Third-quarter earnings season, which started extremely strong with a record number of companies beating guidance, is slowly weakening as it reaches its end. This might partially explain the resistance the market is seeing as it hovers around the 10,000 level.
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Q3 earnings season began in early October, when Alcoa (NYSE: AA) reported earnings above its guidance and its first profit in a year. This gave investors a taste of what was to come in the earnings season's first couple of weeks, as a record 92% of companies beat estimates.
Slide May Prevent Record In Beating Estimates
Unfortunately, the percentage of companies beating estimates started an immediate slide and is now at only 69% after 1,800 companies have reported. If this trend continues, the Q3 will no longer set a record, and it will not even exceed the Q2 earnings beat rate when 68% of companies exceeded guidance.
Blackstone Group (NYSE: BX) was one of the companies beating its guidance when it reported. The company reported earnings per share of 25 cents excluding items, compared to street estimates of 15 cents.
Another interesting component of earnings season is that the companies raising guidance are not evenly distributed across sectors. The technology sector has a clear lead over other sectors with 18.5% of companies raising earnings guidance. Energy is last among the S&P sectors with only 3.2% of companies raising guidance. The average for all 1,800 companies that have reported so far is 11%.
Companies Raising Earnings Guidance Listed By Industry
Technology - 18.5%
Consumer Staples - 14.3%
Health Care - 13.1%
Consumer Discretionary - 10.9%
Industrials - 7.7%
Telecom - 7.4%
Financials - 6.3%
Materials - 5.8%
Utilities - 5.3%
Energy - 3.2%
One possible explanation for this is that the technology sector is better at forecasting its earnings, and it's raising the guidance in reaction to the strengthening economy.
Starbucks (Nasdaq: SBUX) delighted investors by beating estimates and raising guidance for 2010. The company reported earnings of 24 cents per share compared to analysts' estimates of 21 cents. Earnings growth for 2010 moved to a range of 15-20% from 13-18%.
On The Technology Front
Nvidia (NYSE: NVDA) was part of the 18.5% of technology companies raising guidance. Nvidia beat estimates by 90%, reporting 19 cents vs. 10 cents estimates, and it raised its outlook for the Q4.
JDS Uniphase (Nasdaq: JDSU) reported a large GAAP loss in the quarter, but this technology company surprised investors by beating estimates by 2 cents per share excluding one-time items.
Final Thoughts
Q3 earnings season began with a bang but has slowly deteriorated as more companies have reported. Soon attention will turn toward the final quarter of 2009, which may determine the direction of the overall market. (For more, see Strategies For Quarterly Earnings Season.)
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