One of the knocks on last year’s earnings was that it was cost cutting was driving profitibility — not organic revenue growth. The recovery could not turn into an expansion, we were told, without solid revenue gains. Earnings may have surpassed Wall Street expectations for seven straight quarters, but sales have trailed forecasts since 2008. And there is only so far you can “cut your way to prosperity.”
Which makes the latest S&P500 sales data encouraging: “More U.S. companies are exceeding sales forecasts than any time in four years, helping extend the biggest stock-market rally since 1936.”
In Q4 2010, 71% of Standard & Poor’s 500 companies are reporting more revenue than analysts estimated. This is the largest proportion since 2006. Sales beat projections by an average 2.2% — the most in two years.
And the forecasts are even stronger. Here’s Bloomie:
“Total revenue for S&P 500 companies may rise 7.5 percent this year, the most since 2007, to an all-time high of $1,017.44 a share, according to analyst estimates compiled through Feb. 6 by Bloomberg. Sales fell 13 percent between November 2008 and October 2009 as the worst U.S. recession since the 1930s forced businesses and consumers to cut back on spending . . .Since the start of the third quarter of 2008, when Lehman Brothers Holdings Inc. filed the largest bankruptcy in U.S. history, sales for S&P 500 companies have missed estimates by an average of 0.1 percent, while earnings have surpassed forecasts by 2.9 percent, data compiled by Bloomberg show. The fourth quarter was the first time since 2008 that the average sales surprise reached 2 percent, the data show.”
One caveat: Analysts tend to extrapolate out to infinity. AT tops they are too bullish, at bottoms they are too bearish. Hence, there forecasts catching up to reality is not always cause for celebration.
Still, the actual sales is a data point that the cyclical analysts have been forecasting. The cycles seem to be still painting the broad overview more accurately than anything else . . .
S&P 500 Beating Estimates for Sales by Most Since 2006
Whitney Kisling and Lynn Thomasson
Bloomberg, Feb. 7 2011