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Earnings Reports Improving
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ShareSo far, 37% of the S&P 500 firms have reported (185 companies). The results have been better than most have feared, and over the past few days the results have been getting better. The median year-over-year growth rate has climbed sharply. We are now back in double digits, which if maintained would make this the 21st straight quarter of double-digit growth. Just last week, the median growth rate stood at 7.14%, the surprise ratio at 2.1:1 and a median surprise of 2.90%. Well, in just a few days, the median growth has jumped to 10.6%, and the surprise ratio to 2.56:1. The median surprise has declined slightly to 2.70%, but that is still a very healthy level. While the surprise ratio is still below the 3:1 that we have come to expect, it is not that far away anymore.
Every sector now has more positive than negative surprises. Energy is now in the lead with 25.8% median year over year growth. That, however, should fade since the unreported firms in the sector have a median expected growth rate of -7.3%. Both Energy and Telecom, which holds the number two slot on the leader board, have had relatively few companies report.
Health Care might be having the most impressive earnings season overall, with a median growth rate of 18.7%, a surprise ratio of 4.67:1 and a median surprise of 3.30%.
Every sector but Financials and Tech has a double-digit growth rate. While Tech is lagging badly on the median year-over-year growth rate, it is doing well on the other metrics, with a surprise ratio of 3.5: and a median surprise of 3.68. In other words, while many Tech stocks reported earnings that were lower than a year ago, they were still significantly better than the analysts had expected them to report. The high profile tech stocks have mostly come in better than expected.
Keep in mind that the growth rates shown in these tables is only for those firms that have already reported, not for the sector as a whole. Sectors are not homogeneous, and with almost two thirds of the firms still yet to report, the results could change significantly, not only for the S&P 500 as a whole, but the relative performance of the sectors even more so.
| Sector | Q3 Median Growth Rep. | Q4 Median Proj. Growth. | 2006 Median Rep. Growth | 2007 Median Proj. Growth | % Report | Median % Surprise | # Pos Surprise | # Neg Surprise | # Match |
| Energy | 25.76% | 23.91% | 71.92% | 31.15% | 20.59% | 0.00% | 3 | 2 | 2 |
| Telecom | 23.02% | 18.51% | -3.15% | 39.97% | 22.22% | 4.05% | 2 | 0 | 0 |
| Healthcare | 18.65% | 13.20% | 8.42% | 14.92% | 33.96% | 3.30% | 14 | 3 | 1 |
| Industrial | 12.77% | 12.03% | 18.37% | 12.53% | 48.15% | 1.57% | 16 | 5 | 5 |
| Materials | 12.50% | 13.33% | 23.08% | 9.55% | 32.14% | 2.27% | 6 | 2 | 1 |
| Cons. Stap. | 12.50% | 5.35% | 7.40% | 10.64% | 35.90% | 3.77% | 9 | 2 | 3 |
| Cons. Disc. | 12.08% | 12.12% | 10.40% | 12.07% | 34.83% | 3.33% | 23 | 7 | 1 |
| Financial | -0.05% | 0.89% | 11.33% | 0.88% | 48.91% | 0.74% | 24 | 19 | 2 |
| Tech | -2.78% | 10.71% | 8.94% | 11.01% | 45.83% | 3.68% | 21 | 6 | 6 |
| S&P 500 | 10.62% | 8.83% | 12.67% | 10.53% | 37.00% | 2.70% | 118 | 46 | 21 |
The smaller brothers of the S&P 500, the MidCap 400 and the S&P SmallCap 600 are not as far along in the reporting season as the S&P 500 is. Only 22.0% of the S&P 400 stocks, and just 20.3% of the S&P SmallCap 600 stocks have reported so far. By and large the results have been better for the big boys than for the small fry.
For the mid-caps, the median growth rate is only 5.41% and the surprise ratio stands at 2.13, with a median surprise of 2.2%. While that is hardly the end of the world, it is significantly softer than the results being posted by the S&P 500. As with the S&P 500, the Health Care and Industrial stocks are having a good season. Financials seem to be having a rough season regardless of capitalization size. Energy and Utilities are showing worse results but each of those sectors has seen only a single firm report and thus it is way to0 early to draw any conclusions about the sectors. The real surprise in the mid-caps is the exceptional surprise profile of the consumer discretionary sector. While the 3:1 surprise ratio is certainly good, the magnitude of the surprises is a stunning 10.4% median surprise. This nearly matches the median growth rate of 10.7% for the sector. In other words, these stocks were expected to post results which were flat from a year ago, and instead are posting double-digit growth.
