Through Friday, February 3, 2012, there have been 85 US Big Corps, with Pretax Income of more than $700 mil each in any quarter of the most recent two years, which have released their December 2011 quarterly earnings.
I decided to use a $700 mil quarterly Pretax Income cutoff for US Big Corps in order to obtain a reasonably high sample to be able to have a good underlying basis to make logical conclusions.
My definition of Core Pretax Income is not nearly as liberal as that of many US Big Corps. I start with Pretax Income under US Generally Accepted Accounting Principles, and exclude just a handful of large unusual items relative to Pretax Income, including:
.....Asset Impairments, mainly related to Goodwill and other Intangible Assets
.....Loss and Gains on Early Extinguishment of Debt
.....Acquired In Process Research & Development Charges
.....Gains and Losses on Sales of Assets and Businesses
.....Special Huge Litigation Charges
Here is the Total Core Pretax Income of these 85 US Big Corps for Annual 2010, as well as for each 2011 quarter, along with the Total Increased Amount and the Total Percentage Increase over the prior year or over the prior year's quarter:
Annual 2010...$648,308 mil,..up $202,797 mil..or up 46%
1Q 2011..........$200,125 mil,...up $43,576 mil,....or up 28%
2Q 2011..........$209,496 mil,...up $41,786 mil,....or up 25%
3Q 2011..........$205,486 mil,.up $40,324 mil,.or up 24%
4Q 2011..........$191,943 mil,...up $21,996 mil,.or up 13%
Of the above $21,996 mil 4Q 2011 total earnings increase over the prior year's quarter, $9,514 mil or 43% of it was due solely to Apple, whose 4Q 2011 earnings increased by a massive 119%. If Apple is backed out, the above total earnings growth deceleration is much more pronounced, going from 23% in the 3Q 2011 to only 8% in the 4Q 2011.
When you review the above income trend numbers, how in the world can nearly half of the country objectively assert that the Obama Administration hasn't helped the US economy immensely in all of 2010 and in all of 2011. And when I review the 2009 quarterly income statement numbers of these US Big Corps, the clear conclusion is that the huge upturn in the Total Pretax Income of these US Big Corps started in the 4Q 2009, when the Obama economic stimulus really started kicking into gear.
The stock market has this all figured out. After all, the Dow Industrials Index has nearly doubled in the past 35 months, going from a 6,547 close on March 9, 2009, to 12,862 on last Friday, February 3, 2012, thus up 96%.
Earnings drive stock prices. And the Earnings Per Share growth of these 85 US Big Corps for 2010 and 2011 is even substantially higher than the above very robust increases for two reasons.
First, these US Big Corps are generating after-tax Net Income growth that far exceeds their Pretax Income growth, due to their continually increasing the portion of their worldwide income generated in low-taxed foreign tax havens, due also to their receiving more and more tax subsidies each year, and as it can be easily seen by reviewing their income tax footnotes, due also to their continually obtaining extremely favorable settlements with the IRS in their income tax audits.
And second, these US Big Corps are taking advantage of the extremely cheap interest rate environment provided by the US Government to take massive advantage of stock buyback programs, which substantially increase their Earnings Per Share.
And it's not just these 85 US Big Corps that have reported their December 2011 quarterly earnings.
There were 26 US Big Corps, with October or November 2011 quarter ends, which generated Pretax Income above $700 mil in any quarter of 2011 or 2010. Here is the Total Pretax Income for these 26 US Big Corps for each 2011 quarter, along with the Total Increased Amount and the Total Percentage Increase over the prior year's quarter:
1Q 2011..........$31,986 mil,...up $5,378 mil,....or up 22%
2Q 2011..........$32,266 mil,...up $4,521 mil,....or up 16%
3Q 2011..........$29,158 mil,...up $3,104 mil,....or up 12%
4Q 2011..........$26,015 mil,...up ...$396 mil,.....or up 2%
Thus, when you combine the above 85 US Big Corps with December 2011 quarter ends and the above 26 US Big Corps with October or November 2011 quarter ends, below here is the Total Pretax Income for these 111 US Big Corps for each 2011 quarter, along with the Total Increased Amount and the Total Percentage Increase over the prior year's quarter:
1Q 2011..........$232,111 mil,....up ..$49,254 mil,.......or up 27%
2Q 2011..........$241,762 mil,....up ..$46,307 mil,......or up 24%
3Q 2011..........$234,644 mil,...up $43,428 mil,....or up 23%
4Q 2011..........$217,958 mil,....up $22,392 mil,....or up 11%
And if Apple is backed out, after all 70% of Apple's earnings in the 4Q 2011 were generated overseas, this monstrous earnings growth deceleration drops in a much more pronounced manner, going from 22% earnings growth in the 3Q 2011 to a meager 7% in the 4Q 2011.
