Revenue Recession Spreads past Dollar, Energy

Now that 495 of the S&P 500 companies have reported second quarter earnings, something has become abundantly clear: 2015 is going to be a nasty year for corporate revenues.

Blended revenue for the S&P 500 companies dropped 3.4% in Q2, according to FactSet. “Blended” because it includes estimates for the five companies that have not yet reported. This follows the first quarter, during which reported revenues also declined. The last time year-over-year revenues declined two quarters in a row was in Q2 and Q3 2009 during the Financial Crisis.

Analysts liberally blame the strong dollar. It’s convenient. But numerous companies that mostly benefit from the strong dollar, such as GM (more on that in a second), still reported shrinking revenues in the quarter.

And analysts blamed energy companies whose revenues have totally collapsed. But company by company outside the energy sector reported declining, and in some cases plunging revenues, including in Big Tech and financial services.

Here is a sample of revenue losers:

Caterpillar (-13%), Dow Chemical (-13%), MetLife (-12%), Microsoft (-4%), Intel (-5%), International Paper (-21%), JPMorgan Chase (-3%), Johnson Controls (-11%), Oracle (-5%), PepsiCo (-6%), Pfizer (-7%), Procter & Gamble (-12%), Union Pacific (-10%)….

Wait… Union Pacific? Would it blame the strong dollar or the price of oil? Hardly. It doesn’t operate trains in Europe. It doesn’t sell oil. It buys and burns it; so cheap oil is a godsend. It’s blaming the economy, particularly the reduced number of carloads of coal and other commodities. And it’s blaming that obnoxious add-on, the fuel surcharge that has been declining with the plunging price of oil. Surcharges go straight to revenues. Competitive pressures forced it to back off. Easy come, easy go.

Then there’s former tech darling QUALCOMM (-14%), insurer ALFAC (-9%), and of course IBM, always, at least for longer than anyone can remember, well, for the thirteenth quarter in a row, strong dollar, weak dollar, hot China, cold China, nothing matters…. Its revenues decline through thick and thin, this time -15%.

Then there’s GM (-3.5%). It gets the vast majority of its revenues from its number one market, China, and its number two market, the US. Over that 12-month period through the end of June, the yuan lost less than 1% against the dollar. And GM sells practically nothing in Japan whose currency lost out against the dollar.

Sure, it’s exposed to the euro and other struggling currencies. But in Europe and Latin America, its unit sales (not just dollar sales) have been declining, and that’s what kicked GM in the shin. A function of the global economy, not the dollar.

But GM imports components and vehicles into the US from countries around the world, particularly from Mexico and Canada, and their currencies have gotten slammed in unison over the period, thus lowering the costs of these imports. In reality, GM has been sitting at the sweet spot of the strong dollar.

But healthcare had majestic revenue gains of 8.6%, with three of its six industries reporting double-digit revenue growth: Health Care Technology (32%), Biotechnology (17%), and Health Care Equipment & Supplies (13%). Earnings soared 15.5%.

Powered by rampant price increases, near endless patent protections, and lack of competition, this already vast sector is hogging an ever larger slice of the limited national pie. Americans are not particularly healthy and don’t live very long either, but they sure pay a lot for it.

So this is what the corporate revenue picture looks like, with company details mercifully hidden from view, and with four of ten sectors reporting revenue shrinkage.


Some folks like to insist that yeah, but without energy, revenues wouldn’t have been that bad, they would have edged up 1.5%. OK, but without the vast health care sector, revenues would have been puke-in-the-corner terrible. Once you start selectively removing sectors to make the picture look rosier, you end up with weird results.

For the remainder of the year, analysts expect revenue shrinkage to continue: -2.6% in Q3 and -0.6% in Q4, according to FactSet. So revenue shrinkage as reported in the first half and as estimated for the second half produces a revenue decline for the calendar year of -1.7%:


Four quarters in a row of declining year-over-year revenues! That sort of long-lasting revenue recession would take us back to the bowels of the Financial Crisis.

Next year is going to be great, however, according to these analysts. Revenues will soar 5.7%, as they always do far enough into the future because analysts need to justify the still sky-high stock prices with their forward-looking miracle metrics.

