WORLD> America
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WORLD> America
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Widespread earnings woes reflect consumer fears
(Agencies)
Updated: 2008-07-22 17:40 New York -- The deepening plight of the American consumer has started to take a big bite out of corporate earnings. A number of major US companies who rely on consumer spending warned about their results on Monday evening, including credit card company American Express Co (AXP.N), Macintosh computer and iPod maker Apple Inc (AAPL.O) and cruise ship operator Royal Caribbean Cruises Ltd (RCL.N). The breadth of the warnings, which also came from makers of chips and carpets, may signal that the credit crisis is quickly moving beyond housing and banks and into mainstream Corporate America. "It's understandable that the US consumer would be apprehensive with the circumstances -- weakness in housing, gasoline is up, the stock market is down and job insecurity," said Brian Gendreau, an investment strategist in New York for ING Investment Management Americas. "We may actually have a consumer-led recession -- which is rare." The wrath of the credit crunch and housing collapse of the past year has largely been felt by middle- or lower-income people. But Monday's results reflected a broadening of fears. American Express executives said that even customers with solid credit scores were facing difficulties and even the very affluent have in some cases cut back discretionary spending. Monday's bad news came from a wide swath of sectors and raised concerns about how strong two of the major consumer events will be this year -- back-to-school season and year-end holiday spending. "If you look at energy prices and things like that, it's not any big surprise the consumer has been cautious," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto. "It's a splash of cold water on the theory that earnings will bounce back quickly." Issues at Amex The biggest disappointment on Monday came from American Express, whose quarterly profit fell 38 percent as it set aside more money to cover credit losses, sending its shares down more than 11 percent. The company said it was no longer on track to boost earnings per share by 4 percent to 6 percent this year because the US economy has slowed, particularly in June. "While we have been able to generate substantial earnings and returns relative to many in the financial sector, we do not expect to meet or exceed our long-term financial targets until we see improvements in the economy," Kenneth Chenault, chairman and chief executive, said in a statement. American Express customers tend to be wealthier than the average credit card user. If its customers are slowing down spending and increasingly delinquent on paying, the news could be worse for the less-prosperous customers of other lenders. "What's getting people nervous is seeing this downturn affect their top super-prime customers," said Paul Hickey, co-founder of Bespoke Investment Group LLC in Mamaroneck, New York. "While it is not surprising that no one is insulated from the crisis, everyone is really concentrating on how even the best of the best aren't doing so hot." Sour Apple and Texas Troubles On the technology side, Apple provided one of the biggest downers when it warned current-quarter earnings would miss Wall Street targets despite a better-than-expected third quarter. Apple sold more than 11 million iPods, a 12 percent increase from a year ago and ahead of forecasts of up to 10.5 million. Sales of iPhones also topped forecasts. Apple sold 717,000 iPhones during the quarter, more than double the amount sold a year ago when the device was first launched. While Apple has a reputation for giving conservative guidance, its view for the fiscal fourth quarter undercut analysts' expectations to a deeper degree than usual and its stock lost 9 percent after the market closed. |