It is clear that the country must focus like a laser on the reasons for this massive dismal earnings growth deceleration from the 3Q 2011 to the 4Q 2011.
And the reason this focus is even more critical is that this major drop in earnings growth in the 4Q 2011 occurred despite a more robust 2.8% real US GDP growth rate in the 4Q 2011, which was much higher than that of the first three quarters of 2011, and also occurred despite the fact that there was a substantial pulling forward of US equipment purchases by so many US Corps from 2012 to the 4Q 2011, and particularly to the month of December 2011, due to the huge drop in 100% first-year tax expensing on US equipment purchases in 2011 to only 50% bonus tax depreciation in 2012.
If this is what’s happening to the US largest corporations, which have been both dramatically and continually “propped up” by both US Government and Fed actions, I can just imagine how badly many of the neglected US small businesses have done on the earnings front in the most recent 4Q 2011.
Let me give my thoughts on the main reasons for this massive earnings growth drop in the 4Q 2011.
First, and clearly foremost, this significant US earnings growth deceleration stems from irresponsible US Congressional Actions and Inaction, which resulted in the substantial loss in US consumer confidence and the substantial increase in US business uncertainty.
This was the direct result of Republicans in the US Congress irresponsibly breaking off the critical Grand Bargain Talks on huge long-term US deficit reduction with the Obama Administration, coupled with the horrific Debt Ceiling Negotiations, which even resulted in the highly embarrassing US Debt Downgrade by Standard and Poors. And then all US Republicans on the US Debt Super-Committee recalcitrantly refused to budge on any meaningful amount of increased Tax Revenues, thereby resulting in the disgraceful demise of this Super-Committee.
Further, the Republican Congress wreaked havoc on both the US economy and US job creation by recalcitrantly and unpatriotically rejecting on arrival the American Jobs Act, which had some awfully powerful US job creation initiatives, particularly the substantial US infrastructure investments.
Second, and nearly as important as the irresponsible actions and inaction by the Republicans in the US Congress, relates to the key business tax incentive for US equipment purchases.
The very highly-charged 100% tax expensing for US equipment purchases was applicable to every quarter of 2011 and also to the entire 4Q 2010. However, it wasn't applicable to the first two quarters of 2010 nor to the majority of the third quarter of 2010.
Companies that sell equipment have their sales, gross margins, and earnings increase significantly. In addition, this 100% first-year tax expensing highly motivates the purchaser to purchase the US equipment when the 100% first-year tax expensing is in effect.
Thus, in the quarters that 100% first-year expensing is in effect, these US companies selling a lot of this equipment in the US will have their Pretax Income increase dramatically in that quarter.
There was the same 100% first-year tax expensing in the 4Q 2011 and in the 4Q 2010. However, in the first three quarters of 2011, the 100% tax expensing was double the 50% bonus tax depreciation in the first three quarters of 2010. Thus, it only makes economic sense that CFOs and CEOs would decide to purchase this US equipment in the quarters that 100% first-year tax expensing would apply.
Therefore, it also only makes sense that the Pretax Income growth would be substantially higher in the first three quarters of 2011, where 100% tax expensing was in effect, as compared to the comparable first three quarters of 2010, where the much less enticing 50% bonus tax depreciation applied.
