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VERSACE: Mr. President, all is not ‘fine’ in private sector
Question of the Day
Last week, I touched on how, as the second quarter was closing, investors would focus increasingly on earnings prospects for the quarter. Despite what we hear from the Oval Office, the updates we're getting from the field are not encouraging.
One week later, and the Federal Reserve has cut its outlook for the domestic economy and extended its stimulative Operation Twist, and the Group of 20 summit produced only nebulous results. As if that were not enough, in the past few days, confirmation of the latest summer economic swoon has come as a number of companies either pre-announced earnings shortfalls or cut forecasts. The companies issuing such warnings were not confined to a particular industry, making the trend all the more worrisome.
Before we review those company forecasts, let's take stock of the latest quarterly poll of chief executives, released Wednesday by the Business Roundtable. The key takeaway from the survey is not surprising, given the economic backdrop and cloud of uncertainty that lies ahead. In short, fewer large U.S. companies plan to hire or boost spending in the next six months. More specifically, the Roundtable found that just 36 percent of its CEO members plan to add workers over the next six months, down from 42 percent three months ago, and just 43 percent plan to step up spending on machinery, computers and other large goods, down from 48 percent earlier.
Boeing Co. CEO W. James McNerney, who chairs the Business Roundtable, blamed the dip in sentiment on "concern over increasingly persistent obstacles to a stronger recovery." That speaks to the aforementioned cloud of uncertainty related to U.S. tax policies, Obamacare, the need to raise the debt ceiling, the looming fiscal cliff at the end of 2012, Europe's debt crisis and the pending presidential election.
The Roundtable's overall pessimism helps explain why many companies are reducing their individual business forecasts. With another week to go until the end of the quarter and another before we start hearing from companies about their second-quarter numbers, odds are we will be getting even more warnings from companies about disappointing results.
Just this week, the litany of woe included:
• Procter & Gamble Co., producer of an array of everyday goods ranging from Tide detergent to Gillette razors, lowered its fourth-quarter earnings and revenue forecasts. It cited unfavorable foreign exchange rates, continued slow growth in developed markets and a drop in demand in China. Developed markets, making up 60 percent of sales, dropped off significantly, while in emerging markets, P&G suffered mandated price cuts in Venezuela and import curbs in Argentina.
• Bed Bath & Beyond Inc., the home-furnishings retailer with properties in the United States, Puerto Rico and Canada, issued a weaker-than-expected profit outlook for the current quarter and projects earnings of about 97 cents to $1.03 per share, versus the previous $1.08-a-share forecast.
• Adobe Systems Inc., maker of Photoshop and Acrobat software, cut its full-year revenue outlook as weak demand in Europe is poised to hurt sales of the recently launched versions of its popular design software.
• Delivery giant FedEx cut its first-quarter earnings forecast to between $1.45 and $1.60 per share, below analysts' forecasts of $1.70 per share, citing uncertainty in the global economy - notably the European debt crisis and slowing growth in Asia - that could crimp demand for the firm's services. The company's outlook assumes U.S. gross-domestic-product growth of just 2.2 percent and global growth of 2.6 percent this year.
But let's remember that no matter what the economic data say, what the Fed thinks about growth prospects or what CEOs are projecting and what companies are reporting, as far as President Obama is concerned, the private sector is doing "just fine."
Methinks he and his team are not looking at the same data points that the rest of us are.
• Chris Versace is editor of the PowerTrend Brief and PowerTrend Profits newsletters. Visit them at ChrisVersace.com, or follow him on Twitter @_chrisversace. At the time of publication, Mr. Versace had no positions in companies mentioned; however, positions can change.
© Copyright 2014 The Washington Times, LLC. Click here for reprint permission.
About the Author
Chris Versace, the “Thematic Investor,” is the director of research at Think 20/20, an independent equity research and corporate access firm located in the Washington, D.C. area. Before Think 20/20, Mr. Versace was the portfolio manager of Agile Capital Management (ACM), a thematically driven alternative investment fund. The groundwork for ACM was laid during Mr. Versace’s tenure as senior vice president of equity ...
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