Key Points:
- The 4th Quarter earnings season is over. Just a handful (24) of 1st Quarter reports in. We are off to what looks like a normal start, with a 3.09% median surprise and a 2.83 surprise ratio. Growth very low, with total net income up just 3.47% from year-ago levels. Expectations for the vast majority yet to report even lower, with total net income expected to drop 2.04% from year-ago levels.
- Reported revenue up 6.13% for the 24, far above the slight drop of 0.12% expected for the 474. Revenue surprise metrics strong with a 7.00 ratio and a 0.74% median surprise. Remaining firms, however, expected to see total revenue drop 0.12%, and rise just 2.70% if Financials are excluded.
- Net margins expected to decline year over year, both including financials and without them, as well as sequentially. However, a strong rebound in net margins is currently expected for Q2.
- Total Net Income increased 15.2% in 2011, 17.4% ex-Financials. Growth expected to slow to 9.4% in 2012, 6.6% ex-Financials. For 2013, growth expected to reaccelerate to 12.7%, 12.3% ex-Financials.
- In 2011 Revenues grew 8.94%, 10.92% ex-Financials. Very sharp slowdown now expected for 2012, with just 1.78% growth expected, 3.86% ex-Financials. Revenues to revive only slightly in 2013, expected to rise 4.87%, 4.93% ex-Financials.
- Annual Net Margins marching higher, from 5.88% in 2008 to 6.27% in 2009 to 8.36% for 2010, 8.86% for 2011 and 9.53% expected in 2012. Margin expansion major source of earnings growth. Net margins ex-Financials 7.79% in 2008, 6.93% in 2009, 8.10% for 2010, 8.58% in 2011, 8.80% in 2012. For 2013, 10.24% expected, 9.24% ex-Financials.
- Revisions ratio for full S&P 500 at 1.10 for 2012 (neutral), at 1.26 for 2013 (bullish). Ratio of firms with rising to falling mean estimates at 1.20 for 2012 (neutral), 1.39 (bullish) for 2013. Total revisions activity still falling and near seasonal low.
- S&P 500 earned $788.8 billion in 2010, $894.4 billion in 2011. In 2012 the 500 are collectively expected to earn $978.6 billion. For 2013, $1.103 Trillion expected.
- S&P 500 earned $56.79 in 2009: $81.97 in 2010 and $94.50 in 2011. For 2012, $103.33 expected, $116.55 for 2013. Puts P/E's at 14.85 for 2011, and 13.58x for 2012 and 12.04x for 2013 -- very attractive relative to 10-year T-note rate of 2.21%.
The Earnings Picture
Earnings growth is clearly slowing down, but after the great surge of the past few years, that is not particularly shocking. The first quarter should see the worst of the slowdown, with total net income for the 474 firms that have yet to report their first quarter results down 2.04% from a year ago.
Given that positive earnings surprises almost always greatly outnumber earnings disappointments, it is unlikely that when all is said and done that the earnings growth will actually be negative, but it is also equally unlikely that we will see more than low single-digit positive growth for the quarter. Perhaps the best we could hope for is that the remaining firms will match the 3.47% growth posted by the handful of firms that have already reported. With just 24 reports in, and with six sectors yet to see any reports -- and five more with just a single report in -- that is far from a representative sample.
Revenue Growth to Slow
Somewhat more surprising is the sharp slowdown in revenue growth that is expected. The economy seems to be doing fairly well, at least in regard to direction, if not yet in terms of levels. Despite that, the total revenues of the 474 yet to report are expected to be down slightly while they posted growth of 5.48% in the fourth quarter. To be sure the ongoing decline in the revenue of the financials (where revenues are a bit flaky) is a big part of it, but even if we strip out the financials, growth of just 2.70% is expected, down from 8.15% growth in the fourth quarter.
However for the 24 that have reported, revenue growth was fairly healthy at 6.13%, down from 8.08% in the fourth quarter. The revenue surprise metrics are strong with a median surprise of 0.74% and a surprise ratio of 7.00. While it is much too early to draw any conclusions, that at least is a hopeful sign.
When we turn to the full-year expectations (for all 500) we still see some slowing in growth, but not nearly as dramatic as for the first quarter. For all of 2012, total net income is expected to rise 9.41%, with Financials being one of the strongest sectors. Excluding them, growth of 6.57% is expected. For 2013, growth is expected to reaccelerate to 12.71% over all and to 12.28% ex-Financials.
Full year revenue growth is expected to be very low at just 1.78%, and 3.86% excluding the Financials. On both the earnings and revenue fronts, the rest of the year is thus expected to see a bit of a pick up from first quarter levels, but still on the weak side, especially when it comes to revenues.
Net Margin Growth Implied
If earnings for the year are expected to grow faster than revenue, that implies further growth in net margins, with care already quite high by historical standards. For the S&P 500 overall, they are expected to come in at 9.53% in 2012, and then rise to 10.24% in 2013, that is up from 8.86% in 2011 and 8.36% in 2010. The Financials are a big part of that, but even if they are stripped out, the growth of net margins is expected to continue, rising to 8.80% in 2012 and 9.24% in 2013, up from 8.58% in 2011 and 8.10% in 2010.
The estimate revisions picture has started to improve, but that is more a function of old estimates rolling out of the 4-week moving totals that we track than for a flood on new estimates coming in. For both years we now have more estimate increases than cuts over the last four weeks, by a ratio of 1.10 for the current fiscal year (mostly 2012) and by 1.26 for the next fiscal year (mostly 2013). Those numbers are confirmed by the ratio of companies with rising mean estimates to falling mean estimates, at 1.20 and 1.39, respectively. If they stay up as activity picks up during earnings season, that will be a big plus for the market.
