Key Points:
- The third quarter reports starting to flood in. So far 324,
or 64.8%, of S&P 500 reports in. Total reported earnings growth
of 17.58%. Ex-financials growth is 19.14% year over year. Total
revenue growth 11.94%, 12.25% ex-financials. Median earnings
surprise 2.82% and median sales surprise 0.68%.
- For the minority (176) yet to report, 6.65% growth
expected, 7.36% ex-financials. Down from growth of 13.3%, 15.0%
ex-financials growth in the second quarter. For revenues, 2.75%
expected and 8.91% ex-financials.
- Second quarter earnings beats top misses by 3.12 ratio,
sales beats top misses by 1.55 ratio, 66.0% of firms report
earnings beats, 60.8% beat on revenues. Growing earnings firms
outpaced declining earnings by 3.12 ratio, Revenues 4.23 growth
ratio
- Full-year total earnings for the S&P 500 jumps 46.5% in
2010, expected to rise 14.1% further in 2011. Growth to continue in
2012 with total net income expected to rise 11.1%. Financials were
the major earnings driver in 2010. Excluding financials, growth was
28.4% in 2010, and expected to be 17.3% in 2011 and 8.7% in
2012.
- Total revenues for the S&P 500 rise 7.90% in 2010,
expected to be up 5.15% in 2011, and 5.55% in 2012. Excluding
Financials, revenues up 9.29% in 2010, expected to rise 8.87% in
2011 and 5.76% in 2012.
- Annual Net Margins marching higher, from 5.88% in 2008 to
6.32% in 2009 to 8.58% for 2010, 9.31% expected for 2011 and 9.80%
in 2012. Margin expansion major source of earnings growth. Net
margins ex-financials 7.79% in 2008, 6.98% in 2009, 8.20% for 2010,
8.83% expected in 2011 and 9.07% in 2012.
- Revisions ratio for full S&P 500 at 0.77 for 2011, at
0.42 for 2012 (both bearish). Ratio of firms with rising to falling
mean estimates at 0.72 for 2011, 0.38 (both also bearish) for 2012.
Total revisions activity rising fast.
- S&P 500 earned $543.3 billion in 2009, rising to $796.0
billion in 2010, expected to climb to $908.2 billion in 2011. In
2012, the 500 are collectively expected to earn $1.009
Trillion.
- S&P 500 earned $57.09 in 2009: $83.63 in 2010 and
$95.44 in 2011 expected bottom up. For 2012, $105.99 expected. Puts
P/Es at 15.36 for 2010, and 13.46x for 2011 and 12.12x for 2012,
very attractive relative to 10-year T-note rate of 2.39%. Top-down
estimates: $96.84 for 2011 and $104.52 for 2012.
The Earnings Picture
Third quarter earnings results are pouring in. Total net income
growth has been far higher than expected, although the median
surprise and the ratio of positive surprises to disappointments has
been about normal. Thus I would characterize the season as good,
but not great.
We have 324, or 64.8%, of the S&P 500 firms reporting so far.
That sort of understates things a bit, since those 64.8% of firms
represent 75.7% of all expected earnings for the quarter. That is
provided that the remaining 176 firms all report exactly in line
with expectations.
The year-over-year growth rate for the S&P 500 (so far) is
17.58%. That is actually well above the 11.48% growth that those
same 324 firms posted in the second quarter. However, the second
quarter was distorted by some big hits to the financial sector,
most notably
Bank of America (BAC). This time BofA
reported better-than-expected earnings and did not have the big
“write off” it did in the second quarter. That resulted in a $12
billion swing in total net income between the second and third
quarters.
With and Without the Financials
If we exclude the financials, the year-over-year growth rate is
just a bit higher at 19.14%, but it represents a slowdown from the
second quarter, when growth was 21.25%. The final growth tally for
the quarter is likely to be lower than that.
The remaining 176 stocks are expected to growth their earnings
6.65% over last year, down from 13.28% growth in the second
quarter. If we exclude the financials, the remaining growth in the
third quarter is expected to slow to 7.36% year over year from
15.04%. Then again, at the beginning of earnings second quarter
season, growth of 9.7% was expected; 12.2% ex-financials.
We will need another season where positive earnings surprises far
outpace disappointments if we are going to match the second quarter
growth rate. If we combine the already reported results with the
expectations, it now looks like the final growth will come in at
14.73%. If the remaining firms surprise to the upside the way the
ones that have already reported do, it is not hard to see the final
growth coming in at around 16%.
Positive Surprises No Real Surprise
Relative to expectations, both earnings and revenues are doing
better than expected. Then again, having far more companies report
positive surprises than disappointments is entirely normal. The
current ratio of 3.10 (for the 324) is in line with the average
experience of the last five years or so. The median surprise is
2.82%, slightly below “normal.” Still, it is far more positive
surprises than disappointments.
Top-line surprises started off extremely strong, but have faded.
The surprise ratio is now 1.55 for revenues with a 0.68% median
surprise. Not bad, but not terrific either. Top-line growth so far
has been 11.94% and 12.25% ex-financials -- on both counts actually
a slight acceleration from the second quarter. The remaining 176
firms are collectively expected to grow their top lines by 2.75%,
or by 8.91% if we exclude the financials, both well below the
second-quarter pace.
Expanding net margins have been one of the keys to earnings growth.
That is still the case, with reported net margins of 10.74% so far,
up from 10.23% a year ago, and 10.18% in the second quarter (for
those 324 firms). However, the mix of firms that have reported so
far is skewed towards higher-margin firms, and the BofA effect is
very big as far as the increase relative to the second quarter is
concerned.
Expectations for the Rest of the S&P 500
Excluding financials, net margins have come in at 9.37% up from
8.86% a year ago, but down from 9.42% in the second quarter. The
remaining 176 firms are skewed towards much lower margin businesses
such as Retail. The remaining 176 are expected to post net margins
of 7.12%, up from 6.86% a year ago and 7.09% in the second
quarter.
Excluding the financials, though, it looks like the expanding net
margin party might be coming to an end, with 6.77% expected, down
from both the 7.03% level of the second quarter and 6.87% a year
ago.
On an annual basis, net margins continue to march northward. In
2008, overall net margins were just 5.88%, rising to 6.32% in 2009.
