Earnings in 4Q13 were marked by two distinct trends.  

  • The first was the resurgent import of fundamentals.  Relative to prior quarters where Macro completely monopolized price action, "The Print" mattered with companies missing EPS estimates being sold aggressively.
  • The second was the pitiful operating performance (both absolute & relative to expectations)  for consumer companies as only 30% of Staples companies beat revenue estimates and less than half of Staples & Consumer Discretionary companies reported accelerating top/bottom-line growth or sequential margin expansion. 

At the midpoint in 1Q14 earnings, the trends are looking very much the same as those that prevailed in 4Q13. 

BEAT-MISS: With ~50% of SPX constituent companies having reported 1Q14 results, the Sales BEAT-MISS spread is trailing both the 4Q and TTM averages while the EPS beat percentage stands at 74.5% - ahead of both the 4Q13 and TTM average of 72%.

Of course, as has been the case for the last 4 years, the progressive deflation of expectations ahead of the quarter remains the best means to manufacturing a “beat”. 

This quarter has not been an exception as topline estimates for 1Q14 have drifted steadily lower for SPX constituents into and through the new year.   

 

1Q14 EARNINGS SCORECARD:  MIDDLING (AGAIN) AT THE MIDPOINT - ES Table 042514

1Q14 EARNINGS SCORECARD:  MIDDLING (AGAIN) AT THE MIDPOINT - Revenue Revision Trends 2 042514

BEAT/MISS vs SUBSEQUENT PERFORMANCE:  Of the minority of companies that have missed bottom line estimates, 81% have gone on to materially underperform (-3.2% on ave.) the market over the subsequent 3 trading days. 

Similarly, 69% of companies missing topline estimates have subsequently underperformed the market by -2.9% on average over the following three days.  

1Q14 EARNINGS SCORECARD:  MIDDLING (AGAIN) AT THE MIDPOINT - ES BM EPS 042514

1Q14 EARNINGS SCORECARD:  MIDDLING (AGAIN) AT THE MIDPOINT - ES BM Sales 042514

OPERATING PERFORMANCE:  Despite the generally positive Beat-Miss trends, operating performance has once again been underwhelming with just 42% and 40% of companies registering sequential acceleration in sales and earnings growth, respectively. 

Margin performance has been similarly unimpressive with only 47% of companies reporting sequential operating margin expansion according to bloomberg data. 

From a sector perspective, Utilities and Energy have led operating performance while everyone else sits on the wrong side of the 50% Mendoza line.   

1Q14 EARNINGS SCORECARD:  MIDDLING (AGAIN) AT THE MIDPOINT - ES OP 042514

STYLE FACTOR PERFORMANCE: From a style factor perspective, High Short Interest. Low Yield, and High Sales Growth names have performed notably better vs. prevailing topline expectations than their inverses.

1Q14 EARNINGS SCORECARD:  MIDDLING (AGAIN) AT THE MIDPOINT - ES SFP 042514

Christian B. Drake

@HedgeyeUSA