This page has been archived and commenting is disabled.
Earnings Update: Ex-Financials There Are No Upside Revenue Surprises
Much has been said on TV about the "great" earnings season so far. The truth is that ex-financials the upside EPS factor is just 10%. This is driven purely by ongoing cost-cutting and layoffs. What is much more relevant is the top-line. And there again, ex-financials, the upside surprise, is... zero. As David Rosenberg puts it: "In other words, outside of financials, revenues are just meeting analyst expectations. In a nutshell, the impressive earnings surprises, thus far, is being driven by Financials cost surprises (including write offs)." And why are financials beating so heartily? Because they are all reducing loss allowances on their books, when their whole books are based on mark to myth. The wholesale market lie continues, and a read between the lines indicates that the trillions in monetary and fiscal stimulus is still not pushing company top lines. In light of this observation, we are certainly not holding our breaths to see a $100 EPS on the S&P for 2011 as UBS projects.
From David Rosenberg:
MORE ON CORPORATE EARNINGS … ACTUALLY LESS QUALITY THAN MEETS THE EYE
Net, net, the situation is still the same for the most part. Earnings surprises are still being driven primarily, though not exclusively, by cost surprises (weren’t CAT revenues down 11% YoY?). The “surprise factor” (the gap between actual and what was estimated going in to the release) for total earnings is 21%, skewed by the 74% surprise factor in the Financials space, excluding Financials, the surprise factor would be around 10%.
The revenue surprise factor is running at a much more modest 3% and excluding Financials (which saw an 8% surprise factor), it would be flat. In other words, outside of financials, revenues are just meeting analyst expectations. In a nutshell, the impressive earnings surprises, thus far, is being driven by Financials cost surprises (including write offs).
FORGET THE ANALYST ESTIMATES
Bloomberg News runs with this — U.S. Stocks Cheapest Since 1990 on Analyst Estimates. The article goes on to say that based on the $86 EPS estimate being penned in by the consensus for 2011, this is one cheap stock market. The elite would seem to concur with this notion that with the recession’s ink barely dry and the credit contraction lingering, we are heading back to cyclical peak earnings.
But here’s the rub. Going back over the past 25 years, the consensus has been overly optimistic on earnings 75% of the time and they have missed on a 12-month horizon an average of almost 20%. So the answer is no — the market is more likely trading closer to a 16x P/E than the sub-13x multiple being bandied about by the always rose coloured bulls. On a Shiller trailing P/E basis, the market is trading at 22x. That ain’t no bargain, being six multiple points above the long-run norm.
We are sure to get our share of naysayers emailing us back. Our response, to those who need to be versed in the historical record: Benjamin Graham never ever deployed ‘forward’ earnings as a valuation metric.
THINGS THAT COULD UPSET THE APPLE CART — THE DIRTY DOZEN
- Wildly bullish sentiment readings. The latest Investors Intelligence survey is now up to 53.3% for the bulls (versus 51.1% the prior reporting week) while the bear camp has dwindled further, to 17.4% (versus 18.9% a week ago). Bullish sentiment rose for the third consecutive week and bearish sentiment has not been this low since January 12. As Bob Farrell’s Rule number 9 stipulates, when all the forecasts and experts agree, something else is bound to happen.
- Uncertainty over the coming U.S. midterm elections in November.
- A more hawkish Fed (futures pricing in 40% odds of a rate hike by the November meeting).
- Tougher profit comparisons in coming quarters.
- The fading of the fiscal and monetary stimulus. The tax credits expire on Friday, the Fed has already stopped buying mortgage bonds and the pace of new trial modifications under the Treasury’s Home Affordable Modification Program has begun to slow.
- Fresh uncertainty surrounding banking industry regulation. Goldman is likely the thin edge of the wedge. A proposal is gaining ground on Capitol Hill to force banks to spin off their derivatives-trading operations, which would represent a severe blow to one of Wall Street’s most profitable businesses.
- Higher tax rates to pay for the massive $1.4 trillion federal budget deficit. The Bush cuts that lowered taxes on high-wage earners and capital gains and dividends are set to expire at the end of 2010. The top marginal tax rate will jump to 39.6% from 35.0%, and the current 15% rate on capital gains and dividends will go back to 20.0% and 39.6%, respectively.
