Is the Q4 Earnings Picture that Weak? - Earnings Outlook
What's common between Microsoft ( MSFT ), United Technologies ( UTX ), DuPont ( DD ) and Caterpillar ( CAT )? They and many others like them are all down today for reasons related to their 2014 Q4 earnings reports - they were bad. The fact is that the issue wasn't so much their Q4 earnings reports, but rather their guidance for 2015.
The common theme among companies guiding lower - macro factors like weak global growth, strong dollar, oil prices, just to name a few. Microsoft is blaming weak PC sales while Caterpillar is blaming developments in oil (and other commodity prices) for its woes.
The Caterpillar story is particularly notable as it plays directly into the ongoing global growth worries. The company not only missed Q4 estimates, but guided materially lower for 2015. They are guiding towards 2015 EPS of $4.75 on $50 billion in revenues, significantly below the current Zacks Consensus for 2015 of $6.69 in EPS on $54.6 billion in revenues. The company is blaming developments in the oil patch for its lowered guidance. But in a larger sense, the oil story is essentially a reflection of the global growth picture.
Caterpillar's oil exposure has come as a surprise to a lot of us, though we all understood that the commodity's sharp fall would be a drag on the Energy sector companies. We saw that play out in the lowered estimates for the Energy sector for Q4 as well as the current and following quarters. In fact, the magnitude of energy-driven negative revisions for 2015 Q1 and Q2 is so severe that the first half 2015 earnings growth rate for the S&P 500 index as a whole has almost evaporated. The chart below shows what is happening to 2015 Q1 and Q2 earnings estimates for S&P 500 companies.
The Scorecard ( as of January 27, 2015 )
As of this morning's reports, we have now Q4 results from 120 S&P 500 members that combined account for 34.7% of the index's total market capitalization. Total earnings for these 120 companies are up +2.7% from the period last year, with 71.1% beating earnings estimates. Total revenues for these companies are up a much stronger +2%, with 45.8% beating top-line estimates.
Here is the current scorecard for the 120 S&P 500 companies that have reported results already
This is weak performance compared to what we have seen from the same group of companies in other recent quarters - the earnings and revenue growth rates are lower and fewer companies are coming out with positive revenue surprises.
The table below provides a summary view of composite Q4 expectations and compares them to actual results in Q3.
Our weekly Earnings Trends report, coming out on Wednesday will give a detailed update on the Q3 earnings season. But if you want to see our last Earnings Trends report, you can find it here .
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