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Does Alcoa set the tone for Earnings Season?

Apr 5, 2013

The upcoming week marks the start of the Q1 2013 earnings season, as Alcoa is scheduled to report earnings on April 8. Do the results from Alcoa have any predictive value on the remainder of the earnings season?

Since 2009, Alcoa has reported earnings above the mean EPS estimate 56% of the time (9 out of 16 quarters). In the nine quarters that Alcoa reported actual EPS above the mean EPS estimate, 73.6% of companies in the S&P 500 reported earnings above EPS estimates for the quarter on average. In the seven quarters that Alcoa reported actual EPS below the mean EPS estimate, 72.6% of companies in the S&P 500 reported actual EPS above the mean EPS estimate for the quarter on average. While there is a slight difference in the numbers, it appears that Alcoa’s earnings performance relative to estimates has little predictive value in determining the earnings performance of the remaining companies in the index.

The estimated earnings growth rate for Q1 2013 is -0.6% this week, slightly above last week’s growth rate of -0.7%. Small upward revisions to estimates for companies in the Energy and Financials sectors were mainly responsible for the uptick in the growth rate this week. On December 31, the Q1 earnings growth rate for the index was 2.1%. Nine of the ten sectors have witnessed a decline in earnings growth rates since that date, led by the Materials, Information Technology, and Consumer Discretionary sectors. The only sector that has recorded an increase in projected earnings growth over this time is the Financials sector.

Part of the reason for the drop in expected earnings growth for the index is the high percentage of negative guidance issued by S&P 500 companies for Q1. Overall, 86 companies have issued negative EPS guidance for Q1 2013, while 24 companies have issued positive EPS guidance. Thus, 78% of the companies in the index that have issued EPS guidance have issued negative guidance. This percentage is well above the 5-year average of 61%.

After reporting earnings growth in Q4 (+4.2%), the index is expected to report a small decline in Q1 (-0.6%). If the final number is negative, it will mark the second time in the past three quarters that the index has reported a year-over-year decline in earnings growth. Four of the ten sectors are projected to report an earnings decrease for the quarter, led by the Energy (-4.3%) and Information Technology (-3.9%) sectors. On the other hand, the Utilities (7.9%), Financials (3.8%), and Consumer Discretionary (2.2%) sectors are predicted to see the highest earnings growth. The estimated revenue growth rate for the index for Q1 is 0.5%, down slightly from an estimate of 0.9% at the end of the quarter.

Aside from Alcoa, just one other Dow component (JPMorgan Chase) and eight other S&P 500 companies are scheduled to release earnings results during the week.

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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