The third quarter earnings season has gotten underway and we are
off to a decent enough start, with both
) coming ahead of expectations after the close on Tuesday. This
morning's result from
) is also along the same lines.
But as important as beating consensus earnings expectations for
the third quarter are, it is even more important to provide
reassuring enough guidance for the fourth quarter and beyond. And
on the outlook front, we saw Alcoa lower its aluminum demand
outlook. And while Yum guided higher, the growth trend in its
all-important Chinese operation appears to be slowing, though the
company seems to be doing a good job on the home front.
The overall earnings scorecard for the third quarter is that we
have 28 companies from the S&P 500 already report results as of
this morning (October 10), with total earnings down 4.9% from the
same period last year and less than half of the companies beating
earnings expectations. It is admittedly very early going at this
stage, but the performance at this stage is weaker than what these
same 28 companies did in the previous quarter. That said, given how
low expectations are at present, I would expect the final scorecard
for the third quarter to be not materially different from what we
saw in the second quarter. And while overall earnings growth and
guidance were on the weak side in the second quarter reporting
season, we still saw roughly two-thirds of the companies beat
But if the quality of guidance remains weak, then estimates for
the fourth quarter will have to come down from current expectations
of a strong ramp up in the final quarter of the year. The same is
true for full year 2013 when current expectations are for earnings
growth of about 12%, roughly double the pace of 2012. The key
'known unknown' at this stage is what this process of downward
earnings adjustment will mean for the recent stock market rally
that has pushed stocks close to all-time highs. I am of the view
that the market will lose its momentum as this trend unfolds, but
we will find out in the coming days as the reporting season
gets into high gear.
are scheduled for release today at 10:00 AM EST and are expected to
increase by 0.5% after decreasing by 0.7% in July.
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