Earnings (General News) 02 (Oct 16 - Dec 25)

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What Declining Earnings Continue to Tell Us

By Rodney Johnson

‘Tis the season. Earnings season, that is, and I don’t think we’re getting any presents.

This week Alcoa kicked off the third-quarter earnings announcement season. The next couple of weeks will bring an onslaught of numbers, excuses, deflections, and projections. Company spokesmen and CEOs will spend time explaining why their industry is soft, and how better times are just ahead.

If only we remove those sticky one-time events that seem to happen every quarter, they say, we’ll realize that the core business is quite healthy, and things are looking up!

I’ve got a better idea. Rather than listening to the talking heads, we should simply review the results.

Taken as a whole, things aren’t terrible. But they aren’t very promising, either. We’re struggling just to get back to where we were two years ago.

At the start of this year, the consensus estimate was for the earnings of the companies in the S&P 500 to turn positive in the second quarter. U.S. companies suffered a dismal fourth quarter in 2015 that carried over to the New Year, but surely things would get better in short order.

They have, but not by much.

According to FactSet, we’re staring down the sixth consecutive quarter of lower year-over-year earnings, which marks the first time this has happened since the company began to track earnings in the third quarter of 2008.

Last year, much of the decline was attributed to energy companies. With the price of oil falling out of bed through most of 2015 and fracking all but shut down, energy companies gushed red ink.

The carnage was supposed to stop when oil rebounded, but that hasn’t happened. Oil is up more than 50% from the end of last year, and yet energy company earnings are expected to fall 63% this quarter.

But that’s not the only suffering sector. Analysts cut their earnings estimates for materials, real estate, and consumer discretionary companies.

If earnings are reported as expected, we will have climbed back to levels first seen in the summer of 2014.

It sounds dismal, because it is. Yet the equity markets are near all-time highs. It’s as if stock prices are celebrating, even though companies are struggling to make progress.

Recently Nike surprised the markets with better-than-expected earnings, but then disappointed with their forward guidance.

Essentially, the company said things had been pretty good lately, and enjoyed a boost from the Rio Olympics, but they didn’t think the good times would last. These are interesting words, coming from a retail company that typically does well in the fourth quarter due to holiday sales.

But don’t worry!

Everything is fine, right?

Analysts estimate earnings will pop 13% in 2017, so the good times will finally be here again.

I’ll believe it when I see it.

And then there’s the little matter of stock buybacks. Once the province of failing companies that were eager to shore up their price-earnings ratios by taking shares out of the market, stock buybacks have been all the rage since the financial crisis of 2008.

Companies are using their cash stockpiles and debt (courtesy of exceptionally low interest rates) to retire stock by the truckload. In the first quarter of this year, companies in the S&P 500 spent more than $150 billion to buy back their shares. They have spent more than $2 trillion on their own stocks since 2011.

When dividends are included with stock buybacks, companies in the S&P 500 have paid investors 112% of what they made in the first half of 2016. To put it mildly, that’s unsustainable.

These three trends – falling earnings, stock buybacks, and equity market gains – make for an interesting paradox. Companies are telling us in no uncertain terms that growth remains elusive, they can’t find a good use for cash, and yet stock buyers keep pushing up share prices.

Once again, I’m reminded of the old quote by economist Herbert Stein: “If something cannot go on forever, it will stop.”

After seven years of growth based on shaky fundamentals, trillions of dollars in stock buybacks, and central bank action, equity markets are at risk. Make sure you have a plan for when that “something” that can’t go on forever, finally stops.

Source: Economy & Markets

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This week will be the climax for earnings announcements, with nearly 100 S&P 500 firms due to report quarterly results.

Analysts are projecting earnings to grow 5.6 percent, and revenues to rise 5.3 percent.

[winston]

This week will be the climax for earnings announcements, with nearly 100 S&P 500 firms due to report quarterly results.

Analysts are projecting earnings to grow 5.6 percent, and revenues to rise 5.3 percent.

