This page has been archived and commenting is disabled.

Financials Hide Analysts' "Earnings Recession" Expectations

Tyler Durden's picture





 

We know top-line numbers were a disappointment in Q2; but the long-only AUM-defending commission-takers will remind you that 'stocks are cheap', '...valuation...', 'money on the the sidelines', and on the surface there was a 6.9% increase in EPS from Q2 2011 (growthy and as UBS notes - anything but anemic). But, like every good story, the truth is darker under the surface; looking at earnings growth (i.e., without the impact of shrinking share counts) excluding prior-period Financial sector writedowns, we see an outright earnings contraction. Further, consensus estimates are calling for EPS growth to go negative in 3Q12 - falling to $25.07 from $25.65 - which will make two quarters in a row of negative earnings growth - what we would consider an earnings recession.

 

UBS: The Q2 Growth Mirage

With results for 494 companies in the books, it appears 2Q EPS for the S&P 500 will come in at $25.80 — roughly in line with our $25.75 estimate. On the surface, this represents a 6.9% increase from 2Q11 — a growth rate that is anything but anemic. However, looking at earnings growth (i.e., without the impact of shrinking share counts) excluding prior-period Financial sector writedowns, we see an outright earnings contraction.

More specifically, earnings for the S&P 500 ex-Financials declined by 1.5% (table above), while revenues were down 0.2%. Notably, we exclude Financials because the sector’s results are often skewed by one-time items and debt valuation adjustments, which mask the broader earnings trend. For instance, Bank of America’s Countrywide write-off reduced EPS for the overall S&P 500 by $1.30 (i.e., 5.1%) in 2Q11, thereby overstating 2Q12 earnings strength.

 

Further, consensus estimates are calling for EPS growth to go negative in 3Q12 — falling to $25.07 from $25.65. The chart above, which highlights the earnings growth of the S&P 500 ex-Financials (excluding buybacks), shows that we now have two quarters in a row of negative earnings growth — what we would consider an earnings recession.

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 09/04/2012 - 20:13 | Link to Comment Squid Vicious
Squid Vicious's picture

bullish!! not long before the performance chasing/santa claus rally!! we're gonna shoot over this fiscal cliff just like Evel Knievel at the Grand Canyon... oh, wait

Tue, 09/04/2012 - 20:20 | Link to Comment Ahmeexnal
Ahmeexnal's picture

More like Wile E. Coyote

Tue, 09/04/2012 - 20:39 | Link to Comment Michael
Michael's picture

For information purposes only;

Tonight: Ron Paul on Jay Leno 9/4/12 - Live Stream

http://www.dailypaul.com/252263/ron-paul-on-jay-leno-9-4-12

Tue, 09/04/2012 - 20:09 | Link to Comment Jlmadyson
Jlmadyson's picture

So tired of being lied to each and everyday.

 

News to traders, CNBC, Cramer, Liesman, et al.

 

Bernake and Draghi will save nothing.

 

Wake up and look at all the data and tell me this isn't 2007 leading up to 08. But this time we are in much more perilous condition with Europe tipping as well and mountains more of debt.

 

Wake the shit up.

 

Justice shall be reaped.

Tue, 09/04/2012 - 20:25 | Link to Comment LongSoupLine
LongSoupLine's picture

yep, and to think...those are the fudged numbers.

Tue, 09/04/2012 - 20:12 | Link to Comment buzzsaw99
buzzsaw99's picture

s&p earnings got facebooked, er, corzined, er...

Tue, 09/04/2012 - 20:15 | Link to Comment Jstanley011
Jstanley011's picture

So, is that bad?

Tue, 09/04/2012 - 20:26 | Link to Comment Nevermore Peabody
Nevermore Peabody's picture

The toppings contain potassium benzoate.

Tue, 09/04/2012 - 20:16 | Link to Comment Tsar Pointless
Tsar Pointless's picture

This, on top of the ISM report showing a third month of contraction makes me feel rather...not bullish.

I think we're a lot closer to that big plunge than most can imagine.

The bears are going to be caught off-guard, as they are anticipating another "stick-save and a beauty" from Chairman Ben next week. And, the bulls are going to be caught off-guard, too, for the very same reason.

This time, on September 13, I think that this time, it will be different.

Year lows coming on the indices in October.

And those who own the world - and, of course, Wall Street - get their (next) man.

Tue, 09/04/2012 - 20:17 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Guys, stop.

You know full well HFT is moving the SPY and correlators align the index to SPY.  This is discussed frequently.

Why in hell would you think earnings matter?  

Guys this is not the world you grew up in.  You can't say this and then immediately try to measure it using old measures.  The S&P no longer exists.  Money didn't exist in the garden of eden; it was invented later.  It doesn't have to mean anything.  Its value can be redefined at a whim.

Buy farmland and wait for oil shortages to start getting coverage.  They are already out there (look up lines at Egypt gas stations early this year) but they don't get much coverage.

It's inevitable.  Don't be the last out the door.  Get out now and get something of value, which is pretty much farmland and only farmland.

Tue, 09/04/2012 - 20:17 | Link to Comment rosiescenario
rosiescenario's picture

Margin compression....when raw material costs and energy rise faster than companies can raise prices for their products.

 

China will be really evidencing this situation.

Tue, 09/04/2012 - 20:31 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Biflation

 

Tue, 09/04/2012 - 20:24 | Link to Comment Hype Alert
Hype Alert's picture

And Fed Ex just cut the qtr ended Aug 31.

Tue, 09/04/2012 - 21:24 | Link to Comment deflator
deflator's picture

 Fred Smith has been calling BS on "the recovery" from day one. He has said that we never came out of recession. FedEx keeps making money and growing even though Fred is bearish. I think he likes doing better than he thinks he can or something like that.

