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Earnings Scorecard: Season Gets Set to Close

11/13/2012

The S&P 500® Index (SPX) quarterly earnings season is readying to close. As of Tuesday, November 13, 2012, only 44 SPX corporations remain to report. The materials, utilities, telecom, and financials sectors have fully reported. All but one energy company has reported; and Helmerich & Payne (HP) reports on Thursday, November 15, to complete the energy sector. Sixteen consumer discretionary companies and ten technology companies have yet to report.
 
To date, top line revenue growth is +0.12%, slightly ahead of consensus estimates for a contraction of -0.6%. Bottom line EPS growth is +1.32%, much better than the estimate for a contraction of -1.7%.
 
Earnings have very quietly improved from the initial discouraging reports during the first two weeks in October. Tech heavyweights Google (GOOG), IBM, Apple (AAPL), and Intel (INTC) all disappointed early in the reporting season. However, based on the evidence, I am confident that it would be a mistake to believe the overall reporting season was anything other than another resilient quarter of performance that beat consensus estimates. Earnings results should not be categorized as a culprit for the SPX sell-off post Labor Day (Figure 1.1). Corporations are still positioned best, certainly when compared to consumer and governmental balance sheets.
 
Consistent with our mid-summer “trend is Your friend” theme, sectors that have underperformed the SPX year to date, including energy, utilities, and materials, posted disappointing earnings results, while sectors of strength such as financials, consumer discretionary, health care, and technology all posted strong earnings results.
 
SPX Q3 Revenue Growth – Consensus Expectations vs. Actual for 456 out of 500 companies reported (Source: Bloomberg)
     
1.  Overall:  -0.6% vs. Actual +0.12%
2.  Consumer Discretionary:  +3.7% vs. Actual  +3.65%
3.  Consumer Staples: +3.2% vs. Actual +2.34%
4.  Energy: -17.1% vs. Actual -14.67%
5.  Financials: +0.7% vs. Actual +6.77%
6.  Health Care: +1.2% vs. Actual +5.40%
7.  Industrials: +2.4% vs. Actual +1.45%
8.  Technology: +4.2% vs. Actual +6.22%
9.  Materials: -4.4% vs. Actual -6.42%
10. Utilities: +10.6%  vs. Actual +0.19%
 
SPX Q3 EPS Growth – Consensus Expectations vs. Actual for 456 out of 500 companies reported (Source: Bloomberg)
   
1.  Overall: -1.7% vs. Actual +1.32%
2.  Consumer Discretionary:  +1.0% vs. Actual +5.25%
3.  Consumer Staples: -1.0% vs. Actual -0.56%
4.  Energy: -21.9% vs. Actual -20.62%
5.  Financials: +20.0% vs. Actual +25.72%
6.  Health Care: -3.9% vs. Actual +0.19%
7.  Industrials: -0.1% vs. Actual +4.14%
8.  Technology: +2.8% vs. Actual +3.18%
9.  Materials: -22.6% vs. Actual -26.81%
10. Utilities: -4.2% vs. Actual -0.38%
 
Figure 1.1 S&P 500 Index (SPX) Year To Date

Source: Bloomberg

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.