Or do these analysts and the companies they promote expect the dollar to crash next year and oil to fly off the chart in order to get to this revenue growth? That would be ironic. Because when revenues and earnings turn sour, the dollar and China get blamed. But when revenues and earnings look good, executives take full credit, based on their brilliant strategies and excellent execution.

Moody’s blamed oil. Earlier in August, it had blamed the financial turmoil in China. In July, it had blamed the debt crisis in Greece. Because month after month, it has been getting worse. Read… Liquidity Stress Spikes to Worst Level since Financial Crisis

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  37 comments for “Revenue Recession Spreads past Dollar, Energy

  1. NotSoSure says:

    I’ve been shorting IBM for some time, and it’s only recently that it’s beginning to show some return. Stupid buybacks. The ultimate destination for IBM is the corporate grave and they have earned this.

    • rich black says:

      “Stupid buybacks”

      Exactly. Even Apple is borrowing in order to fund its $130 billion capital return program. Ultimately, one might conclude that carrying billions in debt has got to hurt a company’s bottom line.

      • Petunia says:

        The money borrowed to buy back the stock is another way of repatriating the overseas money. They borrow here and pay back overseas. The can pump up the stock and deleverage at the same time. Whether it works out is dependent on how much of the borrowed money gets siphoned off in ridiculous compensation and FX risk. We shall see.

        • Nick Kelly says:

          I thought the borrowing here instead of bringing back overseas money was all about taxes.

    • Petunia says:

      I come from the tech world and there are certain companies I would never bet against. IBM has an enormous installed base in govt that cannot be easily replaced. They make a lot of money running these legacy systems. They also have the inside track when it comes to replacing these systems, mostly because they have a long relationship with the right people.

      • rich black says:

        I read where IBM’s sales numbers are no better today than they were 6 years ago. Yet, in that 6 year time period, in order to ramp up stock prices through buybacks, the company has increased its debt load by approximately 300%. If true, in the long run it might be prudent to bet against IBM, even with their Government cronies helping handing the company sweetheart contracts..

  2. jim says:

    Just imagine where we would be if they had not raised the price of eggs 100%!

  3. Spencer says:

    If you like your economy, you can keep your economy.

  4. Dan Romig says:

    For quite a few years large corporations have worked on improving the bottom line by cutting costs as they have had difficultly increasing revenue. Firing employees does reduce expenses, but it is a short term fix, generally speaking, and does not bode well for future revenue streams coming into a down-sized corporate structure.

    Borrowing money at zero interest, or issuing bonds to buy back stock does help keep the stock price up, but what is the end game? Sure those CEOs and top level executives get rich cashing in their options and bonuses, but reducing the number of shares on the market at the cost of adding debt (event low interest) is also a short term fix.

    I’m not in the world of Wall Street, but I believe that companies should invest for the future and return profits to shareholders via dividends. It seems that the powers that be in Corporate America look towards the next fiscal quarter instead of the next year or decade.

    Personally, I have one third cash, one third equities and one third in Muni-Bond ETFs.

    • CrazyCooter says:

      ADAGE: Wise men do not invest in overcapacity.

      You are spot on, but are missing the last logical step; they have too much capacity already and investing in capital spending/capacity expansion/etc doesn’t have a **sufficient** return.

      I emphasize efficient because when interest rates are so low (lets call it 2% for our example corporate officers/corporation) then that means they might borrow to spend/expand if they think they can get 3% back (1% margin). Now, what happens if they end up doing the numbers wrong and get only 1% back?

      This is the problem with low rates, because a project that consumes lots of money for 1% margins is an expenditure that probably SHOULDN’T happen in the first place. This is why folks say low rates destroy capital, because all kinds of dumb decisions get made when money is (close to) free.

      So, with that in mind, rates have been trending down for going on 30 years now I guess. In Volker’s day, businesses were blowing capital budgets and expecting returns well north of 10% or 15%. Now all that is left is buybacks.

      Let that sink in for a minute.

