Rosenberg On The Revenue-Less, And Now Margin-Less, Recovery

Tyler Durden's picture Submitted by Tyler Durden on 11/01/2010 09:53 -0500

Capital ExpendituresCorporate AmericaDavid RosenbergFree MoneyGross Domestic ProductNominal GDPrecoveryRosenbergUnemployment

A week ago, we presented a comprehensive analysis by Moody’s highlighting the key items in the cash flow statement of non-financial corporate America. Not surprisingly, we noticed that one of the biggest sources of cash over the past several years, in addition to cutting expenses to the bone and the resulting surge in unemployment, was the lack of investment in organic growth opportunities, via a plunge in Capital Expenditures, meaning that a revenue flat lining is the best most companies could hope for as most have now given up on traditional top-line growth and instead are either hording cash or investing it in an occasional M&A transaction. Now, in addition to that, courtesy of the Fed’s free money policy resulting in surging input prices (see Jones Apparel), the next shoe to drop on the path to an upcoming EPS collapse for the S&P is the imminent drop in gross,  operating and net margins for these very companies which are now seeing a contraction at both the top and bottom line. Today, David Rosenberg dissects this issue further, and sees nothing good on the horizon.

NOTICE THE WORD “PRICE CUTS”?

And, what the NYT had to conclude about 3M’s results? That it “reduced the top end of its full-year forecast and said rising raw materials costs and other pressures were cutting into margins, sending the company’s shares sharply lower.” Margin compression at a time of low single-digit nominal GDP growth does not equate to a $95 operating EPS stream for 2011.

Further on this file of compressed margin pressure, S&P 500 revenue growth is already slowing down, notwithstanding the fact that 80% of the universe is beating their beaten-down profit estimates. The cost-cutting wave certainly did go much further than anyone expected but as the legendary Herb Stein once remarked, “anything that can’t last forever, by definition, won’t.” At some point, the well will run dry on the cost-cutting front and slowing revenue growth will take over — on track for +5.5% YoY in Q3 from 6.1% in Q2 and the consensus now for Q4 is sitting at +4.9%. As an added signpost of how this has proven to have been a revenue-less recovery, the top-line growth since the profits rebound began just over a year ago is running at barely more than half the average pace recorded in the 2002-07 cycle.

For all the talk about profits recovery, sales are still 11% lower now than they were in the spring of 2008. And, if you are wondering why it is that the stock market has still done little more than range trade in 2010, it is because earnings estimates are no longer rising as they were in 2009 — they are falling. The bottom-up consensus now sees 12.9% earnings growth for 2011 from 14.2% a month ago and 20.9% back in the spring. Have a look at the Paul Lim column on page 8 of the Sunday NYT business section — Raising a Caution Flag on Corporate Revenue.

From Gluskin-Sheff (full report pdf)

AttachmentSize Breakfast_with_Dave_110110.pdf480.44 KB 5 Your rating: None Average: 5 (4 votes)
» Share/Save Login or register to post commentsPrinter-friendly versionSend to friend

by SheepDog-One
on Mon, 11/01/2010 – 10:06
#690549

Pump anemic markets ever more GREEN! Only game in town, as insiders dump at a 6 month 3,000:1 ratio, ‘cost cutting’ is played out and growth will take a huge hit, way sooner than most people think.

Everyone finishing their last call drink while nervously eyeing the narrow exit door. And for those who think perpetual melt-up is the new normal, they’ll be the ones trampled hardest.

Login or register to post comments by Cleanclog
on Mon, 11/01/2010 – 10:11
#690562

The largest asset class, MBS, that barely existed 30 years ago, is the only place the Fed could actually make a shock and awe difference. And further screw up the mortgage/housing world by keeping real market actions at bay.

Everything else is just more of the same.  Lower rates have no juice anymore – they aren’t driving any economic activity differently.

Login or register to post comments by Oh regional Indian
on Mon, 11/01/2010 – 11:33
#690825

Clean, lower rates are all very well if you could actually get aloan at those lower rates, right?

That is the joke, low or next to nothing rates on savings and credit tap dry. I hear SME’s are squeezed tight because no one is doing Working Capital loans etc. So yes, economic activity driving does not seem to be the goal here for CB’s/FED.

It’s the grab-all-you-can-as-ship-sinks time.

ORI

http://aadivaahan.wordpress.com

Login or register to post comments by billhilly
on Mon, 11/01/2010 – 10:20
#690589

Damn, I wish this would hurry up and happen already, I’m getting killed on the short side.  Luckily I have some PM’s that are helping but for all the negativity (reality) on this site (I’m not trying to complain) the downside sure hasn’t materialized like one would have thought/believed.

Login or register to post comments by There is No Spoon
on Mon, 11/01/2010 – 11:58
#690933

Maybe the market’s not going down because of rising inflation expectations, not because anyone really believes the economy is going to do well. As this site has pointed out, holding precious metals is a de facto short position on the stock market, so there’s no point in taking the risk of shorting stocks if you’re holding precious metals.

Login or register to post comments by jus_lite_reading
on Mon, 11/01/2010 – 10:35
#690624

As expected, the largest amount of talk about “GROWTH” the day before elections. Reality. Bites. Hard.

Login or register to post comments by OutLookingIn
on Mon, 11/01/2010 – 10:38
#690638

 

 Cost cutting will work until it doesn’t. Okay. Now it doesn’t. Next step – close the door. More unemployment. Less consumers. More tax dollar support. Higher deficits. Less tax revenues. Government (at all levels) labor force shrinkage. More doors close. Re-load, wash, rinse, repeat…

Login or register to post comments by MachoMan
on Mon, 11/01/2010 – 10:56
#690686

bingo.  The biggest problem right now is that this is only largely happening in the private sector…  while the public sector (dependent on taxable revenues from the private sector) churns right along oblivious to its certain demise.  Eventually, the day where the productive (1%) shake the non-productive (most of us) off their coattails, will come…  and it will be unpleasant.

