Wall Street’s earnings season is once again upon us.
Investors are paying particularly close attention this quarter in reaction to continued economic uncertainty and economic hardship. The smart money knows that this season isn’t bearing any gifts; most companies’ sales have taken recession-sized hits, and that will be reflected in the bottom line.
Concerning the cleantech stocks I watch, Johnson Controls (NYSE: JCI) was the first to spill the beans. The recent downturn left the company with a $608 million quarterly loss. For perspective, they made $235 million in the previous quarter.
Auto parts sales, as expected, were down a dramatic 32%. But more surprisingly, even the company’s Power Solution segment took a 32% sales hit.
The only bright spot? A nominal 4.8% drop in building efficiency sales.
Despite the horrendous financial performance, though, the stock was hardly affected.
And that’s the big story here.
Of Bottom Lines & Outlooks
In the traditional sense, it isn’t all about the bottom line this time around. In most cases, investors are more worried about companies’ outlooks for the next few quarters and management’s sentiment on the current business climate.
That’s where cleantech companies have a distinct advantage. Because even though the past quarter was a bit rocky, analysts know that the industry is vital to the world’s energy future. One quarter of negative earnings certainly isn’t enough to throw cleantech stocks to the dogs. It’d be like tossing the baby out with the bathwater.
Investors only sending Johnson Controls down 5% for an $843 million reversal of fortune is perfect proof of that. Although the company predicted a similar loss for the second quarter, it expects better results from its building efficiency and power solutions business segments. The only reason Johnson didn’t get brutalized in the stock market after its earnings report is pure hope that the cleantech industry will have Chosen One status under an Obama administration.
The prospect of that is looking pretty good. And, free market or not, other companies are likely to get a free pass while investors turn their heads for this quarter’s numbers. The outlook for the sector in which a company operates, it seems, is more important right now than the actual performance of that company in the sector.
It’s only a temporary phenomenon caused by weak economic conditions and the giddiness about energy policy under Obama.
The Obama Bounce
Obama and his crew of cleantech crusaders have rightly incited optimism about the future of the industry.
He’s still sticking to his campaign promise of spending $150 billion on clean energy in the next 10 years. He’s said recently that we’re going to double our use of renewable energy in the next three years. He wants to put one million plug-ins on the road by 2015. He’s intent on a carbon tax or cap-and-trade program. And he wants to eliminate foreign oil imports in the next ten years.
What’s more, he’s also pushing a new infrastructure stimulus that will have a sizable cleantech portion, including:
$20 billion in tax cuts for alternative energy including a multiyear extension of the production tax credit for wind, geothermal, hydro power and bioenergy
$32 billion to modernize the nation’s power transmission grid to support more clean energy
$16 billion to retrofit some public housing to use less energy
$6 billion to weatherize modest-income homes
$2.4 billion for developing carbon capturing technology
When companies have business activities that fall into any of these categories, is it any wonder that investors are hopeful for their financial future?
Johnson Controls makes batteries for hybrid vehicles, makes energy efficiency products for home and auto, and has a savvy green marketing campaign with the Natural Resources Defense Council (NRDC)–all the right things to be looked upon favorably in this market.
Don’t get me wrong, Johnson Controls is a great company with a wonderful future in the cleantech space. I’m simply using them as an example because their chosen line of business and the current political leadership are giving them an added edge in difficult times.
And they aren’t the only the company about to get the Obama Bounce. A slew of clean-tech related companies will be reporting earnings in the next few weeks. From Cree to IBM to United Technologies to General Electric, no company will be able to hide the carnage on their balance sheets. Nonetheless, each company will come out swinging the best green PR they can, touting the alternative energy and efficiency aspects of their business.
The cleantech market, as it transforms the way we use and think about energy and conservation, is also changing, along with other factors, the very nature of Wall Street. Once a fan of non-interventionist dogma, seeking industries with scant regulation and companies that exploited it, Wall Street is now dizzy from spinning around, awaiting swift energy policy and regulation, and pouncing on all companies involved.
Enjoy this earnings season. You’ll see the energy companies of tomorrow deservedly enjoying the Obama Bounce, and you can see the verdigris appear on those desperately seeking it.