Tag Archives: S&P Earnings Update

Earnings Update, A Theme…Beat on Bottom Line, Miss on Top (Explained)

As we started the most recent 90 day treadmill, the bar of expectations had been lowered dramatically for most with a negative expected growth rate year over year, leaving many management teams with an attainable target. This treadmill’s theme has been an interesting one and has garnered the nick name, “Beat on Bottom, Miss on Top” ….here is an update and a definition.

Beating on the bottom line refers to beating expectations in bottom line net earnings, and for the top, missing expectations on sales. If we took a much more common negative view (Zag says hello) we could follow the herd and say management teams are controlling the biased Wall Street analysts.  Our high road statement is a positive, “Well Done Guys” you have done more with less and made lemonade out of lemons in some  cases. Keep it up!

Here is the latest report from S&P:

Have a super start to your week and remember, the Fed Speaks this week AND we start the client named, J.K. Financial, Inc. – Technology Black Out tomorrow at 3 pm…..fingers crossed, well wishes accepted…haha

JK

214-706-4300   www.jkfinancialinc.com

Earnings Season AKA 90 Day treadmill is here….expectations versus realities

Today Alcoa (AA) unofficially kicks off earnings season. While we are uncertain as to how this company has become the name sake for the beginning of earnings season (90 day treadmill) we acknowledge the line must be drawn in the sand somewhere, and that we are digressing.

For many Wall Streeter’s the infamous 90 day treadmill (earnings season comes at you like a perpetual treadmill every 90 days, such the name) is all about expectations versus realities. Continually companies cleverly manage expectations down throughout the quarter only to surprise to the upside, although not in all cases.

Here is a chart from Standard and Poors of Q2 2012 earnings for the S&P 500 from a year ago until lately.

Clearly a year ago, this quarter’s earnings had greater expectations, however as of late, this seems very doable.  The devil is always in the details and we will see how the macro economy has changed managers outlooks.

While the fourth of July marks the official start of vacation season for many on Wall Street (expect lower trading volumes), sometimes also known as the summer doldrums, given the awkward Wednesday holiday last week, we will be in full throttle mode this week, so keep those email boxes empty as we have a lot of catching up to do!

Have a Great Week! We will be in touch a lot this week!

JK

214-706-4300 www.jkfinancialinc.com

90 Day Treadmill Under Way !

For those new to our writings and as a short refresher to regular’s, we monitor quarterly earnings expectations and results as a way to gauge the health of the current economy as well as the capital markets. Our pseudo negative term, “90 Day Treadmill” comes from the constant push from wall street to meet expectations on a quarterly basis, which is somewhat short-sighted but constant.

At the commencement of earnings season, according to Thomson Reuters here are the expected numbers:

Overall for Q1 2012, earnings for the S&P 500 are expected to grow a meager 3%, much slower than the last several quarters.

Top 3 Expected Growth Sectors:

  • Industrials  10.8%
  • Financials  8%
  • Technology  7.8%

Bottom 3 Expectations:

  • Telcom  -14.4%
  • Materials -12.9%
  • Utilities  -9.3%

The S&P 500, according to Thomson Reuters is currently trading at a 15.1 P/E which is near the long-term average. Given the slow growth expectations and an election year, this may be a stretch in valuation unless earnings surprise.

Have a Great Day and a Super Weekend!

JK

214-706-4300

www.jkfinancialinc.com

Earnings Season (90 Day Treadmill) Winding Down, How Did We Do?

As of today approximately 90% of all S&P 500 companies have reported according to Thomson Reuters. In an effort to not forget the forest for the trees, we wanted to review the results.

Earnings Season

In our earlier Earnings Season post on April 14th, at the beginning of earnings season, we mentioned expectations of “….S&P 500 Growth this Quarter versus the same Quarter a year ago (Y/Y): 11.6%…..” 

Shortly there after, in our slightly silly Gomer Pyle post, Surprise, Surprise… just a week into earnings season we noted earning season was off to a very strong start. The positive reports continued and actually accelerated.

Through today, S&P 500 Growth this Quarter versus the same Quarter a year ago (Y/Y) is up a whopping 19.5% versus the expected 11.6% as we entered earning season just a few weeks ago.

As was expected, but not to the magnitude, the Materials Sector has had a 51% growth versus a 35% expected growth rate and the Utilities Sector brought up the rear with an approximate flat year over year (Y/Y) growth.

Here are a couple of interesting notes from or point of view:

  1. With actual earnings coming in at almost 20% versus expectations of 11.6% the S&P 500 has not moved much. (This is a good thing in our opinion as it may help the capital market earnings catch up to the advanced appreciation we have had so far in 2011.)
  2. Analysts are not raising their estimates as of yet, even with the good quarter under their belt. Thus far estimates revisions have actually been down for the next quarter, in “What have you done for me lately,” format. (This is also good, from our view, in that we would rather estimates be too low than come crashing down in later quarters.)

As we close the loop on the last 10% of S&P 500 companies to report, there is certainly the possibility of change, however we feel this earnings season is mostly in the book, and will go down as a very good one.

Have a Good Day!

JK

Earnings Update, The P/E Ratio, Frozen Tundra (DFW Texas), Travel Schedule

In our earlier Earnings (90 day treadmill) update and Economic post we mentioned we would update the earnings picture and also add a few “Non Wall Street” examples for simplification.

According to Thompson Reuters, 44% of the S&P 500 Companies have now reported (90 day treadmill) with 77% beating expectations with about a 5% upside surprise.

An Example of why we watch this: The P/E  Ratio, One of Many Factors

As promised earlier, we wanted to simplify a “Wall Street” lingo item and explain how it impacts the capital markets.

Most of you are familiar with home ownership and purchasing, so let’s use price per square foot as a simple example to demystify a bit of “Wall Street” lingo. Think of P/E (Price divided by Earnings) as a parallel to price per square foot of a home. As the value of the capital markets increases, earnings must also rise in order for the Price Per Square foot (P/E) not to go up as well. 

Is it as simple as that? Well not really

As an economy runs through a normal economic cycle of peaks and troughs of earnings growth, the P/E will expand as earnings grow and shrink as earnings fall.  

There is one other item, market participants put the greatest importance on future earnings, so estimated profits and company predictions are much more important than current earnings. 

The average forward P/E ratio is around 15, depending on the time frame measured, again think of this as Price Per Square Foot.

So where are we now?

According to our favorite service AFG View, the S&P 500 is trading at a forward 14 P/E and expected growth rate of 12%.

This has quickly become more detailed than I had originally intended, so in order to keep your eyes from glazing over further, I will move on and expand more in the future.

Frozen Tundra in DFW

Last night, meteorologists correctly predicted a cold blast here in the Dallas

2-1-11 Kvale Home Dallas Texas

 Fort Worth Area, as such, the local area is moving rather slow this morning as it is debatable on local driving skills given normal weather conditions! HaHa

Travel Schedule

Not withstanding the weather conditions, I will be traveling to San Diego CA tomorrow afternoon, fingers crossed for a timely departure, for an excellent investment related conference. My return should be interesting on Saturday as many last-minute Super Bowl attendees will most likely share our return destination.

Have a Great Day !

JK