Login or register to post comments by Rainman
on Mon, 11/01/2010 – 10:41
#690645

Between the gutting of capex and the tax windfall of NOLs, there’s no reason to raise revenue or even have a sales, marketing or advertising department. Lots of ” earnings ” opportunities remain.

Login or register to post comments by drb48
on Mon, 11/01/2010 – 10:55
#690682

Apparently, “the markets” didn’t get the word re future corporate profits – they’re busy pushing higher.  Any wonder BTW, that the retail investor – i.e. me – won’t go near the place?

Login or register to post comments by Vampyroteuthis …
on Mon, 11/01/2010 – 11:02
#690697

How long can they perpetuate this kind of fraud? As an engineer, I am waiting for the SHTF so I can get into the next true, organic big thing product. The way it is now, we are just defending the status quo sucking the life out of everything in the economy. It frustrates and sickens me to the core.

Login or register to post comments by aerojet
on Mon, 11/01/2010 – 11:21
#690786

Yup, you’re not alone. And what perplexes me most of all is all the new commercial construction going on where I live.  Who the fuck are the customers going to be?  Didn’t we learn a single lesson 2008?

Login or register to post comments by Something Wicke…
on Mon, 11/01/2010 – 11:08
#690737

Like most of us, my problem was always the issue of timing. That a collapse is coming is evident.

The stock market is the prize. That is the battleground. The government and the FED are absolutely willing to do anything to create the illusion of market health. They have to.

When the market has its grand mal seizure, the lie will be officially over. Every retirement fund in this country will be fucked. Politicians and the FED will be dragged to the square and hung. That is how serious it is. We know it, they know it, and thus we have this grand tug of war. Sooner or later, peeps are gonna see that the emporer has no clothes.

Login or register to post comments by No Mas
on Mon, 11/01/2010 – 11:29
#690812

“Politicians and the FED will be dragged to the square and hung.”

Hyperbole.  Don’t leave home without it.

Login or register to post comments by Lucius Corneliu…
on Mon, 11/01/2010 – 14:25
#691369

Trying to effect change with the Demopublicans is kind of like playing a long game of Whac-A-Mole.  I’m guessing that’s what’s in store for us.

Login or register to post comments by Instant Karma
on Mon, 11/01/2010 – 12:10
#690971

It’s hard to generalize. Often, it’s industry by industry, or company by company.

Login or register to post comments Comment viewing options Flat list – collapsedFlat list – expandedThreaded list – collapsedThreaded list – expanded Date – newest firstDate – oldest first 10 comments per page30 comments per page50 comments per page70 comments per page90 comments per page150 comments per page200 comments per page250 comments per page300 comments per pageSelect your preferred way to display the comments and click “Save settings” to activate your changes. Search Search this site: Latest News From RAN Squawk 11-01 15:51: RANSQUAWK AUDIO CLOSED FOR TODAY UNTIL 0630 TOMORROW (LONDON TIME) 11-01 15:33: RANsquawk ‘Market Wrap Up’: Video uploaded to http://www.youtube.com 11-01 15:17: Anadarko Petroleum (APC) Q3 adjusted EPS USD 0.21 vs. Exp. USD 0.31 11-01 15:17: Anadarko Petroleum (APC) shares down 1.5% in after-market trade following Q3 earnings release 11-01 15:10: DAILY FX REVIEW 11-01 15:10: DAILY FX REVIEW 11-01 15:08: US EQUITY WRAP 11-01 15:08: US EQUITY WRAP Latest News From The Fly On The Wall 11-01 16:13: Google sues Interior Dept. over contract that favored Microsoft, WSJ reports 11-01 16:12: Post Properties raises FY10 FFO to $1.07-$1.11 from 38c-50c 11-01 16:10: Post Properties reports Q3 FFO 82c vs. consensus 31c 11-01 16:08: LHC Group authorizes $50M share repurchase program 11-01 16:07: Sturm Ruger cuts dividend to 7.8c from 10c per share 11-01 16:07: American Financial reports Q3 EPS $1.07 vs. consensus $1.01 11-01 16:07: LHC Group raises FY10 revenue to $625M-$635M from $615M-$625M 11-01 16:06: Sturm Ruger increases stock repurchase plan to $10M from $4.3M The Zero Hedge Team

Tyler Durden – Founder

Marla Singer – Foil

Travis – Author

Cornelius – Author

Sacrilege – Senior Researcher

 

tips [ at ] zerohedge [ dot ] com – Our Reader Tips Mailbox

Make sure to read our “How To [Read/Tip Off] Zero Hedge Without Attracting The Interest Of [Human Resources/The Treasury/Black Helicopters]” Guide

ads [ at ] zerohedge [ dot ] com – Advertising Inquiries.

abuse [ at ] zerohedge [ dot ] com – Abuse / Infringement Issues

 

It would be very wise of you to study our disclaimer, our privacy policy and our (non)policy on conflicts / full disclosure.

 

Zero Hedge Offices:

United States:
888.qui.zero (888.784.9376)

Zurich:
+41 43 501 6717

London:
+44 20 3318 4753

copyright ©2009, 2010 zero hedge – limited reproduction (with attribution) permitted by request

zero hedge’s redundancy powered by:

Drupal e-commerce provided by Ubercart.

View the Original article

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s