Feeding the greedy. If you overfeed data to the chattering galahs in Paul Keating’s economic pet shop, then anything is possible as they struggle to digest the stuff. With a plethora of big data releases here and offshore, it might pay to perch on the sidelines and observe, and not rush to judgement.
The list of market/sentiment changing events this week is long and complex: a possible rate cut in Australia tomorrow (if there’s no rate cut, watch the feathers fly in recrimination); and the Australian jobs report for April (remember how the strong March report caught all the galahs on the hop and on the wrong side of their predictions?). Then there’s iron ore prices, the value of the Aussie dollar, and data on retail sales, trade and building approvals for March and new home sales for April. And, as if that’s not enough, there’s also interim or final profit reports, and one update from our five major banks: Westpac, ANZ, NAB, CBA and Macquarie.
On top of all that, the Reserve Bank of Australia publishes its latest economic forecasts on Friday (and they are tipped to include a further cut in growth estimates). And that’s just here. In the US there’s the April jobs report on Friday night, our time (and remember how the weak March report caught everyone by surprise). Then there’s the final HSCBC/Markit survey of Chinese manufacturing later today; then the April trade data on Friday (will that shock slide in March exports be reversed?); and then the April inflation report on Saturday. — Glenn Dyer
Trouble and bubbles. The outlook for the next half-year — or year — is part of the half-year and annual profit statements for all companies. Usually they are very guarded, talking about markets being “uncertain”, “volatile”, “short”, with “low/poor visibility”.
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Very occasionally companies give forecasts for earnings (so-called guidance), but many usually wait until much later in the year to see if the “visibility” improves. This morning, Westpac was the first of the big banks to reveal its 2014-15 interim earnings. (The ANZ does it tomorrow and then the NAB, while the CBA issues a third-quarter trading update later in the week.) Westpac interim profit was flat on a year ago, but there was a small lift in dividend to keep shareholders happy. But analysts were short in their forecasts and will pour over the data to see if a few signs of a slowdown are more serious.
But comments from CEO Brian Hartzer would make you think Pollyanna is in charge, and that all those problems the bank’s economists — led by high-profile gloomster Bill Evans — see in the Australian economy (and which require a rate cut by the RBA tomorrow) are a mirage. Said Hartzer in the bank’s statement
“While I’m positive about the outlook, the economy is currently in transition and this means that we expect growth to be uneven across different industry sectors and geographies. We are strongly positioned in our key markets and have set the clear ambition to be one of the world’s great service companies. When I look at every business across the franchise, we are moving in the right direction to achieve this and are delivering for all stakeholders. That, combined with the disciplined way we are managing the business, gives me confidence in the future.”
— Glenn Dyer
Stacked against Maccas. Time for McDonald’s new CEO Steve Easterbrook to unveil his plan to halt the steady leak of customers, sales and profits. McDonald’s lost a million customers worldwide in 2014 and the rot continued into the first quarter with same store sales down 2.3% — and we will find tonight that those losses spilled over into April.
It’s being blamed on too many choices, worries about the healthiness of the menu (especially the basics such as fries, burgers and drinks), increased competition from small burger chains and a feeling by younger customers that Maccas is just so the choice of their parents.
So expect a familiar menu of more cost cuts, sales of restaurants to franchisees and steps to simplify the menu. Plans to experiment with customised offerings and new mobile technologies are likely to to be hinted at, if not revealed, according to US reports. The strong US dollar has not helped Maccas, with an 11% drop in first-quarter revenues. But a 28% drop in earnings was driven not only by the currency, but by the drop in customer numbers and steps taken to fix up parts of the business in China and Japan, which have been hit by health concerns.
Maccas are not alone though, with similar problems being reported at Pepsi Co, Coca Cola, Yum Brands (KFC) and at a slew of big packaged foods groups in the US from Kraft to Heinz and General Mills. Customers are revolting? — Glenn Dyer
WOW the crowd. WOW is Woolworths’ ASX code. On Wednesday, management, led by CEO Grant O’Brien, is hoping to WOW the rising number of sceptics in the market about his ability to halt the rot at the retailer, which resembles a slightly faded mansion. More and more people are wondering if the CEO has what it takes to revive Woolies’ fortunes, with questions being raised about the Master’s hardware experiment, which isn’t doing well for O’Brien and the Woolies board.
Bunnings, the bigger rival in hardware (part of Coles/ Wesfarmers) has been powering in the past 18 months, with double-digit sales and earnings growth. But can Woolies afford to keep Masters when it needs as much money as possible to finance the plan to wrest back market growth from rival Coles whose quarterly sales growth has been stronger than that of Woolies for more than 20 consecutive quarters?
Aldi is also making a bigger pest of itself for Woolies and Coles (and the smaller Metcash). There’s talk of a $500 million investment in new price strategies. Woolies releases its third-quarter sales figures on Wednesday, and is tipped to slow its expansion (hinted at previously) with cuts to new store openings and an emphasis on cheaper store refurbishments. Investors are expecting to see another weaker performance than that of Coles reported last week. Without some radical action (such as spinning off the hotels business, or even Masters), Woolies new plan is not expected to shock and awe investors, let alone WOW shoppers. — Glenn Dyer