U.S. Steel Beating Estimates Show Cost Costs Trump GrowthCécile Daurat and Jeff Green
While Twitter Inc.’s surging sales are grabbing all the headlines, many U.S. companies are still relying on cost cuts to drive earnings.
The percentage of Standard & Poor’s 500 Index companies topping earnings estimates stands at 77 percent so far this season, compared with just 67 percent for sales predictions, data compiled by Bloomberg show.
American businesses have announced more than 33,000 job cuts this month -- including as many as 2,900 jobs yesterday for Amgen Inc. Most of the plans are connected with companies trying to consolidate operations, shift to new segments or improve corporate structure, not in reaction to economic conditions or financial hardship, said John Challenger of Challenger Gray & Christmas Inc.
“These cuts we’re seeing are mostly what you would expect with a slow, steady expansion,” said Challenger, chief executive officer at the Chicago-based employment consulting firm. “These are the kind of cuts that occur as companies look for efficiencies or eliminate overlapping operations.”
The U.S. economy rebounded more than forecast last quarter following a slump in the prior three months, a Commerce Department report showed today. At the same time, the Federal Reserve said slack in the labor market persists, with a range of labor-market indicators suggesting that there remains “significant underutilization of labor resources.”
With more than 60 percent of S&P 500 companies having reported so far, revenue growth topped profit gains in two sectors out of 10 compiled by Bloomberg: energy and utilities. Only 48 percent of industrials companies exceeded sales estimates, the lowest of all industries, and the rate was 50 percent for businesses in the consumer-discretionary category and in telecommunications services, the data show.
Mario Longhi, who took over as chief executive officer of U.S. Steel Corp. in September, today raised the amount of cost savings he expects to achieve in 2014 after the country’s largest steelmaker by volume posted a surprise second-quarter profit.
“The company has started to show evidence of fundamental cost restructuring,” Ignace Proot, an analyst at Sanford C. Bernstein & Co. in New York who has a hold rating on the stock, said in a note today.
At Thomson Reuters Corp., the provider of financial data and news, CEO Jim Smith’s cost-reducing plan for the financial and risk business, announced in October, also helped exceed profit estimates. The New York-based company said then it planned to cut 3,000 positions, or about 5 percent of the workforce. The reductions were scheduled mainly for the financial and risk division.
Earnings at Reynolds American Inc., the Winston-Salem, North Carolina-based maker of Camel cigarettes, were driven by higher cigarette prices and reduced expenses. Hess Corp., the New York-based oil producer, also posted higher-than-estimates earnings, helped by higher production and lower per-barrel costs.
Meanwhile Twitter’s results yesterday showed steady sales expansion, with user growth, buoyed by usage during the World Cup, up 24 percent. The quarterly report and comments from Chief Executive Officer Dick Costolo assuaged investors after two straight quarters of decelerating user growth for the microblogging company.
Tomorrow, ConocoPhillips, Time Warner Cable Inc., DirecTV, MasterCard Inc., Kellogg Co., Exxon Mobil Corp., Automatic Data Processing Inc., Tesla Motors Inc. and LinkedIn Corp.
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