You can tell from the activity and the lack of direction in the stock market that the much-anticipated fourth-quarter earnings season has, yet again, been another letdown.
Now I’m not saying the early results this earnings season have been that bad; it’s just that the numbers from corporate America have not been that great.
And with just four days remaining in January, the NASDAQ and Russell 2000 are slightly positive, while the Dow Jones Industrial Average and the S&P 500 are in the red. This creates some anxiety.
As many of you know, I have discussed my views on earnings and, more particularly, the revenue side. I don’t really care that companies beat earnings-per-share (EPS) estimates as many of these so-called sell-side estimates from Wall Street have been adjusted downwards to meet the lower expectations over the past few years.
It’s akin to analysts doing whatever they can to make sure companies can meet lower targets instead of demanding that companies deliver.
So far, the early numbers this earnings season suggest it’s more of the same—and perhaps slightly worse.
Of the 53 S&P 500 companies that have reported so far this earnings season, a mere 57% have managed to beat the mean average based on research from FactSet. (Source: “Earnings Insight,” FactSet, January 17, 2014.) And of the 101 companies that have offered guidance, a staggering 96 companies offered negative EPS guidance, while just 15 companies were positive in their assessment.
Folks, this is not good, considering that Wall Street has already been manipulating estimates. Plus, only 58% of these companies have beaten the mean sales estimates. Again, not good.
General Electric Company (NYSE/GE) met on revenues and earnings; albeit, the revenue growth of 3.1% is average at best.
Banks continue to beat in this earnings season.
McDonalds Corporation (NYSE/MCD) continues to fight lower sales and flat earnings this earnings season.
International Business Machines Corporation (NYSE/IBM) fell short on revenues due to weakness in China, while Texas Instruments was in line on earnings, but flat on revenues. Moreover, to cut costs, Texas Instruments announced it would slash about 1,100 jobs and save about $140 million this year. Again, cutting costs in response to lower revenues.
In the retail sector, luxury bag maker Coach, Inc. (NYSE/COH) fell short on its EPS, along with a six percent decline in quarterly revenues. Weak demand in North America was blamed. (Read “These Retail ‘Screw-ups’ Could Turn Things Around This Year.”)
The FactSet report said the blended revenue growth rate is only 0.3% in the fourth-quarter earnings season. This downright stinks. Information technology and health care were tops. Financials offered the lowest revenue growth.
Therefore, if the pattern remains the same for the other 447 S&P 500 companies yet to report this earnings season, I would be looking for the stock market to trade lower and the upside to be limited.