Income Surprises
- So far just 24 firms of the S&P 500, or 4.8%, have reported first quarter results. Total Income Growth at 3.47%. We have a 2.83 surprise ratio, and 3.09% median surprise, both about normal. Positive Surprises for 70.8% of all firms reporting.
- Positive year-over-year growth for 14, falling EPS for 10 firms, a 1.40 ratio; 58.3% of all firms reporting have higher EPS than last year.
- Six sectors haven't had any firms report. Five have just a single report in, so use this data with caution. Most of the attention should be on the "expected" tables.
- Off to a pretty good start relative to expectations, but far too early to draw any conclusions.
Historically, a "normal earnings season" will have a surprise ratio of about 3:1 and a median surprise of about 3.0%. 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, and probability of a significant change when the season is over.
| Scorecard & Earnings Surprise 4Q Reported | |||||||
|---|---|---|---|---|---|---|---|
| Income Surprises | Yr/Yr Growth | % Reported | Surprise Median | EPS Surp Pos | EPS Surp Neg | # Grow Pos | # Grow Neg |
| Medical | na | 0.00% | na | 0 | 0 | 0 | 0 |
| Auto | na | 0.00% | na | 0 | 0 | 0 | 0 |
| Conglomerates | na | 0.00% | na | 0 | 0 | 0 | 0 |
| Aerospace | na | 0.00% | na | 0 | 0 | 0 | 0 |
| Oils and Energy | na | 0.00% | na | 0 | 0 | 0 | 0 |
| Utilities | na | 0.00% | na | 0 | 0 | 0 | 0 |
| Construction | -236.36% | 9.09% | 60.00 | 1 | 0 | 1 | 0 |
| Consumer Discretionary | -18.41% | 10.00% | 48.72 | 3 | 0 | 1 | 2 |
| Finance | 34.19% | 1.28% | 28.26 | 1 | 0 | 1 | 0 |
| Transportation | 91.02% | 11.11% | 13.97 | 1 | 0 | 1 | 0 |
| Industrial Products | 28.81% | 4.55% | 11.54 | 1 | 0 | 1 | 0 |
| Business Service | 22.87% | 10.53% | 6.39 | 1 | 0 | 2 | 0 |
| Consumer Staples | -1.65% | 8.11% | 3.77 | 2 | 1 | 0 | 3 |
| Retail/Wholesale | 5.07% | 12.50% | 2.02 | 6 | 0 | 5 | 1 |
| Basic Materials | -43.36% | 4.35% | -5.26 | 0 | 1 | 0 | 1 |
| Computer and Tech | -0.03% | 7.14% | -8.70 | 1 | 4 | 2 | 3 |
| S&P 500 | 3.47% | 4.80% | 3.09 | 17 | 6 | 14 | 10 |
Sales Surprises
- Revenue growth of 6.13% among the 24 that have reported, median surprise 0.74 (solid), surprise ratio of 7.00 (very strong). Positive surprise for 87.5%.
- Growing Revenues outnumber falling revenues by ratio of 5.00 (strong), 83.3% have higher sales than last year.
- Off to a pretty good start, but still early. The ratios and medians can swing wildly in early earnings season.
- Sample is not very representative, but good enough for cautious optimism on the earnings season.
| Sales Surprises 3Q Reported | |||||||
|---|---|---|---|---|---|---|---|
| Sales Surprises | Yr/Yr Growth | % Reported | Surprise Median | Sales Surp Pos | Sales Surp Neg | # Grow Pos | # Grow Neg |
| Medical | na | 0.00% | na | 0 | 0 | 0 | 0 |
| Auto | na | 0.00% | na | 0 | 0 | 0 | 0 |
| Conglomerates | na | 0.00% | na | 0 | 0 | 0 | 0 |
| Aerospace | na | 0.00% | na | 0 | 0 | 0 | 0 |
| Oils and Energy | na | 0.00% | na | 0 | 0 | 0 | 0 |
| Utilities | na | 0.00% | na | 0 | 0 | 0 | 0 |
| Finance | -0.41% | 1.28% | 16.019 | 1 | 0 | 0 | 1 |
| Construction | 29.93% | 9.09% | 3.843 | 1 | 0 | 1 | 0 |
| Basic Materials | -1.08% | 4.35% | 3.157 | 1 | 0 | 1 | 0 |
| Computer and Tech | 2.84% | 7.14% | 1.844 | 4 | 1 | 4 | 1 |
| Business Service | 11.43% | 10.53% | 1.184 | 2 | 0 | 2 | 0 |
| Consumer Discretionary | 8.91% | 10.00% | 0.768 | 3 | 0 | 3 | 0 |
| Retail/Wholesale | 5.10% | 12.50% | 0.593 | 5 | 1 | 4 | 2 |
| Industrial Products | 7.89% | 4.55% | 0.389 | 1 | 0 | 1 | 0 |
| Consumer Staples | 10.76% | 8.11% | 0.361 | 3 | 0 | 3 | 0 |
| Transportation | 9.28% | 11.11% | -0.681 | 0 | 1 | 1 | 0 |
| S&P 500 | 6.13% | 4.80% | 0.741 | 21 | 3 | 20 | 4 |
Reported Quarterly Growth: Total Net Income
- The total net income for the 24 that have reported so far is 3.47% above what was reported in the first quarter of 2011, up from 2.77 growth the same 24 firms reported in the fourth quarter. Excluding Financials, net income up 1.75%, down from 0.84% growth reported in the fourth quarter.
- Sequential earnings rise 6.43% for the 24 that have reported, up 5.45% ex-Financials.
