Key Points:
-
With the bulk of the first-quarter 2012 reports already out,
we can confidently say that this reporting season was not only
better than expected, but also better than the preceding
quarter.
-
With earnings reports from roughly 88% of the S&P 500
already out, total earnings are up 7.4% from the year-earlier
period. Approximately 65% of the reported companies have beaten
expectations, with a median earnings surprise of 3.5%.
-
The bulk of the earnings growth has come from top-line gains,
with margins essentially flat. Total revenues for the companies
that have reported are up 4.7% from the same period last year.
However, fewer companies have been able to come out with positive
revenue surprises -- only 38.7% of the companies have beaten
revenue expectations, with a median revenue surprise of
0.9%.
-
At this stage in the fourth quarter, these same companies had
reported a 6.6% increase in total earnings, with roughly 62% of
companies beating expectations and a median surprise of 2.3%.
Results from the Finance sector is the major difference between
the first quarter and fourth quarter, with earnings growth of
18.7% this time compared to a 3.9% gain in the fourth quarter of
2011.
-
Technology and Finance have been the best growth sectors,
with earnings growth of 21.2% and 18.7%, respectively. Half of
the sixteen Zacks sectors have earnings growth in the double
digits, while only five of those had double-digit gains at this
stage in the fourth quarter of 2011.
-
The blowout numbers from
Apple
(
AAPL
) explain a big part of the strong Tech sector earnings.
Excluding Apple's results, Tech's earnings growth drops from
21.2% to 4.1%. Total first quarter earnings growth for the 88% of
S&P 500 companies that have reported results drops to 4.9%
from 7.4% once Apple's earnings are
excluded.
-
Expectations for the full year have improved since the start
of the earnings season, with full-year 2012 earnings projected to
grow by 10%, up from growth expectations of 9.4% at the start of
the reporting season. Growth is expected to continue into next
year, with 2013 earnings expected to grow by 12.5%.
-
The bottom-up 'EPS' estimates for 2012 and 2013, reflecting
projections of analysts at brokerage firms covering individual
companies, currently stand at $103.75 and $117.10,
respectively. The top-down estimate for 2012 and 2013,
reflecting the projections of strategists at brokerage firms,
currently stand at $103.12 and $111.50 for 2012 and 2013,
respectively.
Strong Earnings Season
The first quarter 2012 earnings season has turned out to be way
better relative to pre-season expectations. And with the bulk of
the results now known, this reporting season has also proven to be
better than the fourth quarter of 2011. Most of us suspected in the
run up to the earnings season that the odds of disappointing
results were lower, given the extremely low expectations. But
hardly anyone of us could foretell how good the earnings season has
turned out to be, particularly at this late stage of the earnings
cycle.
Total earnings for the 88% of S&P 500 companies that have
already reported are up 7.4% from the same period last year.
Approximately 65% of the companies are coming ahead of
expectations, with the median surprise at a very good 3.5%. At this
stage in the previous quarter (4Q-11), total earnings for the same
companies were up 6.6%. Approximately 62% of these companies beat
expectations in the fourth quarter, with a median surprise of
2.3%.
Most of the earnings growth is coming from top-line gains, with
margins essentially flat from the year-earlier level. Revenues for
the companies that have already reported are up 4.7% year over
year, though only 38.7% have come out with positive revenue
surprises, with a median surprise of 0.9%.
As the Earnings Scorecard table below shows, the Tech and
Finance sectors have been major growth drivers, though overall
growth is fairly well dispersed with half of the sixteen Zacks
sectors showing double-digit earnings growth.
Blowout results from
Apple
(
AAPL
) no doubt play a major role in the Tech sector's strong
performance. Excluding Apple's results, the sector's earnings
growth drops to only 3.4% from the very impressive 21.8%. Earnings
growth for the 88% of companies that have already reported drop to
4.9% from 7.4%, once Apple's results are excluded.
