Flat sales growth is a worry for investors

Earnings are starting to look a bit better with half the S&P 500's quarterly results in. Revenue, however, is a different and bothersome story.

By Charley Blaine Apr 26, 2013 6:35PM
© Kick Images, Photodisc, Getty ImagesRoughly half the companies in the Standard & Poor's 500 Index ($INX) have reported first-quarter results. So far, the earnings are coming in a little bit better than originally thought.

But the revenue picture is a problem.

The blended estimated earnings growth rate for S&P 500 companies is about 3.8%, says Thomson Reuters. That reflects the companies that have reported and the estimates for the rest.

The revenue estimate is -0.3%. Yes, that means sales for the quarter are expected to be lower than a year ago. Not for every company, of course, but enough that the total for the S&P 500 looks like it will be down from a year ago.

Here's another way of looking at the picture: According to Thomson Reuters, of the 187 companies that have exceeded their earnings estimates, 52% have missed their revenue estimate. In a typical quarter since 2002, 31% of companies that beat earnings estimates missed on revenue.

This is a reality of corporate results since the 2008-2009 financial crash. Earnings have been growing. Revenue has not kept pace or has fallen back altogether. Earnings are what drive stock prices -- and almost always trump revenue in the hearts of investors. But if you want to see the economy growing, the top line matters.

To get the earnings, companies have been cutting costs. Often, that means cutting workers. They've also been buying back gobs of shares. That means the profits are being spread across fewer shares -- and earnings per share go up as a matter of mathematics.

That's a good way to look at what analysts call low-quality earnings. They're manufactured as opposed to the natural flowering of profits when a business is growing.

The mystery is, then, why revenue isn't growing. One small reason over the last year or so has been the dollar's gains against the euro, the British pound and the Japanese yen. That has depressed the value of sales generated outside the United States. A third to 40% of revenue for S&P 500 companies comes from outside the United States.

In some cases, the business is a commodity business, and prices are lower. Chevron (CVX) reported Friday its first-quarter revenue was down 7.5% from a year ago -- and missed estimates by $10.6 billion -- because of lower oil prices.

Earnings per share were down 2.8% to $3.18, beating estimates by 11 cents. The comparison was helped because shares outstanding fell by nearly 2% year over year.

The largest reason, according Greg Harrison, who tracks earnings trends for Thomson Reuters, is that sales overall aren't growing,  Companies often are struggling to raise prices in the face of cautious customers and consumers. Consumers have been cautious spenders since the economic crash. Many worry about job security, lost pensions and high energy costs.

And these factors will feed into next week's economic reports and earnings reports and how markets will perform. 

The big events will be the Federal Reserve's meeting on Tuesday and Wednesday and the big jobs report on Friday -- when the Labor Department will report on payroll employment and unemployment.

There will be lots of speculation and talk about whether the central bank will either scale down or stop its program of buying in Treasury bonds and mortgage securities to keep interest rates low. The 10-year Treasury yield fell to 1.663% on Friday, down from 1.76% at the end of 2012.

Don't expect any change in current Fed policy, however. Fed Chairman Ben Bernanke has said repeatedly the central bank wants to see the economy growing on its own and much lower unemployment. Interest rates will be low all this year and probably all of 2014.

The Labor Department is expected to report payrolls grew by 145,000 in April, up from 88,000 in March. The unemployment rate may come in at 7.6%, unchanged from March.

An important question is how federal spending cuts will affect jobs, in and out of government, going forward. Particularly vulnerable are defense cuts.

So it's another big week for earnings, and some of the important reports include:

Monday: Herbalife (HLF).

Tuesday: Anheuser-Busch Inbev (BUD), Cummins (CMI), NYSE Euronext (NYX) and Pfizer (PFE).

Wednesday: Allstate (ALL), Facebook (FB), Ford Motor (F), Merck (MRK) and Time Warner (TWX).

Thursday: General Motors (GM), Kellogg (K), Monster Worldwide (MWW) and Royal Dutch Shell (RDS.A).

Friday: Duke Energy (DUK) and Ruth's Hospitality Group (RUTH).

