US Companies Sales Fall, Worst Reports In 6yrs Seen
$SPY, $USO
US companies are expected to report their worst sales decline in nearly 6 yrs when they post Q-2 results this earnings season, giving participants reason to worry about future profits.
Companies have managed to drive Y 2015 earnings by cutting costs, a practice begun during the Y 2008 financial crisis. They have also used share buybacks to lift EPS (earnings per share).
But it is hard to make a case for sustained earnings growth given forecasts for a 2nd-straight Quarter of revenue decline at S&P 500 companies, which begin reporting financial results in earnest this week.
Though analysts expect corporate America to show a decline in Q-2 profits, according to the data, some strategists expect them to defy those forecasts and eke out a gain as they did in Q-1.
The Big Q: How long S&P 500 companies can outrun a downturn in sales, which have been hit by a fall in energy company revenues and a strong Buck?
This reporting period is expected to mark the 16th Quarter running in which sales performance has lagged that of earnings for S&P 500 companies.
Q-2 S&P 500 revenue is expected to have fallen 3.9% from a year ago, marking the steepest decline since Q-3 of Y 2009. That follows a 3.1% fall in Q-1 sales.
Q-2 earnings are expected to have fallen 2.9% following a 2.2% rise in profits during Q-1 when analysts forecast an earnings decline.
Share buybacks could once again help S&P 500 companies, 20% of them reduced their share count in each of the past 5 Quarters, according to S&P and Dow Jones Indices.
As long as borrowing rates are less than the earnings yield of a company, there are going to be share buybacks and that has driven earnings growth
Hindering S&P 500 sales is the energy sector, which has been hit by a roughly 50% dive in US Crude Oil prices since June 2014. It is expected to post a 35% decline in revenue in Q-2. representing the biggest drag on the benchmark index.
If S&P 500 companies’ earnings are down in Q-1, it will mark the 1st time since Q-3 of Y 2009.
Stay tuned…
HeffX-LTN
Paul Ebeling
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