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Q4 Earnings In Line, But Guidance Down

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Thursday, January 29, 2015

Stocks appear on track to start today’s session on a positive note after unusual weakness in the last few sessions. Earnings remain in the spotlight on a super-busy reporting day, with more than 35 S&P 500 members reporting results this morning (and other 12 index members reporting after the close today).

Including this morning’s reports from Dow Chemicals , Ford (F - Free Report) , ConocoPhillips (COP - Free Report) and others, we now have Q4 results from 188 S&P 500 members that combined account for 49.5% of the index’s total market capitalization. Total earnings for these companies are up +6.6% from the same period last year, with 71.3% of the companies beating earnings estimates. Total revenues are up +2.4%, with 48.9% beating top-line estimates.

The results thus far offer a mixed comparison to what we have seen from the same group of companies in recent quarters. The earnings growth rate is higher than what we saw from these companies in Q3, but below the 4-quarter average growth rate, while the revenue growth rate is the other way around. With respect to surprises, the earnings beat ratios are in-line with the preceding quarter, but tracking above the 4-quarter average. Revenue beat ratios are on the weak side.

Apple’s (AAPL - Free Report) record quarter has an outsized impact on the aggregate picture at this stage, with the earnings and revenue growth rates no longer comparing favorably to other recent quarters. The Apple effect is particularly notable for the Technology sector, where total earnings are currently up +14.9% on +11.5% higher revenues, a better performance than we have seen from this group of companies in a number of quarters. But the picture isn’t that strong once Apple is excluded from the numbers; the Q4 growth rates outside of Apple are actually lower compared to other recent quarters.

Estimates for the current and following quarter have started coming down in a big way, with the Energy sector again playing a leading role as it did in the run up to the start of the Q4 earnings season. Total earnings for the S&P 500 companies in Q1 are now expected to be down -0.5% from the same period last year, a big drop from the +10.8% growth that was expected in early October.

Sheraz Mian
Director of Research

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