For Immediate Release
Chicago, IL – January 19, 2010 – Zacks Research Equity Strategist Dirk Van Dijk says that S&P 500 earnings are continuing to show red ink. He tracks companies on the Zacks.com web site, naming names, while forecasting trends for the months ahead.
Earnings Season Picking Up Momentum
Looking at full-year earnings, total net income is still expected to be lower than that of 2008, but just by 9.4%, a much smaller decline than the 22.2% plunge in 2008. Next year will be one of earnings recovery, with growth of 26.7% expected, but note that that will still leave earnings below 2007 levels.
While the data is still relatively thin for 2011, and thus should be taken with a grain of salt, further growth of 20.4% is expected for total earnings in 2011. In 2010, the percentage growth numbers will be not really meaningful for the Auto and Construction sectors, since they will be going from negative total earnings to positive total earnings.
In 2009, the losses were much lower than the losses in 2008. Among the larger sectors, Basic Materials and the Financials are expected to be the growth leaders for the year (Financials did the negative-to-positive thing in 2009). Energy is also expected to see a large rebound in its total profits. Together, Finance and Energy will account for more than half of all the incremental earnings in both 2010 and 2011, even though together they account for only slightly over 25% of the total market capitalization of the index. However, in the absence of mark-to-market rules, the quality of the earnings in the Financials is suspect.
Cost-cutting has been the major force driving earnings and earnings surprises. However, the costs to one company are either the revenues of another company or someone’s paycheck, which is then spent to create revenues for firms. The bottom-up data coming out of all these individual firms seems to confirm what we have been getting from the macro statistics from the government: the economy is growing due to increases in productivity; higher GDP with fewer workers.
While clearly companies cannot continue to grow earnings forever based only on cost-cutting, it does mean that when they do start to see revenue growth, earnings growth could be explosive as the greater operating leverage kicks in. That will sure be the case in the fourth quarter, as revenue is expected to increase by just 1.67%, as earnings double — talk about net margin expansion!
The strength in the Materials sector is concentrated among the metals stocks, almost without regard for the type of metal involved. Among the names that are noteworthy in their revisions strength are Alcoa (AA) despite its earnings miss, Newmont (NEM), U.S. Steel (X), Cliffs Resources (CLF) and Freeport McMoran (FCX).
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Contact: Dirk Van Dijk, CFA
Company: Zacks.com
Phone: 312-265-9211
Email: pr@zacks.com
Visit: www.zacks.com
