General Electric Co beat analyst profit forecasts in the third quarter, but revenue growth remained sluggish, prompting the company to scale back expectations for full-year revenue and profit yesterday, sending shares sharply lower.
The industrial giant’s adjusted profit jumped 10% to 32 cents a share, exceeding the 30 cents that analysts had estimated on average, according to Thomson Reuters I/B/E/S.
GE raised its full-year target for cash returned to shareholders to $30bn from $26bn and noted it had returned $25bn in the first three quarters.
But slow economic growth, particularly in the oil and gas business, weighed on revenue. Organic revenue, which excludes growth from acquisitions, grew 1% in the quarter. The company’s shares were the biggest decliner on the Dow Jones Industrial Average index, falling 2% to $28.48 in early trading on the New York Stock Exchange.
Analysts had been looking for GE to report stronger revenue growth after a weak first half, but that was stymied by a 25% slump in oil and gas revenue in the quarter.
Investors were skeptical that GE’s organic revenue growth could hit 5% in the fourth quarter, Sanford C Bernstein analyst Steven Winoker wrote in a note.
Anemic third-quarter growth “again calls into question the company’s ability to hit the 5%” target, he said. Company officials were more sanguine. While analysts expect second-half growth of about 15% in the power business, GE’s largest division, power revenue grew just 7% in the third quarter.
GE trimmed its full-year revenue forecast to flat to 2% growth, down from 2% to 4% growth. GE’s net income from continuing operations rose to $2.10bn in the third quarter ended September 30 from $1.97bn a year earlier. Earnings per share from continuing operations rose to 23 cents from 19 cents. Total revenue rose 4.4% to $29.27bn.
McDonald’s
McDonald’s Corp’s turnaround gained momentum in the latest quarter despite intense rivalry in the United States, helped by its all-day breakfast, the “McPick 2 for $2 promotion” and a healthier chicken McNugget, the company said yesterday.
Sales at established US restaurants rose 1.3% as a result, offsetting the negative impact of competition and lower grocery prices that encouraged some diners to cook at home. The result from the United States, which accounts for about 40% of overall profit at McDonald’s, just exceeded analysts’ lowered expectations, and was not as robust as the 2% US same-store sales gain reported by rival Dunkin’ Donuts on Thursday.
McDonald’s international restaurants easily beat expectations on same-store sales growth in Britain, Australia, Canada and Germany. As a result, global sales at restaurants open at least 13 months rose 3.5% for the third quarter, handily beating the 1.5% average gain expected by analysts. The world’s largest fast-food chain’s net income increased 2.6% to $1.28bn, or $1.50 per share, helped by lower food costs and better-than-expected global restaurant sales. McDonald’s had 9.3% fewer shares outstanding versus the year earlier, which lifted earnings per share results.
Excluding items, the company earned $1.62 per share, beating the average analyst estimate of $1.48, according to Thomson Reuters I/B/E/S. Total revenue fell almost 3% to $6.42bn.
That was down for a ninth straight quarter, largely due to the sale of restaurants to franchisees. Nevertheless, the result still exceeded the average analyst estimate of $6.28bn.
Daimler
Falling demand for Daimler’s trucks prompted the company to lower its revenue outlook for the year, taking the shine off a forecast-beating rise in third-quarter operating profit lifted by higher margins for Mercedes-Benz luxury cars.
Daimler yesterday warned it now expects group revenues to remain flat, retreating from a previous forecast which predicted a slight increase in revenue.
However, full-year group profit (EBIT) remains on track to slightly exceed 2015 levels.
“Daimler’s turnaround of the Mercedes brand has been exceptional but we feel that this is well understood and leaves little room for positive surprises or indeed unrecognised earnings momentum,” Arndt Ellinghorst, analyst at Evercore ISI, said in a note.
Daimler said the EBIT at its Mercedes-Benz Cars division rose 23%, powered by an 11% increase in car sales after the launch of the new E-class and continued strong demand for sports utility vehicles. The division’s return on sales, adjusted for special items, rose to 11.4%. Mercedes wants to overtake German rival BMW to claim the title of biggest selling luxury carmaker.
However, Daimler Trucks and Daimler Buses could not match earnings from the same quarter last year, in part due to a sharp fall in demand in key markets like Brazil and North America.
Volvo
Swedish lorry-maker Volvo said yesterday its net profit jumped by 19% in the third quarter despite a drop in sales as demand fell in the United States.
CEO Martin Lundstedt said in a statement that Volvo, number two in the industry, would “continue to have a strong focus on cost control” that helped make a profit of 2.6 bn kronor (€270mn, $294mn). Sales fell by 6% to 68.8bn kronor in the three months from July to September, it said.
“The downward correction in the North American market continued and there is still a need to take down dealer inventories,” Lundstedt said, adding that volumes of Volvo’s truck business were down in all markets except Europe “where activity remained high”. Deliveries of heavy trucks were down by 13%, with a strong contrast between regions, up by 11% in Europe, but down by 46% in North America, 21% in South America, and 3% in Asia.
“Production volumes have gradually been adjusted downwards to meet the lower demand and further steps will be taken,” Lundstedt said. The improvement in operating margin, which is Lundstedt’s priority since he left rivalling Scania in 2015, remains slow at 7.0% for the quarter and first nine months of the year, against 6.9% and 6.7% during the same periods in 2015.