- Huge overhang of unsold houses. As of March, banks and investment trusts had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to estimates from LPS Applied Analytics. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30% from a year earlier.
- Sovereign debt problems in Greece and spillover to Portugal and possibly Spain.
- Ongoing commercial real estate, which have resulted in 55 bank failures this year.
- Underfunded state pension plans.
- A property bubble in China — the government is now considering introducing new or higher taxes on real estate, possibly a property tax, in order to cool down a booming property market now widely being described as a bubble (prices up well over 10% from a year ago).
Yet in the grand scheme of things, not even these realistic economic observations matter. The outcome will be however Goldman is axed. If Goldman is long (which we doubt due to all the cheerleading by the firm's economic team) we will keep going up. End of debate.
»
- 5678 reads
- Printer-friendly version
- Send to friend
- advertisements -
It's apparent that you didn't read the earnings reports from AAPL or INTC. You apparently were watching CNBC the day they released their earnings, and they told you it was good, and thus you hold this opinion. A fool and his money are soon parted. HarryWanger is the new synonym for Fool.
Don't be a HarryWanger!
LOL classic
pass it all along everyone, please dont be a harrywagner
LOL
Hi, Im Dick Fitzwell, buy gold bitches! :-)
Come on guys:
http://www.ritholtz.com/blog/2009/10/baltic-dry-index-2/
http://www.urbandictionary.com/define.php?term=Harry%20wanger
Actually I did read those reports and listened to their CCs. Anyone who doesn't think AAPL had an amazing blow out Q in every shape and form should not be anywhere near the stock market.
I'm not anywhere near the stock market; you can have it. Your schtick is getting old too. A smart troll mixes things up to keep it fresh. Try harder.
As well as posting here during the Intel CC. Multitasking!
You are amazing.
In your first post you bashed the author and claimed a preference for Bloomberg. You insist that anyone who even slightly questions Apple's earnings should "not be anywhere near the stock market".
Do you post to be informative or is it merely bait to spark an argument?
I'll answer for Harry. He's busy listening to a CC.
Do you post to be informative (NO) or is it merely bait to spark an argument (YES)?
I do agree with you that the AAPL and INTC earnings reports were impressive by anyone's standards..I don't think AAPL's stock price merits a daily $2 increase for two straight months on the back of these earnings, but I do agree they had a good quarter.
CAT, AA and others is a different matter altogether..
must... buy... iPad.
text message to self via Apple iPhone
HarryWanger is a liar. And just abasement troll. Let's see some statements proving your investment genius.
Here's one of your statements: DOW will not go below 9000 again in our lifetimes. October 31, 2008.
http://messages.finance.yahoo.com/ETFs_%28A_to_Z%29/ETFs_S/threadview?m=...
HarryWanger has to be some sort of government plant, i don't know how he found his way over here, but he's always on the daily reckoning and he's always talking up apple and how cheap the market is. Hmmm, could be a sign of the times if he's making his way over here to spew garbage....................
You misspelled cheat..
So true, most of these guys where screaming the end of the world for over a year and the economy is actually getting better.
I work for a company that has CAT as a client and CAT is indeed performing better then last year. They did serious cost cutting and cut down on social costs. Estimates from CAT insides say it will be back at 2006 levels in 2 years from now but more profitable then ever.
In 2008 they also had a pretty large surplus employee count which they had with expansion in mind. That was a serious cost that is now off the books.
Soon also parts, Iron will go up 12% starting next month and that will drive sales prices up which will have a larger profit on the end of the line as sales margins are calculated at the end of the line.
CAT had a surprise (over projected, not YOY) only because Asia was up 40%. US was down from a year ago.
Weren't revenues (top line) down something like 11% globally?
Pretty easy to turn a profit when you lay-off a metric fuck-ton of people and the Fed.Gov is tossing Monopoly Money around for "shovel ready" projects, no?
Revenue was down YOY but higher than projected by both CAT and those brilliant analysis, which was why it was considered a "beat". Shit, I can make up numbers and then beat them all day.
