Courtesy of Mish.
For the first time in three years, US Quarterly Earnings are Poised to Drop.
Third-quarter earnings of Standard & Poor’s 500 companies are now expected to fall 0.1 percent from a year ago, a sharp revision from the July 1 forecast of 3.1 percent growth, Thomson Reuters data showed on Thursday.
That would be the first decline in earnings since the third quarter of 2009, the data showed.
Earnings in the tech sector are now expected to rise only 5.8 percent — less than half the forecast of 13.1 percent growth, according to an estimate at the start of the month, Thomson Reuters data showed.
The materials sector is forecast to see an earnings drop of 11.4 percent for the third quarter, worse than the forecast of a 3.3 percent decline at the start of July, Thomson Reuters data showed. Slumping commodity prices and reduced demand from China have hurt that sector.
Sales Look Worse Than Earnings
While earnings performance has held up so far for the second quarter — with results in from about half of the S&P 500 companies — revenue has looked much gloomier.
Just 41 percent of companies have beaten revenue estimates, the lowest since the first quarter of 2009 and only the fourth time in the past 10 years that the beat rate was under 50 percent.
Revenue growth is expected to have increased just 1.2 percent for the second quarter, Thomson Reuters data showed.
Don’t Worry Companies Will Still “Beat the Street”
In spite of those downgrades, history suggests corporations will still “Beat the Street”.
even in 2008 and 2009 the majority of firms beat estimates. Here is the way the process works:
- Corporations give analysts “tips” regarding profit expectations.
- Those profit expectations are purposely low.
- Wall Street analysts lower estimates, if necessary, as the quarter progresses such that corporations can “beat the street”.
- If corporations are going to miss and need an extra penny, they change tax assumption or make other “one time” adjustments as necessary.
- Corporations beat the street by a penny with “pro-forma” (after adjustment) reporting.
Percentage of Companies that “Beat the Street” …
