2013 Earnings Are Now Forecast To Be Less Then 2009 Earnings Were Projected To Be In 2007

Tyler Durden's picture

Over the past few weeks, virtually all of the empty chatterboxes on financial comedy TV have been repeating ad infinitum just how much cheaper the market now is compared to its prior peak in 2007 because, get this, it trades at "only" a 15x multiple compared to the 18x or so reached at its peak in 2007. By doing so these same hollow pundits simply confirm just how painfully clueless their cheerleading is, as the market, or what's left of it in the "new Bernanke centrally-planned abnormal", never trades on current earnings but always future discounted EPS, or in other words, forward P/E, or any other valuation, multiples. And it is when one looks at the future on an apples to apples basis, that the market now is more expensive than it was back in 2007!

As the chart below shows, specifically the red dotted line, the 2013 S&P 500 consensus earnings, which have obviously been declining for the past year from 120 to roughly 110, are now less than what 2009 consensus earnings were at the peak of the market in 2007, when they, too, hit some 120 in Earnings per share. In other words, on a forward multiple basis, in 2007 the market was cheaper than it is now as earnings were supposed to go up virtually parabolically, from under 90 for year end 2007 to 108 for 2008 and 120 for 2009.

Just as notable is the full year 2012 earnings which too were supposed to soar to nearly 120 as recently as 2010, instead closed at the very lowest of the forward projection series, or just about 100 in S&P500 EPS. Putting this number in historical perspective as the blue line shows, back in 2007 the Wall Street consensus was expecting that 2008 earnings would be higher than where 2012 actual earnings will close the year.

Of course, what ended up happening was vastly different, and both 2008 and 2009 actual earnings imploded from their peak estimates of 110 and 120 to approximately 65 and 60, or were literally cut in half as the Great Financial Crisis destroyed not only the corporate bottom line but all hopes of multiple expansion.

And now we are back to forecasting a massive growth in the future, which as history has shown time and again, ir rarely if ever attained. But that is what the sell-side lemming crew is taught to do: draw upward sloping arrows and goalseek their models to fit an artificial regression line.

Yet what the second chart below shows is that when one normalizes for the recent historical pattern in earnings, the consensus 2013 earnings forecast will once again be a major disappointment, and will end up being drastically reduced. In fact, if one extrapolates the inverted curved yellow line of what actual S&P earnings have been in recent years, it is very likely that not only has the broader economy peaked, but so have corporate revenues, margins and earnings, and at this point any profit growth will be very limited at best.

Finally, slamming the door shut on the future hope versus current reality myth, Goldman's latest Q4 earnings tally reminds us that with over 80% of Q4 earnings season done, EPS is now expected to decline by 1% relative to Q4 2011, (when Europe was imploding (as usual), and when the global central banks had to bailout the world once more). Some other observations:

  • Trailing four-quarter margins declined in almost every sector. Index-level margins look stronger excluding charges but are still below last year’s peak.
  • Management guidance for 1Q 2013 is more negative than usual. 78% of companies guided down versus consensus estimates (versus 68% historically).
  • Full-year margins fell by 30 bp versus last year with declines in almost every sector. The largest margin declines came from Telecom Services, Energy, and Materials. While Information Technology margins declined by 46 bp versus 2011, 8% sales growth resulted in relatively strong earnings growth of 5%.
  • Bottom-up consensus expected 2012 EPS of $107 one year ago. This is 5% higher than realized results comparable to those estimates. A -5% revision is in-line with the median historical revision since 1984
  • Bottom-up consensus forecasts $112 of EPS for 2013. Consensus already lowered estimates by 1% in 2013 with the largest declines in Health Care and Information Technology earnings estimates.

Who performed best? Why the one group benefitting most from trillions in excess reserves, and which is full to the gills of fake earnings like one-time items, non-recurring non-cash charges, and of course: loan-loss reserve releases rarely if ever matched by the need to raise provisions for the coming avalanche of lawsuits against all banks:

  • The Financials sector reported the strongest year-over-year growth in 2012. Financials EPS grew 7% versus 2011

Finally, for that most trotted out metric that companies are "beating expectations" - here's why: since the start of earnings season in January, consensus Q4 earnings have declined by a massive 8% in just a few weeks! Why of course companies will beat consensus EPS numbers that were some 8% higher just one month ago. The reality is that in order for companies to "beat" estimates, the consolidated Q4 EPS for the S&P500 has had to drop from $25.51 to $23.47, which as already noted means a 1% drop in Y/Y Q4 earnings, and which means that contrary to what Bob Pisani may tell you, this earnings season will be the weakest in all of 2012, with little real hope for a pick up in 2013.

