Earnings season is off to a rough start.
Earnings season is when companies tell the world if profits grew or shrank during the previous quarter. A good earnings season can lift stocks. A bad one can drag stocks lower.
If you’ve been reading the Dispatch, you know Corporate America hasn’t had a good earnings season in nearly two years. Profits have fallen five straight quarters. That hasn’t happened since the 2008–2009 financial crisis.
Heading into the current earnings season, few investors had high hopes. According to research firm FactSet, analysts expect the S&P 500 to show a 2.1% decline in third-quarter profits. This would be the sixth straight quarter that earnings have fallen.
• Alcoa Inc. (AA) unofficially kicked off the third-quarter earnings season yesterday…
The aluminum giant whiffed on sales and earnings.
The company generated $5.21 billion in sales last quarter, which is about $10 million less than Wall Street expected. Profits came in at $0.32 per share, which was lower than the $0.35 earnings per share (EPS) analysts expected.
Yesterday, Alcoa’s stock plummeted 11.4% on the news. It was the stock’s worst day since 2011.
Many analysts consider Alcoa a bellwether for industrial demand. If its business is struggling, manufacturers, equipment makers, and supply companies should struggle, too.
• Fastenal (FAST) also reported poor quarterly results yesterday…
Fastenal is one of the largest distributors of nuts, bolts, and hand tools in the United States.
Like Alcoa, its business did far worse than analysts expected last quarter.
The company’s third-quarter sales came in at $126.9 million last quarter, well short of the $136.5 million analysts projected. The company missed on earnings, too. It earned a profit of $0.44 per share last quarter versus the $0.47 EPS that Wall Street expected.
According to The Wall Street Journal, Fastenal’s business suffered due to a “slowdown in construction, and continuing economic uncertainty.”
Fastenal’s stock fell 5.13% yesterday on the news.
• Several other major U.S. industrial companies have also warned of big problems…
On Friday, paint maker PPG Industries (PPG) said it expects to post its first quarterly loss since 2009. PPG Industries reports its third-quarter results next Thursday.
The company’s CEO blamed its ugly quarter on the weak global economy:
We continue to operate in a sluggish economic environment with no clear near-term catalyst for improving global GDP growth.
PPG’s stock plunged 9% on the news. It closed Friday at a seven-month low.
• Manufacturing giant Dover Corp. (DOV) also told investors to prepare for bad results…
On Monday, the company, which makes everything from gas pumps to refrigerators, cut its full-year profit expectations from $3.35–$3.45 to $3.00–$3.05. The company also said it expects to generate $100 million in sales this year, after it previously projected full-year sales of $110 million.
Like the head of PPG, Dover’s CEO says the weak global economy is hurting its business:
We also expect the macro global economy to remain soft, later cycle oil & gas exposed businesses to remain weak, and continued margin pressures in refrigeration & food equipment through the end of the year, as we work to streamline and improve our production systems.
You might not think this is anything to worry about. After all, major industrial firms like Caterpillar (CAT) have been warning about a stalling global economy for years…and all U.S. stocks have done is keep rising.