      That means the forest if full of lots and lots of dead wood (mal investment which is not paid for and making low/negative rates of return) and when rates return to historical norms (think 5% to 6%) very bad things are going to start happening. This is also why folks say QE (low rates) are forever, at least as policy. Normalizing here means burning the house down. Not normalizing means the currency takes a dirt nap.

      Neither are going to be pretty.

      Get out of debt and buckle up!



      • Don Robertson says:

        —-“ADAGE: Wise men do not invest in overcapacity.

        You are spot on, but are missing the last logical step; they have too much capacity already and investing in capital spending/capacity expansion/etc doesn’t have a **sufficient** return.”—-

        Spot on, Cooter. This is why interest rates will be going up, marching in lockstep with the New World Order, which will be none other than the fabled New American Century. (We’re fifteen years into it already!)

        We’re going to cure the ZIRP-incited over-capacity worldwide It’s time to clear the table and deal another hand. Because this hand is over.

        Rising interest rates, marching in lockstep upward well into double-digits will surely inspire some very serious consolidation.

        • CrazyCooter says:

          Hrmm, I was kind of expecting a “crash and burn” kind of phase.



        • Don Robertson says:

          Forget -crash and burn- Cooter. Forget gold at $64,000! LoL

          Instead of -crash and burn-, think -devour and prosper-. Trust me. The ant hill of humanity isn’t going to crash and burn. Civilizations don’t crash and burn, they evolve and prosper… building yet another ant hill upon which life and the rat race plays itself out all over again.

          Those who sit around stacking gold and silver waiting for the crash and burn are fools who cannot envision double digit interest rates, OR, the growing consumer demand double digit interest rates will engender.

        • CrazyCooter says:

          Dude, I don’t know what you are smoking.

          I didn’t say anything about gold or silver.

          Zimbabwe had really awesome interest rates. Are they rich now with a new anthill?

          Everything you posted has nothing to do with what I posted. But I think readers here see through that. So step up the intellectual debate a bit if you don’t mind. I am sure you had a point, but I don’t know what it is.



        • Don Robertson says:

          Comparing Zimbabwe to the U.S. is just common Rupert Murdoch like entertainment. All journalism is really just entertainment. The alternative media is no different. And the comments on the articles posted in the alternative media are entertainment on steroids. “Off with their heads!”

          Get out of that “crash and burn” mentality, Cooter. Talking about macroeconomics by comparing the U.S. to Zimbabwe is corny and strained, just as if you were comparing the demand for Air Jordan sneakers to the oil industry. LoL

          Higher interest rates are on the way. And those higher rates will pave the way to the future, whether any of us likes it or not.

          Higher interest rates will mean lower prices in the marketplace for a while, but only for a while. Higher interest rates will reward savers, who eventually will again feel rich enough to spend some of the interest they earn on deposits.

          The banks too will profit. They’ve mountains of ZIRP money that will earn higher interest, and be loaned at higher interest too.

          Revenue recession will continue a while yet. Gold is headed under $500. Silver is headed under $10. Oil is staring at $30. There won’t be riots in the streets or shortages of toilet paper like in Venezuela. You will -NOT- need a wheelbarrow to carry your money to the corner store to buy a loaf of bread.

          We will see the break up of China though.

  5. jim wilaon says:

    Amazing. If customers do not have more money and they decide not to borrow more then corporate revenues do not increase. Who would have thunk it.

    Companies do not magically add jobs when times are good. They need to see real demand. And real demand comes from folks wanting, needing and being able to buy stuff, the third part being the trickiest these days.

    The one thing that still blows me away though is the growth in restaurant revenues and employment. It seems to totally destroy my whole thesis. Personally I almost never eat in a restaurant, unless maybe someone else is paying and even then I would prefer to eat my own food — not the industrial overpriced slop we usually get served. So how/why does restaurant employment keep increasing?

    • Robert says:

      The zero interest rate policy was a failure in stimulating economic growth simply because consumer incomes have not been rising. If you are already at your income/debt credit limit and your income decreases or remains stagnant, the banks will not lend you even more money. The fact is the banks see you already as a default risk and they will not throw good money after bad. This is why the helicopter money never stimulated the real economy and consumer spending. America can no longer supply jobs and a better standard of living to it’s people.
      The corporate buybacks that have been stimulating valuations will end after the credit limits of these companies are reached. They cannot borrow money forever! In time these loan liabilities will have to be repaid and this will have the opposite effect on share prices!

