Tahoe-Truckee Market Beat: Second quarter earnings update
August 8, 2016
We're more than halfway through second quarter earnings season, and so far the results have been a little better than the expectations.
According to data from Factset, 63% of S&P companies have already reported, and 71% have reported earnings above the forecast, while 57% have had sales better than the estimate. The current PE or price to earnings ratio for the S&P 500 is 17 which is above the both the five and ten year average.
Earnings were forecast to drop again this quarter and if they do it will be the fifth consecutive quarter of earnings declines and the first time that has happened since Q3 2008 through Q3 2009. So far, the net earnings drop has been minus -3.8%.
Once again the worst performing sector has been the Energy sector, due to the low price of crude oil. Earnings for the Energy sector are down -85.6%. If the Energy sector was excluded from the S&P, earnings would currently be a positive + 0.1%. Five of the six sub industries in the Energy sector have reported year over year decreases, with the only exception being Oil and Gas Storage and Transportation.
The next worst performing sector has been Materials, led by the Chemical industry. The Materials sector is down -8.2% and the Chemicals industry is down -12.0%.
Consumer Discretionary has been the best performing sector with a growth rate of +9.4%. The sector has been led by the Internet & Catalog Retail industry which was up +80%.
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Amazon had a good earnings report and recently surpassed ExxonMobil in market cap to become the fourth largest company in the United States. Consumers are continuing to favor Internet shopping over brick and mortar stores. Automobile sales and Household Durables were also strong over the last quarter.
Telecom services had the next best growth rate at +7.2%. The Telecom services sector was led by AT&T.
One bright spot has been in revenue growth. So far, revenue growth has been +0.1%, and if this continues, it will be the first time we've had growth in revenue since the fourth quarter of 2014. Revenues declined through all of 2015 and in the first quarter of 2016.
The forecast is that we'll return to earnings growth in the fourth quarter of this year and that earnings will be positive overall for 2016.
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.
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