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Consumer Companies Issue Most Negative Guidance Ever, Despite Lower Gasoline Prices

testosteronepit's picture




 

Wolf Richter   www.wolfstreet.com   www.amazon.com/author/wolfrichter

The price of oil continues to crash relentlessly. WTI trades at $49.80 as I’m writing this Monday evening, down 5.5% for the day, and down 54% since June 2014.

The oil-price plunge is eating into the American oil boom, munching on income statements and balance sheets of drillers that have gorged on junk debt. It’s chewing up junk bonds and leveraged loans. It’s frying oil and gas stocks. It’s starting to wreak havoc among suppliers to the industry. Layoffs are starting to cascade across the oil patch, company by company, as capital expenditures and operating expenses get slashed in an effort to stay liquid long enough to make it through the oil bust.

Oil busts are terrible creatures in oil and gas states, such as Texas, Oklahoma, or North Dakota. The last one persisted for a long time. It took down banks, housing, restaurants, oil-field equipment manufactures and their suppliers, grocery stores…. Pickup truck sales plummeted, boat sales dried up. Jewelry stores fell on hard times.

This time, it’s different. Fracking is immensely capital intensive. Wall Street is up to its ears in it. Hedge funds and private equity firms will join banks in taking the hits on their equity stakes and on the debt they hold.

But forget that. What we’re inundated with is the tsunami of benefits of lower oil prices. Airlines make extra billions by offering the same crummy service without lowering airfares, though their fuel costs drop. Utilities come out ahead for similar reasons. Toll road operators will be able to raise tolls and extract more money from drivers who’re sitting on what they’ve saved at the pump, according to Wells Fargo. It expects airports to shine, “specifically large international gateway airports with significant cargo operations.” Because consumers will buy more imported stuff with money they saved on gasoline. Alas, much of that gasoline is an entirely American-made product all along the chain, from the technology required to extract crude to the gallon of regular dispensed by a machine.

Whatever money consumers save on gas lowers the consumer-spending component of GDP. If consumers spend all this money on something else, consumer spending stays flat. It just gets shifted around. But many people won’t spend the money on other things. That this equation doesn’t compute, though consumers like it, is clear [This Is Why the Oil-Price Crash Will Maul the US Economy].

And it’s starting to show up in the corporate numbers.

Based on exuberant consumers, overjoyed by what they saved on gas, the Consumer Discretionary sector of the S&P 500 should be regaling investors with positive revenue and EPS guidance for Q4. But the opposite is happening.

Of the Consumer Discretionary companies in the S&P 500 that have issued any guidance for Q4, 24 have issued negative EPS guidance, according to FactSet. That’s 89%! It’s the worst in the data series going back to 2006. It’s 73% above the 5-year average. Even during the Financial Crisis, it wasn’t this bad.

However, the prior record of 22 wasn’t set during the Financial Crisis. It happened in Q1 and Q2 last year when polar vortices and a variety of other issues were blamed.

Only 11% – or 3 companies – issued positive guidance, tied for worst place with Q1 2006, when the housing market was “plateauing.” Then there’s the nagging fact that 10 of these companies have issued negative revenue guidance, with only 1 company issuing positive revenue guidance.

The Consumer Staples sector was even worse: of the 5 companies in the S&P 500 that issued guidance for Q4, all of them were negative.

But there’s more to it. The chart below by FactSet shows the corporate manipulation of the hype-mongers on Wall Street, with the goal of bringing down the estimates so that the adjusted, pro-forma, non-GAAP, ex-items EPS numbers, this great American fiction, can beat the lowered estimates. The charade makes sense from a corporate perspective in this crazy market that, according to FactSet, “has rewarded companies issuing positive EPS guidance more than average and punished companies issuing negative EPS guidance less than average.”

US-Corp-consumer-discretionary-preannouncements-Q1-2012_Q4-2014

Quarter after quarter, negative guidance rose while positive guidance dropped. And in Q4, they’ve gotten completely out of whack, a quarter when the hoped-for boost provided by lower gasoline prices disappeared in a reality where consumers are being wrung dry by economic growth that is happening somewhere else, but not in their wallets.

Of the 24 Consumer Discretionary companies in the S&P 500 that have issued negative EPS guidance, 13 are in retail, with Specialty Retail accounting for 8 of them.

FactSet calls the missing boost to earnings and revenues “surprising.” Seven of the 24 Consumer Discretionary companies that issued negative guidance “specifically discussed lower oil and gas prices,” and they had seen either “no positive impact to date, or that the positive impact was being offset by other negative factors.”

