Q3 Earnings Scorecard

Q3 Earnings Scorecard

Including all of this morning's earnings announcements, we now have now Q3 results from 245 S&P 500 members that combined account for 60.2% of the index's total market capitalization. Total earnings for these 245 companies are up +4.3% from the period last year, with 70.2% beating earnings estimates. Total revenues for these companies are up a much stronger +4.6%, with 52.7% beating top-line estimates.

Here is the updated scorecard for the 245 S&P 500 companies that have reported results as of the morning of October 28, 2014. We have a very busy reporting docket after the close today as well, with more than 20 S&P 500 members reporting results.

How Do These Results Compare Historically

The charts below compare the earnings and revenue growth rates for the 245 S&P 500 members that have reported results with what we saw from the same group of companies in 2014 Q2 and the average for the preceding four quarters (though Q2).

Looking at the above comparison charts, three things stand out

• The earnings growth rate is lower
• The revenue growth rate is higher
• There aren't that many surprises, with the earnings beat ratio a tad bit above the recent quarterly run rate and the revenue beat ratio on the weak side.

Tough comparisons at Bank of America (BAC) were a big reason for the lower Q3 earnings growth rate earlier in the reporting cycle. But the growth picture doesn't improve as much as it used to a few days back, as the chart below shows.

The bottom line from this analysis is that Q3 results are broadly in-line with what we have been seeing in other recent quarters. In a way, the Q3 earnings season is turning out to be a boring one. But I guess boring can be interpreted as a compliment in the current backdrop.

Sector Results – Leaders & Laggards

For 9 of the 16 Zacks sectors, we have seen Q3 results from two-thirds or more of each sector's respective market caps. Please look at the second column in the scorecard table that shows the percentage market cap of each sector that has reported results.

We discuss the Finance and Technology sectors at some length below, largely reflecting their big roles in the index. But results from both the sectors have been underwhelming and mixed at best. On the positive side, the two economically sensitive sectors of Basic Materials and Transportation are having good numbers.

For the Basic Materials sector, total earnings are up +29.7% on +5.2% higher revenues, with 75% of the companies beating EPS estimates and 50% coming ahead of top-line estimates. This is better performance than we have seen from the Basic Materials sector in recent quarters, largely reflecting improved performance form the chemicals and steel industries in the sector. Operating efficiencies (aka cost controls) are driving most of these gains as the global growth backdrop remains challenging, as the results from Dow Chemicals (DOW) show.

For the Finance sector, the largest earnings contributor to the S&P 500 index, total earnings for the 47 sector companies that have reported results already (out of 80 total) are up +0.9% on +4.1% higher revenues, with 63.8% of the sector companies beating EPS estimates and 55.3% coming ahead of top-line estimates. As mentioned earlier, Bank of America was a drag on the sector's growth picture; the growth rate looks better once BAC is excluded from the sector's results.

Results from the all-important Technology sector are on the weak side, with earnings growth rates and revenue beat ratios tracking below levels that we have become used to seeing from the sector. With earnings reports from more than 70% of the sector's market cap already out, the results thus far are fairly representative of the sector as whole.

Total earnings for the 72.3% of the Tech sector's market cap that has reported Q3 results are up +4.4% on +8.6% higher revenues, with 72.7% beating on earnings and  57.6% coming ahead of top-line estimates.

The charts below compare the Tech sector's results thus far with what we have seen from the sector in other recent quarters.

The Composite Q3 Picture

Looking at Q3 expectations as a whole, combining the actual results from the 245 S&P 500 members that have reported with estimates for the remaining 255, total earnings are expected to be up +4.5% on +3.1% higher revenues. The composite growth has been going up as more companies report and beat estimates.

The table below provides a summary view of composite Q3 expectations and compares them to actual results in Q2.

Our weekly Earnings Trends report, coming out tomorrow, provides a detailed update on the Q3 earnings season and expectations for het coming quarters. You can see the last Earnings Trends report here.

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