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Deluge of Q3 Earnings on the Way

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Friday, October 16, 2015

Stocks are on track to start today’s session essentially flat, with the major indexes making decent gains this week despite soft economic data and a weak start to the Q3 earnings season. Earnings will be the only topic next week, with not much on the economic calendar but almost a quarter of the S&P 500 members are on deck to report quarterly results.  

We got respectable results from General Electric (GE - Free Report) this morning despite the currency and energy sector headwinds, though the stock’s weakness this morning is likely nothing more than good old profit taking following its strong recent run up (up +11% year to date). That said, the conglomerate’s orders are down -26%, with energy sector orders down -38% and profits from that space down -12%.

Gains in the transportation, aviation, power and water spaces helped offset some of the energy headwinds, but overall earnings were still down -13.7% from the year-earlier period. These issues notwithstanding, GE’s strategic transition remains in place, with its swap of the Synchrony (SYF - Free Report) consumer finance arm on track for next week.  

Including GE and other reports this morning, we now have Q3 results from 56 S&P 500 members that combined account for 17.8% of the index’s total market capitalization. Total earnings for these companies are up +3.9% from the same period last year on -0.1% lower revenues, with 69.6% beating EPS estimates and 41.1% coming ahead of revenue estimates. This is weak performance relative to what we saw from this same group of 56 index members in other recent periods, with growth pace notably going down once contribution from easy comparisons at Bank of America (BAC) are excluded from the numbers. Surprises have started looking weaker relative to other recent periods, with the revenue beat ratio of 41.1% at this stage down from 48.2% in the preceding quarter and the 4-quarter average of 51.3% for the same cohort of players.

Looking at Q3 as a whole, combining the actual results from the 56 companies that have reported with estimates for the still-to-come 444 index members, total earnings are expected to be down -4.5% on -4.8% lower revenues. Estimates for Q4 have started to come down, with total earnings for the S&P 500 index now expected to be down -5.2% from the same period last year, which is down from an expected decline -4.7% last Friday.

The Finance and Energy sectors are having the opposite effects on the aggregate growth picture for Q4, as is the case in Q3. Excluding Finance, total Q4 earnings would be down an even bigger -9% while removal of the Energy drag results in flat earnings for the S&P 500 index relative to the same period last year.

Sheraz Mian
Director of Research

Note: In order to get an email alert each time this author publishes a new article, click on the ‘Follow Author’ link at the bottom of the top-right box of links. In addition to this pre-market open daily article about the market, economy, and the corporate earnings picture, Sheraz also provides detailed earnings analysis in his weekly Earnings Trends and Earnings Preview reports.

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