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Q4 Earnings Largely Uneventful Thus Far - Earnings Trends

Posted: 1/18/2013 3:51:00 AM
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The fourth quarter earnings season hasn't been that eventful thus far even though we have results from 67 S&P 500 companies already (as of Friday, January 18th). The reason is that expectations for this earnings season were set by the very weak third quarter reporting season. Given those low expectations, the actual performance is a tad bit better relative the third quarter, though it remains sub-par relative to the last 6 to 8 quarters.

Total earnings for the 67 S&P 500 companies that have already reported results are up +15.6% from the same period last year, with 59.7% of the companies beating expectations with a median surprise of +2.3%. Revenues are up +5.8%, with 40.3% of the companies beating top-line expectations and a median revenue surprise of +1%. All of that growth is coming from the Finance sector, with strong earnings growth at JPMorgan ( JPM ), Wells Fargo ( WFC ), Goldman Sachs ( GS ) and Morgan Stanley ( MS ) more than offsetting the weakness from Bank of America ( BAC ). Excluding Finance, total S&P 500 earnings are essentially flat (up only +0.1%).

Combining the reports that have come out with the bulk of the reports still to come, the composite fourth quarter earnings growth rate is up +1.5%. The actual dollar amount of fourth quarter earnings is the lowest quarterly total in 2012. But the expectation is for earnings growth to resume from the second quarter of 2013 and increase materially in the back half of the year.

I have been skeptical of those growth expectations for awhile now, but that's exactly what the market is pricing at present. We have started expectations for 2013 come down a bit, but there is likely much more room to go.

Key Points

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