Tuesday, January 27, 2015
Earnings remain front and center in today’s session, with soft results from a number of industry leaders weighing on investor confidence. Today’s reports spotlight companies lowering guidance due to a combination of global growth worries and currency issues.
The tone and substance of this morning’s long line-up of Q4 results (more than 30 S&P 500 members are reporting results today, including 21 this morning) is overwhelmingly soft. That’s the takeaway from looking at this morning’s reports United Technology (UTX), 3M (MMM), DuPont (DD), Caterpillar (CAT) and others.
Including this morning’s reports from these and other companies, we now have Q4 results from 119 S&P 500 members that combined account for 34.6% of the index’s total market capitalization. Total earnings for these 119 companies are up +2.7% from the same period last year, with 71.4% of the companies beating earnings estimates. Total revenues are up +2%, with 40.3% beating top-line estimates.
This is weak compared to what we have seen from the same group of companies in recent quarters – the earnings and revenue growth rates are lower, and fewer companies are coming out with positive revenue surprises.
Of today’s releases, the Caterpillar report is particularly notable as it plays directly into the ongoing global growth worries. The company not only missed Q4 estimates, but guided materially lower for 2015. They are guiding towards 2015 EPS of $4.75 on $50 billion in revenues, significantly below the current Zacks Consensus for 2015 of $6.69 in EPS on $54.6 billion in revenues. The company is blaming developments in the oil patch for its lowered guidance. But in a larger sense, the oil story is essentially a reflection of the global growth picture.
Caterpillar’s oil exposure has come as a surprise to a lot of us, though we all understood that the commodity’s sharp fall would be a drag on the Energy sector companies. We see that play out in the lowered estimates for the Energy sector for Q4 as well as the current and following quarters. In fact, the magnitude of energy-driven negative revisions for 2015 Q1 and Q2 is so severe that the first half 2015 earnings growth rate for the S&P 500 index as a whole has almost evaporated.
It is perhaps reasonable to expect that, in the long run, oil’s pain will be the consumer’s gain. But we will likely have to wait quite a bit to see that in the aggregate earnings data – we are definitely not seeing that in the earnings numbers in front of us.
Sheraz Mian
Director of Research
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