Ross Stores explained its lower guidance this way:

There are so many other factors, some good like the decline in unemployment rates or the anniversary of cuts in government programs, but some bad factors as well like the increase in part-time work or the lack of wage growth for low income workers. [….] So we really don’t know to what degree gas prices helped or to what degree they’ll help going forward.

Dollar Tree commented on the potential for reduced trucking costs due to lower diesel prices: “But it has to move quite a bit to have a significant effect on the overall cost because the fuel is just one component of the overall trucking rate that we end up paying.”

Target saw “some encouraging signs, including lower gas prices,” but spending by consumers remain “quite volatile.” It blamed the promotional nature of “the competitive environment.”

Macy’s also saw some “positive factors,” such as “lower gas prices, lower unemployment, and healthy financial markets,” that is soaring stocks. But then there’s the “reality of the recent trend caused in part by customers spending more of their disposable dollars on categories we don’t sell, like cars, healthcare, electronics, and home improvement.”

Royal Caribbean Cruises blamed the strong dollar, whose negative impact on earnings was only “partially offset by reduced fuel prices.”

Lower fuel prices just couldn’t compensate for the other issues they were facing: 9 mentioned higher costs – vexing inflation that doesn’t officially exist; 8 blamed the strong dollar, though it would lower costs; 3 blamed sales, which is a hard thing to admit to, and 3 blamed the old standby, competition and higher promotional costs.

Retail prices of gasoline have fallen by an average of $1.12 a gallon from a year ago, according to the EIA. And this is how it gooses consumer spending and cranks up the economy? Some sectors are making more money, such as airlines, because their costs are going down, not because consumers save so much money that they’re flying more. If consumers spend more overall, it will be for other reasons. And those other reasons, as the retailers have pointed out, might crumble in face of the numerous negatives consumers are still facing.

But those would be the lucky ones, not in the oil and gas business, not living and working in the oil patch, where the oil-price collapse and financial engineering are coagulating into a toxic mix. Read…  Oil-Bust Contagion Hits Hedge Funds, Supplier Layoffs Begin  

 

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Wed, 01/07/2015 - 10:17 | 5632219 pupdog1
pupdog1's picture

Oil ???

The negative consumer guidance is because the American sheeples are done with shoddy cheap Chinkie goods from American companies that used to be great, with the ensuing profit being beamed directly into executive suite bonuses, or the coffers of the private equity firms that now own half of the iconic old businesses.

We've decided that we just don't need the shoddy shit that you sell. We are done getting fucked in the ass with this scam.

Wed, 01/07/2015 - 11:07 | 5632471 NotApplicable
NotApplicable's picture

Thanks to Craigslist et al., every household is now a competing warehouse against China. Honestly, is there anything anyone needs from there that isn't already here?

Welcome to Garage Sale Nation. Haggling is encouraged.

Wed, 01/07/2015 - 08:55 | 5631863 slowimplosion
slowimplosion's picture

Yet ANOTHER article here whining about the horrible, just horrible effects of lower oil prices.  One trying hard, really hard to make this everyman's problem and not the oil man's problem.

The oil companies are happy to rape you with no lube to make record profits when oil prices are high.  Now I'm supposed to feel sorry for them and acutally beleve that paying them tribute, money for NOTHING in the form of higher prices, is somehow in MY benefit?

That's fucking ridiculous.  Oh and one more thing.  The world economy is TANKING.  We all know why.  The oil prices are a SIDE EFFECT of that tanking, so please save yourself the effort of trying to convince people that the rest of the TANKING is BECAUSE of low oil prices.  That's also ridiculous.

Wed, 01/07/2015 - 10:59 | 5632425 NotApplicable
NotApplicable's picture

I don't think you understand how the oil industry has been financialized, and represents an oversized share of what's left of a functional economy.

The idea being expressed here isn't to feel sorry for the oil companies, but rather, all of the Joe Sixpack's who rely upon the industry for employment, both directly and indirectly.

It really isn't any different than when housing blew up, and suddenly employment vanished for so many. Employment, I might add, that is leveraged into mortgages, auto loans, and other forms of debt.

If you think this is about pitying the oiligarchs, you're focusing on the wrong end of the spectrum. This is about the chain-reaction of the ability of the common man to create value for others in exchange for wages.

Wed, 01/07/2015 - 11:20 | 5632546 odatruf
odatruf's picture

Can we really consider an industry that is as regulated / controlled (and in many places, owned) by governments as being functional? Can we really consider an industry that binged on easy capital (as you say, it has been thoroughly financialized) as furiously as oil as being functional?

