To All: Repost: ASIA-Crisis expected to curb U.S. profits in 1998
I highlight and comment some passages:
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Reuters Story - January 14, 1998 19:33
By Mary Kelleher
NEW YORK, Jan 14 (Reuters) - The Asian financial crisis
will stunt U.S. profit growth in 1998, dealing a blow to
American companies that export goods, loan money and construct
buildings in the region, analysts said.
To be sure, it will not erase corporate profits, which
still stand to benefit from lower U.S. interest rates and cheap
manufacturing costs. Still, domestic earnings growth in the
fourth quarter and in 1998 will prove to be much less robust
than many investors had expected only a few weeks ago.
"The combination of export slowdown and weakness in Asia,
and import competition which creates pricing pressure, will
contribute to a significant slowdown in earnings momentum,"
Bruce Steinberg, chief economist at Merrill Lynch, said.
Arun Kumar, senior U.S. equities strategist at Lehman
Brothers, said: "The Asian crisis will lead to a slowdown in
profit growth for U.S. companies, although the extent of the
slowdown is still a matter of debate."
Sounds like an honest man to me...
U.S. semiconductor companies, makers of computer
peripherals, metals, and paper and forest product companies
will likely bear the brunt of fallout from Asia's financial
crisis, which has led to a wave of currency devaluations,
higher local interest rates, slower demand and loan defaults.
Weak Asian currencies could also allow foreign companies
doing business in the United States to cut prices, putting
pressure on U.S. competitors to do the same, analysts said.
Asia accounts for about six to eight percent of total U.S.
corporate earnings, Steinberg said.
Which IMO is really not all that much, broadly speaking. Therefore an analysis strictly company by company is the only thing that makes sense to me.
Wall Street is paring earnings estimates for the fourth and
first quarters, as well as for the full year 1998, partly
because of Asian-related ills, said Chuck Hill, research
director at First Call, which tracks analysts' forecasts.
"For the first time in at least three years, we are seeing
revisions that are breaking out of the normal pattern," he
said. "The fact that you are getting more trimming than normal
is mainly due to Asia, I think."
At the start of October, fourth-quarter profits for the
Standard & Poor's 500 leading companies had been expected to
rise 13.2 percent, he said. Now profits are seen up 7.8 percent
year over year.
For the full year 1998, S&P profits are seen rising 13.7
percent, down from estimates of a 14.8 percent gain at the
beginning of October.
In particular, so-called cyclical companies, whose
performances are closely tied to broad economic trends, will be
hurt if their foreign competitors cut prices to gain market
share and maintain volume growth in the United States, analysts
said.
"The economically sensitive sectors are the most vulnerable
because they require a strong economy and strong demand to sell
their products - the chemicals, the machinery, metals, papers
and auto companies," said Phil Orlando, chief investment
officer of Value Line's Asset Management division.
Clifford Fox, managing director at Columbus Circle
Investments, said: "Weak demand from Asia and surplus capacity
suggest the environment will be very competitive for anyone
selling a commodity product."
Paul Rabbitt, an analyst at Oppenheimer & Co, said 11 to 13
percent of sales by commodity companies go to Asia. Analysts
have reduced their estimates on their earnings by 13 to 15
percent during the last four weeks, he said.
"We are seeing the greatest downward revision in the
commodities sector, particularly aluminums and papers," he
said.
Analysts have not sliced quite as much from their earnings
estimates for other sectors with a high percentage of sales to
Asia, including office equipment and supplies, and
semiconductors, Rabbitt said.
"Semiconductors sell 25 percent of their product to Asia
but the consensus estimates for these companies have only come
down 6.2 percent in the last four weeks," Rabbitt said.
Even so, certain kinds of technology companies are a
special source of concern after a slew of fourth quarter and
1998 profit warnings from key sectors such as disk-drive makers
like Western Digital Corp. and Adaptec Inc.
"We have disaster after disaster in the disk-drive
industry, with nearly every company in it forecasting lower
earnings," First Call's Hill said.
At the start of October, Hill said, earnings for technology
companies, including chip makers, were expected to show a 22
percent year-on-year increase in the fourth quarter. More
recently, technology earnings were expected to rise nine
percent.
Motorola Inc. is another global technology supplier
to join the ranks. On Monday, it reported fourth-quarter
earnings that fell short of market expectations. It said the
economic turmoil in Asia that hurt its performance in the most
recent quarter would likely continue to have an impact through
the first half of 1998.
Shares of financial services companies and multinational
commercial banks such Citicorp have been punished by
Wall Street because of their strong business links with Asia,
where they provide loans as well as investment banking and
trading services, analysts said.
Oil services stocks have also fallen amid a myriad of
concerns, including the belief that turmoil in emerging markets
would delay production schedules and that Asian demand for
energy products will slacken, they said.
"The share price of many financial services, tech and
energy companies have already been decimated," Orlando said.
Among capital equipment makers, shares of Caterpillar Inc.
have come under pressure amid concerns about a slowdown
in the company's sales to Southeast Asia and Brazil.
But companies that have manufacturing plants in Asia or buy
components of products from the region could actually do better
as their costs fall and operating margins rise, analysts said.
"There is some benefit to retailers, because textiles and
piece goods just got cheaper," Peter Canelo, U.S. equity
strategist at Morgan Stanley Dean Witter, said. "Computer
hardware makers could also benefit because everything that goes
inside a computer also just got cheaper." |
