S&P500 Q4 Profit Margins Decline By 27 bps, 52 bps Excluding Apple

Tyler Durden's picture

What a difference a quarter makes: back in Q4 2011, in light of the imploding global economic reality, the only recourse equity bulls had to was to point out that corporate profitability was still at all time highs, and to ignore the macro. Fast forward a few months, when Europe's economic situation continues to deteriorate with the recession now in its second quarter, China's home prices have just slumped for a 4th consecutive month (forcing the PBOC to do only its second RRR cute since November), Japan is, well, Japan, yet where the US economic decoupling miracle is now taken at face value following an abnormally high seasonal adjustment in the NFP establishment survey leading to a big beat in payrolls and setting the economic mood for the entire month (with flows into confidence-driven regional Fed indices and the PMI and ISM, not to mention the Consumer Confidence data) as one of ongoing economic improvement. That this "improvement" has been predicated upon another record liquidity tsunami unleashed by the world's central banks has been ignored: decoupling is as decoupling does damn it, truth be damned. Yet the bullish sentiment anchor has flip flopped: from corporate profitability it is now the US "golden age." How long said "golden age" (which is nothing but an attempt to sugar coat the headline reality for millions of jobless Americans in an election year) lasts is unclear: America's self-delusion skills are legendary. But when it comes to corporate profit margin math, things are all too clear: the corporate profitability boom is over. As Goldman points out: with the bulk of companies reporting, in Q4 corporate profits have now declined by a significant 27 bps sequentially, and an even more significant 52 bps excluding Apple.

While we won't comment on the fact that Apple is accountable for half the margin delta in the S&P (or that the entire InfoTech space ex. Apple would have recorded a 2% EPS Growth and 8% sales growth instead of the 19% and 16% in EPS and Revenue otherwise reported), it is now clear that the "record profit" story is well and truly dead. As a result, the only "upside" case is for the delusion-driving US decoupling to continue, until such time as Europe is "fixed." Then again, since Europe's capacity for self-delusion is also quite impressive, it is not unrealistic to expect the continent to onboard the hopium pipe with the reckless abandon... of America.

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uno's picture

that settles it, put AAPL in the Dow 30

Sudden Debt's picture

Or thow all the companies out and call it the apple index

holdbuysell's picture

My exact thought, SD. You beat me to it.

falak pema's picture

then we'd all be eating an apple a day to keep the doctor away and it would be komrade Dr stalin of apple inc. 

If we all went one product and we all drove the i-mobile and slept in the i-bed and watched fox news on i-tv and we would be i-hooked for good and i-god would then receive us in i-heaven at the end of our i-lives. Those who failed would google-fry or microsoft-oven in the Rimm-prison of yahoo-hell where they would burn in gmail-spam every day.

BORT's picture

Has anyone thought about how survivor bias influences the PMI numbers and Fed reports.  I would assume since 7 Million people are not in the labor force, there are also fewer establishments to survey, and the remaining ones are probably cannibalizing the ones that failed.  I have been trying to find  a reason that the PMI data do not seem to jive with other reality based measurements, such as people working and gasoline consumption

jeff314's picture

its still better than expected....

stocktivity's picture

....and if profits decline another quarter or so, they will just change the accounting rules to show more profits.

RichardENixon's picture

So does this mean I shouldn't have paid attention to all that raving and ranting about forward earnings P/E ratios I was hearing?

machineh's picture

Surely 120 billion euros of Ponzi liquidity to bail out Greece can overcome a 52-bip gross margin decline?

Ben and Mario have got our backs! </sarc>

max2205's picture

So what , the profit per share is still allowed to go up via cooked books.

We don't need stinking profit margins in % form. Buy buy buy. (sac off)

Atomizer's picture

Enron accounting principles live on.

earleflorida's picture

fast andy [eron & shilling] would be proud today to see what they've created for "Today's Corporate World?"

according to BIS & McKinsey, and others' - their 2011 calculations of global offshore deposits amount/ account [?] for ~ $9tn minimum,... some $2tn more than the total at home [usa] held by american banks. there are [fwiw] companies in the FTSE 100 index, showing at minimum of [wait for it!] ~8,500 offshore [tax cheats - corporate malfeasance /profiteering?] subsidiaries! 

