Peak Corporate Earnings (?)

[raspberry-blower]

Whilst we have a thread about companies going into administration and bankrupt, this thread has been started to highlight the decline of corporate earnings in high profile companies.

A primer as to one of the major reasons why earnings are declining:
Wolf Richter: Wrath of financial engineering: It's now eating into earnings

That was in the second quarter. Since then, conditions have worsened. Moody’s Aaa Corporate Bond Yield index, which tracks the highest-rated borrowers, was at 3.29% in early February. In July last year, it was even lower for a few moments. So refinancing old debt at these super-low interest rates was a deal. But last week, the index was over 4%. It currently sits at 3.93%. And the benefits of refinancing at ever lower yields are disappearing fast.

What’s left is a record amount of debt, generating a record amount of interest expense, even at these still very low yields.

In short the low interest rates have led corporations to buy back shares rather than invest in R &D. This has increased the debt on their balance sheets and, at the same time, left the companies to stagnate.

First company under the spotlight: McDonalds. We are all aware that it is synonymous with shit food - now many of its fast food franchises are struggling to stay afloat. In the US, 700 are slated to close, but that is by no means the whole story:

We are in the throes of a deep depression, and nothing is changing,” a franchise owner wrote in response to a financial survey by Nomura Group. “Probably 30% of operators are insolvent.” One owner went as far as to speculate that McDonald’s is literally “facing its final days.”

McDonalds Franchise owners confirm fast food giant is facing its final days

[johnhemming2]

I don't agree with this analysis beyond the fact that fixed interest rates did hit a low. If you want 6% + interest you can get it on bank subordinated debt at the moment.

[emordnilap]

McDonalds Franchise owners confirm fast food giant is facing its final days

I somehow doubt that; they sell shíte cleverly to unthinkers. They simply have to impose even more ruthless capitalism and all that to survive/maintain their position.

But if it is true, it might mean something worse (difficult to imagine, I know ) is set to take its place.

[raspberry-blower]

McDonalds Franchise owners confirm fast food giant is facing its final days

I somehow doubt that; they sell shíte cleverly to unthinkers. They simply have to impose even more ruthless capitalism and all that to survive/maintain their position.

But if it is true, it might mean something worse (difficult to imagine, I know ) is set to take its place.

When they say it's in its final days they mean it as an independent identity. If there is a merger then there will be far more of these fast food outlets being closed - particularly in the US

I expect that there will be some major mergers coming up (and not just in the energy sector) that even a couple of years back would seen "unthinkable"

Ultimately this is another manifestation of TLTG in action

[biffvernon]

It will be an interesting lesson in the fragility of systems if it turns out that a 15 year-old can reduce a large company's share value by 12%.
Talk-Talk.

[AutomaticEarth]

Anglo American to cut 85k jobs:-

http://www.bbc.co.uk/news/business-35038076

Apparently that's nearly 65% of the workforce

[biffvernon]

Anglo's share price has fallen by more than two-thirds over the past year.
Shares in other major mining companies also saw sharp falls in trading in London on Tuesday. Glencore was down 9.3%, Rio Tinto fell 6.3% and BHP Billiton was 5.8% lower.

Have we seen peak-mining?

[AutomaticEarth]

Looks like we've gone beyong peak dry-bulk shipping. Just had a report on Newsnight that you can hire a fully crewed bulk dry carrier ship for $3000 a day.

Back in 2008, some companies were asking over $150000 for the same boat....that doesn't sound right to me, but that's what was quoted on the Newsnight report.

[raspberry-blower]

Looks like we've gone beyong peak dry-bulk shipping. Just had a report on Newsnight that you can hire a fully crewed bulk dry carrier ship for $3000 a day.

Back in 2008, some companies were asking over $150000 for the same boat....that doesn't sound right to me, but that's what was quoted on the Newsnight report.

The Baltic Dry Index is at an all time low. It's still heading south

[johnhemming2]

Any market is normally more complex than just having a price per unit.

[raspberry-blower]

The profits slump has had a profound effect on the oil cos:

Shell: Q4 Profit plummets as oil slum continues

Crude’s collapse below $28 a barrel has driven down Shell’s market value to the lowest in seven years and prompted concern it may be overpaying for BG’s production and cash flow. Shell has prepared for a prolonged market slump by cutting staff and spending. Job losses at both companies in 2015 and 2016 will exceed 10,000, including 2,800 after the combination takes effect, according to Chief Executive Officer Ben Van Beurden, repeating previous announcements

Then it was Schlumberger's turn: Oil Giant axes 10,000 jobs, loss of $1 billion

The Schlumberger chairman and CEO, Paal Kibsgaard, noted that the number of rigs exploring on land for oil and gas in the US fell to fewer than 700 at the end of 2015, down 68% from the 2014 peak.


“The decrease in land activity was the sharpest seen since 1986,” he said, adding that “massive over-capacity in the land services market offers no signs of pricing recovery in the short to medium term

Lay offs, declining profits/major losses, reduced oil exploration - it's all storing up trouble further on down the line..

[clv101]

It's wierd, data like this from the fossil fuel industry, massive layoffs, cancelled projects etc... is exactly what you'd expect to see the month after the world decided to limit warming to no more than +2C and strive for only +1.5C.

[raspberry-blower]

If only there were a comparable job creation scheme in renewable energy, home insulation retrofit projects and the like.

[biffvernon]

It's wierd, data like this from the fossil fuel industry, massive layoffs, cancelled projects etc... is exactly what you'd expect to see the month after the world decided to limit warming to no more than +2C and strive for only +1.5C.

I'd like to think it was a conspiracy but it's probably just a cock-up.

(Meanwhile there are now TWO rigs operating within sight of my house, all lit up like fairyland at night. It's all looking a bit Texas on the Lincolnshire Marsh.)

[cubes]

If only there were a comparable job creation scheme in renewable energy, home insulation retrofit projects and the like.

There is, and the job title is usually "scammer" in a call-centre.