09 Nov Earnings Season 3Q14 Results So Far
LOOKING AT EARNINGS 3Q14 RESULTS:
75% of the S&P 500 reported positive earnings 3Q14 showed an average surprise of 5.5% 1.
Among the sectors showing positive earnings surprises above the average result are:
- Energy 73.6% 9.5%
- Financials 73.8% 9.9%
- Materials 75.9% 9.3%
- S&P 500 75.8% 5.5%
The lower guidance trend continues. Most companies announced lower guidance for 4Q14. Energies received the worst guidance for next quarter 2. Yardeni’s detailed report of S&P 500 sectors can be found here.
EARNINGS 3Q14 REVENUE SCORECARD
- Looking at the results for Earnings for 3Q14, 60% of the S&P 500 reported positive revenue surprise with an average surprise of.4% 1.
- Information Technology was the standout sector on the revenue side. Information Technology showed positive revenue surprise of 2%.
- Other positive revenue surprises were in range.
MIDTERM ELECTIONS – NOVEMBER 2014
- Midterm elections showed a big win for the GOP, with some democratic incumbents losing their seats.
- So now we’ll see if having the same party majority in both houses creates efficient decision making and cogent feedback to our POTUS.
Political pundits point to three key industries benefitting from party alliance between house & senate. Also mentioned is the one key area within that sector which could benefit.
- ENERGY: GOP unity over passing construction of the Keystone XL Pipeline
- FINANCIALS: GOP winning Senate control of the Senate Banking Committee
- INDUSTRIALS: GOP alignment is popularly thought to assist defense contractors and spending
MONETARY POLICY – IMPACT OF THE PERCEPTION OF HIGHER RATES
- Monetary policy will affect earnings.
- The question is when and the extent of the impact.
- After close to six years of essentially free money, rising interest rate will change the relationship between revenue and earnings from three primary areas:
INCREASED COSTS IF RATES RISE QUICKER THAN FORWARD CURVE EXPECTED
- The cost of corporate dividend payments
- The cost of corporate interest payments on bank loans
- The cost of share repurchases (increased cost of funding to borrow money to purchase shares)
LOWER MOTIVATION TO EXPAND BY MERGER:
- The cost of funds will make certain mergers too expensive at higher rates
- The higher cost of R&D will limit the possibilities of a new discovery creating value for a target firm
INCREASED ASSETS IF RATES RISE QUICKER THAN FORWARD CURVE EXPECTED
- The revenue on financial services loans
- The receivables on subscription-based Internet sites
- The overall impact that rising interest rates will have on next quarter earnings still requires a bit of study
- There’s more to follow as 4Q14 gets on its way