- Growth (for the 24 firms) to rise to 6.90% in the second quarter, and 9.08% ex-Financials.
- Too early to draw conclusions, these numbers will change significantly; pay more attention to the "expected tables."
- Refer back to % reported in Scorecard to assess probability of significant change in the growth rates for sectors.
| Quarterly Growth: Total Net Income Reported | |||||
|---|---|---|---|---|---|
| Income Growth | Sequential Q2/Q1 E | Sequential Q1/Q4 E | Year over Year 1Q 12 E | Year over Year 2Q 12 E | Year over Year 4Q 11 A |
| Medical | Na | Na | Na | Na | Na |
| Auto | Na | Na | Na | Na | Na |
| Conglomerates | Na | Na | Na | Na | Na |
| Aerospace | Na | Na | Na | Na | Na |
| Oils and Energy | Na | Na | Na | Na | Na |
| Utilities | Na | Na | Na | Na | Na |
| Transportation | 24.19% | -1.61% | 91.02% | 8.83% | 35.05% |
| Finance | -22.62% | 21.64% | 34.19% | -18.58% | 46.57% |
| Industrial Products | 1.40% | 2.70% | 28.81% | 8.54% | 32.14% |
| Business Service | -1.20% | -0.38% | 22.87% | 3.03% | 16.89% |
| Retail/Wholesale | -34.05% | 73.02% | 5.07% | 1.75% | -2.10% |
| Computer and Tech | 32.83% | 4.94% | -0.03% | -3.05% | -7.43% |
| Consumer Staples | 1.34% | -21.96% | -1.65% | 7.59% | -0.36% |
| Consumer Discretionary | 21.77% | -24.06% | -18.41% | -21.53% | -9.75% |
| Basic Materials | 100.93% | -50.80% | -43.36% | -4.95% | 36.84% |
| Construction | 123.95% | -50.00% | - to + | 139.95% | -6.25% |
| S&P 500 | 6.90% | 6.43% | 3.47% | -3.14% | 2.77% |
| Excluding Financial | 9.08% | 5.45% | 1.75% | -2.17% | 0.84% |
Expected Quarterly Growth: Total Net Income
- Total net income is expected to be 2.04% below what was reported in the first quarter of 2011, versus +5.97% growth in the fourth quarter. Excluding Financials, negative growth of 2.59%, down from +6.34% reported in the fourth quarter.
- Relative to the fourth quarter total net income to fall 5.30%, ex-Financials to drop 8.29%.
- Nine sectors expected to post negative year-over-year growth, seven lower sequentially. Autos and Materials particularly weak year over year.
| Quarterly Growth: Total Net Income Expected | |||||
|---|---|---|---|---|---|
| Income Growth | Sequential Q2/Q1 E | Sequential Q1/Q4 E | Year over Year 1Q 12 E | Year over Year 2Q 12 E | Year over Year 4Q 11 A |
| Construction | 118.18% | -40.66% | 62.54% | 22.22% | 68.48% |
| Business Services | 6.84% | -6.08% | 14.79% | 13.30% | 12.29% |
| Transportation | 31.37% | -20.38% | 11.34% | 13.65% | 14.96% |
| Industrial Products | 15.25% | -3.90% | 5.94% | 14.37% | 16.58% |
| Conglomerates | -15.79% | 11.83% | 5.10% | 7.50% | -7.24% |
| Retail/Wholesale | 11.35% | -25.47% | 3.76% | 2.97% | 1.87% |
| Computer and Tech | 7.31% | -21.58% | 2.81% | 2.72% | 15.00% |
| Consumer Discretionary | 7.46% | 22.58% | 2.02% | 2.91% | 14.89% |
| Aerospace | 9.73% | -25.01% | -0.36% | -7.36% | 9.61% |
| Finance | 4.11% | 12.83% | -1.01% | 46.72% | 2.49% |
| Consumer Staples | 20.24% | -15.33% | -2.86% | -2.01% | 5.31% |
| Medical | 2.07% | 1.93% | -4.16% | -2.67% | 3.42% |
| Oils and Energy | 6.90% | 4.21% | -4.82% | -10.78% | 9.42% |
| Utilities | -1.10% | 27.73% | -8.59% | -7.91% | -9.01% |
| Auto | 18.69% | 24.12% | -27.66% | -20.09% | 4.07% |
| Basic Materials | 27.30% | 59.01% | -27.66% | -10.04% | -23.48% |
| S&P 500 | 8.77% | -5.30% | -2.04% | 5.07% | 5.97% |
| Excluding Financial | 9.50% | -8.29% | -2.59% | -2.01% | 6.34% |
Quarterly Growth: Total Revenues Reported
- Revenue growth (for the 24 that have reported) at 6.13%, down from the 8.08% growth posted in the third quarter. Growth ex-Financials 6.23%, down from 8.05%.
- Slowdown expected to continue in second quarter, with 3.24% growth, 3.87% ex-Financials.
- Sharp slowdown despite improving U.S. economy, may reflect Europe and the dollar.
- Sequentially revenues 3.41% higher than in the fourth quarter, up 3.88% ex-Financials.
