Earnings Watch: Revenue Shortfalls Continue
Revenue shortfalls continue; companies seeking to raise dividends, increase buybacks.
3M continued the trend of large multinational companies coming in light on revenues ($7.63 billion vs. $7.80 billion expected). Sales were up two percent, but once again Europe is the problem: Europe, Middle East, and Africa (EMEA) region was down 0.8 percent, U.S. up 2.3 percent. Its 2013 guidance was reduced.
There is the big story for earnings this year: Anemic top-line growth, which is getting worse. Only 39 percent of companies reporting so far are beating revenue expectations, way below the historic average of 61 percent.
One way companies are making up for the revenue shortfall is buying back shares, and many are increasing dividends.
1) Dividend increases by number are on the rise: Some 167 companies in the S&P 500 have announced dividend increases this year, compared to 160 through April for 2012, 149 for 2011, and 104 for 2010, according to S&P Capital IQ—and there is still more than a week left in April.
2) The dollar value of the dividends (excluding Apple) are higher: up 22 percent compared to last year (Apple announced a $10 billion dividend last year, which skewed the numbers). Parker Hannifin raised its dividend this morning, and Chevron last night.
3) More companies are paying a dividend: 406 out of the 500 in the S&P, the most since November 1999. Techs are the biggest payers.
4) Actual buybacks (not announced) also appear to be up in first quarter, though we are still waiting for final numbers. Announced buybacks also appear to be up as well.
1) Why is revenue growth so hard to come by? As we saw with 3M today, Europe has been a big problem for large multinational companies. Barclays and others had been expected revenues for large multinational companies to be flat to up 1 percent in Europe this quarter; the numbers are coming in flat to down. In the U.S., there were expectations of 2 to 3 percent revenue growth from industrials, but now it appears revenues are flat to up 1 percent.
The lack of volume is part of a broader issue for U.S. companies: margins. It's very difficult to get improvement in margins now:
a) many companies have been trying to raise prices (airlines and building materials, for instance), but price hikes may no longer be feasible in a weaker environment;
b) top-line (volume) growth has stalled out; and
c) many companies have high fixed costs (Europe) that are difficult to reduce.
Difficult to raise prices. No volume growth. High fixed costs. Sounds like margin compression, no?
2) Home builder Ryland reported another strong quarter, its third in a row. Orders were up an impressive 54 percent (helped by an acquisition, but even with that taken out organic growth was likely 35 percent or so). Pricing was strong as well, with the average price up about 13 percent, according to ISI. M/I Homes also recorded a strong beat, with contracts up 37 percent.
And Stanley Black & Decker beat and affirmed their 2013 guidance.
3) Bounce in precious metals continues ... gold up another 2 percent this morning and has essentially recovered more than half of its losses from two weeks ago. Gold stocks continue to rally off their lows. Many stories about Indian buyers (largest buyers of physical gold in the world) increasing buying on the dip.
—By CNBC's Bob Pisani