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Q3 Earnings Season To Date Summary: Ugly... And Getting Worse

Tyler Durden's picture





 

Roughly one third of the S&P has reported earnings so far, with another third reporting in the next five days and almighty AAPL on deck Thursday evening, and if there is one word to describe what has happened so far, that word would be "ugly." The same word would be used to describe how Q4 is shaping up to be. And that word will be very a optimistic prediction of what 2013 will bring unless a major catalyst develops that pushes Congress to resolve the fiscal cliff situation. So far that catalyst is missing. But going back to Q3 earnings, here is how Goldman's David Kostin summarizes events to date: "3Q reporting season is roughly one third finished. Two early conclusions: (1) Information Technology results have been startlingly weak with high-profile revenue disappointments by the four horsemen: MSFT, GOOG, IBM, and ORCL. (2) EPS guidance for 4Q has been overwhelmingly negative across all S&P 500 sectors with 18 of 20 firms lowering 4Q earnings guidance by a median of 5%. Analysts have lowered 4Q EPS estimates for stocks already reported by 0.4%. We expect further EPS cuts of 6% loom ahead. Firms reporting next week: AAPL, T, PG, MRK, CMCSA, AMZN, COP, AMGN, OXY, MO, UTX, MMM, CAT, DD, and FCX." Sorry Bob Pisani, better luck spinning earnings favorably next QE.

More detail on what is shaping up as the ugliest earnings season (even with DVA and loan loss-reserves included) in years:

Two early conclusions from 3Q earnings season: (1) Information Technology top-line sales results have been weak lead by MSFT, GOOG, IBM, and ORCL. Since the start of 3Q reporting season, analysts have cut 4Q sales forecasts for those Information Technology firms  reporting results by 70 bp, lowered margin forecast by 43 bp and cut expected EPS growth by 260 bp. (2) Earnings guidance for 4Q has been overwhelmingly negative across the S&P 500 with 18 of 20 firms lowering 4Q earnings guidance by a median of 5%. Analysts have lowered 4Q EPS estimates for stocks already reported by 0.4%. We expect reductions of perhaps 6% still need to take place.

 

The distribution of 3Q results has been lower than the historical average. 117 firms in the index have now reported 3Q results (34% of total cap). 37% of companies beat earnings estimates and 21% missed. In a typical quarter, 41% of companies exceed EPS expectations and 13% miss.

 

The bar for 3Q earnings season is very low. First, 2Q results disappointed with twice as many revenue misses and one half as many beats compared with a typical quarter. Second, guidance heading into reporting season was more pessimistic than usual with 80% of firms guiding below consensus compared with prior quarters when the midpoint of guidance falls below the average analyst estimate roughly 67% of the time. Third, analysts slashed 3Q earnings estimates by 5% during the quarter, leading to the expectation that 3Q 2012 would witness a 1% year-over-year decline in EPS versus 3Q 2011.

 

Sales are disappointing again in 3Q with year/year growth of just 2% and negative surprises of 30 bp. 15% of firms beat consensus sales expectations by more than one standard deviation (below the historical average of 35%). In addition, 36% of firms have missed sales  estimates by that magnitude, versus 19% historically. Revenue estimates for 4Q have declined by 30 bp.

 

Margin of 8.6% is slightly below the expectation at the start of earnings season (8.7%) and represents a

year-over-year decline of roughly 33 bp. Information Technology results have been particularly disappointing. Microsoft (MSFT) and Google (GOOG) missed revenue and earnings estimates and IBM and Oracle (ORCL) missed sales estimates. The sector actually posted a nearly 1% positive surprise in revenue relative to analyst expectations. However, analyst methodology for forecasting financial results for certain Information Technology companies differs from the Standard and Poor’s definition of revenues and operating earnings.

