IDA Universal

May/June 2013

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Caterpillar Seen Trailing Macy's As Europe Saps Earnings TRENDS AND TIDBITS Europe's fiscal crisis and China's slower growth weighed down first-quarter earnings at U.S. companies reliant on overseas sales, threatening to temper a recovery that pushed the Standard & Poor's 500 Index to records. Caterpillar Inc., the world's largest maker of construction equipment, is projected to report back-to-back drops in quarterly profit for the first time since 2009. Ford Motor Co. (F)'s earnings growth may stall as European losses counter rebounding U.S. auto sales. Meanwhile Macy's Inc. (M), without its namesake store abroad, may see earnings per share climb 26 percent. The overseas slowdown may have triggered a 1.8 percent drop in first-quarter profit for the S&P 500 (SPWPPRCT), the first decline in more than three years, before growth returns later this year, analysts' estimates compiled by Bloomberg show. Firms getting more than half their sales internationally are leading the drop. Cuts to these companies' profit projections outnumber increases by 56 percent, versus a 5 percent gap for businesses with all sales in the U.S., according to Bespoke Investment Group. "With all the background noise with European economic slowness and weakness in Asia, I don't think people are looking forward to earnings season with much optimism," John Carey, a portfolio manager at Pioneer Investment Management Inc. in Boston, said in a telephone interview. "Domestically, the economy seems to be chugging along, not in a barn-burning but a steady recovery." Pioneer oversees about $208 billion. IDA UNIVERSAL May-June 2013 Makers of durable consumer goods and apparel are forecast to post a 20 percent earnings gain, the best among 25 industry groups in the data compiled by Bloomberg. Semiconductor makers face the largest projected decline at 25 percent. Alcoa Inc. unofficially starts the first-quarter earnings season today as the first company in the Dow Jones Industrial Average to report. Europe's Recession Reliance on Europe has taken a toll. The euro region's economy is projected to contract 0.2 percent this year, according to a Bloomberg survey of 55 economists. Unemployment in the 17-nation area climbed to 12 percent in the first two months of the year, the highest since recordkeeping began in 1995, the European Union's statistics office said on April 2. "In the next two weeks, I wouldn't be surprised to see companies announcing or preannouncing results, saying Europe is more of drag than a driver," said John Manley, chief equity strategist at Wells Fargo Funds Management LLC, which oversees $222 billion. "There's a good chance we get a good number of disappointments in the quarter." Ford Job Cuts Ford is cutting jobs in Europe and adding plants in Asia to curb losses in both regions while relying on earnings in North America. The carmaker's new-car registrations in Europe plunged 23 percent in 2013's first two months, the European Automobile Manufacturers' Association said. Ford, which has said it expects to lose $2 billion in the region this year, made 51 percent of revenue in the U.S. last quarter and 13 percent from Europe. Ford may report first-quarter earnings per share of 39 cents, little changed from a year earlier, according to the average estimate of analysts surveyed by Bloomberg. The forecast has fallen 7 percent since February, the data show. Europe is "the one obvious negative" for Ford, "but a wellflagged one," said Brian Barish, president of Denver-based Cambiar Investors LLC, which manages $7 billion, including shares of Dearborn, Michigan-based Ford. China's weaker growth is also weighing on companies with a global reach. The country's gross domestic product may expand 8.1 percent this year, according to a Bloomberg poll of 52 economists. While that's still more than four times the projected U.S. growth rate of 1.9 percent, it's also the second- slowest pace in the last decade, the data show. Caterpillar Profit Caterpillar over the last several quarters has been working to reduce inventory as the weaker economy in China, stalled budget talks in the U.S. and parts of Europe in recession reduced orders. The company has instituted layoffs to help bring production in line with demand, Rusty Dunn, a Caterpillar spokesman, said in an email on April 3. The Peoria, Illinois-based company may post a 40 percent decline in first-quarter earnings per share to $1.42, the average of analysts' projections. That's 21 percent lower than at the end of last year. Trenda continued on page 27 25

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