Where Did All The Revenues Go?
In a world in which banks can report both a profit and a loss at the same time, it is not very surprising that constantly beating (lowered) earning consensus is not much of a challenge. However when it comes to revenue, where one must actually book a sale instead of relying on accounting gimmicks and borderline Reg FD-breaching sellside analyst chitchat, things are much different. In fact, things are so bad with corporate revenues, that Q2 is now set to be the first "double dip" quarter since the financial crisis, i.e. an official revenue recession.
Specifically, according to Deutsche Bank, of the 70 S&P500 companies reporting so far (excluding this morning's GE EPS beat and revenue miss), 50 have beaten EPS estimates and only 20 of them have missed. As for sales revenue, just 37 of them haved topped analysts' estimates and 33 of them have missed. In reality the revenue beat % is also being skewed slightly higher by the stronger top line performance in US financials so far. If we strip aside US financials, the revenue beat:miss ratio is around 45%:55%. Coca-Cola, Yahoo, Intel, IBM, eBay, Google, GE and MSFT are just some of the household names that have disappointed on the revenue front so far. There are likely various reasons for this, some are industry specific (MSFT, Google, Intel citing the consumer preference shift away from PC to Mobile), some are affected by the slowing in the US industrial economy as per UPS, but some are also attributing it to the stronger USD (eg. eBay). Some have even listed the weather as responsible.
One thing is certain: based on the one metric companies can't fudge, the global economy is not only slowing down, but what's worse, the hundreds of billions of incremental money created by central banks one and all, is not even making its way into the corporate revenue pipeline. For now, the "hope" strategy has worked (i.e., next quarter things will be better). But this final fallback, which so far has only disappointed, will soon no longer work, when virtually every known accounting tactic is used up and there is nowhere else to go for EPS than where revenues have already been heading for the past two quarters. Down.
Another snapshot of earnings season so far, this time from Goldman.
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