Companies cut sales, revenue expectations on economic uncertainty

Economic uncertainties are prompting businesses to pull back on their sales and earnings projections, and experts now expect the economy to show the same signs of weakness through the first half of 2013.

Despite lower unemployment, growing consumer confidence and higher sales in recent months, some public companies with major local operations have lowered their growth expectations for coming quarters and expressed concerns about the economy.

As the third-quarter earnings season wraps up, U.S. Bank’s asset management arm has seen more announcements that are concerning than exciting, said Jim Russell, chief equity strategist and regional investment director for U.S. Bank.

“I do think we are slowing down. Companies are not confident about what the environment is over the next several months,” Russell said. “Europe continues to be a problematic end market for many companies. A lot of companies are very nervous about the fiscal cliff.”

The fiscal cliff is roughly $600 billion of tax increases and budget cuts set to take effect at the end of this year and early next year. The increases and cuts could cause the nation’s economic growth to stall, according to some experts.

“The first half of 2013 will feel very much like the economy feels right now. Soft, incomplete and frustratingly slow,” Russell said. “Much of this comes down to jobs and job security,” he added.

Caterpillar Inc., Honda Motor Co. and Toshiba are among those revising their future sales expectations down. Caterpillar has lowered its sales estimates twice in recent months.

“The decline in the sales and revenues outlook reflects global economic conditions that are weaker than we had previously expected,” executives of Caterpillar, a Peoria-Ill. maker of heavy equipment, said in a statement with its Oct. 22 third-quarter earnings release. “Cat dealers have lowered order rates well below end-user demand to reduce their inventories. Production across much of the company has been lowered, resulting in temporary shutdowns and layoffs.”

Caterpillar Logistics has a distribution center in Clayton.

Japanese automaker Honda, Ohio’s single largest foreign employer, said last Monday in its quarterly report it now expects lower operating income for its fiscal year ending March 31, 2013. The automaker, a major regional employer with a supplier network throughout the state, said it was lowering income estimates because of the effects on production of a boycott in China, declining sales in Europe and South America, and unfavorable foreign exchange currency effects.

Butler County’s AK Steel Corp. has not issued fourth-quarter guidance, but top company officials said on AK Steel’s recent earnings call the market this year has been worse than expected and they expect to take another loss this quarter.

The United States Steel Corp., of Pittsburgh, Pa., the country’s biggest steelmaker, said Tuesday, Oct. 30, it is feeling the impact of bumpy economies worldwide.

For the fourth quarter, “Our results are expected to reflect continued weakness in the European and emerging market economies, as well as economic uncertainty in North America,” commented John Surma, chairman and CEO of U.S. Steel.

Restaurant chain Frisch’s, headquartered in Cincinnati, said lower food costs helped profitability in its fiscal first-quarter results.

However, “The family dining segment of the restaurant industry continues to struggle with declining customer counts as the U.S. economy continues to languish,” Craig Maier, Frish’s president and chief executive officer said.

Regional accounting firm Clark Schaefer Hackett released in October its annual survey of manufacturing and distribution companies. Of the 187 respondents, 47 percent said the overall health of their business was maintaining, 43 percent said their business was growing and 10 percent said their business was declining. The share of participants that responded their business was declining was more than the survey found the year before.

More survey takers, 81 percent, said they had revenue growth in the year before. The survey also found businesses are most concerned about price pressures, health care costs and shortages of skilled workers.

“As far as performance goes, companies are just seeing moderate growth. The results are similar this year to what they were last year. I think a good term for it is people are cautiously optimistic,” said Dennis McLaughlin, shareholder in charge of the firm’s manufacturing group. “They’re hesitant to commit too much because they’re unsure of what their revenues are going to be like in the future.”

Still, two major area employers — The Kroger Co. and Whirlpool Corp. — revised their earnings projections up in their most recent quarterly reports.

“Our experience through the first half of this year is that the external environment has been a little better than in 2011. We continue to monitor changes in gas prices and inflation, and as the headlines continually remind us, macroeconomic issues will continue to affect consumer sentiment throughout the year,” Mike Schlotman, senior vice president and chief financial officer of Kroger, told investors back on Sept. 7.

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