This is the second part of the three part series providing S&P 500 earnings reports for Traverse City, Michigan. In this report we will look at how earnings projections are doing in comparison to previous time periods and on a sector basis. I also included some comments near the close of the article for investors in the Traverse City area to think about.
Next year's projections
There are circumstances seen during this quarter’s earnings that do not appear elsewhere throughout the year and they are discussed in more detail in the data notes below.
Overall the un-weighted next full year forward earnings projections that were gathered on Jan 27, 2013 increased by 2.42% over those gathered on Dec 24, 2012. This increase was largely due to the number of stocks changing fiscal years with this report and was also partially due to an overall increase in forward projections.
The next full year forward projections increased on 223 (44.60%) of the constituents, of these 106 (47.53%) had increases of $0.10 or more and 53 (23.77%) had an increase of $0.01. There were 58 (26.01%) that had increases of 10% or more and 84 (37.67%) had an increase of less than 1%.
The projections remained the same on 115 (23.00%) of the constituents.
The projections decreased on 161 (32.20%) of the constituents, of these 28 (17.39%) had decreases of $0.10 or more and 46 (28.40%) had decreases of $0.01. There were four (2.48%) that had decreases of 10% or more and 86 (53.42%) had a decrease of less than 1%.
Of the 223 constituents with increases Materials (56.67%), Information Technologies (52.86%) and Health Care (52.83%) had the highest rate of constituent increases. Utilities (29.03%), Consumer Discretionary (30.12%) and Telecommunications Services (37.50%) had the lowest rate of increases.
Of the 161 constituents with decreases Energy (55.81%), Telecommunications Services (50.00%) and Utilities (45.16%) had the highest rate of decreases. Consumer Staples (14.29%), Health Care (18.87%) and Industrials (28.33%) had the lowest rate of decreases.
Of the 116 constituents that remained unchanged Consumer Staples (42.86%), Consumer Discretionary (32.53%) and Health Care (28.30%) had the highest rates that remained the same. The lowest rates of unchanged earnings were seen in Energy (4.65%), Telecommunications Services (12.50%) and Materials (13.33%).
The largest earnings projection increases seen between this and the last reported period was seen in Telecommunications Services (9.97%), Financials (4.63%) and Health Care (3.33%). None of the constituents saw earnings projection decreases during this time period, the smallest increases were seen in Utilities (0.08%), Consumer Discretionary (0.34%) and Consumer Staples (0.67%).
The largest earnings projection increases over the projections of a quarter ago were seen in Telecommunications Services (8.41%), Financials (4.42%) and Health Care (3.91%). Earnings projection decreases were seen in Materials (-0.43%) and Energy (-0.37%) with all other sectors expected to see increases with the smallest being in Utilities (0.29%). Overall earnings projections increased by 2.01% over those a quarter ago.
The following is based on the beginning of quarter earnings estimates as outlined in Part 1 of this report. One of the four companies that will be omitted from this data had reported at the time this data was collected and one of these four will not report earnings for the fourth quarter.
Of the 151 (one omission) constituents that have reported earnings for the fourth quarter, the sectors with the highest percentage beating the beginning of the quarter estimates were seen in Consumer Staples (77.78%) with 9 of 42 reporting, Information Technologies (74.29%) with 35 of 70 reporting and Consumer Discretionary (68.75%) with 16 of 83 reporting with one omission. The lowest rates were seen in Telecommunication Services (0.00%) with 3 of 8 reporting, Energy (33.33%) with 6 of 43 reporting and Industrials (48.00%) with 25 of 60 reporting.
The sectors with the highest percentage missing the beginning of the quarter estimates were Telecommunication Services (100%) with 3 of 8 reporting, Energy (50.00%) with 6 of 43 reporting and a tie for third between Materials (40.00%) with 10 of 30 reporting and Industrials (40.00%) with 25 of 60 reporting. The lowest rates of misses were seen in Information Technologies (14.29%) with 35 of 70 reporting, Consumer Staples (22.22%) with 9 of 42 reporting and Health Care (23.53%) with 17 of 53 reporting.
