Analysts Predicting Strong Retail Earnings Growth in Q4

Steven Bobson, Europe & Americas Editor
August 07, 2012 /

A number of retailers in the S&P 500 announced same-store sales numbers for July this past week.

In terms of earnings for retailers for Q2, the Specialty Retail industry is projected to see the highest growth at 6.1%, while the Internet & Catalog Retail (-17.3%) and Multiline Retail (-10.1%) industries are projected to report earnings declines.

It is interesting to note that analysts believe retailers in the index will see a significant improvement in earnings growth in Q4 2012, as all four retail industries are predicted to report double-digit earnings growth for the quarter.

For the S&P 500 as whole, 389 companies have reported earnings to date for Q2 2012. Of these 389 companies, 70% have reported actual EPS above the mean EPS estimate. This percentage is consistent with the average over the past four quarters (72%).

In terms of revenues, just 43% of companies have reported actual sales above estimated sales. This percentage is well below the average over the past four quarters (63%). If 43% is the final percentage, it would mark the lowest number since Q1 2009 (37%).

The blended earnings growth rate for the S&P 500 for Q2 2012 is 4.3%, slightly above last week’s growth rate of 4.0%. The improvement in the growth rate is mainly due to upside earnings surprises from companies in the Health Care (Pfizer) and Utilities sectors, partially offset by downside earnings surprises from companies in the Energy sector.

Bank of America is the largest contributor to earnings growth for the index at the company level, mainly due to an easy comparison to a large loss reported in the year-ago quarter. Excluding Bank of America, the blended earnings growth rate for the index falls to -0.5% from 4.3%.

Seven of the ten sectors are reporting earnings growth for the quarter, led by the Financials (53.8%) and Industrials (11.7%) sectors. The Energy (-22.6%) and Materials (-16.1%) sectors have the lowest earnings growth rates, as oil and commodity prices dropped during the quarter. Although seven of the ten sectors are reporting revenue growth for the quarter, the blended sales growth rate is 0.7%.

Slower economic growth in Europe and emerging markets countries (China) and less favorable foreign-exchange rates had a negative impact on both top-line and bottom-line growth for many companies in the index in the second quarter.

Looking ahead, companies and analysts have reduced earnings estimates for the 2nd half of 2012 since the start of the third quarter. In terms of guidance for Q3 2012, 58 companies in the S&P 500 have issued negative EPS preannouncements to date while just 16 companies have issued positive EPS preannouncements.

Analysts now expect a year-over-year decline in earnings for Q3 (-2.4%). Despite cuts to estimates, analysts still project double-digit earnings growth (10.4%) for Q4 2012.

During the upcoming week, 45 companies in the S&P 500 and one company in the Dow 30 (Walt Disney) are scheduled to report earnings.


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