S&P 500 Q1 Revenue Likely Fell, Bad Sign For Earnings Outlook

Corporate revenue has stagnated amid a sluggish U.S. and global economy, raising doubts about the sustainability of earnings growth that’s already languishing in the low-single digits.

With a little more than half of S&P 500 earnings tallied through Friday, analysts now expect first-quarter revenue to decline 0.3% while earnings rise 3.9%.

“That suggests low-quality earnings that are coming more from cost-cutting than growth in their underlying businesses,” said Greg Harrison, a research analyst at Thomson Reuters. “A lot of them are suspect quality.

That would be the second S&P 500 sales drop in three quarters, falling 0.8% in Q3, according to Thomson Reuters data. Earnings rose just 0.1% that quarter.

But before that, revenue had climbed since just after the U.S. exited the last recession in 2009.

Meanwhile, earnings are coming in better than forecast. Estimates for bottom-line growth were as low as 1.5% on April 1, just after the quarter ended.

Sixty-nine percent have so far beat analysts’ earnings targets, but more than half have missed sales projections, Harrison said.

The energy sector — especially oil and gas firms — are leading the sales decline amid weaker demand and prices with a 16.7% fall-off in revenue.

Chevron (CVX) topped profit forecasts Friday, but revenue fell 6%, missing. It was a similar story Thursday for Exxon Mobil (XOM).

Materials sector revenue is seen slipping 1.7%.

Industrial sector revenue is seen edging up just 0.2%. General Electric (GE) and Honeywell (HON) both reported flat Q1 sales.

Technology is expected to climb 4.2%, though without the sales boost from battered giant Apple (AAPL), that group’s sales would grow just 3%.

Even the consumer — the bulwark of this recovering economy — is pinching more pennies. Analysts expect 5.5% sales growth for the consumer discretionary sector, including many homebuilders and automakers. But that’s well shy of the group’s 10.5% 10-year average. Consumer staples are now seen rising 1.9% vs. a 6.6% 10-year average.

Hugh Johnson, chairman of Hugh Johnson Advisors, said results have been mixed but are lagging his forecasts.

“When you look back at the quarter, you’re going to come away and say this is a bad one,” he said.

Analysts have a slightly rosier picture for Q2, expecting 4.4% earnings growth on a 2.9% sales uptick. But those figures have been coming down as corporate chiefs issue lukewarm guidance.

Sales and earnings should rebound in the back half of the year, Johnson said.

As for CEOs’ cautious comments, “I’m not sure I take those very seriously anymore,” he said.

Q1 earnings season is far from over. Facebook (FB), Comcast (CMCSA), Visa (V) and MasterCard (MA) report Wednesday. Kellogg (K) and Kraft Foods (KRFT) are on tap Thursday.


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Qualcomm’s 2Q numbers, outlook lets down investors

SAN DIEGO (AP) — Qualcomm Inc.’s latest quarterly earnings and forecast fell in line with analyst estimates, disillusioning investors spoiled by the company’s recent run of success as the growing popularity of smartphones fueled the demand for its mobile microprocessors.

After the numbers came out late Wednesday, Qualcomm’s stock fell by nearly 6 percent.

The negative reaction to the results and projections released underscore the challenges that Qualcomm is facing as it strives to maintain the growth that enabled it to surpass Intel Corp. as the world’s most valuable chip company last year. Intel recently reclaimed those bragging rights.

Although smartphone sales are still climbing Qualcomm is now facing fiercer competition from other chip makers, including Intel, which has been redesigning its microprocessors in an attempt to grab a bigger piece of the mobile computing market.

Qualcomm delivered a solid performance during the three-month period ending in March, but the numbers were not as far ahead of analyst projections as they have been in other recent quarters.

The company, which is based in San Diego, earned $ 1.87 billion, or $ 1.06 per share, in its fiscal second quarter. That represented a 16 percent drop from net income of $ 2.23 billion, or $ 1.28 per share, at the same time last year.

If not for certain accounting items, Qualcomm said it would have earned $ 1.17 to match the average estimates of analysts surveyed by FactSet. That was a letdown, based on Qualcomm’s recent track record. The company’s adjusted earnings had been three cents to 13 cents per share higher than the average analyst estimate in 12 of the previous 13 quarter leading up to Wednesday’s report.

Qualcomm’s latest quarterly revenue rose 24 percent from last year to $ 6.12 billion — about $ 40 million higher than analysts anticipated, according to FactSet.

