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S&P Capital IQ Managing Director Mike Thompson on how companies cut costs to boost their profits and what it means for investors.
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As a -- was mentioning group -- -- -- not alone on missing revenue expectations earlier today.
We look to companies like TJX companies which owns TJ Maxx.
The Home Depot both reported second quarter earnings per share beats they did better than expected.
But this isn't revenues were trying to get you to see that some companies.
Are trying to cost cut their way to the appearance of profit Mike Thompson -- capital IQ.
Factor is looking at this to and why is it important.
Crucially important for investors to look at this.
Well I had there's a couple respect one you know the revenue -- can't be engineered but it's also very good proxy for an economy.
But you know I think one of the themes and I don't -- -- epiphany but.
You people misuse the notion of how -- the 64000 dollar question is how can continued earnings growth sustain itself.
In a comic -- a slow we just had AM barely 1% quarter but more alarming was -- who went from seven.
Percent on average ten year growth rate to about 2% I think for the last quarter.
And and I think the real question is he glasses -- -- to cut their cost to profitability and profit growth and the question has spending gonna run out of room.
It's not true.
Because companies in the S&P 500.
Are exiting an entry businesses at a speed -- which they never done before they're so efficient now and he can go one for a long time because that's just -- -- DNA right.
Also Michael -- try to tell you is you really have to look at an earnings report and and this is where you could you heroes throughout these terms so earnings per share revenue.
Revenue was all the money that comes in and then earnings per share is the -- what's -- what comes out at the end sort of the crystal -- so.
When you do we throw this -- out to and it's we should remind people -- -- earnings before interest.
Taxes depreciation.
Amortization everything that a company goes through.
What these guys.
-- basically cost cutting or training and paring their way to a pretty origami picture.
When in essence.
The papers -- -- yeah.
I mean that's exactly right there's lot of engineering that goes on between the top line revenues and the bottom line earnings per share.
And that there's a good article this morning in the Wall Street Journal -- it talks about just take a look at goodwill and how that's treated for an how that has an impact enter -- can be.
If you don't really understand.
The distillation from top to bottom you can actually present a very different picture of what's -- out of so you tell me what it's -- two things you always jumped to one and earnings report comes out.
With the -- the outlook for extraordinary charges and I think that's kind of the first thing that analysts do so the first which one do you want extract that out to get -- -- huge lawsuit or settlement something like -- that's right.
And then really what you want to do is take a look at kind of if there was any growth -- associated with that wasn't naturally organic.
In other words it was like because of an acquisition or something like that again it's a distortion to what really is going on in the business.
And I think those -- two.
But there are many more things that you have to kind of coal through to get to the pure.
Play what is the earnings this company and then what is the long term trend here and that that's a very -- takes -- -- -- and its.
It's in the end and -- -- you to put on your macro half the big picture at 30000 feet helps the economy doing dynamic.
-- -- -- -- -- -- -- He has I mean think about it the look stories number I will say was an all time record in terms of -- sales if you knock out even the energy component however.
All this does -- -- little breathing room.
Between US recession going into.
-- coming going to recession or just kind of linger along -- -- of -- is -- Hopefully we see a little bit more sustainability in next jobs report.
Watch these unemployment claims Michael Thompson thank you so much for joining us -- have -- to -- Michael -- S&P capital IQ managing director telling you to read beneath the headline.