- Reported growth for the 24 is much higher than for the 476 that have yet to report, so these numbers should decline as more firms report.
| Quarterly Growth: Total Revenues Reported | |||||
|---|---|---|---|---|---|
| Sales Growth | Sequential Q1/Q4 E | Sequential Q4/Q3 A | Year over Year 4Q 11 E | Year over Year 1Q 12 E | Year over Year 3Q 11 A |
| Medical | na | Na | na | na | na |
| Auto | na | Na | na | na | na |
| Conglomerates | na | Na | na | na | na |
| Aerospace | na | Na | na | na | na |
| Oils and Energy | na | Na | na | na | na |
| Utilities | na | Na | na | na | na |
| Construction | 28.83% | -23.92% | 29.93% | 22.25% | 10.81% |
| Business Service | -1.62% | -3.75% | 11.43% | -0.31% | 16.38% |
| Consumer Staples | 1.21% | -8.09% | 10.76% | 10.02% | 11.34% |
| Transportation | 6.30% | -0.28% | 9.28% | 6.38% | 9.95% |
| Consumer Discretionary | 7.82% | -1.96% | 8.91% | 5.55% | 9.74% |
| Industrial Products | 5.34% | -0.69% | 7.89% | 5.34% | 8.75% |
| Retail/Wholesale | -10.36% | 11.91% | 5.10% | 3.41% | 7.04% |
| Computer and Tech | 12.23% | 0.20% | 2.84% | 1.60% | 3.04% |
| Finance | -14.07% | -21.93% | -0.41% | -31.37% | 9.89% |
| Basic Materials | 32.42% | -27.34% | -1.08% | 1.40% | 12.67% |
| S&P 500 | -1.99% | 3.41% | 6.13% | 3.24% | 8.08% |
| Excluding Financial | -1.83% | 3.88% | 6.23% | 3.87% | 8.05% |
Quarterly Growth: Total Revenues Expected
- Revenue growth for the 474 yet to report expected to be -0.12% year over year, up just 2.70% ex-Financials -- sharp slowdown from 5.48% year over year growth in the fourth quarter -- 8.15% ex-Financials.
- Sequentially revenues down 6.76% from the fourth quarter, down 5.96% ex-Financials.
- Financials continue to see very negative revenue growth.
- Thirteen sectors expected to see revenue growth decelerate from the fourth quarter.
| Quarterly Growth: Total Revenues Expected | |||||
|---|---|---|---|---|---|
| Sales Growth | Sequential Q2/Q1 E | Sequential Q1/Q4 E | Year over Year 1Q 12 E | Year over Year 2Q 12 E | Year over Year 4Q 12 E |
| Construction | 11.51% | -3.58% | 14.09% | 8.87% | 11.70% |
| Transportation | 7.55% | -3.49% | 8.69% | 6.46% | 10.79% |
| Computer and Tech | 4.58% | -9.64% | 6.42% | 5.63% | 11.41% |
| Retail/Wholesale | 2.45% | -7.18% | 6.38% | 4.49% | 7.27% |
| Utilities | -5.44% | 7.28% | 6.29% | 3.79% | 4.15% |
| Aerospace | 4.67% | -8.93% | 5.25% | 4.53% | 0.78% |
| Basic Materials | 5.51% | 5.36% | 5.16% | 0.92% | 7.59% |
| Consumer Discretionary | 4.56% | -10.17% | 4.62% | 2.85% | 10.57% |
| Industrial Products | 11.98% | -1.69% | 4.55% | 9.46% | 12.88% |
| Business Services | 3.79% | -4.48% | 4.14% | 3.97% | 5.12% |
| Auto | 6.28% | -4.61% | 2.72% | 1.16% | 11.31% |
| Medical | 1.12% | -2.93% | 1.93% | 0.50% | 5.02% |
| Oils and Energy | 5.54% | -6.34% | -1.97% | -4.22% | 13.89% |
| Conglomerates | 7.89% | -6.97% | -2.37% | 4.21% | -2.05% |
| Consumer Staples | 9.57% | -18.35% | -7.75% | -9.30% | 4.10% |
| Finance | 1.32% | -12.55% | -17.57% | -13.69% | -10.33% |
| S&P 500 | 3.75% | -6.76% | -0.12% | -0.67% | 5.48% |
| Excluding Financial | 4.07% | -5.96% | 2.70% | 1.47% | 8.15% |
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 24 that have reported fall to 7.31% from 7.50% a year ago, but up from 7.10% in the fourth quarter. Net margins ex-Financials fall to 6.90% from 7.20% a year ago and up from 6.80% in the fourth quarter.
- Final Net Margins will be higher as remaining firms are higher margin businesses but looks like the margin expansion game is getting old.
- Margin expansion has been 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.
| Net Margins Already Reported | ||||||
|---|---|---|---|---|---|---|
| Net Margins | Q2 2012 Expected | Q1 2012 Reported | 4Q 2011 Reported | 3Q 2011 Reported | 2Q 2011 Reported | 1Q 2011 Reported |
| Medical | na | na | na | Na | na | na |
| Auto | na | na | na | Na | na | na |
| Conglomerates | na | na | na | Na | na | na |
| Aerospace | na | na | na | Na | na | na |
| Oils and Energy | na | na | na | Na | na | na |
| Utilities | na | na | na | Na | na | na |
| Finance | 33.23% | 36.90% | 23.68% | 38.01% | 28.01% | 27.39% |
| Computer and Tech | 21.70% | 18.33% | 17.51% | 15.98% | 22.74% | 18.86% |
| Basic Materials | 21.27% | 14.02% | 20.70% | 17.06% | 22.69% | 24.48% |
| Business Service | 9.99% | 9.95% | 9.61% | 9.84% | 9.67% | 9.02% |
| Consumer Staples | 7.80% | 7.79% | 9.17% | 8.20% | 7.97% | 8.77% |
| Industrial Products | 7.23% | 7.51% | 7.26% | 6.78% | 7.02% | 6.29% |
| Consumer Discretionary | 7.03% | 6.22% | 8.03% | 17.44% | 9.45% | 8.31% |
| Transportation | 5.41% | 4.63% | 4.69% | 4.41% | 5.29% | 2.65% |
| Retail/Wholesale | 2.76% | 3.75% | 2.42% | 2.59% | 2.80% | 3.75% |
| Construction | 3.60% | 2.07% | 3.15% | 2.56% | 1.83% | -1.97% |
| S&P 500 | 7.97% | 7.31% | 7.10% | 7.58% | 8.50% | 7.50% |
| Excluding Financial | 7.67% | 6.90% | 6.80% | 7.17% | 8.14% | 7.20% |
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.