For the current quarter ending in June, the company expects its adjusted earnings to range from 97 cents to $ 1.05 per share on revenue ranging from $ 5.8 billion to $ 6.3 billion. Analysts had predicted adjusted earnings of $ 1.04 per share on revenue of $ 5.87 billion.

Qualcomm’s stock shed $ 3.80 to $ 62.20 in Wednesday’s extended trading.


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Canon raises profit outlook as weak yen swells earnings

TOKYO (Reuters) – Canon Inc raised its full-year operating profit forecast by $ 300 million as a weakening yen triggered by Japan’s latest deflation-fighting policies inflates its overseas earnings, despite smartphones sapping compact camera sales.

For the business year to December 31 2013, the company, which relies on foreign markets for four-fifths of sales, lifted its operating profit forecast to 450 billion yen ($ 4.53 billion)from 410 billion yen. That compares with the average expectation of a 473 billion yen profit among 21 analysts surveyed by Thomson Reuters.

As one of the first blue-chip Japanese corporations to report quarterly results, results from Canon, which is considered a leader in profitability in corporate Japan with its aggressive cost-cutting and high degree of factory automation, is often seen as a barometer for tech sector earnings.

“We welcome Abenomics,” Chief Financial Officer Toshizo Tanaka said at a news briefing, acknowledging the impact of Prime Minister Shinzo Abe’s economic policies.

“The Japanese economy moves on this kind of mood so we value this and hope to find success,” he added.

His company raised its forecast for the yen rate against the dollar to 95 yen for the business year compared with 85 yen to the dollar three months earlier.

Abe’s government says the yen’s rapid weakening is a by-product of its economic policies and not the goal. Still, the depreciation is what business leaders worried about their ability to compete, particularly against South Korean firms, have been urging.

Fabricating goods worth around 38 trillion yen a year, Japanese makers of TVs, mobile phones, printers and personal computers account for a sizeable chunk of Japan’s $ 5 trillion economy. The tech sector directly employs around 2 million workers in Japan, making it an influential lobby.

Canon’s operating profit in the first quarter dipped 34 percent to $ 552 million, which the company blamed on a weakened global economy, and picture-taking consumers eschewing compact cameras in favor of smartphones.

WELCOME WEAKNESS

Corporate heads who have praised Abenomics include Sony Corp CEO Kazuo Hirai. His company and other Japanese TV makers, Panasonic Corp and Sharp Corp struggled to fend off competition from Samsung Electronics as a strong yen bit into profits.

Sony with its bigger exposure to overseas markets stands to gain the most from a weaker yen, particularly versus the euro. A 1 yen change against the European single currency adds about 6 billion yen to operating profit at the maker of Bravia sets.

At Panasonic a 1 yen weakening against the euro moves the currency by 2 billion yen, and by 2.5 billion yen for changes against the dollar. At Sharp, which more heavily relies on its home market, a 1 yen move against the euro is worth around 500 million yen in operating profit and 700 million yen against the dollar.

More than a third of companies remain worried about domestic demand stagnating, a Reuters survey of 240 companies released on Friday shows. A quarter said they were likely to increase output in Japan because of the weaker yen.

Since mid-November when an Abenomics stock rally began, Canon’s shares, have gained 58 percent in line with a 60 percent gain in the Nikkei 225 benchmark index. Its stock rose 1.3 percent in Tokyo to 3,840 yen on Wednesday. Quarterly results were released after the close of trading.

(Reporting by Tim Kelly and Mari Saito; Editing by Daniel Magnowski)


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Canon raises profit outlook as weak yen swells earnings

TOKYO (Reuters) – Canon Inc raised its full-year operating profit forecast by $ 300 million as a weakening yen triggered by Japan’s latest deflation-fighting policies inflates its overseas earnings, despite smartphones sapping compact camera sales.

For the business year to December 31 2013, the company, which relies on foreign markets for four-fifths of sales, lifted its operating profit forecast to 450 billion yen ($ 4.53 billion)from 410 billion yen. That compares with the average expectation of a 473 billion yen profit among 21 analysts surveyed by Thomson Reuters.

As one of the first blue-chip Japanese corporations to report quarterly results, results from Canon, which is considered a leader in profitability in corporate Japan with its aggressive cost-cutting and high degree of factory automation, is often seen as a barometer for tech sector earnings.

“We welcome Abenomics,” Chief Financial Officer Toshizo Tanaka said at a news briefing, acknowledging the impact of Prime Minister Shinzo Abe’s economic policies.

