The Wall Street Journal – Lean Companies Ready to Cut
Despite another quarter of robust corporate profits, an ominous impulse is stirring at many big companies—restructuring. In a sign that executives see a rockier road ahead, many manufacturers are setting aside money to fund moves aimed at cutting costs and streamlining operations. Those steps could include job cuts and factory closures, as businesses seek to pare expenses ahead of what is widely expected to be slow revenue growth in 2012. Danaher Corp. plans to double its fourth-quarter restructuring budget to $100 million to be “mindful that the environment is likely to be more challenging going forward,” the industrial and health-care products maker said last week. United Technologies Corp. recently added more than $100 million to its restructuring budget, raising the total to $300 million this year. Honeywell International Inc. said it will apply $300 million in gains it reaped from a divestiture to funding more restructuring. “We all read the headlines,” Danaher Chief Executive Larry Culp said last week. Given the uncertainties around 2012, it is “better to be prepared and ready for what may come than to postpone what we think is a very prudent action,” Mr. Culp said on a conference call with analysts.
The Financial Times – US earnings tell story of resilience
After a brief flirtation with bear market territory at the start of October, and despite continued disagreement between eurozone leaders on how to resolve the crisis, the S&P 500 has bounced back. It is up more than 9 per cent this month, and on Friday traded at its highest level since early August. The best-performing sectors this month are energy, materials, consumer discretionary and industrials. All boast high earnings growth expectations. Recent turmoil has left US and, up to a point, European markets trading at cheap levels versus the outlook for company profits. This means long-term investors could be tempted to look for bargains if they believe what they are hearing from companies and analysts. “Given the uncertainty over Europe, it is not prudent to jump into the market with both feet, but if you have a three- to five-year time horizon, there are great bargains out there,” says Anthony Conroy, head of trading at BNY ConvergEx. Analysts expect a blended average of actual and forecast earnings for the S&P 500 to rise 14.6 per cent for the quarter from a year ago according to S&P Capital IQ. That figure is up from 12.4 per cent a week ago but below the mid-July estimate of 16.94 per cent.
The WSJ story above is hailing the fact that 70% of the companies have beaten expectations. This statement can only be made by someone that is not paying attention. As the table below shows, the current percentage of companies beating expectations is the lowest since the end of the Great Recession. In other words, the fact that 69% of companies have beat expectations is not that great.
Source: Bianco Research, LLC