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4 Quotes That Suggest This Economy May Not Be So Hot

publication date: Oct 16, 2013
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author/source: Brian Nelson, CFA

The stock market’s recent performance has been puzzling to say the least. Not only are valuations stretched, but it seems like with each passing trading session, the broader equity market manages to edge out new highs (regardless of underlying business fundamentals). Though we’re happy to see the market march ever higher, a number of firms on our radar have issued some cautionary comments that are worth noting. Over the intermediate- to- long-term, corporate fundamental outlooks will trump any near-term rise in sentiment caused by the re-scheduling of yet another debt ceiling debate (this one now scheduled for February 7). We’re paying close attention to corporate activity.

IBM (IBM)

“From a geographic perspective our challenge this quarter was in growth markets, where revenue was down 9% or 5% at constant currency. Our performance in growth markets has historically outpaced major markets by 8 to 10 points. But this quarter for the first time the growth market trailed the majors…China was down 22%. We experienced a slowdown in demand across the board, but most significantly in hardware, which was down about 40% and which makes up about 40% of our business in China.”  – Mark Loughridge, CFO

Select Comfort (SCSS)

“While our third quarter performance was below our expectations related to a more challenged economic and consumer environment, given the current environment, we are lowering our outlook for the fourth quarter…We are providing a wider guidance range for the fourth quarter than in prior years, given the current level of uncertainty around the consumer environment.” – Wendy Schoppert, CFO

Stanley Black & Decker (SWK)

“We really believe the U.S. government sequestration and shutdown has had a modest impact in Q3 on us and will have a slightly more significant impact in us in Q4.” – Donald Allan, CFO

eBay (EBAY)

“A little context on our business outlook. First from a macro standpoint, Europe and APAC, which have created a bit of anxiety for us in the first half of the year, have stabilized through Q3, but at the same time, U.S. e-commerce softened considerably and we have a cautious outlook for the holiday season.” – Bob Swan, CFO

Valuentum’s Take

Though the equity markets continue to advance thanks in part to widespread relief that the debt ceiling debate has been rescheduled to February of next year, we continue to get bits and pieces of information from reporting firms that the economy may not be so hot. Still, we're not panicking. Revenue growth may be getting harder and harder to come by at IBM, but the firm’s services backlog did hold steady at $141 billion (up modestly year-over-year), so we’re not worrying too much about Big Blue. Select Comfort’s comments will probably be very similar to others we hear from firms that miss this earnings season, and Stanley Black & Decker has now corrected to our fair value estimate following its disappointing third-quarter performance (shares fell 14% Wednesday). As for eBay, we continue to hold shares of the firm in the portfolio of our Best Ideas Newsletter as its PayPal business and ‘Bill Me Later’ operations continue to perform nicely, despite some headwinds related to the US e-commerce market.


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