It’s a little early to make this proclamation, with 70% of companies having yet to report, but big beats by both Apple (NASDAQ:AAPL) and Boeing Company (NYSE:BA) in the last day have certainly given S&P 500 profit growth a boost. After yesterday morning’s barrage of bad earnings numbers, expected growth for the S&P 500 fell to 4.6% from 5.0% the prior day. However, in the wake of some redeeming results from the likes of Apple after yesterday’s closing bell and Boeing this morning, growth has now recovered to 5.7%.
Apple is the largest company in the S&P 500 by market capitalization and has the heaviest weighting in the index, thereby making it the most important company this and every earnings season. Apple did good by investors yesterday, putting up Q4 EPS of $3.06, well above the Estimize consensus of $2.62. Revenues also impressed coming in at $74.6B, an incredible $6.8B above the consensus! The stock was rewarded in the after hours and is up 7.65% so far Wednesday. Responsible for the beat was the record 74.5 million iPhones that were sold last quarter, as well as a huge increase in overall sales in greater China which were up 70% year-over-year. While the tech sector was poised to grow 12.4% prior to the Apple report, that estimate jumped to 17.4% afterwards. Results from tech sector peers Yahoo! (NASDAQ:YHOO) and Microsoft (NASDAQ:MSFT) were underwhelming.
Boeing redeemed the industrials Wednesday after the sector was slaughtered on Tuesday due to terrible results from Caterpillar (NYSE:CAT) and 3M (NYSE:MMM). While the latter two companies blamed negative foreign-exchange effects for disappointing Q4 results which also play into their soft outlook for 2015, Boeing made no such excuse. The aerospace and defense company posted Q4 earnings of $2.31, $0.18 higher than the Estimize consensus. Revenues of $24.5B also beat, but to a lesser degree. This suggests that a well managed company can bear the brunt of currency fluctuations, especially as aircraft demand remains very high, and as Boeing continues to win contracts over its competitor Airbus. With consumer confidence at all time highs and lower oil prices, demand for flights is only likely to increase.
So what does it all mean? I think the past couple of days have shown us that US companies are not immune to global weakness, but those companies that are well managed and have the right products/services can stay afloat. The S&P 500 is made up of large multinational companies that garner close to 40% of their sales from outside the US, so they really rely on global strength to succeed. This is not 2008-2009 when Europe was in recession, but China was putting up double-digit GDP and were able to offset weakness in Europe. With China moderating, US companies can no longer count on strength there, and will have to find other ways to hedge.
How are we doing?
Expectations for S&P 500 earnings growth for the fourth quarter stand at 5.7%. Revenues are anticipated to come in with 1.5% growth.
Leaders
Earnings:
- Health Care (21.7%). Notable industry: Biotechnology (59.3%).
- Information Technology (17.4%). Notable industry: Semiconductors (30.2%)
Revenues:
- Information Technology (9.4%). Notable industry: Tech Harware, Storage & Peripherals (16.4%)
- Health Care (8.8%). Notable industry: Biotech (38.8%).
Laggards
Earnings:
- Energy (-21.5%). Notable industry: Oil, Gas and Consumable Fuels (-22.7%)
- Materials (-5.5%). Notable industry: Paper & Forest Products(-27.0%)
- Financials (-2.8%). Notable industry: Banks (-4.8%)
Revenues:
- Energy (-14.2%). Notable industry: Oil, Gas and Consumable Fuels (-16.5%).
- Materials (-1.7%). Notable industry: Paper & Forest Products (-18.0%).
Beat/Miss/Match
Earnings: With 30 S&P 500 companies reporting thus far, 56% have beaten the Estimize consensus, 38% have missed and 6% have met. This is compared to Wall Street estimates, of which 68% of companies have beat on the bottom-line, 20% have missed and 12% have met.
Revenue: 46% have beaten the Estimize consensus, while 54% have missed. For revenues, 56% of companies have beat the Wall Street estimate, while 44% have missed.
