The fourth quarter earnings season has started on a relatively
favorable note, perhaps indicating that expectations may have come
down enough to make positive surprises easier to come by. And the
) news notwithstanding, we haven't seen that many negative
pre-announcements either. But it's way too early to make any
prediction at this stage as the bulk of the earnings season is
ahead of us.
Total earnings for the 26 S&P 500 companies that have already
reported results as of Thursday January 10th are up 4.7% from the
same period last year, with 57.7% of the companies beating
expectations with a median surprise of +1.4%. Revenues are up 3.5%,
with 48% of the companies beating top-line expectations and a
median revenue surprise of +0.3%. This is better than what this
same group of companies did in the third quarter, when total
earnings were down 5.9% and less than half of these 25 companies
could beat earnings expectations.
Combining the few earnings reports that have come out with the bulk
of the reports still to come, total fourth quarter earnings are
expected to be up +0.5% 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 2012.
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.
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Positive Start to Q4 Earnings Season
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