Companies’ capex plans exceed forecasts


Published — Sunday 24 February 2013

Last update 24 February 2013 12:10 am

| نسخة PDF Print News | A A

NEW YORK: US companies’ capital spending plans are holding up, and mostly exceeding Wall Street forecasts, in the face of policy concerns created by arguments in Washington over the fiscal cliff, the debt ceiling and now automatic spending cuts.
Their willingness to spend on new offices, plants and machinery, as well as a pickup in deal making, shows that they are starting to dig into the massive amounts of cash that has been collecting more dust than interest on their balance sheets. That could prove a welcome counterpunch to a softer outlook for spending by consumers and government.
A Thomson Reuters analysis shows that for 2013, more Standard & Poor’s 500 firms are forecasting capital expenditures that exceeded analysts’ expectations than at any time in the past four years. Recent US government data showed a rise in equipment and software spending in the final quarter of 2012.
If companies ratchet up spending, that could help unleash more hiring and extend the early-year rally in stocks, which tend to rise along with business spending.
“Once businesses start spending, that really means not only are they going to be buying goods, but they’re going to be hiring Americans, and those things are really what’s going to be the multiplier that helps to take this recovery and move it into greater expansion mode,” said Burt White, managing director and chief investment officer at LPL Financial in Boston.
Not all the money will be spent on new projects, of course. And the spending plans announced so far are only slightly above last year’s average. But they comfortably exceed the expectations of analysts, whose capex forecasts fell this year.
Part of the reason may have been the dire predictions about the “fiscal cliff” late last year when analysts were putting together their capex forecasts. At least some chief executives, including DuPont’s blamed uncertainty over US government budget and tax policy for a reluctance to invest and hire.
“A number of companies said we’re planning our budget cycle on worst-possible conditions,” said Fred Dickson, chief market strategist, D.A. Davidson & Co. Lake Oswego, Oregon.
That companies have turned more optimistic than analysts heartens investors because it amounts to a vote of confidence in the US economy, which has been hobbled by high unemployment and household debt, and now faces curbs in government spending.
Another sign of confidence is the recent flurry of merger and acquisition activity. The $ 173 billion in US deals announced so far in 2013 is more than double the volume seen last year at this time, according to Thomson Reuters Deals Intelligence.
After the financial crisis began in 2007, companies slashed expenses and jobs, and they remained diligent about keeping costs down even as the economy exited recession in mid-2009.
US Federal Reserve data shows non-financial US companies had $ 1.7 trillion of liquid assets, or cash, on their books as of the end of the third quarter of 2012.
The US economy grew at a 2.2 percent clip in 2012 and is expected to slow to 1.9 percent this year as higher payroll taxes and government spending cuts take a bigger bite. Yet even with the economic outlook cloudy, things seem to be changing.
Of the S&P 500 companies that have issued capex guidance so far in 2013, 66 percent have spending plans that exceed analysts’ expectations, the Thomson Reuters analysis showed. That’s up from 57 percent in 2012, 59 percent in 2011, 55 percent in 2010, and 40 percent in 2009.
Those that have issued guidance are expecting to spend $ 1.59 billion on average in 2013. While that’s only a modest increase from the 2012 average of $ 1.57 billion, it is above the analysts’ estimates. Those estimates went down, to $ 1.48 billion in 2013 from $ 1.51 billion on average in 2012.
The 2013 data is based on 221 companies that have reported, while the 2012 average was based on guidance from 279 firms.
“I think companies are getting a little bit more urgency to actually go ahead and proceed with their plans despite some of the remaining uncertainties around the fiscal cliff,” said Natalie Trunow, chief investment officer of equities at Calvert Investment Management whose firm manages about $13 billion in assets. “They have to remain competitive long term.”
Some large firms, including Apple, have already announced plans to increase capex, and sectors with the highest percentage of companies exceeding capex estimates so far in 2013 include health care, consumer discretionary and energy, the Thomson Reuters data showed.
To be sure, some expenditures will go toward maintenance of existing equipment rather than new plants, said S&P analyst Howard Silverblatt.
Clearly some will also be overseas. But there has been a surge in investment in oil and gas production in the US, and there are signs that some manufacturing is returning, thanks to the promise of a cheaper energy supply.
Apple, the biggest US company by market capitalization, said it will spend $ 10 billion on capital improvements this year, about $ 2 billion more than last year. It ranked sixth in terms of capex projections for 2013.
Oil and gas producer Chevron tops the list with about $ 33.4 billion of capex planned, followed by AT&T, ConocoPhillips, Wal-Mart and Intel, the Thomson Reuters data showed.
This spending could be crucial at a time when consumer and government spending are likely to decline. A rise in the payroll tax, higher gasoline prices and a delay in tax refunds slowed retail sales in January, a worrisome sign for the year. At the same time, a slate of across-the-board government spending cuts are set to take effect on March 1, barring a deal between the White House and Congress.
Of course, big capital expenditures can take a toll on earnings. And investors have worried about the effect slower profit growth could have on the stock market, which started 2013 on a tear and briefly notched a five-year high.
Energy and other commodity areas have had big increases in capital spending over the last decade, a trend that could eventually hurt margins, said Vadim Zlotnikov, chief market strategist for AllianceBernstein in New York.
“I expect this very aggressive capital spending to create the type of cost inflation that would make it very difficult for profit margins to expand,” he said.
But John Carey, portfolio manager at Pioneer Investment Management in Boston, said the positives tend to outweigh the negatives.
“There’s always a risk when companies invest, but without investment there can’t be any long-term growth.”