They hit 8.58% in 2010 and are expected to continue climbing to
9.31% in 2011 and 9.80% in 2012. The pattern is a bit different,
particularly during the recession, if the financials are excluded,
as margins fell from 7.78% in 2008 to 6.98% in 2009, but have
started a robust recovery and rose to 8.20% in 2010. They are
expected to rise to 8.83% in 2011 and 9.07% in 2012.
Focus on the Full Year
The expectations for the full year are very healthy, with total net
income for 2010 rising to $796.0 billion in 2010, up from $543.3
billion in 2009. In 2011, the total net income for the S&P 500
should be $908.2 billion, or increases of 46.5% and 14.1%,
respectively.
The expectation is for 2012 to have total net income passing the $1
Trillion mark to $1.009 Trillion, for growth of 11.1%. That will
also put the “EPS” for the S&P 500 over the $100 “per share”
level for the first time at $105.99. That is up from $57.09 for
2009, $83.63 for 2010 and $95.44 for 2011.
In an environment where the 10-year T-note is yielding 2.39%, a P/E
of 15.4x based on 2010 and 13.5x based on 2011 earnings looks
attractive. The P/E based on 2012 earnings is just 12.1x.
Heavy Estimate Revisions
Estimate revisions activity is rising rapidly, as is seasonally
normal. We have seen a little bit of a bounce in the ratio of
upwards to downwards revisions, especially for this year, but it is
still far from turning positive. To some extent, there is a
mechanical reason for upwards revisions to this year. After all,
the third quarter is part of the full year, so if a company beats
by, say, a nickel, and the analysts don’t increase their estimates
for the firms by at least that much, they are implicitly cutting
their numbers for the fourth quarter.
With more than three positive surprises for every disappointment,
one should expect more upward revisions than cuts. Even so, the
ratio is still deep in negative territory at just 0.77, although
that figure still includes some estimate changes that were made
before the earnings reports came in (we track a four week moving
total). There is no mechanical effect when it comes to the
revisions for next year, and those remain even further in negative
territory at just 0.42, or more than two cuts for every
increase.
The net cuts are very widespread. For this year, only six of 16
sectors are seeing more positive than negative revisions. For next
year, every sector but Business Service has more cuts than
increases, and cuts outnumber increases by more than two to one in
12 sectors.
As the principal argument in the bulls favor is the high level of
corporate earnings, and the low valuations relative to them, this
trend needs to reverse, and soon. The very low revisions ratio for
2012 is very troubling and is confirmed by the ratio of firms with
rising mean estimates to falling mean estimates being just
0.38.
Scorecard & Earnings Surprise
- So far 324 firms, or 64.8% have reported third quarter results.
Total growth at 17.58%. We have a 3.10 surprise ratio, and 2.82%
median surprise, both about normal. Positive surprises for 66.0% of
all firms reporting.
- Positive year-over-year growth for 243, falling EPS for 78
firms, 3.12 ratio, 75.0% of all firms reporting have higher EPS
than last year.
- Bigger firms have reported early, 75.7% of all earnings in
(provided remaining firms report exactly in line with
expectations).
- Pay close attention to the % reported column in assessing the
significance of sector level data.
Historically, a “normal earnings season” will have a surprise ratio
of about 3:1 and a median surprise of about 3.0%. Thus in the early
going we are doing much better than average on the median front,
and about average on the ratio front. Early on the ratios and
medians can be very volatile, but it looks like an OK start to
things. Pay attention to the percent reporting in evaluating the
significance of the sector numbers.
Scorecard & Earnings Surprise 3Q
Reported
|
Income Surprises |
Yr/Yr
Growth |
%
Reported |
Surprise
Median |
EPS
Surp
Pos |
EPS
Surp
Neg |
#
Grow
Pos |
#
Grow
Neg |
Oils and Energy |
54.24% |
51.22% |
6.38 |
14 |
7 |
17 |
4 |
Consumer Discretionary |
7.83% |
64.52% |
4.60 |
11 |
7 |
15 |
5 |
Auto |
21.68% |
100.00% |
4.55 |
5 |
2 |
6 |
1 |
Aerospace |
12.44% |
100.00% |
4.51 |
7 |
2 |
7 |
2 |
Business Service |
21.26% |
73.68% |
4.24 |
13 |
0 |
14 |
0 |
Computer and Tech |
13.51% |
65.28% |
3.70 |
31 |
8 |
30 |
17 |
Conglomerates |
24.76% |
77.78% |
3.47 |
4 |
2 |
6 |
1 |
Industrial Products |
25.51% |
77.27% |
3.23 |
12 |
5 |
13 |
4 |
Utilities |
14.71% |
37.50% |
2.88 |
11 |
1 |
12 |
3 |
Retail/Wholesale |
8.29% |
44.68% |
2.70 |
14 |
4 |
17 |
3 |
Finance |
10.92% |
73.42% |
2.62 |
34 |
16 |
39 |
18 |
Medical |
5.38% |
75.56% |
2.37 |
28 |
3 |
26 |
8 |
Transportation |
13.24% |
88.89% |
1.58 |
5 |
2 |
7 |
1 |
Basic Materials |
30.85% |
82.61% |
1.58 |
13 |
4 |
17 |
2 |
Construction |
10.89% |
54.55% |
0.29 |
3 |
0 |
3 |
3 |
Consumer Staples |
7.32% |
55.56% |
0.00 |
9 |
6 |
14 |
6 |
S&P 500 |
17.58% |
64.80% |
2.82 |
214 |
69 |
243 |
78 |
Sales Surprises
- Strong revenue growth of 11.94% among the 3.24 that have
reported, median surprise 0.68 (strong), surprise ratio of 1.55.
Positive surprise for 66.0%.
- Growing Revenues outnumber falling revenues by ratio of 4.23,
80.9% have higher sales than last year.
- The ratios and medians are likely to change as more firms
report.
- Every sector by Energy, Materials, Aerospace and Utilities
reporting more positive surprises than revenue
disappointments.
