Article / 09 October 2012 at 11:06 GMT

The S&P 500 earnings season starts today: A helicopter view

Strategist & Equity Analyst / Private

Executive summary

  • This week on earnings is relatively quiet; Alcoa, Chevron report today.
  • Next week the season kicks off in earnest; 84 companies reporting
  • 2012 EPS y-o-y growth estimates fall from 7.7% to 6.9% in 3 months
  • Q3 Consensus EPS has declined - potential for a surprise.

The earnings season begins today, even though some companies have already reported on Q3. The market sees earnings reports from companies closing their books end of quarter as the “real” first companies in the season. This quarter we start with Alcoa, as usual, along with Chevron - so two big names today.

Taking a step back
This article is meant to provide a helicopter view of the season in broad terms, as opposed to what the individual companies are doing in terms of sales and earnings.

When are companies reporting?
At first the season will commence in a modest pace, but next week and the following will include a substantial number of reports, see chart 1, and then the season fades. On each of the reporting dates the sectors are also shown, making it easier to point out where some sectors are heavy in terms of reporting. For example Financials are particularly well-represented on  October 17th and 18th.

SP500 earnings season profile

Every company does not have equal impact, and market cap plays a role when we look at when the season will peak and when it will end. Looking at chart 2, the aggregated market cap is shown.  As described in Chart 1, it is clear that this week does not represent much market cap, but that after next week and week following, 80 percent of market cap will have been released. After November 1, the season will have less and less market impact.

SP500 earnings season profile, market cap

Where are we now in terms of numbers
Since the last season, we have seen EPS numbers retreat, and all years 2012-2014 have declined in the range of 0.8-2.0 percent with the brunt of the declines coming to EPS estimates for 2013, see table 1. This is no surprise, as we are well into 2012 and the full year is harder to move. But we are getting closer to 2013, and EPS changes going forward will influence estimates for all of 2013, and therefore create bigger swings. EPS for 2014 is mostly guesswork, so changes there are more a reflection of correlation with 2013 and less of real conviction.

Table of SP500 earnings

Overall EPS growth for 2012 as it's currently seen is only a meager 6.9 percent, and has declined for estimated 7.7 during last season. The development of consensus expectations described above is also reflected in chart 3.

SP500 Consensus Earnings, annual

The annual EPS covers up some interesting shifts, as it has not been homogeneous quarter by quarter. Looking at chart 4, shows that the earnings in Q2 season surprised so much that earnings almost clawed back the decline from USD26 to USD25 up to the Q2 season. But at the same time, analysts did not see this as a permanent improvement, as EPS downgrades accelerated and have been kept low for a long a time with a small lift lately.

SP500 Consensus Earnings Quarterly

Factors that play a role
The first half of 2012 was helped by warm weather. This cannibalized for the remaining year, so its fair to assume that earnings have been front loaded. The escalation of the European Crisis which also could potentially put a dampener on estimates. USD did turn strong while EUR was sold off for more safety, and this could harm US exports and net income.

There have been many factors holding analysts back from lifting their estimates. This does leave some room for a Q3 surprise, which could underpin the market.

Sector numbers
Analysts have been cutting estimates since end of September in three sectors in particular: Consumer Staples, IT and Materials. Continued pressure on input costs could be the reason we are seeing estimates for EPS go lower. Intel posted a warning, which could be the EPS culprit when it comes to IT. With regards to the Materials sector, we have seen lower market prices and a continued decline in estimates on world growth which is not helping a cyclical sector like materials.

Consensus earnings on SP500 sectors

Since the Q2 season, one sector has had a tremendous hike in EPS and this has been the Telecom sector, where EPS has risen no less than 23.5 percent. This is in stark contrast to declines in all other sectors. 

Rest of the reporting season
We will follow up as the numbers aggregate. We will take a summarized approach, but also dig into numbers if they seem to divert from the “norm”, and we will look to find answers and how this might influence investments. Stay tuned and we will keep you informed you about the season.

A list of companies reporting this week.


I plan to publish several more articles about the Q3 earnings season over the next three to four weeks.  If you would like to be notified by email whenever I publish these stories, become a member of and follow me or the topics of your choice. Joining is free, and you can sign in with Facebook, Twitter, LinkedIn or Google.


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