So what does this mean? Well, very bad news for 2012 US equipment purchases.
Thus, it would be very wise for the US Congress to legislate to step up the 50% bonus tax depreciation to 100% first-year tax expensing for all of 2012. If not, I think you'll see real US real GDP growth drop markedly in 2012. Likewise, you'll see Pretax Earnings growth drop dramatically in 2012.
Also, I would make this 100% first-year tax expensing incentive substantially more robust in 2012.
How?
Well, I would also give some very substantial first-year tax depreciation deductions for investments in new buildings and in building improvements (especially green building retrofits) for US businesses of all sizes. And I would also step up first-year tax writeoffs for all Research and Development investments, including all computer software costs incurred.
However, to be fair in benefiting both the 1% and the neglected 99%, I would allow these massively lucrative tax incentives to the very large US businesses only if they are accompanied by a fairly-designed minimum full-time job increase requirement. If the US Congress irresponsibly excludes this requirement like it always has in the past, you will see the majority of large US Corps reap billions of dollars of upfront tax benefits, but still unpatriotically refusing to hire US workers on a full-time basis, and in many cases, even continuing to shed thousands of US workers, despite still receiving all of this income tax benefit largesse.
And to minimize the CBO-scored cost of the very effective above tax incentives, I would reduce the tax depreciation allowed on the new buildings and building improvements in years two through ten. And I would also accelerate markedly the remaining tax depreciation starting in year 11.
And to help struggling US businesses, I would give businesses that can't take advantage of the 100% tax expensing on equipment purchases, the much accelerated tax depreciation deductions on buildings and building improvements, or the increased upfront tax writeoffs on R&D and computer software investments, an upfront equivalent tax credit in the first year for these investments made.
Third, and also very importantly and really a great development to both the US economy and US job creation, as well as that around the globe, there was a massive deceleration in 4Q 2011 earnings growth of the Big Oil Corps that dominate.....specifically, Exxon Mobil, Chevron, and Royal Dutch Shell. The fourth Big Oil Corp that dominates is BP, but it hasn't released its 4Q 2011 earnings yet.
Just how substantial was this 4Q 2011 earnings growth deceleration of these Big Oil Corps? Well, it was nearly a complete collapse. The neglected 99%, including small businesses, have spoken.
Here is the Total Core Pretax Income of Exxon Mobil for Annual 2010, as well as for each 2011 quarter, along with the Total Increased Amount and the Total Percentage Increase over the prior year or over the prior year's quarter:
Annual 2010...$52,959 mil,..up $18,182 mil..or up 52%
1Q 2011..........$18,917 mil,...up $6,849 mil,...or up 57%
2Q 2011..........$18,619 mil,...up $5,913 mil,....or up 47%
3Q 2011..........$18,680 mil, up $5,822 mil, or up 45%
4Q 2011..........$17,041 mil, up..$1,714 mil,..or up 11%
Here is the Total Core Pretax Income of Chevron for Annual 2010, as well as for each 2011 quarter, along with the Total Increased Amount and the Total Percentage Increase over the prior year or over the prior year's quarter:
Annual 2010...$32,055 mil,..up $13,527 mil..or up 73%
1Q 2011..........$11,122 mil,...up $7,650 mil,...or up 45%
2Q 2011..........$13,207 mil,...up $4,441 mil,...or up 51%
3Q 2011..........$13,340 mil, up $6,467 mil, or up 94%
4Q 2011...........$9,965 mil, up..$1,199 mil,..or up 14%
Here is the Total Core Pretax Income of Royal Dutch Shell for Annual 2010, as well as for each 2011 quarter, along with the Total Increased Amount and the Total Percentage Increase over the prior year or over the prior year's quarter:
Annual 2010...$35,344 mil,..up $14,320 mil..or up 68%
1Q 2011..........$16,423 mil,...up $6,457 mil,...or up 65%
2Q 2011..........$14,894 mil,...up $6,162 mil,....or up 71%
3Q 2011..........$12,538 mil, up $7,153 mil, or up 133%
4Q 2011..........$11,805 mil, up....$544 mil,...or up 5%
And it was really good for the US economy and US job creation to see that the 4Q 2011 earnings growth did not decelerate from that of the 3Q 2011 for the two US Big Oil Corps just below these above three giants that dominate.
