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• AAPL 84% Rate It
• BAC 71% Rate It
• CMI 86% Rate It
• F 81% Rate It
• FDX 86% Rate It

Summary

We have results from only 32 S&P 500 companies at this stage, but what we have seen thus far -- in terms of the actual reports as well as the pre-announcements -- do not inspire much confidence about the rest of the earnings season. If the trend set by these companies holds through the rest of the season, then we probably have a very weak earnings season on our hands.

Expectations were low to begin with, but growing global growth concerns have been pushing them down even further. By the end of next week, we will have a much more representative sample to judge the quality of this earnings season, as by then we will have seen results from almost a quarter of all S&P 500 results.

Key Points

• The second-quarter 2012  reporting season has gotten underway, but reports from the 32 S&P 500 companies that are already out do not inspire much confidence. With results from 90 companies in the index reporting next week, including bellwethers like Intel ( INTC ), IBM ( IBM ), Google ( GOOG ) and Coca Cola ( KO ), we will have a representative-enough sample to judge the quality of this earnings season.
• Of the 30 that have reported results already, only 17 have come out with positive surprises, with a very weak median surprise of 1.1%, down from the 3.6% median surprise for these same companies in the first quarter.
• Total earnings for these 32 companies are flat from the same period last year (up only 0.1%), while these same companies had positive 4.9% growth in the first quarter. This reflects revenue gains of 4% being offset by margin declines of 30 basis points from the same period last year.
• On the earnings calls and pre-announcements, we are starting to hear a lot more about global growth uncertainties than was the case last quarter. We saw this with the earnings results from FedEx ( FDX ) and Nike ( NKE ), and pre-announcements from operators like Cummins ( CMI ), Procter & Gamble ( PG ), Ford ( F ) and others.
• Notwithstanding the weak start to the reporting cycle, it is still quite early to write off the earnings season, with 96% of the companies still to report results. Total earnings for these companies are expected to be up 1.4% in the second quarter, reflecting flat revenues and margin gains of 13 basis points.
• Half of the sixteen Zacks sectors are expected to show negative year-over-year earnings comparisons in the second quarter. The Finance sector  has the best year-over-year growth numbers, largely reflecting the group's sub-par results in the second quarter of 2011 due to weak results at Bank of America ( BAC ). Despite the massive hit to J.P. Morgan 's ( JPM ) results, Finance earnings increase 35.9% year over year. However, Excluding Bank of America, Finance barely ekes out with positive growth.
• Tech earnings are expected to increase by up 6% in the second quarter -- a sharp deceleration from the persistent double-digit quarterly growth trend of recent quarters. This compares to growth of 17.7% growth in the first quarter. Even this modest growth disappears once Apple is excluded from the group.
• Full-year earnings for companies in the S&P 500 are expected to increase 9.3% this year and 9% next year. Nine of the sixteen Zacks sectors will have double-digit earnings growth in 2012, with Finance, Tech and Construction showing strong gains, while Utilities and Energy in the negative. Earnings expectations for next year had held up even as the same 2012 were steadily coming down. But we are starting to see estimates for next year come down in recent days.
• Total revenues are expected to increase 3.2% in 2012 and 4.9% in 2013, after gains of 9% and 8.1% in 2011 and 2010, respectively. Construction is the only sector with double-digit revenue growth this year, with Industrial Products and Medical in the high single digits.
• The best of the margin expansion trend is now firmly behind us, with second quarter margins expected to be down by 33 basis points sequentially. However, margins are expected to expand by 13 basis points in the second quarter from the same quarter last year. Keep in mind, however, that only 7 of the 16 Zacks sectors will have positive year-over-year margin comparisons, with Finance as the biggest positive driver. Excluding Finance, the year-over-year margin comparison turns negative.
• For full-year 2012, margins are expected to increase 53 basis points, with Finance as the biggest contributor to the expansion and five sectors experiencing contracting margins. Excluding Finance, margins would be up a much more modest 10 basis points this year.
• The bottom-up 'EPS' estimates for 2012 and 2013 -- reflecting projections of analysts at brokerage firms covering individual companies -- currently stand at $102.95 and $112.21, respectively. The top-down estimate for 2012 and 2013 -- reflecting the projections of strategists at brokerage firms -- currently stand at $102.87 and $109.88 for 2012 and 2013, respectively. As you can see, the macro analysts are more bearish in their outlook than the micro analysts.

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