Tuesday, July 23, 2013
Earnings will be front and center on an otherwise low-news day
today. Even though the overall tone of this morning's releases
) is on the positive side, top-line weakness is emerging as an
enduring trend this earnings season as well. The aggregate Q2
growth rates and beat ratios look respectable enough at this
stage, but a lot of that is due to strength in the Finance
sector. Look a little deeper and the picture isn't that
Apple will be reporting after the close today, but including this
morning's reports from DuPont,
), Travelers and others, we now have Q2 results from 130 S&P
500 companies or 26% of the index's total membership that
combined account for 37% of its total market
capitalization. Total earnings for these 130 companies are
up +6.7%, with 61.5% beating earnings expectations. On the
revenue side, we have a growth rate of +3.8%, with 42.3% coming
ahead of top-line expectations. The earnings and revenue growth
rates and the revenue beat ratio seen thus far are broadly
in-line with what we saw from the same group of 130 companies in
Q1, while the earnings beat ratio is tracking a bit lower.
Strong results from the Finance sector are playing a big role in
keeping the aggregate Q2 data for the S&P 500 thus far in the
"not-so-bad" category. Total earnings for the Finance sector are
up +34.5% on +10.3% higher revenues, with beat ratios of 78.6%
for earnings and 67.9% for revenues. It is very hard to be
satisfied with the aggregate numbers once Finance is
excluded. Strip out Finance from the reports that have come
out already and total earnings growth turn negative - down -3%.
This is weaker than what these same companies reported in Q1.
There are few positive surprises outside of Finance as well, with
the earnings and revenue beat ratios outside of Finance tracking
below Q1's levels.
The composite Q2 growth rate, where we combine the results for
the 130 that have come out with the 370 still to come, is for
+1.4% total earnings growth on +0.3% higher revenues. Excluding
Finance, the composite earnings growth rate drops to a decline of
-4.1%. Bottom line, the earnings picture outside of Finance is
very weak in Q2, but expectations for the second half of the year
reflect a meaningful recovery.
Current consensus estimates for Q3 reflect total earnings
growth rate of +4.1% and +10.9% in Q4, followed by +11.2% growth
in 2014 as a whole. Hard to envision these growth rates holding
up given the overall negative tone of company guidance thus far.
The question is whether investors will continue to shrug the
resulting negative estimate revisions or will finally start
paying attention to the underwhelming earnings growth
DU PONT (EI) DE (DD): Free Stock Analysis
TRAVELERS COS (TRV): Free Stock Analysis
UTD TECHS CORP (UTX): Free Stock Analysis
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Director of Research