The company’s stock had climbed 22 percent since the start of the year as the maker of Tide detergent and Crest toothpaste turned in better profits for two quarters in a row. Last Thursday, P&G reported even higher earnings. And its stock immediately dropped 6 percent.
What happened? Like so many other big companies reporting results recently, P&G hit its target for earnings but missed on revenue. Nearly halfway through the first-quarter earnings season, Corporate America is still reporting solid profits, with seven of every ten big companies hurdling over Wall Street’s expectations. Sales, however, are another story.
Nearly the same proportion of big companies — six out of ten — have fallen short of revenue targets, according to S&P Capital IQ. The tally so far looks grim: Revenue has shrunk 2.4 percent compared with last year.
“The norm is becoming, beat your earnings, but miss on revenue,” says Scott Freeze, president of Street One Financial.
“Two problems persist: Europe’s ongoing recession and slower economic growth in China. Because nearly half of revenue for Standard & Poor’s 500 companies comes from abroad, it would seem logical to think the problem is just overseas. But many companies with a U.S. focus have also reported disappointing revenue.
Freeze says that revenue presents a more accurate picture of Corporate America’s health. “You can play with the earnings numbers and have them skewed,” he says. “But you can’t mess with the revenue numbers — they are what they are. If people are not coming in droves to buy your products, your revenue’s going to miss even if your earnings beat.”
Aside from Apple’s falling profit and some other high-profile flops, the headline numbers for first-quarter earnings appear solid. So far, 271 companies in the S&P 500 have said earnings are up 5 percent over the year before. And 189 of them have cleared Wall Street’s estimates.
Investors say that’s no surprise. They believe companies set the bar so low that it’s easy to jump over it. The 3.6 percent earnings growth analysts expect to see after all the results are tallied works out to $26.36. That’s just $1 more than the same period last year.
As one company after another turned in weak revenue results last week, analysts, investors and economists started raising concerns about the prospect for future profits….”