Sales Surprises 3Q Reported
|
Sales Surprises |
Yr/Yr
Growth |
%
Reported |
Surprise
Median |
Sales
Surp
Pos |
Sales
Surp
Neg |
#
Grow
Pos |
#
Grow
Neg |
Auto |
17.60% |
100.00% |
1.732 |
6 |
1 |
7 |
0 |
Business Service |
13.16% |
73.68% |
1.5745 |
11 |
3 |
13 |
1 |
Medical |
6.79% |
75.56% |
1.2785 |
25 |
9 |
32 |
2 |
Transportation |
13.40% |
88.89% |
1.185 |
6 |
2 |
8 |
0 |
Construction |
5.83% |
54.55% |
1.094 |
4 |
2 |
4 |
2 |
Conglomerates |
5.92% |
77.78% |
1.088 |
5 |
2 |
6 |
1 |
Industrial Products |
18.70% |
77.27% |
1.081 |
13 |
4 |
17 |
0 |
Retail/Wholesale |
11.19% |
44.68% |
1.074 |
18 |
3 |
20 |
1 |
Consumer Discretionary |
9.49% |
64.52% |
0.898 |
13 |
7 |
17 |
3 |
Basic Materials |
16.13% |
82.61% |
0.8875 |
10 |
10 |
19 |
1 |
Computer and Tech |
14.53% |
65.28% |
0.556 |
29 |
18 |
36 |
11 |
Consumer Staples |
13.16% |
55.56% |
0.458 |
12 |
8 |
15 |
5 |
Finance |
1.89% |
73.42% |
0.251 |
31 |
27 |
32 |
26 |
Oils and Energy |
29.18% |
51.22% |
-0.054 |
10 |
11 |
20 |
1 |
Aerospace |
-1.04% |
100.00% |
-1.96 |
2 |
7 |
5 |
4 |
Utilities |
1.68% |
37.50% |
-2.062 |
2 |
13 |
11 |
4 |
S&P 500 |
11.94% |
64.80% |
0.6825 |
197 |
127 |
262 |
62 |
Reported Quarterly Growth: Total Net Income
- The total net income for the 324 that have reported so far is
17.58% above what was reported in the third quarter of 2010, up
sharply from 11.48% growth the same 324 firms reported in the
second quarter. Excluding financials, growth of 19.14%, down
slightly from 21.25% reported in the second quarter.
- Sequential earnings rise 6.92% for the 324 that have reported,
but rise only 0.54% ex-financials. A $12 billion sequential swing
at BAC behind the difference.
- Growth (for the 324 firms) expected to slow in the fourth
quarter, to 7.35%, 7.90% ex-financials
- Total net income reported (324 firms) $182.5 billion vs. $155.2
billion year ago, and up from $170.6 billion in second
quarter.
- Sample sizes now large enough to be significant for most
sectors, Autos & Aerospace done.
Quarterly Growth: Total Net Income Reported
|
Income Growth |
"Sequential Q4/Q3 E" |
"Sequential Q3/Q2 A" |
Year over Year 3Q 11 A |
Year over Year 4Q 11 E |
Year over Year 2Q 11 A |
Oils and Energy |
-8.03% |
0.24% |
54.24% |
20.22% |
39.97% |
Basic Materials |
-18.27% |
-24.42% |
30.85% |
-1.12% |
52.56% |
Industrial Products |
-11.71% |
5.68% |
25.51% |
11.92% |
28.84% |
Conglomerates |
-2.28% |
9.57% |
24.76% |
12.18% |
12.22% |
Auto |
-27.74% |
-15.00% |
21.68% |
19.87% |
15.57% |
Business Service |
16.50% |
2.51% |
21.26% |
16.01% |
17.11% |
Utilities |
-29.70% |
12.24% |
14.71% |
1.02% |
6.49% |
Computer and Tech |
16.00% |
-4.80% |
13.51% |
7.72% |
28.89% |
Transportation |
0.66% |
1.86% |
13.24% |
14.16% |
16.86% |
Aerospace |
-6.07% |
5.60% |
12.44% |
-3.44% |
3.07% |
Finance |
-7.15% |
50.90% |
10.92% |
4.79% |
-28.29% |
Construction |
-39.69% |
42.28% |
10.89% |
16.12% |
-23.60% |
Retail/Wholesale |
-5.96% |
6.04% |
8.29% |
1.22% |
13.60% |
Consumer Discretionary |
-16.42% |
59.10% |
7.83% |
7.44% |
4.13% |
Consumer Staples |
-11.15% |
4.53% |
7.32% |
0.90% |
11.77% |
Medical |
-6.00% |
0.32% |
5.38% |
1.98% |
6.55% |
S&P 500 |
-4.89% |
6.92% |
17.58% |
7.35% |
11.48% |
Excluding Financial |
-4.40% |
0.54% |
19.14% |
7.90% |
21.25% |
Expected Quarterly Growth: Total Net Income
- Total net income is expected (for the 176) to be 6.65% above
what was reported in the third quarter of 2010, down from 13.28%
growth in the second quarter. Excluding financials, growth of
7.36%, down from 15.04% reported in the second quarter.
- Relative to the second quarter total net income to fall 6.11%,
ex-financials to fall 5.55%.
- Construction to lead the way (low base in 2010), followed by
Materials and Energy.
- Six sectors see earnings accelerate from second quarter, 10 see
slowing growth.
- Total expected net income of $58.56 billion versus $154.91
billion year ago, $62.37 billion in second quarter (176 firms). The
500 to report $241.0 billion vs. $210.1 billion a year ago.
