For the second straight quarter, it seems as though the stock market
isn't really paying attention to companies' earnings. This time around,
markets remain driven by the macro picture, specifically the looming
Fed meeting on November 3 where the Central Bank is expected to make an
official announcement regarding a second round of monetary easing.
Though earnings may not be the driver that they have been in past
quarters, company results are still very important, and can help us
better gauge the overall health of businesses. Let's take a quick look
at this week's earnings figures…
Though most companies continued to post strong EPS figures, the
market did not push to the upside with the same thrust that it has
throughout October. Partly attributing to the market slowdown would be
that the earnings figures for the final week of the month were
relatively weaker than they have been. Based on the 179 S&P 500
announcements this week, StreetAccount tells us that 72% of companies
beat EPS estimates, a figure which is down from 85% the week before. In
the same week during Q1 and Q2, EPS beats were at an average of ~79%.
One not-so impressive aspect of Q3 2010 earnings season has been
revenues. This week, revenue beats remained unchanged, sitting at a
rather disappointing 56%.
Turning to sectors, technology posted a strong week. Amongst the
highlights were semiconductor companies such as Texas Instruments (TXN)
and Atheros Communications (ATHR). The emerging theme here is that the
current inventory correction will be fairly mild and will not endure
for very long. Microsoft (MSFT) also posted strong figures, as did
Motorola (MOT). It will be interesting to see how long Android can
support this once-dominant cell phone company.
Turning to the consumer, Kimberly Clark (KMB) disappointed after
missing on earnings and lowering guidance, while Avon Products (AVP)
sold off sharply due to organic growth concerns. Homebuilders also
underperformed. Proctor & Gamble (PG) put up good numbers, as did
beverage companies Dr. Pepper Snapple (DPS) and Coca-Cola Enterprises
The materials sector exhibited strength this week. Agricultural
chemicals and precious metals were among the top performers. The
industrials sector, on the other hand, had an awful week. 3M (MMM)
disappointed by turning in a low-quality EPS beat and lowered organic
growth guidance for the year. Cummins Inc (CMI) also missed on both EPS
Finally, health care had a mixed week. Health Management Associates
(HMA) and Universal Health Services (UHS) were standouts amongst the
facilities space as dampened bad debt concerns outweighed the ongoing
worries about volume weakness. Biotech producer Celgene (CELG)
impressed by raising its guidance, attributing some of its strong
performance to Revlimid (drug). Sector laggards included pharmaceutical
producer MRK, as well as dental product producer Dentsply (XRAY).
Thus far in Q3 2010 earnings season, 339 companies have reported
earnings. Of them, 78% beat EPS estimates, and 57% beat revenues.