Q3 Earnings Season in Final Stretch
With more than 91% of Q3 results already on the books, the picture emerging from this reporting cycle is decent enough; it’s not great, but it’s not bad either.
In terms of growth rates, beat ratios and guidance, it’s a mixed bag when Q3 results are viewed in the context of other recent periods. Some metrics are showing an improvement, such as a modestly bigger ratio of companies is beating earnings estimates and the revenue growth rate appears to have picked up. But other metrics are showing weakness, such as the relatively lower earnings growth rate and the fewer positive revenue surprises.
The guidance picture is no different from what we have been seeing in recent quarters, with a majority of the companies providing guidance guiding lower. As a result, estimates for the current quarter (2014 Q4) are following the all-too-familiar pattern of sliding down, as the chart below clearly shows.
In some aspects, the negative revisions trend for the current quarter is somewhat more pronounced than what we had seen at a comparable stage in the preceding reporting cycle. (More on that on page 11)
Q3 Earnings Scorecard (as of November 13th, 2014)
Including this morning’s earnings announcements, we now have Q3 results from 461 S&P 500 members that combined account for 95.1% of the index’s total market capitalization. Total earnings for these 461 companies are up +6.9% from the same period last year on +4.1% higher revenues, with 70.9% beating EPS estimates and 56.8% coming out with positive revenue surprises.
The two charts below compare the Q3 growth rates and beat ratios for these 461 companies with what these same companies reported in 2014 Q2 and the 4-quarter average (through Q2).
As you can see, the earnings and revenue growth performance for these 461 companies (+6.9% for earnings and +4.1% for revenues) are below what we got from these same companies in Q2, but compare favorably to the respective 4-quarter averages. With respect to surprises, the earnings and revenue beat ratios are following divergent paths, with earnings surprises notably more widespread while revenue surprises a little hard to come by.
The focus lately has been on the Retail sector, with results overall coming on the weak side. But it seems like expectations were even weaker; what else will explain the market’s reaction to the sub-par Macy’s (NYSE:M) report. On the positive side, Wal-Mart’s (NYSE:WMT) commentary was reassuring following their recent negative pre-announcement. But their determination to be even more competitive this holiday season will make it tougher for others in the retail space.
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