S&P500 Earnings Estimates Trends

The profitability of the S&P500 companies is a notably important topic, for a variety of reasons, at this point in time.

FactSet publishes a report titled “Earnings Insight” that contains a variety of information including the trends and expectations of S&P500 earnings.

For reference purposes, here are two charts as seen in the “Earnings Insight” (pdf) report of May 17, 2013:

from page 17:

(click on charts to enlarge images)

CY Bottom-Up EPS vs. Top-Down Mean EPS (Trailing 26-Weeks) 

EconomicGreenfield 5-24-13 FactSet 5-17-13 EPS Forecasts

from page 18:

Calendar Year Bottom-Up EPS Actuals & Estimates

EconomicGreenfield 5-24-13 FactSet 5-17-13 EPS Forecasts CY Actual and Estimates

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

Earnings Forecasts For The S&P500

As many are aware, Thomson Reuters publishes earnings estimates for the S&P500.

The following estimates are from Exhibit 12 of “The Director’s Report” of May 23, 2013, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts:

Year 2013 estimate:

$110.89/share

Year 2014 estimate:

$123.46/share

Year 2015 estimate:

$135.99/share

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StratX, LLC offers the above commentary for informational purposes only, and does not necessarily agree with 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 increase revenue and profitability.

Fast Food Industry Profitability

Margins, profitability and “value” in the fast food industry are issues that are becoming increasingly prominent.

A Wall Street Journal article of May 8, titled “McDonald’s, Wendy’s Battle for Value-Centric Customers” contains additional information concerning various issues including those concerning price affordability and price competitiveness.

Notable excerpts include:

McDonald’s Corp. and Wendy’s Co. are struggling to attract cost-conscious consumers who are demanding better deals than even these low-price fast-food chains offer.

also:

Fast-food chains like McDonald’s and Wendy’s may seem like they would be resilient in this tough economy, but consumers have come to expect $1 burgers, and more brands have jumped on the bandwagon, with chains like Yum Brands Inc.’s Taco Bell and Arby’s Restaurant Group testing out new value menus.

also:

McDonald’s last month reported weak earnings growth for the first quarter, saying it is sacrificing profit margins by focusing on value menus to avoid losing customers.

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StratX, LLC offers the above commentary for informational purposes only, and does not necessarily agree with 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 increase revenue and profitability.

 

1Q2013 Corporate Revenues

As stated in the “Businesses In A Weak Economy” page found on the StratX,LLC.com site :

One condition that seemingly lacks recognition – yet is highly material – is the continued “lagging” nature of revenue growth.

Today, the Wall Street Journal published an article titled “Companies Feel Pinch On Sales In Europe,” in which first quarter S&P500 revenue forecasts, as well as various company revenue results are discussed.  A few notable excerpts include:

With earnings reports in from more than half the companies in the Standard & Poor’s 500-stock index, first-quarter revenue for the group is expected to shrink 0.3% from a year earlier, according to Thomson Reuters. That would cut short the sales improvement reported at the end of last year and mark the third quarter out of the past four in which revenues have failed to grow by 1% or more.

also:

Some investors are troubled by the weakness because they view revenue as a better gauge of global economic health than profits. “The lack of revenue growth really doesn’t justify new head count or capital expenditure,” said Jim Russell, senior equity strategist at US Bank Wealth Management. “This is one of the reasons we see a stagnating sticky high unemployment rate.”

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StratX, LLC offers the above commentary for informational purposes only, and does not necessarily agree with 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 increase revenue and profitability.

Product And Service “Affordability” Concerns

“Affordability” of products and services, both now and in the future, is an issue that seems to lack recognition, for a variety of reasons including aggregate U.S. income trends.

One example of this was highlighted on Wednesday, and was seen in a CNBC article titled “New Cars Increasingly Out of Reach for Many Americans” that discusses the affordability of new cars given median family incomes.  The article states that the average price of a new vehicle in 2012 was $30,500, and discusses this figure in relation to incomes.

Seemingly supporting the general concept that new vehicles may be unaffordable for many is that the average age of cars and light trucks in operation in the U.S. reached 11.2 years in 2012, according to Polk.

While affordability (by purchasers) can be difficult to define, and can fluctuate significantly over time, there are many indications that affordability constraints and related pricing issues are significant issues for many companies.

While it is of course difficult to generalize across all firms and industries due to their various characteristics, the following questions with regard to affordability appear to be among those of primary significance:

  • What is an affordable product?  Can affordability be estimated or measured?
  • Can a product or service be somewhat affordable?
  • What are the main drivers of product affordability, or lack thereof?
  • If a company has a product that is, or will soon become unaffordable, can the company successfully adapt?  How might this be done?
  • Are (purported) solutions to unaffordable product offerings viable from a longer-term perspective?  (i.e. by implementing such solutions, will such implementation cause additional problems?)
  • If a company finds itself with an unaffordable product, will this status be transitory or lasting?
  • Can high degrees of product “value” (at least partially) offset an otherwise unaffordable product?

Of course, there are many other questions as well.  One issue that I mentioned in a September 7, 2010 post (“Premium Pricing Strategies And The Economy“) also seems very relevant:

…are products and services now considered “staples” (i.e. necessary in nature) changing to more “discretionary” in nature?  How will this impact firms?

In my opinion such affordability issues will increase given various economic dynamics, and become a primary challenge in corporate strategy and management.  This challenge will (very) likely prove to be especially outsized for a variety of reasons.

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Please Note – The above is excerpted from the EconomicGreenfield.com post of March 4, 2013, titled “Issues Regarding Product Affordability