Thursday, March 14, 2013

Negative Earnings Forecasts At Highest Level Since ’01

The Standard & Poor’s 500 earnings results are looking pretty good for the fourth-quarter — but there are already some troubling signs for the first quarter of 2013.

In a research note released late Friday, Gregory Harrison at Thomson Reuters notes that there have been 89 negative earnings-per-share preannouncements — forecasts that are lower than consensus estimates — while only 20 have been positive. That gives a 4.5 ratio of negative to positive which, if maintained, would be the most negative ratio since the third quarter of 2001.

Caveats apply, of course: We’ve seen that estimates get lowered closer to reporting dates, for one thing, as companies themselves often talk down earnings only to “beat” expectations once they announce. But still, there does seem to be at least some cause for concern, as Harrison writes:

Consumer Discretionary companies are citing additional headwinds to consumer spending in the first quarter. The delay in tax refunds has deprived consumers of cash that would normally be spent, delaying purchases. Additionally, the payroll taxes increases that went into effect in the new year have reduced take home pay, further squeezing shoppers and making them increasingly price sensitive.

We’ve already seen one Wal-Mart Stores (WMT) executive call February’s sales a total disaster (though the company has done its best to gloss over his comments), which could be a sign of things to come. Harrison quotes Dollar Tree (DLTR) CEO Bob Sasser after the retailer gave first-quarter guidance 4% below consensus view:

The consumer is under pressure. Burdened and concerned, is the way we characterize the consumer right now. They’re facing not only higher payroll taxes but rising gas prices. And with the tax refunds being delayed, they really are under pressure. Overall less money to spend, and you add to that job concerns and uncertainty that everybody sees out there right now.

Not good.

Still, for those who wish to celebrate the good, let’s acknowledge the data which shows that, with 480 of the S&P 500 reporting, 69% of companies reported fourth-quarter earnings higher than expecations, above the 62% long-term average. The best performing sectors were technology, consumer staples and consumer discretionary. Says Harrison:

In aggregate, companies are reporting earnings that are 5% above estimates, which is higher than the 3% long-term (since 1994) average surprise factor, and is higher than the 4% surprise factor recorded over the past four quarters.

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