This is the second part of the two part series providing S&P500 earnings reports for Traverse City, Michigan. In this report we will look at how earnings and earnings projections are doing in comparison to previous time periods and on a sector basis. I also included some comments at the close of the article for investors in the Traverse City area to think about. There are circumstances seen during this quarter that do not appear elsewhere throughout the year and they are discussed in the comments section at the end of this article.
Overall the un-weighted next full year forward earnings projections that were gathering on 02/06/2012 increased by 4.97% over those gathered on 01/08/2012, breaking a five month string of decreases in the full year forward earnings estimates.
The next full year forward projections increased on 279 (55.80%) of the constituents, of these 195 (69.89%) had increases of $0.10 or more and 36 (12.90%) had an increase of $0.01. There were 123 (44.09%) that had increases of 10% or more and 52 (18.64%) had an increase of less than 1%. The projections remained the same on 73 (14.60%) of the constituents. They decreased on 148 (29.60%), of these 55 (37.16%) had decreases of $0.10 or more and 31 (20.95%) had decreases of $0.01. There were 23 (15.54%) that had decreases of 10% or more and 51 (34.46%) had a decrease of less than 1%.
Sector report
Of the 279 constituents with increases, Financials (71.60%) had the highest rate of constituent increases followed by Industrials (65.57%) and Materials (63.33%). Consumer Staples (28.57%) had the lowest rate of increases, followed by Utilities (30.30%) and Telecommunications Services (42.86%).
Of the 148 constituents with decreases, Consumer Staples (45.14%) had the highest rate of decreases, followed by Energy (44.19%) and Telecommunications Services (42.86%). Industrials (16.39%) had the lowest rate of decreases followed by Financials (17.28%) and Information Technology (22.54%).
Of the 73 constituents that remained unchanged, Utilities (27.27%) had the most that remained the same followed by Consumer Staples (26.19%) and Information Technologies (18.31%). The lowest rate of unchanged earnings was seen in Energy (6.98%) followed by Consumer Discretionary (8.75%) and Materials (10.00%)
The largest month over month earnings projection increase was seen in Information Technologies (8.70%), followed by Industrials (7.14%) and Financials (6.30%). Consumer Staples (-1.04%) had the largest decrease in forward earnings followed by Utilities (-0.01%), with all other sectors showing an increase and the smallest increase was seen in Energy (2.77%).
The sector with the largest quarter over quarter earnings projection increases were seen in Telecommunications Services (8.39%) followed by Industrials (7.31%) and Information Technologies (7.29%). The largest decrease was seen in Consumer Staples (-0.73%) followed by Utilities (-0.63%) and Consumer Discretionary (-0.52%) with all other sectors showing a quarter over quarter increase. Overall there was an increase in earnings projections of 3.73% over the previous quarter’s projections.
The following is based on the beginning of quarter earnings estimates I gathered on 12/11/2011. These numbers do not include BWA, DLTR, CBE, PRGO, TRIP, and WPX as they were not in the index at the time these updates were made. These companies will be noted as omissions in the total reporting once they have reported earnings.
Of the 294 (two omissions) constituents that have reported earnings, the sector with the highest percentage beating the beginning of the quarter estimates was seen in Industrials (75.00%) with 44 of 61 reporting (one omission) followed by Health Care (64.71%) with 34 of 52 reporting and Consumer Discretionary (58.82%) with 34 of 80 reporting (one omission). The lowest rate was seen in Telecommunications Services (0.00%) with 2 of 7 reporting, followed by Utilities (27.27%) with 11 of 33 reporting and Financials (32.08%) with 53 of 81 reporting.
The sector with the highest percentage missing the beginning of the quarter estimates was seen in Telecommunications Services (100.00%) with 2 of 7 reporting followed by Utilities (63.64%) with 11 of 33 reporting and Energy (61.90%) with 21 of 43 reporting. The lowest rate of misses of those reporting so far were seen in Industrials (18.18%) with 44 of 61 reporting (one omission), Information Technology (23.53%) with 51 of 71 reporting and Health Care (26.47%) with 34 of 52 reporting.
Of the 294 (two omissions) constituents reporting, the sector with the highest percentage increase in the actual earnings amounts reported over the beginning of the quarter estimates was seen in Information Technology (9.11%) with 51 of 71 reporting, followed by Industrials (7.71%) with 44 of 61 reporting (one omission) and Health Care (3.14%) with 34 of 52 reporting. The sectors with the highest percentage decrease over the beginning of the quarter estimates were seen in Energy (-15.60%) with 21 of 43 reporting, Telecommunications Services (-14.55%) with 2 of 7 reporting and Financials (8.68%) with 53 of 81 reporting.
Overall the reporting constituents beat the beginning of the quarter estimates by 0.63%.
The current quarter estimates along with those that have already reported earnings verses prior earnings are as follows:
The current estimates along with the already reported earnings for this quarter project an increase of 9.53% over those the same quarter a year ago based on the un-weighted operating earnings of the current constituents. Estimates of the constituents at the beginning of the quarter were for a 9.31% increase over the same quarter a year ago.
In comparison, the last available update from Thompson Reuters reported the blended earnings growth rate for the fourth quarter of 8.9%, up from the 6.8% seen in the previous month’s report. Although the blended earnings growth rate is not a direct comparison to the numbers provided in this report, they use related data.
