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U.S. Companies Dialing Back Profits
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U.S. Companies Dialing
Back Profits
Driven by unnerving European headlines as well as rising commodity and energy
costs, U.S. companies are dialing back their quarterly profit forecasts at the
highest rate since early 2009. Generally, companies tend to understate their
expectations for earnings or guidance because they will be punished for missing
estimates and rewarded for exceeding them. Historically, around 60% of Standard
& Poor's 500 companies beat estimates each quarter. U.S. companies have turned
unusually pessimistic in forecasting a year that's already seen a more-than 8%
increase in the S&P 500 Index. Macroeconomic uncertainty is weighing on
companies' economic outlooks with many hitting a limit on cost-cutting.
Fifty-eight companies have released estimates for first-quarter earnings that
fall below analyst consensus, compared with 23 that beat Wall Street. When the
S&P 500 was on its way to bottoming out below 700 in early March, this is the
largest ratio of negative to positive announcements since Q1 2009. The average
S&P 500 company currently expects to add 8.3% in profits for the year with that
estimate sitting at 10% just a month ago - estimated profits for 2012 have
steadily fallen since October. Many companies are hitting a solid wall on just
how much of their expenses they can cut after recessionary belt-tightening. The
percentage of revenue that translates into profit rose steadily from 2008 -
until recently when the average rose to 9%. For Q1 2012, the average is expected
to fall to 8.5% which indicates companies are having a more difficult time eking
out higher profits from steady levels of revenue.
On Wednesday, the nation’s consumer watchdog bureau, Consumer Financial
Protection Bureau, launched an inquiry into fees charged by banks when consumers
overdraw their accounts. The fees charged by banks is a multi-billion-dollar
business for financial institutions. “Overdraft practices have the capacity to
inflict serious economic harm on the people who can least afford it,” said
Richard Cordray, director of the newly formed CFPB. Moebs $ervices, an economic
research firm, estimated in September 2010 that banks and credit unions would
earn $38 billion in overdraft fee revenue in 2011. Banks typically provide
overdraft 'protection' when consumers overdraw their accounts to cover the
transactions and charge fees as large as $35 for each overdraft. A large
percentage of bank profits from overdrafts come not from individuals who make a
mistake but - from low-income consumers who overdraw their accounts on purpose,
as a type of short-term loan because they can not cover their basic living
expenses. A 2008 Federal Deposit Insurance Corporation study found that 46% of
young-adult account holders incurred overdraft fees. According to the study,
consumers who overdrew 20 or more times per year paid an average of $1,610 in
overdraft fees annually. The CFPB said it is seeking input on the possibility of
creating a 'penalty fee box' which would be a disclosure on a consumer’s
checking account statement highlighting the amount overdrawn and total overdraft
fees charged. The watchdog bureau is seeking to find out information about the
extent to which consumers are made aware of alternative means of covering
overdraft transactions. In 2009, the Federal Reserve adopted a rule that took
effect in 2010 that prohibits consumers from being able to withdraw money from
automated teller machines if they have no funds and they haven’t opted into the
protection. The CFPB took over responsibility for that Fed rule in 2011. The
CFPB said it is seeking to understand how differences in the way institutions
explain and promote overdraft programs may affect opt-in rates. “Initial data
suggests that opt-in rates differ widely among institutions,” the CFPB said.
National Association of Realtors said Wednesday that, during January, sales of
U.S. existing homes rose 4.3% and inventories fell to nearly seven-year lows, as
lower prices, unusually warm weather and an improving economy all lifted demand.
January sales were at a seasonally adjusted annual rate of 4.57 million.
December's sales were downwardly revised to a 4.38 million rate from a
previously reported 4.61 million; December sales were downwardly revised as part
of a seasonal adjustment that impacted monthly sales. That's not to be confused
with the 14% downward revision the trade group recently conducted on sales data
from 2007 onwards. Median homes sales prices during January fell 2% from a year
ago to $154,700. Inventories fell 0.4% to 2.31 million, which is the lowest
inventory level since March 2005 and represents 6.1 months of supply. Sales rose
in all four major regions, including an 8.8% increase in the West. “Things are
genuinely improving,” Lawrence Yun, chief economist of the NAR said. “Maybe we
are seeing household formation popping out,” he added. That could mean children
moving out of their parents’ homes as they got a job, he said. “The supply and
demand situation may be coming into balance,” Yun said. Inventories were as high
as 4.04 million during July 2007. Distressed sales including foreclosures and
short sales accounted for 35% of all transactions which is up from 32% in
December. All-cash transactions represented 31% of all sales, and first-time
buyers accounted for 33% of all transactions, up from 31% in December.
In upcoming quarters, Standard & Poor's Ratings Services expects slow but
gradual improvement in the foreclosure inventory as the percentage of U.S.
residential mortgage delinquencies and new foreclosures declined during Q4 from
Q3. excluding foreclosures and real-estate-owned homes, the percentage of loans
more than 30 days past due is at the lowest point in the last three years. "We
believe decreasing delinquencies represent a positive trend for the underlying
collateral performance of U.S. residential mortgage-backed securities and the
housing market's recovery," primary research analyst Erkan Erturk said. S&P said
the still elevated foreclosures and distressed home sales signal that home
prices will remain under pressure in the upcoming months as those homes are
liquidated.
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February
22, 2012
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Top of the page | |
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Total for Year |
Last Week |
$207,545.00 |
$15,148.00 |
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Total for Year |
Last Week |
$54,280.00 |
$7,557.50 |
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| |
Total for Year |
Last Week |
$477,923.89 |
$44,196.66 |
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| |
Total for Year |
Last Week |
$395,980.00 |
$47,570.00 |
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Total for Year |
Last Week |
$0.00 |
$0.00 |
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