More than half of the S&P 500 companies have reported fourth-quarter results, with about 68% beating profit estimates. However, current-quarter earnings growth estimates have shrunk to 0.1% from 5.3% at the start of the year. As earnings reports come in, there’s a heightened concern that future revenue growth as well as earnings over the course of 2019 won’t be as robust as investors expected.
Revenue and earnings estimates are fairly high in the face of a global economic slowdown and the profit margins are at a cyclical high and a secular high suggesting the ability to pull profit levels may be limited. However, the earnings growth in the US is likely to fall well short of what is priced into the market over the next 12-18 months.
Tax law changes boosted corporate earnings in 2018, and now taxes could take away from profit growth in 2019.
However, other factors point to lower S&P 500 earnings this year, masking the fact that a large group of companies are still doing just fine. A big factor weighing on the outlook is that some companies that were growing at a very rapid pace and were in the top 20 in terms of growth in the third quarter have fallen sharply to the bottom rung, dragging down the overall average.
This week was one of the busiest in the reporting season with key events being the financial statements of technology Alphabet Inc, carmaker General Motors, oil giant BP and microblogging platform Twitter.
Investors are worried about rising expenditures of Alphabet Inc
The online advertising revenue contributed most significantly to the financial statement of Alphabet Inc. In the past quarter, the company generated a profit of 8.95 billion USD. In the same period last year, US tax reform caused a loss of 3 billion USD to the company from Mountain View, California.
Although profit is higher than analysts’ expectations, the investors initially focused on rising costs, as they jumped by 26% YoY to 31.07 billion USD.
Among other things, during the Christmas quarter, Alphabet has spent more money on expanding its network of data centers, marketing, new real estate, and attracting talent to the thriving could business. Now investors worry that Alphabet no longer controls its costs.
Google’s fourth-quarter capital spending jumped by 80% YoY to 6.85 billion USD. The company’s operating profit margin, a closely monitored measure of profitability, is 21%, down from 24%.
Alphabet relies on its advertising business to maintain revenue and profit growth by developing new offers such as cloud services and custom hardware. Higher growth divisions for the company, including YouTube, are less profitable than the original Google desktop search service.
“Capital expenditures are growing at a fairly high pace and the main engine continues to be the investment in technical infrastructure to support growth”, said the Chief Financial Officer of Alphabet, Ruth Porat. “This means data centers and machines. our prospect of global growth in advertising, search, YouTube and the cloud”, added she.
Revenue from the largest search engine operator in the world has increased by 22% YoY to 39.3 billion USD from October to December. More than 80% of the revenue is from the advertising business.
As early as October, Alphabet expressed skepticism about the rest of the year, justifying it with its serious investments and fierce competition.
The US company is no longer a clean search engine provider, and also acts as a financial investor, a manufacturer of Surface tablets, speakers and smartphones, and under the Waymo brand and a self-managed developer and a cloud service provider.
Record production boosted Total’s profit
French energy giant Total reported an increase in its adjusted profit of 10% in the last quarter of 2018 on an annual basis. With this, the profit for the whole year increases by over 35%.
According to the figures, the production has reached a record level of 2.8 million barrels of oil equivalent per day in 2018. The main reason is the start of new operations and the increase in production in Australia, Angola, Nigeria, and Russia.
This, in turn, represents an increase of 28% in profit for the year to reach 13.6 billion USD.
“These excellent results reflect the strong growth of over 8% of the Group’s hydrocarbon industry”, said the CEO of Total, Patrick Pouyanne.
On Tuesday, the competitor of the French company BP reported a doubling of its profit thanks to production again. Royal Dutch Shell, Exxon Mobil, and Chevron also presented quarterly data that was better than expected, pushed by the larger US mining industry where oil giants have invested billions in recent years.
Total also said the results will allow the company to increase its dividend, which has risen by 3.2% in 2018 and is projected to increase by another 3.1% in 2019.
The company also plans to redeem shares worth 1.5 billion USD in 2019 after buying the same amount last year.
Total intends to terminate the share dividend scheme of June 2019.