This post was updated on Feb. 1.
Major U.S. companies are starting to release updates on how well they performed last quarter. The likes of Apple, Facebook and UPS, along with dozens of other businesses, have been rolling out their quarterly earnings reports at a critical time for the U.S. economy.
Nick Bloom, an economics professor at Stanford University, said that after a long expansion, people are now worried about a recession.
"The U.S. has been hit with three punches," Bloom said, pointing to the U.S.-China trade war, the government shutdown and rising interest rates.
"So earnings calls are critical early reads about what American businesses think on the chances of a recession and how, particularly, the end of 2018 was for them," he added.
However, it's important to keep in mind that earnings reports aren't the economy. Many of the largest Wall Street firms make their money abroad, which means the U.S. economy could still be tanking despite their success, Bloom said. What they can give us is a clue to what's going on.
With that in mind, here are some companies that analysts and investors are watching closely and why their performance is significant.
As Caterpillar’s stock tumbles, so does the Dow.
Caterpillar’s fourth-quarter earnings report revealed it made a profit of $2.55 per share compared to the $2.99 that analysts had estimated. This is Caterpillar’s biggest earnings miss in a decade, according to the research firm Bespoke Investment Group.
The report pointed to lower demand in China as the reason for declining sales in the "Asia/Pacific" region.
When Caterpillar reports earnings, analysts and investors especially take notice because it’s considered a bellwether of the global economy. The company makes engines, gas turbines, mining products, locomotives and forestry equipment. Its buyers include construction and engineering firms, so if they’re slowing down, that could mean the global economy is barely “crawling” along.
However, Stephanie Link, head of global equities research at Nuveen, said she thinks the market overreacted. While Caterpillar missed on earnings, revenue exceeded expectations, jumping from $45.5 billion in 2017 to $54.7 billion last year.
The tech giant, which some experts consider a bellwether for the stock market, reported earnings Tuesday of $4.18 per share and $84.3 billion in revenue.
These figures slightly beat expectations that Apple would pull in $4.17 a share and $83.97 billion in revenue.
CEO Tim Cook wrote in a letter earlier this month that the company expected to report about $84 billion in revenue, a decline from the $89 billion to $93 billion it previously expected. That news sent Apple’s shares and the overall market plunging at the time.
Last November, Apple also announced it would no longer disclose its iPhone sales, suggesting that they're not great.
The company has blamed the U.S.-China trade war for weakening sales, with Apple CEO Tim Cook saying, “We believe the economic environment in China has been further impacted by rising trade tensions with the United States.”
Apple sales are part of a series of indicators that suggest China’s economy is slowing down after decades of growth.
Facebook is another major tech company that's considered a bellwether for the stock market. After a year mired in data scandals, the social media platform beat expectations and posted record profits. It raked in about $6.9 billion at $2.38 per share, while analysts had expected earnings to be $2.18.
Its earnings per share during this same period last year were $1.44.
In early 2018, there were revelations that the data firm Cambridge Analytica harvested information from Facebook users to target voters during the 2016 presidential election. And later in the year, a New York Times report showed it gave companies like Amazon greater access to user data than it had disclosed.
"Facebook has been the poster child of the data breach and the data security concerns," Bloom of Stanford said. "They are very much in the spotlight. Concerns about Facebook have, of course, impacted all other high-tech firms."
On Wednesday, the fast food giant reported earnings that beat expectations. It ended up pulling in revenue of $5.163 billion, compared to the $5.162 billion figure that Wall Street had predicted.
However, its revenue is down from the $5.37 billion it raked in during the third quarter of last year.
McDonald's performance can give us a clue about consumer confidence, said Link of Nuveen.
She pointed out that we have lower gas prices, wages that are gradually rising and unemployment that is at record levels.
"I think the consumer that goes to McDonald’s certainly benefits from all of these metrics," Link said. "If they miss on earnings or same-store sales, it'll be a big question mark for investors about the consumer: Is the consumer pulling back because of big-picture, macro issues?"
Link added, "The interesting thing about McDonald’s is it's more than just a consumer story. It’s also about what the company is doing to restructure themselves."
The company has invested heavily in technology, renovating its stores by adding kiosks and digital menu boards.
The package delivery company had a strong earnings report for the fourth quarter, which it released Thursday. Revenue hit $19.8 billion, while earnings per share were $1.94 — more than the $1.91 some analysts had estimated.
It's also a jump from its earnings per share from the same time last year, which was $1.67.
UPS' success is considered a good sign for the economy, because it indicates companies are making and selling more products.
“When there's a lot of economic activity, when consumers are out buying things, they're going to benefit from that. The better the economy, the more things move, and that helps companies like UPS,” Mark Zandi, chief economist at Moody’s Analytics, told Marketplace.
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