Saturday, January 30, 2016

Stock Market: Earnings Season - Refuting The Doom & Gloom

(Drivebycuriosity) - It seems that the current earnings season was the most feared in the recent years. Media and analysts predicted "dismal earnings reports" and claimed that the profits of the leading US companies (S&P 500) dropped in Q4. "Woeful earnings threaten to intensify stock-market bloodbath", claimed MarketWatch (marketwatch). Really?

The Bank M.M. Warburg counted last week that 78% of the S&P 500 companies who have reported so far beat the earnings expectation of the analysts. In the Dow Jones & Nasdaq their share was 90%. But the media don´t tell you that, these numbers don´t fit to their gloom & doom scenarios.

Anyway, I collected a list of notable companies who surprised positively so far:

All the big banks could disprove the gloomy predictions: JP Morgan, Citigroup,  Bank of America, Morgan Stanley, Goldman Sachs, Wells Fargo & PNC Financial, Bank of New York Mellon, Capital One.  They all beat the analysts`earnings expectations. JP Morgan declared that its fourth-quarter profits rose 9 percent from a year earlier, helped by a strong performance in its consumer banking division and lower legal expenses (  The banks managed the impacts of the steep drop in prices for oil and other commodities on their loan portfolios better than feared, helped by a solid consumer business.  Other financial companies also surprised positively: American Express beat expectations for earnings & revenue, the competitors MasterCard, Visa and the insurance holding companie Travelers delivered  earnings beats as well.

The Internet sector also delivered strong numbers: Facebook crushed expectations for earning & revenue and reported its first profit above $1 billion. The online payment service PayPal beat earnings & revenue expectations as well. Amazon’s profit more than doubled to $482 million in the fourth quarter and rose per share to $1,00 from 45 cents, but missed the expectations ($1,56).
The rest of the technology sector started also encouragingly: The bellwethers Microsoft, Intel & IBM, the wireless technology specialist Qualcom and the storage manufacturer SanDisk beat earnings & revenue expectations and  Netflix reported a profit of 7 cents per share, more than triple of the analyst´s expectation (just 2 cents.) The cable & mobile provider Verizon joined the club of companies which beat earnings & revenue expectations. Apple reported slowing revenues and iPhone sales, but earnings rose to $3.28 (plus 7%) - 5 cents more than expected. The chip producer Texas Instruments also beat the profit expectations

The consumer companies showed that they belong to the winners of collapsing oil and other commodity prices because the consumers worldwide have more money to spend. McDonald's beat earnings and revenue expecdations, the same with Under Armour (sports fashion).    Procter & Gamble, Colgate-Palmolive, Starbucks, Whirlpool  (home appliances) the homebuilder D.R.Horton and the pharmacy firm Johnson & Johnson also earned more than expected

Other industrial companies also convinced. Profit & revenue at the biotech company Biogen and at Boeing  beat expectations. Ford, Caterpillar (construction & mining machines), the chemical giant DuPont, the defense & aerospace company General Dynamics & the conglomerates 3M and  General Electric all earned more than expected as well.

There were already some reports from the battered commodities sector: The aluminum bellwether Alcoa delivered more profit than expected, even that the revenues dropped more than feared, thanks to the tumbling metal prices. The oilfield-services-companies Schlumperger & Halliburton lost less than feared. U.S. Steel reported a loss of 23 cents a share, topping estimates for a loss of 85 cents a share (barrons).

                                                 The Clear Winners

The earning season also showed the clear winner of the oil price collapse: The airlines. Delta Airlines boosted their earnings 51% from a year earlier, thanks to the falling costs of fuel (businessinsider). According to Business Insider the airline saved $5.1 billion fuel costs last year, thanks to the oil price crash. American Airlines also beat the earning expectations.

Many companies benefit from lower transport costs and from cheaper oil, steel, aluminum and other commodities which reduce their costs significantly. The pessimistic majority also underestimated how efficiency gains and technological progress enable companies to create rising earnings even in a sluggish economy. Companies are learning organisms. They are managed by humans who are getting better and better over time by continuously improving themselves and their companies.

I believe that the positive earnings surprises will continue in the coming days and may lift the sentiment and so the whole stock market.   

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