Second peak week of earnings season brings exceeded expectations

This past week marks the end of the second “peak week” of the Q3 2011 earnings season. Despite more high profile companies such as 3M, Amazon.com, and Dow Chemical reporting EPS below expectations during the week, most companies have reported EPS above the analyst expectations. Of the 284 companies that have reported earnings to date, 77% have reported earnings above expectations, which is slightly above the 74% average recorded over the past four quarters.

Due to these results, the blended earnings growth rate now stands at 15.1%, up from last week’s growth rate of 13.8%. Better-than-expected earnings from companies in multiple sectors account for the increase in the growth rate this past week, including ConocoPhillips, Sprint Nextel, and Boeing. Nine of the ten sectors witnessed an increase in aggregate earnings during the week, led by the Telecommunications Services (+6.8%), Materials (+3.4%), Industrials (+2.5%), and Energy (+2.2%) sectors.

Overall, all ten sectors are reporting earnings growth for Q3 2011, with six of the ten sectors reporting double-digit growth. If the final earnings growth rate is 15.1%, it will mark the eighth consecutive quarter of double-digit earnings growth for the index.

Given the level of upside surprises relative to EPS estimates and the recent rise in the price of the market, have analysts been feeling optimistic and revising earnings estimates higher for the fourth quarter?  The answer is no. Analysts have actually been taking EPS estimates down for Q4 2011. The bottoms-up EPS estimate for Q4 2011 is 3% lower today ($25.03) than it was on September 30 ($25.82). In fact, this 3% decline reflects the sharpest drop in earnings expectations for the first month of a quarter since Q2 2009, when earnings estimates fell 7% during the month of April 2009.

The upcoming week marks the final “peak week” of the Q3 2011 earnings season, as 103 companies in the S&P 500 and two DJIA components are scheduled to report earnings.

Read more about earnings season in this week's edition of FactSet Earnings Insight.

All of the data used to compile FactSet Earnings Insight is available in the FactSet workstation.