Here is the scorecard of how the first quarter reporting season has
turned out thus far:
|
The Scorecard - Q1 Reported Results
|
|
Zacks Sectors
|
% Reported
|
Earnings Growth Q1 YoY
|
Earnings % Beat
|
Earnings % Surprise
|
Revenue Growth Q1 YoY
|
Revenue % Beat
|
Revenue % Surprise
|
| Consumer Staples |
81.1% |
1.7% |
70.0% |
3.4 |
2.8% |
42.0% |
0.4 |
| Cons. Discretionary |
93.3% |
8.1% |
67.9% |
4.5 |
9.6% |
35.8% |
1.3 |
| Retail/Wholesale |
52.1% |
8.7% |
84.0% |
2.7 |
4.3% |
48.9% |
1 |
| Medical |
91.1% |
-0.7% |
68.3% |
2.5 |
4.4% |
44.0% |
1.4 |
| Auto |
100.0% |
-19.3% |
75.0% |
7.7 |
4.1% |
31.3% |
0.8 |
| Basic Materials |
100.0% |
-10.1% |
73.9% |
3.9 |
5.3% |
32.6% |
1 |
| Industrial Products |
81.8% |
10.8% |
77.8% |
3.2 |
10.0% |
34.3% |
0.3 |
| Construction |
100.0% |
128.1% |
63.6% |
4.6 |
17.0% |
38.1% |
2.2 |
| Conglomerates |
100.0% |
19.7% |
100.0% |
8.1 |
0.3% |
35.7% |
0.8 |
| Computer and Tech |
80.0% |
21.2% |
69.6% |
4.8 |
12.9% |
42.3% |
1.3 |
| Aerospace |
100.0% |
13.6% |
66.7% |
6.9 |
8.3% |
33.3% |
1.6 |
| Oils and Energy |
97.6% |
-4.9% |
43.9% |
-1.8 |
4.4% |
31.0% |
0.4 |
| Finance |
98.7% |
18.7% |
67.5% |
4.3 |
1.7% |
46.6% |
1.6 |
| Utilities |
95.1% |
-6.0% |
41.0% |
0 |
-0.7% |
17.5% |
-0.1 |
| Transportation |
100.0% |
23.5% |
66.7% |
9.1 |
8.7% |
33.3% |
0.2 |
| Business Services |
89.5% |
15.6% |
55.6% |
1.2 |
7.2% |
48.5% |
0.9 |
| S&P 500 |
88.20% |
7.4% |
65.3% |
3.5 |
4.7% |
38.7% |
0.9 |
Expectations Remain Low
Estimates have started going up a little in recent days, though
they still remain quite low relative to what we have seen thus far
this season.
Most of the remaining companies still to report results are in the
retail sector, though we do have a number notable tech companies
such as
Dell
(
DELL
) and
Cisco
(
CSCO
) coming out with results as well. Many important retail players
such as
Wal-Mart
(
WMT
),
Home Depot
(
HD
) and
Target
(
TGT
) still have to report results. In total, these 59 S&P 500
companies are expected to show an earnings drop of 1.9% from the
year-earlier level. A major contributor to the negative growth
expectation is Dell, which is expected to see earnings decline from
the year-earlier level.
The first quarter is expected to be the low point in terms of
earnings growth this year, with a meaningful ramp-up apparent in
current growth expectations for the second quarter and the rest of
the year.
|
Growth Expected - Total Net Income
|
|
Zacks Sectors
|
2Q-12E YoY
|
2Q-12E QoQ
|
1Q-12A YoY
|
1Q-12A QoQ
|
4Q-11A YoY
|
2011A YoY
|
2012A YoY
|
2013A YoY
|
| Consumer Staples |
-2.3% |
13.4% |
1.7% |
-10.3% |
4.6% |
9.2% |
4.1% |
9.70% |
| Consumer Discretionary |
-3.5% |
1.5% |
8.1% |
-22.6% |
16.1% |
20.1% |
11.7% |
16.80% |
| Retail/Wholesale |
4.5% |
-10.3% |
8.7% |
9.0% |
-0.3% |
11.3% |
12.6% |
13.20% |
| Medical |
-4.0% |
-2.4% |
-0.7% |
6.4% |
1.2% |
8.0% |
1.8% |
7.10% |
| Auto |
-24.8% |
0.2% |
-19.3% |
38.4% |
-7.3% |
6.8% |
8.2% |
17.10% |
| Basic Materials |
-14.1% |
-1.3% |
-10.1% |
60.8% |
-12.4% |
30.5% |
1.0% |
20.30% |
| Industrial Products |
11.6% |
14.1% |
10.8% |
2.2% |
16.9% |
37.3% |
14.9% |
14.20% |
| Construction |
25.5% |
72.7% |
128.1% |
-25.3% |
63.3% |
-4.6% |
39.1% |
39.90% |
| Conglomerates |
7.3% |
1.5% |
19.7% |
0.4% |
-75.2% |
7.0% |
16.2% |
13.70% |
| Computer and Tech |
4.4% |
0.1% |
21.2% |
-13.9% |
30.0% |
22.8% |
14.8% |
13.90% |
| Aerospace |
-8.4% |
-4.8% |
13.6% |
-14.5% |
10.5% |
11.5% |
-2.4% |
11.60% |
| Oils and Energy |
-12.8% |
4.4% |
-4.9% |
3.9% |
4.0% |
35.9% |
-1.5% |
10.60% |
| Finance |
49.5% |
-11.8% |
18.7% |
35.3% |
25.3% |
4.3% |
28.4% |
13.70% |
| Utilities |
-10.1% |
-6.1% |
-6.0% |
29.8% |
-0.6% |
4.3% |
-6.0% |
9.90% |
| Transportation |
10.8% |
23.0% |
23.5% |
-14.7% |
16.2% |
-2.8% |
16.8% |
15.20% |
| Business Services |
11.3% |
6.7% |
15.6% |
-6.7% |
12.4% |
19.7% |
13.4% |
13.40% |
| S&P 500 |
3.8% |
-1.2% |
7.4% |
5.7% |
8.6% |
15.2% |
10.0% |
12.50% |
Revenue Driving Growth
While the year-over-year top-line growth has been respectable in
the quarter, positive revenue surprises have been on the lower side
relative to recent quarters. The best performer again was Tech,
which with sizable help from Apple, had a 12.9% revenue growth.
