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Q4 Shaping Up As Worst Quarter In Years: Aggregate Revenues And EPS Have Missed By 1.2% and 0.4% So Far
On the surface, despite concerns about the adverse impact from the strong dollar and crashing energy earnings, so far the fourth quarter is shaping up quite strong. Indeed, as CNBC won't stop repeating, with 7% of the companies in the S&P 500 reporting actual results for Q4 to date, more companies are reporting both actual EPS above estimates (84%) and actual sales above estimates (60%) compared to recent historical averages. Of course, this only works courtesy of the endless guide-down game that analysts and corporate CFOs play year after year, in their appeal to gullible investors that companies are actually doing better than expected, as the following chart, courtesy of @Not_Jim_Cramer, shows, in which we can see that in Q1 2014 the S&P was expected to grow by 11.4%, a number which has plunged to just 3.5% currently
However, where the fiction falls apart, is when moving away from this cherry-picked "bottoms-up" version of reality, where the sheer number of beats is supposed to give if not now extinct carbon-based traders, then at least algos a warm, fuzzy feeling.
What happens when one looks at earnings and revenues on a "top-down", consolidated basis? The answer, courtesy of Factset, is far less pleasant:
In aggregate, companies are reporting earnings and revenue below expectations to date. The aggregate dollar-level earnings reported by these 37 companies is 0.4% below the aggregate dollar-level earnings estimated for these 37 companies. The aggregate dollar-level revenue reported by these 37 companies is 1.2% below the aggregate dollar-level revenue estimated for these 37 companies.
As a result, even though more companies have beat earnings and revenue estimates to date than missed earnings and revenue estimates, the surprise percentage (which reflects the aggregate difference between actual results and estimated results) is negative for both earnings (-0.4%) and revenue (-1.2%).
This means that Q4 is shaping up as the worst quarter since 2012, perhaps even the start of the great financial crisis in 2008/2009.
The details reveals even more ugliness:
Due to companies missing earnings estimates in aggregate and analysts continuing to revise earnings estimates downward for companies yet to report, the blended (combines actual results for companies that have reported and estimated results for companies yet to report) earnings growth rate for Q4 2014 is 0.6%, which is below the estimate of 1.7% at the end of the fourth quarter (December 31). At the sector level, the Telecom Services and Health Care sectors are expected to report the highest year-over-year growth in earnings, while the Energy sector is reporting the largest year-over-year decline in earnings.
Due to companies missing revenue estimates in aggregate and analysts continuing to revise revenue estimates downward for companies yet to report, the blended revenue growth rate for Q4 2014 is 0.8%, which is below the estimate of 1.1% at the end of the fourth quarter (December 31). At the sector level, the Health Care sector is expected to report the highest year-over-year growth in revenue, while the Energy sector is reporting the largest year-over-year decline in revenue.
It's not just plunging crude prices that are to blame:
Bank of America, Citigroup, and JPMorgan Chase all reported actual EPS numbers for the fourth quarter below the expectations of analysts. Bank of America reported actual EPS of $0.25, compared to the mean EPS estimate of $0.32. Citigroup reported actual EPS of $0.06, compared to the mean EPS estimate of $0.10. JPMorgan Chase reported actual EPS of $1.19, compared to the mean EPS estimate of $1.31. The last time all three companies reported actual EPS below the mean EPS estimate in the same quarter was Q4 2011.
As a result, it now appears the Financials sector will likely report a year-over-year decline in earnings for the third time in the past four quarters.
Perhaps plunging FICC desk profitability is also impacted by the OPEC "supply glut", or whatever, just don't call it global deflation?
And speaking of crude, it appears that the "unambiguously good" crash in oil prices is finally becoming quite prominently bad, and since it can't be swept under the rug any more, will manifest itself in not only a major miss to aggregate Q4 earnings, but what now appears to be a decline in revenues, and soon, earnings in coming quarters and for all of 2015! From Factset:
For Q1 2015 and Q2 2015, analysts are currently predicting revenue growth rates of 0.3% and -0.3%. These revenue growth rates are also below the estimated growth rates of 1.6% and 1.0% for these same two quarters back on December 31.
