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Q1 Earnings Season Beyond the Halfway Mark

Sheraz Mian

Thursday, April 25, 2013

Stocks were moving up in recent days despite soft economic data at home and abroad. But we do have a positive-looking labor market report this morning from the Jobless Claims data, which surprisingly came in better than expected. Not that it matters, but stocks finally have a justifiable reason for going up today.

We have a ton of earnings reports this morning as well. And barring a few standout negative surprises, most of the reports were along the lines of what we have been seeing repeatedly this earnings season – companies are beating bottom line expectations at a rate comparable to recent quarters, but positive revenue surprises are hard to come by.

Including this morning’s long line-up of earnings releases, we now have crossed the halfway mark in the Q1 earnings season; not in terms of the number of companies that have come out with results, but in terms of total market cap. Accounting for this morning’s results from Exxon (XOM), 3M (MMM), Dow Chemicals (DOW), UPS (UPS) and others, we now have Q1 results from 232 S&P 500 companies that combined account for 56.4% of the index’s total market capitalization.
Total earnings for these 232 companies are up +2.2% from the same period last year, with 66.8% beating earnings expectations. Revenues are down -0.7%, with only 33.6% of the companies coming ahead of top-line expectations. The median surprise is +3.3% on the earnings side and negative -0.5% on the revenue side thus far. The +2.2% earnings growth rate is up from +0.6% gain for the same group of companies in 2012 Q4, but is below the 4-quarter average earnings growth rate of +3.3% for the same cohort. The revenue decline of -0.7% compares to the +0.6% growth rate in Q4 and 4-quarter average revenue growth pace of +0.1%. A key standout is the weakness is on the revenue ‘beat ratio’, which at 33.6% is materially below the rate for the same group of companies in recent quarters.
The composite growth rate for Q1, where we combine the results of the 232 companies that are out with the 268 still to come, is for +1.1% growth in earnings on +0.3% higher revenues. The composite earnings and revenue growth for Q1 has been going up since the earning season got underway; it was in negative territory at the start of the reporting cycle.

Sheraz Mian
Director of Research


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