For Immediate Release
Into the Heart of Earnings Season
Guidance has been overwhelmingly negative over the last few quarters and is not much different thus far in Q3 either, a few notable exceptions aside.
Dow Chemical’s (DOW-Free Report) comment that “the world continues to show hesitant growth at best, particularly in the near term” spotlights the global growth uncertainties. We saw this theme echoed in the report from Caterpillar (CAT-Free Report) as well, as it guided lower. The mining and construction giant noted that “there are encouraging signs, but there is also a great deal of uncertainty worldwide as we look ahead to 2014”. Comments from IBM (IBM-Free Report), Intel (INTC-Free Report), and Yum Brands (YUM-Free Report) earlier in the reporting cycle were to the same effect.
Not all management commentary is negative, with a handful of companies standing out for positive guidance. Ford appeared particularly positive and confident in its outlook, particularly in its ability to turnaround its still-in-loss European operations. But these positive and upbeat comments are drowned out by the broadly negative or tentative guidance from a majority of the companies.
Given this backdrop, estimates for Q4 will most likely come down quite a bit in the coming weeks. And with the market expecting the Fed to wait till early next year to start Tapering its QE program, investors may shrug this coming period of negative estimate revisions, just like they have been doing for more than a year now.
- We are in the thick of the 2013 Q3 earnings season, with results from 212 S&P 500 companies accounting for 47% of the index’s total market capitalization, already out. Total earnings for these 212 companies are up +8.1%, with 67.9% beating earnings expectations. Revenues for these companies are up +3.0%, with a revenue ‘beat ratio’ of 42.0%.
- Unlike Q2, the Finance sector has been less of a growth driver in Q3, with total earnings for the 60.1% of the sector’s total market capitalization that have reported already, up +13.0%. The sector’s growth momentum has decelerated from the last few quarters and industry leaders have disappointed. Excluding Finance, total earnings for the S&P 500 that have been reported would be up +6.4% vs. +1.2% for the same companies in Q2.
- Technology spotlights the ex-Finance variance from Q2, with total earnings for the 45.7% of the sector’s total market capitalization that have reported up +9.6% on +2.0% higher revenues. Strong growth rates at select companies have helped the sector reverse the negative earnings growth trend of the last few quarters.
- The +9.6% earnings growth for the 32 Tech companies that have reported compare to -2% earnings decline in Q2 and the 4-quarter average of -0.5%.
- Total Q3 earnings for all S&P 500 companies, combing the 212 that have reported with the 288 still to come, are expected to be up +2.9%, which reflects +1.2% revenue growth and modest gains in margins. This compares to +3.4% earnings growth in Q2.
- Guidance has been overwhelmingly negative over the last few quarters and the trend from the initial Q3 reports isn’t much different. The quality and tone of company guidance will be key to where estimates for Q4 settle down, which currently remain fairly elevated.
- While there is not much growth, the overall level of total earnings is quite high, with total earnings in Q3 not a lot lower from Q2’s all-time quarterly record. Earnings for the S&P 500 companies are expected to total $257.0 billion in Q3, down from Q2’s record of $260.3 billion.
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