For Q1 2015 and Q2 2015, analysts are currently predicting earnings growth rates of 1.8% and 3.2%, respectively. These earnings growth rates are below the estimated growth rates of 4.0% and 5.2%
We fully expect quarterly revenues and EPS in 2015 to not only end up missing expectations, but to also post negative prints Y/Y when the full collapse of the shale sector flows through the income statement some time in the current quarter, not to mention the already stark slowdown of the US export sector now that both Japan and Europe are engaging in unprecedented currency destruction which will lead to a depressed earnings (and revenue) state which will persist throughout the end of the year and certainly until the Fed admits the pipe dream about a rate hike was just that. But for now, this is how forward EPS are shaping up.
As the chart above show, the drop in forward EPS - while still somewhat muted - has already suffered its biggest decline since Lehman. Should the current EPS stagnation persist, or worse accelerate, then it will be increasingly difficult to justify a bullish S&P growth thesis, based on multiple expansion alone.
As a final reminder, some time just before the Lehman failure, forward EPS were tracking at 100. A few months later the number dropped by 40%. So for all those who are using the current forward 12 month P/E ratio of 16.5x, a number which is well above the 5- and 10-year average forward PE of 13.6x and 14.1x as a benchmark for cheapness, be very careful.
Source: Factset
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coming up on half hour till market close
Ceasar - thumb up? ... or down?
got my popcorn
'Ceasar'?
ok, ok ... jaquin phoenix
Bullish.
You guys have to stop worrying, Chalky told us that the shadow of crisis has past.
It's all good.
pods
James Gorman, ceo of MS, awarded 4.4 million stock bonus. Has he sold them yet?
Salad
you know the guy who makes the dressing....
Paul Newman?
This is an easy one- more fake accounting on they way! Earnings will be glorious and please Dear Leader greatly!
most retailers year end is january 31st (or so)
looking forward to their margins for holiday sales
i'd like a nickel for every
"promotional pricing cut into ..."
So would Kyle Bass
Fundamentals don't matter any more. Where have you been the last few years. It's all Bullshit!!! All that matters is the printing continues with QEs forever.
The muppetteers simply adore FUNNYMENTAL traders
fundamentals don't matter ... till they do
the 6 yr charade just about over
why? it is very apparent that all the free money (QE/ZIRP) has gone to the bankers, financiers, and politicians in the western world and yet the ECB just decided to do more QE...
Are you suggesting that American politicians are going to suddenly balance the budget?
I don't think so...
charade = "recovery"
the oncoming recession will put that to bed
Thank goodness the overlords adjusted GDP to account for hookers and blow too!
How long is "just?"
If things are so great, why dont they re-instate GAAP accounting? I gotta beleive they have gone way down the rabbit hole to keep the numbers where they are.
WTI Crude Oil is moving down towards 45 dollars on these news as we speak ....
And it's ever so bullish for Wall Street.
Bullish because it increases the expectation of QE4
recession first
need to get back to $trillion deficits to restock the bond liquidity pond
so, even more free money (QE/ZIRP) flowing to bankers, financiers and their political puppets?
I say the ten year goes to 1.0% by november.
Recession...come on, you can say it now!
i have
US enters a recession no later than Q1 2015
drop in oil + subprime auto loans souring doing the double tap honors
The solution of course is to give the bankers and financiers access to more free money (QE & ZIRP).
/s
I think we are already there. The BEA reports that profits after taxes have declined year over year for three consecutive quarters.
This is shaping up to be the fourth with relative ease.
Kvjdjfkdxianfjcndjvcoak!
Oh yeah? Well, then I say hrtyvjkeldwtbnhfytsyertsdgsafg ! So there.
What....did another Iceland volcano erupt?
And just watch those corporations lower expectations, then do stock buybacks as they gauge reduced earnings so they can "beat" lowered expectations as free money comes in from their Central Bank lackeys.
Wish I could believe these financial statements, but these are the days where everything is lies and manipulation. When I hear a reported 1% drop, I know it's likely closer to 10% or more.
Call me cynical, but I bet I'll be proven right when this shitshow finally gets exposed.
Correct. remember, the western world, on the advice of ivy league academics, abandoned "mark to market" accounting in favor of "mark to model" accounting. a.k.a "mark to fantasy".
The Shitshow zombie lurches onward.
Well, if the US$ goes up 10+% in a matter of weeks,
even as competition in the currency devaluation camps escalates,
do you really think the US economy is going to boom???
Meanwhile, its obvious the FEDs are just starting to get it.
In the last 10 days, in the face of some pretty spectacular
CB announcements, everyone has specifically included a "rate cut".
Even Uncle Sam must have got the memo by now.
Imagine if the corporations used real accounting.
