Monday, November 09, 2009

Third Quarter Earnings Derby: Bears on the Run

With only few companies left to report earnings for the third quarter, some striking trends are apparent in the data.
  1. For four consecutive weeks the % positive surprises have held steady at between 80% and 85%. This is the highest quarterly earnings-beat rate that I have ever seen and shows that US businesses are right-sizing their cost structures in a remarkable fashion. Alan Greenspan used to speak glowingly about the flexibility of American business management. This right- sizing of costs is vivid proof of just how flexible the average company in this country is.
  2. While the average earnings for all reporting companies are 15% lower than the third quarter of 2008, the results are better than the -20% estimate at the beginning of the earnings season.
  3. The positive average surprise has been nearly 15%, again an extremely high figure and higher than last quarter's surprise rate.
  4. Overall corporate sales are down approximately 12% from a year ago, right on Wall Street estimates. Wall Street analysts, however, are now estimating that both earnings and sales will be higher, on a year over year basis, for the fourth quarter of 2009.
  5. Larger companies are reporting better earnings than smaller companies.
  6. Multi-national companies are reporting better earnings than domestic companies, as a result of their greater global sales, as well as the falling dollar.
Revenues and earnings for major US companies are estimated to be higher in 2010 than in 2009. The coming year will likely be the first up year for earnings since 2007. In the face of this "on balance" good news, the path of least resistance for stocks is up. The ferocious roars of the bears is increasingly sounding like the wailings' of ghosts of nightmares past.