Tech's top-line is expected to continue into the second quarter,
with growth expected to be 7.9% at present. For the full year, Tech
is expected to produce revenue gains of 8.2%.
Aggregate revenue growth is expected to be flat in the second
quarter, but ramp up in the back half of the year, with full-year
gains of 5.1%. Revenues are expected to increase an additional 4.9%
in 2013. Given revenue's strong correlation with nominal global
GDP, a lot will be riding with the growth outlook for the world
economy.
|
Growth Expected - Total Revenue
|
|
Zacks Sectors
|
2Q-12E YoY
|
2Q-12E QoQ
|
1Q-12A YoY
|
1Q-12A QoQ
|
4Q-11A YoY
|
2011A YoY
|
2012A YoY
|
2013A YoY
|
| Consumer Staples |
-10.0% |
-1.8% |
2.8% |
-9.9% |
5% |
7.4% |
-5.9% |
4.1% |
| Consumer Discretionary |
3.2% |
2.5% |
9.6% |
-7.6% |
12% |
12.3% |
5.7% |
5.4% |
| Retail/Wholesale |
6.6% |
2.5% |
4.3% |
-4.3% |
10% |
6.6% |
6.8% |
4.8% |
| Medical |
1.5% |
0.2% |
4.4% |
-0.1% |
4% |
5.5% |
8.1% |
5.0% |
| Auto |
0.4% |
4.0% |
4.1% |
-3.3% |
11% |
18.3% |
1.8% |
7.1% |
| Basic Materials |
1.2% |
4.3% |
5.3% |
4.7% |
8% |
18.2% |
6.3% |
6.0% |
| Industrial Products |
9.7% |
9.1% |
10.0% |
-1.4% |
13% |
19.9% |
9.1% |
7.6% |
| Construction |
11.5% |
12.1% |
17.0% |
-2.6% |
12% |
4.2% |
12.1% |
11.0% |
| Conglomerates |
3.1% |
3.9% |
0.3% |
-4.4% |
-2% |
3.7% |
3.9% |
7.0% |
| Computer and Tech |
7.9% |
2.7% |
12.9% |
-8.5% |
14% |
13.7% |
8.2% |
9.0% |
| Aerospace |
4.0% |
1.2% |
8.3% |
-6.3% |
1% |
-1.1% |
3.7% |
2.6% |
| Oils and Energy |
-7.9% |
-4.8% |
4.4% |
-0.1% |
14% |
22.0% |
-2.3% |
3.0% |
| Finance |
-1.0% |
-5.7% |
1.7% |
7.8% |
-10% |
-3.1% |
0.8% |
3.9% |
| Utilities |
5.1% |
2.5% |
-0.7% |
0.3% |
4% |
3.3% |
4.9% |
3.5% |
| Transportation |
5.4% |
6.3% |
8.7% |
-2.8% |
11% |
12.6% |
7.2% |
7.5% |
| Business Services |
3.5% |
2.3% |
7.2% |
-4.2% |
9% |
9.2% |
4.7% |
5.7% |
| S&P 500 |
0.4% |
-0.1% |
4.7% |
-1.5% |
6% |
9.0% |
5.1% |
4.9% |
Note: Data in this report, unless stated otherwise, is through
the morning of Tuesday 5/8/2012.
We use the convention of referring to the next full fiscal year to
be completed as 2012, but not all firms are on December fiscal
years, this can cause discontinuities in the data. The data is
based on FY1, not based on 2012, even though we may call it 2012 in
the report. All numbers, including historical ones, reflect the
current composition of the S&P 500, thus some historical
numbers may differ from those reported by S&P which are based
on the composition of the index at the time of the reports.
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