A surging U.S. currency made it harder to boost overseas sales last quarter, requiring U.S. companies led by United Technologies Corp. and IBM to slash costs to top analysts’ earnings estimates in the March period.
Of 93 companies in the Standard & Poor’s 500 Index that have reported first-quarter results, 81 percent surpassed analysts’ profit predictions while about half fell short of revenue targets, according to data compiled by Bloomberg. Sales have been hurt by the reduced value of foreign revenue when translated into a stronger dollar.
Investors are looking past the currency issues to U.S. consumer spending and continued industrial growth that is driving demand. The S&P 500 has climbed about 0.7 percent since the April 8 report from Alcoa Inc., a traditional start of the earnings season. The index fell 0.2 percent Tuesday.
“The fact that EPS is beating and revenues aren’t tells you cost-cutting measures are at the heart of it,” said Joe Bell, a Cincinnati-based senior equity analyst at Schaeffer’s Investment Research Inc. “You have to wonder how much longevity that has.”
United Technologies, which makes jet engines, elevators and air conditioners, reported per-share profit of $1.58 as it squeezed expenses, exceeding the average estimate of $1.46. Revenue would have risen had it not been for the effect of currency exchange.
“The top line is growing nicely in the core markets, but currency is just such an overwhelming impact,” Chief Executive Officer Greg Hayes said in an interview. United Technologies shares rose less than 1 percent $116.95 at Tuesday’s close.
DuPont Co. and International Business Machines Corp. both saw their shares decline after reporting profits that exceeded analysts’ forecasts. DuPont’s cost-cutting measures include the planned sale of a historic hotel and a country club in its headquarters city of Wilmington, Delaware.
“The disappointment is more on the top line, and certainly that’s currency related,” said Mark Luschini, chief investment strategist for Janney Montgomery Scott, which manages $68 billion. The dollar rose 23 percent against an index of major currencies at the end of the first quarter from a year earlier.
DuPont said Tuesday that 2015 profit will now be at the low end of its previous forecast of $4 to $4.20 a share because of the dollar. Sales in the just-completed quarter were $9.17 billion, matching the lowest estimate in an analyst survey.
Kimberly-Clark Corp., the maker of Kleenex tissues and Huggies diapers, reported earnings that beat estimates by 9 cents after cutting $100 million of costs. The shares jumped 5.4 percent to $113.15, the biggest gain since October 2009, even though its sales fell 4 percent on the strong dollar.
IBM on Monday said profit excluding some items was $2.91 a share, outpacing the $2.81 average estimate amid higher sales for its new mainframe and cloud-computing services. The strong dollar had an 8 percentage point negative impact on sales. CEO Ginni Rometty is reorganizing the 103-year-old company to focus on the cloud.
First-quarter earnings for companies in the S&P 500 may have fallen about 4.3 percent, marking the first drop since 2009, based on the average analyst forecast. Energy companies, hurt by the oil drop, are forecast to be the biggest drag on earnings with a projected decline of 63 percent. Only about five of 42 energy companies have reported so far.
The tough earnings environment in the first quarter is separating the companies that are well run from those that aren’t, said Karen Ubelhart, a multi-industry analyst with Bloomberg Intelligence. Honeywell International Inc., for example, last week increased the lower end of its 2015 earnings forecast by 5 cents while reducing its sales outlook by $1.5 billion.
“The good executors are making it on profit margin,” Ubelhart said. “The top line is disappointing, but the companies that can execute are pulling it off.”