Earnings Growth Bounces Back


The S&P 500 Index grew per-share profits about 8.5% year-over-year in the second quarter, above the 6.2% projected by the Thomson Reuters consensus on July 1.

Of more interest, however, is that growth was roughly in line with expectations from April 1, at the start of the quarter. That marked a shift from the previous four quarters, when actual profit growth averaged more than a percentage point below expectations at the start of the quarter.

Thomson Reuters' consensus reflects a blend of estimates and actual results for companies that declared. The consensus growth estimate tends to fall during the quarter, hurt by profit warnings, then rise during earnings season as companies exceed expectations.

Over the last 12 weeks, the Thomson Reuters profit consensus for the second quarter rose 3%, while the third-quarter consensus fell, trends that make sense given the traditional pattern of profit warnings and surprises.

Consensus growth expectations for the third quarter slipped to 6.6% as of Sept. 9, down from 11.0% at the start of July. Most S&P 500 companies will declare quarterly earnings between the third week in October and the second week in November, and the third-quarter consensus should rise during that period. However, whether positive surprises will offset the pre-earnings-season decline, as happened in the second quarter, remains to be seen.

The estimate patterns mentioned above don't affect future periods the way they impact the current quarter and previous quarter. Estimates for the fourth quarter and full-year 2014 are down less than 1% over the last 12 weeks. We should see more movement over the next 12 weeks. Estimates for 2015 have risen slightly and now project per-share-profit growth of 12.4%.

Our Quadrix stock-rating system takes estimate-revision trends into account with the Earnings Estimates score. For more on that score, turn to Quadrix Spotlight.

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