“The Japanese economy moves on this kind of mood so we value this and hope to find success,” he added.

His company raised its forecast for the yen rate against the dollar to 95 yen for the business year compared with 85 yen to the dollar three months earlier.

Abe’s government says the yen’s rapid weakening is a by-product of its economic policies and not the goal. Still, the depreciation is what business leaders worried about their ability to compete, particularly against South Korean firms, have been urging.

Fabricating goods worth around 38 trillion yen a year, Japanese makers of TVs, mobile phones, printers and personal computers account for a sizeable chunk of Japan’s $ 5 trillion economy. The tech sector directly employs around 2 million workers in Japan, making it an influential lobby.

Canon’s operating profit in the first quarter dipped 34 percent to $ 552 million, which the company blamed on a weakened global economy, and picture-taking consumers eschewing compact cameras in favor of smartphones.

WELCOME WEAKNESS

Corporate heads who have praised Abenomics include Sony Corp CEO Kazuo Hirai. His company and other Japanese TV makers, Panasonic Corp and Sharp Corp struggled to fend off competition from Samsung Electronics as a strong yen bit into profits.

Sony with its bigger exposure to overseas markets stands to gain the most from a weaker yen, particularly versus the euro. A 1 yen change against the European single currency adds about 6 billion yen to operating profit at the maker of Bravia sets.

At Panasonic a 1 yen weakening against the euro moves the currency by 2 billion yen, and by 2.5 billion yen for changes against the dollar. At Sharp, which more heavily relies on its home market, a 1 yen move against the euro is worth around 500 million yen in operating profit and 700 million yen against the dollar.

More than a third of companies remain worried about domestic demand stagnating, a Reuters survey of 240 companies released on Friday shows. A quarter said they were likely to increase output in Japan because of the weaker yen.

Since mid-November when an Abenomics stock rally began, Canon’s shares, have gained 58 percent in line with a 60 percent gain in the Nikkei 225 benchmark index. Its stock rose 1.3 percent in Tokyo to 3,840 yen on Wednesday. Quarterly results were released after the close of trading.

(Reporting by Tim Kelly and Mari Saito; Editing by Daniel Magnowski)


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Caterpillar 1Q profit shrank; cuts 2013 outlook

MINNEAPOLIS (AP) — A slowdown in the mining business is digging a hole in Caterpillar’s profits.

First-quarter profit shrank 45 percent. Caterpillar lowered its expectations for full year sales and profit because its mining business is slowing. Sales of Caterpillar-branded mining machines will drop by half this year, the company said on Monday.

Caterpillar, based in Peoria, Ill., said mining customers placed big orders for equipment last year, just as mining profits fell, so now those customers are cutting back. Dealers who would normally be stocking up on Caterpillar gear to get ready for a busy summer instead cut inventory during the first quarter.

Caterpillar has already started cutting costs. On April 5 it said it would lay off more than 460 employees at a mining truck plant in Decatur, Ill. Caterpillar also announced mining-related layoffs in Milwaukee and plans to cut 1,300 of 3,400 jobs at a plant near Brussels that makes excavators, loading vehicles, and engine parts. This year’s capital spending — which covers big-ticket items like factories and computer systems — will fall below $ 3 billion, down from $ 3.4 billion last year.

“We’re definitely in a down-cycle right now, but long-term it’s a great business for us,” Chairman and CEO Doug Oberhelman on a conference call.

The reduced outlook wasn’t entirely unexpected and Oberhelman did note some bright spots. Sales in China rose compared to a year ago. And the company is “becoming more optimistic” on the U.S. housing sector. And the company announced it plans to buy back shares — about $ 1 billion worth — for the first time since 2008, following an 11 percent drop in the price this year.

That helped Caterpillar shares rise on Monday. They gained 94 cents to $ 81.37.

Caterpillar’s net income dropped to $ 882 million, or $ 1.31 per share. Revenue fell 17 percent to $ 13.21 billion, from $ 15.98 billion a year ago. Both missed analyst expectations. Analysts surveyed by FactSet were expecting a profit of $ 1.36 per share on revenue of $ 13.79 billion.

It also cut its 2013 guidance. Caterpillar now expects to earn $ 7 per share, down from $ 7 to $ 9 previously. It forecast revenue of $ 57 billion to $ 61 billion, down from $ 60 billion to $ 68 billion. Analysts were expecting a 2013 profit of $ 7.67 per share on revenue of $ 62.48 billion.


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