The following excerpt is from this week's Earnings
Trends. To see the full report,
please click here
Q3 Earnings: The Best of 2013 Thus Far
The Q3 earnings season started weak, but has turned out to be the
best of 2013. But before we get too carried away with that
positive take, let's not forget that the 'best of 2013' may not
be much to crow about, particularly in terms of growth. There is
simply not much growth and most companies are still guiding
lower, prompting estimates for Q4 to come down.
That said, the picture emerging from the Q3 earnings season
compares favorably to recent quarters in terms of growth, beat
ratios, and the absolute level of total earnings, which are on
track to reach a new all-time record in Q3.
Total earnings for the 440 S&P 500 companies that have
reported results already, as of Thursday morning November 7th,
are up +4.6% from the same period last year, with 65.7% beating
earnings expectations with a median surprise of +2.6%. Total
revenues for these companies are up +2.9%, with 51.4% beating
revenue expectations with a median surprise of +0.1%.
The charts below show how the results from these 440 companies
compare to what these same companies reported in Q2 and the
average for the last 4 quarters. The earnings and revenue growth
rates, which looked materially weaker in the earlier phase of the
Q3 reporting cycle, have improved.
The earnings beat ratio looks more normal now than was the
case earlier in this reporting cycle. It didn't make much sense
for companies to be struggling to beat earnings expectations
following the significant estimate cuts in the run up to the
The composite earnings growth rate for Q3, combining the results
from the 440 that have come out with the 60 still to come,
currently remains at +4.6% on +2.9% higher revenues. This will be
the best earnings growth rate of 2013 thus far, though
expectations are for even stronger growth in Q4.
We may not have had much growth in recent quarters, but the
expectation is for material growth acceleration in Q4 and beyond.
The chart below shows total earnings growth on a trailing
4-quarter basis. The +3.1% growth rate in the chart means that
total earnings in the four quarters through 2013 2Q were up by
that much from the four quarters through 2012 2Q. As you can see,
the expectation is for strong uptrend in the growth momentum from
Guidance has been overwhelmingly negative over the last few
quarters and is not much different in Q3 either, a few notable
exceptions aside. We saw underwhelming guidance earlier in the
cycle from such bellwethers as
), and more recently from
) and others.
Given this backdrop, estimates for Q4 will most likely come
down quite a bit in the coming weeks. And with the market
expecting the Fed to wait till early next year to start Tapering
its QE program, investors may shrug this coming period of
negative estimate revisions, just like they have been doing for
more than a year now.
- Total earnings for the 440 S&P 500 companies that have
reported results already are up +4.6%, with 65.7% beating
earnings expectations. Revenues for these companies are up
+2.9%, with a revenue 'beat ratio' of 51.4%.
- Unlike Q2, the Finance sector has been less of a growth
driver in Q3, with total earnings for the sector up +9.9%.
Bank of America
), the sector's Q3 earnings growth drops to +3.3%. The sector's
growth momentum has decelerated from the last few quarters,
with industry leaders
- Technology spotlights the ex-Finance variance from Q2, with
total earnings for the 88.7% of the sector's total market
capitalization that have reported up +5.5% on +3.7% higher
revenues. Strong growth rates at
) have helped the sector reverse the negative earnings growth
trend of the last few quarters. The +5.5% earnings growth for
the 57 Tech companies that have reported compare to -10.1%
earnings decline in Q2 and the 4-quarter average of -2.0% for
the same group of companies.
- Total Q3 earnings for all S&P 500 companies, combing
the 440 that have reported with the 60 still to come, are
expected to be up +4.6%, which reflects +2.9% revenue growth
and modest gains in margins. This compares to +3.5% earnings
growth in Q2.
- Guidance remains negative, prompting estimate cuts for Q4,
though there likely still plenty of downside to current +9.5%
growth expected in Q4. While there is not much growth, the
overall level of total earnings is quite high, with total
earnings in Q3 on track to reach a new all-time quarterly
record at $261.1 billion, surpassing Q2's record of $ 258.5
- Total earnings for the S&P 500 are expected to be up
+6.3% in 2013 and +11.2% in 2014.
To see the Full Earnings Trends PDF,
please click here
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