Autumn is traditionally the season for profit warnings but this year is bringing a more bountiful crop than usual. According to Ernst & Young there was a 40% increase to 79 in the third quarter. And there have been more since.
Some of these have surprised the market while others have merely confirmed suspicions that not everything is rosy. No one likes to deliver bad news so it is human nature, even for Chief Executives, to delay giving it out for as long as possible. By the time companies have reached the start of the fourth quarter of the year it will be pretty obvious what the overall result for the year is going to be within a reasonable margin of error. Whatever happens in the fourth quarter it is unlikely to alter the final outcome that much.
Clearly, this year, with its spate of profit warnings, is not going as well as most bosses had hoped. What is surprising is the range of industries that are telling us how tougher life is. The woes of the oil and mining companies have been well documented and the cause, low commodity prices, are clear to all. Other industries where problems are not a surprise are luxury goods manufacturers selling into China as more modest levels of growth, and a crackdown on corruption, has made lifer harder there.
Another sector whose problems are apparent to all are supermarkets and indeed retailers generally. Not only have competitors joined the fray with ultra-low pricing on a narrow range of products but the Internet continues to grab a rising share of discretionary spending because of its sheer utility and ease of price comparison.
More surprising have been the words of caution from companies supplying the booming house-building industry where rapid growth is apparently getting harder to sustain.
It is hard to identify any single factor that unites these businesses except perhaps the fading of the massive financial stimulus that started in 2009 with very low interest rates and Quantitative Easing.
That worked well initially as it acted to use up spare capacity. Eventually though, no matter how cheap money is, if customers don’t spend any more when they come through the shop door, or they see no need to replace a car they only bought three years ago growth will…
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Rob Davies
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