We are working our way through the Q1 2014 earnings season and now is a good time to take a breather and see how companies are doing. We will concentrate on US corporates since they often release earnings before their European counterparts.
The S&P 500:
- • So far 101/ 500 companies have reported earnings
- • Sales have come in line with expectations.
- • Earnings have beaten expectations.
- • The strong point has been earnings growth, which is already above 4%, even though there have been some notable misses including JP Morgan and McDonald’s.
- • Sales growth is less than 2%, which is close to the average of the last 4 quarters.
- • A healthy earnings season would see sales and profits rise together, but in recent years sales have lagged profits; it looks like this could be repeated for Q1.
There are still nearly 400 companies in the S&P 500 left to report earnings so things could change, however, Q1 earnings season has had an OK start, although it would be good to see a further pick-up in sales growth.
The Dow Jones:
- • So far 14/30 companies have reported earnings.
- • Results on the sales side have missed expectations.
- • Earnings have just about beaten expectations, but overall they have been close to market expectations.
- • Compared to Q4 2013 both sales and earnings growth is lower.
- • To boost growth rates the 16 companies on the Dow Jones left to report may need to exceed market expectations.
Overall, the Dow Jones has had a weak start to Q1 2014 earnings season and is being outpaced by the S&P.
Conclusion:
- • As you can see, earnings season has had a mixed start. Although the S&P is doing better than the Dow, the results are still fairly lacklustre.
- • This doesn’t seem to bother stock investors, and the S&P 500 is poised to open higher for a sixth straight day.
- • Do earnings matter? We believe they do, and as the S&P 500 and the Dow march towards their record highs at 1,897 and 16,631 respectively, we could see investors start to get nervous if earnings don’t pick up.
- • There is still some way to go and earnings highlights for the rest of this week include: AT&T, Boeing, Proctor & Gamble, Caterpillar, Verizon, and Merck & co.
- • After a fairly lacklustre start to Q1 earnings season, the companies yet to release results have a lot of heavy lifting to do on the earnings front if we are to see further upside in US stocks indices.
Figure 1:
S&P 500 sales and earnings surprises, including Q1 2014
Source: Bloomberg