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    This past Thursday marked the one-year anniversary of the US stock market’s death when stocks saw their last high. Market bulls have spent a year looking like the walking dead. They’ve...

Q4 Earnings Season: Far Worse Than Most Suspect

Tyler Durden's picture


There has been some confusion about the quality of the ongoing Q4 earnings season, which has seen some 47% of the S&P 500 companies report to date (and with 53% still left things can certainly change). The confusion apparently is that this has been a "good" earning season so far. Nothing could be further from the truth, and as Goldman shows in its midterm Q4 earnings report, the reality, not spin, is that earnings are tracking at $24.03, or some 6% below the consensus estimate at the start of earnings season of $25.51. This revised number, which could well drop even more from here, means that Q4 earnings will post a minuscule 1% growth in EPS year over year compared to Q4 of 2011 when Europe was imploding, and when the world's central banks had to arrange a global bailout to prevent yet another Armageddon.

It gets worse: in Q4, only 34% of companies posted positive earnings surprises, well below the 42% average, based on the correct methodology which is relative to the standard deviation of consensus estimates two weeks prior to reporting date. This is the lowest beat ratio in all of 2012, and is the second lowest in the entire post Lehman failure period, except for the sub-30% number which we saw in Q4 2011, which as noted above, is when the world was ending.

But fear not: there is much hope that this time the future, unlike all those previous times, will be different and grow vertically from here in a straight line straight to the Utopia that would mean the S&P at 1500 is fairly priced (assuming a 13.5x multiple in a central bank-propped up world is fair).

Here are the facts:

  • Using a mix of realized and consensus earnings, 4Q EPS is tracking 6% below the consensus estimate at the start of reporting season, $24.03 vs. $25.51
  • Positive earnings surprises are tracking below average this quarter (34% vs. 42%). The percentage of firms missing earnings estimates by one standard deviation or more is above the 40 quarter average (18% vs. 14%).
  • 36% of firms beat consensus sales expectations by more than one standard deviation, below the 10-year historical average of 38%. In addition, 19% of firms have missed sales estimates by that magnitude (versus 18% historically).

In summary, the S&P 500 is expected to earn some $98 for all of 2012, which means that as of this moment, the market is trading at a quite rich 15+ multiple (although what multiples mean under central planning nobody knows yet).

So how does the S&P500 go from 98 in earnings in 2012, to the consensus 111 in S&P500 EPS in 2013? A magic escalator apparently.

Finally, for those curious what exactly is the primary driver of this "surprising" weakness in the current earnings season, the answer is underfunded pensions - a topic that will recur over and over as more employees retire and their employer retirement promises are found to have massively underperformed relative to acctuarial plans:

Accounting and definition differences have lowered index-level results. Results comparable to consensus analyst estimates may differ from the Standard & Poor’s definition due both to accounting differences and definitions of earnings from  operations. These differences are usually small, but pension charges had a significant impact in 4Q.

The Telecom Services sector is expected to post a loss following large pension charges. Verizon’s (VZ) $7.2 billion of pre-tax pension and severance charges and AT&T’s (T) $10 billion pre-tax pension charge are both considered part of operating  arnings. The after-tax impact of these charges reduced index-level EPS by about $1.22 and represents the majority of index-level earnings decline.

Luckily, none of the above matters. Why? Because Benny has your back, and fundamentals are so Old Normal.

Source: Goldman

Your rating: None

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Fri, 01/25/2013 - 15:53 | 3186265 TrumpXVI
TrumpXVI's picture

A totally bullish report!:-)

Fri, 01/25/2013 - 16:49 | 3186272 SafelyGraze
SafelyGraze's picture

only 999,997 to go 


Tyler, you should do an article about how the silver shortage killed apple

Fri, 01/25/2013 - 15:58 | 3186280 redpill
redpill's picture

OT:  Tyler's, the Amazon comments section for this toy Predator drone is perfect for Friday humor thread.  Freaking awesome.


Example: "I bought this for my son and he spent countless, blissful hours simulating massacres of weddings, funerals, and other family gatherings of brown skinned foreigners! He even realized that if he circled the drone back around on the first responders, his effective kill rate soared! Neat-o!

