Earnings Update

As of this morning, 62% of companies in the S&P 500 have reported their quarterly earnings.  Of those, 74% have reported earnings above the mean analyst estimate while 55% have reported revenues in excess of the average analyst estimate.  Below are some highlights from corporate earnings releases this week:

Apple (AAPL) reported its first quarterly drop in revenue in 13 years on Tuesday as slowing iPhone growth weighed on both the top and bottom lines.  Apple reported revenues of $50.6 billion for the quarter, down from $58 billion at this time last year.  This also missed the average analyst estimate of $52 billion.  Earnings Per Share (EPS) was $1.90, lower than the $2 per share that analysts were expecting.  Sales in Greater China, which has contributed to a large revenue grower in the past, fell by 26% year-over-year.  While CEO Tim Cook cited a weaker smartphone market as a factor in this quarter’s numbers, he remains confident in Apple’s long-term prospects.  The company committed to returning more cash to shareholders in the form of an increased dividend, now at $0.57 per quarter (from $0.52).  The company will also increase its share buyback program by $35 billion in an attempt to retire more shares while the company feels their share price is attractive.

Ford Motor Company (F) announced the results from its best quarter on record as lower gas prices contributed to an increase in SUV and truck sales in the first quarter.  The profit of $0.68 per share shattered the $0.48 per share analyst estimates.  Even as Ford continues to exceed expectations over the last few years, the shares have not moved much in price.  This is generally due to the market expecting the auto market has (or will) peak and that Ford will not be able to continue to grow its earnings.  CFO Bob Shanks discussed this concern directly on the earnings call, stating, “I don’t buy into that.  I know that’s what the market is pricing in; they’re also pricing in a recession. There’s nothing that we see in the leading economic indicators to suggest that anything like that is on the horizon.”  Ford acknowledged they do expect a bit of a slowdown in the second half of the year but still see a bright future for the company.

Gilead Sciences (GILD) missed its earnings forecast as its hepatitis C drug sales fell 5.6% in the first quarter as other competitors have both taken market share and caused Gilead to reduce its price for the drugs.  The company reported earnings of $3.57 billion for the quarter, or $2.53 per share, down from $4.33 billion ($2.76 per share) at this time last year.  Gilead also kept its full year earnings guidance unchanged while also increasing the dividend to $0.47 per share, up $0.04.  While Gilead continues to tout its large pipeline of drugs in advance stages (not yet approved), investors seem to be looking for more immediate earnings growth.  In the past, Gilead has preferred to buy smaller companies with drugs still in trial.  However, Gilead’s large cash position, and pressure from investors, may lead to an acquisition of a firm with a market ready drug.

Exxon Mobil (XOM) posted a 63% year-over-year drop in quarterly profit this morning as losses in its oil and natural gas producing business weighed on profits.  Overall, Exxon reported earnings of $1.81 billion, or $0.43 per share.  This is down from $1.17 per share this time last year and is the lowest quarterly profit since Exxon bought Mobil in 1999.  Shares rose, however, as investors shrugged off the results, most likely because oil prices have risen throughout April (after the quarter end).

Next week, 125 S&P 500 companies are scheduled to report earnings (two of which are in the Dow Jones Industrial Average).  Most companies reporting next week are smaller market capitalization companies.  A few notable companies scheduled to release earnings next week include Emerson Electric (EMR), Halliburton (HAL), Pfizer (PFE), Tesla Motors (TSLA), Time Warner (TWX), Chesapeake Energy (CHK), Quanta Services (PWR), and Weyerhaeuser (WY).


Federal Reserve Meeting Recap:

The Federal Reserve’s FOMC (Federal Open Market Committee) met this week and decided to keep their current interest rate policy unchanged, which was widely expected.   The FOMC stated that they are committed to their statutory mandate to seek and foster maximum employment and price stability.  The committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen.   They expect inflation to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further.  The committee made a commitment to continuously monitor inflation indicators and global economic and financial developments.

The committee was also careful not to tie themselves down to a potential rate hike this June, but most economists are anticipating a ¼ percent increase at the June meeting, with a potential for another increase this September.   Of course, inflationary pressures and economic indicators will ultimately be the determining factors for the committee in June.


U.S. Economy Slows:

Growth in the U.S. economy hit a slow patch in the first quarter as low oil prices and a strong dollar continued to impact business spending.   GDP increased at an annualized rate of 0.5 percent, the slowest rate since the first quarter in 2014.  Analysts had expected growth of 0.7 percent.

Majority of the sectors in the economy were weak in the first quarter, with housing being the one bright spot.  Consumer spending, which makes up over 2/3 of economic activity, grew at 1.9 percent, down from 2.4 percent in the fourth quarter.


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