11Q2 results in The Netherlands: More disappointments looming after a sequence of profit warnings?!

Important: the text of this blog is reflecting my personal opinion and should not at all be considered as an investment advise. Therefore, I don’t take any responsibility for any losses on investments, caused by using this blog as an investment advise.

Over the last month, there have been a number of profit warnings, coming from some of the leading companies in The Netherlands:

·    Philips (Consumer Electronics, Healthcare)

·    Akzo Nobel (Paints and coatings, Specialty chemicals)

·    Tom Tom (Navigation systems)

·    CSM  (Sugar, Bakery Products, Food stuffs)

The investors all acted unpleasantly surprised and started a selling spree:

·    Philips lost 12.1% in one day;

·    Akzo Nobel lost 10.6% in one week

·    Tom Tom lost a staggering 30.7% in one day

·    CSM  lost an impressive 16.2% in one week

If you looked at all of the above profit warnings, three main causes could be identified:

·    The EUR/USD rate that meandered between $1.40 and $1.48 per €1 during Q2, making European exports to the US and other dollar-related countries extremely expensive in Q2, compared to (f.i.) the $1.29 of January 10^th.

·    The prices of commodities and raw materials, although slightly falling during the last weeks of Q2, have been very high, while it was not possible to totally recharge those to the customers.

·    Consumers, domestic as well as foreign, were still very reluctant to spend their money on (durable) goods, other than food and other basic necessities.

These three reasons might also be influential on the coming Q2 results of other leading production, trade, retail and services companies with production facilities and/or a quotation in The Netherlands, for instance:

·    Ahold (Super markets);

·    Aperam (Stainless Steel)

·    Arcelor Mittal (steel);

·    Air France/KLM (aviation);

·    DSM (Specialty chemicals, fabrics, food stuffs and health products)

·    Heineken (beer and other beverages);

·    OCE (document management systems);

·    Tata Steel Ijmuiden (steel),

·    Unilever (food and bodily-care products)

The fact that these companies didn’t supply a profit warning, doesn’t have to mean that they have good Q2 results, but just that the results were too good for supplying a profit warning. For instance, DSM is one of the companies that is mentioned in the financial newspaper for probably having average, but not bad results.

Although the prices of most commodities seem to stabilize or even drop, there is no strong signal that consumption of durable goods and luxury products is increasing. There is still a big difference between the relative optimism among companies at one hand and the remaining pessimism of consumers and their reluctancy for purchasing expensive goods at the other hand.

Other factors in The Netherlands that can have a negative influence on people’s consumption or on the product prices are:

·    The coming abolishment of the tax breaks for ‘green’ and economical cars.

Over the last few years, there have been a number of tax breaks on ‘green’ and economical cars, like small Volkswagen’s and the Toyota Prius: no purchase tax and no motor vehicle tax for private-owned vehicles and lower monthly income taxes on leased ‘green’ cars. These taxbreaks will be abolished very soon and instead, there will be tax breaks on larger and more polluting cars, like f.i. the Porsche Cayenne or the Toyota Landcruiser.

The end of the tax breaks might have a severe influence on the sales of new and used cars from these green and economical car types. And as these cars were very popular, due to being in the lower price ranges, this decision might bring down total car sales in The Netherlands.

·    The remaining price pressure on large and small household appliances, computers, smartphones and consumer electronics, due to the enduring price wars between German and Dutch chains of departments stores, like Mediamarkt, Saturn and BCC.

The price wars in general don’t lead to much extra consumption in an already saturated consumer market, like The Netherlands, but just to eroding margins for retailers and producers of those goods.

·    The Dutch housing market that is still firmly locked and therefore cannot trigger extra consumption of furniture, building and decorating materials and lighting.

People that buy a new house often want to redecorate and restore it to their own taste. In the process, they often buy new paint and decoration materials, new furniture, new lighting, new household appliances and other durable goods. These are goods that you don’t buy often, when you remain living in your current house . Especially Philips and Akzo Nobel can therefore be considered victims of the locked-up Dutch housing market.

Although the (temporary) lowering of the conveyance duty seems to push the Dutch housing market slightly up, in my opinion there will not be a lasting effect from this measure. Especially not, when this measure will be abolished next year.

Therefore investors should be aware of the fact that the rising stock rates of the last two weeks in Europe and the USA might be a ‘dead cat bounce’, instead of the start of a secular bull market and that the road of stock prices might lead further down in the coming weeks of Q2 results.