Zacks Earnings Trends Highlights: Bank of America, Intel, General Electric and Apple

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Jul 23, 2012, 09:30 ET

CHICAGO, July 23, 2012 /PRNewswire/ -- Zacks Director of Research, Sheraz Mian, says actual earnings results have turned out to be quite decent – not strong or good, but not bad either.

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Q2 Earnings: Not As Bad As Feared

Weak earnings reports earlier on and a slew of negative pre-announcements brought down expectations at the start of the second quarter reporting season. But the actual results have turned out to be quite decent – not strong or good, but not bad either. And that has to count as a positive in these otherwise grim times.

With results from 120 S&P 500 companies available at this stage (as of Friday, July 20th), we have a good enough basis to draw the conclusion that the second quarter earnings season may not be materially different from what we saw in the last two quarters.

And even though the reports thus far are weighted more towards Finance, a couple of conclusions can be safely drawn from the results thus far. First, the global slowdown is making it difficult for revenue gains to come by. And second, the dollar strength is proving a key headwind for companies that have substantial international operations. Bottom line, while the strong earnings growth story may be behind us, we can still look forward to positive earnings growth.

Key Points

The second-quarter 2012 reporting season is in full swing and the earnings picture does not appear to be as bad as earlier feared. We have reports from 120 S&P 500 companies already and with another 163 companies reporting next week, we will cross the half way mark by the end of next week.
Total earnings for these 120 companies are up 17% from the same period last year, with easy comps in Finance driving most of the growth. These same companies had earnings growth of 7.7% in the first quarter. The strong growth thus far reflects revenue growth of 3.7% and margin gains of 80 basis points.
Approximately 67% of the reporting companies are beating earnings expectations, with a median surprise of 2.5%. This compares to roughly 82% of these same companies beating expectations in the first quarter, with a median surprise of 4.6%.
Finance is the primary driver of the earnings growth, with easy comps at Bank of America (NYSE:BAC) particularly significant. Excluding Finance, total earnings growth for the companies that have reported drops to 4%, while the ex-Finance growth for that same cohort was 6.4% in the first quarter. Zacks
Net margins for the companies that have reported results are up 80 basis points from the same period last year, with Finance driving all of the gains. Outside of Finance, net margins are flat.
Revenue gains are hard to come by, with only 51.7% of the companies coming ahead of top-line expectations, with a median surprise of 0.1%. Even blue-chip operators likeIntel (Nasdaq:INTC) and General Electric (NYSE:GE) are finding it difficult to achieve revenue growth.
Total earnings for the for the 380 companies still to report results are expected to be down 4.3% in the second quarter, reflecting 1.1% lower revenues and margin contraction of about 25 basis points.
Total earnings for the Tech companies that have already reported results are up 2.1%, while the remaining Tech firms are expected to up 10.4%. However, excluding Apple (Nasdaq:AAPL), the growth rate for the companies still to report drops negative 0.7%.
Full-year earnings for companies in the S&P 500 are expected to increase 8.3% this year and 12.4% next year. Nine of the sixteen Zacks sectors will have double-digit earnings growth in 2012, with Finance, Tech and Construction showing strong gains, while Utilities and Energy are expected to be in the negative. Earnings expectations for next year have held up even as the same for 2012 have been steadily coming down.
Total revenues are expected to increase 3.8% in 2012 and 4.6% in 2013, after gains of 9% and 8.1% in 2011 and 2010, respectively. Construction is the only sector with double-digit revenue growth this year, with Industrial Products and Medical in the high single digits.
The best of the margin expansion trend is now firmly behind us, with second quarter margins outside of Finance expected to be flat from the same period last year. Of the companies still to report results, 10 of the 16 Zacks sectors are expected to see net margins contract from the year-earlier period.
The bottom-up 'EPS' estimates for 2012 and 2013 -- reflecting projections of analysts at brokerage firms covering individual companies -- currently stand at $102.10 and $114.60, respectively. The top-down estimate for 2012 and 2013 -- reflecting the projections of strategists at brokerage firms -- currently stand at $102.87 and $109.88 for 2012 and 2013, respectively. As you can see, the macro analysts are more bearish in their outlook than the micro analysts.

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Contact: Sheraz Mian
Company: Zacks.com
Phone: 312-265-9211
Email: [email protected]
Visit: www.Zacks.com

SOURCE Zacks Investment Research, Inc.