Looks like you didn't see theaddition to my post (in parentheses) before posting your question.
iron ore and every other base metal is leaking higher - look at scrap prices in the PPI - and all the companies are paossing it off via surchagrge. Hyundai and JFE just annoucned 25% price hikes beginning in May. The cheap contracts locked in last year will roll off and the doewnstream customers will either try and pass it on or take it on the margin. So all that cost cutting will be futile in the face of the rising margin pressure that is the current pig in the python. CAT results show only that demand is absent - but of course it is a late cycle cyclical.
Heh - nope, didn't see that.
Cheers -
Had I any CAT in my folio this would be pretty much all I'd need to hear to get me to crush the DUMP button as fast as I could.
I sell commercial trucks and in/out of the same field that CAT products are used.
I'm laughing at your "Iron will go up 12% so that means more profit" statement...
First off, dealing with CAT....They are not producing engines for trucks in the USA in 2010/2011 models (and probably further out) due to the fact they couldn't figure out how to get emissions down when many other companies have done so.....so, no more new CAT-powered trucks on the road.
Second...and this somewhat deals with your "iron" comment....the price of goods going up does not imply more profit. Sure, if producers get "iron" for the pre-inflated price and they can sell the same amount of "iron," one would agree with you. However, that isn't what is happening.
I've got a feeling new truck sales will be horrible as Class 3-7 will have an increase in price of about $4-8k depending on mfg....and Class 8 trucks will be $10k+ more (mainly due to emissions requirements, but typical MY price increases are present, also)
So, if you think trying to find customers to plop down $37k on a simple box truck or $140k+ for a tri-axle dump truck, then you might find it a tad more difficult to find them at $40k+ and $150k+
Beware...
awesome!!!! how many people did CAT blow out in its' "serious cost cutting"? I hope it was thousands of US workers... now these dregs can get on the gubmint dole and all of us can get back to work trading pieces of paper known as stock certificates and "booking" the price differentials. I LOVE when companies boost earnings by canning bodies. the poorer the average US worker the more desparate they get and the more willing they will be to take ANYTHING thrown their way.. add to this MILLIONS of illegal aliens and you now have a permanent underclass of unskilled labor ready to be exploited (i mean utilized) by big biz... this is phenomenal news.. according to Harry stocks are cheap, and so apparently are people.. this rise in the "price" of stocks is and END in and of itself. it matters not how it rises, or why.. merely that "it" rises and that we can profit from it.. my masters on TV tell me that rising stock prices are good, especially when they rise BECAUSE my WAGES are DECLINING. i am sure glad someone is profiting from my pain. it would be a shame not to have Harry bust a nut over a 1% move in some company's stock price. wages down is good, employment down is good, stocks up is good... excellent.. now all we have to do is eliminate child labor laws and we can get down to some serious proft making.. maybe Harry will let me cut his grass this summer?
+ + +
!!
Regarding revenue for non-financial companies: He didn't say that no companies had upside revenue surprises. He said on average, revenue met, but did not exceed expectations. There's a big difference.
?? Here's the headline:
Earnings Update: Ex-Financials There Are No Upside Revenue Surprises
That's Tyler's headline. Here's what Rosenberg wrote:
"The revenue surprise factor is running at a much more modest 3% and excluding Financials (which saw an 8% surprise factor), it would be flat. In other words, outside of financials, revenues are just meeting analyst expectations."
why don't you go read financial times or bloomberg, zh is evidently not stuck up its own ass for you
welcome to interwebs: http://bit.ly/90yzhv
Come on Tyler, get with the program.
Do you want to go long or short:
1) fictional gold
2) fictional bonds
3) fictional earnings
4) fictional accounting
5) fictional oil
6) other
Step right up, place your bets...
rosie (dave rosenberg) makes me intellecutally MOIST.
BUY EM!
And even for those few companies that did have upside surprises on revenue, it was often attributed to non-USA sources.
I've been trying to point out one aspect of trickery in reporting which also gives a large clue to the mechanisms behind The Great Corporate Bailout of 2009-10: Obfuscation of shares outstanding.
Ford today reported "Great news" on a yoy comparison to a loss in Q1 2009. North American sales were anemic, but that's another matter. Ford is reporting only 3.4 billion shares outstanding when their numbers actually imply 4.2 billion! http://seekingalpha.com/article/201081-ford-still-financially-troubled-d...