ConocoPhillips, which very favorably to the US economy and US job creation is breaking up, registered 4Q 2011 earnings growth of 36%, an uptick from its 3Q 2011 earnings growth of 34%.
And Occidental Petroleum registered 4Q 2011 earnings growth of 43%, also an uptick from its 3Q 2011 earnings growth of 41%.
It's also good for the US economy and US job creation, as well as that of the world, to see Oil-Related Giant Schlumberger continue to do so well. This is basically a best-of-breed technology company. And it is hiring the very best and brightest from the top engineering, science and math programs of universities all across the country.
When the US Government cannot stop the continuing windfall profits of US Big Oil, due to all Republicans in the US Congress, and even a handful of Democrats, protecting the awesomely powerful Big Oil Industry, then the 99% all around the world must take it in their own hands at the gas pump and boycott, as best they can, the clearly dominating Exxon Mobil, Chevron, Shell and BP.
When you are cruising down the Interstate in the US or in highways around the world, and in need of a gas fix, it is so easy to spot the highly visible Exxon, Chevron, BP and Shell signs. And it is usually much more convenient to just pull into the huge Exxon, Chevron, BP or Shell gas stations, after all, their immense wealth permits them to have accumulated all the choice real estate gas fill-up locations.
But for the US economy and US job creation's sake, and also for that of the world, it is usually much wiser to go the inconvenient route and avoid Exxon, Chevron, BP and Shell. The only way this dormant economy is going to turn around in the long run on a sustainable basis is for the 99%, including small businesses, to take charge and act on their own to remove the massive windfall profits from the income statements of the dominant ExxonMobil, Chevron, BP and Shell Big Oil Titans.
Here are these 111 US Big Corps and their 4Q 2011 Pretax Income as compared to that of the 4Q 2010:
..........................................4Q............4Q..........Increase
........................................2011.........2010......(Decrease)
.......................................PTI(L).......PTI(L).....Amount......%
........................................(in millions of dollars)......
Dec 11 Quarters
Apple............................17,477.......7,963........9,514.....119%
Exxon Mobil..................17,041.....15,327........1,714.......11%
Royal Dutch Shell..........11,805......11,261...........544.........5%
Chevron..........................9,965.......8,766........1,199.......14%
Microsoft........................8,239.......8,497.........(258).......-3%
IBM................................7,274.......6,956...........318.........5%
Wells Fargo.....................6,057.......5,165...........892.......17%
ConocoPhillips................5,833.......4,292.........1,541.......36%
JP Morgan Chase.............4,747......7,012.......(2,265).....-32%
Intel...............................4,587.......4,163...........424.......10%
GE..................................4,476.......3,540...........936.......26%
Procter & Gamble(1).......4,075.......4,090...........(15).......0%
Verizon(2)......................3,823.......3,970..........(147)......-4%
AT&T(3)..........................3,681.......4,068..........(387).....-10%
JohnsonandJohnson(4)..3,663.......3,451...........212........6%
Google............................3,489.......3,142...........347.......11%
Bank of America(5).........3,013......(1,595).......4,608......289%
Pfizer(6).........................2,730.......2,136...........594.......28%
Occidental Petroleum.....2,590.......1,810...........780.......43%
Abbott Labs(7)...............2,354.......2,006...........348.......17%
McDonalds......................1,984.......1,734...........250.......14%
Caterpillar......................1,978.......1,232............746.......61%
UnitedHealth..................1,935.......1,684............251.......15%
UnitedParcelService(8)...1,889......1,730............159........9%
Schlumberger.................1,886.......1,335............551.......41%
US Bancorp.....................1,855.......1,271............584.......46%
United Technologies.......1,832.......1,686............146........9%
Merck(9)........................1,824.......1,524............300.......20%
American Express..........1,748.......1,477...........271.......18%
Qualcomm.....................1,721.......1,470............251.......17%
Bristol Myers Squibb......1,594.......1,413............181.......13%
Union Pacific.................1,530.......1,180............350.......30%
Boeing...........................1,444.......1,003............441.......44%
Citigroup.......................1,364.......1,060............304.......29%
Halliburton...................1,354..........910............444.......49%
3M................................1,329.......1,262..............67........5%
Morgan Stanley(10).......1,285.......1,191..............94........8%
Freeport McMoran(11)..1,253.......2,986........(1,733).....-58%
Goldman Sachs..............1,247.......3,474........(2,227).....-64%
Marathon Oil.................1,218..........841...........377.......45%
Altria Group..................1,183.......1,407..........(224).....-16%
Honeywell(12)...............1,145..........930...........215.......23%
Ford(13)........................1,052.......1,173..........(121).....-10%
