Since May, CEO confidence among America's largest companies had stagnated - even as stocks did what they do and rise, rise, rise. That changed when Bullard (now explained as "misunderstood" by the market) set fire to stocks with his QE4 hints and Plunge Protection Team rescue. However, the last 2 weeks have seen a noticable collapse once again in CEO confidence, according to Bloomberg's Orange Book index, even as stocks reach new higher all-time-er highs. As Bloomberg's Rich Yamarone notes, recent earnings calls highlight the headwinds companies face: Executives cite “softness in consumer spending,” a “challenging” climate, “fairly stagnant economy,” and “cautious” optimism. Currency valuations are front and center.
Quite a drop from the kneejerk exuberane after Bullard...
As these CEOs suggest:
Harley-Davidson [HOG] Earnings Call 10/21/14: “Foreign currency exchange was $11.5 million unfavorable for the quarter. This was driven by significant weakening of our key currencies within the third quarter. The euro, yen, Brazilian real and Australian dollar devalued an average of approximately 7 percent from the beginning to the end of the quarter. This resulted in an unfavorable revaluation of foreign-denominated assets on the balance sheet.”
McDonald’s [MCD] Earnings Call 10/21/14: “For 2014, we see continued pressure in the fourth quarter, reflecting on the factors that were impacting the third quarter. The biggest factor driving the U.S. decline vis-à-vis the decline in the second quarter was less pricing. And so we would expect less pricing to still be a factor in the fourth quarter as well as the 3 percent commodity increase. Those were the two biggest factors driving this quarter and, as best we see it now, will impact the fourth quarter as well.”
Brinker International [EAT] Earnings Call 10/21/14: “Our franchise business, our U.S. com sales were up 1.7 percent. Domestic Chili's franchises continue to align with our sales-driving initiatives and deliver a consistent Chili's experience for our guests. Our international franchise comp sales were down 0.5 percent, driven by soft sales in Puerto Rico. The economy there is struggling right now.”
Coca-Cola [KO] Earnings Call 10/21/14: “We continue to face a challenging macro environment, more challenging than was expected when we started the year. In many of our key emerging markets, we see deteriorating economic environments, coupled with the continued softness in consumer spending in the U.S. and particularly in Japan and Europe. This is placing strong pressure on the short-term performance of our business.”
Kimberly-Clark [KMB] Earnings Call 10/21/14: “In the quarter, we had negative away-from-home price in KCP in North America, and so we’re seeing some price erosion on the low end of that business, and so any net price gain has been pretty minimal at this point in time. And I think we’re seeing a fairly stagnant economy is probably not helping much on that front.”
A.O. Smith [AOS] Earnings Call 10/21/14: “We are cautiously optimistic about the developing recovery in U.S. housing and the strength in demand for commercial water heaters, driven by replacement and retrofit activity. We successfully implemented a mid single-digit price increase for wholesale water heaters in May, related to higher steel prices and inflation of other costs.”
Illinois Tool Works [ITW] Earnings Call 10/21/14: “Our Construction business in North America [has] been bouncing around. Quarter-to-quarter, it's up a little, down a little, and I think we're still waiting for some traction overall. There's a fair amount of good progress we're making inside the business on the margin front, but from an overall demand standpoint, I think we're still not seeing any consistent trends, whether it's housing starts or commercial construction activity.”