- Net margins expected to fall to 9.17% from 9.38% a year ago, but up from 9.00% in the fourth quarter. Net margins ex-Financials expected to fall to 8.42% from 8.88% a year ago and down from 8.64% in the fourth quarter.
- Margin expansion is 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. Even with the expected dip, margins are at very high levels relative to history.
- Ten sectors expected to see year-over-year margin compression, ten to also see sequential compression. Margins expected rebound sequentially in the second quarter for all sectors, but still be down year over year for ten sectors.
| Net Margins Expected | ||||||
|---|---|---|---|---|---|---|
| Net Margins | Q2 2012 Expected | Q1 2012 Expected | 4Q 2011 Reported | 3Q 2011 Reported | 2Q 2011 Reported | 1Q 2011 Reported |
| Medical | 15.97% | 15.56% | 17.90% | 16.07% | 16.43% | 16.11% |
| Auto | 15.37% | 14.96% | 11.58% | 11.19% | 9.04% | 12.46% |
| Conglomerates | 13.12% | 13.00% | 12.39% | 13.63% | 13.55% | 13.83% |
| Aerospace | 13.22% | 12.84% | 13.06% | 12.53% | 12.13% | 11.65% |
| Oils and Energy | 12.13% | 11.05% | 10.67% | 11.47% | 11.22% | 10.50% |
| Utilities | 10.42% | 9.71% | 10.25% | 10.43% | 10.10% | 9.02% |
| Finance | 9.35% | 9.10% | 10.53% | 9.27% | 9.34% | 9.33% |
| Computer and Tech | 9.10% | 8.85% | 8.18% | 8.85% | 8.71% | 8.73% |
| Basic Materials | 10.05% | 8.23% | 9.96% | 9.79% | 9.41% | 8.03% |
| Business Service | 7.97% | 7.87% | 7.12% | 8.70% | 8.56% | 8.11% |
| Consumer Staples | 7.31% | 6.99% | 5.96% | 9.77% | 8.24% | 8.13% |
| Industrial Products | 7.73% | 6.40% | 4.89% | 7.14% | 8.81% | 9.31% |
| Consumer Discretionary | 6.10% | 5.82% | 7.06% | 7.03% | 6.88% | 6.14% |
| Transportation | 5.23% | 4.68% | 3.60% | 5.77% | 6.62% | 6.65% |
| Retail/Wholesale | 3.56% | 3.28% | 3.97% | 3.36% | 3.64% | 3.36% |
| Construction | 3.54% | 1.81% | 2.94% | 3.51% | 3.16% | 1.27% |
| S&P 500 | 9.59% | 9.17% | 9.00% | 9.46% | 9.16% | 9.38% |
| Excluding Financial | 8.86% | 8.42% | 8.64% | 9.20% | 9.18% | 8.88% |
Annual Total Net Income Growth
- Following rise of just 2.4% in 2009, total earnings for the S&P 500 jumps 44.7% in 2010, 15.2% further in 2011. Growth ex-Financials 28.2% in 2010, 17.5% in 2011.
- For 2012, 9.4% growth expected, 6.6% ex-Financials. For 2013, 12.7% and 12.3% ex-Financials.
- Fourteen sectors see total net income rise in 2011 and all but Aerospace and Utilities in 2012. Utilities only (very small) decliner in 2010. Nine sectors expected to post double digit growth in 2012 and nine in 2012, 13 in 2013. Energy, Materials, Staples and Health Care expected to grow less than 5% in 2012. Aerospace and Utilities only sectors to decline. Slow growers in 2011 to be high growers in 2012.
- Sector dispersion of earnings growth narrows dramatically between 2010 and 2013. Nine sectors expected to grow between 13 and 17% in 2013. Only three in single digits and only Construction (still a low base) over 20%.
| Annual Earnings Growth | ||||
|---|---|---|---|---|
| Total Net Income Growth | 2010 | 2011 | 2012 | 2013 |
| Construction | - to + | -4.57% | 33.76% | 40.16% |
| Finance | 297.67% | 4.30% | 25.18% | 14.74% |
| Transportation | 79.88% | -2.84% | 17.00% | 15.15% |
| Conglomerates | 11.10% | 6.95% | 15.43% | 13.61% |
| Industrial Products | 36.45% | 37.25% | 14.13% | 14.48% |
| Computer and Tech | 47.12% | 22.82% | 12.78% | 13.58% |
| Business Service | 13.58% | 19.73% | 12.78% | 13.55% |
| Consumer Discretionary | 14.85% | 11.35% | 10.89% | 13.47% |
| Retail/Wholesale | 22.95% | 20.06% | 10.58% | 16.82% |
| Auto | 1459.59% | 6.80% | 8.39% | 16.20% |
| Consumer Staples | 11.62% | 9.24% | 4.77% | 9.93% |
| Basic Materials | 56.42% | 30.54% | 3.12% | 19.20% |
| Medical | 10.34% | 8.16% | 1.86% | 6.78% |
| Oils and Energy | 49.65% | 35.87% | 1.08% | 11.53% |
| Aerospace | 21.82% | 11.55% | -3.03% | 11.88% |
| Utilities | -0.54% | 4.32% | -5.10% | 9.50% |
| S&P 500 | 44.66% | 15.24% | 9.41% | 12.71% |
| Excluding Financial | 28.20% | 17.46% | 6.57% | 12.28% |
Annual Total Revenue Growth
- The number of revenue estimates is smaller than earnings estimates, especially for 2013.
