Q3 Earnings Season Mostly Behind Us

The bulk of the third quarter reporting season is now behind us, with results from 460 companies in the S&P 500 or 92% of the index’s total membership, already known. The earnings season has ended for half of the 16 Zacks sectors, with most of the remaining sectors waiting for only a handful of reports still to come. Retail has the most quarterly reports pending, with third quarter results from 29.8% of the sector’s companies still to come.

Any way you look at it, it has been a fairly weak earnings season; the weakest since the start of the current earnings cycle in 2009. Importantly, this earnings season has raised credible doubts about the earnings outlook for the fourth quarter and beyond.

Total earnings for these 460 companies are down 2.2% from the same period last year, with 62.6% of the companies beating earnings expectations. On the revenue side, total revenues are down 3.8% and only 38% of the companies are able to beat revenue expectations. The growth rates look even weaker when Finance is excluded from the aggregate numbers. Excluding Finance, total earnings and revenues are down 6.9% and 4.9% from the same period last year, respectively.

The positive surprise from Cisco ( CSCO - Analyst Report ) aside, results from the Tech sector have been quite weak this quarter, as we have seen in reports from a host of bellwethers show. Total earnings for the 87% of Tech sector companies that have already reported results are down 4.3% from the same period last year, which compares to 9.2% positive growth rate for the same group in the second quarter.

Key Points:

• The bulk of the third-quarter 2012 reporting season is now behind us, with results from 460 companies in the S&P 500 already out. Overall results are weaker than what we have been seeing in quite a while.
• Total earnings for these companies are down 2.2% from the same period last year, with only 62.6% of the companies beating earnings expectations.
• Total revenues are down 3.6% and only 38% of the companies have come out with positive revenue surprises.
• Unlike recent quarters, results from the Tech sector have been disappointing. Cisco’s positive surprise stands in contrast to disappointing results from industry leaders like Amazon ( AMZN - Analyst Report ) , Google ( GOOG - Analyst Report ) , Apple ( AAPL - Analyst Report ) and Intel ( INTC - Analyst Report ) show. Total Tech earnings are down 4.3%, with only 61.7% of them beating earnings expectations; a significantly weaker performance than we have been seeing from the sector in recent quarters.
• Finance and Construction are the only sectors with double-digit earnings growth in the quarter, with Finance earnings up 23.3%. Excluding Finance, total third quarter earnings for the S&P 500 would be down 6.9%.
• Basic Materials is the weakest, both in terms of growth as well as negative surprises. Energy is a close second in terms of earnings growth, with total quarterly earnings down 19.8%.
• The composite earnings growth rate, combining the reports that have come out with those still to come, for the third quarter is for flat growth for the S&P 500 as a whole and a decline of 4% excluding Finance.
• Unlike the third quarter, estimates for the following quarter remain quite strong, though they have come down in recent days. Total earnings expected to be up 3.5% in the fourth quarter at present, which is a drop from the 7%-plus growth rate expected at the start of the third quarter reporting season.
• Net margins are barely up in the aggregate, but declining once Finance is excluded. Nine of the 16 sectors have negative margin comparisons in the third quarter, including Tech.
• Total earnings for the full years 2012 and 2013 are expected to be up 5% and 11% respectively. Revenues are expected to be essentially flat this year (down 0.8% %), but up 3.6% in 2013.

READ THE FULL EARNINGS TRENDS REPORT HERE: Q3 Earnings Season Mostly Behind Us