Earnings Season: Lackluster Earnings, Weak Guidance

MarketBeat (WSJ Blog) – Here’s Another Reason To Fret Over Earnings: Corporate Guidance Not So Hot

The lackluster quarterly earnings season has been well documented, but weak corporate guidance is perhaps the more important takeaway from this reporting period. With earnings season almost halfway over, more companies are offering downbeat views as opposed to optimistic outlooks, suggesting corporate culture isn’t so hot on near-term economic prospects in the U.S. as well as abroad. Bespoke Investment Group’s spread between percentage of companies raising guidance compared to those lowering views stands at -3.3 percentage points. More from Bespoke:

Last quarter was the first earnings season since the financial crisis ended where the guidance spread finished negative. Unless we get a pretty big reversal by the time earnings season ends in mid-February, it looks like we’re now going to have two consecutive quarters with a negative guidance reading.


Jim Bianco was on FOX Business yesterday discussing the markets.  To view the interview click on the image above. To view any of our recent interviews click here.

In the interview Jim explained that the current earnings season is not going well.  Below are some charts that show this.

Click to enlarge:


The charts below show the year-over-year growth rates for earnings expectations for Q4 2011 and Q1 2012.  These growth rates have slumped from the mid-teens to low single digits.  Note that Q4 2011 earnings growth jumped in the week ending January 27, 2012.  Apple’s blowout earnings accounts for this jump.  Factset explained it well:

Factset – Earnings Insight for January 27, 2012

Overall S&P 500 Earnings Growth is 11.5%, But Drops to 1.0% excluding AIG & Apple
The blended (combines actual results for companies that have reported and estimates for companies yet to report) earnings growth rate for the fourth quarter currently stands at 11.5%. If the final earnings growth rate is 11.5%, it will mark the ninth consecutive quarter of double-digit earnings growth for the index. Eight of the ten sectors are reporting earnings growth for the quarter, led by the Financials (60.4%), Information Technology (11.9%), and Industrials (10.6%) sectors. However, it is important to note that two companies in the index are responsible for nearly all of the earnings growth in the S&P 500 for Q4 2011: AIG and Apple If AIG and Apple are excluded from the index, the blended earnings growth rate for the S&P 500 would drop to 1.0% from 11.5%. For AIG, comparisons to weak year-ago earnings are driving the unusually high dollar-level growth. The current mean EPS estimate for AIG for Q4 2011 is $0.60, relative to actual EPS of -$16.20 reported for Q4 2010. In Q4 2010, the company recorded $4.2 billion net charge to strengthen Chartis loss reserves, which accounted for much of the loss for the quarter.  On the other hand, Apple reported substantial growth in revenue and earnings for Q4 2011. On the earnings side, the company reported EPS for Q4 2011 of $13.87, which was 116% above year-ago actual EPS ($6.43). On the sales side, the company reported revenue of $46.3 billion, which was 73.3% above year-ago actual revenue ($26.7 billion).

Most earnings analysis is done on an operating earnings basis.  Because the definition of operating earnings differs from one person to the next, the “beat rates” and growth rates quoted by different services (Bloomberg, Thomson, Factset, etc.) will also differ.

The chart in this block uses Bloomberg’s earnings analysis.  Bloomberg excludes AIG’s charge from a year ago as part of its “operating earnings” calculation.  This is why its earnings expectations shown below are closer to Factset after AIG is excluded.



Source: Bianco Research)

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