The Q1 earnings results have certainly not been great or even
good, but they aren't that terrible either, as the all around
hand-wringing in the market would have us believe.
Including this morning's reports from
) and others, we now have a representative enough sample to make
the determination that Q1 results are not that different from
what we have been seeing in the last few quarters. There are no
doubt pockets of weakness - most companies are missing revenue
expectations and positive surprises in the Tech sector are on the
light side. But the overall level of growth (or lack thereof),
surprises, and guidance is not materially weaker than what we saw
from these companies in 2012 Q4 and the quarter before.
As such, the earnings question swirling around in the market
at present is not so much about the Q1 earnings season, but
rather what these results tell us about what is expected in the
coming periods, particularly the second half of the year and next
Consensus expectations for the first half of 2013 aren't
looking for much earnings growth (up only +1.2% year over year),
but estimates for the back half of the year represent a
significant ramp up (up +10.8%) in growth which then continues
into 2014 (up +11.7%). Recent economic data from home and abroad
is likely prompting a reassessment of these earnings growth
expectations. The earnings miss at IBM (IBM) after the close on
Thursday and General Electric's (GE) comment this morning about
further weakness in Europe brings home this issue.
as of this morning shows Q1 reports from 102 S&P 500
companies that account for 32.8% of the index's total market
capitalization. For the Finance and Technology sectors, the two
largest in the index, we now have Q1 results from 51.3% and 46%
of the sectors' market capitalization. Total earnings for these
102 companies are up +4.6% from the same period last year, with
69.6% beating earnings expectations. Revenues are up +3.5%, with
only 36.3% of the companies coming ahead of top-line
The growth rates and earnings 'beat ratio' is comparable to
what these same 102 companies reported in 2012 Q4, though the
revenue 'beat ratio' is materially weaker (36.3% vs. 61.8%). The
composite growth rate for Q1, where we combine the results of the
102 companies that are out with the 398 still to come, is for a
drop of -0.8% in total earnings on flat revenues.
Having seen results from 46% of the Tech sector's total market
cap, the earnings and revenue growth rates are better than Q4,
but the 'beat' ratios are weaker. Only 64.3% of the Tech
companies have beaten Q1 earnings expectations thus far, weaker
than the earnings 'beat ratio' for the S&P 500 as a whole of
69.6% and the 78.6% 'beat ratio' for the same group of companies
in 2012 Q4. The revenue side is even weaker, as Wednesday's
) further confirmed, with only 35.7% of Tech companies coming
ahead of top-line expectations.
Q1 earnings aren't that bad, particularly relative to
expectations. But the market may finally be realizing that its
outlook for the coming periods needs to readjusted in light of
the weakening economic backdrop. And it is this process to
reassessment that is hanging over stocks at present.
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