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Q3 Earnings’ Best And Worst
With 491 of the S&P 500's companies having posted their third quarter results, the fat lady's done warming up. And as it turns out, she's got more to sing about than the market thought she would before earnings season started.
There are some clear winning and losing groups too ... details that investors need to take note of, because in some cases they're becoming epidemics. First things first though.
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Overall, Much Better Than Expected
When third quarter's earnings season started in early October, the S&P 500 was expected to earn $24.07, on an operating basis. As it turns out, with the results almost complete, the S&P 500 is going to earn somewhere right around $25.55. That's about 6% above expectations, and also happens to be a record earnings figure. So much for the pessimistic outlooks.
It wasn't sunshine and roses for all sectors though.
Losers
It goes without saying that the financial sector ended up being a big drag on the overall results last quarter. In fact, the financials were the only group to actually lose ground on a YOY basis, falling 0.9% short of Q3, 2010's bottom lines.
Investors can thank Goldman Sachs (NYSE:GS) for the bulk of that shortfall; the investment bank lost a whopping 84 cents per share versus estimates for a loss of only 16 cents. Indeed, were it not for Goldman Sachs, the sector as a whole would have had a fighting chance of a decent showing - that's the impact of Goldman's size. (Get to know a little bit about the institutions whose actions help to guide free markets. For more, see The Rise Of The Modern Investment Bank.)
On the flipside, it's not like the group can blame Goldman for everything. After all, 24 of the 81 financial stocks in the S&P 500 (29%, tied for the highest proportion for any sector) fell short of analyst estimates; there's plenty of blame to go around.
Winners
Simply put, energy rocked last quarter. Exxon-Mobil (NYSE:XOM), Chevron (NYSE:CVX) and ConocoPhillips (NYSE:COP) all topped earnings estimates, and in some cases, knocked them out of the park. (Changes in the price of oil aren't arbitrary. For more, see What Determines Oil Prices?)
While lingering concerns of a global economic slowdown have shifted Q3's pessimism into Q4 - leaving the energy sector subject to a decline in crude oil prices - it's worth noting that oil prices are actually better through two-thirds of the current quarter than they were for most of Q3.
The materials group was the runner up for the third quarter earnings contest, upping the bottom line by 30% in YOY comparison. Yet, 29% of these stocks still missed estimates ... a disparity that merits a closer look.
As it turns out, it was the container/packaging group that seemed to have more than its fair share of trouble. Both Sealed Air Corp. (NYSE:SEE) and Bemis Company, Inc. (NYSE:BMS ) missed analyst estimates, not to mention that they fell short of last year's third quarter profits.
All the other earning misses from the basic materials sector were spread across all the other sub-industries, and don't necessarily indicate a bigger, thematic problem.
The Bottom Line
While the leaders and laggards for one quarter make for interesting reading, at this point it's history ... all academic. Or is it?
Were it just one quarter of impressive or depressing results for these sectors, it would be easy to dismiss. This isn't just one quarter though. Energy and materials were also the top performers for Q2, improving earnings by 43 and 48% respectively. The financials and consumer staples names were also among Q2's biggest disappointments, only improving the bottom line by 4 and 8%, respectively. Those weren't the worst performance for the second quarter, but clearly there's a bit of en epidemic for those two groups. Odds are good that those trends have lingered into Q4 as well.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, James Brumley did not own shares in any of the companies mentioned in this article.
There are some clear winning and losing groups too ... details that investors need to take note of, because in some cases they're becoming epidemics. First things first though.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.
Overall, Much Better Than Expected
When third quarter's earnings season started in early October, the S&P 500 was expected to earn $24.07, on an operating basis. As it turns out, with the results almost complete, the S&P 500 is going to earn somewhere right around $25.55. That's about 6% above expectations, and also happens to be a record earnings figure. So much for the pessimistic outlooks.
It wasn't sunshine and roses for all sectors though.
Losers
It goes without saying that the financial sector ended up being a big drag on the overall results last quarter. In fact, the financials were the only group to actually lose ground on a YOY basis, falling 0.9% short of Q3, 2010's bottom lines.
Investors can thank Goldman Sachs (NYSE:GS) for the bulk of that shortfall; the investment bank lost a whopping 84 cents per share versus estimates for a loss of only 16 cents. Indeed, were it not for Goldman Sachs, the sector as a whole would have had a fighting chance of a decent showing - that's the impact of Goldman's size. (Get to know a little bit about the institutions whose actions help to guide free markets. For more, see The Rise Of The Modern Investment Bank.)
On the flipside, it's not like the group can blame Goldman for everything. After all, 24 of the 81 financial stocks in the S&P 500 (29%, tied for the highest proportion for any sector) fell short of analyst estimates; there's plenty of blame to go around.
Simply put, energy rocked last quarter. Exxon-Mobil (NYSE:XOM), Chevron (NYSE:CVX) and ConocoPhillips (NYSE:COP) all topped earnings estimates, and in some cases, knocked them out of the park. (Changes in the price of oil aren't arbitrary. For more, see What Determines Oil Prices?)
While lingering concerns of a global economic slowdown have shifted Q3's pessimism into Q4 - leaving the energy sector subject to a decline in crude oil prices - it's worth noting that oil prices are actually better through two-thirds of the current quarter than they were for most of Q3.
The materials group was the runner up for the third quarter earnings contest, upping the bottom line by 30% in YOY comparison. Yet, 29% of these stocks still missed estimates ... a disparity that merits a closer look.
As it turns out, it was the container/packaging group that seemed to have more than its fair share of trouble. Both Sealed Air Corp. (NYSE:SEE) and Bemis Company, Inc. (NYSE:
All the other earning misses from the basic materials sector were spread across all the other sub-industries, and don't necessarily indicate a bigger, thematic problem.
The Bottom Line
While the leaders and laggards for one quarter make for interesting reading, at this point it's history ... all academic. Or is it?
Were it just one quarter of impressive or depressing results for these sectors, it would be easy to dismiss. This isn't just one quarter though. Energy and materials were also the top performers for Q2, improving earnings by 43 and 48% respectively. The financials and consumer staples names were also among Q2's biggest disappointments, only improving the bottom line by 4 and 8%, respectively. Those weren't the worst performance for the second quarter, but clearly there's a bit of en epidemic for those two groups. Odds are good that those trends have lingered into Q4 as well.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, James Brumley did not own shares in any of the companies mentioned in this article.
by
James Brumley
James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.
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