What's happening around Saudi Arabia

JEDDAH: The Kingdom is hosting for Umrah the American student who was recently wrongfully arrested after a teacher at his school in Texas mistook his homemade clock for a bomb.Ahmed Mohammed Al-Hassan, who is of Sudanese origin, would also visit rela...
JEDDAH: Officials from the agriculture and health ministries are set to hold a crucial meeting later this month on how to convince skeptical camel owners that the animals are the cause of Middle East Respiratory Syndrome (MERS) coronavirus infections...
RIYADH: The Kingdom successfully implemented an integrated health plan during the Haj season to make the sacred areas free of communicable diseases, Health Minister Khalid Al-Falih said in Kuwait on Tuesday.The minister who was leading the Saudi dele...
RIYADH: Justice ministers of the Gulf Cooperation Council (GCC) have recommended the formation of a joint system to fight terrorism, the Saudi Press Agency reported.Winding up their 27th meeting in Doha, Qatar, on Tuesday, the ministers formulated a...
JEDDAH: Several neighborhoods in Taif have been suffering from water shortages recently, according to residents.They said that they have had to queue for many hours outside water distribution points in the city for tankers. Many live in old neighborh...
ABHA: More and more young Saudi women are found involved in blackmailing men and extorting money, with some even boasting about their “successes,” thanks to social networking sites, dating apps and hacked smart phones. This is the latest phenomenon h...
DAMMAM: The Saudi Commission for Tourism and National Heritage (SCTNH) has become the fastest creator of jobs in the Kingdom, according to the World Tourism Organization (WTO).Taleb Al-Refai, secretary-general of the WTO, said that the Kingdom’s stra...
JEDDAH: As many as 906 Saudis have been arrested on terror charges during the last four months in the Kingdom, although the arrests during the last four years include people of various nationalities.Foreigners have come under greater focus following...
JEDDAH: Security authorities have worked to challenge extremist thoughts and ideologies by arresting all those who support such ideologies and are involved in fighting abroad, and correct their views by guiding them to the right path. At the Prince M...
RIYADH: Abdul Lateef Al-Asheikh, municipal and rural affairs minister, has awarded 156 sanitation and public improvement projects worth SR1.17 billion to several contractors recently.There was SR236 million budgeted for various environmental projects...
RIYADH: In a unique opportunity to promote local arts and culture, five Saudi artists representing the cities of Al-Ahsa, Dammam, Hail, Jeddah and Al-Jouf are participating in the first GCC handicrafts exhibition that began in Doha, Qatar on Tuesday....
JEDDAH: The Indian government has sought the help of the Saudi Health Ministry to find 59 Indian pilgrims who went missing following the stampede in Mina during the Haj this year.The request was made by Minister of State for External Affairs Gen. V.K...
RIYADH: A suspected MERS-infected Saudi national who died last week in Manila appear to have transmitted the virus to three persons who had close contact with him.The three have been admitted to the hospital after showing symptoms of the virus, the D...
DAMMAM: A number of agreements to finance projects were struck in the past three months, but the young entrepreneurs who floated these projects were in debts before their projects started because of violations. Agreements were signed for cash amounts...
JEDDAH: The Custodian of the Two Holy Mosques’ Haj Program has hosted 36,000 pilgrims over the past 20 years.Of this number, there were 13,000 family members of Palestinian martyrs who performed Haj, according to Sheikh Saleh Al-Asheikh, Islamic affa...

Stay Connected