 

 He probably isn't happy with the Federal Reserve pumping either because it raised their operating costs and propped up assets they were positioned to acquire absent FED intervention.

Tue, 09/04/2012 - 20:26 | Link to Comment insanelysane
insanelysane's picture

Guy on Bloomberg today said that China is not in a recession and their manufacturing is still going strong.

Tue, 09/04/2012 - 20:30 | Link to Comment holdbuysell
holdbuysell's picture

Tyler, Energy, Materials, and Utilities appear to be the drivers for this decline in Q2: what sectors are part of the decline in Q3 (is this granularity available?)? I'm interested to know if/to what degree this is expected to spread to the other sectors.

E.g. FDX's lowered guidance for Q3 could indicate this spreading.

Tue, 09/04/2012 - 20:28 | Link to Comment chump666
chump666's picture

China's subprime moment is it's steel industry implosion.

http://www.ft.com/intl/cms/s/0/0db84534-f691-11e1-9dff-00144feabdc0.html

Forget about the APPL and Facebooks, commodities go to hell. Should send the HFTs into the panic to end all panics, that and profit taking Sept is upon us.

Tue, 09/04/2012 - 20:31 | Link to Comment q99x2
q99x2's picture

Recession battles QE.

On this side of the ring we have the not so great Central Planner and DHS funding agent Ben Bernank. And, on this side we have cloaked in reality. Reality.

Here we go again.

Tue, 09/04/2012 - 20:32 | Link to Comment max2205
max2205's picture

Pay no attention to the man behind the curtain

Tue, 09/04/2012 - 20:37 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Look this is the cheapest stock market in American history. Reminds me of 1826. If you had bought and held stocks since that summer, dollar-cost-averaged through depressions, wars and swindles, reinvested dividends and rebalanced your portfolio to sell bankrupt companies and replace them with up and comers, today you would be as rich as Ivanka Trump's poodle. 

Tue, 09/04/2012 - 20:47 | Link to Comment RobinHood73
RobinHood73's picture

it is our Ukiyo (the floating world, as experienced by the Japanese during the Edo era) . It is not real.  The hype machine, controlled and manipulated at the front by the tail that wags-the-dog, AAPL. An earnings bomb a month ago and the shares rise 20% in parabolic fashion without even a 2% retrace since this negative release. Now the hype machine focuses on the orgasmic inducing iphone 5 that will be guaranteed to blow your mind .It doesnt matter the the NPV of future cashflows on a 300 gross margin would require every living person on the planet who can buy a phone to buy a phone , we live in the ultimate ukiyo. Facts are ignored. Wall street needs its sucker to diffuse these 2-year old accumulations to!!!!

Tue, 09/04/2012 - 21:53 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Welcome to the real world Neo.

Wed, 09/05/2012 - 08:01 | Link to Comment ejmoosa
ejmoosa's picture

And the drop in year over year profit growth will lead to a drop in year over year employment at this level in twelve months.

 

Want to take a guess at which quarter is the most influential in the business planning cycle for 2013?  The third quarter.

Calculate the rate of year over year profitgrowth for four quarters ending September, and you will have a number that has a .91 correlation with the rate of job growth the following 12 months.

Next year at this time we will be asking "Where are the jobs?"

As the story says, we are masking just how bad it is with the financials, which are not necessarily real earnings, but just accounting moves.

 

It's gonna get ugly...fast.

Starting with the next jobs report.

 

 

 

 

 

 

 

Thu, 09/06/2012 - 01:45 | Link to Comment agagshoes
agagshoes's picture

Although these days many christian louboutin men, possess individual sites as well as to the dimension of the ladies but sometimes it can get tedious to find your own precise necessity. Rocker footwear or even authorization footwear, designed to cause the tougher as you consider your own actions so that you get a good intense workout by walking. Larger, curved single causes it to be as you join your own main muscle tissue the Monster beats by dr dre so that balance.While the circular to your feet over the route from discount Supra Tk society shoes women, your own lower leg, leg and rear end areas change as well as burn off more calories from fat. Because you did not send these phones a lot more, this particular style of footwear as well as encourage location requires stress from you only actual stress associated with the beat as you stroll the sidewalk actual christian louboutin sale. Before you decide to buy these types of rocker bottom, consider the following advice into consideration in order to obtain the most from your buy. While purchasing on the Internet is very easy, Cheap North face jackets.A person has to strike anything you wish and several web sites will be available to help you with your online to buy discount Supra Tk society shoes children. You will be able to choose your preferred color jacket, the last but not least the actual dimension and you also tend to occur. You have your own additional dimension jacket bought in my suggestions with this class may be Polly as well as dimension. But you need to be careful about websites coming for your help. In the beginning when you place on the actual key phrase from search engines christian louboutin uk, it is common for style large Totes has turned out to be the best companions of each lady, because they keep the product designer sunglasses.If you are aware of it's course as well as the desire to have high quality discount Supra Shoes Menproducts Owen Tour, you can buy leather-based purses; they are long lasting and also already being purchased through women for a long time. A girl can ignore transport not not really a tote; It is most commonly associated with her companion in most scenarios. Cheap Supra Skytop zips men who is the owner of the true magic of creating life much more pleasant also exciting, with the characteristic styles of beyond in search, allow it to be hot offers in the past, all individuals are crazing are not considered for feature, no one can deny this, because this gives around a lot more miracles that give more color to the existenceWhen this finding your own during the day, visit the go to a different arrangement, have sufficient capacity to allow you to function as amenities, and you will end up being envied by the other actual emotion is actually delicious and you will end up being really feel like you are an important guyalso christian louboutin outlet, one may end up having to consider when you want to travel, it may help to make your trip much more joy, every time you went to go an extended range sunglass hut.

Do NOT follow this link or you will be banned from the site!