 

Apple reports on Thursday evening. Consensus expects the company will grow 3Q EPS by 28% versus last year. AAPL sales are forecast to rise by 31%. Consensus expects margins will fall by 46 bp to a still stellar level of nearly 23%. Analysts expect AAPL will be the second largest contributor to S&P 500 earnings representing 3.7% of 3Q 2012 EPS and 20% of Information Technology earnings. AAPL represents 4.5% of S&P 500 equity cap and 24% of the Information Technology sector. While Apple’s share of 3Q EPS is not in proportion to its share of market cap, this appears to be a seasonal issue. Next quarter, consensus expects AAPL will contribute 6% of S&P 500 EPS. Information Technology sector is expected to grow 3Q earnings by 7% year/year. However, the sector earnings growth is just 3% excluding AAPL.

 

Managements are lowering guidance, indicating downside to 4Q EPS. Fully 20 companies have provided 4Q guidance following their 3Q earnings announcements and 18 of these firms have reduced 4Q profit guidance. The midpoint of guidance was below the mean consensus estimate in all but two cases. Although guidance tends to be downbeat, this is especially negative.

 

4Q EPS estimates for reported companies are down by just 40 bp. We expect further negative 4Q EPS revisions will occur most likely as a result of reduced margin estimates. We forecast full-year 2012 S&P 500 earnings of $100 per share. Assuming no change in 3Q EPS, 4Q estimates would have to fall by 6% to reach our full-year estimate.

 

Next week 160 firms representing 31% of S&P 500 market cap will report results. At the sector level, 41% of Health Care, 39% of Industrials, and 35% of Information Technology as measured by market cap will release results. Large companies reporting include: AAPL, T, PG, MRK, CMCSA, AMZN, COP, AMGN, OXY, MO, UTX, MMM, CAT, DD, and FCX.

And the purdy charts to go along with the narrative:

 


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Sun, 10/21/2012 - 21:08 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Tankan tonight...tankin' to 2010 levels (-17)

Sun, 10/21/2012 - 21:31 | Link to Comment franzpick
franzpick's picture

The recent, and surprising, top-line revenue misses, along with Friday's 12 month chart-uptrend breaks led by NDX, tell me we're facing a possible Oct. 1987 repeat collapse, in which AU may well be also taken out behind the barn, but TD's July 2011 best-chart-ever tells me that gold is really tracking the 12 year old, probably-never-ending upward spiral in the u.s. debt limit, and, inversely, the evaporating value of sovereign debt worldwide, but waduino: 

http://www.zerohedge.com/article/gold-rise-143-trillion-us-debt-limit-increase-%E2%80%93-bloomberg-chart-day

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=ndx&insttype=&freq=1&show=&time=8

Sun, 10/21/2012 - 21:41 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Barron's this weekend had as its Cover Story "R.I.P. PC".  A nice article on the tch sector and how smartphones are zooming past personal computer sales.  Read all about it:

http://tinyurl.com/8c2rjxh

Sun, 10/21/2012 - 22:18 | Link to Comment 3rdgrader
3rdgrader's picture

Helicopter Ben's spending spree has effectivly cut everyones wages in half every few years. All stocks should be in free fall

Sun, 10/21/2012 - 23:09 | Link to Comment JPM Hater001
JPM Hater001's picture

I was going to wet my bed out of anticipation but no need...it's here.

Mon, 10/22/2012 - 06:06 | Link to Comment Griffin
Griffin's picture

A interesting interview with Eva Joly, who is very well connected to the EU.

http://www.youtube.com/watch?v=hdDYpsL6JB0&feature=player_embedded

 

Sun, 10/21/2012 - 21:12 | Link to Comment ShortTheUS
ShortTheUS's picture

The muppets will take GS's David Kostin at his word... 

Sun, 10/21/2012 - 21:26 | Link to Comment disabledvet
disabledvet's picture

FOR EUROPE! Did you see the 60 minutes interview tonight per chance? The guy IS THE REAL DEAL. Imagine that! Couldn't believe it myself when i saw him. To think he's still alive actually. Anywho Goldman is in BIG trouble...could be Borg trouble, we shall see. (And yes, the Borg assimilate muppets too. Imagine a muppet Borg. SCARY.) The problem is when you "throw project magnetar at the market" and it just yawns. That's a nice way of saying "you're out a trillion dollars and the Pentagon is on line one." In short...RAISE A PHUCKING ARMY FIRST....cuz trust me, "that ain't no thing," (as in IS a thing) BRO. Especially when the goal is...WINNING once you do in fact...RAISE THAT ARMY.