Based on the current estimates along with the already reported earnings for the fourth quarter, the largest increases over the year ago earnings are expected in Industrials (18.87%), Materials (16.43%), and Financials (14.20%). Decreases over the year ago reported earnings are expected in Telecommunication Services (-18.46%), Utilities (-4.00%) and Consumer Discretionary (-0.70%) with all other sectors expected to see increases.
Based on the current estimates along with the already reported earnings for the fourth quarter, earnings are expected to decrease by 3.91% under the previous quarter’s earnings.
The largest increases in quarter over quarter earnings are expected in Information Technology (12.34%), Financials (9.60%), and Consumer Discretionary (2.23%). The largest decreases are expected in Utilities (-44.02%), Energy (-24.85%) and Materials (-24.08%). Some of the quarter-over-quarter earnings changes this quarter are seasonally influenced, and may have also been influenced to a certain extent by unseasonably warm weather seen in large portions of the country.
Next Quarter’s Earnings Projections:
The earnings estimate for the first quarter of 2012 decreased by 2.79% over the projections of a month ago. Overall these earnings are expected to increase 7.06% over the same quarter a year ago.
The largest increases in next quarter’s earnings over the same quarter a year ago are expected to be seen in Industrials (14.09%), followed by Energy (11.32%) and Financials (7.02%). Telecommunications Services (-9.48%) are expected to decrease under the year ago earnings with the smallest increases expected in Materials (0.56%) and Utilities (4.05%).These numbers have changed significantly over the past month.
Overall the first quarter earnings are expected to decrease 3.91% under those currently expected along with those already reported for the fourth quarter. The largest increase in quarter over quarter earnings is expected in Utilities (34.01%), Telecommunications Services (20.13%) and Materials (14.84%). The largest quarter over quarter projected earnings decreases are expected in Consumer Discretionary (-24.25), Industrials (-10.16%) and Information Technology (-9.72%).
Comments:
This quarter’s data is unduly influenced by changes that occur during this quarter every year. There are 366 companies in the S&P500 that ended their fiscal year in December 2011 (down from 369 in December 2010). Of those 210 reported the end of their fiscal year earnings during the time frame between the last monthly update of my database and this month’s update. All of the companies that reported end of year earnings had the next full year earnings changed from 2012 (now the current year) to 2013 (now the next full year forward) in this report.
Every month has some companies that report end of fiscal year earnings, but none near the number that reported end of fiscal year earnings in December. The next highest number that report end of fiscal year earnings occurs in June with 26, and the fewest are seen in July with two. Normally the number of constituents making changes to the next fiscal year has little effect on the numbers in this report, however this month and next month will see elevated levels of these changes, and there were some developments this month that aren’t normally seen.
This change to 2013 earnings in this large number of companies unduly influenced this month’s data as most of these companies saw increases in the next full year earnings when this change was made, but not all increased earnings for the current year (2012) that this data had been based on in the prior month.
Without the change to 2013 earnings for these 210 companies, the month over month earnings would have decreased, mainly due to large decreases in current fiscal year (2012) earnings projections throughout the Energy Sector, but also to a lesser degree by decreases in other sectors with the next largest influence being seen in the Financial Sector. Although some decreases in the Financial Sector were large, they did not affect as high of a percentage of constituents as those in the Energy Sector, while others in the Financial Sector saw substantial increases.
The Energy sector had eight of the top twenty dollar amount decreases and eight of the top twenty percentage amount decreases in this month’s report. Had 20 of the constituents in this sector not reported end of year earnings during the time period since my last report and continued using 2012 as next full year earnings, nine more would have reported dollar amount decreases greater than the twentieth largest decrease seen this month, and ten would have reported larger percentage decreases than the twentieth largest decrease.
The change to 2013 earnings allowed all but two of these 20 Energy Sector companies that reported end of fiscal year earnings to show an increase in earnings for their next full fiscal year. Without this change, only three in the entire sector would have shown an increase in next full year earnings this month, the worst performance seen in this sector in some time.
Many of those in this sector that beat earnings projections in recent earnings reports did so after large decreases in these projections just prior to these reports being released. Some that were hailed as “crushing the estimates”, would have missed miserably without the decreases seen only a week or so earlier.
All in this sector had similar increases in next full year earnings last year, but nearly all have seen these estimates drastically reduced since, with only two that I have last year’s projections for in the sector (40 of the current 43) still have earnings projections for 2012 above those seen then. Most of the other sectors have constituents that already beat the next full year projections for 2012 made early last year, while none in the Energy sector have come close.
I don’t see any fundamental reason for these earnings to increase as much as they were projected. Earnings in this sector are likely to remain under pressure, and it is nearing the point that no matter which direction prices head, earnings will likely decrease for most in this sector. Higher prices will cause increased changeovers further reducing use and decreasing margins in downstream operations, and lower prices will not increase use much for many years to come, decreasing margins in upstream operations. Most in the sector have already cut costs as much as they can, and costs are likely to increase due to inflation, regardless of the price direction in oil, natural gas or coal. Therefore it seems likely these earnings projections will be reduced in the months ahead, just as the next full year earnings increases seen at this time of the year in this sector have been for the past three years.
I remain bearish on the Energy Sector, and bullish on just about everything else.
Have a great day trading,
ronz
Disclosure: I am currently about 89% long in stocks in my trading accounts.
Disclaimer: This article is intended to provoke thought about investment possibilities. Acting on the information provided is at your own risk. You are urged to do your own research, and where appropriate, seek professional investment advice before acting on any information contained in these articles.
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