The Submariner — Deep Data Dive: Earnings Scorecard

Fri, FEB. 24th, 2012

The S&P 500 Index is up over 8% this year so far. As Q4 2011 earnings “season” wraps us, pausing for a moment to investigate the big picture of how businesses are doing is an important step in assessing the health of the economy and the market.

The below data includes the companies who have reported to-date in Q4 [~90%]. It was compiled with data from various sources, including FactSet and our market research team at Albion.

Earnings.

Of the over 450 S&P companies who have reported, ~66% have beat EPS expectations [trailing four quarter avg., ~73%]. The avg. beat above the estimate is 3.6%. The sectors seeing the largest EPS delta over expectations are Industrials and Technology, at 8% and 9%, respectively.

Earnings growth for the quarter is clocking in ~5.5% Y/Y. If you strip out results from AAPL and AIG, growth drops to ~1%. This will be the first quarter in eight where companies failed to reach double-digit profit growth.

Eight of the ten S&P sectors have reported earnings growth for the quarter, led by Industrials, Technology [~13% each] and Energy at ~7%. The worst were Materials and Telecom at -14% and -29%, respectively, followed by Utilities, roughly flat.

Revenue.

Aggregate revenue growth for S&P 500 companies is just over 7%. By sector, Technology is seeing the best growth at ~12%, followed by Utilities at just over 10% and Energy at just under 10%. Interesting enough [given the EPS decline for the quarter], the fourth position is Telecom at 9.5%. In the basement are Financials, just under 1% and Health Care at ~5%.

Guidance.

In a somewhat cautious sign, ~22% of companies have issued forward looking guidance. This is the lowest level since Q1 2009, and well below the historical avg. of ~32%. A number of companies have commented on their business conditions in Europe. Overall, companies have specifically expressed concerns about weaker sales and earnings in the region, headwinds to future growth due to less favorable foreign currency exchange rates, and general uncertainty about macroeconomic conditions. This is likely the reason for the lack of confidence in providing specific outlooks.

Also, as expected, there has been some activity slowdown in emerging markets. While this has had an impact on Q4 results and most companies’ near-term outlooks, most management teams expect this to be both slight and transitory. Indeed, the largest growth opportunities for many multinational companies are still in emerging markets.

FY 2011.

Aggregate revenue and earnings growth for the S&P 500 in FY2011 is 9.5% and 12%, respectively. Energy [21% and 31%] and Materials [15% and 30%] saw the best revenue and profit growth over the period, followed by Industrials [8.5% and 19%] and Technology[13% and 14%].

FY 2012.

Current expectations are for ~$105 in S&P 500 earnings [down from $113 in mid-2011]. At the Q4 run-rate, this represents ~7% growth. Top-line growth is expected to be ~3.5%.

In terms of current valuation, the current data assigns a trailing market multiple of 13.8x and a forward multiple of 13x. For reference, the 15-year mean multiple is 15.8x trailing and 14.7x forward earnings estimates.

Jason L. Ware, MBA
Market Strategist, Chief Analyst
Albion Financial Group
(801) 487-3700; (877) 487-6200

About Albion Financial

Established in 1982, Albion Financial Group is an independent, fee-only financial planner and investment manager located in Salt Lake City, Utah.