This Just In: Your Halftime Report for Earnings Season

Just two days ago, 121 million people tuned in to watch the New England Patriots defeat the Seattle Seahawks in the Super Bowl.
Pundits and numbers-crunchers speculated about the outcome for months and the stakes were high – Americans spent an estimated $14.3 billion on Super Bowl parties alone. With the game tied at halftime, commentators marveled at the perfect setup for an exciting second half.
We’re now halfway through earnings season. Like the Super Bowl, pundits and numbers-crunchers have been speculating for months and there are huge numbers involved – the S&P 500 is now worth more than $13.4 trillion.
Like the Super Bowl, the score at the halftime of earnings season score is pretty even, with some clear winners and losers from around the economy.
Each week during earnings season FactSet publishes a report updating investors on the progress of corporate earnings. Now that 227 of the S&P 500 companies have reported, this is an excellent time for an earnings season halftime report.
Here are some key facts and figures.
80% of reporting companies have beaten their earnings per share – EPS – estimates. This is the highest percentage of upside EPS surprises since the first quarter of 2010.
Companies in certain sectors are beating EPS estimates more often than those in other sectors. The chart below illustrates the sector-by-sector comparison.
2.3.15 Earnings EPS High Low
Some 93% of companies in the Materials, Health Care and Information Technology sectors have reported EPS higher than estimates. These sectors are frequently traded using the SPDR Materials ETF (NYSE: XLB), the SPDR Healthcare ETF (NYSE: XLV) and the SPDR Technology ETF (NYSE: XLK).
The Utilities sector has the lowest percentage of companies that are reporting EPS higher than estimates, only 25% of reporting companies. This sector is most often traded using the SPDR Utilities ETF (NYSE: XLU).
Companies in the Information Technology sector are reporting the biggest average upside EPS surprises, with average EPS 8.2% higher than estimates. The chart below illustrates some of these upside surprises and just how big they’ve been. Most notable are Netflix (NASDAQ: NFLX) and (NASDAQ: AMZN).
2.3.15 Top EPS Surprise
On the other side of EPS surprises we find the Financial sector, in which the average EPS report is 2.8% below estimates. Some notable earnings misses include Citigroup’s (NYSE: C) EPS of $0.06 versus the $0.10 expected by analysts and Discover Financial Services’ EPS of $0.87 compared to an expected $1.30 per share. This sector is commonly traded using the SPDR Financial ETF (NYSE: XLF).
The chart below illustrates the worst earnings surprises so far this season.
2.3.15 EPS Bottom Surprise
The Health Care sector is reporting the highest revenue growth out of any sector, an average of 10.2% revenue growth. Meanwhile, the Energy sector – traded using the SPDR Energy ETF (NYSE: XLE) – is reporting the lowest revenue growth, a decline of 14.5% year over year.
Not too surprisingly, the Integrated Oil & Gas companies are reporting the worst revenue figures of any industry in the sector, an average decline of 22%.
2.3.15 Earnings Revenue High Low
Interestingly, the Energy sector is having a big impact on the overall revenue growth rate for S&P 500 companies. The average year-over-year revenue growth rate of 1.4% would be 4% if the Energy sector were excluded.
U.S. consumer and business spending remains a huge part of S&P 500 earnings. Roughly 69% of sales generated by S&P 500 companies come from North America, with most of that coming from just the U.S.
In its mid-January earnings announcement, the CEO of railroad CSX (NYSE: CSX) spoke of the impact that cheap oil is having on the economy and the U.S. consumer. When asked a question about whether the negative effects of declining oil and gas spending were outweighing the positive effects of cheap gas, CSX CEO Michael Ward offered this:

“For us, the crude by rail is less than 2% of our business. For the average U.S. person, it’s like getting a tax break of almost $2,000 a year, so it puts a lot of dollars into the economy. From any indication that we see, it’s a positive experience for the American taxpayer, for the American economy, so I think lower crude oil prices is very positive for our economy and very positive for CSX.”

Looking forward, future earnings guidance appears to be coming in weak. Of the 46 companies that have offered earnings guidance, only nine of them have issued positive guidance. This means that the negative guidance rate is 80% at the moment. Analysts are also cutting earnings estimates for the first half of 2015.
Though this may be warranted, cheap oil is putting money in the pockets of consumers and businesses that are likely to spend it elsewhere. The weak guidance and lowered expectations may be setting the market up for major upside surprises later in 2015.
100 companies report this week with another 178 left to report following that. Stay tuned to our earnings season coverage as we bring you the latest earnings news that affects our economy and your portfolio.

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