Earnings remain front and center in today’s session, with more than 15 S&P 500 companies reporting results today. Some of today’s reports like the ones from General Motors (GM) and Boeing (BA) are all around positive, but top-line weakness is a recurring theme in most of the others.
Take the example of Coca-Cola (KO) to appreciate the top-line weakness issue and how the strong dollar issue has become a recurring theme in recent reporting cycles. Coke, which does most of its business abroad, was able to beat on EPS but missed top-line estimates due mostly to the currency issue.
Management is now guiding that the currency issue will now have a 7 percentage point impact on revenues this year, up one percentage from their prior guidance. Exact numbers are hard to come by, but the overall impact of the strong US dollar on S&P 500 index revenues in Q3 is likely in the -2% to -3% range. This was a big issue the last earnings season as well and analysts seem to have failed to make adequate adjustments to their models and estimates for Q3 either, resulting in widespread top-line misses across all sectors.
Including this morning’s reports from the likes General Motors, Boeing, Harley-Davidson (HOG) and others, we now have we now have Q3 results from 105 S&P 500 members that combined account for 26.8% of the index’s total market capitalization. Total earnings for these 105 companies are up +0.4% from the same period last year on -1.7% lower revenues, with 66% beating EPS estimates and 44.8% beating top-line expectations.
This is weak performance relative to what we saw from this same group of 105 index members in other recent periods, with growth as well as beat ratios tracking below levels we saw from the same group of companies in other recent periods. Looking at Q3 as a whole, combining the results that have come out with estimates for the still-to-come reports, total earnings for the index are expected to be down -4% on -5.1% lower revenues – the second quarter in a row of negative earnings growth for the large-cap index.
The persistently weak tone of management guidance is prompting analysts to lower their estimates for the current period. Total earnings for the S&P 500 index are now expected to be down -5.6% from the same period last year, which is down from a decline of -4.7% less than two weeks back. What this means is that we will have three quarters of back-to-back earnings declines – hardly a reassuring backdrop for stocks, particularly when viewed in the context of the Fed getting ready to start the monetary policy normalization process.