I don’t think so. Yes, it is a resource intensive industry and the capex that it represents is a huge part of the total capex over a number of recent years and yes the employment and derivative economic activity is significant, but that doesn’t make it functional, sustainable, productive or otherwise admirable. A broken and captured market is still a broken and captured market.

Wed, 01/07/2015 - 03:14 | 5631470 Platypus
Platypus's picture

Yeah!! I heard that before. When oil goes up those are the same companies that are quick to blame price increase on energy. When oil goes down, it is not a big help. Those greedy bastards come with those lame double standards views and think people are stupid to believe in it.

Wed, 01/07/2015 - 00:49 | 5631323 Trahald
Trahald's picture

I like the idea of decentralisation in the ever increasing world of the global economy. We are all sipping cool aid from the same cup, however when someone catches a cold we all get it.  If europe cant stay together, what chance does a global economy have and if we reach a Free Trade Deal with the rest of the world, wheres the competition.  Smoke and mirrors, while the robber barons make off with the goverment monies. (Your taxes)

Wed, 01/07/2015 - 11:09 | 5632485 odatruf
odatruf's picture

When done right, free trade deals unwind government erected protections and market distortions and have NOTHING to do with the problems of shared currencies or other one world government ideas.

Wed, 01/07/2015 - 00:27 | 5631278 Haager
Haager's picture

Do I smell another wave of NPLs coming? Debt writedowns, businesses to foreclose for the moment? But fear not, the FED will lock this debt up later this year, paving way for the next bigger wave of debt-issuance with new businesses wandering the old path of rinse and repeat.

Tue, 01/06/2015 - 21:32 | 5630812 Pee Wee
Pee Wee's picture

The fact that until this post the word Fascism has not come up tells me how dumb ZH posers really are.

This is 100% Fascism.  Government for corporations, corporations for government; both are against the common man.

Fascism is pervasive and systemic in the USA.  Eat your own asses serfs.

Tue, 01/06/2015 - 23:30 | 5631140 TheGreatRecovery
TheGreatRecovery's picture

Fasces above and behind the Speaker's podium in the USA House of Representatives.

I believe that the word fascism has come up here on ZH many times.  Up near the top right corner of my page there is a "search" window.  If I type the word "fascism" (without quotation marks) into that window and click on the search button, a list of articles appears.  Quite a few articles.

neoconservative = neoliberal = neonazi

Tue, 01/06/2015 - 20:16 | 5630540 Hohum
Hohum's picture

70% of GDP is consumption.  Consumption is not wealth.  GDP is not wealth.

Wed, 01/07/2015 - 10:59 | 5632426 odatruf
odatruf's picture

70% is consumer purchases, not necessarily consumption. There is a very significant difference between me buying something that I use once and then have to throw away (or was designed of one use or has a short shelf life) and something of permanent value, even if there is some depreciation over time.

For example, spending $1,220 for an ounce of a certain barbarous relic adds to GDP in the same way that spending $1,220 on two tickets to this year’s Super Bowl adds to GDP. And while the Super Bowl might be an event I will cherish for a long time, it won’t hold any residual monetary value save perhaps being able to resell the ticket stubs or seat swag on eBay.

The point is there are many things consumers buy that are not consumption in the same way that others things are. And many of those other things can indeed add to wealth.

Tue, 01/06/2015 - 17:53 | 5629948 Seasmoke
Seasmoke's picture

The consumers are sick of consuming. 

Tue, 01/06/2015 - 23:19 | 5631109 thestarl
thestarl's picture

One can only take on so much debt,throw in stagnant income growth and job insecurity as well.

Tue, 01/06/2015 - 17:47 | 5629917 TeethVillage88s
TeethVillage88s's picture

If each of these behemoths Fires 15 Top Executives... Problem Solved. They are back into profitability, except for paying off the Golden Parachutes.

Tue, 01/06/2015 - 21:11 | 5630756 Milestones
Milestones's picture

Cut off the rip cords. Sooo LOooooooog Charlie.              Milestones

Tue, 01/06/2015 - 15:40 | 5629185 p00k1e
p00k1e's picture

Electioneering

Tue, 01/06/2015 - 15:34 | 5629161 ufos8mycow
ufos8mycow's picture

Didn't they tell people that lower energy costs means higher employment and a stronger economy? Shouldn't there be a multitude of 'We're Hiring!' signs in windows everywhere?

I'm starting to question the things my beloved government has been telling me.

Tue, 01/06/2015 - 18:01 | 5629992 TeethVillage88s
TeethVillage88s's picture

Yeah, they said a lot of things.

