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Bank of America settlement accounts for decline in S&P 500 earnings growth rate this week

Jan 11, 2013

Bank of America: Q4 2012 Mean EPS EstimateThe blended earnings growth rate for Q4 2012 is 1.5% this week, below last week’s growth rate of 2.3%. The decline in the growth rate this week can mainly be attributed to downward revisions to estimates for Bank of America, due to the settlement with Fannie Mae announced on January 7. On December 31, the earnings growth rate for the index was 2.6%. Six of the ten sectors have recorded an decline in earnings growth over this time frame, led by the Financials sectors. The Materials sector has witnessed the largest increase in earnings growth since the end of the fourth quarter, due to recently reported upside earnings surprises from Monsanto and Mosaic.

Of the 27 companies that have reported earnings to date for the quarter, 70% have reported earnings above estimates. This percentage is about equal to the average of 69% recorded over the past four quarters. In terms of revenues, 70% of companies have reported sales above estimates. This percentage is well above the average of 50% recorded over the past four quarters.

In terms of preannouncements for Q4 coming into the start of earnings season, 77 companies have issued negative EPS guidance for Q4 2012, while 33 companies has issued positive EPS guidance. Of the companies in the Information Technology sector that have provided EPS guidance for the quarter, an unusually high percentage (91%) have issued negative EPS guidance.

Despite the reductions in estimates, analysts are still calling for a return to earnings growth in Q4 (1.5%) after a decline in Q3 (-1.0%). Seven of the ten sectors are projected to report earnings growth for the quarter. Four of these sectors (Materials, Utilities, Financials, and Telecom Services) are virtually tied for the highest earnings growth rate for the quarter at about 9%. On the other hand, the Industrials (-4.8%), Information Technology (-2.8%), and Health Care (-1.6%) sectors are predicted to have the weakest earnings growth. The blended revenue growth rate for the index for Q4 is 2.1%. Slower economic growth in Europe and emerging markets countries (China) and less favorable foreign-exchange rates are expected to have a negative impact on both top-line and bottom-line growth for many multi-national companies in the index in the quarter. In addition, some companies have cited the damage caused by Hurricane Sandy and fiscal policy uncertainty as impediments to earnings and sales growth for the quarter as well.

During the upcoming week, 6 Dow components and 37 S&P 500 companies are scheduled to report earnings for Q4 2012. Of these 37 S&P 500 companies, 22 are in the Financials sector.

Read more about the earnings trends of the S&P 500 and what to expect this earnings season in this week's edition of FactSet Earnings Insight. Visit www.factset.com/earningsinsight to launch the latest report.  

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