A Great Earnings Season

At Zacks, Dirk Van Dijk notes what a good earnings season it’s been:

It’s almost time to close the books on a fantastic earnings season. With almost 90% of reports in, there have been 339 that have exceeded expectations while only 62 have fallen short — a ratio of 5.47. While it is true that most companies will normally try to under-promise and over-deliver, this quarter the beats are beating the misses by about twice the normal margin of 3:1.
Nor have all the surprises only been by a penny or two, but there have been lots of companies that simply crushed their earnings estimates. The median surprise is a very high 7.11%. Over the last five years, a median surprise of about 3.0% has been normal. Part of the reason is that expectations were set very low going into the earnings season.
For most companies, their earnings are still below year ago levels, just not as far down as people thought they would be. Only 193 firms have posted positive year-over-year growth, versus 251 that have fallen short of year-ago levels — a ratio of 0.77.
The disparity between firms beating estimates but having negative year-over-year earnings growth is particularly noticeable in Tech, where the earnings surprise ratio is an awesome 9.25. However, the growth ratio (# of firms with positive growth/# of firms with negative growth) is just 0.49. A similar situation, but not quite as extreme, is true for Materials. Staples and Medical have been both growing earnings and beating expectations.
On the top line, it has also been a successful season so far (relative to expectations), but in terms of actual year-over-year growth it has been downright ugly The total revenues of the 444 firms that have already reported are 13.4% below year-ago levels. A total of 241 firms have reported higher-than-expected revenues, versus 176 that have disappointed, for a ratio of 1.37. On the other hand, only 127 actually had higher sales than a year ago, versus 314 with lower revenues, a ratio of 0.40. Put another way, only 28.6% of all firms reporting so far have had higher sales than a year ago.
In other words, cost-cutting has been the major force driving earnings and earnings surprises. However, the costs to one company are either the revenues of another company or someone’s paycheck, which is then spent to create revenues for firms. The bottom-up data coming out of all these individual firms seems to confirm what we have been getting from the government’s macro statistics. The economy is growing due to increases in productivity. Higher GDP with fewer workers.

Posted by on November 12th, 2009 at 3:54 pm


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