Quarterly Growth: Total Net Income Expected
|
Income Growth |
Sequential Q4/Q3 E |
Sequential Q3/Q2 E |
Year over Year 3Q 11 E |
Year over Year 4Q 11 E |
Year over Year 2Q 11 A |
Auto |
na |
na |
na |
na |
na |
Aerospace |
na |
na |
na |
na |
na |
Construction |
-13.24% |
5.11% |
295.36% |
87.49% |
-2.65% |
Basic Materials |
16.00% |
-9.17% |
74.63% |
4.84% |
39.78% |
Oils and Energy |
-8.35% |
-8.83% |
63.84% |
38.95% |
45.08% |
Industrial Products |
-16.36% |
-3.90% |
23.46% |
10.81% |
20.18% |
Consumer Discretionary |
20.29% |
-13.71% |
15.02% |
9.63% |
26.87% |
Transportation |
0.00% |
8.50% |
7.37% |
6.26% |
5.56% |
Business Services |
-5.38% |
1.43% |
6.60% |
10.09% |
10.54% |
Retail/Wholesale |
54.90% |
-17.13% |
3.43% |
3.47% |
8.39% |
Medical |
-6.16% |
-7.37% |
1.59% |
2.39% |
-0.22% |
Finance |
-5.88% |
-10.18% |
1.48% |
2.71% |
1.91% |
Utilities |
-41.29% |
45.55% |
-1.12% |
-0.50% |
2.92% |
Consumer Staples |
2.89% |
-8.91% |
-6.33% |
-2.42% |
12.85% |
Computer and Tech |
6.21% |
-8.42% |
-9.14% |
-7.70% |
11.68% |
Conglomerates |
-4.84% |
-2.63% |
-9.15% |
-73.48% |
417.70% |
S&P 500 |
3.47% |
-6.11% |
6.65% |
1.87% |
13.28% |
Excluding Financial |
4.69% |
-5.55% |
7.36% |
1.77% |
15.04% |
Quarterly Growth: Total Revenues Reported
- Revenue growth (for the 324 that have reported) strong at
11.94%, up from the 11.55% growth posted in the second quarter.
Growth ex-financials 12.25%, up from 11.76%.
- Revenue growth for S&P 500 firms far outpacing US nominal
GDP growth.
- Sequentially revenues 1.28% higher than in the second quarter,
up 1.17% ex-financials.
- Nine sectors reporting revenue growth over 10%; Aerospace,
Finance and Utilities weak.
- Revenue growth expected to slow in fourth quarter falling to
5.05%, 5.63% ex-financials. Still a healthy level.
Quarterly Growth: Total Revenues Reported
|
Sales Growth |
"Sequential Q4/Q3 E" |
"Sequential Q3/Q2 A" |
Year over Year 3Q 11 A |
Year over Year
4Q 11 E |
Year over Year 2Q 11 A |
Oils and Energy |
-3.77% |
-2.23% |
29.18% |
13.94% |
33.35% |
Industrial Products |
-1.24% |
3.06% |
18.70% |
11.95% |
18.76% |
Auto |
-1.95% |
-1.97% |
17.60% |
7.05% |
11.95% |
Basic Materials |
-3.89% |
-4.08% |
16.13% |
8.97% |
19.48% |
Computer and Tech |
10.39% |
-0.35% |
14.53% |
8.24% |
20.43% |
Transportation |
2.05% |
0.96% |
13.40% |
12.01% |
13.30% |
Consumer Staples |
-11.63% |
2.21% |
13.16% |
-7.03% |
13.03% |
Business Service |
1.97% |
1.02% |
13.16% |
6.21% |
12.28% |
Retail/Wholesale |
2.18% |
4.70% |
11.19% |
9.11% |
10.67% |
Consumer Discretionary |
2.63% |
8.22% |
9.49% |
7.69% |
9.44% |
Medical |
1.72% |
-0.26% |
6.79% |
4.11% |
6.90% |
Conglomerates |
8.06% |
0.50% |
5.92% |
2.18% |
2.60% |
Construction |
-6.62% |
5.48% |
5.83% |
1.90% |
-4.92% |
Finance |
-5.85% |
5.42% |
1.89% |
-5.29% |
-6.25% |
Utilities |
-4.25% |
4.00% |
1.68% |
0.37% |
3.46% |
Aerospace |
9.36% |
3.26% |
-1.04% |
3.78% |
-1.83% |
S&P 500 |
-0.60% |
1.28% |
11.94% |
5.05% |
11.55% |
Excluding Financial |
-0.09% |
1.17% |
12.25% |
5.63% |
11.76% |
Quarterly Growth: Total Revenues Expected
- Revenue growth for the 176 yet to report expected to fall to
2.75%, from the 10.11% growth posted in the second quarter. Growth
ex-financials 8.91%, down from 10.11% in 2nd quarter.
- Sequentially revenues 6.53% lower than in the second quarter,
down 1.89% ex-financials.
- Five sectors expecting revenue growth over 10%, Finance to see
sharp 41.5% year-over-year drop in revenues.
- Revenue growth expected to slow sharply in fourth quarter
falling to -2.34%, 1.38% ex-financials.
Quarterly Growth: Total Revenues Expected
|
Sales Growth |
Sequential Q4/Q3 E |
Sequential Q3/Q2 E |
Year over Year 3Q 11 E |
Year over Year 4Q 11 E |
Year over Year
2Q 11 A |
Auto |
na |
na |
na |
na |
na |
Aerospace |
na |
na |
na |
na |
na |
Oils and Energy |
-4.74% |
-12.60% |
19.12% |
7.92% |
16.97% |
Consumer Discretionary |
8.53% |
-0.97% |
18.97% |
15.18% |
20.43% |
Basic Materials |
17.04% |
-18.22% |
12.65% |
6.29% |
43.09% |
Construction |
-0.82% |
4.95% |
12.15% |
18.38% |
7.71% |
Industrial Products |
-2.53% |
-1.80% |
10.66% |
19.13% |
18.44% |
Utilities |
-14.82% |
17.50% |
8.54% |
3.26% |
11.27% |
Retail/Wholesale |
-1.27% |
-0.57% |
7.40% |
-6.10% |
5.53% |
Computer and Tech |
1.93% |
0.77% |
6.03% |
6.86% |
9.78% |
Business Services |
2.55% |
3.01% |
5.44% |
5.70% |
5.82% |
Medical |
1.53% |
-1.39% |
5.17% |
2.61% |
3.41% |
Conglomerates |
-4.39% |
-2.93% |
4.68% |
-5.68% |
7.68% |
Transportation |
-0.23% |
9.87% |
4.14% |
9.54% |
4.22% |
Consumer Staples |
7.30% |
-7.39% |
0.40% |
0.46% |
8.11% |
Finance |
50.50% |
-42.69% |
-41.51% |
-26.23% |
9.61% |
S&P 500 |
2.85% |
-6.53% |
2.75% |
-2.34% |
10.11% |
Excluding Financial |
-0.71% |
-1.89% |
8.91% |
1.38% |
10.18% |
Quarterly Net Margins Reported
- Sector and S&P net margins are calculated as total net
income for the sector divided by total revenues for the
sector.
- Net margins for the 324 that have reported rise to 10.74% from
10.23% a year ago, and up from 10.18% in the second quarter. Net
margins ex-financials rise to 9.37% from 8.86% a year ago and 9.42%
in the second quarter.
