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Gross Profit Margin For S&P 500 Companies Tumbles In Q3, Worst Sequential Drop Since Q1 2009
Even with the growth in rest of the world slowly grinding to a halt and in many places contracting (more on the in an upcoming post), the US continues to be spared from what increasingly appears as a perfect worldwide economic storm due to one thing and one thing only: resilient US corporate revenues and earnings. So now that Q3 is officially in the books, and we are starting to look for Year End numbers, we decided to do the quarterly Capital IQ analysis looking at S&P 500 companies (ex financials), which amounts to the 420 companies supposed to keep America "decoupled" from the rest of the world, and look at trends in revenue and gross profit. We found something troubling: while topline numbers continue to grow, and rose 2.6% in Q3 over Q2 (a substantial slow down from the 4.3% rise in Q2 compared to Q1), profits as represented by gross margins, fared far less well as total Gross Profit margins declined by 1.9% from 42.6% in Q2, almost on par with the recent historic record high of 42.8% from December 2009, to a two year low of 41.8%: a number seen last in Q1 2011 when commodity input costs soared and crushed both margins and bottom lines. Aside from the 1.9% drop in March 2010, the next worst drop in margins was back in March 2009. This time however there was no surge in commodity prices: in fact in the three months between June and August, input costs on the margin were declining substantially, or so the US government would like us to believe. And while corporate EPS did not broadly surprise to the downside, this was a function of top line pull through still going strong. So how much longer until the revenue potential of these 420 workhorse companies plateaus and start dropping? What happens to record corporate EPS if margin pressures are coupled with top line weakness? We already have one of the components: how long until the stresses in Europe and now China materialize into top line misses? We will find out in just over a month when companies begin reporting their full year numbers. Or worse, look for disappointing revenue preannouncements: while so far avoided, this time around it will be far more difficult to kick the revenue can into the future with Europe now officially entering a recession.
Total revenue and Average gross profit Margin for S&P 500 companies ex financials:
Sequential change in total revenue and gross margin:
Source: CapitalIQ
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The Waiting is the hardest part.
Recession and crude at $100... while China slow boils.
Yup, the TPTB doesn't seem to understand that they are now the frogs in the pot being boiled slowly. the other 99% have long been since stripped of the ability to invest and save between diappearing pensions, jobs, small businesses and disposable incomes.
Other than the handful of retail traders left, Mom and pop's arent going near the market for a very, very long time.
You have to remember also that with fewer and fewer people working there is less money going into pension funds and 401K's. So, less money filtering into Wall Street. Harder to prop the Market up with fewer new dollars filtering into Money Managers accounts.
Plus, you have the problem of many people cashing out their 401K's and stopping their contributions to their Retirement. So, less money to go around.
The massive capital pump by the Fed/gubimint is running out. When QE 2 and the various stimulus ran out in June of this year it would filter into reality. There is a delay of about 6 to 9 months. Well, here we are.
I called the comptroller he said:
"we're flush with cash, any more of this shiz and we're going to get a hostile takeover bid!".
End of story.
Tech spending has been picking up. I can personally attest to that.
As I have been telling everyone since QE began. The input costs have not fucking changed for most. Margins are ugly and anyone who runs a REAL fucking business that produces REAL products or provides a REAL service knows this (fuck the pushers of "financial products" of terror). Real growth is dead, has been for a long time while the derivative debt and population have been proceding exponentially - FAIL! Fucking pods.
Crash the system, crash it now, the sooner we do, the sooner our value system is reset and compensation will find its way back to people who are actually worth a shit (hint; it won't be paper pushing fucknuts), fucking bring it!
The scary bit is that most, if not all, of those S&P companies saw huge tax breaks and government subsidies in 2009/2010/2011 and still had problems, imagine what those margins look like for the small business owner.
I agree with you, but is that a vein on your forehead or a rope. Look at Corning>The Corning, N.Y., company said it expects fourth-quarter equity earnings to drop 30%
Read more: http://online.wsj.com/article/SB10001424052970204449804577068123881971512.html#ixzz1fVhYweVNSad to say, there is still some road left, and its a case of do or die, drive past the end of the road.
right with you brother. I've been telling people the number put out are complete S for a long time. The principle requirement for a publicly traded company is the best accountant at cooking books you can afford. Next is to make as many director friends at other corps as you can. At a meeting with buyers you drop the IPO hint and all of a sudden a company that couldn't get shelf space if they tried ends up with a $50 million order and a prominent floor display. All to show revenue growth even if the product never ends up in a single consumers bag. The directors all get the inside info and position themselves to make a killing on the IPO. Once they sell the shares you don't see any care of replenishment. Unless they think the con job can work a bit longer.
Not many people left to fire any longer to squeeze those margins...
Oh, they can always find someone to fire.
"Oh, they can always find someone to terminate"
Fixed it for you.
i prefer shit canned, its more reality based.
Oh, they can always find someone to fire.
Amen to that bro'.
They can always find someone to outsource to a contractor position or off-s(w)hore. We'll pay you half as much, with no benefits!
Here is something cool that I found that also happens to be free, bitchez :-)
After registering at delighta.com, I started sending SMSs to 1-408-357-4815 to track my odometer reading and how much I spend on gas and eating out. Here is the last SMSI sent:
$odo 32876 $gas 28.60 $lunch 12
It backed up the SMS to my google spreadsheet and created columns named "odo", "gas" and "lunch" and put the appropriate values in the next row.
If there is an appointment in the SMS (e.g., meet john tomorrow at 8 am at starbucks), it gets added to my google calendar with automatic reminders.
