We are in the core of earnings season, and once again this morning's crop of earnings illustrates the very severe "revenue recession" we are experiencing.
DuPont, for example, beat on the top line but revenues were notably light.
Diesel engine maker Cummins also beat on the top line but revenues were notably light.
Truck maker Paccar also beat on the top line but revenues were notably light.
Global industrial player Textron also beat on the top line but revenues were notably light.
And specialty glass maker Corning also beat on the top line but revenues were light.
Detect a trend?
This is a problem. The is trading at close to 19 times forward earnings with little or no growth. When you have negative revenue growth, that means your margins are under pressure. To keep margins near the record highs we have seen in a negative growth world, you have to keep aggressively cutting costs.
And that is what we are hearing.
Dupont, for example, affirmed its full-year earnings but said it was taking a "fresh look" at cost structure and capital allocation strategy (meaning: layoffs, less spending).
Cummins lowered its 2015 revenue guidance and said Brazil and China orders were "at multi-year lows" and showing no signs of improvement. It, too, announced restructuring and cost reduction actions.
Another company in the truck business, engine maker Paccar, reported a beat on earnings but revenues of $4.55 billion were notably short of the $4.79 billion expected. The company's 2016 guidance indicates U.S. and Canada retail sales will be below 2015 levels.
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Some companies are reporting weakness in some segments, strength in others. Textron, maker of Bell Helicopters, beat on the bottom line but revenues of $3.18 billion were notably below the $3.40 billion expected. Commercial helicopter sales have been weak.
Still, the company raised the low end of its 2015 guidance — to $2.40-$2.50 from $2.30-$2.50, compared with consensus of $2.49 — because commercial aviation (Beechcraft and Cessna) has been strong, as has the defense business (Textron Systems).
Even companies in growth industries are struggling to meet revenue expectations. Masco, which is on the cutting edge of the surge in home improvement business, reported a small beat on earnings, but was still light on revenues. Nonetheless, management remains optimistic: "[W]e believe we will continue to see steady demand for our market-leading products as both repair and remodel demand and new home construction continue to improve."
Bottom line: We are heading for four straight quarters of revenue declines.
S&P 500 Revenue Recession (Source: Factset):
Q1: down 2.9 percent
Q2: down 3.4 percent
Q3 (est): down 3.4 percent
Q4 (est): down 2 percent
One final point: several companies again emphasized the impact that the strong dollar was having on revenues.
DuPont, for example, said the negative currency impact was expected to be 72 cents per share for the full year. This is remarkable, considering that DuPont is expected to earn roughly $2.75 for the full year. It issaying that revenues would have been roughly 25 percent higher had there been no currency impact.
That is huge, but you cannot simply say all the revenue problems are due to currency. Just look at Cummins and Paccar, which both talked about lower orders.