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Very slight year-over-year earnings decline projected for the S&P 500 in Q1 2013

Feb 15, 2013

S&P 500: Q113 Estimated Earnings Growth Rate vs. PriceThe blended earnings growth rate for Q4 2012 stands at 3.6%. Of the 386 companies that have reported earnings to date for the quarter, 72% have reported actual EPS above the mean EPS estimate. Thus, barring an unusually high number of companies reporting earnings below expectation for the remainder of the earnings season, it appears the S&P 500 will report year-over-year growth in earnings for the fourth quarter after reporting a year-over-year earnings decline (-1.0%) for the third quarter.

Looking at the current quarter (Q1 2013), what are analyst expectations for earning growth? Is the earnings growth for the index expected to continue?

The answer is no. Based on current estimates, the estimated earnings growth rate for the index for Q1 2013 now stands at -0.04%. There has been a steady decline in the growth rate over the past five months. On September 28, the estimated earnings growth rate was 5.1%. By December 28, the estimated growth had declined to 2.4%. Last week, the growth rate was slightly positive at 0.04%. Today, it stands at -0.04%.

Of the 386 companies that have reported earnings to date for the fourth quarter, 72% have reported earnings above estimates. This percentage is slightly above the average of 69% recorded over the past four quarters. The Information Technology (87%) and Consumer Staples (81%) sectors have the highest percentages of companies reporting actual earnings above estimates. In terms of revenues, 67% of companies have reported sales above estimates. This percentage is well above the average of 50% recorded over the past four quarters.

The blended earnings growth rate for Q4 2012 is 3.6% this week, above last week’s growth rate of 3.2%. The increase in the growth rate this week can mainly be attributed to upside earnings surprises reported by companies in multiple sectors. On December 31, the earnings growth rate for the index was 2.6%. Seven of the ten sectors have witnessed increases in earnings growth rates since that date, led by the Energy and Materials sectors. The Telecom Services and Industrials sectors have recorded the largest decreases in earnings growth since the end of the quarter.

After reporting a decline in earnings growth in Q3 (-1%), the index is reporting earnings growth of 3.6% for Q4. Eight of the ten sectors are reporting earnings growth for the quarter, led by the Financials (15.2%), Utilities (11.6%), and Materials (10.4%) sectors. On the other hand, the Industrials (-16.3%) and Telecom Services (-10.1%) sectors are reporting the weakest earnings growth. The blended revenue growth rate for the index for Q4 is 3.9%, up from an estimate of 2.3% at the end of the quarter. A large upside revenue surprise reported by Prudential is responsible for most of the increase in the revenue growth rate during this time. Slower economic growth in Europe and less favorable foreign-exchange rates had a negative impact on both top-line and bottom-line growth for many multi-national companies in the index in the quarter. However, a number of companies have expressed optimism about renewed economic growth in emerging markets (China) in 2013. 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, two Dow components (Wal-Mart Stores and Hewlett-Packard) and 50 S&P 500 companies are scheduled to report earnings for the fourth quarter.

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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