- Total revenues for the S&P 500 rise 8.94% in 2011, but growth expected to slow to 1.78% in 2012, early expectation for 4.878% growth in 2013.
- Energy, Industrials, Materials and Autos lead revenue race in 2011. Three other sectors (all cyclical) also expected to show double-digit revenue growth in 2011. Construction leads for 2012 and 2013, Industrials, Transports and Tech also strong.
- All sectors but Staples, Finance and Aerospace show positive top-line growth in 2011. Financials and Staples expected to see negative growth again in 2012. All sectors expected to see 2013 growth.
- Revenue growth significantly different if Financials are excluded, down 10.56% in 2009 but growth of 9.34% in 2010, 10.92% in 2011, and 3.86% in 2012. Early expectation for 4.93% growth in 2013.
| Total Annual Revenue Growth | ||||
|---|---|---|---|---|
| Sales Growth | 2010 | 2011 | 2012 | 2013 |
| Construction | 0.47% | 4.19% | 10.23% | 10.49% |
| Finance | 12.34% | 19.87% | 9.11% | 7.00% |
| Transportation | 15.45% | 13.73% | 8.00% | 8.43% |
| Conglomerates | 10.70% | 12.60% | 7.59% | 7.08% |
| Industrial Products | 10.76% | 18.24% | 6.79% | 6.23% |
| Computer and Tech | 4.10% | 6.61% | 6.35% | 4.63% |
| Business Service | 2.46% | 3.26% | 5.64% | 3.04% |
| Consumer Discretionary | 5.30% | 12.24% | 5.38% | 4.98% |
| Retail/Wholesale | 4.81% | 9.24% | 4.34% | 5.50% |
| Auto | 0.94% | 3.68% | 4.27% | 7.10% |
| Consumer Staples | -0.34% | -1.05% | 3.88% | 2.70% |
| Basic Materials | 9.21% | 18.33% | 2.01% | 6.68% |
| Medical | 11.40% | 5.57% | 0.70% | 3.06% |
| Oils and Energy | 23.76% | 22.01% | 0.66% | 3.36% |
| Aerospace | 4.79% | 7.44% | -5.69% | 3.71% |
| Utilities | 0.10% | -3.15% | -12.79% | 4.44% |
| S&P 500 | 7.98% | 8.94% | 1.78% | 4.87% |
| Excluding Financial | 9.34% | 10.92% | 3.86% | 4.93% |
Annual Net Margins
- Net Margins marching higher, from 5.88% in 2008 to 6.27% in 2009 to 8.38% for 2010, 8.86% for 2011. Trend expected to continue into 2012 with net margins of 9.53% expected. Rise to 10.24% expected for 2013.
- Financials significantly distort overall net margins. Net margins ex-Financials 7.78% in 2008, 6.93% in 2009, 8.10% for 2010, 8.58% expected in 2011. Expected to rise to 8.80% in 2012, then to 9.24% in 2013.
- Financials net margins soar from -8.42% in 2008 to15.56% expected for 2012, 17.10% for 2013. As much from revenue weakness as earnings strength.
- Fourteen sectors saw higher net margins in 2011 than in 2010. Thirteen sectors expected to post higher net margins in 2012 than in 2011. Thirteen sectors expected to see margin expansion in 2012. All sectors see expansion in 2013.
- 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 | 2010A | 2011A | 2012E | 2013E | |
| Computer and Tech | 14.86% | 16.04% | 16.75% | 17.55% | |
| Finance | 10.07% | 10.84% | 15.56% | 17.10% | |
| Medical | 12.62% | 12.93% | 13.08% | 13.55% | |
| Business Service | 10.75% | 11.78% | 12.73% | 13.70% | |
| Consumer Staples | 10.28% | 10.45% | 11.61% | 12.31% | |
| Conglomerates | 9.03% | 9.31% | 10.31% | 10.93% | |
| Consumer Discretionary | 8.40% | 8.98% | 9.43% | 10.49% | |
| Industrial Products | 7.33% | 8.40% | 8.78% | 9.40% | |
| Transportation | 9.24% | 7.98% | 8.67% | 9.33% | |
| Oils and Energy | 7.17% | 7.98% | 8.02% | 8.65% | |
| Basic Materials | 7.08% | 7.81% | 7.55% | 8.47% | |
| Utilities | 8.13% | 8.21% | 7.38% | 7.84% | |
| Aerospace | 5.84% | 6.58% | 6.15% | 6.70% | |
| Auto | 5.23% | 4.72% | 5.02% | 5.47% | |
| Retail/Wholesale | 3.27% | 3.41% | 3.56% | 3.86% | |
| Construction | 2.65% | 2.66% | 3.22% | 4.09% | |
| S&P 500 | 8.38% | 8.86% | 9.53% | 10.24% | |
| Excluding Financial | 8.10% | 8.58% | 8.80% | 9.42% | |
Earnings Estimate Revisions: Current Fiscal Year
The Zacks Revisions Ratio: 2012
- Revisions ratio for full S&P 500 at 1.10, up from 0.96, still neutral. Total revisions activity very close to seasonal low, and thus many sector ratios are based on thin samples.
