Wal-Mart (WMT) announced flat year-over-year sales, causing its shares to fall by 9% and wiping $20 billion from its market cap. Which would be unremarkable if the disappointment was an aberration. But it’s not. Earnings season is off to a brutal start, with big names announcing big misses all over the place. Meanwhile, the rare good numbers are mostly the result of blatant (and therefore ineffective) financial engineering. Some examples:
Drug maker Johnson & Johnson’s (JNJ) revenues missed slightly and its earnings were up — but only because of a massively-lower tax rate which won’t be maintained. Apply a normal rate and actual earnings fell hard. Its stock went down in response and management announced a $10 billion share repurchase plan (presumably paid for with borrowed money) to ease shareholder pain.
JPMorgan Chase (JPM) saw lower revenues at all its major business lines, taking overall revenue down by 6%. Here again, earnings were up due to a one-time tax benefit. Otherwise they were down y-o-y
Bank of America’s (BAC) revenues were down slightly year-over-year as lower interest rates make it harder to lend profitability. Earnings rose, but only in comparison with last year’s massive litigation-related loss.
Chip maker Intel’s (INTC) revenue fell by 1% and net profit by 6%. The number of chips it sold fell by 19%.
Yum Brands, (YUM) parent of Pizza Hut and many other junk-food-related assets, reported that same store sales in China rose 2% versus expectations of 9.6%. Management now expects that number to turn negative in the coming year.
Meanwhile, hedge funds which have feasted on the earnings-recovery/share-repurchase bull market of the past few years, are feeling corporations’ pain. In the aggregate they’ve lost about 2% year-to-date, and some big ones are closing:
Fortress, Bain Lead Hedge Funds Liquidating in Market Volatility
Fortress Investment Group LLC and Bain Capital are leading the list of big-name money managers liquidating hedge funds this year as volatility roils global markets.
Hedge funds with more than $16 billion have announced shutdowns so far in 2015, according to data compiled by Bloomberg. Fortress said Tuesday it’s closing its $2.3 billion macro business run by Michael Novogratz after posting losses for almost two years. Bain said last week it’s shuttering its macro fund, which sustained more than three years of declines.