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Key Points from the Earnings Season’s Halfway Mark

Cullen Roche -

Here’s a good breakdown of the earnings season as we pass the halfway mark (via Zacks):

Key Points:

  • The third-quarter 2012  reporting season is beyond the half-way mark, with results from 289 companies in the S&P 500 already out. Overall results are weaker than what these companies produced in recent quarters.
  • Total earnings  for these companies are down 2.5% from the same period last year, with only 62.3% of the companies beating earnings expectations. Total revenues are down 1.9%, though only 36.7% of the companies have come out with positive revenue surprises.
  • Unlike recent quarters, results from the Tech sector have been disappointing as reports from Amazon(AMZN), Google (GOOG), Apple (AAPL) and Intel (INTC) show. Total Tech earnings are down 0.7%, with only 57.8% beating earnings expectations — a significantly weaker performance than we have been seeing from the sector in recent quarters.
  • The Finance sector has the best performance thus far, though the subdued earnings growth rate for the sector (up 5.2%) is solely due to the negative comparison for Bank of America (BAC).
  • Basic Materials is the weakest, both in terms of growth as well as negative surprises. Energy still has a number of reports still to come, but it has the weakest growth profile after Basic Materials.
  • The composite earnings growth rate, combining the reports that have come out with those still to come, for the third quarter is for a decline of 0.7% for the S&P 500 as a whole and a decline of 4.5% excluding Finance.
  • The composite Tech sector earnings growth rate is for a decline of 0.2% from the same period last year, a major reversal of the persistent strong growth for a long time. Excluding Apple, which accounts for about 20% of the sector’s earnings, total Tech sector earnings would be down 4.8% vs. positive 2.1% growth in the second quarter.
  • Unlike expectations for the third quarter, estimates for the following quarter remain quite strong, though they have started coming down in recent days. Total earnings expected to be up 4.9% in the fourth quarter at present, which is a drop from the 7%-plus growth rate expected just a few weeks back.
  • Net margins are modestly up in the aggregate, but declining once Finance is excluded. Ten of the 16 sectors are expected to see margins contract in the third quarter, including Tech.
  • Total earnings for the full years 2012 and 2013 are expected to be up 5.6% and 10.6%, respectively. Revenues are expected to be essentially flat this year (up only 0.1%), but up 4% in 2013.