Wal-Mart Stores Inc. unofficially wrapped up the fourth-quarter reporting season on Thursday, providing a better look at corporate performance at the end of 2013. How did companies do?
Bespoke Investment Group likes to look at so-called "beat rates," or the number of companies that manage to top analyst expectations – and from this perspective, results were good.
In terms of earnings, 61.9 per cent of companies beat expectations. That figure is in the top end of the range that the earnings beat rate has been in since 2011, according to Bespoke.
The beat rate for revenues was 63.8 per cent, or the best quarterly reading since the second quarter of 2011. "Over the first three quarters of 2013, market bears often noted the weakness in top-line numbers, but they finished the year strong at least versus analyst estimates," Bespoke noted.
But beat rates say little about the overall earnings and revenue picture, especially when analysts are busily cutting their estimates in the lead-up to the reporting season. Indeed, most companies topped expectations even during the financial crisis, with beat rates at 55 per cent or more.
So what does the actual earnings and revenue picture look like? Bank of America doesn't follow the unofficial start and finish of the season (that is, Alcoa Inc. to Wal-Mart), but prefers to look at all earnings – which means that another 10 per cent of companies must still report to get a full picture. A pretty good image is emerging though: Earnings are strong, revenues not so much.
Based on reports from 398 companies in the S&P 500, earnings have risen a decent 7.8 per cent over last year. But sales growth is another matter entirely: Revenues have risen just 0.6 per cent – improving to 3.5 per cent if you ignore energy stocks and financials.
Either way, if bearish investors are pointing to weak top-line numbers, they have plenty to point at now.
David Berman