A review of fourth-quarter earnings season proves that earnings aren't everything.
Statistics through the close of January 26, 2010, show a high earnings beat rate, and more companies raising rather than lowering earnings guidance. But despite this positive earnings news, the market has sold off close to its support level, with the S&P 500 testing the 1090 level, and then bouncing off there. Macro events have overwhelmed the positive earnings momentum, as the market frets over economic growth and a reduction in lending in China.
With approximately 45% of the S&P 500 reporting earnings, 73.5% have beaten the consensus estimates. If this figure holds up through earnings season, it would represent the highest beat rate since 1999. It would also be the fourth straight quarter of a higher earnings beat rate since the last quarter of 2008.
Apple, Inc. (Nasdaq:AAPL) was one of the companies beating guidance, reporting earnings per share of $3.67 compared to a consensus estimate of $2.09. The company did adopt an accounting change, but even considering this, the upside was impressive.
Conoco Phillips (NYSE:COP) also turned in an earnings number higher than consensus estimates, reporting $1.16 vs. estimates of $1.12. The company also grew production by 3% in 2009 over 2008, a noteworthy feat considering its size. The energy sector was not kind to every investor, however, as Weatherford International (NYSE:WFT) reported earnings from continuing operations of 2 cents for the fourth quarter, compared to estimates of 11 cents. The company's net loss on a GAAP basis of 4 cents was the first since 2002. (For more, check out Surprising Earnings Results.)
Also, 12.6% of companies in the S&P 500 have increased forward earnings guidance, while only 2% have lowered forward earnings guidance. If this trend continues, this would be the third straight quarter where positive revisions exceeded negative ones.
Abbot Labs (NYSE:ABT) gave the market an upside surprise and a guidance increase when it reported fourth-quarter earnings. The company beat consensus estimates by a penny, reporting $1.18 compared to $1.17. Abbot Labs also guided 2010 earnings estimates to a range of $4.20-$4.25 per share, above the $4.10 that the market was expecting.
Although earnings can and will continue to have a tremendous impact on stock prices, this effect may be outweighed by macro events. In this case, market participants are worried about the end of stimulus programs in Western countries and the restriction in lending in China. We can only hope the market gets over this in time to salvage January for stock investors. (For more, check out Everything Investors Need To Know About Earnings.)