Sun, 10/21/2012 - 21:13 | Link to Comment Cursive
Cursive's picture

I think GS et al have known this was coming and they've been doing whatever they can to keep this bitch of market propped up to sell to the suckers.  Ain't gonna happen, Goldie!  Jump MF!  Jump!

Sun, 10/21/2012 - 21:14 | Link to Comment LetThemEatRand
LetThemEatRand's picture

And the beatings will continue until middle class wages rise.  The era of trickle down economics has proved itself an utter failure, except for those for whom it was truly intended (the top .01%) who made out like bandits.  Who could have guessed it.

Sun, 10/21/2012 - 21:20 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Trickle me!

Sun, 10/21/2012 - 21:43 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

And trickle down government is better?

Sun, 10/21/2012 - 23:40 | Link to Comment LetThemEatRand
LetThemEatRand's picture

No, I advocate smaller government.

Sun, 10/21/2012 - 22:50 | Link to Comment Ident 7777 economy
Ident 7777 economy's picture

 

 

LetThemEatRand:

"The era of trickle down economics has proved itself an utter failure, except for those for whom it was truly intended (the top .01%) who made out like bandits.  Who could have guessed it."

 

Truly idiotic; the stupid stuff just FAILS to go away.

 

If it weren't for trickle down, you'd have nothing to tinkle into!

 

Do you think technology just 'invents' itself? Moron ... it takes small suppliers and efforts by individuals every step of the way, from staff sceintists, product engineers, the technicians and the specialized equipment operators to conceive, create and finally produce all those iPads and iPods that are produced ...

 

 

 

 

Sun, 10/21/2012 - 23:30 | Link to Comment LetThemEatRand
LetThemEatRand's picture

Pretty bird want a cracker?

Trickle down economics is nothing more than a cover for the systematic accumulation of wealth among the non-productive class, e.g., the bankers who no longer operate to fund productive enterprises but instead speculate endlessly with a taxpayer safety net, oligarchs who legally place their fortunes in non-productive offshore accounts and trusts, and CEO's like Citi's who are paid hundreds of millions of dollars (and keep it) while they run their businesses into the ground.  Or do you think that 400 people controlling more wealth than 1/2 of the entire population is a good model for a healthy economy?  That is the legacy of trickle down.  Parrots such as yourself keep asking for more of the same because you are unable to see beyond your failed ideology and admit you are wrong.  Should I believe your ideology or my lying eyes?

Sun, 10/21/2012 - 21:17 | Link to Comment fonzannoon
fonzannoon's picture

how exactly do they resolve the fiscal cliff? and a punt does not count.

Sun, 10/21/2012 - 21:51 | Link to Comment A Lunatic
A Lunatic's picture

Through a complex combination of lying, printing, handouts and killing brown people all over the globe. Think of it like a one two combo followed by an uppercut to the Middle Class.

Sun, 10/21/2012 - 21:19 | Link to Comment Seasmoke
Seasmoke's picture

Public pensions are really fucked...... So sorry

Sun, 10/21/2012 - 21:25 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Stocks in fortunetelling companies will rise high. It's the FortuneTelling 500. People, governments and CBs will increasingly turn to sorcery as the old system fails. If you want to be prepared for a good job in the next economy, get a degree in alchemy and divination. Sorcery....it's not just for entertainment anymore 

Sun, 10/21/2012 - 21:30 | Link to Comment fonzannoon
fonzannoon's picture

I take sorcery over bernanke any day

Sun, 10/21/2012 - 22:46 | Link to Comment delacroix
delacroix's picture

.