The stock market had a lackluster day on Friday. The Dow Jones industrials ($INDU) finished up 12 points to 14,713. The S&P 500 was down 3 points to 1,582. The Nasdaq Composite Index ($COMPX) dropped 11 points to 3,279. Disappointing results from Amazon.com (AMZN) and Starbucks (SBUX) weighed on the Nasdaq.

For the week, however, the week was a winner. The Dow was up 1.1%, with the S&P 500 up 1.7%. The Nasdaq climbed 2.3%. For the year, the Dow is up 12.3%. The S&P 500 has risen 10.9%, while the Nasdaq has climbed 8.6%.

For investors, the week's performance demonstrated the market's resilience after the prior week's pullback. The Dow is off 1% from its all-time closing high of 14,865, reached on April 11. The S&P 500 and Nasdaq are less than a percentage point below their highs, also reached on April 11, despite worries that a major blow-off was near.

Still, if the sizable slumps that began in May in each of the last three years offer any instruction, a pullback may yet materialize.

Crude oil
(-CL) fell 64 cents to $93 a barrel in New York but was up 5.4% for the week after falling 3.6% the week before. It's up 1.3% in 2013.

(-GC) dropped $8.40 to $1,453.60 an ounce. It climbed 4.2% for the week after falling 7% a week earlier. The metal is still down 13.3% for the year. Silver (-SI) is off 21.4% this year after Friday's finish of $23.76 an ounce.

Driving about this weekend? You are in luck. AAA's Daily Fuel Gauge report said regular unleaded gas averaged $3.505 a gallon on Friday, down from slightly from week ago and down 7.4% from $3.786, the highest daily average reported in 2013.

More on Top Stocks
Apr 26, 2013 9:05PM

People are being cautious who have money. They are starting to realize that the Fed is creating a disaster you can't print money and get yourself out of debt. It's just borrowing more the debts bigger that's the problem. Then people who maybe are back to work at lower wage or part time. The unemployment rolls shrink because people are kicked off. The politicians and bankers that own them have screwed this country royal. It's all heading south in the fall(crash). The banks and rich are borrowing free money from the Fed buying land metal and things of value w/debt dollars the taxpayers pay for wealth transfer. That's not trickle down that's bleeding the middle class and poor.

Apr 27, 2013 2:16PM

........"Any man who thinks he can be Happy and Prosperous

          by letting the Government take care of him;

          Better take a closer look at the American Indian."

                                                 Henry Ford

Apr 26, 2013 9:06PM
You think it's bad now?  Wait until Obamacare kicks in next year....Employers will cut back full time employees to 29 hours or less per week to avoid paying a penalty for Obamacare.  Then workers will not be able to afford healthcare insurance but will have to pay a government penalty for not having it. Finally you have medical premiums which will double next year.  All are very bad situations for the economy next year.
Apr 26, 2013 9:15PM

Surprised??  Everyone credit cards are now maxed out. I don't know why everyone was so excited by positive corporate earnings. Didn't everyone know that the sales supporting those earnings was on credit? That and newly printed money, neither of which points to healthy growth.  By the way, those same corporations, with the glorious earnings reports, are also carrying a total of 4 TRILLION dollars in debt on their books. Someday the chicken's coming to roost.

Apr 27, 2013 2:13PM

........."Today's Progress is tomorrow's Folly;"

          " I fear the day when Technology surpasses Human interconnection;

             We'll have a Generation of Idiots."

                                    Albert Einstein

Apr 26, 2013 10:26PM
That's the problem with automation.  You lower the cost to produce but computers don't seem to buy very much.
Apr 26, 2013 10:28PM
That is one of the problems with the 1%.  Even Warren Buffet can only wear one pair of shoes at a time.  The rest of the money just sits and that doesn't make for a "real market".
Apr 26, 2013 11:37PM
Obama and his administration and their policies...Obamacare...higher taxes....more regulation...punishing the successful... are destroying our economy.  RECOVERY....yeah right!
Apr 26, 2013 9:17PM

This is an excellent article.  It's sad but I'm beginning to think Mr Blaine is the only MSN columnist worth following. 