      • Robert says:

        The real deflation that the FRB fears is not price deflation, but income deflation for the consumer and companies. Consumers and companies that can then not afford to pay off their existing loans let alone borrow to keep operating. You also see this emerging at the level of governments as their tax income is decreasing.
        If consumers become insolvent, companies become insolvent, and governments become insolvent. And this would all be the result of wage deflation!

        • Ida says:

          Wow, you hit the nail on the head here in a big way. I read a *lot* of economics books, new theories, and new thinkers.

          Once the dynamics of debt saturation/debt cycle are understood, the other piece of the puzzle is what you have stated:

          “And this would all be the result of wage deflation!”

          In other words, surplus not returning back to the hands of workers and/or consumers (the 99%). Money trickles up, and is deposited in real estate, the stock market, classical artwork, and italian sports cars. These things have appreciated hundreds or thousands of percent even after allowing for inflation, and represent the surplus productivity which has not been funneled into wages in American starting in 1983. But Guitar Center can’t stay open anymore, for example, because middle class kids and adult guitar players can’t afford to splash $500 on a fancy piece of gear every year.

          I think that understanding is basically the key to this conundrum. An impoverished populace can’t support nearly as many businesses as it once could.

    • CrazyCooter says:

      First off, this varies extremely by locale.

      How do you think a diner with a GREAT chicken fried stake dinner fared during the Bakken rush? Hired people! Those workers looked at their time, their wages, the cooking skills, and made a decision to spend at the dinner.

      What is the cost to prepare a good meal at home (leftovers) vs having the same meal (no left overs) at a restaurant? You can’t centrally plan an answer because this is just going to be local issue and it will run the full gambit.

      I see the restaurant/bar expansion as a market solution to (1) folks needing a little extra money (e.g. a second, part time jobs – maybe even just two or three shifts) and a growing customer base that might be LIVING OUT OF THEIR CAR or otherwise pressured into giving up the luxury at cooking at home for eating on the run.

      When I lived in Dallas, I ate out fairly regular primarily because of price and quality. I could eat really good meals (mom-and-pop as I almost never visited chain stores) for south of ten bucks with tip included. At that time, lunch was my main meal and I didn’t eat breakfast and had a mild (if any) dinner. For ten bucks, I couldn’t touch this kind of cooking at home.

      For what it is worth, after I moved to Alaska, even though I had a professional IT gig, I worked at Mc D’s about 20 hours a week for about a year due to financial pressures related to a divorce. I eventually accepted foreclosure (after wasting years of my life trying to make it work) and life is much, much better now.

      Regardless of how you look at it, it is a sign of shit going down hill. Just one of those counter-cycle things that goes up when everything else goes down.



    • Petunia says:

      The underground economy may have a lot to do with it. Many illegals live with many others and don’t have a normal living arrangement. Think 4 to a room or more. They send money back and spend the rest because they don’t trust the banking system, which oddly enough they have easy access to.

      • NotSoSure says:

        Illegals eating at restaurants sounds illogical. When there are many people, surely it’s more economical to cook.

        I have always wondered too how restaurants can be growing at a time like this. Perhaps tourists?

        • Petunia says:

          When you live in a house with 20 other people you don’t buy groceries, you eat out.

          I have seen the snowbirds in Florida take advantage of all the early bird specials in the nicer restaurants. If you eat at the bar before six you can get a nice meal in the chain steakhouses as well as the less pricey places. I have seen the bar packed at 5p.m. and the restaurant empty.

      • Nick Kelly says:

        Jesus- I assumed you meant the restaurant could survive because it employed illegals, not because they ate there!
        So I take it you’re not talking about the white table cloth end of the market.

        • Nick Kelly says:

          Snowbirds? What do they have to do with illegals. The snowbirds aren’t living 20 to a place- they’re on extended holiday.

  6. LG says:

    for wall street it’s a “casino”. for the economy think Egypt.

