The following is an excerpt from this week's Earnings Trends
article. To see the full report,
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Closing the Books on Q4 Earnings Season
With the 2013 Q4 reporting season now mostly behind us, it is
fair to say that this earnings season was no better or worse than
what we have been seeing in the last few quarters. In some
respects, the Q4 earnings season was an improvement over the
Specifically, total earnings for the S&P 500 reached a new
all-time quarterly record and even earnings growth for the
quarter was the highest of the year (even after accounting for
easy comparisons). Positive surprises started off on the weak
side, but even those turned out to be better than what we had in
the earlier quarters.
Where Q4 was no different from other recent reporting cycles was
in terms of top-line growth and company guidance. Revenue growth
has been a challenge for companies for quite some time and we
didn't see any improvement on that front in Q4 either.
Guidance has been no better - it has been week for more than a
year now and Q4 provided no improvement on that front. Part of
the guidance weakness is likely a function of management's need
for expectations management. The need for conservatism aside, one
has to be extremely cynical to believe that management teams
would guide lower while knowing that their business outlook was
stable, if not improving. Weather provided a good excuse for many
companies as well, with
) as the latest to cite this year's tough winter in guiding lower
The 2013 Q4 Scorecard
The earnings season is almost over, with results from 496 S&P
500 members already out. Total earnings for these companies are
up +9.2% from the same period last year, with 64.3% beating
earnings expectations with a median surprise of +2.4%. Total
revenues for these companies are barely in the positive, up only
+0.7%, with 56.0% beating revenue expectations with a median
surprise of 0.6%.
The +9.2 % 'headline' total earnings growth rate definitely looks
fairly strong, particularly when compared to the growth rate for
this same group of 496 companies in the last few quarters. Easy
comparisons for three companies -
Bank of America
) - account for a big part of the strong Q4 earnings growth.
Exclude these three and total earnings growth for the S&P 500
companies that have reported drops by almost half. Performance on
the revenue front is notably sub-par relative to recent quarters,
dragged down by weakness in the Finance and Energy sectors.
The composite picture for Q4 - combining the results for the 496
companies that have reported already with the 4 still to come -
is for earnings growth of +9.1%. This will be the highest
quarterly growth pace of 2013, with easy comparisons playing a
non-trivial role propping up the growth rate. But it's not all
easy comparisons, as total earnings for the index are on track to
reach a new all-time quarterly record.
Trends on the estimate revision front have been negative for a
while, but we could afford to overlook such details in the
Fed-inspired rally. It will be interesting to see if investors
will continue to shrug estimate cuts in the post-QE world.
- Total earnings for the 496 S&P 500 companies that have
reported results are up +9.2%, with 64.3% beating earnings
expectations. Revenues for these companies are up +0.7%, with a
revenue 'beat ratio' of 56.0%.
- Easy comparisons for Bank of America, Verizon and Travelers
account for most of the growth thus far. Excluding these three
companies, the earnings growth rate drops to +5.5%, which is
comparable to what this same group of companies have achieved
in recent quarters.
- Revenue growth at this stage is lower than what we have
seen from this same group of companies in Q3 and other recent
quarters, dragged down by weak top-line growth numbers from the
Energy and Finance sectors. Excluding these two sectors, the
revenue growth picture is still weak, but not so starkly.
- Total earnings in Q4 are on track to reach a new all-time
quarterly record, surpassing the record reached just the
- Easy comparisons, particularly for the Finance sector,
account for a big part of the Q4 growth. Total earnings for the
Finance sector are expected to be up +22.8%. Excluding Finance,
total earnings growth for the S&P 500 drops to +6.4%.
- Guidance has overwhelmingly been negative in recent
quarters and the trend has largely remained in place in the Q4
reporting season as well. As a result, estimates for 2014 Q1
and beyond have been coming down as the earnings season has
- The bottom-up 'EPS' estimate for the S&P 500 for 2014
currently stands at $116.47, while the top-down estimate for
the same is currently at $117.25. For 2015, the bottom-up
estimate remains $129.77.
To see the full Earnings Trends PDF,
please click here
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