Wednesday, February 11, 2015
Greece is in the spotlight again, as EU officials come together to consider giving the country a 6-month bridge loan that will allow it the flexibility to negotiate a longer-term deal with its creditors. Greece’s existing credit facility expires at the end of this month.
The sticking point is the newly elected Greek government’s electoral promise to ease the austerity measures imposed on the country as a result of its last bailout by its troika of creditors comprised of the IMF, the ECB and the EU. Both sides – Greece & its creditors – have dug in their heels to extract the most from the other side; with the resulting brinkmanship adding to market uncertainty. “Grexit,” which would be a direct outcome of the failure of these negotiations, is the price that no one would like to pay.
On the earnings front, including this morning’s reports from Pepsi (PEP), Time-Warner (TWX) and others, we now have Q4 results from 355 S&P 500 members that combined account for 80.4% of the index’s total market capitalization. Total earnings for these companies are up +6.5% from the same period last year on +1.5% higher revenues, with 71.3% beating earnings estimates and 55.8% beating top-line estimates.
The Retail sector is the only one at this stage with more than half of its results still awaited. Total earnings for the 48.6% of the Retail sector’s market cap that have reported Q4 results are up +1.8% on +9% higher revenues, with 68.4% beating EPS estimates and 57.9% coming ahead of revenue expectations. This is actually a better performance relative to what we saw from the same group of retailers in Q3.
Retail has been under pressure for some time. But the hope is that the windfall from lower energy prices will start showing up in the sector’s results at some stage. We haven’t seen much evidence of that in this earnings season yet, but with plenty of the industry leaders still to report results, we may still hear about it in the coming days. Retail stocks’ relatively stronger performance in the recent past is a reflection of this expectation.
Energy drag as a result of weak oil prices notwithstanding, the beat ratios and earnings growth rate in Q4 thus far are roughly in-line with what we have been seeing from the same group of companies in other recent quarters. But revenues are on the weak side. Importantly, estimates for the current and following quarters have been coming down sharply, with the Energy sector again playing a leading role. As mentioned before in this space, the entire expected growth rate for the first half of the year has effectively disappeared in recent days.
Sheraz Mian
Director of Research
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