Ericsson
Sweden’s Ericsson said sales in North America, its biggest market, had fallen in the past three months, identifying another of its weaknesses after the mobile telecom equipment maker’s dramatic profit warning last week.
The company, the world’s biggest maker of mobile network equipment, also said it would introduce further cost-cutting to deal with a weaker mobile broadband market.
Ericsson shocked investors last week when it issued the profit warning — indicating a plunge of more than 90% in quarterly operating profit and tumbling sales.
The Swedish company is struggling with a drop in spending by telecoms companies, with new 5G technology still years away, and facing stiff competition from Finland’s Nokia and China’s Huawei. The 8% reduction in North American sales was the second consecutive quarter of falls and was worse than expected, according to a SEB research note.
That decline was mainly due to lower sales in Professional Services — the business that supports and helps maintain networks.
Sprint Corp, operator of the fourth largest US
mobile network, renegotiated a managed services contract with Ericsson in July, cutting its value by around 50% after the previous $5bn, 7-year agreement expired.
Ericsson’s operating profit in the quarter fell to 0.3bn Swedish crowns ($33.7mn) from 5.1bn crowns a year ago, a 93% fall, while sales dropped 14% to 51.1bn, the company confirmed yesterday.
Telia
Provisions for a billion-dollar settlement over a controversial deal in Uzbekistan weighed heavily on Nordic telecommunications group Telia yesterday as it reported a third-quarter net loss of 8.8bn Swedish kronor ($988mn). The $1.45bn provisions were related to a settlement offer made last month by US and Dutch authorities that could close a long-running probe into dealings in Uzbekistan dating to 2007.
Telia chief executive Johan Dennelind said the provisions “severely impacted” the quarter’s results, adding the company could not say when the probe would be concluded.
The quarterly loss compared with a profit of 4.6bn kronor a year ago. Sales in the quarter dipped almost 1% to 21.5bn kronor.
Uzbekistan is one of seven countries in the Eurasia region that Telia last year said it was leaving and now reports as discontinued operations. The former management entered Uzbekistan in 2007 as part of its strategy to expand in Eurasia’s fast-growing economies, amid slowing demand in its more mature markets. The deal later came into question and an external enquiry in 2013 concluded that the then management had not properly investigated an Uzbek partner, which reportedly had close ties to a daughter of the country’s authoritarian president, the late Islam Karimov.
Assa Abloy
Sweden’s Assa Abloy, the world’s biggest lock maker, reported slightly lower than expected third-quarter profit as sales fell in China, and it said on Friday it would broaden restructuring measures. Operating profit at Assa, which has been outgrowing rivals helped by acquisitions and a shift towards digital access systems, rose to 3.02bn crowns ($340mn) from 2.97bn a year ago against a mean forecast of 3.05bn in a Reuters poll of analysts.
While the profit miss was not substantial, analysts said the company had a strong track record of delivering on expectations.
Shares in Assa, which had been nearly unchanged year-to-date, fell 4%, underperforming the wider market in Stockholm.
“The report is worse than the market had expected and that is pretty unusual for this company,” said Handelsbanken analyst Peder Frolen. Assa said it had made adjustments in reporting from previous periods for its Chinese operations, negatively affecting profit by 260mn crowns.
IHG
Intercontinental Hotels Group posted a slower rate of room revenue growth as performance in its hotels in oil-producing American states deteriorated, while demand across France, Turkey and Belgium was hit by security fears.
IHG, which runs over 5,000 hotels under brands such as Crowne Plaza, Holiday Inn and InterContinental, reported global growth in revenue per available room (RevPAR), a key industry measure, of 1.3% for the three months ended September 30.
This compares with a 2.5% growth in the second quarter and a 4.8% rise a year earlier.
RevPAR from oil-producing Americas, part of IHG’s largest geography, fell 7.3%, compared with a 6.3% drop in the previous quarter. IHG’s chief financial officer told reporters this year that the company had about 14% of its rooms in oil-producing American states, higher than an industry average of about 10%.
Analysts have also indicated that competition from online apartment-sharing startup, Airbnb, and independent hotels has had an impact on IHG’s US business.
AccorHotels, Europe’s top hotels group, bought the owner of luxury hotels including London’s Savoy, while Marriott International acquired Starwood Hotels & Resorts Worldwide.
Q3 operating profit up 1% at 1.64bn vs 1.69bn expected.
SAP
Europe’s biggest software company SAP raised the lower end of its 2016 operating profit forecast range, it said yesterday, anticipating a strong fourth quarter due to healthy orders for its products.
Third-quarter operating profit, excluding special items, rose 1% to €1.64bn ($1.79bn), SAP said yesterday, slightly below the average analysts’ expectation of €1.69bn in a Reuters poll.
SAP said it expected full-year operating profit to be between €6.5bn and €6.7bn, compared with a previous forecast for €6.4bn to €6.7bn.
Analysts polled by Reuters forecast a 2016 profit of €6.68bn, with individual estimates of 17 analysts ranging from €6.42bn to €7.01bn. SAP’s finance chief Luka Mucic said in a statement he was confident about delivering a strong fourth quarter based on a robust order pipeline.
SAP shares were indicated to open 0.4% lower, according to brokerage Lang & Schwarz, slightly underperforming the German blue chip index which is seen opening unchanged.
SAP, whose customers include many of the world’s biggest multinational corporations, specialises in business applications ranging from accounting to human resources to supply-chain management.
