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Goldman On Q3 Earnings: "Expect Disappointing Revenue Results And Negative EPS Guidance"
To everyone expecting material upside surprise in terms of company earnings, guidance, balance sheet improvement, and/or capital spending, Goldman has one word: don't.
As Goldman's Amanda Sneider says, expect disappointing revenue results and negative EPS guidance. The reason: weaker macro data and dollar strengthening increase the likelihood of sales misses. Goldman also anticipates increased negative earnings guidance as companies quantify the FX headwind. The one positive offset, if not for energy companies, is that the net impact of oil changes on index-level EPS tends to be modest as firms benefit from lower input costs.
The key concerns according to the squid:
There are only two topics on the minds of investors as we enter the 3Q earnings season: the dollar and oil prices. The EUR/$ weakened 8% during 3Q 2014 following a weaker Euro area outlook and additional easing measures. Brent crude fell 16% during the quarter, with the average price in 3Q 2014 6% below the 2Q 2014 average. Analysts slashed energy EPS estimates, and weaker Euro area growth prompted estimate cuts in other sectors.
In the near term, we expect the stronger dollar will lead to a disappointing quarter for revenues and increased negative earnings guidance. The net impact of lower oil prices on index-level earnings tends to be modest as other sectors benefit from lower input costs even though Energy earnings decline.
Like this preview, we expect managements will address regional growth prospects, FX headwinds, and oil costs in 3Q 2014 earnings conference calls.
We believe domestic-facing stocks will be less likely to miss estimates relative to those with Western Europe revenue exposure. We recommend investors buy a portfolio of the most domestic-facing S&P 500 stocks (Bloomberg ticker: GSTHAINT) versus stocks with the most Western Europe revenue exposure (GSTHWEUR).
In the longer term, US and global growth are more important to our earnings model than currency or oil prices. Economic growth changes associated with moves in the dollar or oil prices will have a greater impact on our EPS estimates than the moves themselves.
The bottom-up consensus estimate for 3Q 2014 is now $29.02, implying 8% growth versus 2013. Ex-Financials and Utilities, sales are expected to grow 5% while trailing-fourquarter margins are expected to expand 6 bp to another new historical high of 9.1%. As the bottom-up consensus full-year 2014 EPS of $117 is slightly higher than our full-year EPS forecast of $116, we expect revisions of -2% to consensus 2H forecasts.
Why Goldman thinks that Dollar strengthening is prices into earnings but not revenues:
What is the impact of dollar strengthening on 3Q results and EPS in the longer term? This is the most popular question of the season, and it’s no wonder why. The EUR/$ weakened 8% during 3Q 2014 following a weaker Euro area outlook and additional easing measures. Our FX strategists believe the EUR will weaken further relative to the USD to reach parity by year-end 2017 (see FX Views: Revising down our EUR/$ forecast, August 29).
Foreign sales accounted for 33% of aggregate revenue for the S&P 500 in 2013. The median stock reported 29% of sales outside the US. Companies reported that 12% of revenues came from EMEA, with 7% directly attributable to Europe. Approximately 8% of revenues stem from the Asia Pacific region and just 7% of reported revenues were from non-US Americas (Canada and Latin America). The remaining 6% of revenues were foreign but unclassifiable.
During 3Q 2014, bottom-up consensus EPS estimates for 3Q 2014 fell 3% with estimates falling in every sector but Health Care. Earnings revisions were most negative in the Energy (8%), Consumer Staples (8%) and Consumer Discretionary (7%) sectors.
Revision patterns indicate analysts incorporated dollar strength and a weaker Euro area into their estimates. There is a loose correlation between sectors with higher EMEA sales exposure and the magnitude of earnings revisions.
While analysts reacted to growth and currency changes through earnings estimate revisions, aggregate revenue estimates are unchanged. Materials (-5.9%) and Health Care (+1.6%) saw the largest revisions to 3Q sales estimates.
Bottom line:
We expect a disappointing quarter for revenues. Weaker macro data and dollar strengthening increase the likelihood of sales misses. We also anticipate increased negative earnings guidance as companies quantify the FX headwind.
And how Goldman wants to trade this:
We believe domestic-facing stocks will be less likely to miss estimates relative to those with Western Europe revenue exposure. We recommend investors buy a portfolio of the most domestic-facing S&P 500 stocks (Bloomberg ticker: GSTHAINT) versus stocks with the most Western Europe revenue exposure (GSTHWEUR).