I have not used this much but if you send a SMS to 1-408-357-4840 you will get a translation back in seconds via SMS. You can specify the target language at the website or like this at the beginning of SMS (translate to German):
$german I like apples and red roses
Send a text to that number you'll either sign up for a 10 buck a joke services or calling his exgirlfriend.
And, for a limited time, if you send in your SS#, bank account #, address and $100, you will be entered to receive the vast horde accumulated by his Nigerian uncle, the Prince!
Hate to say it, but there won't be any reset before a major war happen and some culling takes its course. Especially when their banks are in such deep shit right now.
Hard to confiscate resources and wealth belonging to other people without killing some of their families and friends. Wars have always been a process for TPTB to consolidate their power and make some serious money. Short and simple, it's a racket.
[url]http://en.wikipedia.org/wiki/War_Is_a_Racket[/url]
Perhaps, but in the past wars TPTB have always had access to superior weapons/resources/manpower when compared to their "enemies". All the major powers are now nuclear and no one has a significant advantage over anyone else. Who the fuck is left to "confiscate" from. Looks to me like you are left with African nations and the middle east and that is it. Aside from a global nuclear war, which destroys everyone, there isn't anything left for that tired old model.
If you argue that there is still wealth left to conficate in South America and Africa, then that leaves the Western world intact still. I am willing to bet that most bloggin here won't give a shit. Don't look back to see where you are going without some additional critical thinking and new data, it just sets you up for failure.
Just looking at IBM's weekly bar chart and just after uncle Warren has been pumping it no less (to get out maybe?) and in the tradition of Edwards and Mcgee, if ever a chart looked like it is just waiting for something..a disappointing pre-announcement, what ever, it's all flashing right now in IBM.. Ending diagonal with volume tapering off and an ugly divergence in it's RSI.
After Buffet has pumped the price up by buying for the last 3 months, who is going to support the price from here?
Many buy the stock because Buffet ownes it but that is a small handfull of retail investors. How many Hedge Funds are going to jump in just because Buffet owns it?
I agree with you. Between Buffet pumping it recently and HFT (which causes retail to jump high for the carrot) perhaps this might be the way it reveals itself in the chart.
Won't matter to perma bulls, they WANT to believe 1600 is coming around the corner if they just hold on. CNBC long ago gave up on reporting reality and just feeds this delusion because hey - can't encourage redemptions. The bears who fought the fed for the past three years paid a heavy price. Now the sands have shifted and the fed is so bloated and scrutinized it has few options and little left to give. The perma bulls will not believe this until reality hits and the S&P falls below 900.
The entire bullish run has been bailouts, accounting changes, spin and massive printing - and the end of the gravy train is coming.
Watch for massive stock repurchase announcments. Use that cash to prop up stock price (rather than margins) so those bonus stock options are worth something. Scam.
If the Company is going to miss earnings they have to buy Stock. As the earnings are based on the outstanding shares of stock.
So, when the Company thinks they are going to miss earnings next quater they announce a buy back which everyone loves but it is to hide the fact that they need to buy those shares back to improve their earnings per share. Many Companies today are borrowing money to buy back shares. What does that tell you?
Whenever you hear about economic "miracles", ask yourself if this is suposed to be a magic show rather than an economy. Especially when things don't add up. The "adults" think they're entitled to make decisions for you.
End the fed. Let the US treasury print all money again. JFK was right to allow the US treasury to print money in 1963. Look at an silver certificate, it says the words US TREASURY NOTE and not FEDERAL RESERVE. Look at what they did to JFK 3 months later for signing this order #11110
Good post Tylers. This is exactly what K. Bass was saying. Sold all but a couple equities this week; plenty of firepower to short this bitch down. Thank you, Bernake, for the 500+ point Dow bump, allowing me to dump onto HFTs.
I am with you. Only day trading to catch a few $'s here and there. But, want to be out at the end of the day for sure. Cannot take the big gap up and gap downs any more. Plus, making smaller bets so if it goes against you, it is not a big hit.
That is why some folks trade the e-minis via globex, so that their stops are live around the clock which you would presume adds to your peace of mind... unless your account was with MF oops.
..except theres more machines at Globex gunning for humans than the Skynet bots in the (hollywood) future.
This may be true but if for an example a small nuke goes off in the middle east, do you want to wait until 9:30 am est to get on the sidelines? or would you rather let your widely placed stops get triggered while your hooked up to your cpap machine dreaming about that young neighbor girl you want to hit?
Tyler:
this "one thing and one thing only: resilient US corporate revenues and earnings" meqans we cook the books better
Did you know that returns are counted in a different category than sales? I tried to figure how some retail corporations were fudging comp gains and a regional manager I know told me a trick his company has been using for years. Returned merchandise is never deducted from earlier sale totals. Return values are also of course booked at wholesale cost, not retail. Many of the products are returned to the shelf and sold again, booked as a sale and added to future sale figures. The same product is sold twice and the full value of the sale is booked twice. It gets better as well. Since the input cost to buy the product is only recorded once the second sale gets booked at 100% of the retail price. Thus inflating reported sale numbers enough to show small overall gains. At year end return values are deducted as a loss helping out for tax purposes. You think how the hell do corporations get away with this stuff and the truth is that this accounting gimmick is mild compared to others that generate revenue out of nowhere.
Yes, but they beat expectations. So, you have to buy them.
SP500 bull vs bear battle reverts to bearish bias after price action on Friday and more downside expected.
My long term indicators have continued to warn of US Dollar strength and EURO weakness and these signals have increased since 2009. The overdue dollar rally should be substantial.
http://stockmarket618.wordpress.com