SHOULD WE BE GETTING EXCITED OVER THE EARNINGS REPORTING SEASON?
[A note from Merrill Lynch this morning]
In a word -- no. Yes, according to First Call, of the roughly 200 S&P 500 companies reporting, only 12% have fallen short of estimates versus an average of 21% over the past decade. Fully 76% have topped or met analyst expectations in the lead-up to reporting season (up from 67% in Q1), but let's face it -- at 5.8% y/y, the high-bar was set pretty low to begin with. And keep in mind that at
the start of the year, the consensus for Q2 was +10.9% -- and the risk is that growth comes in slightly below that when all is said and done. Here's the story beneath the headline:
* Based on our tally, 40% of S&P 500 companies have reported, and earnings are +11.5% y/y for these companies. According to First Call, companies thus far have beaten their estimates by 5.6%, down from 6.2% in Q1 but above the 10-year average of 2.8%.
* Note, however, that the first-to-report companies tend to be the fastest-growing ones, so if the rest of the group comes in as-expected, this earnings season will produce a +9.7% quarter on a y/y basis. Better than beaten-down expectations, but still slower than the dollar-induced 11.7% gain in Q1.
* But it has been the financials doing all the heavy lifting (on the back mostly of what was a booming Treasury market, still-solid credit growth and reduced costs) -- EPS up 22.6% y/y against expectations of +14.9%.
* Ex-financials, total EPS growth is running at the grand total of +4.2%, and if all companies that have yet to report come in-line, then ex-financial earnings growth will come in at +1.9% y/y. IT is behind schedule at +15.1%(+18.9% was expected -- but there's another 25% share of the universe to report) and consumer cyclicals (-17.3%
y/y was expected -- group is coming in now at -18.4% and looking at whose left to report, we think the final figure could come in as weak as -25%). In addition to financials, we have seen energy, materials, health care, consumer staples and industrials all come in better than expected.
* We estimate that 60.8% of the 199 reporting companies we have tracked this far have come in above consensus. Once the mighty financials are stripped out, that number falls to 57.6%.
* We estimate that 67.8% of companies reporting so far have posted POSITIVE y/y EPS growth; that number falls to 63.6% once financials are stripped put. That means that more than 1/3rd of the ex-financial universe is actually posting decelerating earnings growth in Q2! Only 44.7% of the consumer discretionary group is seeing faster earnings growth; only 64.9% of IT companies are too. The best are financials (100%), followed by health care (87.5%) and energy (80%). |
