First-quarter earnings season is on the horizon and early reporters, so far, are revealing the same results we got in 4Q14—a decent bottom line, but sales coming up short. So far, my early 1Q15 earnings forecast predicts a boring reporting season.
Oracle Among Companies Keeping Investor Interest with Dividend Boosts
Several important benchmark companies report just before the calendar quarter closes. One such company is Oracle Corporation (ORCL), which has been struggling to generate meaningful growth for some time now.
The company’s third fiscal quarter of 2015 (ended February 28, 2015) produced flat comparable revenues of $9.3 billion in U.S. dollar terms. On a constant currency basis, total quarterly sales grew six percent comparatively. Earnings were down three percent comparatively in U.S. dollars to $2.5 billion; diluted earnings per share were flat.
Oracle’s numbers weren’t particularly good, but management did increase its quarterly cash dividend by 25% to $0.15 per share.
This is also a trend we’ve seen in previous earnings seasons. Companies do have strong balance sheets. By increasing their dividends and share repurchase programs, they are seemingly able to keep investors interested in their shares, even if their earnings season has been lackluster.
FedEx, General Mills: Early Reporters Revealing More of the Same Boring Trends
FedEx Corporation (FDX) also reports just before the main quarterly earnings season. The company’s third fiscal quarter of 2015 (ended February 28, 2015), saw total sales grow four percent comparatively to $11.7 billion.
The company’s earnings surged 53% from $378 million to $580 million due to a significant reduction in fuel costs, which was expected.
FedEx forecasts continued revenue and earnings growth this year, but while the company’s earnings numbers were great, Wall Street was expecting more in terms of top-line growth.
Good earnings on modest sales growth is a trend that was highly noticeable last earnings season and looks to be continuing with the stronger U.S. dollar and the general economic malaise among Western economies.
General Mills, Inc. (GIS), the manufacturer of “Cheerios,” also reported similar financial metrics: its adjusted earnings per share beat Wall Street consensus and its sales disappointed. Specifically, the company’s recent quarterly sales fell one percent comparatively to $4.35 billion in U.S. dollar terms.
1Q15 To Be a Repeat of 4Q14? Don’t Expect Much in Capital Gains
So it’s looking like this year’s first-quarter earnings season is going to be more of the same, with large, brand-name corporations coming through on the bottom line, but generating single-digit comparable sales growth—at best.
The trend is most definitely prevalent among large-cap, brand-name companies. (See “DuPont, 3M Report Earnings Growth, but Slow Sales: Stocks on a Break?”)
Another early reporter, large-cap Williams-Sonoma Inc. (WSM) reported fourth-quarter fiscal 2014 sales growth of five percent comparatively to $1.54 billion, with earnings per share growing 15% to $3.24. Management bumped its quarterly dividend six percent higher to $0.35 per share. Sales for the company’s 2015 fiscal first quarter are expected to grow between two and four percent comparatively.
While the broader stock market is gyrating on Fed expectations, this earnings season is likely to be a yawn, just like 4Q14. Accordingly, it’s reasonable to expect little in the way of capital gains from stocks near-term.
Companies have solid balance sheets and cash positions are flush. But an earnings season has to be more than the bottom line; revenue growth is the lifeblood.