Free Cash Flow Trends Among Largest U.S. Companies

On May 28, the Wall Street Journal’s “CFO Report” published an article titled “Free-Cash Flow Falls at Big Companies.”  The article mentions statistics and comments concerning the free cash flow trends at the largest 1000 publicly-traded companies in the U.S.

An excerpt:

The amount of free-cash flow recorded by 1,000 of the largest public companies in the U.S. by revenue fell to $565 billion for 2012, down 14% from 2011, according to REL, a division of Hackett Group. Free-cash flow measures the cash that companies have after they have paid off all their expenses. The decline recorded between 2011 and 2012 is the first since 2007.

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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.

Indications Of Current And Future Profitability Problems

Often various trends and conditions can signal that profitability problems exist and should be both recognized and rectified.

While such conditions are numerous and can vary by company, here are a few factors that can signal that significant profitability problems either exist or are impending:

  • gross margins are (inexplicably) declining
  • industry sales are falling faster than anyone anticipated
  • price is becoming more of an issue with customers
  • opportunities for profitable growth aren’t apparent
  • existing product (or service) sales are (continually) less than expected
  • new competitors are successfully entering the market
  • loss of market share (especially if unexpected)
  • company sales lag those of industry peers
  • sales decline despite price cuts
  • for new products, unforeseen price cuts are needed

Often, these factors can serve as “early warning indicators” if they are recognized quickly.   If they are recognized and properly addressed early enough, not only can further problems be avoided, but the resolution of such impending profitability problems may better position the company for increased sales and profitability.

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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.

Corporate Revenue Growth

The “lagging” nature of corporate revenue growth is a continuing characteristic of today’s business environment.

This topic has been addressed in a variety of posts and other writings, most recently in the April 29 StratX, LLC post titled “Corporate Revenues Under Pressure.”

Of note, one can see this low overall rate of revenue growth reflected in a variety of 1Q2013 operating results.  For instance, one can see that 1Q2013 revenue growth for the S&P500 Industrials Sector is expected to be .3%, according to Thomson Reuters’ “This Week In Earnings” of May 24.

There are also some notable statistics in the FactSet Earnings Insight of May 17, regarding both 1st quarter and 2nd half S&P500 revenue growth.

One excerpt regarding 1st quarter revenues:

In aggregate, companies are reporting sales that are .1% above expectations.  Over the previous four quarters on average, actual sales have exceeded estimates by .7%.

Another excerpt pertaining to 2nd half 2013 revenues:

However, estimated revenue growth rates for both Q3 2013 (3.4%) and Q4 2013 (1.9%) are expected to be well below estimated earnings growth rates. 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 the views expressed by these outside parties.

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.