The majority of S&P 500 (.INX) index companies reported first-quarter earnings results beating estimates, while less than half beat their revenue estimates. Greg Harrison of Thomson Reuters in the earnings round up report notes that since the beginning of the second quarter, a majority of the S&P 500 index companies reported first-quarter earnings results beating estimates. However, on the revenue estimates front, less than half could beat their estimates.
The recent research report from Thomson Reuters reinforces the negative sentiment expressed in their previous report.
According to the recent report, many of the S&P 500 index companies issued negative guidance for the second quarter, though they were reporting better than expected first quarter results.
With analysts currently estimating earnings will grow 3.2 percent over the second quarter of 2012 and sales will grow 1.7 percent, Greg Harrison feels expectations remain low for S&P 500 index companies. Further, these estimates have come down from their estimates at the beginning of the second quarter, where earnings were expected to grow 6.1 percent and revenue 3.7 percent.
Conservative Guidance, Lower Estimates
According to Greg Harrison, with conservative guidance from management coupled with lower estimates from analysts, companies are once again having a low performance bar to clear. This scenario is reflected with eight of the ten companies posted positive earnings surprises, while only half of the companies could beat their revenue estimates.
This is evident from the following graph:
Greg Harrison observes in the recent result posted by Jabil Circuit, Inc, the company could beat its EPS estimates, though it missed on the revenue front.
The Thomson Reuters report concludes, with the second-quarter earnings results tricking in during the next two weeks, it would be interesting to see whether companies would continue beating lowered earnings estimates, while struggling to meet the modest revenue estimates.
Citigroup Shocked by Surge in Negative Earnings Preannouncements
In a related report, Citigroup Inc (NYSE:C)’s Tobias Levkovich in the latest note to clients expressed ‘shock’ by the surge in negative earnings made by companies in their pre-announcements.
The Citigroup Inc (NYSE:C) analyst considers earnings matter the most for equities. He predicts a somewhat bumpier road ahead for 2H13. Besides, FED tapering and European economic weakness could generate incremental fears. However, the U.S. economy is on the mend, with a variety of indicators providing optimism.
Citigroup Inc (NYSE:C) feels the surge in negative-to-positive pre-announcement trends makes 2009’s surge appear less worrisome. This is evident from the following graph:
Tobias Levkovich of Citigroup Inc (NYSE:C) feels some additional estimate cuts may be in the making when company managements provide more realistic 2H13 outlooks during later part of July’s earnings related conference calls.
Citigroup Inc (NYSE:C) also feels Europe, China and Brazil would potentially worsen the disappointment, though improving U.S. economic backdrop could assist estimates.
The analyst feels sentiment readings over the past several weeks have eased off of frothy levels. However, valuation also argues for less upside in the near term.