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Tags: Bilello | revenue | recession | economy

Analyst Bilello: Revenue Recession Showing Up in Company Results

Analyst Bilello: Revenue Recession Showing Up in Company Results
(Illustration: Dollar Photo Club/Rob Williams)

By    |   Thursday, 06 August 2015 03:10 PM

The economy is growing this year but that doesn’t mean all of the biggest U.S. corporations are reporting an increase in business. Instead, S&P 500 companies are on track for a second straight quarter of sales declines – a revenue recession.

So says Charlie Bilello, director of research at investment adviser Pension Partners Llc., in a blog post that analyzes results from the 80 percent of S&P 500 companies that have reported quarterly results.

“S&P 500 sales are pace to decline year-over-year by 3.1 percent, the second consecutive quarter of negative growth,” he says. “The last two times we saw declines in revenue growth were back in 2008 and 2001, during U.S. recessions.”

The most common reason that companies cite for sales weakness is the U.S. dollar, which has gotten more valuable with the possibility that the Federal Reserve will raise interest rates this year. The U.S. currency this week rose to a three-month high compared with a basket of foreign currencies.

But Bilello says a stronger dollar isn’t the only reason for the decline in company sales from a year earlier. He also says that economic growth of 3.3 percent, not adjusted for inflation, is the slowest on record for an expansion.

“We have seen many recessions with higher nominal growth than this,” he says. “It should hardly come as a surprise, then, to see corporate profits slowing as well.”

He says the sales decline extends beyond the energy industry, which has contended with a crash in oil prices since last summer.

“Of the companies that have reported thus far, 48 percent have shown negative year-over-year revenue growth,” he says. “Of these, 142 companies are outside of the energy sector. It is hardly ‘just energy’ that is showing top-line weakness.”

The stock market’s reliance on a handful of companies to drive gains is a perilous warning sign that investors should heed, says investment strategist Michael E. Lewitt.

iPhone maker Apple Inc. is leading the “Four Horsemen of the Apocalypse” of stocks that are vital to the equity market’s health, he says in this month’s edition of his Credit Strategist newsletter. The other three companies are Google Inc., Amazon.com Inc. and Facebook Inc.

“If these stocks ever stop rising, there is going to be one hell of an apocalypse in stocks,” Lewitt says. “Under the headlines, the market has started to look decidedly unhealthy.”

Lewitt says it’s worrisome that $1.7 trillion of market value can be attributed to the “Four Horsemen,” especially at their earnings multiples. The S&P 500 has a total market capitalization of about $7.8 trillion.

“If the Four Horsemen need some charioteers to steer them, they can call on Gilead Sciences and NetFlix, since these six stocks collectively have accounted for more than 50 percent of the $664 billion in value added to the Nasdaq Composite Index so far this year,” he says. “If we substitute Walt Disney Co. for NetFlix, this line-up of six stocks has accounted for more than 100 percent of the $199 billion rise in the market value of the S&P 500 in 2015.”

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RobWilliams
The economy is growing this year but that doesn't mean all of the biggest U.S. companies are reporting booming business. Instead, S&P 500 companies are on track for a second straight quarter of sales declines - a revenue recession.
Bilello, revenue, recession, economy
512
2015-10-06
Thursday, 06 August 2015 03:10 PM
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