The Q25 on Tuesday
Caterpillar – This proved to be one of our trickiest. Stripping out one-offs, the company actually beat expectations, (so suggested a Green apple) But the company lost money for the first time in years, and its outlook forecast was horrible. We gave it a RED apple
Coca-Cola – A traditional recession-proof stock, and the latest numbers showed growth in international markets, even though the U.S .fell back. It was a clear GREEN apple
Delta Airlines – The airline has made a loss for six straight quarters. Through cost cutting Delta managed to beat analysts' expectations so that suggests a Green. Look a bit deeper and you see Delta is still cutting capacity, and there is no sign of an upturn in premium traffic vital for a restoration. It's a RED apple
Lockheed Martin – A solid defense company which made less money but still remained profitable throughout the recession. Its earnings were at the upper end of estimates. And the defense business remains strong. A GREEN
Merck – A fall in the share price after the company missed its numbers. And a poor outlook and forecast. All this in a company which has been buying up other drug makers. We felt it was a RED Apple
Now the jars are looking pretty equal. Wednesday is a truly bumper day...
HONG KONG, China – You can tell a lot about the state of the economy by what passes as positive news.
A worker works on a product line at a factory in Chengdu of Sichuan Province, China, February.
Business across the globe has gone from bad to worse, and a new phrase has crept into the lexicon of the credit crisis in recent weeks: the "less-worse" economy.
"I expect things to get less worse as we proceed through the year," Richard Fisher, chief executive officer and president of the Dallas Federal Reserve Bank, told CNN last week (although he also expects U.S. unemployment to eclipse 10 percent in 2009). Watch Fisher comment on economy
Translation of a less-worse economy: It's still bad - much worse than a year ago, in fact - but still not as bad as the previous month or business quarter. Some recent less-worse news:
– The U.S. Federal Reserve released a report on April 15 that showed "overall economic activity contracted further or remained weak." However, five of the 12 districts across the United States that supply data to the Fed noted a "moderation in the pace of decline. Several saw signs that activity in some sectors was stabilizing at a low level."
– Exports from Japan dropped 46 percent last month, compared with March 2008. But that's less than the nearly 50 percent year-on-year drop the month
– China's exports were down 17 percent year-on-year last month, but still $25 billion more than in February
– An Associated Press-GfK poll early this month showed that 40 percent of Americans think the country is headed in the right direction, double the percentage in October
The less-worse economy is still tumbling downhill. But when optimism is in short supply, people find hope where they can.
A Barometer of Earnings.
This week we have had a vast raft of earnings news from top U.S. corporations to digest. Tech companies like IBM and Apple, Internet giants like Yahoo!, banks ranging from Bank of America to American Express to name just a few.
Our task at Quest Means Business has been to make sense of it all... Hence the Q25.
We have carefully chosen 25 companies reporting this week which we believe in total, show the breadth and range of the U.S. economy.
We are giving the companies either a GREEN or a RED apple...and by the end of the week we will be able to guage the strength of the economies.
How do we decide who gets a GREEN or a RED?
Our starting point is whether or not the companies have MET or BEATEN consensus analyst expectations. But that is only the start.
Then we look at whether or not the numbers were met because of special one-off factors. We then move to look at whether there is any guidance for future quarters and what the outlook it. Finally, Maggie Lake and I, along with our producers have a good debate on it... arguing one side or the other until it usually becomes obvious!
A Public Heath Warning – The Q25 is not a scientific index – it is NOT weighted or calibrated. It is anecdotal and it often relies as much on "gut feeling" of those of us at Quest Means Business as the numbers themselves. You should take NO investment decisions on the strength of this.
Bank of America – On the face of it BOA should have got a green, since it made good money. But look behind the numbers and a different story is told; one-off tax gains and other special items massaged the numbers. And the bank had some worrying words on future bad loan provisions. Things are going to get worse. The consensus was BOA was a RED apple
Hasbro – The toymaker saw profits fall by 47 percent, that alone didn't merit a red - but the forecast that things were not getting better led us to give the company a RED Apple
Eli- Lilly – (This is a corrected version) Of course it was a Green apple for Eli Lilly for its better than expected results and sales growth. Most important of all, the guidance was strong
IBM – Big Blue made a profit, but missed its numbers, and failed to meet expectations. Heavily dependant on global trade, it's at the mercy of currency fluctuations at a time when capex is down, world trade is falling and it is still reeling from it's failed bid for Sun Microsystems; there was little doubt it was a RED Apple
About Business 360
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