Allstate.........................1,052..........363...........689......190%
Amgen(14)....................1,051.......1,117............(66)......-6%
EMC..............................1,048..........909...........139.......15%
Eli Lilly.........................1,042.......1,410..........(368).....-26%
General Dynamics(15)..1,022.......1,043.............(21)......-2%
Lockheed Martin.............966.......1,056............(90)......-9%
Bank of NY Mellon...........945..........834...........111.......13%
Viacom...........................917..........960............(43)......-4%
Colgate Palmolive...........908..........889.............19........2%
Ace Ltd...........................872.......1,134..........(262).....-23%
Natl Oilwell Varco...........843..........623...........220.......35%
PNC Financial(16)...........838..........961..........(123).....-13%
AFLAC............................834..........667...........167.......25%
Raytheon(17)..................821..........715...........106.......15%
Gilead Sciences...............819..........800.............19........2%
BlackRock.......................815..........958..........(143).....-15%
SLM................................795..........760.............35........5%
Baker Hughes(18)............784..........520...........264.......51%
Northrop Grumman(19)..782..........639...........143.......22%
Travelers........................778........1,197..........(419).....-35%
Ebay...............................771..........587...........184.......31%
MasterCard(20)..............758..........582...........176.......30%
Danaher..........................742..........566...........176.......31%
Enterprise Products LP...727..........295...........432......146%
Norfolk Southern............723..........562...........161.......29%
CSX.................................712..........701.............11........2%
Cummins........................705..........530...........175.......33%
Corning(21)....................682..........804..........(122).....-15%
Chubb.............................614..........699............(85).....-12%
Aetna.............................607..........313...........294.......94%
Capital One Financial......571.......1,032..........(461).....-45%
Baxter............................548..........467.............81.......17%
State Street.....................532..........252...........280......111%
WellPoint.......................478..........752..........(274).....-36%
ArcherDanielsMidland...460..........998..........(538)......-54%
Delta Air Lines(22).........447............52...........395......760%
DuPont(23).....................422..........405.............17........4%
Dow Chemical.................354..........646..........(292).....-45%
Texas Instruments(24)....349.......1,104..........(755).....-68%
Hess................................327..........357...........(30)......-8%
Valero Energy...................93..........334..........(241).....-72%
Marathon Petroleum......(180).........361..........(541)....-150%
Total all 85................191,943...169,947........21,996.......13%
Total all but Apple.....174,466...161,984........12,482........8%
Oct & Nov 11 Quarters
Walmart........................5,343.......5,095...........248........5%
Oracle...........................2,960.......2,646...........314.......12%
Hewlett Packard(25).....2,310.......3,214..........(904).....-28%
Cisco Systems...............2,245.......2,425..........(180)......-7%
Home Depot..................1,457.......1,306...........151.......12%
Dell...............................1,072.......1,076.............(4).......0%
Deere............................1,057.........750...........307.......41%
Medtronic(26)..............1,053.......1,031.............22........2%
Accenture.......................993..........845...........148.......18%
Walgreens.......................883..........921...........(38)......-4%
Target.............................857..........773.............84.......11%
Mosaic............................855..........621...........234.......38%
DiscoverFinancialSvcs....818..........585...........233.......40%
FedEx.............................777..........437...........340.......78%
General Mills...................630..........741..........(111).....-15%
Nike................................618..........609...............9........1%
Costco............................553..........504..............49.......10%
Lowes(27).......................352..........651..........(299).....-46%
Applied Materials............344..........703..........(359).....-51%
Kohls..............................340..........277.............63.......23%
Carnival..........................209..........255...........(46).....-18%
Best Buy..........................204..........373..........(169).....-45%
Monsanto........................204............24...........180......750%
Macys..............................183............52...........131......252%
Intuit...............................(98)........(111)............13.......12%
H&R Block......................(204).......(184)...........(20).....-11%
Total all 26..................26,015......25,619...........396........2%
Grand Total 111.........217,958....195,566.......22,392.......11%
Grand Total
.....all but Apple........200,481....187,603.......12,878........7%
(1) Procter & Gamble 2011 PTI excludes both Intangible Asset Impairment Charge and Gain on Sale of Business.
