We've seen a large percentage of companies reporting better-than-expected earnings. However, the earnings reports were not always compared to last year.
There is yet another factor, actually the most important factor that generates profits, and that key factor is sales. Without sales, the bottom line (net profit) remains stagnant.
Companies have slashed payrolls and expenses and that increased the bottom line for a time. However after all of this is over, the bottom line doesn't improve until sales improve.
A Standard & Poor's study of sales showed that sales were off 13.24% for the year at $1.27 trillion dollars. Industrials posted their worst 12-month percentage drop since 1964 when records began.
Operating margins were at 6.6%. Financials were at 2.7% and (old) Industrial at 7.3%
S&P 500 sales posted their third consecutive double-digit year over year decline with a 12-month decline of 13.2%. The biggest losers were energy, down 46%, and technology, down 12%
Industrial sales posted their worst decline, 9%, since records started in 1964.
Anyone who was in sales during the 1981-82 recession knows how difficult it is to generate a new sales base, let alone keep your present sales accounts.
Eventually the money saved from cost-cutting can be used to generate more sales when business activity picks up. Until then, anyone in sales will find it difficult to generate new accounts.
When do you believe that sales will improve?
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Reader Comments (Page 1 of 1)
8-14-2009 @ 5:08PM
Trimper1 said...
I was relevant in the early 1980's when the economy bottomed out, unlike many in the marketplace today. Drawing from that experience, I can honestly and regretfully say this time is much different. We, as a country, no longer manufacture like we have in the past - that with stimulus/incentive eventually produced jobs in the up tick allowing the two-thirds consumer to get back on their proverbial feet. As I see it, the debt laden American consumer is on both knees in this fiscal battle.
The largest issue at hand is the current economic system of transitory/artificial wealth our stock market has evolved into. With absolutely no credible, justified reason the market shot back up almost as quickly as it went down. For the past ten plus years, shoot from the hip speculation/optimism has prevailed over calculated risk/decision making - not to mention fundamentals.
I'm completely liquid with six figures, on the sidelines, with no intent to re-entering the stock market. In my opinion, the stock market at 9300 is far over valued - based on sales/projected sales alone.
8-14-2009 @ 10:36PM
william lindblad said...
Simple question - simple answer.
When someone figures out how to cure a real unemployment rate that is between 15 and 20%.
sales are contingent on earnings - not unemployment checks.
Without an answer, a consumer based economy is not possible.