Educationally, this toy can't be beat - inculcating a predilection for indiscriminate, imperialist violence against non-combatants from oppressed and marginalized communities is precisely in accordance with truly "American values!""

Fri, 01/25/2013 - 16:04 | 3186303 fuu
fuu's picture

"My only complaint is that I haven't been able to find any toy Pakistani children to bomb with the drone. If anyone knows where I can find some Middle Eastern toy children between the ages of 0 and 17, please let me know. I thought about substituting white children, but given the public's outrage about Sandy Hook and apathy toward the even bigger death toll of Arab children just two days later, I figure the only way I can live out my dream (a dream I'm proud to say Obama and I share) of murdering children with super cool robots is if they are the right color. "

Fri, 01/25/2013 - 16:04 | 3186304 fonzannoon
fonzannoon's picture

holy shit that was funny

Fri, 01/25/2013 - 16:16 | 3186331 Whoa Dammit
Whoa Dammit's picture

Absolutely hilarious ! Great find Redpill!

More from the link:

 I bought ten of these for my boy because, as he so rightly says, "So many countries, so little time".

Fri, 01/25/2013 - 16:30 | 3186364 Lendo
Lendo's picture

That is awesome 

Fri, 01/25/2013 - 16:09 | 3186311 sotto
Fri, 01/25/2013 - 16:17 | 3186333 FL_Conservative
FL_Conservative's picture

I'm sorry, but this isn't what Wall Street has been telling me as its been ripping my face off of my body.  You must be mistaken.

Fri, 01/25/2013 - 16:21 | 3186344 madbraz
madbraz's picture

Surprised that Zero Hedge will fall for this industry-wide BS of only talking about operating earnings.  The only thing that matters is real, reported earnings.  


The gap between quarterly reported earnings and fantasy-operating earnings (although one can say that reported earnings nowadays are a joke anyway) is now above $3.  This in itself is a warning sign.


Trailing 12mos reported earnings are only 87.2.

Fri, 01/25/2013 - 15:54 | 3186266 fonzannoon
fonzannoon's picture

85 Bil a month. Every month.

Fri, 01/25/2013 - 16:08 | 3186279 kaa1016
kaa1016's picture

I guess these guys didn't get the memo. That shit does not matter right now. What matters is that 85 billion per month with an S&P that just broke out.

All kidding aside, this market is about to correct. I think we have hit a short term top. Vol is too cheap and the market behavior looks very suspect here. 

Fri, 01/25/2013 - 16:29 | 3186357 Joe moneybags
Joe moneybags's picture

kaa1016, I'm with you.  Yesterday, I called a short term top.  I was wrong.  Today is the short term top.  Please, if you value your trading account, ignore me.

Fri, 01/25/2013 - 16:44 | 3186412 kaa1016
kaa1016's picture

Speaking of vol, the implied vol on the SPY or SPX is at 9%. I have never seen vol that cheap. Anyone long would be insane not to buy put protection.

Fri, 01/25/2013 - 16:56 | 3186453 Clowns on Acid
Clowns on Acid's picture

It's the Fed subsidizing portfolio insurance....once that is known...why not buy buy buy?

What can go wrong ?

Fri, 01/25/2013 - 16:57 | 3186460 Freddie
Freddie's picture


Forward Comrade!

Hope & Change!

Fri, 01/25/2013 - 16:09 | 3186312 CrashisOptimistic
CrashisOptimistic's picture

Yup, they are buying bonds with that money.

Anyone selling bonds is fighting the Fed.

Fri, 01/25/2013 - 15:55 | 3186267 thismarketisrigged
thismarketisrigged's picture

come on guys, earnings, economy, etc, these things dont mean anything. as long as obama is our president and ben is running the fed reserve, everything will be alright.


im really starting to wonder if these markets will ever even see a -70 pt day again, this is retarded how much of a fraud this is.

Fri, 01/25/2013 - 15:57 | 3186277 otto skorzeny
otto skorzeny's picture

kind of creepy-this constant grind upwards-no?

