The fourth quarter earnings season has started on a positive
note, as this morning's report from
) and Tuesday's results from
) show. This is a more reassuring start than what we saw at this
stage in the preceding quarter, perhaps indicating that
expectations may have come down enough to make positive surprises
easier to come by this reporting season. But it's way too early
to make even that modest prediction at this stage as the bulk of
the earnings season is ahead of us.
Total earnings are expected to be up +0.5% in the fourth
quarter from the same period last year. This is a sharp drop from
the +7.9% growth expected in the quarter in late September, just
before the third quarter earnings season was getting underway. As
was the case in the third quarter (and practically every quarter
before that), the actual growth rate will most likely be better
than these pre-season expectations, given management teams'
mastery of under-promising and over-delivering.
Ahead of the third quarter reporting season, the expectation
was for earnings in that quarter to be down -3.4%. While the
actual earnings drop turned out to be 'only' -0.1%, it was
nevertheless the weakest earnings growth rate in almost 12
quarters. And if the magnitude of outperformance in the fourth
quarter is comparable to the last four quarters, then the final
growth tally should be in the +2% vicinity. This would mean that
corporate earnings were essentially flat in the second half of
But this sub-par earnings growth trend is not expected to last
long or at least that's what current consensus expectations mean.
After another quarter of weak results in the first quarter of
2013, earnings growth resumes in the following quarter and ramps
up materially in the back half of 2013. I have been skeptical of
those growth expectations for a while now, but that's exactly
what the market is pricing at present.
Management guidance on the earnings conference calls is always
very important, but it will be far more critical this earnings
season. Guidance from management teams would frame expectations
for the coming quarters. Whether those expectations will hold or
come down will depend to a large extent on how management teams
describe business conditions on the fourth quarter earnings calls
in the coming days
are scheduled to be released today at 10:30 AM EST. For the week
ending December 28, crude inventories decreased by 11.1 million
barrels from the previous week to 359.9 million barrels.
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