    Gamblers and slaves. Great model for the future generations.

  7. Sgt Milstar says:

    Eggs are close to 30 cents each. Tonight at Food for More the sell by date is tomorrow. Either the store isn’t rotating its stock correctly or the eggs are not selling.

    • Ivy says:

      You are wise to look at sell-by dates and to notice the analogous issue in produce. Some grocery stores keep prices lower by buying up either lower quality (bruised fruit, etc) or lower shelf-life foods. You may save money with the latter as long as you eat it right away instead of a few days later.

  8. Peepot says:

    Funny how this is not reported on Bloomberg, FT, CNBs, etc….

    When will the layoffs start?

  9. ThisIsIt says:

    I’ve noticed a lot of restaurants opened in the recent years closer to the Tech companies up and down the 101. Reminds me of 98-2000 and 2006-2008.

    Seems to me the easy money fueled VC’s to fund useless mobile app companies that in turn hired so many recent grads who preferred to eat outside. What happens when the valuations of these tech companies starts to go down…

  10. Petunia says:

    Nike Kelly, sorry I was not clear enough. The restaurants get a lot of business from illegals for the reasons I mentioned before. Oddly enough they eat more at mid priced places where they sell a more diverse menu, closer to what they may be use to at home. My observation is that they are not hamburger and pizza people.

    My comments about snowbirds was meant to explain that they are also a big part of the restaurant business but in a different way/segment. They look for the deals at the better or local places.

  11. Jungle Jim says:

    Those other countries nearly all use rationing of care, a thing that would be utterly unacceptable here. They provide excellent basic care, but in anything beyond basic care, you will very probably have to wait. People can die waiting for their number to come up.

    In addition, their health programs consume a very large percentage of their government expenditures. They can only get away with that because they don’t have large defense costs. They rely on us to be the world’s policeman. That is why our defense costs equal the next 25 or so countries combined.

    • Louis says:

      Jungle Jim wrote: “Those other countries nearly all use rationing of care, a thing that would be utterly unacceptable here.”

      To suggest that United States doesn’t ration care is dishonest–every healthcare system rations care.

    • Nick says:

      In addition to what Louis points out — which is true — you can evaluate these systems by their costs and their results. The systems that you call ‘rationing’ care, with the result that ‘people can die’ are cheaper to run than the American system, and their countries have significantly longer life expectancies.

  12. ERG says:

    Say what you will about the fracking business but it was really the only shining star in the US economy until recently. Now that it’s gone the rest of the economy is looking just like it has for the last 7 or 8 years. Like a piece of crap.

  13. Tim Ward says:

    Great article, nice insight about GM.

    How can the sell side justify revenue increases next year when we have debt deflation? The country is all loaned up, not much more creditworthiness. The debt deflation also skewers capex, no increase in final demand any time soon. The loan quality for autos has been declining with the larger and larger loan periods. Years longer than they used to be. That should run out of room at some point too.

    What I’ve been wondering about is the recent junk bond bubble, and bubble of other low quality debt, and how that will take a chunk out of the declining revenues. Won’t the bottom lines be shrinking more, from all the extra debt servicing, along with the revenue declines?

  14. Julian the Apostate says:

    I don’t know where they’re building these restaurants but on the road they’re disappearing all over the country. Fast food is taking over from the mom and pops. Fast food is fine once or twice a week, and I carry food in the truck to cook when I have the time or energy. But I have to plan ahead for a sit down meal to overnight at TA OR PETRO. It’s $15 for fast food and $20 plus tip for a sit down. I used to do the buffets but lately all they have is pork or rubber chicken, unless it’s a holiday or something. I haven’t lost my insurance for healthcare but the copay has doubled and my most expensive prescription has been disallowed. I don’t know how the Eurotrash do it but I doubt is any better than here, the upshot being that they rob someone else to get their “free” healthcare. The old system had flaws, but the Looter in chief has made it worse, not better. Good job slapping down some of the stupid comments that pop up here; they are apparatchiks all, Cooter, and I for one am sick of these people that are stuck on stupid. Entertainment my ass I don’t come to alternative media to be ENTERTAINED.

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