Fri, 01/25/2013 - 17:30 | 3186591 Dr. Engali
Dr. Engali's picture

Almost as creepy as the flies constantly attracted to Obummer's face.

Fri, 01/25/2013 - 15:55 | 3186269 Dr. Engali
Dr. Engali's picture

Amazon is showing us that we can drive this market to unbelievable multiple. Can you imagine the S&P with a 3300 multiple? That's some wealth effect.

Fri, 01/25/2013 - 16:35 | 3186386 Squid Vicious
Squid Vicious's picture

My model has AMZN earning $4 a share in 2019, so it's really only trading at 70X... reasonable, no?

Fri, 01/25/2013 - 15:55 | 3186271 otto skorzeny
otto skorzeny's picture

this artcle is BS-everybody is beating estimates-CNBC told me soooooo

Fri, 01/25/2013 - 15:58 | 3186281 Cdad
Cdad's picture

MOAR recurring "one time" charges.  Anyone catch that mother of a one time on CLF?  How about on T?

MOAR corporate accounting fraud....MOAR!

Fri, 01/25/2013 - 15:59 | 3186282 gamera9
gamera9's picture


Since this is where BO started his political career, wonder if it's time to put S&P on double secret probation.

Fri, 01/25/2013 - 16:18 | 3186340 Cdad
Cdad's picture

Nobody talking about that one.  Indeed, it matters.

Sat, 01/26/2013 - 18:28 | 3188205 ImReady
ImReady's picture

So proud to live in the great State of IL. Double bonus is by the time my wife retires (teacher) the pension won't be there. 

Fri, 01/25/2013 - 15:58 | 3186283 ptoemmes
ptoemmes's picture

And still the equity markets melt up...until they don't which I'll be darned it I know when that will be.

Fri, 01/25/2013 - 15:58 | 3186284 SmoothCoolSmoke
SmoothCoolSmoke's picture

SP 1503,,,,,  SCOREBOARD!

Fri, 01/25/2013 - 15:59 | 3186287 fonzannoon
fonzannoon's picture

Anyone on here know where mortgage rates are at? QE4eva was done to keep rates low. So far, the only thing he set out to do he failed at. Again.

Fri, 01/25/2013 - 16:00 | 3186290 LongSoupLine
LongSoupLine's picture

Earnings??....you should see the real fucking numbers.

Fuck you Bernanke.

Fri, 01/25/2013 - 16:03 | 3186297 Yen Cross
Yen Cross's picture

 The hangover is a Bitch/  Bitchez <>

Fri, 01/25/2013 - 16:10 | 3186308 Water Is Wet
Water Is Wet's picture

I doubt Goldman's data.  For instance adding AT&T, VZ, and GD numbers for this quarter, the GAAP loss is $10.2 billion.  Apple made $13.1 billion.  So those 4 made $2.9 billion collectively, and they have a total market cap of $760 billion.  I'm guessing that this analysis backs out any charges Goldman doesn't feel like counting, just like anyone who gives a P/E ratio of something reasonable for the S&P.  If I had the time and thought fundamentals mattered, I would add up the earnings of the S&P 500 myself.

Fri, 01/25/2013 - 16:15 | 3186310 earleflorida
earleflorida's picture

most pensions currently in critical 'red zone'... and this is old news--    http://www.help.senate.gov/imo/media/doc/McGowan.pdf

Fri, 01/25/2013 - 16:10 | 3186313 youngman
youngman's picture

CAT came out with a sales are down memo....and he is always Mr Positive on the markets.....he will probably say people didn´t need the crap anyway....maybe change their color...

Fri, 01/25/2013 - 16:10 | 3186315 Racer
Racer's picture

Beating estimates, not that old chestnut....

Fri, 01/25/2013 - 16:11 | 3186317 ptoemmes
ptoemmes's picture

There used to be an old Air Force saying that the F4 Phantom was proof that even a brick can fly if it has enough power. I submit that even a broken-brick market can fly if supplied enough liquidity.

Fri, 01/25/2013 - 16:12 | 3186324 Ostapuk Ivano
Ostapuk Ivano's picture

I am totally digging Trish Regan's futuristic outfit today.