Can I use Non-GAAP on my tax return?
Based on the tax code I owe the IRS. Based on my Non-GAAP calculations they owe me $1.1 billion.
The bubble will burst once the red team is back in the WH, and they will take the fall for it. However, the current blue team preezy will have fucked up foreign policy so badly that the war machine will need to be kept running for two terms. Then the blue team will rouse the gimme-dats with another means-tested messiah and we'll just being witnessing a replay of 2000-2016. People will die in the process but the .GOV meat-grinder will continue indefinitely. Who's really going to take its place?
Exactly, the red team had Nothing to do with any of this. Thd red team will save us, god bless the red team.
Was not endorsing one over the other.
Everything real is heading the wrong direction. BULLISH!!!!
<sigh...>
All money is being funneled into stocks. Not a bad thing really. Stocks represent businesses and some businesses make money. Better than funelling money into governments that make nothing...and banks, of course.
When all else fails we must have WAR:
US Trainers To Deploy To Ukraine By Paul McLeary 12:17 p.m. EST January 22, 2015
Also Will Begin Shipment of US-funded Armored Vehicles(Photo: Staff Sgt. Brendan Stephens/US Army)
CONNECT 1064 TWEET 33 LINKEDINCOMMENTEMAILMOREWASHINGTON — American soldiers will deploy to Ukraine this spring to begin training four companies of the Ukrainian National Guard, the head of US Army Europe Lt. Gen Ben Hodges said during his first visit to Kiev on Wednesday.
The number of troops heading to the Yavoriv Training Area near the city of L'viv — which is about 40 miles from the Polish border — is still being determined, however.
The American training effort comes as part of a US State Department initiative "to assist Ukraine in strengthening its law enforcement capabilities, conduct internal defense, and maintain rule of law" Pentagon spokeswoman Lt. Col. Vanessa Hillman told Defense News.
After meeting with commander of the Ukrainian Armed Forces Lt. Gen. Anatoliy Pushnyakov and acting commander of the National Guard Lt. Gen. Oleksandr Kryvyenko during his visit, Hodges said he was "impressed by the readiness of both military and civil leadership to change and reform."
The training was requested by the Ukrainian government "as they work to reform their police forces and establish their newly formed National Guard," Hillman added. Funding for the initiative is coming from the congressionally-authorized Global Security Contingency Fund (GSCF), which was requested by the Obama administration in the fiscal 2015 budget to help train and equip the armed forces of allies around the globe.
The training mission has been the subject of plenty of discussion among US policy makers for months, and the United States has already earmarked $19 million to help build the Ukrainian National Guard.
"We're very open to the idea that this becomes a first step in further training for the Ukrainian military," Derek Chollet, former assistant secretary of defense for international security affairs, told Defense News just before he left the Pentagon on Jan. 17.
He was quick to add that he doesn't anticipate that this training mission "will require significant US presence."
The mission comes at a time of increasing concern among Eastern European countries that Russian aggression in the region will increase, and as fighting around the eastern Ukrainian city of Donetsk between government forces and Russian-backed separatist rebels rages on.
Speaking at the Davos conference on Wednesday, Ukrainian President Petro Poroshenko accused Russia of sending 9,000 troops into the eastern part of his country to back the rebels, a contention that NATO officials have backed up, but without providing their own estimates for the number of Russian forces in country.
Chollet said Russian military incursions into the Crimea and eastern Ukraine have refocused American attention on the region after a decade of fighting two wars in the Middle East.
"A year ago we were worried about the future of the trans-Atlantic relationship, how would it be relevant to people," he said. "And of course, the events of the last year with Russia and Ukraine has focused people again on threats to European security and the unfinished business, really, still coming out of the end of the Cold War."
One of the biggest challenges for US policy makers is trying to discern "where could this lead and how does this make us think anew about European security issues and force posture issues or defense spending issues?" he added.
In addition to US trainers, Washington is beginning to provide heavier military equipment to the government in Kiev. On Monday, the United States delivered the first prototype of an armored "Kozak" vehicle for use with the Ukrainian border guard, according to the US Embassy there.
A posting on a US government contracting site put the cost of the vehicle at $189,000.
The vehicle is built on a chassis manufactured by Italian company Iveco and features a V-shaped armored hull to help protect against mines and roadside bombs. The embassy said that to date, "the United States has delivered dozens of armored pickup trucks and vans to the Ukrainian Border Guard Service. The Kozak is larger and offers a higher level of protection."