The Profit Margin Crunch…

Interesting analysis here by RBC Capital Markets.  In an article on Friday  Bloomberg cited a report that says profit margins could come under pressure as revenues stagnate:

“Growing disappointment with U.S. companies’ revenue may be a harbinger of lower profit margins, according to Myles Zyblock, chief institutional strategist at RBC Capital Markets.

As the CHART OF THE DAY shows, the gap has widened this quarter between the percentage of companies in the Standard & Poor’s 500 Index that are exceeding analysts’ sales projections and those coming out ahead on earnings. The figures are based on comparisons with average estimates in Bloomberg surveys.

Fewer than 30 percent of S&P 500 companies are delivering so-called positive surprises on revenue, according to the data. The proportion has fallen from 52 percent a year earlier. S&P 500 earnings surprises have been more consistent, falling to 64.5 percent from 69 percent during the period.

“The heat is on for companies to preserve margins,” Zyblock wrote yesterday in a report. Their success will depend on pricing power, or the ability to raise prices without losing business, the Montreal-based strategist wrote.”

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Stephen

    I would have thought the key issue wil be what is happening to households net disposable incomes and their confidence in using same.

  • http://www.conventionalwisdumb.com Conventional Wisdumb

    “The heat is on for companies to preserve margins,” Zyblock wrote

    That’s code for firing. How many “excess” people are actually left in the workforce?

  • KB

    the worrisome trend is that it is not just margins correction to the reasonable levels, it is also a widespread weakness in sales. Coupled together, they might really damage bottom line.