2Q 2013 S&P500 Earnings Commentary

In today’s (August 14,2013) Wall Street Journal, an article titled “Shrinking Profits May Keep Stocks’ Records Safe” discusses quarter-to-date S&P500 earnings.

Notable excerpts include:

With 90% of companies in the S&P 500 having reported second-quarter results, firms are on track to post 2.2% earnings growth from the year-ago quarter. That is the second-lowest growth rate since the depths of the financial crisis, and down from previous periods. Earnings among the large U.S. companies tracked by the index rose 3.4% in the first quarter and 5.6% in the fourth quarter of 2012.

And the gains from earlier this year have been driven largely by corporate cost cutting and a bounceback by financial companies. Excluding financials, profits are on track to be down 2.9% in the second quarter from last year, according to FactSet.

also:

Meanwhile, stock analysts have been cutting profit forecasts for the second half of the year. Wall Street now expects 4% earnings growth for the third quarter, down from 6.6% forecast at the end of June.

There is also a notable graphic in the article that shows the sales and earnings growth for the S&P500 since 2008, with a narrative stating “Growth at S&P 500 companies has trailed off, leading analysts to trim sales and profit expectations.”

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StratX, LLC offers the above data and projections for informational purposes only, and does not necessarily agree with information provided by these outside parties.

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StratX, LLC (stratxllc.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.

Forecast Q2 Revenue Growth For Various S&P500 Sectors

As I have previously commented upon, one of the challenging (and problematic) aspects of today’s business environment is the continuing “lagging” (and low) corporate revenue growth.

The Thomson Reuters “This Week In Earnings” (pdf) report of August 2, 2013 lists the estimated 2nd quarter revenue growth for both the S&P500 as well as various sectors.

An excerpt:

The estimated revenue growth rate for the S&P 500 for Q2 2013 is 2.1%. The S&P 500 is expected to earn revenues of $2,557.4B in Q2 2013 compared to $2,504.6B in Q2 2012.

Also, a table shows the estimated revenue growth for the various sectors.  As one can see, while all the sectors are projected to have revenue growth, various sectors have low revenue growth.  Among those with the lowest growth include the Consumer Staples with a projected revenue growth of 2.0%; the Technology sector with a projected revenue growth of 1.7%; the Industrials with a projected revenue growth of 1.4%; and the Materials with a projected revenue growth of .1%.

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StratX, LLC offers the above data and projections for informational purposes only, and does not necessarily agree with information provided by these outside parties.

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StratX, LLC (stratxllc.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.

Projected 2nd Half 2013 S&P500 Revenue Growth

As I have previously commented upon, one of the problematic aspects of today’s business environment is the continuing “lagging” nature of corporate revenue growth.

The August 2 FactSet Earnings Insight report comments upon 2nd half projected S&P500 revenue growth.  Here is an excerpt, under the heading “Earnings Growth Rebound Still Projected for 2nd Half 2013, But Little Revenue Growth” :

However, estimated revenue growth rates for both Q3 2013 (2.8%) and Q4 2013 (0.7%) are expected to be below estimated earnings growth rates, particularly for Q4 2013. No sector is expected to see double-digit revenue growth in either quarter.

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StratX, LLC offers the above commentary for informational purposes only, and does not necessarily agree with all (or any) of the views expressed by these outside parties.

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StratX, LLC (stratxllc.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.

Rising Costs And Pricing

How to deal with rising costs is an important topic at this juncture, especially given various characteristics inherent in today’s business environment.  Some of these characteristics include increasing material costs; overhead costs that have already been reduced to low levels; and a confluence of issues that cumulatively make it difficult, in many cases, to “automatically” increase prices.

Recently, the Wall Street Journal published a feature titled “Tips for Companies Battling Rising Costs.” Twelve respondents answered the question of “What advice would you give companies whose costs are rising, but are afraid of raising prices?”

While I don’t necessarily agree with any or all of what is said in these responses, I think that the article’s topic is valuable, as is awareness and discussion of these issues.

As with any discussion of pricing and pricing strategy, I strongly believe that such pricing issues need to analyzed and handled on a company-specific level, as each company almost certainly will have company- and industry-specific characteristics and dynamics that need to be considered.  As such, following generalized advice concerning pricing will likely be suboptimal, if not harmful.  There are many factors that should be taken into account, encompassing many different functional areas (such as finance, marketing, sales and corporate strategy) and issues.

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StratX, LLC (stratxllc.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.

Pricing Strategy Of Taking The Costs Out Of Products

On July 25 the Wall Street Journal published an article titled “‘Desheeting’ Shrinks Rolls, Plumps Margins.”  The article discusses the practice of shrinking the volume of a product but keeping the price the same, referred to in the article as “desheeting”,”taking the weight out”,”volume shrinking” and “downsizing.”

An excerpt from the article:

Companies, particularly in the food business, have long shrunk packages as an alternative to hiking prices in the face of higher raw-material costs. Cereal boxes and bags of chips have in many cases become lighter over the years in what the food industry refers to as taking “weight out.” A regular Snickers bar now weighs 1.86 ounces, down from 2.07 ounces in the past, which Mars says was done to cut calories to 250 per bar. Tropicana Pure Premium orange juice is now sold in 59 ounce bottles, versus 64 ounce cartons prior to 2010.

My comments:

The practice of shrinking the product’s volume, instead of raising prices, seems (very) common.  Of course, a similar practice is often used for durable goods, in which costs are removed from the product in order to maintain (or increase) product profitability.

While these practices are widespread, and may seem like a “sensible” approach to deal with rising product costs and/or substandard product profitability, there are many potential drawbacks and caveats to these types of pricing “tactics.”  Adverse impacts can occur in a variety of areas, including competitiveness, product positioning, and value proposition, to name a few of the more readily apparent areas.  As such, I don’t believe that such pricing “tactics” should be done without a comprehensive analysis of the impact of such implementations.

Of note, many of the (full) adverse impacts may not immediately manifest and/or become readily apparent until some time in the future.

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StratX, LLC (stratxllc.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.