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Dre4dwolf's picture

Well Govt takes a bigger cut.

Less people are working, so less people can buy crap.


Lower Earnings should be a given at this point.

redpill's picture

This post can't be right, I just saw Bob Pisani on CNBC say this recovery has legs!


Winston Churchill's picture

So do other cockroaches,or is it death beetles ?

Winston Churchill's picture

Death Watch beetle., but whatever turns you on.

bigdumbnugly's picture

lol well then if this recovery 'with legs' has a name it must be micheal j anderson.

Sudden Debt's picture

he was looking to the debt charts and liabilities charts and confused them with earnings.
not his fault... because debt is wealth or so our glorious genious PHD leaders tell us...

r3phl0x's picture

Debt is not wealth, but it's convertible into wealth, as long as Kitco accepts credit cards.

Never One Roach's picture

Dre, no one is buying AND no one is selling 'crap' either. The postal rate increase knocked the heck out of Ebay and Amazon sales I heard rumored. I'm waiting to hear how Traget, Sears, JC Penny's, etc did Q1 2013. I bet it's going to be spun like crazy. It costs alot to send 'crap' now domesitcally and forget about mailing anything internationally. That buiness is dying fast.

Mark123's picture

Interesting...how much did postal rates increase? 

Got to love Amazon...has never made any profit but "investors" pile in providing them with lots of cash so they can gain more market share and yet still keep losing money.

Speculation - the American way!


ShrNfr's picture

Who has to earn it? Bernanke just prints it and Obama gives it away for nothing.

Sudden Debt's picture

“We are from the government and we are here to help you”
- Anonymous government worker

CPL's picture



(once the pensions and retirement plans are released by the Gubermint and pissed away)

cliffynator's picture

ZH can post all the articles that can be written on why this economy needs a true correction. But it just doesn't seem like it will ever matter, stock prices must. go. up. No matter what! Sheesh! No more dips, RUT is up yet another week! Keep buying! When will it end?!

CPL's picture

When the civils servants have had enough and then it's no longer a government but crazy people talking to themselves.

When governments collapse, it's the civil servants that pull the rug.

maskone909's picture

what if u factored inflation into those earnings? then what? revenues? scary

Falconsixone's picture

I didn't know I made up that much of the earnings. Didn't the bankers get their bonuses? Geez! I hope so they're very good at what they doo doo.

Everyman's picture

But loss of buying power is not inflation!

Seasmoke's picture

how about same price, smaller packaging ????

Sudden Debt's picture

it just means you've been kicked from the official graphs.

davidsmith's picture

The U.S. Government is saying to you:

Revolt and overthrow us or we will starve you to death: there is no third way.

maskone909's picture

whatcha think all the guns is for?
all purpose war got the rottweilers by the door
and I feed em gun powder so they can devour

maskone909's picture

contrary to what Bob Pisani may tell you, this earnings season will be the weakest in all of 2012, with little real hope for a pick up in 2013.""

btw how long agowas this written?

seek's picture

It's Q4 2012 earnings season right now, so presumably within the last couple weeks.

Ham-bone's picture

Gauging by last graph showing actual earnings as of Feb 7...seems fresh.

Melson Nandela's picture

Salaries are down.

Taxes are up

Oil & petrol are up

Fed has all time high balance sheet

Federal Deficits are far as the eye can see

Market is at a triple top.

You wanna be a bag holder ?


Mark123's picture

bag holder....wall streets wet dream.

Seasmoke's picture

dont worry people, they just saved the best 18% reporting, for last

haskelslocal's picture

More funny charts

Mark123's picture

This market has nothing to do with earnings or any other reality....so why bother with any analysis?  Not to say it is not interesting, but it won't make any difference.

You have a small group of well connected entities who don't have to follow any rules/laws that have unlimited credit at 0% interest, and they are the market.

Their only interest is in stealing real wealth from you and I.

Michelle's picture

Market lacks leadership and no new paradigms on the horizon.

