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The Mediocre Truth About Earnings Season

Tyler Durden's picture




 

While headlines crow of company performance this earnings season and as usual consistent patterns are extrapolated and exaggerated into a forceful flow of propaganda for why everyone should buy stocks, the truth is much less spectacular and in fact downright disappointing if one looks to the future (as opposed to the rear-view mirror). More than two-thirds of the S&P 500's market cap has reported and until last week, there was a very high 83% of companies beating expectations with positive earnings surprises. However, last week's swathe of mediocrity dragged that average down to a much more in-line 77% (which quite frankly still reflects somewhat poorly on all those well-paid analysts out there) but more to the point is absolutely nothing exceptional in terms of why-you-should-buy-stocks-now. Aggregate earnings have exceeded estimates by 7% (impressive indeed) while revenues have beaten by 1% (less so) but what is critical to comprehend if you are investing for future returns as opposed to what you hoped you could have made last quarter, is the fact that forward guidance is almost entirely unchanged for 2012. This reflects companies' perceptions of 'low visibility in global growth across economies' with a consistent theme of European and Emerging Market growth slowdowns being offset by better-than-expected US growth - and we think we have burst that US decoupling bubble enough times now to comprehend its meaning for disappointing earnings for the rest of 2012 as relative demand was dragged forward into Q1. All-in-all, mediocrity rules the surprises and forward expectations continue to disappoint the maddening crowd.

Companies Exceeding estimates is now 'average'...

but no follow-through on a better Q1 earnings picture for the rest of the year...

Source: Barclays

 

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Tue, 05/01/2012 - 08:50 | 2387784 bshirley1968
bshirley1968's picture

Anymore, I give earnings information about as much credit as I give BLS statistics.  Way to easy to manipulate to ever be trustworthy in this enviroment.

Tue, 05/01/2012 - 09:35 | 2387880 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Earnings in modern corporations. Management realizes they are missing their trumped up quota. Management lays off all of their best workers. Company permanently damaged. Done deal.

Tue, 05/01/2012 - 08:52 | 2387785 FOC 1183
FOC 1183's picture

AAPL's influence on guidance

Tue, 05/01/2012 - 09:45 | 2387907 Stochdoc
Stochdoc's picture

Also 1 extra day in Q1 this year - Thank-you leap year.  This has a magnified impact of profits.  They don't have this the rest of the year.

I don't know if analysts modeled for the extra day or not.

 

Wed, 05/02/2012 - 23:13 | 2392898 meimei
meimei's picture

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Tue, 05/01/2012 - 09:02 | 2387815 q99x2
q99x2's picture

Bad earnings growth is good for stocks.

Anything negative is a real plus for the market.

All news or no news is good for the market.

It is an elevator market.

Up Up Up. Futures are Up.

FB goes public this month. Politicians get their bribes. Everything is good.

Tue, 05/01/2012 - 09:03 | 2387817 orangegeek
orangegeek's picture

Another divergence from the SP500 itself.

 

http://bullandbearmash.com/index/sp-500/daily/

 

So much for reality.

Tue, 05/01/2012 - 09:03 | 2387818 mirac
mirac's picture

Maybe the wrong chart.  Should have been the number of companies that beat year ago earnings.  Would eliminate the low balling of estimates.

Tue, 05/01/2012 - 09:03 | 2387820 Cdad
Cdad's picture

Ahh....but what is most interesting is the price action on stocks after they report.  One after another show initial price gains followed by selling that takes them negative in the following open market session.

As usual, the criminal syndicate known as Wall Street is pitching the hopium while selling the crap out of the underlying. 

Tue, 05/01/2012 - 09:17 | 2387849 praps
praps's picture

In addition the beats were possible because 2012 forecast earnings have been gradually reduced by 5% since Aug 2011.

 

Tue, 05/01/2012 - 09:18 | 2387850 Clark80
Clark80's picture

Amen, mirac: Look at BEst estimates for the first quarter from one to three months ago. I'll bet the number of "beats" is cut in half. E.g. Ecolab posted .50 vs. estimate of .48.  On 2/24 the estimate was .536; on 2/1 it was .55 and on 1/17 it was .558. ECL is one of many following the same pattern. See a trend here?

Tue, 05/01/2012 - 09:24 | 2387860 mirac
mirac's picture

oh yeah...and how about Amazon?  Earnings beat low estimates but were down sequencially.  The stock zooms up about 40, where as the PE is in the stratosphere.  It is a forty dollar stock, not 240!!!!!!  I'll short it soon...

Tue, 05/01/2012 - 09:25 | 2387864 crzyhun
crzyhun's picture

Remove AAPL and what do you have?? Sour grapes.

Tue, 05/01/2012 - 10:19 | 2388006 FranSix
FranSix's picture

Ok, so you want forward earnings growth and a dividend payout. If you only have earnings and no dividend, then you have to go by trailing earnings, and if your trailing earnings are behind inflation then your net present value will not likely result in an internal rate of return.

Tue, 05/01/2012 - 10:34 | 2388064 Clark80
Clark80's picture

Amen again, mirac! AMZN posted .28 .vs estimate of .06; on 1/27 the estimate was .368 and on 1/3 it was .42!

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