Another Earnings Season Suggests Another Quarter of Slow Growth Ahead

Another earnings season is upon us and there are already some solid benchmark stocks reporting decent numbers. It remains, however, a very slow-growth environment, and this expectation should be with every equity market investor going forward. The days of three-percent-plus real growth in U.S. gross domestic product (GDP) are gone for the foreseeable future.
FedEx Corporation (FDX) is a worthy benchmark stock. For its first quarter 2014 (ended August 31, 2013), the company did a solid job of increasing its earnings with lackluster revenue growth. Total global sales grew two percent to $11.0 billion. Earnings grew seven percent to $489 million, and the company reaffirmed its full-year outlook with earnings-per-share growth of between seven and 13% over last year’s adjusted results.
Oracle Corporation (ORCL), which is still a good benchmark among blue-chip technology stocks, reported anemic revenue growth, similar to that of FedEx, of two percent to $8.4 billion for its fiscal 2014 first quarter (ended August 31, 2013). Earnings grew eight percent to $2.2 billion. The company’s sales for the quarter were below consensus.
Oracle is still a solid dividend-paying technology stock, but near-term, it’s potential for high single-digit sales growth is stalled.
Also recently reporting was Steelcase Inc. (SCS), with its results for its fiscal 2014 second quarter (ended August 23, 2013). This company manufactures furniture, chairs, walls, and doors, mainly for corporate and government customers. Consolidated sales for its latest fiscal quarter grew only 1.7% to $758 million. Earnings fell to $27.6 million from $29.5 million in the comparable quarter last year. Diluted earnings per share fell to $0.22 from $0.23.
General Mills Inc. (GIS) reported decent first-quarter 2014 (ended August 25, 2013) earnings that were in line with Wall Street consensus. Revenues slightly beat the Street, and the company reiterated its previous outlook for fiscal 2014.
And finally, Adobe Systems Incorporated (ADBE) beat just slightly with its third-quarter earnings results. The company’s been in transition to a cloud-based, subscription revenue generator. Investors bid the shares after the numbers. The stock is at an all-time record high.
But if there is one immediate trend that stands out from early reporting companies, it’s that sales growth is once again anemic. Even those corporations that are beating Wall Street revenues estimates are only doing so by a slight margin, and we’re still mostly talking about top-line growth in the low single digits.
Like last quarter, there’s not much to be excited about with current earnings reports. Once again, the action in the markets is looking low and slow for the foreseeable future. (See “Why Key Stock Indices Can Still Advance in Wake of New Monetary Policy.”)
And still, the stock market is at an all-time high, which (as it’s been all year) is such an odd metric for mediocre financial growth. The monetary expansion continues with no regard to its consequences. As it rarely pays to fight the Fed, this is an equity investor’s market with a monetary backdrop favorable for stocks.
The Fed’s decision to maintain current quantitative easing is a catalyst for near-term gains in equities. But I wouldn’t be loading up on stocks because of it. I’d stick to what corporations say about their businesses. The trend is that business is steady, but barely growing.