Fourth quarter 2013 earnings season is just wrapping up, and the overall consensus is relatively sanguine. Goldman Sachs Portfolio Strategy Research published a report yesterday elaborating on four key themes from S&P 500 (INDEXSP:.INX) 4Q 2013 earnings conference calls. GS analysts David J. Kostin et al. highlight problems with margin expansion, optimism towards emerging markets, plans for increased spending and foreign exchange headwinds as common themes mentioned in the earnings CCs of S&P 500 companies.
S&P 500 earnings: Limited room for margin expansion
One theme that consistently emerged from 4Q 2013 earnings CCs was that companies see limited room for margin expansion over the next few quarters. The GS analysts pointed to increasing commodity prices and a generally difficult pricing environment as factors limiting margin expansion.
S&P 500 earnings: Optimism towards emerging markets
Another common theme, especially among companies with large international operations, was optimism regarding emerging markets. Tech sector companies such as Apple Inc. (NASDAQ:AAPL) and International Business Machines Corp. (NYSE:IBM) were especially positive about EM opportunities.
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“Despite recent economic uncertainty, most companies remain optimistic about, and committed to, growth in emerging markets. Many firms continued to highlight exceptional growth of EM businesses. Others cited a notable slowdown but remained firm in their expectations that emerging markets would be the drivers of future profit growth.”
S&P 500 earnings: Plans for increased spending
Kostin et al. also mention that companies are apparently finally starting to loosen the purse strings on their cash hoards. Apple Inc. (NASDAQ:AAPL), eBay Inc (NASDAQ:EBAY) and Biogen Idec Inc (NASDAQ:BIIB) are all mentioned in this regard.
“Companies seem ready to spend their record cash levels. S&P 500 firms had $1.4 trillion in cash at the end of 2014 (ex-Financials), and cash flows remain strong. Many companies highlighted their continued focus on returning cash via dividends and buybacks. Others noted plans to increase capital expenditures, with fewer focusing on M&A growth in 2014.”
S&P 500 earnings: Foreign exchange headwinds
Last but not least, the Goldman Sachs report highlights volatile foreign exchange rates as an issue of concern mentioned during many recent S&P 500 (INDEXSP:.INX) firm earnings CCs.
“Many firms reported significant headwinds from FX. While some managements found comfort in hedging programs, many highlighted the weakening Japanese yen and volatile EM currencies as particular causes for reduced revenue expectations.”