Sun, 10/21/2012 - 21:44 | Link to Comment disabledvet
disabledvet's picture

Love ya'. Spot on! But we must remember EUROPE FIRST as FDR taught us. And the big story that the media was forced to report today: "there are no peace negotiations with Iran" since "they don't have those WMD's to begin with"! Nice try incompetent NY Times! HUGE story actually. See you at the debates if you're paying attention!http://www.youtube.com/watch?v=xMlou7Q0GRE&feature=related and to think people think betting on life for money is a big deal...makes them a BIG MAN when they do it...and the do "cuz they've been told they're covered"...when people bet on life on youtube...no questions asked. I'm sorry...you said life itself has meaning? that the only thing that matters is "the existential being as taught by Neitze"? Really? Wow. Deep dollars man. Deep dollars indeed. God help us if no less than...

Sun, 10/21/2012 - 21:29 | Link to Comment Dr. Engali
Dr. Engali's picture

Why is it that the earnings weakness is only a surprise to the analysts? One would think that for the amount of money thrown at these clowns
Wallstreet might be able to find some who aren't so easily surprised. it seems to me that everybody besides the analysts knew that earnings were going to be weak. If I were a cynical person I would think there was another motive involved with wallstreet's world of analysts.

Sun, 10/21/2012 - 21:46 | Link to Comment disabledvet
disabledvet's picture

these earnings have been weak for YEARS now....

Sun, 10/21/2012 - 21:29 | Link to Comment q99x2
q99x2's picture

Does this have anything to do with stock prices?

I figure it has something to do with deflation. And that has to do with student loans and grants and buying things with bad credit and free money.

That is how it has played out in with the housing bubble to fund offshoring to China as a means to buy Chinese junk. The SSI and EBT scams and Auto loans and lifting stock prices all the same. Inflation drops and Bernanke prints.

The market stays at the same value on the gold index. Think that is going to change?

Got wars to fight can't let fake accounting numbers from corportists interfere. Take a look at Spain's stock market if you think it means anything.

FEDs jacked in and has control of the graphs of the market at this time. With an infinite money supply I do believe I could write a program to keep the market at whatever price I chose. I'm sure the FED can do the same.

Sun, 10/21/2012 - 21:49 | Link to Comment disabledvet
disabledvet's picture

WALL STREET prints, not Bernanke. He just says "BOO!" and they run for the hills. and indeed..."the Fed does do the same." Or at least...they think about doing it. How about a game of checkers?

Sun, 10/21/2012 - 21:30 | Link to Comment Tom Green Swedish
Tom Green Swedish's picture

Health Care is new bubble pass it on.

Sun, 10/21/2012 - 21:54 | Link to Comment A Lunatic
A Lunatic's picture

Followed closely be the Presidential election expenditure bubble. A billion fucking dollar campaign??

Mon, 10/22/2012 - 00:43 | Link to Comment LTCM_L.P.
LTCM_L.P.'s picture

As recommended by leading financial advisors, diversification is key to weathering the stormy market. This way your basket is filled with a ton of losers (sold to you by them) with the occasional unnexpected winner that rarely offsets the loses.

Alright so back to reality - sell all that ipad pump n junk, blue-chippy, facecrook crappola and pick up something like ARNA.....IMO far better prospects than those gold lined, diamond crusted analyst reports tauting the huge potential of social networking "technology". Just bytes crossing the LAN.

Obesity/T2 diabetes = huge market and an unmet medical need. In about a month Arena gets $65million from Eisai when DEA gives the drugs schedule before even selling 1 script...IMO their Q4 and FY13Q1 earnings and forecasts will toast some foolish shorts and raise the eyebrows of the Cramer, Credit Suisse toolbags yet again. Every underperform or underweight rating just gives more opportunity to pick some more up on the cheap.

disclosure - My money is long on arna kicking the streets ass...science rocks

Sun, 10/21/2012 - 21:32 | Link to Comment monopoly
monopoly's picture

And I need Kostin to tell me all this. I don't think so. And this from Bloomberg. Nothing surprising to those of us here.

 

Japan’s 10% Export Decline Is Biggest Since Post-Quake Slump

Sun, 10/21/2012 - 21:32 | Link to Comment kimi912
kimi912's picture

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Sun, 10/21/2012 - 22:04 | Link to Comment Monedas
Monedas's picture

Norf Face used to be a bargain brand ?  I remember my Norf Face nylon, hooded jacket I bought at Big 5 for $29.99 back in the '80s .... you puttin' us on, bitch ? What's you smokin', girl ?

