Well-run companies profit even in hard times
YOU could be forgiven for not noticing, but it is earnings season again. Once you finish trawling through the endless speculation about the next phase of Eurozone debt crisis in the papers and on TV, you’ll eventually find some good old-fashioned company news reporting.
Let me summarise. Well-run companies with good products are holding up well. Badly-run companies that sell stuff people don’t want all that much are doing badly. It’s groundbreaking stuff. And so to some random examples.
WHITBREAD DOES WELL
Whitbread is heavily exposed to the struggling UK consumer with its pubs, restaurants, hotels and coffee shops, but still reported a pick up in sales.
Its Premier Inn hotel chain is both appropriate to austere times and capitalising on its formula by grabbing market share from independent hotels. It’s growing fast too, with plans to add 50 per cent more rooms in the next five years.
COSTA SEES BUZZ FROM COFFEE
And while Whitbread’s Beefeater and Brewers Fayre pub restaurant businesses are down, the Costa coffee shop unit is growing fast thanks to a well-executed and expanding format.
Also grappling with the woes of the UK consumer is Home Retail. The owner of Argos and Homebase reported a 70 per cent drop in first-half profits. Selling generic stuff at a tiny margin to low-income families in a UK ravaged by unemployment and inflation is not a good thing in this instance, apparently. Stock is down 17 per cent. Again, groundbreaking stuff (not).
ERICSSON BEATS PROFIT FORECASTS
It’s not just the UK consumer-facing companies we’re talking about. Ericsson is the world’s biggest maker of mobile network equipment. It beat profit forecasts.
Even in lean times, the number of mobiles and smartphones in the world is increasing. Ericsson still cautioned on the outlook for global growth, but looks in good shape versus its rivals and so investors drove the stock higher.
NOKIA FOCUSES ON BASIC PHONES
Nokia reported last week, too. The company was struggling, but it has made valiant efforts since chief executive Stephen Elop’s infamous “burning platform” memo and its push into basic phones in key growth markets like India is paying off. Stock is up. Obviously, it is not doing as well as Apple – who is? – but it is undoubtedly a firm that is on the up once again.
Conversely, Philips continues to swim against the tide. Earnings practically halved, as expected, again. The last bastion of European consumer electronics makers announced another 4,500 job cuts in the face if Asian dominance in the sector.
So, while Eurozone leaders wring their hands about what to do next, companies are still going about their day-to-day business – with varying degrees of success.
REMEMBER SIMPLE ECONOMICS
No-one gets off scot free from this current economic turbulence, but my worry is that we’re being excessively distracted by the macro stuff and forgetting what makes economies function – people going to work, making stuff at a decent cost and selling it at a profit. The key is to keep an eye on the businesses that do this well, even when times are tough – and ignore those who use tough times as an excuse to do badly.
Beccy Meehan is an anchor at CNBC.