1Q15 Earnings Reports: Weak Numbers Expected on Strong U.S. Dollar

Currency TranslationWith the calendar first quarter now at a close, investors will soon get what the stock market’s been needing for quite a while—earnings reports.

Strong U.S. Dollar to Affect 1Q15 Earnings Reports

The fourth quarter of 2014 was pretty much a yawn, as investors shrugged off early signs of the U.S. dollar’s effect on corporate reporting. Now the marketplace knows that the U.S. dollar is having a material effect on earnings reports. This, in itself, helps delineate its effect.

Early earnings numbers so far this calendar year have been much of the same. (See “Early 1Q15 Earnings Forecast: Decent Bottom Line, Disappointing Sales.”) There isn’t a lot of double-digit comparable growth out there. When it’s present, the stock market is tending to value those companies richly.

Currency translation is having a material effect on earnings reports. McCormick & Company, Incorporated (MKC) is a well-known seasoning company. This year, its global sales are forecast to grow between four and six percent over 2014. However, due to expected currency translation, the company is actually expecting a flat year.

In its third fiscal quarter of 2015, NIKE, Inc. (NKE) saw its total sales grow seven percent comparatively. Excluding changes to currency, the gain was closer to 13%.

But the stock market is fully aware of the U.S. dollar reality, and the marketplace often “looks through” the numbers to focus on other things.

Earnings Numbers Beyond Currency Translation

Earnings expectations for this year have come down quite a bit, but interestingly, many brand-name, global companies are seeing Wall Street estimates tick nicely higher for 2016.

The stock market did get a bit oversold last week and there still isn’t really any definable trend to the action so far this year. The market is trying to digest the Federal Reserve’s intended interest rate hike.

The share price surge since the beginning of 2013 needs a break, and we very well may get it this year.

Top Stocks to Watch This Reporting Season

I continue to like the stock market’s existing winners for new positions and a great number of these are actually blue chips.

Companies like 3M Company (MMM), The Walt Disney Company (DIS), and NIKE continue to offer operational momentum, dividends, and institutional investor interest.

Not every brand-name company is doing well on the stock market, though. Many traditional wealth creators (like in consumer goods) haven’t been able to generate the kind of growth for which investors wish to pay. This makes the market’s existing winners that much more attractive to institutional investors.

It’s a slow-growth environment with few big businesses able to deliver on both sales and earnings growth. What we saw last quarter was decent earnings on lackluster comparable sales, and it’s likely to be the same story in the first half of this year.

If the stock market churns for the next couple of quarters, however, it may still finish off the year positive, even in the face of higher interest rates. Paying for next year’s earnings expectations is a fourth-quarter tradition. Forecasts for next year are holding up well.