- USA has the best Health Care in the World Don't worry about the cost of it, this is what you want, where doctors don't get a decent living, and they rush patients through like Cogs

- Mergers in the 1980s good for competition and innovation
- LBOs are good for competition and innovation
- Outsourcing Jobs is good for saving money for America
- Off-Shoring Manufacturing is good for consumers
- NAFTA & Free Trade with China & Asia will make the USA Stronger
- Pensions & Social Security are scams no one needs
- Derivatives Growth is great for Banking Strength & insurance for our Corporations against Risk
- Shadow Banking is just another Sector, a niche, good for competition
- TARP is good for building Credit Liquidity that we need
- QE is good for Jobs
- ZIRP/LIRP will stimulate Job Growth, no danger here
- Bankruptcy for Individuals is Moral Hazard, Tightening Rules strengthens the system

- War is good, War is Strength, War is Peace, War is Democracy

Giving up Individual Rights in US Constitutional Amendments is the right thing to do... A Strong Federal Government that goes to war and takes on new powers over its own citizens is a No Brainer, There is no Moral Hazard in Torture, War, Domestic Spying, Exponential Growth in the MIC, Strength is always good... well like Israel.

Tue, 01/06/2015 - 16:26 | 5629441 hendrik1730
hendrik1730's picture

Only NOW?

Tue, 01/06/2015 - 15:26 | 5629113 ejmoosa
ejmoosa's picture

That's because we are in a recession.

The recovery we experienced was more than weak.  It never gained any traction. 

The Federal Reserve saw this coming in the 3rd and 4th quarters of 2010 as the rate of profit growth after taxes began to drop unexpectedy.  THe numbers were not anywhere where they should have been.

 They launched QE 2 trying to negate negate the sharp drop in profit growth they were seeing in profits after taxes.

In the first quarter of 2011, corporate profits after taxes turned negative, despite those efforts.

With this effort having failed, they launched QE3.

It has also failed.

Go to the BEA website yourself.  Download the data into your own spreadsheet as I have.  Analyze it for yourself.  It's quite clear.

Go to National Data, Section1, Table 1.12, line 15.

It's so clear even a PHD should be able to see it. 

 

Tue, 01/06/2015 - 17:31 | 5629822 rycK
rycK's picture

We still carry the massive and intractable debts of the Depression of 2006 initiated by the CRA and phony loans to people with zero credit. The only way out for politicos is to print more money. QE, 3,4,5...............QEx until everybody is a trillionaire. 

Wed, 01/07/2015 - 11:04 | 5632454 NotApplicable
NotApplicable's picture

Or everyone has went bankrupt due to the impossiblity of servicing this oversized mortgage/auto loan debt.

Tue, 01/06/2015 - 15:14 | 5629055 Victory_Garden
Victory_Garden's picture

Reckon there is some entertainment is watching the money-god slowly die. What is moar amazing is the fact that so many wise and aware souls see the writing on the wall, but yet still play the games of the money-god thinking there is some hay over the horizon.

What most will come to find out is, the other side is completely burnt out and laid waste. There is NOTHING at the end of the rainbow. Too radioactive with ignorance to plant the seeds of recovery, or a resetting to a new and different FAIR economic system. As long as the central banksters are alive and well, there will be NO RECOVERY and certainly NO RESET that many here will ever see. The unfortunate truth is, almost 99.99 % of the readers here are slated to be eliminated in the final solution and population elimination agenda fast at work NOW. Nothing will save the masses from, addictaignorance.

Who wants the award for being the most stupid?

Hummm...go figure.

 

Basic Truths and Consequences:

http://deviantinvestor.com/6647/truths-and-consequences/

 

Tue, 01/06/2015 - 17:33 | 5629830 rycK
rycK's picture

"There is NOTHING at the end of the rainbow."

 

The debt will still be there. 

Tue, 01/06/2015 - 15:02 | 5629009 q99x2
q99x2's picture

Use the same weapon on the palaces of the Saudi kingdom that they used on the World Trade Centers.

Tue, 01/06/2015 - 14:59 | 5628988 BullyBearish
BullyBearish's picture

Free money (ZIRP), free gas (WTI crashing), EBT/WIC up the wahzoo...maybe if they provided us all free housing, food and a $10K monthly allowance while ceasing all taxes we would then be able to turn this mess around and shop till we drop??

Tue, 01/06/2015 - 14:49 | 5628925 flysofree
flysofree's picture

Yes, but this so unlike 2007 when every analyst marveled at US consumer resiliency-they just kept spending.

