Flat-Lining Revenues the Big Problem This Earnings Season

4Q14 Earnings NumbersThe same old earnings trend continues. Sales are coming in light, while earnings are meeting or beating the Street. It’s a familiar sight in a slow-growth environment with a stronger U.S. dollar. And that’s the one big problem so far this earnings season: revenues aren’t improving, so why are stocks still so high?

Johnson & Johnson’s Numbers Suggest Drifting Near-Term

One of my top holdings to watch for long-term investors reported a material slowdown in revenues this quarter. Previously, Johnson & Johnson (JNJ) had been producing particularly strong financial reports on robust pharmaceutical sales. For the fourth quarter of 2014, the company saw revenues dip 0.6% comparatively to $18.3 billion. Domestic sales improved 7.4%, but a stronger dollar impacted international sales by a whopping 7.9%, materially affecting results.

Excluding special charges for litigation accrual and integration costs related to the company’s acquisition of Synthes, Inc., Johnson & Johnson’s fourth-quarter earnings came in at $3.6 billion, or $1.27 per diluted share, up 1.4% and 2.4%, respectively, over the comparable quarter.

“It’s not worrisome yet for equity investors, but the numbers aren’t strong enough so far to motivate buyers…”

For those currently invested in Johnson & Johnson, the company is still likely a good long-term holding. (See “Should Investors Focus on Individual Stocks in 2015?”) Its domestic pharmaceutical business grew 25% in all of 2014. However, the company’s 2015 outlook for adjusted earnings was down slightly from previous expectations.


I expect this stock to drift near-term. Johnson & Johnson has a habit of increasing its numbers in the second quarter.

Energy Producer Increasing Dividends but Revenues Being Hit by Weak Oil Prices

A stock that recently increased its quarterly dividends was Kinder Morgan, Inc. (KMI). I like this large-cap energy player as a stock for long-term income-seeking investors to add to their watch lists.

The company said it would increase its next quarterly dividend by 10% to $0.45 a share, or $1.80 annualized. The new dividend amount is payable February 17, 2015 to shareholders of record on February 2, 2015. For all of 2014, Kinder Morgan increased its dividend by nine percent.

While most of the company’s assets produce fee-based revenue, it is still an energy producer. The company’s management notes that distributable cash flow is affected by approximately $10.0 million for every $1.00 change in the average per-barrel price of West Texas Intermediate (WTI) oil.

Job Cuts Increasing with Revenue Misses

There’s been quite a few job cuts announced with earnings reports, too. According to Bloomberg, American Express Company (AXP) plans to cut thousands of positions, and eBay Inc. (EBAY) announced similar plans after a fourth-quarter revenue miss.

What This All Means for Investors

The numbers are so far pretty mediocre, with some industries in much better shape than others. But going by corporate reporting so far, there’s not much to get excited about and few catalysts for bidding stocks.

Sales not meeting or beating Street expectations is common this reporting season. The burst of economic activity in the third quarter last year seems like an anomaly.

It’s not worrisome yet for equity investors, but the numbers aren’t strong enough so far to motivate buyers and really, why should they be? Stocks have already gone up.