For Immediate Release
Chicago, IL – March 12, 2014 – Zacks Director of Research Sheraz Mian says, “Positive earnings surprises started off on the weak side, but even those turned out to be better than what we had in the earlier quarters.”
Closing the Books on Q4 Earnings Season
With the 2013 Q4 reporting season now mostly behind us, it is fair to say that this earnings season was no better or worse than what we have been seeing in the last few quarters. In some respects, the Q4 earnings season was an improvement over the recent past.
Specifically, total earnings for the S&P 500 reached a new all-time quarterly record and even earnings growth for the quarter was the highest of the year (even after accounting for easy comparisons). Positive surprises started off on the weak side, but even those turned out to be better than what we had in the earlier quarters.
Where Q4 was no different from other recent reporting cycles was in terms of top-line growth and company guidance. Revenue growth has been a challenge for companies for quite some time and we didn’t see any improvement on that front in Q4 either.
Guidance has been no better – it has been week for more than a year now and Q4 provided no improvement on that front. Part of the guidance weakness is likely a function of management’s need for expectations management. The need for conservatism aside, one has to be extremely cynical to believe that management teams would guide lower while knowing that their business outlook was stable, if not improving. Weather provided a good excuse for many companies as well, with Gap (GPS-Free Report) and DuPont (DD-Free Report) as the latest to cite this year’s tough winter in guiding lower for Q1.
The 2013 Q4 Scorecard
The earnings season is almost over, with results from 496 S&P 500 members already out. Total earnings for these companies are up +9.2% from the same period last year, with 64.3% beating earnings expectations with a median surprise of +2.4%. Total revenues for these companies are barely in the positive, up only +0.7%, with 56.0% beating revenue expectations with a median surprise of 0.6%.
The +9.2 % ‘headline’ total earnings growth rate definitely looks fairly strong, particularly when compared to the growth rate for this same group of 496 companies in the last few quarters. Easy comparisons for three companies – Bank of America (BAC-Free Report), Verizon (VZ-Free Report), and Travelers (TRV-Free Report) – account for a big part of the strong Q4 earnings growth. Exclude these three and total earnings growth for the S&P 500 companies that have reported drops by almost half. Performance on the revenue front is notably sub-par relative to recent quarters, dragged down by weakness in the Finance and Energy sectors.
The composite picture for Q4 – combining the results for the 496 companies that have reported already with the 4 still to come – is for earnings growth of +9.1%. This will be the highest quarterly growth pace of 2013, with easy comparisons playing a non-trivial role propping up the growth rate. But it’s not all easy comparisons, as total earnings for the index are on track to reach a new all-time quarterly record.
Trends on the estimate revision front have been negative for a while, but we could afford to overlook such details in the Fed-inspired rally. It will be interesting to see if investors will continue to shrug estimate cuts in the post-QE world.
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