Tue, 01/06/2015 - 14:06 | 5628780 Mike Honcho
Mike Honcho's picture

Macy’s also saw some “positive factors,” such as “lower gas prices, lower unemployment, and healthy financial markets,”

- man they are on top of it.  It amazes me when a prominent establishment makes public statements that are simply brainless.  If your margins are based on a consumer that will buy a sweater due to $5 in gas savings that week then keep that resume fresh.

Tue, 01/06/2015 - 13:28 | 5628528 GCT
GCT's picture

Most are not spending more because the increase in their healthcare cost far outweighs the savings they are currently getting from the drop in oil prices.  Hell we are not getting any price breaks in retail. Have you shopped at your local grocery store lately and bought real food.  My cost has doubled this year buying real food and not processed junk.  Beef is going to head 45% higher most likely.

Tue, 01/06/2015 - 17:36 | 5629844 rycK
rycK's picture

Our government sez we have little or no inflation. So there! The salient fact that containers are smaller with the same price does not translate into inflation in the government view. 

Tue, 01/06/2015 - 15:29 | 5629138 Panafrican Funk...
Panafrican Funktron Robot's picture

Yep, and insurance premiums are set to spike another 15-20% in 2015 on average, and out of pocket will likely continue to increase another 5-7%, so you're looking at reasonably an average of 25% increase in health care spend per person in 2015.  This is not yet factored into the consumer discretionary (or, hell, the consumer staple) pool.  What that effectively works out to is a hit anywhere from $1500 - $2500 depending on what number you go with for the average total spend per person, so that's reasonably a $2000 hit.

Low gas prices aren't going to make up for that hit. 

Tue, 01/06/2015 - 18:32 | 5630141 cheech_wizard
cheech_wizard's picture

My costs increased by just about the amount President Obutthead promised it would go down by. (~$2500)...

Makes me want to raise the black flag, grab a nail gun, and hunt down every Democrat that voted for it. 

Standard Disclaimer: Fear not Democrats, I've yet to contract a terminal disease.

Tue, 01/06/2015 - 13:13 | 5628405 silverer
silverer's picture

Saudi Arabia will come out of this as long as winter is cold. For the rest of us...

Tue, 01/06/2015 - 12:41 | 5628182 KnuckleDragger-X
KnuckleDragger-X's picture

The economy is all tied together and while in an open market economy it tends to all balance, we have a heavily manipulated Frankenstein economy that's been leveraged to the sky. We've been dancing to the music and the piper is about to ask for his bloody payment.

Tue, 01/06/2015 - 12:27 | 5628112 JRobby
JRobby's picture

Next Christmas should be better?

Tue, 01/06/2015 - 12:58 | 5628299 USA USA
USA USA's picture

So I am saving abour $40 a month. I should buy a new car-house-boat or whatever with my savings.

What bullshit!!!!

Tue, 01/06/2015 - 20:02 | 5630489 new game
new game's picture

even if is is 100. big fucking deal, wow, 1200 a year! Honey were rich, lets go to vegas

and try our luck. fucking joke. smartest thing one could do is opposite of herd. dump the gas hog and buy a 40 mpg civic or corolla(used), minimal insurance and pay extra towards the mortgage or highest interest debt.

or if debt free, stack, rack, and kick back, ha...

Tue, 01/06/2015 - 21:11 | 5630761 mygameon
mygameon's picture

PM, PB, and chickens with my savings

Tue, 01/06/2015 - 12:42 | 5628212 CH1
CH1's picture

Lollipops and roses forever!

Tue, 01/06/2015 - 17:45 | 5629909 SWRichmond
SWRichmond's picture

But, the recovery...

Tue, 01/06/2015 - 12:20 | 5628085 illyia
illyia's picture

Ha! Nice report.

Tue, 01/06/2015 - 20:23 | 5630567 NihilistZero
NihilistZero's picture

If consumers spend all this money on something else, consumer spending stays flat.

This is a false argument.  If you save $100 a month on gas.  Only the couple of bucks the filling station profits has been taken out of your local economy.  Now when that money is spent on say an extra visit to a local stylist, 90% or more could be kept in your local economy!  if that stylist spends it on a dinner at your local pizza parlor the velocity of money in you local community increases.  If the Parlor owner pays the glass cleaning guy for an extra visit...  Well...  you get my point...

How a sight built on themes of decentralization and liberty is pushing the idea that more economic activity at the local level is anything but spectacular is beyond me.  Lower gas prices increase local economic activity AND starve the oligarchs.  Whats not to like???

Wed, 01/07/2015 - 01:47 | 5631413 disabledvet
disabledvet's picture

This is why Federalism is very important and why the Supreme Court needs to bust out the pencil on all this war on terror mularkey.

 

"Battlefield USA" was not the plan....

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