Tahoe-Truckee Market Beat: Third quarter earnings update
November 30, 2015
Corporate earnings are the main driver of stock prices. Earnings reporting for the third quarter is just about over. So far, 98% of S&P companies have reported.
According to date from FactSet, earnings have declined -1.3% in the third quarter. Earnings also dropped in the second quarter, and this is the first back to back quarterly earnings decline we've seen since the second and third quarters of 2009.
Even though we had a falloff in earnings, 74% of reporting companies did beat their average estimate.
Revenues also fell last quarter. The revenue decline for the third quarter was -3.9%. This is the third consecutive quarter of revenue declines and the first time we've seen three consecutive quarters of falling revenues since 2009.
Telecom services was the best performing sector with a growth rate of +23.5%. AT&T contributed the most to the earnings growth of the Telecom sector.
The next best performing sector was Health care with a growth rate of +14.7%, led mostly by the Biotech industry. The third best performing sector was Consumer Discretionary which was lead by the Auto industry and Internet Retail. Growth for the Consumer Discretionary sector came in at +13.3%.
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The worst performing sectors were Energy followed by Materials. Earnings for the Energy sector were down -56.8% and Materials dropped -15.8%.
The worst industry in the Energy sector was Coal and Consumable Fuels which was down -410%, and the worst industry in the Materials sector was Metals and Mining with an -82% drop.
The strong dollar and the low price of crude oil were some of the economic factors that contributed to the earnings decline.
US multinational corporations that generate revenue based in foreign currencies have been adversely impacted by the strength of the US dollar.
The low oil price has affected the Energy sector, though it has benefited the consumer at the gas pump. Personally, I like the lower prices at the pump.
According to the AAA, the national average for a gallon of unleaded gas is $2.04 and a year ago it was $2.78. That savings goes directly into consumers' pockets to be spent elsewhere or be saved.
Current forecasts for the fourth quarter are for the trend of declining earnings and revenue to continue. Earnings and revenue growth are expected to return in 2016.
The earnings forecast for the fourth quarter predicts a decline of -4.2%. The forecast for the first quarter of 2016 anticipates earnings growth of +2.1%.
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.