Anthony has nice charts and uses logic but he does not seem to understand what really drives the markets.  He seems to be in a big hurry for bad outcomes related to Bernanke policy and his timing is awful. 


Bill the Flake is just a gold-bug contrarian with an overblown ego who writes articles based on emotion.  (And one should never, ever, make investment decisions based on emotions.)


Charley stands head and shoulders above both of those clowns.  He understands the importance of earnings and gives us logical insight as to what are the real issues underlying earnings and revenue.  No political commentary, no emotions, no doom & gloom fiat currency scare-talk.  Just straight talk.  Nice job!

Apr 27, 2013 2:20PM

"Bull Markets are born on Pessimism,

 Grown on Skepticism,

 Mature on Optimism,

 And Die on Euphoria."

        John Templeton 

Apr 26, 2013 10:40PM
This is the latest calculated business model out of Harvard and the other greed inspired hedge fund training grounds: Higher prices, but less sales volume. Raising prices increases profits on the limited units that do sell, but those same higher prices discourage many from buying, hence the lower sales volume. The oil companies have been at this exactly for a decade, to the detriment of all but them: gas = $4; gas sales = 1997 levels; oil company profits = rip-off levels. 
Apr 27, 2013 7:00AM
Apr 27, 2013 12:20PM
We should be growing at 5 to 8%. Our greatest enemy in accomplishing this is our own government (the president, congress and the fed) It will mean dramatic change in our political and economic structure and for America. However, we have the economic technology to do it. What we may not have is the intelligent, the guts and the moral structure. America has some major, major decisions to make about our future.
Apr 26, 2013 9:12PM
We have NO economy. Masquerading "economy" with psychopathic pursuits and media steerage doesn't make ECONOMY appear out of nowhere. Bernanke can't keep printing away our future while Gen X & Y play big people in offices. Pariah need to go. No society ever-- thrived on lawyers, bankers, financiers, administrators, paper and button pushers and oh... useless politicians. We have all of the trappings for decimation. Worse yet... our elders are psychotic fanatics hoarding gold, guns, ammo. They have the majority of our economy held hostage until they die. It's a race we can't win now. Each day that passes without progress brings us digress. Very soon the underpinnings that made America great will be gone and those who might have revived them-- impaired and/or impoverished. A clock ticks away... it isn't a good clock...
Apr 29, 2013 10:00AM

The upper levels of our Society...Middle Class (upper end) and above, seemed to be much better off, since Obama took office...

And certainly since 2007-2008 the start of a terrible Recession...

People that stood along the Wayside blaming, instead of being Pro-Active, have been hurt badly.

If invested and taking bad advice and running, without returning to the Markets...They have been hurt WORST.

Job and Housing losses were devastating to many, was a no-brainer and hard to lay blame except at the fault of a severe Recession..

Failed Administrations can and should shoulder some of the blame, for well over 12 years, but some of the Plans laid in place have "saved our Nation" from "total dispair." and a Depression that would have been far more devastating....And Hardships, that we can't even begin to understand.

Apr 29, 2013 9:47AM

The problem with Public Schools today is we have, many graduation rates under 75-80%..

At the Highschool Level..

It's not just happening back from where Obama is from, it's happening across the Nation..!!

Particularily in and closer to the Larger towns and Metro Areas..


Hardly anything you can blame on Obama and his Administration; It's been going on for a long time.

I think you had better look at School Boards, Shool Administrations, Teachers and Parents..

We have a major problem...And yes, we are leaving the Children behind.

It is alarming and a sad situation.

Apr 29, 2013 12:08PM

MIRAGE GUY: You don`t know history.Before unions lots of people died on the job

and there was no compensation for them and their families.Wages were at ground zero.

The far right wants to bring back those days.The companies had thugs to intimidate

people who tried to improve working conditions.It`s too bad you never cracked a book.

Apr 29, 2013 5:36PM

REGAL....There is a lot of truth to what you say....And reading and knowing some of the History.



Apr 28, 2013 10:51PM

MIRAGE GUY:Why is it you`re wrong on everthing?You must have flunked out of

grade school.

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