is this a flash in the pan or something more?
Hit up the Money and Markets website and share your take today!
Yesterday’s piece on the biotech massacre and drug pricing overall touched a nerve, with several readers commenting on the financial, political, and social impacts of this key issue.
Reader Mike S. said: “Do you think it is an accident that Obamacare left the drug companies to set their drug prices as they see fit? Is anyone surprised that the drug companies have sent their drug prices to the moon? The only question yet to be answered is how long it takes the American public to finally demand that all those drug prices should go through a ‘single payer system,’ much like Medicare?”
Reader Chuck B. responded by saying: “It is not just Obama’s administration, but all the administrations. Much of every administration’s political and financial support comes from Big Pharma, and other medical groups and people. Their money talks, of course. Loudly.”
Reader Thomas S. weighed in on the significant financial toll rising drug prices are taking on people, saying: “Having recently retired from over 30 years in social service, I saw many clients that risked eviction and starvation, because they could not pay rent or buy food and also pay for medication.
“Their income, while low, was over the Medicaid limit. Medicare part D was not sufficient. As you note, one person was paying a $1,800 monthly copayment for drugs. What happens to a person whose income is $2,300 monthly? Medical bills are the largest cause of bankruptcy in this country, but nobody wants to deal with it.”
Reader Jean suggested a change in focus on how to maintain our health overall would help: “All patented drugs cause harm to the body. People need to wake up and quit killing themselves on these drugs! There are so many natural remedies that are break-thru and actually cure many diseases. A total re-education of the medical establishment should take place in natural medicine. We are so far behind other countries in this respect.”
And finally, with regards to the investment implications of the current bio-rout, Reader Bob said: “I own a large long position in one biotech stock. It has gotten hammered recently. I am wagering three things:
“1) The fundamental market need for improved healthcare and treatment regimes will eventually prevail (price controls don’t work);
“2) The wheat will be separated from the chaff and the majority of companies that are not relying on price gouging will rise above the market’s current healthcare broad brush; and
“3) Politicians are notoriously long on words and short on action and the hyperbole (though in isolated instances valid) surrounding this issue will eventually be subordinated to others.”
Thanks for sharing your thoughts on this topic. As I mentioned yesterday, I would keep a close eye on the recent lows for all of these stocks. We could see more forced selling in the short term, regardless of the longer-term trends, if they don’t hold. Then we’ll have to see if the political momentum for things like price controls gathers steam.
Want to weigh in, but haven’t done so yet? Then don’t hold back. Let me hear your thoughts online.
Anheuser-Busch InBev (BUD) went public with its decision to pursue SABMiller (SBMRY). The company would offer $99.7 billion in cash and shares as part of the move to create a global beer behemoth. SABMiller wants more money, however, and any deal would face enormous antitrust concerns in several jurisdictions.
Own a Volkswagen affected by the emissions scandal? Then get ready – the company is planning to initiate a huge recall starting in January. The update will require only software changes in many instances, but some repairs will involve installing new fuel injection equipment and catalytic converters.
I just highlighted how Saudi Arabia continues to bleed reserves thanks to low oil prices and high domestic spending. Overnight, we learned that China’s reserves tanked by another $43 billion in September, too. Investor outflows and the cost of intervening to support the yuan after this summer’s massive devaluation drove reserves down to $3.51 trillion, the lowest since July 2013.
I’ve always been more of a football guy. But since I married a Northside Chicago woman a few years ago, I learned quickly how dedicated these Cubs fans can be! So naturally, our household will be pulling for them to win their wildcard playoff game against the Pittsburgh Pirates tonight. Meanwhile, the Yankees lost to the Astros 3-0 in their one-game playoff.
So will the Cubs pull it off? Will Volkswagen pull its reputation out of the fire? And will every beer you buy at the grocery store soon be made by the same brewer? Give me your opinion on these or other issues at the website when you can.
Until next time,