Here is the latest expected revenue growth rates by sector for the SP 500 for q3 ’14.
A couple of items caught my eye:
- Consumer Discretionary, which is retail, auto’s, housing, is returning to a mid-single digit quarterly revenue growth rate;
- Consumer Staples, which should be heavily influenced by the US dollar volatility, given the low to mid single digit secular growth rates and the degree to which the Staples revenues are non-US, actually has seen revenue growth accelerate for the 4th consecutive quarter, despite significant dollar strength in q3 ’14;
- Industrials: one notable CNBC commentator did comment that Industrial numbers were being cut a few times in the last few weeks, but Industrial revenue growth is expected to report its strongest revenue growth as a sector, in q3 ’14, since we’ve been tracking the data from q4 ’12. Not sure how much of the Industrial sector is GE, which should really be split between Industrial’s and Financials. (Truthfully, if GE would follow Hewlett-Packard’s (HPQ) model and split the company in two, you would think GE would unlock a lot of Industrial/Energy value. Long GE and HPQ.)
Brian Langenburg, lead analyst at Langenburg & Company, and a former Industrial analyst, does also note that estimates are being cut in the Industrial sector. Revenue growth doesn’t look too bad despite the strong dollar and global worries. (Tried to attach Langenburg & Company’s report released at this am, but couldn’t get it attached.)
The conclusion is that Industrial revenue estimates have been relatively stable, while the Industrial’s earnings (EPS) estimates have seen some pressure.
No question the dollar is going to be an issue this quarter: whether it has been fully discounted and the results come in better-than-expected, or the dollar strength’s impact has been under-estimated, and guidance for q4 ’14 is reduced further, remains to be seen.
My own opinion is that, after January 1, 2000 noting that domestic US growth was slowing, more US companies moved their manufacturing and cost-of-goods-sold abroad, and aligned their revenue generation with their expense structures (the natural currency hedge) than the last period we saw prolonged dollar strength, which was the late 1990’s.
Thus a prolonged period of dollar strength, could be less onerous than in previous decades, given the shift in US manufacturing and services into other geographies.
This is all navel gazing right now. We’ll know more in the next few weeks.
We’ll update the actual revenue growth spreadsheet at the end of October ’14.
Trinity Asset Management, Inc. by:
Brian Gilmartin, CFA
Portfolio manager