CHICAGO, Jan. 24, 2014 /PRNewswire/ -- Zacks Director of Research Sheraz Mian says, "There is actually nothing wrong with earnings picture; they are about as good or as bad any of the other recent quarters."

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What's Wrong with the Earnings Picture?

With respect to the Scorecard for 2013 Q4, we have seen results from 102 S&P 500 members accounting for 27.3% of the index's total market capitalization. Total earnings for these 102 companies are up +22.8% from the same period last year, with 65.7% beating earnings expectations with a median surprise of +2.0%. Total revenues for these companies are up +3.6%, with 54.9% beating revenue expectations with a median surprise of +0.8%.

The +22.8% 'headline' total earnings growth rate definitely looks fairly robust, particularly when compared to the growth rate for this same group of 102 companies in the last few quarters. Before we get too excited about this growth pace and start extrapolating it into the coming quarters, we should keep in mind that the bulk of this growth is due to easy comparisons for just three companies – Bank of America (NYSE: BAC-Free Report), Verizon (NYSE: VZ-Free Report) and Travelers (NYSE: TRV-Free Report) Exclude these three and total earnings growth for the S&P 500 companies that have reported drops to +8.3% from +22.8%, which is about where growth has been in recent quarters.

 

The composite picture for Q4 – combining the results for the 102 companies that have reported already with the 398 still to come – is for earnings growth of +7.6% on +1.7% higher revenues and 52 basis points higher margins. The actual Q4 growth rally will most likely be higher than this, a function of management's well refined expectations management skills.

 

More important than what happened in Q4 is the question of whether management guidance for the coming period(s) will get any better from what we have become accustomed to in recent quarters. My sense is that the preponderance of guidance will remain negative, as has been the case for more than a year now. This will keep downward pressure on estimates for the coming quarters.

Trends on the estimate revision front have been negative for a while, but we could afford to overlook such details in the Fed-inspired rally. It will be interesting to see if investors will continue shrug estimate cuts in the post-Taper world.

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