For Immediate Release
Chicago, IL – July 9, 2012 – Zacks Director of Research Sheraz Mian says the second-quarter results from 26 S&P 500 companies have been painting a less-than-inspiring earnings picture.
2Q Early Signs: Not Looking Too Good
Expectations for the second quarter 2012 earnings season are coming down as the early reporting companies highlight global growth concerns. A number of the 26 companies that have already reported results -- and many of those that have pre-announced -- have been pointing towards the slowdown in China and problems in Europe.
It is perhaps too early to draw any firm conclusions from the small sample of companies at our disposal. But it would make sense for the earnings picture to deteriorate given the tough macro-backdrop all over the world. There is hardly any place in the world at present that can be described as in good economic shape. Europe is in recession; China, India and Brazil are slowing down; and the outlook for the U.S. economy does not look that favorable, either.
The combination of these macro headwinds is showing up in down-trending earnings forecasts, with current expectations for second-quarter earnings to be up only 0.6%. This is down from growth expectation of 2.3% at the end of May and close to 5% in mid-April. Excluding Finance, this modest growth turns to a 5% decline.
- The second-quarter 2012 reporting season will ‘unofficially’ get underway next week with Alcoa’s (AA) results, though ‘officially’ earnings season started last month, and we have results in hand from 26 S&P 500 companies already.
- These early reports do not paint a very inspiring picture of second quarter earnings season. Not only do the growth numbers for these companies compare unfavorably to the prior quarter, but the tone of management guidance has also been underwhelming.
- On the earnings calls and pre-announcements, we are starting to hear a lot more about global growth uncertainties than was the case last quarter. We saw this with the earnings results from FedEx (FDX) and Nike (NKE) and pre-announcements from operators like Procter & Gamble (PG), Ford (F) and others.
- Expectations for the 95% of companies still to report results continue to come down, with total earnings expected to increase 0.6% from the same period last year. This growth expectation is down from 2.3% at the end of May and close to 5% as the first quarter reporting season was getting into high gear in early April. This growth expectation reflects a 0.3% drop in revenue and an 8-basis point expansion in net margins.
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Contact: Sheraz Mian
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