Translation: do the opposite.
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Not saying they're right or wrong with their assumptions here, but lately, Goldman seems to shift their outlook from A to Z to A (repeat) about every 2 weeks.
GS figures out where things are going and what they want to do and once they are set they put out 'guidance' to try and drive the market. The problem is becoming that there is less and less to drive.
So if Goldman puts out contrary guidance every two weeks, where do they generate fees?
Any one? Being market maker?
They have their hooks deeply into everything......
Damn, just when I thought stocks were going to collapse, here comes Goldman's contrarian indicator.
Also: Ann Coulter RIPS Republican Party's lame election "strategy" http://tinyurl.com/ozhq7dh
Translation: Us Jews at Goldman Sachs were too busy celebrating Rosh Hashanah with our shiksa girlfriends, so we didn't have time to prepare some bogus looking forward analysis. We let Amanda handle the press release, she said she was off blow and we believed her. After seeing her release, we're sending her in for a surprise drug test. One more failure and she gets booted to the SEC.
Prepare for the ccoordinated international money bomb to end all money bombs. Draghi will print to the tune of $1T as will China, Japan and the US. The main "drivers" of growth are collapsing. Emerging markets are fucking stillborn. It's print or die, fuck or walk in the coming weeks and months. We are poised on the precipice and the central bankers know this. The alternative to not ramping up printing/spending is complete collapse and its concomitant socioeconomic meltdown.
The country that deflates first deflates best.
Country that deflates first enters social unrest first.....
How about Freetrade Agreement with Russia
Got to be some more ideas
- War
- Sanctions
- Military Blockade
- Currency War
- Global Currency
- Massive Financial Downgrades for European Countries
- New Breton Woods
- Return to Precious Metals Money Standard
- Land Reform to give land to US Poor
- Housing Reform to give Houses to Poor
- Massive Investment & Grants to Implement & Discover Alternative Energy & Transportation System
- Massive Grants for US Recycling Technology & Start Ups
- Massive Investment in new Self Sustaining City to test new technology, agriculture, aquaculture, long lasting construction materials
- US Robot Program, Federal Investment including in University Training for Employment
- US Drone University, Weapons Training, High Tech University
- New Free Trade Agreement
A car costs $1 gazillion dollars (and its fuel efficiency, in the 21st century!!!! could still be improved)
Houses now cost $22 gazillion on a 35 year mortgage.
Medical care is only $0.25 gazillion dollars (but thats not incl. overnight stay, which puts you closer to $0.75 gazillion dollars)
Thats what can be improved!
I was on the fence but now expect wonderful Q3 earnings.
We also anticipate increased negative earnings guidance as companies quantify the FX headwind."
things will get (much) worse before they better
and throw in HY blowing out (putting a kabosh on buybacks)?
Bummer.
Does this mean we'll have to wait for Q4 to reach escape velocity?
yes
Q4 2016
Goldman Knows there isn't that many Jobs in the Oil Sector.
So the only growth areas Were MIC & Finance.
Finance Shed a bunch of jobs and Total Federal Debt is North of $17.7 Trillion... so spending on MIC seems like Welfare without the bump of US Consumption Increase.
Retail Food & Liquor & Hotels are the only Bright Spot as most Industry has been Deconstructed.
- Corporate Tax base has shrunk
- Individual Taxes hit by Unemployment
- Welfare doesn't produce Revenue or Goods
Who is Dumber Wall Street Banks or US Congress?????????????
I'll go with congress since it's election time and stupid is on sale...
Well then I expect better than expected revenues and positive EPS if Gollum Sucks is saying it. More QE, to infinity and beyond. They know something that others don't....yet.
Goldman's analysis that economies around the globe are slowing, and that the dollar is strengthening, coincides nicely with the distinct downturn in all major global stock markets, save the U.S. large caps.
But their "buy domestic-market large caps" renews my faith in their standard fleece-the-muppets nonsense.
Why would GS report this pre mid term elections?
Aren't derivatives valued in US dollars?
You can generate lots of demand for USD by triggering those derivatives.
We may be in desperate times now.
Insurance payouts in USD on a dead currency.