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Q4 Earnings Season Will Be The Worst Of 2012: Earnings Set To Decline 1% Over Prior Year

Tyler Durden's picture


One can stretch and spin the Q4 earnings reality to suit their particular sales pitch, or one can look at the facts. And the facts, as we first showed a week ago in "Q4 Earnings Season: Far Worse Than Most Suspect", is that before the start of Q4 earnings, the S&P 500 was expected to make $25.51 in earnings. Three weeks later, after half the companies had reported, the number declined to $24.03, with some $9.70 of actual reported earnings and the balance estimated. Now, a week later, the latest revision shows even more deterioration in earnings, which with 66% of companies my market cap reporting are now just $23.48, 8% lower than the estimate at the start of earnings season, with under $10 of earnings left in estimated EPS and the balance already in the books. As Goldman explains what this means for earnings on a year over year basis: "Our interim revised 4Q 2012 EPS estimate is now $23.48 implying negative 1% growth versus 4Q 2011 ($23.73)."

Another way of showing the transformation of Q4 from myth to reality: an inverse hockey stick as shown in the chart below, which also means that full year 2013 earnings will grind lower and lower as future optimism is also reacquainted with gravity.

Ironically, with Q4 initially expected to be the best quarter of 2012 (as expected - after all it was the last quarter of the year and this the most back-end loaded), it ended up being the worst, with its $23.48 EPS set to be below the $24.24 in 1Q, $25.43 in 2Q, and $24.00 in 3Q.

The earnings reality is even uglier when one excludes core, unflinching staples such as utilities, and the "magical" earnings from the financials, the bulk of which is loan-loss reserve releases, one-time charges, non-recurring, non cash impairments, and other accounting gimmicks. When looking solely at the S&P ex Fins and Utilities, Q4 will post a whopping 4% decline in earnings year over year!

But don't worry, the future is fantastic and earnings will soar, probably as a result of the payroll . At least that's what the always wrong sellside believes. This is the Q1-4 2013 earnings forecast was supposed to look a week ago when Goldman was still forecasting Y/Y growth in Q4 earnings. We now know that it will be a -1% drop.

Some comments from GS on why Q4 is merely the latest earnings disappointment.

  • Management guidance indicates downside to 2013 EPS. 73 companies with fiscal-year ends between November and January provided full-year 2013 guidance following their 4Q earnings announcements. 64% of firms have guided below consensus expectations, in-line with history (65%). The median company provided guidance 1% below consensus expectations.
  • Bottom-up consensus full-year 2013 estimates are down 1% since the start of earnings season. Consensus forecasts S&P 500 EPS of $112 in 2013 implying 15% growth versus full-year 2012. Consensus lowered Health Care and Information Technology earnings estimates by 4% and 3%, respectively, since the start of earnings season.
  • Using a mix of realized and consensus earnings, 4Q EPS is tracking 8% below the consensus estimate at the start of reporting season, $23.48 vs. $25.51.
  • Accounting and definition differences have lowered index-level results. Results comparable to consensus analyst estimates may differ from the Standard & Poor’s definition due both to accounting differences and definitions of earnings from operations. These differences are usually small, but pension charges had a significant impact in 4Q.

And we are supposed to believe that these EPS, and cashflow-strapped companies are hiring left and right?


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Fri, 02/01/2013 - 14:15 | 3206798 Say What Again
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VIX down to 5!!!

Not that we have S&P at 1500 & the DOW at 14,000, does that mean the Bernanke can stop printing?

Fri, 02/01/2013 - 14:16 | 3206804 Popo
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...and America has 40 million McMansions that nobody wants



Fri, 02/01/2013 - 14:26 | 3206833 James_Cole
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Earnings decline? So what? Why would that be relevant to anything. 

Fri, 02/01/2013 - 14:40 | 3206854 LawsofPhysics
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Indeed, with "mark to fantasy" accounting your books can be whatever you want them to be, so long as you are a TBTF corporation with a few congressmen in your pocket.  Some things never change.

Fri, 02/01/2013 - 14:47 | 3206884 Thomas
Thomas's picture

Earnings will continue to climb "ex-items". Put the hose on CNBC. I harrass them through Twitter for doing this. Occasionally I get an acknowledgement, but the lies continue.

Fri, 02/01/2013 - 15:10 | 3206975 Say What Again
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Mandy is throwing a party tonight. 

She bought every last tube of Astro-Gluide on the island.

Fri, 02/01/2013 - 16:10 | 3207258 yogibear
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The property taxes go up every year. One will suck out all your wealth.

Saw one go from $14,000/year to $26,000 last year. Governments see them as ATMs

Fri, 02/01/2013 - 14:51 | 3206891 eclectic syncretist
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Bullish my ass.  Heavily overbought on worsening fundamentals is more like it.  Only a fool would go long at this point, and going short is little more than a gamble right now too since it's impossible to say when the fundamentals will assert themselves.

The market is bigger than Bernanke, even though it might not seem to be right now.  But reversion to the mean from here is going to be a BIG move......down.