- Final net margins will be lower as remaining firms are lower
margin businesses.
Margin expansion the key driver behind earnings growth. Due to
seasonality, it is best to compare to a year ago, particularly at
the individual company and sector levels. Mix of companies
reporting will lead to big changes in both the reported and
expected net margin tables from week to week.
Quarterly: Net Margins Reported
|
Net Margins |
Q4 2011 Estimated |
Q3 2011 Reported |
Q2 2011 Reported |
1Q 2011 Reported |
4Q 2010 Reported |
3Q 2010 Reported |
Computer and Tech |
20.80% |
19.79% |
20.72% |
18.92% |
20.90% |
19.97% |
Finance |
14.01% |
14.21% |
9.92% |
14.27% |
12.66% |
13.05% |
Consumer Staples |
13.35% |
13.27% |
12.98% |
12.49% |
12.30% |
14.00% |
Medical |
11.69% |
12.65% |
12.58% |
12.86% |
11.94% |
12.82% |
Business Service |
13.17% |
11.53% |
11.36% |
11.01% |
12.06% |
10.76% |
Consumer Discretionary |
8.88% |
10.90% |
7.41% |
7.47% |
8.90% |
11.07% |
Conglomerates |
9.75% |
10.79% |
9.89% |
8.96% |
8.88% |
9.16% |
Oils and Energy |
8.99% |
9.41% |
9.18% |
9.08% |
8.52% |
7.88% |
Utilities |
6.54% |
8.91% |
8.25% |
7.92% |
6.50% |
7.90% |
Transportation |
8.48% |
8.60% |
8.52% |
6.77% |
8.32% |
8.61% |
Industrial Products |
7.50% |
8.39% |
8.19% |
8.03% |
7.51% |
7.94% |
Basic Materials |
7.11% |
8.37% |
10.62% |
10.94% |
7.84% |
7.43% |
Aerospace |
6.04% |
7.03% |
6.88% |
6.14% |
6.49% |
6.19% |
Auto |
4.21% |
5.71% |
6.59% |
6.64% |
3.76% |
5.52% |
Construction |
2.98% |
4.61% |
3.42% |
1.24% |
2.61% |
4.40% |
Retail/Wholesale |
3.04% |
3.30% |
3.26% |
3.70% |
3.27% |
3.39% |
S&P 500 |
10.28% |
10.74% |
10.18% |
10.47% |
10.06% |
10.23% |
Excluding Financial |
8.99% |
9.37% |
9.42% |
8.95% |
8.77% |
8.86% |
Quarterly Net Margins Expected
- Sector and S&P net margins are calculated as total net
income for the sector divided by total revenues for the sector. The
numbers on this table are only for the 176 yet to report.
- Late reporters have lower margins historically and projected
than the already reported.
- Net margins expected to rise to 7.12% from 6.86% a year ago,
and up from 7.09% in the second quarter. Net margins ex-financials
expected to fall to 6.77% from 6.87% a year ago and down from 7.03%
in the second quarter.
- Seven sectors see year-over-year margin expansion, seven
expected to see contraction.
- Margin expansion the key driver behind earnings growth. Due to
seasonality, it is best to compare to a year ago, particularly at
the individual company and sector levels. Mix of companies
reporting will lead to big changes in both the reported and
expected net margin tables from week to week.
Quarterly: Net Margins Expected
|
Net Margins |
Q4 2011 Expected |
Q3 2011 Expected |
2Q 2011 Reported |
1Q 2011 Reported |
4Q 2010 Reported |
3Q 2010 Reported |
Auto |
NA |
NA |
NA |
NA |
NA |
NA |
Aerospace |
NA |
NA |
NA |
NA |
NA |
NA |
Medical |
15.00% |
16.24% |
17.28% |
17.50% |
15.04% |
16.81% |
Business Service |
11.16% |
12.10% |
12.29% |
11.41% |
10.72% |
11.96% |
Finance |
7.39% |
11.82% |
7.54% |
8.33% |
5.31% |
6.81% |
Conglomerates |
11.58% |
11.63% |
11.59% |
8.47% |
41.17% |
13.40% |
Industrial Products |
8.49% |
9.89% |
10.10% |
10.40% |
9.12% |
8.86% |
Utilities |
6.79% |
9.85% |
7.95% |
8.03% |
7.05% |
10.82% |
Consumer Discretionary |
10.75% |
9.70% |
11.13% |
10.79% |
11.29% |
10.03% |
Computer and Tech |
9.79% |
9.40% |
10.34% |
11.97% |
11.34% |
10.96% |
Oils and Energy |
6.98% |
7.26% |
6.96% |
5.84% |
5.42% |
5.28% |
Consumer Staples |
6.93% |
7.23% |
7.35% |
6.70% |
7.13% |
7.75% |
Transportation |
5.95% |
5.93% |
6.01% |
6.23% |
6.13% |
5.76% |
Basic Materials |
4.35% |
4.39% |
3.96% |
4.41% |
4.41% |
2.83% |
Retail/Wholesale |
4.81% |
3.07% |
3.68% |
3.23% |
4.37% |
3.18% |
Construction |
2.53% |
2.89% |
2.89% |
1.10% |
1.60% |
0.82% |
S&P 500 |
7.16% |
7.12% |
7.09% |
7.00% |
6.87% |
6.86% |
Excluding Financial |
7.14% |
6.77% |
7.03% |
6.84% |
7.11% |
6.87% |
Annual Total Net Income Growth
- Following rise of just 1.9% in 2009, total earnings for the
S&P 500 jumps 46.5% in 2010, 14.1% further expected in 2011.
Growth ex-financials 28.4% in 2010, 17.3% in 2011.
- For 2012, 11.1% growth expected. 8.7% ex-financials.
- Fourteen sectors expected to see total net income rise in 2011
and all in 2012. Utilities only (small) decliner in 2010. Nine
sectors expected to post double-digit growth in 2011 and nine in
2012. Only Utilities and Health Care expected to grow less than 5%
in 2012.
- Cyclical/Commodity sectors expected to lead in earnings growth
again in 2011 and into 2012. Materials and Energy expected to grow
almost 40% for second year.