| Sector | Q3 Median Growth Rep. | Q4 Median Proj. Growth. | 2006 Median Rep. Growth | 2007 Median Proj. Growth | % Report | Median % Surprise | # Pos Surprise | # Neg Surprise | # Match |
| Healthcare | 15.79% | 23.68% | 6.06% | 20.62% | 11.63% | 6.98% | 5 | 0 | 0 |
| Industrial | 13.80% | 7.35% | 18.67% | 12.89% | 24.59% | 3.92% | 8 | 3 | 4 |
| Cons. Disc. | 10.69% | -18.85% | 4.03% | 0.47% | 18.42% | 10.38% | 9 | 3 | 2 |
| Tech | 8.00% | 13.79% | 21.93% | 5.86% | 31.82% | 2.63% | 13 | 3 | 5 |
| Materials | 4.92% | 9.09% | 18.18% | 9.28% | 32.14% | 1.67% | 5 | 3 | 1 |
| Financial | 0.00% | 4.28% | 2.27% | 4.75% | 37.29% | 0.00% | 9 | 9 | 4 |
| Utilities | -6.56% | 15.56% | 14.63% | 4.07% | 3.85% | -9.52% | 0 | 1 | 0 |
| Energy | -48.65% | -16.36% | 320.69% | -38.25% | 4.35% | -29.63% | 0 | 1 | 0 |
| S&P 500 | 5.41% | 5.86% | 12.12% | 7.87% | 22.00% | 2.21% | 49 | 23 | 16 |
Turning now to the small-caps, the median growth rate is a very healthy 10.9%, even exceeding the S&P 500, but the rest of the metrics are notably weaker. The median surprise is 0.0% and the surprise ratio just a hair over 1.5:1. Four sectors are showing median growth rates over 25%, which would be extraordinary if it holds up through the rest of reporting season. The biggest positive surprises have been in the Consumer Staples area, with a median surprise of 14.9%. Quite simply these stocks are blowing away the consensus expectations. Energy has the top spot, but with only two reports in, it’s a little bit early to get too excited about that. Health Care and Tech round out the over 25% club. Of the two, Health Care is doing better, not only by virtue of its slightly higher growth rate, but due to its 7:1 surprise ratio and 5.7% median surprise. Small-cap Consumer Discretionary stocks are doing significantly worse than their mid-cap brothers, with a median growth rate of -3.2% and a median surprise of only 0.88%. Financials have been ugly, pretty much regardless of size, but especially so among the small-caps with a median growth rate of -13.1%.
| Sector | Q3 Median Growth Rep. | Q4 Median Proj. Growth. | 2006 Median Rep. Growth | 2007 Median Proj. Growth | % Report | Median % Surprise | # Pos Surprise | # Neg Surprise | # Match |
| Energy | 50.62% | 6.75% | 111.53% | 14.00% | 7.41% | 4.34% | 2 | 0 | 0 |
| Cons. Stap. | 45.95% | 15.15% | 11.11% | 21.27% | 21.74% | 14.86% | 4 | 1 | 0 |
| Healthcare | 25.81% | 19.51% | 21.48% | 27.35% | 14.29% | 5.71% | 7 | 1 | 3 |
| Tech | 25.55% | 21.70% | 27.62% | 18.14% | 15.08% | 0.67% | 10 | 5 | 4 |
| Materials | 17.95% | 125.00% | 3.27% | 25.00% | 30.00% | 3.57% | 5 | 3 | 1 |
| Industrial | 15.01% | 17.16% | 33.95% | 21.35% | 24.18% | -1.69% | 9 | 11 | 2 |
| Cons. Disc. | -3.23% | 10.00% | 9.73% | -4.70% | 17.70% | 0.88% | 11 | 7 | 2 |
| Financial | -13.13% | 0.00% | 11.76% | -6.62% | 36.17% | 0.00% | 14 | 13 | 7 |
| S&P 500 | 10.87% | 12.00% | 17.41% | 12.10% | 20.33% | 0.00% | 62 | 41 | 19 |
Next we look at how things might change in the S&P 500 as the season progresses. Here too things look good, with the expected growth rate of the 63% of stocks yet to report standing at 7.3%. Thus while we are likely to fade back to high single digit growth when all is said and done, it will be comfortably in the high single digits. The leader board should change significantly with Energy and Consumer Discretionary fading and Tech improving significantly (of course assuming that the remaining stocks meet expectations). Health Care and Industrials should maintain their leading positions. Utilities, which have yet to have a single firm report, should be towards the basement, with a median expected growth of only 1.2%. Financials are expected improve somewhat, although that sector looks ripe for disappointments.
| Sector | Q1 Rep. Growth | Q2 Rep. Growth | Q3Proj./ Rep. Growth | Q4 Proj. Growth | 2006 Rep. Growth | 2007 Proj. Growth | 2008 Proj. Growth |
| Industrial | 14.22% | 17.50% | 14.51% | 15.03% | 19.93% | 17.58% | 13.95% |
| Healthcare | 13.37% | 16.67% | 13.73% | 14.66% | 14.90% | 16.44% | 15.42% |
| Tech | 13.33% | 17.13% | 13.68% | 18.75% | 13.04% | 18.90% | 18.46% |
| Cons. Stap. | 8.94% | 7.41% | 9.09% | 7.35% | 5.43% | 11.51% | 11.07% |
| Financial | 8.73% | 18.25% | 5.49% | 7.11% | 15.66% | 11.99% | 10.70% |
| Materials | 14.61% | 15.08% | 5.00% | 2.17% | 23.15% | 12.50% | 14.10% |
| Telecom | -6.67% | -9.38% | 4.76% | 0.00% | 14.36% | -12.75% | 10.17% |
| Utilities | 16.01% | 14.64% | 1.16% | 14.96% | 3.92% | 7.62% | 7.55% |
| Cons. Disc. | 2.98% | 10.81% | 0.38% | 8.43% | 14.87% | 5.48% | 14.49% |
| Energy | -0.59% | 13.99% | -7.37% | 17.92% | 22.61% | 3.61% | 10.30% |
| S&P 500 | 10.21% | 13.95% | 7.32% | 10.81% | 14.08% | 11.38% | 13.71% |
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| Market Summary | May 24, 2012 08:44 am ET |
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