{"id":584,"date":"2014-02-01T23:20:45","date_gmt":"2014-02-01T23:20:45","guid":{"rendered":"http:\/\/www.wallstreetandkstreet.com\/?p=584"},"modified":"2014-02-01T23:20:45","modified_gmt":"2014-02-01T23:20:45","slug":"ceos-say-the-global-economy-is-strengthening","status":"publish","type":"post","link":"https:\/\/www.wallstreetandkstreet.com\/?p=584","title":{"rendered":"CEO’s Say the Global Economy Is Strengthening"},"content":{"rendered":"

Sometimes I am clueless about what is driving stock prices.\u00a0 In September 2008 I did not sell a share even though my commute took me past the Lehman Brothers building on 7th<\/sup> Avenue, which was being both swarmed by rabid reporters and vacated by shell-shocked employees clutching cardboard boxes.<\/p>\n

But lately I have had a better grip on the markets.\u00a0 In an upbeat post last January I said there could be a \u201cvaluation levitation\u201d that would drive stock prices well above most year-end 2013 S&P 500 price targets on the Street, because strategists\u2019 PE assumptions were way too conservative. (Why buy a 2% treasury bond, I asked, when you could buy a blue-chip equity with 2-3% current yield and 5-12% dividend growth?) \u00a0A year-end 2013 price of 1864 was not crazy, I suggested.\u00a0 More recently I detected a \u201ccacophony of complacency\u201d and excessive bullishness, setting the stage for increased stock market volatility.\u00a0 Voila.<\/p>\n

Where are stocks headed next?<\/b><\/p>\n

Higher over the next 3-6 months, but with ample volatility as emerging markets cope with Fed tapering that exposes the economic and financial fragility of certain countries some of which are in political turmoil (i.e., Turkey, Ukraine, Thailand, Egypt, Argentina).\u00a0 Chinese growth is fine for now, but so was U.S. growth in 2006; the country needs substantial financial reforms to avoid a major credit crisis, and there is little evidence those reforms are under way. Meanwhile, back in the U.S., Obama continues to be a weak and divisive leader who fails to tackle big issues such as tax reform.<\/p>\n

Q4 Profits Suggest Global Growth Is Improving Modestly<\/b><\/p>\n

As stocks vaulted higher at the end of last year, commentators searching for an explanation opined that U.S. growth was strengthening and we would have \u201csynchronized global growth\u201d in 2014.\u00a0 But recent EM turbulence and some weak U.S. data call that into question.<\/p>\n

To get a fresh perspective we examined the comments, on Q4 earnings calls, of twelve important, globally diversified companies with aggregate annual revenue of $504 billion.\u00a0 I don\u2019t pay too much attention to the forecasts of CEOs and CFOs, but they do have a granular knowledge of current business conditions.\u00a0 Right now they say the global economy is indeed improving.\u00a0 They see decent growth in the U.S. and emerging markets (principally China) and palpable improvement in Europe.<\/b>\u00a0 Southern Europe is stabilizing.\u00a0 Global growth is definitely stronger than it was in the first half of last year and seems consistent with the sell-side strategists\u2019 estimate of $120 for S&P 500 EPS.\u00a0 With PE ratios elevated, this earnings growth is important to continued stock price appreciation.<\/p>\n

My source is earnings call transcripts available on www.seekingalpha.com<\/a>, which, by the way, is a very convenient way to access Street presentations.\u00a0 (Why does every company have to arrange its Investor Relations website differently, even though they all do exactly the same thing?).<\/p>\n

GE\u2014solid growth<\/b><\/p>\n

\u201cOrders grew by 8%….Growth market orders grew by 13% and the U.S. expanded by 8%, and Europe grew by 3%.\u201d\u00a0 (Note to Jeff Immelt: Please come up with a better term than \u201cgrowth market\u201d to refer to emerging markets.\u00a0 After all, the U.S. and Europe are also growing.)<\/p>\n

United Technologies \u2013 revenues accelerating<\/b><\/p>\n

\u201cOrganic sales were up 4% in the fourth quarter after being flat through the first three quarters.\u201d\u00a0 This is significant as UTX is widely diversified across aerospace, construction, and other markets.<\/p>\n

Honeywell \u2013 strong growth<\/b><\/p>\n

Sales \u201cgrew an impressive 8% on a reported basis, 5% on an organic basis.\u00a0 The strength we saw at year-end was broad-based.\u201d\u00a0 Organic sales growth was 5% in the U.S., 4% in Europe and 13% in China.<\/p>\n

3M\u2014acceptable global growth, with gradual improvement in Europe<\/b><\/p>\n

Local currency sales growth was 4.5% in the U.S. \u00a0Organic sales growth in EMEA was 3.4%, including 3% in Europe, which continued \u201cthe positive trends we have seen in recent quarters.\u201d\u00a0 Asia Pacific had 3.3% organic growth in the fourth quarter.<\/p>\n

