GOLDMAN: Four Key Themes Have Emerged From This Earnings Season So Far

david kostin

Photo: Bloomberg TV

Last week was a huge week for companies reporting earnings, with 18 per cent of S&P 500 companies who announced results.This week will be even bigger for investors as 34 per cent more of the companies in the S&P 500 index are set to announce their earnings results.

Goldman Sachs chief U.S. equity strategist David Kostin identifies “four key themes” that have emerged out of this earnings reporting season so far.

Kostin writes in a note to clients what his team is paying attention to:

1. Sales disappointed more than earnings. 15% of ex-Financials and Utilities companies have posted positive revenue surprises by beating consensus sales expectations by at least one standard deviation (below the historical average of 36%) and 31% have missed sales estimates by that magnitude, versus 18% historically. Earnings results are closer to historical averages. 37% of firms beat earnings estimates and 13% missed. On average, 41% of companies beat expectations and 13% miss. 

2. Lower volumes, international exposure, and FX sensitivity are recurring themes across sectors. Weaker 2Q economic growth in Europe and Asia along with dollar strength impacted sales of internationally- exposed companies in industries from Pharmaceuticals to Semiconductors. 

3. Companies missed on sales, but margin levels are declining. Trailing four quarter margins peaked at 8.9% in 3Q 2011 but fell in subsequent quarters. Consensus expects further margin decline in 2Q to 8.7%, in line with our full-year margin forecast. 

4. Although revenues missed expectations, aggregate earnings are above the bottom-up consensus pre-season estimate. Supported by Financials beats, 2Q 2012 operating EPS is tracking 1% above consensus estimate at the start of the season. However, earnings ex-Financials and Utilities are in line with forecasts. Because 2Q sales ex-Financials and Utilities are tracking 0.7% below estimates, 2Q margins are slightly ahead of forecast but measured on trailing four-quarter basis show a decline.

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