Barclay's, Robert Diamond [Jamie Dimon's arch foe/ nemesis across the pond] was queried in early 2011 how many subsidiaries it had in the Cayman's, Jersey, and Isle-of-Man, and responded with a - "I don't know?" turns out the CEO [Berkshire's Mass. dual citizen] wasn't abreast of the 250 accounts.

amazing how dumb these guys are.

Ps. these accounting practices brought our country down,... and we've yet too recover - only digging in deeper

Ps2. just look at what corporate america contributes to our tax base



Scotch-n-Soda's picture

Oh, we need to worry about PROFITS!?  I was just told to BTFD and don't worry.

junkyardjack's picture

Exactly, they are looking at accounting profits, once you adjust out expenses profits are through the roof

FuentesElla23's picture

a best friend's mother-in-law makes $73 hourly on the computer. She has been laid off for 6 months but last month her income was $14399 just working on the computer for a few hours. Go to this web site and read more .... LazyCash9.com

Manthong's picture

a best friend(in prison here with me)'s crack whore mother-in-law makes $5.00 hourly on her knees. She has been tricking skid row 6 months but last month her income was $143.99 just working the alley’s for a few hours. Go to this web site and read more .... lazyassCashscam.com

alien-IQ's picture

7 straight positive weeks for the /ES so far this year. That makes it the longest streak since the 8 week rally from Nov. 24, 2003 through Jan 19, 2004.

So there you have it, the longest consecutive weekly /ES rally in 8 years.

What could possibly go wrong?... Right?


xglider's picture

The thing that has thrown many savvy investors is trying to compare the current market climate with anything pre-QE(x). Fundamental laws of gravitation, TA, macro/micro fundamentals have been suspended. Static constants have been skewed. Given much of the market movement is not just supply/demand driven by liquidity but sentiment, CB's have succeeded in rekindling animal spirits, albeit on record low volume. 

css1971's picture

Wasn't there a tax dodge which would have pulled 2012 capital spending into 2011?

amadeusb4's picture

Good question. I could not find anything on that but I do know that there was a depraciation tax incentive in 2011 that expired at the end of Dec. Specifically

"In addition the economy has benefitted from some temporary factors such as the 4th quarter inventory restocking, the 100% depreciation provision on capital goods that ended on December 31st and the unusually warm and snowless winter that has distorted seasonal adjustments to economic data and made growth look stronger than is actually the case."



J 457's picture

Don't forget the market is forward looking to justify SPX 1400 next week.  <sarc>


ekm's picture

This is the most irrelevant post ever on ZH. Who gives a fuck about profit margins in this "primary dealers owned market"? Today accounting standard is "everything accounting".

Has anybody noticed that since Enron, no AUDITING COMPANY has ever been mentioned publicly about their role in 2008?

Check Francine McKenna here:



Price Waterhouse seems to have known about MF Shit and said nothing. Ah wait, they audit JPM also. Wow.

Why doesn't ZH ever blame the ones that are supposed to check for us like, PWC, Ernst and Young etc?

By the way, ZH just twitted that EY is being sued by NY AG.

sun tzu's picture

Audit reports state "reasonable assurance" and unless they are specifically auditing for fraud, they are not likely to find it, especially when it's top management conducting the fraud. I'm not saying they're not culpable, but we have to see the auditor reports and workpapers to know for sure. If they were negligent, then let them get their asses sued off and dissolved like Arthur Andersen

Implicit simplicit's picture

The company that makes food stamp credit cards had record sales

absente reo's picture

The stock market will follow employment.

junkyardjack's picture

You mean stop going up once everyone is out of the system?

backwardation's picture

Dont be too negative for this year!! Stock prices will go up in Europe. Anal-ists at banks  all negative now....contra indicators

Bernankes evil plan works for now and American/outside europe  companies  will take over Europe taking advntage of their higher ratio's

For example In Holland the company Wavin is taken of the exchange at 100+ pct premium and friday UPS/fedex Bidding at least 50 pct premium for TNTexpress

this will continue!!



connda's picture

That good news should drive the ES over 1400.

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Bertie Wooster's picture

If you are going to exclude Apple, then you should also exclude Telecom Services since their margin decline is Apple's gain.  So in that regard, you actually reduce the margin loss since Telecom Services has a bigger decline.

Basically, what I'm saying is, you don't exclude Apple, that's just manipulating the data to suit your bent.

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