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 Companies cutting or flat-lining their capital expenditures in 2016
outpace those that say they will increase spending by a factor of
more than two to one, according to a Reuters analysis.
Companies in industries as diverse - and relatively strong - as
healthcare, consumer goods and restaurants are among those
tightening their belts in yet another sign that economic growth in
2016 may be anemic.
For instance, McDonald's Corp, which saw its stock jump 26.1 percent
in 2015 and is trading at record levels now, said it would keep
capex flat with 2015 at about $2 billion, the company's lowest
budget in more than five years.
Drugmaker Eli Lilly is holding its capex budget flat and Verizon
Communications Inc said it plans to cut its budget from $17.8
billion, to between $17.2 and $17.7 billion.
"I think companies are going to be lean and mean and are going to
keep the purse strings tight and only spend where absolutely
necessary, because cash isn't coming into them," said Kim Forrest,
senior equity research analyst at Fort Pitt Capital Group in
Pittsburgh.
Companies typically invest more when they feel confident that the
economy is improving, so a downturn in capital spending could
portend further weakness ahead.
That corporate caution follows another expected decline in revenues
in the fourth quarter and data showing U.S. economic growth braked
sharply in the quarter.
To be sure, some well-heeled companies in healthy industries are
bumping up their investments.
Medical technology company Stryker expects to have capital
expenditures as high as $450 million in 2016, up from $270 million
in 2015. Facebook plans capital expenditures between $4
billion and $4.5 billion this year, up from $2.5 billion.
But even growth in information technology spending - which has been
strong in recent years - appears to be off its recent peaks,
according to International Data Corp analyst Stephen Minton.
"U.S. companies will increase their spending, but not by the rate it
has been over the last two years," he said.
Hardware spending in 2016 for all U.S. companies is expected to grow
3 percent to about $133 billion. Telecommunications and financial
services companies - typically among the biggest spenders on IT -
are expected to have flat to little growth in spending, he said.
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At least 43 companies plan to cut, or leave unchanged, their capital
spending levels in 2016, while about 20 are increasing, according to
a Reuters review of Standard & Poor's 500 companies that have given
explicit early guidance.
Not surprisingly, the collapse in capital spending by energy
companies - which typically lead in capex - appears to be
accelerating.
This year marks the second round of big cuts for energy companies,
which have had to sharply scale back spending because of the drop in
oil prices since mid-2014.
A slew of energy names have announced capex cuts for 2016 including
Hess, Anadarko Petroleum, Halcon Resources Corp, Noble Energy Inc
and Continental Resources Inc.
The broad slump in commodities prices has hit spending by materials
companies, including DuPont, which is cutting capex from $1.4
billion to $1.1 billion, and industrials such as railroads Union
Pacific and Norfolk Southern, both of which slashed capital
spending plans for 2016.
Even airlines, which benefit from low energy prices, are being
careful. Delta Air Lines, for example, said it would hold the line
in 2016 at $3 billion in spending.
"That is really the optimum number that we can execute on," said
Richard Anderson, Delta chief executive.
(Reporting by Caroline Valetkevitch and Marcus E. Howard; Additional
reporting by Anna Driver in Houston, Nick Carey and Susan Kelly in
Chicago, and Jeffrey Dastin in New York; Editing by Linda Stern and
Nick Zieminski; Swetha Gopinath and Sruthi Ramakrishnan in Bengaluru)
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