Gavekal Capital: Negative Sales Growth Expected For 3 Out Of 10 Sectors

Thursday, October 23, 2014

Negative Sales Growth Expected For 3 Out Of 10 Sectors

We have recently commented on how sales and earnings estimate revisions have been in a decline (here and here). Today, we wanted to look at just what kind of growth rates are imbedded in those falling estimates. Currently, three out of 10 sectors in the MSCI World Index are expected to have negative sales growth for the next fiscal year. Those sectors are telecommunication services, materials and utilities. Contrary to earlier in the year, zero sectors are expected to have double-digit sales growth in the next fiscal year. Overall, sales are only expected to grow by 3% for the MSCI World over the next fiscal year based on sales estimates. Sales growth expectations for FY2-FY4 are about twice as high as expectations are for the next fiscal year.

MSCI World

Expectations are much higher, however, for earnings growth. Only one sector, telecommunication services, is expected to have negative earnings growth in the next fiscal year. And three sectors, industrials, information technology and energy are all expected to have at least 11% earnings growth over the next fiscal year. Earnings expectations are really ramped up for two years out. Overall, earnings are expected to grow by over 14% in FY2. Earnings growth expectations remain very high for FY3 and FY4 as well as earnings are expected to grow by over 12% in each of those years, respectively. It will be interesting to see if get a further decline in overall sales and EPS estimates if the step-down in estimates continues to be focused solely on FY1 or if the weakness will flow through to later year estimates.

MSCI World

About Gavekal Capital

Gavekal Capital is a US registered investment advisory firm that manages the Gavekal Knowledge Leaders Strategy. Knowledge Leaders are a group of the world’s leading innovators with deep reservoirs of intangible capital. These companies often possess competitive advantages such as strong brand, proprietary knowledge or a unique distribution mechanism. Knowledge Leaders are largely service-based and advanced manufacturing businesses, often operating globally. Gavekal Capital seeks to identify the world’s leading knowledge companies through a proprietary process that analyzes corporate knowledge investments.
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