CEOs offer mixed picture of future
Earnings season has been blah, but there’s signs of good to come
CEOs, it appears, aren’t gungho about the U.S. economy’s near-term chances of breaking free from its slow-growth malaise.
Still, the outlook for the economy, while far from upbeat, isn’t dreary, either.
The downbeat sales and profit forecasts from many CEOs in the current profit-reporting season suggest the economy’s trajectory in 2016’s final quarter and beyond is not that much different than the below-trend growth we’ve been seeing.
The government is set to give a reading on U.S. economic growth Friday. The economy averaged about 1% growth in the first half of the year but is seen rebounding to a 3% clip in the third quarter, Barclays says.
Still, many CEOs are managing expectations down, not up, worrying Wall Street. The mixed outlook comes as the earnings growth rate for the Standard & Poor’s 500 stock index has turned positive (+2.2%) in the third quarter for the first time in four quarters.
“The story is still the same,” says Greg Rutherford, CEO of Cavalier Investments. “We’re not seeing anything that says, ‘ Wow, earnings are really starting to pick up.’ In the economy, you don’t have anything that’s really driving growth.”
Tepid company forecasts are to blame for the lack of enthusiasm from Wall Street, where lost momentum in the stock market has left the S&P 500 around 2% below its August record. Uncer-
tainty over the presidential election and fears of a coming interest rate hike from the Federal Reserve also has dented investor sentiment.
Negative outlooks from companies in a wide range of sectors have reinforced the notion that a sudden reacceleration of growth isn’t in the cards.
After a sales drop of nearly 22% in the third quarter, Chipotle Mexican Grill, hurt by a food-safety crisis, sees low single-digit sales growth in the current quarter, well below its 25% growth rate in better times. Caterpillar expects sluggish sales of its mining shovels, excavators and dozers to drag into 2017. Appliance maker Whirlpool trimmed its full-year 2016 outlook due to weak demand.
“It’s an ominous sign that the global economy is soft and another warning sign for the stock market,” says Sung Won Sohn, a professor at California State University Channel Islands.
Pandora, which streams music over the Internet, also cut its outlook, as did paint seller Sherwin Williams, Post-it-Notes maker 3M and sports gear maker Under Armour.
Is it an early sign of economic distress? Not exactly. There’s some good news, too.
Apple, after posting disappointing third-quarter iPhone sales, says the current quarter, which includes holiday shop- ping and three full months of new iPhone sales, looks strong. Procter & Gamble, seller of everyday products such as Tide detergent, upped its profit forecast, as did American Express. Wednesday, Dow components Coca-Cola and Boeing told Wall Street they’re on track to hit earnings targets.
A U.S. recession is not on the horizon, nor is global growth near contraction mode, despite economic challenges in Europe, Japan and China.
And the International Monetary Fund still sees 3.4% global growth next year.