Earnings Season Starts With Disappointment

Three “A” companies - Advanced Micro Devices (AMD), Alcoa (ALU) and Aeon - have all reported declining sales or profit. This is a fitting way to start the earnings reporting season and it is very possible that many other companies will follow suit as they struggle to keep their footing with rising energy costs, tighter credit markets and declining consumer confidence.

AMD, locked in a fierce competitive battle with Intel [[intc]] over chip technology has had a bad streak with 5 losing quarters. It now said that it has missed sales forecasts and will be cutting around 1650 jobs. Intel, on the other hand, said recently that the current market situation has not harmed its sales, and that more companies were investing in technology to cut on other costs.

Alcoa, which up until last year was the world’s largest producer of aluminum and now ranks as the third, reported a 54% drop in profit - despite a surge in sales, citing higher energy costs and lower metal prices. One other interesting reason it gave was the weaker US dollar, as metal is priced in USD whereas it has to pay costs and wages in other currencies such as the Australian dollar or Brazilian real. The company said it was looking at cheaper energy contracts and that the recent rebound in metal prices would help it in the near future. Unlike AMD, Alcoa’s trouble seems like something that could be hedged against, and it would be interesting to know what hedging strategies they had in place and how much impact those hedges had on these figures.

Aeon, Japan’s largest supermarket operator, forecast a 75% drop in profit over the year, prompting its share price to fall by around 7.5%.

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