The US December quarter earnings reporting season kicks off tomorrow morning, our time, with Alcoa reporting its 4th quarter (and full 2015) figures.
As well, 4th quarter reports will also be issued by a string of major companies in Europe, the UK and Asia.
Australia’s December half year (and full year for some companies) reporting season kicks off late this month with reports from a string of listed investment companies, but the bulk of the companies will report in February and March.
But the various reporting seasons assumes greater importance this time round with rough start to the year buffeting investor confidence around the world.
The slide in commodity prices, especially oil, will again wreak havoc on earnings in major markets outside the US, such as China, Europe, and the UK.
While jobs growth in the US in the 4th quarter was the strongest for more than a year, other indicators have signalled a sluggish end to 2015 for many sectors as growth has slowed.
After last week’s turbulence triggered by China, investors will face the prospect of more volatility from an expected slide in earnings for the three months to December.
Besides Alcoa, JPMorgan Chase & Co. and Intel Corp. are scheduled to deliver results this week. As well, Wells Fargo, Citi and several smaller US banks are down to report late this week, along with giant global fund manager, Blackrock. Rail giant, CSX is another early reporter expected this week.
In fact the S&P 500 financial sector is expected to be the second-largest contributor to earnings growth, with a 6.7% year-over-year gain – that compares to an expected fall of 5.3% for the index as a whole (thanks to the slide in energy earnings). But the 6.7% rise is less than half the 15.3% gain forecast at the start of the 4th quarter last October.
US analysts lowered their 4th quarter forecast profits for S&P 500 companies last quarter.
For example, Thomson Reuters data shows the market is expecting 4th earnings to fall by 4.2%, down from the 3.7% decline expected a week ago and the 1.1% growth forecast at the start of the quarter on October 1.
And US data group, Fact Set said the forecast fall in 4th quarter earnings was within the averages for the past few years.
Fact Set said nine of the 10 S&P 500 index sectors recorded a decline in earnings per share (EPS) estimate during the fourth quarter, led by the Materials (-21.7%) and Energy (-14.8%) sectors.
Goldman Sachs is expecting the S&P 500 to show negative EPS growth of 7% for 2015, followed by growth of 11% in 2016 and 8% in 2017.
It is looking for telecom services, IT and health care to show the strongest growth, while materials and industrials will again see big losses.
The slide in oil and gas prices will see the energy sector again depressing earnings for the entire S&P 500, making 2015 the weakest year for earnings since 2008, according to Goldman Sachs.
Goldman Sachs trimmed its S&P 500 earnings-per-share estimates for 2015, 2016 and 2017 in a note issued on Friday that highlighted three factors it expects to feature in earnings releases and on conference calls this year.
The first factor Goldman highlighted is the energy sector, which the bank says is about to show a decline in operating earnings per share for 2015, its first negative reading since the bank started keeping records in 1967.
“Energy EPS has collapsed along with crude oil prices,” Goldman Sachs analysts wrote in a note.
The second factor is that Goldman Sachs believes S&P 500 profit margins have plateaued, and are now down nearly 100 basis points since peaking at 9.1% in the third quarter of 2014. This the bank said is partly due to the shrinking of energy margins caused by the slide in oil and gas prices.
Goldman Sachs also pointed out that profit margins for the S&P 500 companies have been propped up by the IT sector, which has contributed more than half the rise in the value of the S&P 500 since 2009.
Apple accounted for a quarter of that expansion, making its quarterly report (a rare first quarter as it balances its financial year at the end of September) a vital test of the market’s strength and investment confidence. Apple reports January 27, Australian time.
The third factor is the risk that the economy will slow again and Goldman is forecasting US GDP to grow at an average annual rate of 2.2% in 2016 and 2017, which will be close to what the 2015’s performance looks like being.
