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4-Traders Homepage  >  Equities  >  Nyse  >  Harley-Davidson Inc    HOG

Delayed Quote. Delayed  - 02/10 10:04:32 am
39.11 USD   +1.03%
02/07DJBig Companies Pull Back After Rough Quarter
02/03DJHARLEY DAVIDSON : Raises Dividend
02/03 HARLEY DAVIDSON : Increases dividend, announces additional share rep..
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Big Companies Pull Back After Rough Quarter

02/07/2016 | 07:44pm US/Eastern
By Theo Francis 

After a tough end to 2015, big companies are starting the new year with a tight rein on capital spending, and in some cases layoffs, as they seek to cope with sluggish industrial demand and uncertainties about the continued resilience of the American consumer.

A half-dozen large companies from medical-products giant Johnson & Johnson and tobacco maker Altria Group Inc. to Internet portal Yahoo Inc. have announced plans to cut about 14,000 jobs in recent weeks. Others, including railroad Norfolk Southern Corp. and oil producer Chevron Corp., are pulling back on their spending plans.

"We know this is a tough environment in which to talk about growth," Norfolk Southern CEO James Squires recently told investors. "That's why we are so focused on cost reductions."

The cautious approach suggests that executives remain wary as the strong dollar and weak growth in developing markets hurts their foreign sales, and the stock market's slide and fears of a downbeat economy unsettle investors and consumers at home, despite improvements in housing and employment.

American consumers--the bulwark of the economy--are sending mixed signals: December brought disappointing government figures on consumer spending and retail sales, but companies like Starbucks Corp., Ford Motor Co. and Nike Inc. continue to log strong domestic sales.

"The U.S. is basically relying on one sector to generate most of the growth, which is consumer," said Joseph LaVorgna, chief U.S. economist for Deutsche Bank Research. "When you don't have breadth, you're vulnerable to a shock."

Overall, companies in the S&P 500 index are on track to report adjusted fourth-quarter profits down 4.1% from a year earlier, and sales down 3.5%, according to Thomson Reuters. That would mark two consecutive quarters of shrinking earnings for the first time since 2009, and four straight quarters of falling sales.

Much of the overall decline reflects a battered energy sector, which is expected to report a 75% drop in fourth-quarter earnings and a 35% decline in sales, Thomson Reuters projects. Chevron, BP PLC and ConocoPhillips all reported deep fourth-quarter losses.

Excluding energy companies, adjusted earnings for S&P 500 companies are expected to rise 2.1% on sales growth of just 0.9%. Adjusted earnings, widely used by investment analysts, exclude costs and gains considered unusual or ancillary to the company's core operations.

Concerns about a slowdown in manufacturing aren't new. But economic growth outside the manufacturing sector, as measured by the Institute for Supply Management, slowed in January, settling to the slowest pace in nearly two years, according to Oxford Economics. And several sectors are expected to post lower profits, including consumer staples and utilities, according to Thomson Reuters. Earnings growth is expected to grind to a halt in the technology sector.

For the most part, consumers have provided reliable support as energy prices have slumped and growth has faltered in emerging markets. In addition to companies like Starbucks and Nike, Royal Caribbean Cruises Ltd. reported growing demand, after a brief period of weakness following terrorist attacks in Paris last fall. "We are seeing particular strength from the North American consumer," Chief Financial Officer Jason Liberty said on an earnings call last Tuesday.

And consumer-products companies cited signs that Americans are more willing to pay a little more for new, brand-name or higher-quality products. Procter & Gamble Co., which reported a 2% increase in organic sales, which exclude acquisitions, improved from a 1% decline the previous quarter. It said competitors were concentrating efforts on new, costlier products, rather than on cutting prices to win business.

Few executives predict significant growth in the coming year, and are responding by pulling back on business investment.

With nearly a third of S&P 500 companies reporting detailed year-end financial results through early last week, capital expenditures were up 6.2% from a year earlier, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. That is less than half the 13.9% increase reported in the last quarter of 2014, though much of the slowdown comes from energy companies, Mr. Silverblatt said.

Industrial and manufacturing companies were most emphatic about reining in spending, or at least holding the line. Norfolk Southern reported lower coal shipments amid low energy prices, and said retail inventories remained high, reducing shipping demand further. Executives said the company reduced capital spending by $100 million last year "to adapt to the shifting economic environment," and executives said they are poised to reduce it further if necessary.

Oshkosh Corp., a maker of heavy vehicles and equipment, said the rental firms among its customers are taking a more-cautious-than-expected approach to their own purchases of construction vehicles and equipment in 2016, though sales of emergency-services vehicles remain brisk.

"Many want to confirm that the construction market in the U.S. gets off to a good start before fully committing to their desired equipment-purchasing plans," Oshkosh CEO Wilson Jones said on a Jan. 28 call with investors.

U.S. Steel Corp., meantime, said it would emphasize multiple smaller projects. "They're projects that have much less risk to implement and return benefits much faster," said Dan Lesnak, a U.S. Steel investor-relations executive, on a Jan. 27 earnings call. "This is not the environment to kick off big, big massive projects."

Still, some companies are taking the opportunity to invest in their businesses. Harley-Davidson Inc. plans to boost capital spending by as much as about 6% over last year, in part by increasing spending on new products by 35%. "The overall growth in the company is going to be driven by new products," as well as additional marketing and international expansion, the company's finance chief, John Olin, said on a recent earnings call.

Employment, ultimately, could hold the key to corporate profits in coming quarters. Again, many of the signs remain solid. The economy added 262,000 jobs in December, more than economists expected, but growth for the full year fell short of 2014's 15-year record, and jobs increased by a less-than-expected 151,000 in January.

January jobs reports can be skewed by weather and the timing of holidays, said Mr. LaVorgna, the Deutsche Bank economist. Still, given corporate caution and existing trends in both the manufacturing and nonmanufacturing sectors, Mr. LaVorgna said, "there's some real concern that we're actually going to slow further."

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