Seems there needs to be one last gasp for both stockholders and bondholders to push their junk onto other fools.



holdbuysell's picture

Just curious, due to all the buy backs that have occurred in the past few years, are those shares, which I believe go into Treasury, still used to calculate fully-diluted EPS?

If so, then no more comments here.

If not, then a look at aggregate gross earnings and aggregate shares outstanding for the S&P might be interesting. For, if the denominator (shares outstanding) in aggregate EPS shrunk and aggregate EPS has declined, that explicitly indicates that aggregate gross earnings has declined as well and at a faster rate than the shrinking shares outstanding.

earleflorida's picture

just keep following that nominal wayward-path, until you hit the crossroad... and, it is there, that you will find the real road-block?, and access only to a pre-ordained canoniz'd cliff???

disabledvet's picture

not saying this is the right way to look at things but "if inflation is down the value of said earnings rises." in other words cash money itself becomes dear...so those that have it/make it have "their" value rise (the "price" in the "p/e") even if "earnings" per se falls. of course a lot depends on the market you are in (energy markets are the most valuable...not that the information market is far behind. one look at the stock prices in media companies says to me that market is long and deep too) and of course "competitiveness issues." good luck figuring the latter out. i also think you have to account for the revolution in the materials space as carbon becomes the market equivalent to natural gas. (interestingly carbon is "traded"...as a gas of course...and in the form of credits. but i'm thinking of the physical form...graphite or "graphene"...a substance as common as silica and soon to have revolutionary consequences for how everything is manufactured and "run.") in other words "this is a huge market that is only now being created." once there is a physical "carbon" market for trading i think the amount of material produced will increase massively and the price that can be had for this "fiber" will fall just as quickly. if such a market is allowed of course...

Obama4Ever's picture

Can someone summarize the point of this article in one sentence? I'm finding my attention span is failing as I read ZH more and more...

orangegeek's picture

In short, we're all fucked.

Sudden Debt's picture

when you boss calls you in at the end of the month and starts his sentence with "and how are you" or "now listen Joe..." you should be affraid...


ebworthen's picture

"Hopium floats, until it doesn't."

Joe moneybags's picture

O4Ever, here's my summary of the article:  "The bulls are wrong about earnings, by the usual 5%, so that makes the whole U.S. economy a giant fraud, awaiting an imminent collapse."

Nid's picture

I guess that really depends on the improtance assigned to 400 S&P points?



CDNX fan's picture

But but but - I just made more dough in the past year than I did in the last decade (2000-2010) being LONG stocks. And my only losing trades were in bullshit gold stocks run by former quant geeks from Wall St...Shit the happiest the ZH crowd was EVER was in the 2008 sub prime meltdown!

falak pema's picture

definition of Bullish schizophrenia : read this :

ANALYST: I Just Traveled Throughout The World, And Almost Every Investor Has The Same Bullish Thinking - Business Insider

Joe Weisenthal is his name; profession  : paid schizophrenic to keep the sheeple in state of hopium. All the while keeping his media back door open ; just in case his travel buddies told him the wrong tale and led him down the garden path! 

If you are a MSM shill you cover your ass! 

Squid Vicious's picture

Gas will be approaching $4.50 by Cannon Fodder...I mean, Memorial Day weekend.... BULLISH !

trendybull459's picture

strange,why its every where the same story,may be same people doing it:http://trendybull777.blog.com/

sbenard's picture

Wow! Thanks, Tyler! This is the kind of analysis that I come to ZH to read!

IamtheREALmario's picture

Cracks me up that now in dot.com 2.0 they refuse to talk about GAAP earninga and instead it is EBITDA, or adjusted EBITDA or non-GAAP earnings and want people to think that adjusted EPS, and adjusted PE much less forward adjusted EPS/PE compares in any way to historical norms.... becauee then someday they would have to come to grips with companies such as NFLX and LNKD blasting higher on miniscule earnings.

dunce's picture

I canceled my TV service over a year ago and only watch it motel rooms when traveling, but it sounds like CNBC and professional wrestling have a common pattern. A good guy that the audience cheers( Santelli), and a bad guy that gets booed (Pisani). Also the whole thing is rigged as to who wins and who loses in the market/match. Plus it seems that the only ones to get rich are the shows producers.