4Q 2013 Earnings On Track; No Reason For Doom And Gloom

A Goldman Sachs Portfolio Strategy Research report published last Friday highlighted the fact that fourth quarter 2013 S&P 500 (INDEXSP:.INX) earnings are steadily improving after a rocky start. GS analysts Amanda Snelder et al. argue that earnings beats last quarter are above historical averages and that companies continue to report strong overall top-line results.

By the same token, the Goldman Sachs team suggests the current market downswing is not a major worry as earnings are still on track for 7% growth in 2014 according to their internal projections.

4Q earnings on track

The GS report points out that although the 4Q 2013 earnings season got off to a slow start, overall earnings results have improved significantly now that we have seen results from over 80% of the S&P 500 (INDEXSP:.INX). “The percentage of earnings beats rose to 47% from 39% last week. Firms beat estimates by 3.7% excluding the impact of accounting adjustments. Using a mix of realized and consensus earnings, S&P 500 4Q EPS is now expected to be $29.07. 2013 operating EPS is currently $108 (12% growth).”

The analysts also highlight relatively strong overall top line results for S&P 500 (INDEXSP:.INX) components. “40% of firms beat consensus sales expectations by more than one standard deviation (vs. ten-year average of 35%). 12% of firms have disappointed on sales by that magnitude (vs. 20%).”

Continuing increase in negative guidance

It seems negative guidance has actually become the norm rather than the exception. Among the 81 companies who provided full-year 2014 guidance following their 4Q earnings announcements, 77% of the firms guided below consensus analyst expectations. That is a solid 12% more than the historical average of 65%. Snelder et al. also mention that median company guidance came out around 1% less than analyst consensus.

Health care and IT sectors strong

The GS report also highlighted the relative revenue strength in the health care and IT sectors in 4Q 2013. “76% of reported Health Care companies and 56% of reported Info Tech firms exceeded consensus sales estimates. Info Tech and Health Care represent about 30% of reported companies, but half of revenue beats. Despite revenue beats, Information Technology sales fell 1% relative to the 4Q 2012 sales level.”