Tahoe-Truckee Market Beat: Breaking down first quarter earnings
May 17, 2016
Earnings reporting season for the first quarter of 2016 is just about over, and it didn't yield too many major surprises. Corporate earnings are the main driver of stock prices.
The bar was set pretty low going into the earnings reports. At the end of March, the consensus S&P earnings forecast was for a decline of minus -8.8%, so expectations were not very high.
The stock market is a forward looking mechanism, which typically looks out about six months ahead. So the relatively poor earnings were to be expected. As of Friday, March 13, the S&P 500 was up +0.13% year to date. As I write this, the S&P is already up another +1.18% Monday with about an hour of trading to go before the close.
According to data from FactSet, so far about 91% of S&P companies have reported, so the season is just about over with. Of the companies that have already reported, 71% have beaten their earnings estimate and 53% have exceeded the mean sales estimate.
The total earnings decline is minus -7.1% which is a little bit better than the minus -8.8% forecast back at the end of March. Still this is the fourth consecutive quarter of lower earnings and the first time since the fourth quarter of 2008 through the third quarter of 2009 that we've seen four consecutive quarters of earnings decline.
The best performing sectors for the first quarter were Consumer Discretionary with a growth rate of +18.6% and Telecom Services with a +16.6% growth rate.
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An interesting story within the Consumer Discretionary sector was the growth of the Internet Retail sub- industry which grew +143% and the drop in earnings in the Department Stores sub-industry which had a decline of minus -48%. The Telecom sector was lead once again by AT&T.
Energy was the worst performing sector once again, primarily due to the drop in the price of crude oil. Oil has rebounded recently so maybe the worst is over for the Energy sector.
Earnings for the Energy sector were down -107.22%. If you exclude the Energy sector from the S&P earnings would only be down -1.8% instead of -7.1%.
The Materials sector was the next worst performing sector with a drop of -14.4% and the Materials sector was followed by Financials which was down -12.2%.
Earnings and revenue growth are projected to resume in the second half of this year.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.