Financials and industrials were both strong sectors this week. Of the 14 financials companies that reported, 13 beat their estimates, and 15 of the 19 industrials companies beat analyst earnings estimates.
Nearly half of the companies in the S&P 500 index have reported fourth-quarter earnings, and the results continue to improve. Of the 126 companies that reported this week, 74% exceeded their consensus earnings estimates, while 64% posted positive revenue surprises. These strong earnings results caused the blended earnings growth rate to jump to 8.9%. Much of the improvement this week comes from the financials and industrials sectors. As shown below in Exhibit 1, financials and industrials companies reporting this week beat their earnings estimates by 93% and 79%, respectively.
Exhibit 1. S&P 500: Q4 2013 Earnings Scorecard - Companies Reporting This Week
Source: Thomson Reuters I/B/E/S
A total of 13 of the 14 financials companies that reported this week beat their estimates. Financials earnings have been strong in 2013, and particularly the fourth quarter, as growth is currently estimated at 23.6%. The results of Hudson City Bancorp (HCBK.O) are emblematic of the improvement in customer credit that is helping the sector stabilize and exceed analyst estimates. Hudson City Bancorp reported earnings of 9 cents per share, beating the 7-cent estimate. In its press release, the company highlighted decreases in nonperforming loans, early-stage loan delinquencies, and loan losses.
In addition to benefitting from the housing market and mortgage business, financials sector earnings are also showing growth as a result of the strong year for the stock market. All four asset management companies that reported this week beat their estimates, with Invesco (IVZ.N) leading the way in terms of growth, with a 28.9% profit increase. The company noted a 4.5% increase in assets under management due to both market returns and asset inflows.
Of the 19 industrials companies that reported this week, 15 beat analyst earnings estimates, with only one company missing its estimate. Some of the largest surprises came from the aerospace & defense sub-industry, where analysts had lower expectations due to cutbacks in U.S. defense spending. Some of these revenue reductions were offset by other areas of the business, as highlighted by Wes Bush, CEO of Northrop Grumman Corporation (NOC.N), during the earnings call. He said, "So as I look at 2013 performance, I'm particularly proud of our results in the context of last year's challenging U.S. government budget environment. In contrast to the challenges in the U.S. market last year, we are seeing growth in our international business."
Elsewhere in the industrials sector, Robert Half International (RHI.N) beat its earnings estimate, its $0.49 EPS having grown 17% from a year ago. The improving labor market in the U.S. benefitted the company, which saw its strongest growth domestically, and particularly among small- and mid-size businesses. While many companies have complained about healthcare reform and increasing government regulation, Robert Half is a beneficiary, as CEO Max Messmer explained during the earnings call. He elaborated, "The regulatory and compliance space is one area where we are seeing a greater need for skilled finance and information technology talent. Financial services regulations such as Dodd-Frank are creating demand by companies for compliance expertise. Likewise, U.S. healthcare reform and consumer protection regulations are fueling demand for our services. The global regulatory environment is creating demand."