This represents a near-doubling of shares from 2.3 billion reported a year ago. Ford is only one of many examples of the same thing. And this, friends, is one of the main reasons why we've had the Fed-funded run up in the market: support for mega secondary equity issuance which has resulted in a subsidized bailout to large corporations. And as I've reported, Morgan Stanley's head of investment banking corroborated this by disclosing that secondary offerings set an all-time record in the last 2 quarters. Junk bond issuance has also set all-time records.
The Fed would describe this as a debt-for-equity swap. Only it was done under the guise of "free market forces" as opposed to a restructuring. But a restructuring it was. It remains to be seen if restructuring debt without restructuring economic forces like prices, products, markets and competition will be sufficient to keep these corporations alive. There's a distinct smell of rot coming from those rosy earnings reports this quarter.
Yes exactly. And insider sales are through the roof! Looks like the common man will be hosed once again in the end.
Well INTC and some other tech did have a decent quarter. As for the rest, 80 % reminder sacked some serious ass. Hence TD is right on the point, WHAT EARNINGS?
Fed $$$ backed algos only know one direction, despite what reality is.... I'm starting to doubt even Euro sovereign default is going to phase them. We'll see how we close.
What was earned in 1Q is irrelevant as it how they earned it. Harry-the-bull-Wanger does not understand that the stimulus wont last forever and has peaked and that not hiring or wage gains is what drove spending. I dont start the wealth effect crap like kudlow says which will offset the falling stimulus when the gains were based on non-recurring events.
....and the fins earned it off the benefit of mark-to-myth on their earnings statement.
That forward/backward P-E bullshit for the S&P becomes meaningless when 20% of the earnings base is so gravely distorted on the " E " side. These sector metrics are a lot of sell-side hocus pocus.
No upside revenue surprises? What about LXK and MMM? In other positive news, IBM boosted its dividend 18%. Go ahead and be bearish, but don't be blind...
http://www.thealphaninja.com/2010/04/no-buyout-yet-but-lexmark-up-3-on.html
The VIX at 21 is an easy short...
Well, thats a teaser. I'll bite.
I believe the Greek market closed before it was downgraded, and the late selloff in europe was so fast a lot of people wouldnt even have seen it until after the close. EUR is even lower. So I think you will wake up in the US tomorrow with the world markets lower than this, and VIX higher.
Not a bad trade at all, dont get me wrong, and as a vol trader am happy to see the VIX get a mention. I am looking to do the same on the basis that this isnt, yet, a global crisis - but there will be better opportunities I think. For me, everything depends on Germany now - even the right price of AAPL. I am looking to sell vol in the next few days, buying back before May 19th. Bank CDS levels are the key indicator to cut such a dangerous trade.
Am selling calls, not the VIX or the puts, so I can sleep at night.
Good luck everyone.
Observing this from a longer-term perspective, I'm still puzzled how we sustain the growth we're seeing (or not seeing, depending on what you want to look at) without aggressive credit expansion. And how do we reignite credit growth in an economic landscape swamped with debt that can only serviced at near zero rates?
+ record bankruptcy rate...
Just uploaded a Dow weekly chart showing a bearish broadening top pattern.
And Euro is breaking down now.
MARKET UPDATES:
http://www.zerohedge.com/forum/latest-market-outlook-0
Paging Harry Wanger...umm, how are you playing the second trip by 1187. If the first time was max pain what's this second time? Just wondering, does that mean you back up two trucks?
Are you on a conference call Harry? You seem to have a never ending amount of time to spew your bulltard statements so I figured you be here with some great wisdom on how this is a buying opportunity of a lifetime.
Other than BRCM I would say tonights round of EPS was quite dissappointing as mostly small to mid cap report illustrating domestically things are no where near where market thinks it is growth wise. Again multi-nationals did well now the smaller caps pretty crappy if you ask me.
me, I bought short comsumer discretionary. today.
oil slowly going up, producer price inflation very high (will get passed on), falling wages. and it has been going up like crazy. you know when the market gets at peak they start buying all the shit everyone has shorted to push it up a bit more.