- Sector dispersion of earnings growth narrows dramatically
between 2010 and 2012, only Construction and Financials (low base)
expected to grow more than 20% in 2012, eight grew more than 30% in
2010.
Annual Total Net Income Growth
|
Net Income Growth |
2009 |
2010 |
2011 |
2012 |
Oils and Energy |
-54.95% |
50.58% |
37.28% |
4.93% |
Basic Materials |
-48.29% |
61.86% |
36.17% |
11.23% |
Industrial Products |
-35.12% |
36.60% |
31.94% |
17.66% |
Computer and Tech |
-5.37% |
47.30% |
22.21% |
9.50% |
Consumer Discretionary |
-15.01% |
24.95% |
18.66% |
14.07% |
Business Service |
1.46% |
13.61% |
18.07% |
13.44% |
Auto |
- to + |
1470.14% |
16.14% |
6.31% |
Conglomerates |
-23.61% |
11.25% |
11.32% |
11.02% |
Retail/Wholesale |
2.62% |
14.66% |
10.74% |
12.82% |
Consumer Staples |
5.36% |
11.74% |
8.86% |
8.05% |
Medical |
2.44% |
10.24% |
6.79% |
4.72% |
Aerospace |
-17.10% |
21.38% |
6.56% |
8.81% |
Utilities |
-14.20% |
-0.64% |
2.98% |
3.93% |
Construction |
- to - |
- to + |
1.28% |
45.88% |
Finance |
- to + |
316.23% |
-0.63% |
24.12% |
Transportation |
-30.21% |
81.24% |
-4.99% |
18.35% |
S&P 500 |
1.86% |
46.52% |
14.10% |
11.07% |
Annual Total Revenue Growth
- Total S&P 500 Revenue in 2010 rises 8.58% above 2009
levels, a rebound from a 6.40% 2009 decline.
- Total revenues for the S&P 500 expected to rise 5.15% in
2011, 5.55% in 2012.
- Materials to lead revenue race in 2011. Six other sectors (all
cyclical) also expected to show double-digit revenue growth in
2011.
- All sectors but Staples, Finance and Aerospace expected to show
positive top-line growth in 2011, but four sectors expected to show
positive growth below 5%. All sectors see 2012 growth, but only
Construction, Tech and Industrials seen in double digits.
- Aerospace the only sector to post lower top line for 2010.
Revenues for Financials, Construction and Conglomerates were
virtually unchanged.
- The widespread revenue gains are not consistent with the idea
of a double-dip recession, particularly in a low inflation
environment.
- Revenue growth significantly different if financials are
excluded, down 10.56% in 2009 but growth of 9.29% in 2010, 8.87% in
2011 and 5.76% in 2012.
Annual Total Revenue Growth
|
Sales Growth |
2009 |
2010 |
2011 |
2012 |
Basic Materials |
-16.96% |
11.22% |
18.75% |
7.08% |
Industrial Products |
-20.96% |
12.34% |
18.31% |
11.20% |
Auto |
-21.40% |
8.53% |
14.67% |
7.41% |
Oils and Energy |
-34.24% |
23.74% |
14.42% |
0.97% |
Consumer Discretionary |
-10.97% |
3.87% |
14.05% |
8.29% |
Computer and Tech |
-3.69% |
15.59% |
13.32% |
12.04% |
Transportation |
7.25% |
10.70% |
13.18% |
9.24% |
Business Service |
-3.61% |
4.81% |
9.01% |
6.96% |
Retail/Wholesale |
1.40% |
4.08% |
6.46% |
6.61% |
Medical |
6.23% |
11.40% |
4.81% |
2.18% |
Construction |
-15.92% |
0.47% |
4.68% |
12.77% |
Conglomerates |
-13.30% |
0.94% |
4.65% |
4.30% |
Utilities |
-6.24% |
2.13% |
4.58% |
2.98% |
Aerospace |
6.51% |
-0.34% |
-0.72% |
6.50% |
Consumer Staples |
-0.52% |
4.79% |
-2.00% |
5.38% |
Finance |
21.57% |
0.11% |
-17.63% |
3.82% |
S&P 500 |
-6.40% |
7.90% |
5.15% |
5.55% |
Excluding Financial |
-10.56% |
9.29% |
8.87% |
5.76% |
Annual Net Margins
- Net margins marching higher, from 5.88% in 2008 to 6.32% in
2009 to 8.58% for 2010, 9.31% expected for 2011. Trend expected to
continue into 2012 with net margins of 9.80% expected. Major source
of earnings growth.
- Financials significantly distort overall net margins. Net
margins ex-financials 7.78% in 2008, 6.98% in 2009, 8.20% for 2010,
8.83% expected in 2011. Expected to grow to 9.07% in 2012.
- Financials net margins soar from -8.42% in 2008 to 15.79%
expected for 2012.
- All sectors but Medical and Utilities saw higher net margins in
2010 than in 2009. Thirteen sectors expected to post higher net
margins in 2011 than in 2010. Widespread margin expansion currently
expected for 2012 as well with 14 sectors expected to post
expansion in margins.
- Six sectors to boast double-digit net margins in 2012, up from
just three in 2009.
- Sector net margins are calculated as total net income for
sector divided by total revenues. However, there are generally
fewer revenue estimates than earnings estimates for individual
companies.
Annual Net Margins
|
Net Margins |
2009A |
2010E |
2011E |
2012E |
Computer and Tech |
11.80% |
15.04% |
16.22% |
15.85% |
Finance |
2.63% |
10.95% |
13.21% |
15.79% |
Medical |
13.06% |
12.93% |
13.17% |
13.50% |
Business Service |
10.07% |
10.92% |
11.83% |
12.54% |
Consumer Staples |
9.75% |
10.40% |
11.55% |
11.84% |
Conglomerates |
8.17% |
9.00% |
9.58% |
10.20% |
Consumer Discretionary |
7.44% |
8.95% |
9.31% |
9.81% |
Oils and Energy |
5.99% |
7.29% |
8.75% |
9.09% |
Industrial Products |
6.08% |
7.40% |
8.25% |
8.73% |
Transportation |
5.80% |
9.50% |
7.98% |
8.64% |
Basic Materials |
4.72% |
6.86% |
7.87% |
8.17% |
Utilities |
8.07% |
7.85% |
7.73% |
7.80% |
Aerospace |
4.93% |
6.00% |
6.44% |
6.58% |
Auto |
0.36% |
5.23% |
5.30% |
5.24% |
Retail/Wholesale |
3.00% |
3.31% |
3.44% |
3.64% |
Construction |
-0.51% |
2.67% |
2.58% |
3.34% |
S&P 500 |
6.32% |
8.58% |
9.31% |
9.80% |
Excluding Financial |
6.98% |
8.20% |
8.83% |
9.07% |
Earnings Estimate Revisions: Current Fiscal Year
The Zacks Revisions Ratio: 2011
- Revisions ratio for full S&P 500 at 0.77, up from 0.61 last
week, still bearish. Total revisions activity rising fast, change
in revisions ratio driven more by new estimates being added, not
old ones falling out (higher significance to changes in the
revisions ratio).
