Friday, October 23, 2009

Third Quarter Earnings Derby: The Beat Goes On

Third quarter S&P 500 earnings results for the first two weeks of the season are running far ahead of Street estimates. Importantly, sales are also faring much better than expected. Here's a short breakdown of the results thus far for the S&P 500 companies: Earnings Reported through Friday Positive Surprises: 146 Negative Surprises: 25 % Positive Surprises: 85% Year over Year earnings growth for reporting companies: -14% This is just short of remarkable. Last quarter the beat ratio was 75%, the highest in many years. The beat ratio of 85% so far this quarter is far higher than we expected, and we were as optimistic as anyone that earnings would again be better than Street estimates. In addition, the growth for all reporting companies stands at a minus 14%. Just prior to the beginning of the reporting period, the consensus estimate was for a negative 20% year over year earnings growth rate. Revenues for Reporting Companies Positive Surprises: 112 Negative Surprises: 60 % Positive Surprises: 65% Year over Year revenue growth: -2.8% The picture for revenue surprises is far less striking than earnings surprises. However, overall, revenues are much better than expected. The most important data, perhaps of the whole list is that average year over year revenues are down only 2.8%. Prior to the reporting period, revenues were expected to be down more than twice that amount. Two weeks do not a season make, but thus far, with many important companies reporting, S&P 500 companies are knocking the socks off of Street earnings estimates. The common thread among the good earnings reports is cost control. American companies are just doing an amazing job of right-sizing costs. If this beat-ratio continues, I believe that stocks will continue to move higher in the weeks and months ahead. I'll update next week. Data courtesy of Bloomberg.