Sun, 10/21/2012 - 22:11 | Link to Comment r00t61
r00t61's picture

Most spammers have the decency just to post something like:

buy cheap gucci; prada; cartier; all goods price fast ship

This spammer, on the other hand, has elected to send her copy through a mentally retarded Turing generator first, so that it's become completely unintelligible gibberish on the output side.

Couldn't even give us a nice story about Nigerian princes for our troubles.

Sun, 10/21/2012 - 22:39 | Link to Comment Monedas
Monedas's picture

Thanks !   What's up with:    http://trololololololololololo.com/     Is it pay for view now .... it was the Zero Hedge theme song when I came aboard ! I've got it on DVD continuous repeat .... it's the little people this Socialist heart bleeds for ! 

Sun, 10/21/2012 - 21:37 | Link to Comment erg
erg's picture

A Felix Baumgartner moment...hope the parachute holds.

Sun, 10/21/2012 - 21:51 | Link to Comment Monedas
Monedas's picture

Sumpin's gonna happin' .... you know Obammy don't want to debate dat white boy agin' !    Yet, a market melt down ain't no problem .... dis debate is 'bout forin policy !

Sun, 10/21/2012 - 22:06 | Link to Comment willwork4food
willwork4food's picture

Let's see. Can't afford gold. Can't afford silver. After MF Global calls I'm thinkin pink sheets.

Sun, 10/21/2012 - 22:29 | Link to Comment Monedas
Monedas's picture

If you can't afford silver now .... I gots sum real bad news for ya !          www.trololololololololololo.com       Doesn't the Russian guy sing anymore ?

Sun, 10/21/2012 - 23:42 | Link to Comment DOT
DOT's picture

He died.

 

Mon, 10/22/2012 - 00:03 | Link to Comment eduard khil
eduard khil's picture

He still lives on in my heart...and username

Mon, 10/22/2012 - 00:11 | Link to Comment Schlomo Bergstein
Schlomo Bergstein's picture

What are the odds Apple's earnings will be lacklustre like GOOG?

Mon, 10/22/2012 - 00:33 | Link to Comment ZFiNX
ZFiNX's picture

AAPL's going to beat to freeze the downtrend and then rise as a very shifted exponential until next quarter's earnings and then pop to complete the right shoulder of the pattern.

Mon, 10/22/2012 - 00:41 | Link to Comment beachdude
beachdude's picture

Mmmm... short AAPL.

Mon, 10/22/2012 - 03:16 | Link to Comment poldark
poldark's picture

Shorting APPL is a no-brainer. I have been short APPL sinnce the launch of iPhone5.

Mon, 10/22/2012 - 01:02 | Link to Comment ZFiNX
ZFiNX's picture

I don't see how couldn't beat expectations given that they managed to get a record amount fanboys to preorder the iP5. Too bad its coolness will permeate the social environment very little this time and result in poorly sustained sales. This stock might survive the 600s past christmas but its going to dry up.

 

2nd half of Livermore's bull market IMO.

Now the neglected giants rise.

Mon, 10/22/2012 - 03:11 | Link to Comment poldark
poldark's picture

Almost time for the world media to start hyping iPhone 6.

I believe queues are already forming at major stores.

Mon, 10/22/2012 - 06:29 | Link to Comment orangegeek
orangegeek's picture

And markets in Asia, after falling, finished in the black.

 

Markets in Europe?  They're up too.

 

http://bullandbearmash.com/chart/big-drop-today-sp500-channel-support-br...

 

And after Friday's drop, let's see how the media spins it when the bots and algo drive American markets up.

Mon, 10/22/2012 - 06:57 | Link to Comment LouisDega
LouisDega's picture

Yes. Flutes are up

Mon, 10/22/2012 - 06:37 | Link to Comment Bobbyrib
Bobbyrib's picture

When Catepillar whiffs at 7:00, the futures will go negative.

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