One of the bullish themes this earnings season is that of the 223 or so companies reporting so far, a whopping 78% of them have beat EPS and 66% have beat revenue expectations. It remains to be seen just how much of this improvement is merely due to record stock buybacks [7] to goose EPS as well as accounting gimmicks: we will conduct a full breakdown once we know the GAAP vs Non-GAAP data: recall that Q1 Non-GAAP EPS was a 4.6% improvement while GAAP EPS was in fact a 2.2% decline.
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It also remains to be seen how much of the beats are due to companies taking guidance to the woodshed and slashing forecasts as they did back in Q1, when one after another company rushed to lower expectations.
But for now, let's give US EPS the benefit of the doubt. The result from the earnings season to date is shown on the Deutsche Bank table below:
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Yet what is maybe even more interesting than US earnings, are those of Europe. Recall that it is in Europe where unlike the US (massaged or not), EPS has been on a clear, secular decline for the past two years...
... something we and others attributed to a painfully strong Euro currency [10].
And yet, in a curious turn of events, now that the EUR has been sliding and recently hit 2014 lows, one would expect at least some pick up in Europe's earnings, especially since 52% of the corporations have allegedly beat revenue and 55% have beat EPS expectations. Goldman itself said as much: "we expect both a slight improvement in European economic growth for the rest of the year as well as the currency depreciation to lead to a stabilisation of earnings."
One would be wrong.
As the following just released chart from Goldman shows that while non-GAAP EPS in the US have stabilized (and Japan is clearly the upside surprise even as its economy is once again teetering on the edge of recession), and Asia ex Japan is slowly rolling over once more, it is Europe that is the big shocker: as of July, European 2014 EPS forecasts are now the lowest they have been for the entire year, and are down 8% from where they were at the beginning of the year!
Goldman explains: "Whereas earnings were revised down across all markets except Japan at the beginning of the year, they have now stabilised in all regions except Europe, where the downward revisions have continued.... We are concerned about the continued downward revisions in Europe and see this as a key risk to our overweight here."
Visually:
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One wonders how much longer the European corporate lobby will be so focused on whether or not to implement sanctions on Russia (which would further pressure their earnings), instead of realizing that its true foe at this moment is not east, but west, in the form of US corporations who are gaining at Europes' expense?
