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Earnings Trends

Q1 Earnings Season Coming to an End

The Q1 earnings season is effectively over, though reports from a few companies are still awaited. It’s been an ‘average’ earnings season, with some aspects that fall in the ‘below-average’ category. But overall, the Q1 earnings season has turned out to be not materially different from what we have been seeing over the last few quarters.

As of Friday, May 24th, we have Q1 results from 489 S&P 500 companies. Total earnings for these companies are up +2.8%, with 65.2% of companies beating earnings expectations. Revenues are down -1%, with only 41.9% of the companies coming ahead of top-line expectations. The median surprise is a respectable +2.8% for earnings and a very weak negative -0.4% for revenues.

The Q1 earnings growth rate and ‘beat ratio’ is comparable to the last few quarters. But the revenue growth rate is lower, with the beat ratio particularly weak in the current period. The composite growth rate for Q1, where we combine the results of the 489 companies that are out with the 11 still to come, is for a rise of +2.4% in total earnings on -1.1% lower revenues.

The predominantly negative tone of company guidance has prompted downward adjustments to estimates for the second quarter 2013, though estimates for the second half of the year have held up quite well. Total earnings in the second quarter are now expected to be up +1%, which is down from +4.8% in mid-March. As a result, the expected total earnings growth for this year has come down to +6% from 6.7% at the start of the Q1 earnings season. Consensus expectations reflect total earnings to increase an additional +11.5% in 2014.

Recent economic data from home and abroad will likely prompt a reassessment of these consensus expectations. But the big question is with respect to how the market would react to this expected downward adjustment to earnings expectations. It has essentially shrugged such revisions thus far, banking instead on the continued Fed support to keep the rally in place. With recent developments on the Fed front indicating that the central bank could be moving towards a ‘tapering’ decision in the not-too-distant future, the underwhelming earnings picture may finally start getting more attention.


Key Points

  • Total earnings for the 489 S&P members that have already reported first-quarter 2013  results are up +2.8%, with 65.2% of the companies beating earnings expectations. Total revenues are down -1%, with only 41.9% of the companies coming ahead of revenue expectations.  
  • The earnings growth rate and ‘beat ratio’ for these 489 companies is comparable to what these same companies reported in the last few quarters, though revenue performance is on the weak side.
  • Tech earnings were weak last quarter and they are even weaker this time around. The sector’s earnings weakness is broad based and not solely due to the negative comparisons for Apple (AAPL - Analyst Report) and Intel (INTC - Analyst Report) .
  • The composite growth rate for Q1, combining the 489 reports that have come out with the 11 still to come, is for +2.4% earnings growth on -1.1% lower revenues and modestly higher margins.
  • Total earnings are on track to reach a quarterly record in Q1 at $252.1 billion. Expectations are for a modestly lower total in Q2 and significant ramp up in the second half of the year. Total earnings in Q3 and Q4 are expected to reach $259.2 billion and $275.9 billion.   
  • Net margins are only modestly up in Q1, but start expanding from the third quarter onwards. For the full year 2013, net margins are expected to top the 2006 peak and expand even more in 2014.
  • Total earnings are expected to increase by +6% in 2013 and +11.5% in 2014. In dollar terms, earnings are expected to total $1.02 trillion in 2013 and $1.14 trillion in 2014, up from the 2012 total of $965 billion.
  • The bottom-up ‘EPS’ for the S&P 500 for 2013 and 2014 currently stands at $108.95 and $121.39, respectively. The top-down ‘EPS’ estimates for 2013 and 2014 currently stand at $107.83 and $114.80. It seems that Wall Street strategists are a bit less enthusiastic about the earnings picture than the analysts.  
     
READ THE FULL EARNINGS TRENDS REPORT by clicking here: Q1 Earnings Season Coming to an End

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