- Construction leads, Industrials, Autos and Retail also strong, both with two increases per cut or more (but very small samples). Utilities, Aerospace, Transports and Materials very weak.
- Ratio of firms with rising-to-falling mean estimates at 1.20, down from 1.24 -- still a neutral reading.
- Total number of revisions (4-week total) past seasonal peak at 1,609, down from 1,912 (-15.8%). Increases at 842, down from 934 (-10.7%), cuts at 767 down from 978 (-21.6%).
| Revisions FY1(2012) | |||||||
|---|---|---|---|---|---|---|---|
| Sector | %Ch Next Fiscal Yr Est - 4 wks | # Firms Up | # Firms Down | # Ests Up | # Ests Down | Revisions Ratio | Firm Up/down |
| Construction | 1.18 | 7 | 2 | 17 | 2 | 8.50 | 3.50 |
| Industrial Products | 0.11 | 8 | 7 | 34 | 12 | 2.83 | 1.14 |
| Auto | 0.13 | 4 | 3 | 10 | 4 | 2.50 | 1.33 |
| Retail/Wholesale | 0.11 | 33 | 11 | 161 | 66 | 2.44 | 3.00 |
| Finance | 0.32 | 39 | 30 | 209 | 112 | 1.87 | 1.30 |
| Business Service | -0.03 | 8 | 5 | 23 | 13 | 1.77 | 1.60 |
| Medical | 0.07 | 23 | 20 | 33 | 23 | 1.43 | 1.15 |
| Computer and Tech | -0.52 | 36 | 18 | 100 | 91 | 1.10 | 2.00 |
| Conglomerates | -0.04 | 4 | 2 | 6 | 7 | 0.86 | 2.00 |
| Consumer Staples | 1.37 | 13 | 17 | 26 | 40 | 0.65 | 0.76 |
| Oils and Energy | -1.48 | 23 | 18 | 113 | 175 | 0.65 | 1.28 |
| Consumer Discretionary | -1.45 | 10 | 17 | 41 | 69 | 0.59 | 0.59 |
| Basic Materials | -1.39 | 3 | 15 | 23 | 46 | 0.50 | 0.20 |
| Aerospace | 0.08 | 6 | 2 | 2 | 4 | 0.50 | 3.00 |
| Transportation | -1.85 | 2 | 4 | 16 | 37 | 0.43 | 0.50 |
| Utilities | -0.51 | 13 | 22 | 28 | 66 | 0.42 | 0.59 |
| S&P 500 | -0.23 | 232 | 193 | 842 | 767 | 1.10 | 1.20 |
Earnings Estimate Revisions: Next Fiscal Year
The Zacks Revisions Ratio: 2013
- Revisions ratio for full S&P 500 at 1.26 up from 1.14, now in bullish territory.
- Nine sectors have positive revisions ratios (at or above 1.0). Autos, Conglomerates and Construction lead. Utilities, Aerospace and Transports very weak, have two or more per increase. Very small samples, however.
- Ratio of firms with rising estimate to falling mean estimates at 1.39, unchanged. Now in bullish territory.
- Total number of revisions (4-week total) at 1,382, down from 1,897 (-27.1%).
- Increases at 770 down from 808 (-4.7%), cuts at 612, down from 710 (-13.8%).
| Revisions FY2 (2013) | |||||||
|---|---|---|---|---|---|---|---|
| Sector | %Ch Next Fiscal Yr Est - 4 wks | # Firms Up | # Firms Down | # Ests Up | # Ests Down | Revisions Ratio | Firm Up/down |
| Business Service | 0.33 | 3 | 1 | 9 | 1 | 9.00 | 3.00 |
| Auto | -0.14 | 3 | 2 | 8 | 1 | 8.00 | 1.50 |
| Industrial Products | 1.23 | 8 | 1 | 15 | 3 | 5.00 | 8.00 |
| Retail/Wholesale | 0.30 | 9 | 6 | 32 | 10 | 3.20 | 1.50 |
| Conglomerates | -0.02 | 9 | 4 | 19 | 7 | 2.71 | 2.25 |
| Finance | 0.51 | 51 | 24 | 201 | 81 | 2.48 | 2.13 |
| Medical | 0.34 | 29 | 14 | 116 | 55 | 2.11 | 2.07 |
| Consumer Discretionary | 0.31 | 26 | 17 | 37 | 26 | 1.42 | 1.53 |
| Basic Materials | 1.11 | 37 | 18 | 104 | 76 | 1.37 | 2.06 |
| Consumer Staples | 0.06 | 22 | 19 | 103 | 128 | 0.80 | 1.16 |
| Computer and Tech | 1.49 | 15 | 18 | 37 | 48 | 0.77 | 0.83 |
| Oils and Energy | -1.23 | 11 | 15 | 35 | 57 | 0.61 | 0.73 |
| Construction | 0.81 | 5 | 12 | 19 | 31 | 0.61 | 0.42 |
| Aerospace | -0.52 | 2 | 4 | 10 | 24 | 0.42 | 0.50 |
| Utilities | 0.09 | 5 | 3 | 2 | 5 | 0.40 | 1.67 |
| Transportation | -0.25 | 14 | 21 | 23 | 59 | 0.39 | 0.67 |
| S&P | 0.38 | 249 | 179 | 770 | 612 | 1.26 | 1.39 |
Total Income and Share
- S&P 500 earned $538.6 billion in 2009, rising to earn $788.8 billion in 2010, $894.4 billion in 2011. Earnings to approach the $1 Trillion mark in 2012 at $978.6 billion, pass in 2013 at $1.103 Trillion.
