Earnings beats falling behind previous quarters
NEW YORK |
NEW YORK (Reuters) - Even though it's just begun, the fourth-quarter earnings period is having trouble keeping up with the robust results of the recent past.
Some 60 percent of Standard & Poor's 500 .SPX companies that have reported results so far this earnings season have beaten profit expectations. That compares with 68 percent at this point in the reporting cycle for the third-quarter and is well below the 78 percent that exceeded estimates in the second quarter, according to Thomson Reuters data.
That is despite lowered analyst expectations. Estimates have dropped sharply since July, largely because of worries about the impact of Europe's debt crisis on U.S. sales.
Just 14 percent of the S&P 500 companies have reported for the quarter so far, and the numbers are likely to change, but strategists say it could be a sign of what's in store for the rest of this earnings season and perhaps future quarters.
If the beat rate stays at 60 percent until all results are in, it would be the lowest for any quarter since the fourth quarter of 2008, when the country was reeling from an economic recession.
The average beat rate over the past four quarters is 70 percent, above the 62 percent average since the company began collecting data in 1994, said Greg Harrison, corporate earnings research analyst at Thomson Reuters.
What's more, analysts continue to lower their earnings estimates, which they have been doing for months, Harrison said. "It's still decreasing, pretty much in every sector."
S&P 500 earnings now are expected to have risen 5.8 percent for the fourth quarter from a year ago. In July, the forecast was for growth of 17.6 percent. At the start of January, the forecast was for earnings growth of 7.9 percent in the quarter.
Among the biggest earnings disappointments for the quarter were results from JPMorgan Chase (JPM.N) and Citigroup (C.N), as well as from tech bellwether Google (GOOG.O).
"I think analysts were having trouble gauging trading profits and basically overestimated investment banking revenues," said Fred Dickson, chief market strategist, D.A. Davidson & Co. Lake Oswego, Oregon.
The disappointments, however, were offset by some forecast-beating results in the banking sector as well as in the tech sector, and the S&P 500 registered its best percentage gain for the week since Christmas.
That suggests investors are relieved that earnings have not been as harshly affected by Europe's woes, or that much of the negative news was already priced into the market.
"The reason we may not be selling off on some of the less-than-optimistic results is that there were some negative expectations baked in that are being reversed," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland.
(Reporting By Caroline Valetkevitch)
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