The deepening plight of the American consumer has started to take a big bite out of corporate earnings.
A number of major U.S. companies who rely on consumer spending warned about their results on Monday evening, including credit card company American Express Co, Macintosh computer and iPod maker Apple Inc and cruise ship operator Royal Caribbean Cruises Ltd.
The breadth of the warnings, which also came from makers of chips and carpets, may signal that the credit crisis is quickly moving beyond housing and banks and into mainstream Corporate America.
"It's understandable that the U.S. consumer would be apprehensive with the circumstances -- weakness in housing, gasoline is up, the stock market is down and job insecurity," said Brian Gendreau, an investment strategist in New York for ING Investment Management Americas. "We may actually have a consumer-led recession -- which is rare."
The wrath of the credit crunch and housing collapse of the past year has largely been felt by middle- or lower-income people. But Monday's results reflected a broadening of fears.
American Express executives said that even customers with solid credit scores were facing difficulties and even the very affluent have in some cases cut back discretionary spending.
Monday's bad news came from a wide swath of sectors and raised concerns about how strong two of the major consumer events will be this year -- back-to-school season and year-end holiday spending.
"If you look at energy prices and things like that, it's not any big surprise the consumer has been cautious," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto. "It's a splash of cold water on the theory that earnings will bounce back quickly."
ISSUES AT AMEX
The biggest disappointment on Monday came from American Express, whose quarterly profit fell 38 percent as it set aside more money to cover credit losses, sending its shares down more than 11 percent.
The company said it was no longer on track to boost earnings per share by 4 percent to 6 percent this year because the U.S. economy has slowed, particularly in June.
"While we have been able to generate substantial earnings and returns relative to many in the financial sector, we do not expect to meet or exceed our long-term financial targets until we see improvements in the economy," Kenneth Chenault, chairman and chief executive, said in a statement.
American Express customers tend to be wealthier than the average credit card user. If its customers are slowing down spending and increasingly delinquent on paying, the news could be worse for the less-prosperous customers of other lenders.
"What's getting people nervous is seeing this downturn affect their top super-prime customers," said Paul Hickey, co-founder of Bespoke Investment Group LLC in Mamaroneck, New York. "While it is not surprising that no one is insulated from the crisis, everyone is really concentrating on how even the best of the best aren't doing so hot."
SOUR APPLE AND TEXAS TROUBLES
On the technology side, Apple provided one of the biggest downers when it warned current-quarter earnings would miss Wall Street targets despite a better-than-expected third quarter.
Apple sold more than 11 million iPods, a 12 percent increase from a year ago and ahead of forecasts of up to 10.5 million. Sales of iPhones also topped forecasts. Apple sold 717,000 iPhones during the quarter, more than double the amount sold a year ago when the device was first launched.
While Apple has a reputation for giving conservative guidance, its view for the fiscal fourth quarter undercut analysts' expectations to a deeper degree than usual and its stock lost 9 percent after the market closed.
"It's a reaction to Apple's typical conservative guidance," Chris Whitmore of Deutsche Bank said. "Investors are likely to focus on the rationale for the conservative guidance."
Also in the tech world, Texas Instruments Inc scared away the bulls with a weak current-quarter outlook and disappointing past results, sending its shares down 7 percent.
TI is a key technology and consumer indicator, as it makes analog chips for everything from cell phones to industrial equipment.
It forecast earnings of 41 to 47 cents per share on revenue of $3.26 billion to $3.54 billion for the third quarter versus Wall Street's call for 51 cents on revenue of $3.57 billion.
The third quarter is often a strong one for TI due to back-to-school sales and as demand increases ahead of year-end holiday-season shopping.
"It's very worrying for TI and the semiconductor industry," Charter Equity Research analyst John Dryden said. "The outlook was as poor as the report."
Dryden said that while slowing wireless demand could only mean softness at a few companies, weakness in analog chips reflected badly on multiple industries. "When you're talking analog you're talking thousands and thousands of customers."
SINKING SHIPS?
As for higher-end discretionary spending, Royal Caribbean reported a narrower quarterly profit due to a doubling of fuel costs, and laid out a plan to save $125 million a year.
"Too much of our profitability is being eroded by the increase in fuel prices. This is unacceptable and we are evaluating everything we do to find ways to do it more efficiently and effectively," said Richard Fain, chairman and chief executive of the world's number-two cruise operator.
Royal Caribbean said net income was $84.7 million, or 40 cents per share, down from $128.7 million, or 60 cents, for the comparable year-ago period. Its fuel prices rose 55 percent.
As part of its cost-cutting, the company said it would eliminate about 400 shore-side positions.
(Reporting by Peter Henderson, Sinead Carew, Dan Wilchins, John Crawley, Jennifer Ablan and Michele Gershberg; Writing by Martin Howell and Patrick Fitzgibbons; Editing by Braden Reddall)