(2) Verizon PTI in both years exclude Severance, Pension, and Benefit Special Charges.
(3) AT&T PTI in both years exclude Actuarial Losses on Benefit Plan. Its 2011 PTI also excludes both Charge related to T-Mobile Acquisition Termination and Directory Asset Impairment Charge.
(4) Johnson and Johnson PTI for both 2011 and 2010 exclude Special Litigation Settlement Charges, Special Product Liability Expense Charges, and DePuy Hip Recall Program Charges. Its 2011 PTI also excludes Currency Option on Planned Acquisition Charge.
(5) Bank of America PTI in both years exclude Goodwill Impairment Charges.
(6) Pfizer PTI for both 2011 and 2010 exclude Special Litigation Charges and Asset Impairment Charges.
(7) Abbott Labs PTI for both 2011 and 2010 exclude Acquired In Process Research and Development Charges.
(8) United Parcel Service PTI in both years are before Pension Accounting Mark-to-Market Adjustments.
(9) Merck PTI for both 2011 and 2010 exclude Acquired In Process Research and Development Charges.
(10) Morgan Stanley 2011 PTI excludes Loss related to MBIA Settlement.
(11) Freeport McMoran 2011 PTI includes Indonesian Operations Labor and Pipeline Disruption Charges.
(12) Honeywell PTI in both years are before Pension Accounting Mark-to-Market Adjustments.
(13) Ford 2011 PTI excludes FordSollers Gain. Its 2010 PTI excludes Debt Reduction Charges.
(14) Amgen 2010 PTI excludes Asset Impairment Charge re BI Transaction.
(15) General Dynamics 2011 PTI excludes Intangible Asset Impairment Charge.
(16) PNC Financial PNC Financial 2011 PTI excludes Charge from Redemption of Trust Preferred Securities. Its 2010 PTI excludes Gain on Sale of BlackRock Shares.
(17) Raytheon 2010 PTI excludes Loss on Debt Retirement.
(18) Baker Hughes 2011 PTI excludes Impairment of Trade Names Charge.
(19) Northrop Grumman 2010 PTI excludes Debt Redemption Charge.
(20) MasterCard 2011 PTI excludes Special Litigation Settlement Charge.
(21) Corning 2011 PTI excludes Asset Impairment Charge. Its 2010 PTI excludes both Insurance Settlement Gain and Special Korean Tax Credit.
(22) Delta Air Lines PTI in both years excludes Loss on Debt Extinguishment.
(23) DuPont 2010 PTI excludes Loss on Debt Extinguishment.
(24) Texas Instruments 2010 PTI excludes Gain on Sale of Assets.
(25) Hewlett Packard Hewlett Packard 2011 PTI excludes Asset Impairment Charge, Winding Down Web OS Device Business Charge, and Acquisition Foreign Currency Exchange Risk Charge.
(26) Medtronic 2010 PTI excludes Special Litigation Charge.
(27) Lowes 2011 PTI includes Store Closing Charges.
Much More to Come!
