The following is an excerpt from this week's Earnings
Click here to access the full PDF
Total earnings for the 375 S&P 500 companies that have
reported Q2 results, as of Thursday August 1st, are up +2.1% from
the same period last year, with 66.7% beating earnings
expectations with a median surprise of +2.7%.
Pretty much all of that earnings growth has come from top-line
gains (up +1.9%), with margins essentially flat from the same
period last year. Revenue surprises have been better relative to
extremely weak levels in Q1, but largely in-line with historical
Not to make light of Finance's strength, but a big part of the
bank earnings growth is due to loan loss reserve releases and not
from loan growth. Reserve releases are a net positive as they
reflect improving credit quality, but they don't constitute the
sector's core earnings power. That said, the earnings growth
picture outside of Finance is very weak.
Expectations for the coming quarters have started coming down,
though they still represent a material acceleration in the growth
pace, as the chart below shows. Please note that the current
expected growth rates for Q3 and Q4 are down from 4% and 11% last
A lot of the second-half growth is expected to come from
sectors outside of Finance, as the chart below of ex-Finance
growth expectations shows.
Most of the recent negative Q3 estimate revisions have been in
the sectors outside of Finance. Current ex-Finance Q3 growth
estimate of +2.3% is down from +3.2% last week. But given what we
have seen from these sectors in Q2 thus far, it seems like a tall
order for this level of growth ramp up. My sense is that
estimates need to come down further in a big way.
The market hasn't cared much in the recent past about negative
revisions as aggregate earnings estimates have been coming down
for over a year now. But if we are entering a post-QE world, as I
believe we are, then it will likely be difficult to overlook
negative earnings estimate revisions going forward. How the
market responds to negative guidance and the resulting negative
revisions will tell us a lot about what to expect going forward.
- Total earnings for the 375 S&P 500 companies that have
reported results are up +2.1%, with 66.7% beating earnings
expectations. Revenues for these companies are up +1.9%, with a
revenue 'beat ratio' of 49.9%.
- The earnings growth rate is modestly lower than what this
same group of companies reported in recent quarters, while the
revenue growth rate is about in-line with recent history.
Revenue beat ratios have been better relative to Q1's extremely
- Finance results have been very strong, with total earnings
for the companies that have reported results up an impressive
+29.8%. Excluding Finance, total earnings for the remainder of
S&P 500 companies that have reported would be down -3.6%
from the year-earlier period.
- Finance reclaims its leadership role in the S&P 500,
contributing more earnings to the index's total than Technology
this year for the first time since the 2008 crisis. The sector
is expected to account for 19.2% of total S&P 500 earnings
in 2013 compared to Technology's 18%.
- Technology earnings remain weak, with total earnings for
the 84.5% of the sector's market cap that have reported results
down -10.9% on +1.8% higher revenues.
- The composite total earnings for Q2 (combining the results
for the 375 companies with the 125 still to come) are expected
to increase +2% on +1.3% higher revenues. Excluding Finance,
total earnings for the rest of the S&P 500 would be down
-3.1% on +1% higher revenues.
- Technology remains a big drag on earnings growth in Q2.
Excluding Technology (but including Finance), total Q2 earnings
for the S&P 500 would be up +4.9%.
- Estimates for 2013 Q3 and Q4 have started coming down, with
current Q3 total earnings growth of +3.3% down from +4% last
week. But expectations for the second half of the year still
represent a material growth ramp up from the first half's
- While there is not much growth, the overall level of total
earnings is quite high. Total earnings in Q2 are on track to
almost equal Q1's all-time quarterly record.
To access the full Earnings Trends PDF
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