With the December jobs report now out of the way, the market can start focusing on the 2013 Q4 earnings season now. The reporting cycle doesn’t really get into high gear till next week, but we have a Finance-heavy list of 51 companies reporting results this week, including 27 S&P 500 members.
The Finance sector is heavily represented in this week’s reporters, with all of the sector’s big guns like J.P. Morgan (JPM), Wells Fargo (WFC), Bank of America (BAC), Citigroup (C) and Goldman Sachs (GS) coming out with results this week. J.P. Morgan has been in the news for all the wrong reasons, with regulatory and litigation issues dominating the headlines. The bank’s Q4 earnings report will likely be quite ‘noisy’, but its superior core earnings power should remain intact.
The banking group as a whole will continue to suffer net margin pressures as loan growth remains tepid and the mortgage business continue losing ground. On the capital markets front, the equity business likely did fairly good in Q4, while the fixed income and currencies side remained under pressure.
Morgan Stanley (MS) has a stronger equities franchise, while Goldman has always been a FICC powerhouse. Total earnings for the Finance sector as a whole are expected to be up +19.4% from the same period last year, with easy comparisons, particularly for Bank of America and the insurers, driving the year-over-year growth.
The Q4 earnings season has gotten underway already, with results from 24 S&P 500 members out. Total earnings for these 24 companies (not EPS, median or otherwise) are up +18.6% from the same period last year, with a ‘beat ratio’ of 54.2% and a median surprise of +1.5%. Total revenues are up +7.2%, with an impressive revenue ‘beat ratio’ of 66.7% and a median surprise of +1.5%. Comparing the results for this admittedly small of number of companies with what we saw from the same group in Q3 and the last few quarters, the earnings and revenue growth rates and the revenue beat ratio compare favorably, while the earnings beat ratio is a bit on the weak side.
But at this stage, the Q4 earnings season’s story isn’t about the few companies that have reported, but bulk of those whose results are awaited. To that point, the ‘composite’ picture for Q4, where we combine the results from the 24 companies that have reported already with the 476 still to come, is for growth rate of +6.3%. This reflects +1.2% higher revenues and net margin gains of about 50 basis points. Finance remains a big growth driver in Q4 – total earnings growth for the S&P 500 in Q4 drops to +3.7% once the sector is excluded.