Article / 28 October 2015 at 10:32 GMT

Earnings Watch: Consumer sector revenue grows briskly in Q3

Head of Equity Strategy / Saxo Bank
  • Revenue in the consumer discretionary sector grew 5.7% y/y in Q3
  • Consumer sector boosted by low energy prices
  • Weakest sectors energy and materials, hit by decade-low commodities prices
  • Companies generally delivered on Q3 EPS expectations, many missed on revenue
  • IT stocks, driven by big names, have performed very well

Shopping mall
Cheaper petrol means more shopping. Low energy prices have helped boost  revenues 
and profits at consumer sector companies in the third quarter. Photo: istock 

By Peter Garnry

With third-quarter results now in from around a quarter of the companies in the S&P 1200 Global Index, we have sufficient data points to draw more detailed conclusions about what's happening among global companies.

Weak spot: revenue vs expectations
The earnings season started out with weak numbers across the board, but they have gradually improved as more companies have reported. The median sales surprise is negative 0.3%, but the EPS surprise is 2% so companies have in general delivered on EPS.

Median revenue growth is 1.3% year-on-year, adjusted net income growth is 1.7% y/y, while EPS growth is 4.6% y/y. Excluding the 14 energy companies that have reported results does not change the picture much. So the overall conclusion, based on current data, is that companies are still growing revenue and profits but at a low pace.

Low energy prices boost consumer sector
The big winner in terms of growth is the consumer discretionary sectors, with revenue up 5.7% y/y, driven by high growth at companies such as Amazon (23.2% y/y), H&M (18.6% y/y), Lennar (23.7% y/y), Under Armour (28.4% y/y), Netflix (23.3% y/y) and Kia Motors (14.9%).

Revenue growth across sectors
Source: Saxo Bank, Bloomberg

The weakest sectors are energy and materials, which have seen sharp declines in revenue driven by decade-low commodity prices.

Despite strong numbers among consumer discretionary stocks, the materials sector is the one that is pulling ahead in terms of returns, which are up quarter-to-date more than 12% in local currency. IT stocks have also performed extremely well, but are more driven by a few big names.

Total return QTD across sectors
Source: Saxo Bank, Bloomberg

The final chart in this earnings update shows that European and US companies have disappointed the most on revenue against expectations. The beat in Asia confirms our bullish Q4 call on emerging market equities.
Revenue surprise across regions
Source: Saxo Bank, Bloomberg 

Our next earnings update will show numbers across regions and highlight individual stocks across the regions.

— Edited by John Acher

Peter Garnry is head of equity strategy at Saxo Bank

dominom dominom
Thank you, I really appreciate your articles on earnings...
Peter Garnry Peter Garnry
Thanks dominom. As we eat through the rest of the earnings I will extend the amount of details. I intend to make a huge final piece slicing everything relevant from the numbers.


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