Energy sector reports high upside revenue surprises vs. sharply lowered estimates
Of the 447 companies in the index that have reported earnings to date for Q2 2012, 70% have reported actual EPS above the mean EPS estimate. This percentage is consistent with the average over the past four quarters (72%). In terms of revenues, just 43% of companies have reported actual sales above estimated sales. This percentage is well below the average over the past four quarters (63%). If 43% is the final percentage, it would mark the lowest number since Q1 2009 (37%).
In aggregate companies are reporting actual earnings that are 5.0% above the estimates. This percentage is consistent with the average over the past four quarters (4.8%). In terms of revenue, the aggregate difference between actual revenues and estimated revenues is 0.3%. This is somewhat surprising, given that more companies have reported sales below estimates (57%) than above estimates (43%). Companies in the Energy sector are reporting the highest upside sales surprises (4.2%) of all ten sectors, but are beating estimates that were sharply cut during the quarter.
The blended earnings growth rate for the S&P 500 for Q2 2012 is 5.5%, above last week’s growth rate of 4.9%. The improvement in the growth rate was mainly due to an upside earnings surprise from Berkshire Hathaway (27%). Bank of America is the largest contributor to earnings growth for the index at the company level, mainly due to an easy comparison to a large loss reported in the year-ago quarter. Excluding Bank of America, the blended earnings growth rate for the index falls to 0.6% from 5.5%.
Eight of the ten sectors are reporting earnings growth for the quarter, led by the Financials (60.2%) and Industrials (11.8%) sectors. The Energy (-22.1%) and Materials (-15.9%) sectors have the lowest earnings growth rates, as oil and commodity prices dropped during the quarter. Although seven of the ten sectors are reporting revenue growth for the quarter, the blended sales growth rate is 0.8%. Slower economic growth in Europe and emerging markets countries (China) and less favorable foreign-exchange rates had a negative impact on both top-line and bottom-line growth for many companies in the index in the second quarter.
Looking ahead, companies and analysts have reduced earnings estimates for the 2nd half of 2012 since the start of the third quarter. In terms of guidance for Q3 2012, 67 companies in the S&P 500 have issued negative EPS preannouncements to date while just 17 companies have issued positive EPS preannouncements. Analysts now expect a year-over-year decline in earnings for Q3 (-2.9%). Despite cuts to estimates, analysts still project double-digit earnings growth (10.1%) for Q4 2012.
During the upcoming week, 22 companies in the S&P 500 and three companies (Home Depot, Wal-Mart Stores, and Cisco Systems) in the Dow 30 are scheduled to report earnings.
Read more about the earnings trends of the S&P 500 in this week's edition of FactSet Earnings Insight. Visit www.factset.com/earningsinsight to launch the latest report.
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