The sectors with the highest percentage increase in the actual earnings amounts reported over the beginning of the quarter estimates were Financials (10.42%) with 29 of 80 reporting, Information Technologies (4.33%) with 35 of 70 reporting and Materials (3.47%) with 10 of 30 reporting. Three sectors saw decreases in comparison to the beginning of the quarter estimates with those being Telecommunication Services (-32.79%) with 3 of 8 reporting, Energy (-9.18%) with 6 of 43 reporting and Industrials (-1.76%) with 25 of 60 reporting.
Overall the 150 reporting constituents I had beginning of the quarter estimates for, beat the beginning of the quarter earnings estimates by 2.59%.
Information Technologies companies have done very well with earnings to this point. Both of the hard drive manufactures that had reported at the time of this update, Western Digital (WDC) and Sandisk Corporation (SNDK), beat both the estimates at the time they reported along with the beginning of the quarter estimates by wide margins. Seagate Technology Public Limited Company (STX) has since reported better than expected earnings in the past week. It seems funny that PC sales were off as much as they were.
Consumer Discretionary and Consumer Staples have continued to beat the beginning of the quarter earnings estimates at a high rate. It just doesn’t look like sales were as soft as many believed earlier.
Although the Financial Sector’s actual earnings are beating the estimates by a large percentage at the time of this update, earnings are somewhat hit and miss in the sector. Those that are doing well with earnings this quarter are doing very well, but a few aren’t doing well. Legg Mason (LM) earnings came in lower than the projections and it will more than offset the better than expected earnings the Financials had seen at the time of this update.
The Materials sector had seen a fairly high rate of misses at the time of this update, yet overall the reported earnings are quite a lot better than the expected earnings. The past week saw most that reported beat, with many of the metal producers doing very well with earnings.
The drop in Telecommunications Services earnings was largely due to retirement fund charges taken at this time of the year (when needed) and large non-recurring charges. The drop looks worse in these reports than it is.
As I always do for index additions that I did not have prior month earnings projections for, I count them as unchanged in these updates.
This month’s data is unduly influenced by changes that occur during this quarter every year. There are 365 (73%) of the constituents in the S&P500 that ended their fiscal year in December 2012 (down from 366 in December 2011). Of those 91(18.2%) reported their end of fiscal year earnings during the time frame between the last monthly update of my database and the update for this month. All of the companies that reported end of year earnings had the next full year earnings changed from 2013 (now the current year) to 2014 (now the next full year forward) in this report.
The change to 2014 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, and this increase was much larger than would normally be seen in a month to month basis. Without the change to 2014 earnings for these 91 companies the month over month earnings would have increased, but only slightly, by about 0.11%.
Every month has some companies that report end of fiscal year earnings, but none near the number that report end of fiscal year earnings in December. The next highest number that report end of fiscal year earnings is 27 (5.4%) occurring in both January and in June and the fewest are seen in July with two (0.4%). Normally the number of constituents making changes to the next fiscal year has little noticeable effect on the numbers in this report; however there will likely be elevated levels of these changes over the coming one or two earning updates.
These changes could be deceiving, but only if they are looked at in the wrong context. Unlike most months during the year where we are watching short term changes in the forward earnings, with this report and the one in the coming month or two we will see how the majority of stocks are expected to do in the longer term. For instance, by taking the month over month change in earnings estimates (2.42%) and subtracting the increase that would have occurred without a change (0.11%) then dividing it by the number of forward earnings changes (18.2%) we can see that earnings are expected to increase on average by about 12.69% during 2014 for those that changed forward earnings during this month’s reports.
On an individual company basis, some of these projections are undoubtedly either too high or too low, but it gives us some idea on what we can expect. Unless something goes completely haywire between now and 2014, I tend to think the overall projections are probably too low.
Many of these sources were used in this article.
Have a great day trading.
Disclosure: I do not current have investments in WDC, SNDK, STX or LM although I have tried to add WDC and SNDK from time to time and I am still interested in them. 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.