- Just six sectors with revisions ratio at or above 1.0. Sample
sizes growing adding to the significance of the ratios.
- Ratio of firms with rising to falling mean estimates at 0.72,
up from 0.54 last week, still a very bearish reading.
- Total number of revisions (4-week total) climbing off of
seasonal lows at 3,481, up from 2,666 last week (30.6%). Increases
at 1,511 up from 1,006 (50.2%), cuts at 1,970, up from 1,660
(18.6%).
The Zacks Revisions Ratio: 2011
|
Sector |
%Ch
Curr Fiscal Yr
Est - 4 wks |
#
Firms
Up |
#
Firms
Down |
#
Ests
Up |
#
Ests
Down |
Revisions
Ratio |
Firms
up/down |
Aerospace |
1.21 |
7 |
2 |
53 |
6 |
8.83 |
3.50 |
Business Service |
0.41 |
11 |
7 |
71 |
25 |
2.84 |
1.57 |
Retail/Wholesale |
-1.08 |
23 |
21 |
169 |
134 |
1.26 |
1.10 |
Conglomerates |
0.29 |
4 |
4 |
36 |
29 |
1.24 |
1.00 |
Consumer Discretionary |
0.35 |
17 |
10 |
95 |
77 |
1.23 |
1.70 |
Medical |
-0.19 |
28 |
14 |
167 |
153 |
1.09 |
2.00 |
Auto |
-0.63 |
3 |
4 |
31 |
31 |
1.00 |
0.75 |
Transportation |
0.87 |
4 |
5 |
46 |
63 |
0.73 |
0.80 |
Construction |
-2.62 |
2 |
7 |
12 |
17 |
0.71 |
0.29 |
Utilities |
-0.72 |
19 |
16 |
68 |
100 |
0.68 |
1.19 |
Finance |
-1.34 |
28 |
50 |
326 |
492 |
0.66 |
0.56 |
Computer and Tech |
-2.26 |
25 |
39 |
180 |
283 |
0.64 |
0.64 |
Industrial Products |
-1.83 |
4 |
16 |
41 |
75 |
0.55 |
0.25 |
Oils and Energy |
-3.32 |
10 |
31 |
140 |
260 |
0.54 |
0.32 |
Basic Materials |
-7.92 |
6 |
17 |
36 |
94 |
0.38 |
0.35 |
Consumer Staples |
-0.71 |
6 |
29 |
40 |
131 |
0.31 |
0.21 |
S&P |
-1.44 |
197 |
272 |
1511 |
1970 |
0.77 |
0.72 |
Earnings Estimate Revisions: Next Fiscal Year
The Zacks Revisions Ratio: 2012
- Revisions ratio for full S&P 500 at 0.42, up from 0.36 from
last week, deep in bearish territory, sample sizes growing and
becoming more significant.
- While better than in recent weeks, the failure of the revisions
ratio to rise more significantly as activity has picked up is a
very worrisome sign.
- All sectors but Business Service have negative revisions ratio
(below 1.0). Twelve sectors with more than two cuts per increase.
Seven sectors more than 3 to 1.
- Ratio of firms with rising estimate to falling mean estimates
at 0.42, up from 0.38, still deep in bearish territory.
- Total number of revisions (4-week total) at 3,452, up from
2,703 last week (27.7%).
- Increases at 1,028 up from 709 last week (45.0%), cuts rise to
2,424 from 1,994 last week (21.6%).
The Zacks Revisions Ratio: 2012
|
Sector |
%Ch
Next Fiscal Yr Est - 4 wks |
#
Firms Up |
#
Firms Down |
#
Ests Up |
#
Ests Down |
Revisions
Ratio |
Firms up/down |
Business Service |
-0.30 |
6 |
12 |
50 |
49 |
1.02 |
0.50 |
Retail/Wholesale |
-2.17 |
20 |
25 |
131 |
154 |
0.85 |
0.80 |
Consumer Discretionary |
-0.52 |
10 |
18 |
82 |
98 |
0.84 |
0.56 |
Medical |
-0.97 |
15 |
28 |
122 |
223 |
0.55 |
0.54 |
Transportation |
-1.06 |
1 |
8 |
31 |
69 |
0.45 |
0.13 |
Computer and Tech |
-2.69 |
22 |
43 |
131 |
294 |
0.45 |
0.51 |
Oils and Energy |
-6.33 |
9 |
32 |
125 |
330 |
0.38 |
0.28 |
Industrial Products |
-2.81 |
4 |
17 |
31 |
88 |
0.35 |
0.24 |
Conglomerates |
-1.81 |
1 |
7 |
16 |
46 |
0.35 |
0.14 |
Auto |
-2.14 |
2 |
5 |
12 |
37 |
0.32 |
0.40 |
Finance |
-3.62 |
17 |
60 |
178 |
585 |
0.30 |
0.28 |
Aerospace |
-0.80 |
1 |
8 |
12 |
40 |
0.30 |
0.13 |
Construction |
-5.80 |
1 |
9 |
7 |
24 |
0.29 |
0.11 |
Consumer Staples |
-1.16 |
7 |
27 |
41 |
146 |
0.28 |
0.26 |
Utilities |
-1.55 |
10 |
23 |
32 |
128 |
0.25 |
0.43 |
Basic Materials |
-6.89 |
3 |
20 |
27 |
113 |
0.24 |
0.15 |
S&P |
-2.65 |
129 |
342 |
1028 |
2424 |
0.42 |
0.38 |
Total Income and Share
- S&P 500 earned $543.3 billion in 2009, rising to earn
$796.0 billion in 2010, $908.2 billion expected in 2011.