- Finance share of total earnings moves from 5.9% in 2009 to 17.3% in 2010, dip to 15.3% for 2011; expected to rebound to 17.5% then rise to 17.8% in 2013. Energy share also rising going from 11.9% in 2009 to 14.6% in 2011, dip to 13.5% in 2012, 13.3% in 2013.
- Medical share of total earnings exceeds market cap share (index weight), but earnings share expected to shrink from 17.3% in 2009 to 10.5% in 2013, down each year.
- Market cap shares of Construction, Staples, Retail, Transportation, and Business Service sectors far exceed earnings shares of any of the years from 2010 through 2013.
- Earnings shares of Energy, Finance, Autos and Medical well above market cap shares.
- As a general rule, one should try to overweight sectors with rising earnings shares, underweight falling earnings shares, but also over weight sectors where earnings shares exceed market cap shares.
| Total Income and Share | |||||||
|---|---|---|---|---|---|---|---|
| Income ($ Bill) | Total Net Income $ 2011 | Total Net Income $ 2012 | Total Net Income $ 2013 | % Total S&P Earn 2011 | % Total S&P Earn 2012 | % Total S&P Earn 2013 | % Total S&P Mkt Cap |
| Computer and Tech | $165,034 | $186,124 | $211,403 | 18.45% | 19.02% | 19.17% | 19.97% |
| Finance | $136,553 | $170,943 | $196,135 | 15.27% | 17.47% | 17.78% | 15.09% |
| Oils and Energy | $130,259 | $131,671 | $146,851 | 14.56% | 13.46% | 13.31% | 10.64% |
| Medical | $106,105 | $108,077 | $115,402 | 11.86% | 11.04% | 10.46% | 10.27% |
| Retail/Wholesale | $64,257 | $71,258 | $80,859 | 7.18% | 7.28% | 7.33% | 9.22% |
| Consumer Staples | $67,942 | $71,185 | $78,256 | 7.60% | 7.27% | 7.10% | 8.64% |
| Utilities | $50,774 | $48,186 | $52,762 | 5.68% | 4.92% | 4.78% | 5.76% |
| Conglomerates | $29,601 | $34,168 | $38,816 | 3.31% | 3.49% | 3.52% | 3.56% |
| Consumer Discretionary | $29,841 | $32,997 | $38,547 | 3.34% | 3.37% | 3.49% | 3.90% |
| Basic Materials | $31,469 | $32,451 | $38,682 | 3.52% | 3.32% | 3.51% | 3.20% |
| Industrial Products | $22,708 | $25,917 | $29,670 | 2.54% | 2.65% | 2.69% | 2.53% |
| Business Service | $16,840 | $18,991 | $21,565 | 1.88% | 1.94% | 1.96% | 2.51% |
| Transportation | $13,803 | $16,150 | $18,596 | 1.54% | 1.65% | 1.69% | 1.74% |
| Aerospace | $15,064 | $14,607 | $16,342 | 1.68% | 1.49% | 1.48% | 1.35% |
| Auto | $12,160 | $13,181 | $15,315 | 1.36% | 1.35% | 1.39% | 1.07% |
| Construction | $2,002 | $2,678 | $3,753 | 0.22% | 0.27% | 0.34% | 0.56% |
| S&P 500 | $894,410 | $978,581 | $1,102,956 | 100.00% | 100.00% | 100.00% | 100.00% |
P/E Ratios
- Trading at 14.85 2011 earnings, or earnings yield of 6.73%, respectively. P/E for 2012 at 13.58x or earnings yield of 7.36%. Preliminary 2013 P/E of 12.04, or earnings yield of 8.31%.
- Earnings yields still attractive relative to 10-year T-note rate of 2.21% and 30-year bond rate of 3.34%.
- No single-digit P/E sectors for 2012, Autos, Oil and Finance Cheapest for 2012 and 2013.
- Construction has highest P/E for all four years by wide margin.
- S&P 500 earned $56.79 in 2009 rising to $81.97 in 2010, $94.50 in 2011 and $103.33 for 2012. Preliminary 2013 estimate $116.55.
| P/E Ratios | ||||
|---|---|---|---|---|
| P/E | 2010 | 2011 | 2012 | 2013 |
| Oils and Energy | 14.74 | 10.85 | 10.73 | 9.62 |
| Auto | 12.47 | 11.68 | 10.77 | 9.27 |
| Finance | 15.31 | 14.68 | 11.72 | 10.22 |
| Aerospace | 13.27 | 11.90 | 12.27 | 10.97 |
| Medical | 13.91 | 12.86 | 12.62 | 11.82 |
| Industrial Products | 20.34 | 14.82 | 12.99 | 11.34 |
| Basic Materials | 17.65 | 13.52 | 13.11 | 11.00 |
| Conglomerates | 17.09 | 15.98 | 13.84 | 12.19 |
| Computer and Tech | 19.74 | 16.07 | 14.25 | 12.55 |
| Transportation | 16.32 | 16.79 | 14.35 | 12.46 |
| Consumer Discretionary | 20.86 | 17.38 | 15.71 | 13.45 |
| Utilities | 15.72 | 15.07 | 15.87 | 14.50 |
| Consumer Staples | 18.45 | 16.89 | 16.12 | 14.66 |
| Retail/Wholesale | 21.22 | 19.05 | 17.18 | 15.14 |
| Business Service | 23.68 | 19.78 | 17.54 | 15.44 |
| Construction | 38.65 | 36.96 | 27.63 | 19.71 |
| S&P 500 | 17.12 | 14.85 | 13.58 | 12.04 |
Data in this report, unless stated otherwise, is through the close on Thursday 3/29/2012.
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 S&P which are based on the composition of the index at the time of the reports.
