First the good news: so far of the 252 companies reporting Q1 earnings, 74% have beat expectations on the bottom line (in Europe it's a different story with 44% beating and 56% missing). The reason: progressively lowering of estimates for the past 3 months heading into earnings as we showed [9]over the weekend. On the top line, it's a different matter entirely with just 45% of companies beating and 55% missing (indicatively European revenue numbers are just jarring, with only 34% of companies beating top line estimates - that's what happens when you have a depression). None of this should come as a surprise to our readers. Over a year ago we wrote "How The Fed's Visible Hand Is Forcing Corporate Cash Mismanagement [10]" which explained that instead of investing in CapEx and hiring, due to the Fed's imbecilic "endless ZIRP" policy, companies have scrambled to generate immediate returns for shareholders in the form of dividends, buybacks, and in rare instances, M&A. Investing in long-term growth is the last thing on anyone's mind and sure enough revenues are deteriorating the world over.
All of the above summarized in the table below courtesy of Deutsche Bank:
[11]
Now, the bad news: while one can easily game expectations and quiet cut forecasts the night before earnings just to "allow" the company to beat them easier, one thing that can not be fudged are trends in time, in either revenue or EPS. And for the best table showing just how ugly corporate America's profitability and revenue have become when stripped of all the noise, we go to the Wall Street Journal and the following summary of Y/Y changes in sales and EPS.
[12]
More from the WSJ [13]:
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.
The sales figures are a troubling sign that business and consumer demand remain weak nearly four years after the recession. They are also evidence that a soft patch is developing in the U.S. economy, as optimism earlier in the year gives way to more sobering data on growth in gross domestic product, retail sales and manufacturing. In response, many companies are cutting jobs and curbing investments in an effort to prop up profits, moves that could make it harder for demand to recover.
No further commentary necessary (all of it has been said in the past on numerous occasions already).