[winston]

Earnings are expected from about 80 S&P companies, including Goldman Sachs, Microsoft, McDonald's and American Express.

According to Thomson Reuters, earnings for the S&P 500 companies are expected to be nearly flat for the third quarter — down just 0.4 percent after a year of negative earnings reports.

Source: CNBC

[winston]

Earnings are expected from about 80 S&P companies, including Goldman Sachs, Microsoft, McDonald's and American Express.

According to Thomson Reuters, earnings for the S&P 500 companies are expected to be nearly flat for the third quarter — down just 0.4 percent after a year of negative earnings reports.

Source: CNBC

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Profit Recession Over ?

Of the 52 S&P 500 companies that have reported results to date for the third quarter, 81 percent have reported earnings that topped average analyst estimates, according to Thomson Reuters I/B/E/S.

Third-quarter earnings are now expected to show growth of 0.2 percent, which would mark an end to the U.S. profit recession that began in the third quarter of 2015.

If the quarter stays on track, it will be the first time since the fourth-quarter of 2014 in which both earnings and revenue of S&P 500 companies increased.

Source: Reuters

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With 70 companies in the S&P 500 having reported earnings through Wednesday morning, 80 percent have topped earnings' expectations.

Third quarter earnings are now expected to increase 0.5 percent, according to Thomson Reuters I/B/E/S, which would be the first quarter of growth in five.

Source: Reuters

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Earnings continue to come in, largely beating estimates

But as we've discussed, that's the way Wall Street works. Companies lower guidance. Wall Street lowers expectations. And beating expectations, on an even lowered bar, tends to be part of the formula for the long-run upward trajectory for the stock market.

According to FactSet, which provides financial information and analytic software, this quarter marked the 16th time in the past 20 quarters in which the bottom-up EPS estimate decreased during the first two months of the quarter. Meanwhile stocks have gone UP, not down during that period. That's because, historically, 70% of the stocks will beat that lowered estimate.

So how are earnings looking thus far? Financials had, in some cases, big earnings beats last quarter, mostly from cost cuts. The better numbers are continuing thus far for the third quarter.

Bank of America, BlackRock, Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citibank and Bank of New York, all beat on the low bar of earnings estimates. But this time it's largely on numbers that reflect growth in their core businesses, not financial engineering (cost cuts, debt restructurings, etc).

For people looking for fundamental positives, these are positives. Goldman had its big gain in trading profits, as did BOA and JPM. On the consumer front: Domino's beat on earnings and had 17% revenue growth. Netflix crushed earnings on better revenue growth and better subscriber growth.

With that said, stocks continue to chop around, 2.5% off of the all-time highs, subdued, for the moment, by some hesitancy to take additional risk into the election.

Source: Forbes

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With 23 percent of S&P 500 companies posting results, earnings are now expected to show growth of 1.1 percent for the third quarter, up from the 0.5 percent decline expected at the start of the month, according to Thomson Reuters data.

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Goldman Sachs cuts its forecast for S&P 500 earnings

by Sam Ro

Goldman Sachs analysts have cut their outlook for S&P 500 (^GSPC) earnings through 2018.

They now see earnings per share climbing 5% to $105 (from $110) in 2016, 10% to $116 in 2017 (from $123), and 5% to $122 (from $130) in 2018.

The analysts blame disappointing earnings growth from the financials and information technology sectors.

Furthermore, they blame the impact of low interest rates on telecom sector pension liabilities.

With this earnings backdrop, the analysts expect the S&P 500 to end the year at 2,100. By the end of 2017 and 2018, they expect the index to reach 2,200 and 2,300, respectively.

“Key issues for investors in 2017: (1) secular stagnation and (2) peaking margins”

“Increased infrastructure spending represents a source of potential upside to our estimate. However, the benefit from increased government spending is unlikely to kick in until 2018, when new budget deals would go into effect.”

Profit margins are expected to be pressured by limited pricing power, rising labor costs, and falling margins in the IT sector.

Source: Yahoo Finance

http://finance.yahoo.com/news/goldman-s ... 40969.html