Fri, 01/25/2013 - 16:15 | 3186328 thismarketisrigged
thismarketisrigged's picture

what time does the fed start pumping the market towards the close? 3:30 or so?

Fri, 01/25/2013 - 16:18 | 3186336 SmoothCoolSmoke
SmoothCoolSmoke's picture

The 10 AM Ramp.  If you bought the SP at the close of the 10 am 1/2 hour candle and sold at the close of the Noon candle, your take for the week?  11.8 SP points.  (up 4/5 days).  Random walk my ass.

Fri, 01/25/2013 - 16:30 | 3186363 Yen Cross
Yen Cross's picture

 You just made a very good point. I'm not talking about the usual "buy/sell" flows. I watched "risk" very closely this week.

 I think the ECB debt uptake, Is way over discounted. LTRO,ESM, Outright Bond Buybacks. Ect... Are a joke.

The ECB is buying time before it interveins. The fed. has lowered rates on OIS, and extended terms to "90" days. This house of cards is a joke!

Fri, 01/25/2013 - 18:01 | 3186700 tired_of_manipu...
tired_of_manipulation's picture

LTRO was bullish for the market, so the end of LTRO is... bullish?  Surely the market will soar when the Fed ends QE4EVR too.  The Nikkei looks ready to go parabolic.  

I think LTRO uptake IS a big deal, bad for govt bonds in the short term as liquidity drains and collateral gets returned.  I also think the Tylers are right on the unwind of an aapl / S&P trade.  

Stocks are just floating up looking for a pin.

Fri, 01/25/2013 - 16:25 | 3186353 Squid Vicious
Squid Vicious's picture

looks like i picked the wrong week to quit sniffing glue and not buying 150 SPY puts

Fri, 01/25/2013 - 16:29 | 3186366 Rearranging Dec...
Rearranging Deckchairs's picture

Have a hypothesis regarding earnings annoucements. When they push back the date of earnings announcement and conference call its usually a bad sign. When they move up the date its usually more of a positive sign.


Noticed last earnings season that Pandora moved their announcement back about a week ( bad sign) was born out in a bad outlook for the upcoming quarter. Netflix moved there's up by a couple of days( seemed to be a good sign) was definitely born out though the massive short squeeze appeared to goose it. Facebook moved there's back by five days ( bad sign). AMazon moved there's up by a couple of days ( good sign). Groupon pushed there's back by a couple of weeks ( bad sign).



Fri, 01/25/2013 - 16:34 | 3186371 rlouis
rlouis's picture

We might get an earnings surprise about how many people spent $100 to email some douche bag over at FB

Fri, 01/25/2013 - 16:33 | 3186373 Yen Cross
Yen Cross's picture

 Hey you little puke junkster, At least show yourself.  When you hide like a little girl, it just solidifies the fact that you are a child with a fetish.

Fri, 01/25/2013 - 16:33 | 3186375 Joe moneybags
Joe moneybags's picture

Excellent fundamental analysis in this article, and fine presentation.  But, of course, fundamental analysis and $4 will get you a cup of coffee at Starbux.

Fri, 01/25/2013 - 16:59 | 3186454 sunny
sunny's picture

Clearly this explains why all the indices are near or over 5 year highs, things are really rotten.


Fri, 01/25/2013 - 17:06 | 3186489 thismarketisrigged
thismarketisrigged's picture

i was wrong, the pump came around 3:58- 3:59, not 3:30 like i thought, 


one thing we all knew was there was going to be a pump

Fri, 01/25/2013 - 17:09 | 3186501 TruthInSunshine
TruthInSunshine's picture

From the front page of The New York Slimes (they even have a breaking new alert in red letters):


Breaking News 4:04 PM ET

S. &. P. 500 Closes Above 1,500


Stocks Near New Heights as Small Investors Regain Faith By NATHANIEL POPPER 10 minutes ago

Money pouring into stocks in the last three weeks through mutual funds — the common investor’s way to play the market — has helped put the broader market within sight of its highest levels ever.

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