Thermo Fisher Scientific \u00a0— solid growth globally<\/b><\/p>\n

The company reported \u201congoing strength in Asia Pacific and improving conditions in Western Europe.\u201d\u00a0 The U.S. is improving somewhat.\u00a0 \u201cNorth America revenue grew in the low-single digits. Europe grew just above the company average and Asia Pacific grew in the low teens, with China growing in the mid-teens. Rest of world grew in the mid-teens,\u201d<\/p>\n

Caterpillar \u2013 Asia Improving<\/b><\/p>\n

Mining equipment is still very weak.\u00a0 But demand for construction equipment in China is improving.\u00a0 \u201cOur sales in China were up more than 20% this year.\u201d\u00a0 CAT expects 7.5% GDP growth in China in 2014.<\/p>\n

DuPont\u2014Decent Global Growth<\/b><\/p>\n

Sales rose 6% globally\u20144% in North America, 8% in \u201cdeveloped Europe, Middle East and Africa and 9% in Developing Markets.\u201d \u00a0\u00a0Unusual seasonal patterns in the ag business boosted revenues; on the other hand, currency was a modest negative (as at most multinationals).<\/p>\n

Illinois Tool Works\u2014modest improvement<\/b><\/p>\n

\u201cQ4 revenues were up 4.8% [y\/y] in a modestly improving macro environment.\u00a0 Our Q4 organic growth of 3% was up from flat in Q3, driven largely by North America and China, with overall organic growth of 2% in Europe.\u201d\u00a0 (Even modest growth in Europe is an improvement compared to the past year.)<\/p>\n

Parker Hannifin \u2013 acceptable growth<\/b><\/p>\n

The company generated 3.1% organic sales growth (which excludes acquisitions, currency and new joint ventures).<\/p>\n

TE Connectivity \u2013decent growth, led by vehicles<\/b><\/p>\n

\u201cThe majority of the markets we serve continue to improve\u2026..Orders increased 8% in the quarter.\u201d\u00a0 The company raised guidance for the fiscal year.\u00a0 \u201cGlobal auto demand continues to be strong running a little ahead of historical long-term vehicle growth rates\u2026..Europe was up about 11% due to strong exports and slight improvements in local demand.\u201d<\/p>\n

Praxair\u2014decent global demand for industrial gasses <\/b><\/p>\n

The company, which has a big Brazilian operation, said \u201cOrganic sales increased 7% from higher volumes and higher overall pricing, with growth across all geographic segments.\u201d\u00a0 Organic sales growth in Europe, excluding the effect of currency translation, was 7%.\u00a0 Southern Europe \u201cappears to be stabilizing.\u201d In Asia, sales grew 5% on volume growth of 8%.<\/p>\n

SBUX \u2013 Good Global Performance, including Europe & Asia<\/b><\/p>\n

Global same store sales growth was 5%.\u00a0 \u201cOur important EMEA (Europe, Middle East, Africa) region with over 2,000 stores had the strongest growth in more than three years.\u201d\u00a0 Starbucks America had 8% revenue growth and comp sales up 5%.\u00a0 Revenue in Asia rose 25%, with comp growth of 8%.<\/p>\n

P&G\u2014decent growth<\/b><\/p>\n

The company, which has had a spotty growth record over the past few years, registered 8% growth in emerging markets.\u00a0 This largely reflects a \u201csame country, same category, apples to apples growth rate.\u201d<\/p>\n

Collapsing EM currencies will Hit Q1 earnings of some companies<\/b><\/p>\n

When a currency such as the Turkish lira makes a quick, steep decline, the value of a U.S. multinational\u2019s revenue and profits in that country decline pretty sharply.\u00a0 So the recent collapse of EM currencies will hit the profits of some multinationals in Q1 and beyond.\u00a0 However, this is not too big a problem so long as China is reasonably healthy.<\/p>\n","protected":false},"excerpt":{"rendered":"

Sometimes I am clueless about what is driving stock prices.\u00a0 In September 2008 I did not sell a share even though my commute took me past the Lehman Brothers building on 7th Avenue, which was being both swarmed by rabid … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[257,255,254,256],"class_list":["post-584","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-corporate-ceos","tag-emerging-markets","tag-global-gdp-growth","tag-profit-growth"],"_links":{"self":[{"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/posts\/584","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=584"}],"version-history":[{"count":2,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/posts\/584\/revisions"}],"predecessor-version":[{"id":586,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=\/wp\/v2\/posts\/584\/revisions\/586"}],"wp:attachment":[{"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=584"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=584"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.wallstreetandkstreet.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=584"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}