With fourth quarter results for more than 75% of the market
capitalization of S&P 500 companies already known, we have seen
enough reports to be able to say that earnings results have been
Earnings are not great and offer nothing to be excited about, but
they are not bad either. Perhaps expectations had fallen enough in
the run up to the reporting season that the actual results looked
better in comparison. Please recall that as recently as early
October, fourth quarter earnings were expected to be up +7%, which
dropped to +0.5% by early January. We don't have much growth to
speak of, but that wasn't unexpected.
The improved level of positive surprises aside, management guidance
has not been that bad either. Management guidance is not 'positive'
in the sense that they are guiding higher - they are not. But
barring a few exceptions, they are not overwhelmingly guiding lower
either, as was the case in the third quarter. We have started
seeing downward adjustments to estimates for the coming quarters,
particularly the first half of the year, but not at the pace that
we experienced with the fourth quarter estimates.
Total earnings for the 333 S&P 500 companies (76.6% of the
index's total market cap) that have reported results are up +2.7%
from the same period last year, with 67.3% of the companies beating
expectations and a median surprise of +3.2%. Revenues are up +0.5%,
with 62.5% of the companies beating top-line expectations and a
median revenue surprise of +0.9%.
Combining the reports that have come out with the ones still to
come, the composite fourth quarter earnings growth rate is +1.7%,
which compares to a flat reading in the third quarter, but lower
than what we have been seeing the quarters prior to that. But the
expectation is for earnings growth to resume from the second
quarter of 2013 and increase materially in the back half of the
year. We have started expectations for 2013 come down a bit, but
there is likely much more room to go.
- The bulk of the fourth quarter reporting season is now behind
us, with results from 333 S&P 500 companies already out.
These 333 companies account for 76.6% of the index's total market
cap and contribute 78.1% of the index's total Q4 earnings.
- Total earnings for these 333 companies are up +2.7%, a
beat ratio of 67.3%, and median surprise of +3.2%. Total revenues
are up +0.5%, beat ratio of 62.5%, and median surprise of +0.9%.
- Finance is the key driver of growth, with total Finance
sector earnings up +18.8% from the same period last year.
Excluding Finance, total earnings would be down -0.3%.
- Tech has been a laggard, with earnings growth almost
non-existent and many of the industry leaders including
) coming short of revenue expectations. Total Tech sector
earnings are up +2.4%.
- Industrial Products is particularly weak, both in terms of
growth as well as negative surprises. The weak comparisons are
not limited to
), the issue is quite widespread, with the fourth quarter on
track to be the weakest earnings season for the group in the last
- Combining the results that have come out with those still to
come, the composite earnings growth rate for the fourth quarter
is +1.7%, which compares to flat growth in the third quarter.
Excluding Finance, the composite fourth quarter earnings growth
rate drops to 0% (down -0.04%), compared to the decline of -4.1%
for the ex-Finance group in the third quarter.
- The Basic Materials sector is expected to have +11.5% higher
earnings this quarter after back-to-back negative earnings growth
in the last four quarters. The growth improvement in this
economically sensitive sector is primarily due to easy
comparisons as the overall backdrop remains challenging.
- The low earnings growth trend is expected to carry over into
the first quarter of 2013, but expectations are for significant
improvement thereafter, particularly in the second half of
- Net margins are essentially flat from the year-earlier period
and down sequentially. Seven of the 16 Zacks sectors are expected
to see margins contract in the quarter, including Tech. But
margins are expected to improve back up in the first
- For the full-year 2013, total earnings are expected to
increase by +6.9% after the +3.9% gain in 2012. Total earnings
are expected to be up +11.8% in 2014.
- In dollar terms, fourth quarter bottom-up composite earnings
total $240.2 billion, up from $236.1 billion in the fourth
quarter of 2011.
- For full-year 2013, total bottom-up earnings are expected to
reach $1.03 trillion, up from the 2012 total of $0.96 trillion.
The bottom-up 'EPS' for the S&P 500 for 2013 and 2014
currently stands at $109.35 and $122.28, respectively.
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Earnings Season Winding Down at Par
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