- The S&P 500 total earnings expected to hit the $1 Trillion
mark in 2012 at $1.009 Trillion.
- Finance share of total earnings moves from 5.9% in 2009 to
17.9% in 2010, dip to 15.6% expected for 2011; rebound to 17.4% in
2012, but still well below 2007 peak of over 30%. Energy share also
rising going from 11.9% in 2009 to 14.7% in 2011.
- Medical share of total earnings far exceeds market cap share
(index weight), but earnings share expected to shrink from 17.3% in
2009 to 11.1% in 2012, down each year.
- Market Cap shares of Construction, Staples, Retail,
Transportation, and Business Service sectors far exceed earnings
shares of any of the years from 2010 through 2012.
- Earnings shares of Energy, Finance, Autos, Materials and
Medical well above market cap shares.
- As a general rule, one should try to overweight sectors with
rising earnings shares, underweight falling earnings shares, but
also over weight sectors where earnings shares exceed market cap
shares.
Total Income and Share
|
Income ($ Bill) |
Total
Net
Income
$ 2010 |
Total
Net
Income
$ 2011 |
Total
Net
Income
$ 2012 |
% Total
S&P Earn
2010 |
% Total
S&P Earn
2011 |
% Total
S&P
Earn
2012 |
% Total
S&P Mkt
Cap |
Computer and Tech |
$135,766 |
$165,922 |
$181,688 |
17.06% |
18.27% |
18.01% |
18.78% |
Finance |
$142,516 |
$141,622 |
$175,786 |
17.90% |
15.59% |
17.43% |
14.58% |
Oils and Energy |
$97,412 |
$133,729 |
$140,328 |
12.24% |
14.72% |
13.91% |
11.81% |
Medical |
$100,184 |
$106,990 |
$112,044 |
12.59% |
11.78% |
11.11% |
10.27% |
Consumer Staples |
$62,903 |
$68,474 |
$73,990 |
7.90% |
7.54% |
7.33% |
8.79% |
Retail/Wholesale |
$58,300 |
$64,562 |
$72,840 |
7.32% |
7.11% |
7.22% |
9.06% |
Utilities |
$47,911 |
$49,338 |
$51,275 |
6.02% |
5.43% |
5.08% |
6.17% |
Basic Materials |
$23,781 |
$32,382 |
$36,020 |
2.99% |
3.57% |
3.57% |
3.31% |
Conglomerates |
$28,602 |
$31,839 |
$35,349 |
3.59% |
3.51% |
3.50% |
3.52% |
Consumer Discretionary |
$26,119 |
$30,993 |
$35,355 |
3.28% |
3.41% |
3.50% |
3.97% |
Industrial Products |
$16,694 |
$22,025 |
$25,914 |
2.10% |
2.43% |
2.57% |
2.55% |
Business Service |
$14,288 |
$16,870 |
$19,137 |
1.80% |
1.86% |
1.90% |
2.42% |
Aerospace |
$13,874 |
$14,785 |
$16,088 |
1.74% |
1.63% |
1.59% |
1.36% |
Transportation |
$14,604 |
$13,875 |
$16,422 |
1.83% |
1.53% |
1.63% |
1.88% |
Auto |
$11,087 |
$12,876 |
$13,688 |
1.39% |
1.42% |
1.36% |
1.03% |
Construction |
$1,932 |
$1,957 |
$2,855 |
0.24% |
0.22% |
0.28% |
0.50% |
S&P 500 |
$795,971 |
$908,239 |
$1,008,779 |
100.00% |
100.00% |
100.00% |
100.00% |
P/E Ratios
- Trading at 15.36x 2010, 13.46x 2011 earnings, or earnings
yields of 6.51% and 7.43%, respectively. P/E for 2012 at 12.122x or
earnings yield of 8.25%. P/Es significantly higher than a month
ago, but still low relative to history and interest rates.
- Earnings Yields still attractive relative to 10-year T-Note
rate of 2.39%.
- Autos only sector with single-digit P/E for both years. Energy,
Aerospace and Finance also have low P/Es based on 2012
earnings.
- Construction has highest P/E for all three years by wide
margin.
- S&P 500 earned $57.10 in 2009 rising to $83.63 in 2010.
Currently expected to earn $95.44 in 2011 and $105.99 for
2012.
P/E Ratios
|
P/E |
2009 |
2010 |
2011 |
2012 |
Auto |
178.50 |
11.37 |
9.79 |
9.21 |
Oils and Energy |
22.31 |
14.82 |
10.79 |
10.29 |
Aerospace |
14.56 |
11.99 |
11.25 |
10.34 |
Medical |
13.81 |
12.53 |
11.73 |
11.20 |
Basic Materials |
27.53 |
17.01 |
12.49 |
11.23 |
Finance |
52.04 |
12.50 |
12.58 |
10.14 |
Conglomerates |
16.76 |
15.06 |
13.53 |
12.19 |
Computer and Tech |
24.90 |
16.91 |
13.83 |
12.63 |
Industrial Products |
25.51 |
18.68 |
14.16 |
12.03 |
Utilities |
15.64 |
15.74 |
15.28 |
14.71 |
Consumer Discretionary |
23.24 |
18.60 |
15.67 |
13.74 |
Consumer Staples |
19.10 |
17.09 |
15.70 |
14.53 |
Transportation |
28.53 |
15.74 |
16.57 |
14.00 |
Retail/Wholesale |
21.78 |
19.00 |
17.16 |
15.21 |
Business Service |
23.52 |
20.70 |
17.53 |
15.45 |
Construction |
NM |
31.90 |
31.50 |
21.59 |
S&P 500 |
22.50 |
15.36 |
13.46 |
12.12 |
Data in this report, unless stated otherwise, is through the
close on Thursday 10/27/2011.
We use the convention of referring to the next full fiscal year to
be completed as 2011, not all firms are on December fiscal years,
this can cause discontinuities in the data. The data is based on
FY1, not based on 2011, even though I may call it 2011 in the
report.
All numbers, including historical ones, reflect the current
composition of the S&P 500, thus some historical numbers may
differ from those reported by the S&P, which are based on the
composition of the index at the time of the reports.
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