The Peoria, Illinois-based company reduced its full-year revenue and profit outlooks last month, citing sinking demand for bulldozers, loaders, trucks and other mining equipment. It also cut projected capital spending to less than $3 billion from about $3.4 billion, Michael DeWalt, director of investor relations, told analysts on an April 22 conference call.
“Companies aren’t investing because their demand backdrop is weak,” said Dutta, of Renaissance Macro Research. “If they were to invest cash and the investment wasn’t profitable, that’s just going to hurt their margins.”
About 71 percent of companies in the Standard & Poor’s 500 Index beat analysts’ earnings estimates in the most recent quarter, according to data compiled by Bloomberg. Still, fewer than half exceeded sales projections, leaving little incentive to spend to expand production, said Matt McCormick, who helps oversee $9.1 billion as a money manager at Cincinnati-based Bahl & Gaynor Inc.
Risk Averse
“If you are a CEO or a CFO, you aren’t going to get fired or criticized by your board for keeping a little bit more cash,” McCormick said in a telephone interview. “They are not going to take a lot of risk in this environment.”
The U.S. economy may cool to a 1.6 percent pace in the second quarter, after growing at a 2.5 percent rate in the first three months of 2013, according to a Bloomberg survey of economists from May 3 to May 8. The projected slowdown reflects the lagged effect from a two percentage-point rise in the payroll tax at the start of 2013 and $85 billion in automatic budget cuts that began on March 1.
Economic growth has averaged 2.1 percent year-over-year since the recovery began in June 2009, trailing the 2.7 percent average in the previous expansion.
The forecast so far hasn’t dimmed investors’ view of equities. The S&P 500 and Dow Jones Industrial Average have each gained at least 16 percent this year and are trading near record levels.
“Some companies don’t think they need to invest as much because they don’t see demand rising,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees about $180 billion. “They feel comfortable they can meet the demand of their customers with the capacity they have.”