Fri, 02/01/2013 - 21:49 | 3208163 bobthehorse
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Quarter 4 earings will suck.

But nobody will care.

The market will continue to skyrocket.

I don't get how this shit works.

Fri, 02/01/2013 - 14:15 | 3206803 Dr. Engali
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It doesn't matter ..they still will have "beat expectations".

Fri, 02/01/2013 - 14:29 | 3206839 FL_Conservative
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Earnings don't matter in the warped carcus of what used to be a market.  It only matters that Uncle Bennie is providing the goods so everyone can mainline to unconsciousness.  I think we have to be close to some form of minor correction as I've been close to pulling the trigger today to unload my shorts.  My face has been thouroughly ripped off over the past 2 months.  So we have to be close, given that I was ready to give up.

Fri, 02/01/2013 - 14:36 | 3206850 James_Cole
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Don't give up yet, we're all in this one.

Fri, 02/01/2013 - 15:38 | 3207092 FL_Conservative
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Thanks, James.  I don't plan to, but it's growing increasingly hard waiting for the fan and the shit to get their schedules together.  But that's why I don't use margin.  So I can live to win another day.  I know I'm fundametally right.  It's just a matter of when, not if. 

Fri, 02/01/2013 - 15:23 | 3207041 DavidC
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I think you mean 'carcase' but yes, I agree with you FL_Conservative. I've been losing money overall since 2009 (9th March to be precise) - I've read in various places about people who've been trading a LOT longer than I have who just didn't appreciate the extent (or desperation) that the Central Banks would go to - a thought that I suspect many have.


Fri, 02/01/2013 - 15:43 | 3207125 FL_Conservative
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Yea, I chilli-dipped on the spelling.  Should have read it through before I posted.  But, we're both wrong.  It's should be "carcass".  As for investing in this market, if I honestly believed that the S&P and RUT would keep climbing, I'd switch positions.  But, I just don't believe it can keep with the current trend despite how much money the Fed is directing this way.  Right now I'm trying to sit tight for a correction and then I can employ that approach.

Fri, 02/01/2013 - 16:37 | 3207370 Panafrican Funk...
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$85 billion a month.  Always, always keep in mind that the market is priced nominally.  

Fri, 02/01/2013 - 14:45 | 3206879 EscapeKey
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oh goodies, we're back to all bad news being "priced in already" again

looks like i chose the wrong week to stop sniffing glue

Fri, 02/01/2013 - 23:38 | 3208472 MeelionDollerBogus
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Fri, 02/01/2013 - 14:17 | 3206805 Cognitive Dissonance
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Perception management at its finest. And with the market being artifically ramped the beautiful high from the confirmation endorphins overrides any facts, figures or common sense, thus perfectly closing the positive feedback loop.

May the farce be with you Luke.

Fri, 02/01/2013 - 14:19 | 3206806 kaa1016
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It doesn't matter. It's all about cheap money. I thought the market was topping out, and it still may be but a better trade is whenver VXX is bid in anticipation of an event like this morning, buy puts.

Fri, 02/01/2013 - 14:22 | 3206823 NoWayJose
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In the QE world, only the Fed's balance sheet matters.

Fri, 02/01/2013 - 14:24 | 3206831 Tyler Durden
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Three years later we see everyone agrees.

Fri, 02/01/2013 - 15:13 | 3206888 Ham-bone
Ham-bone's picture

Dollar kissing previous H&S neckline in retest as we speak...once smooch completed dollar is clear for a significant breakdown.  Fed balance sheet up, dollar down...asset prices elevated...mission accomplished.  Another battle won in Ben's currency war.

Given the pace of Fed buying not likely to slow anytime soon, seems we are on the verge of a big move up in equities (at least nominally)...wonder if Joe six pack will mind if the disconnect between asset values and underlying economies continues?

Fri, 02/01/2013 - 14:39 | 3206843 JustObserving
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It is a completely manipulated market with the FED printing trillions.  What have stock prices to do with earnings? 

Just buy any stock.  Preferably stocks that are overpriced since they will go up the fastest since they are powered by fraud and the Fed.   It  is shocking that silver hit $50 about two years ago and now with the Fed having printed $3.5 trillion and printing $85 billion a month, silver is only $31.89 an ounce.

It is a bizarro world and you must do exactly the opposite of what reason tells you to make money.



Fri, 02/01/2013 - 14:43 | 3206869 LawsofPhysics
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Supply lines for physical are at a breaking point, will break this summer.  Yes, I am calling it.  One thing that seems certain, especially if a genuine war gets started.  Metal confiscation, of all types, but certainly industrial metals like silver and copper during wartime is nothing new.

Fri, 02/01/2013 - 14:48 | 3206881 fonzannoon
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I am a big fan of people on here going out on a limb with calls like that. I will now go out on a limb and say this summer that does not happen and I ask you about it and will hit me with a profanity laced tirade.

In a way though it is already happening.

Fri, 02/01/2013 - 14:57 | 3206915 LawsofPhysics
LawsofPhysics's picture

Indeed, one of the most profitable ventures I made in the last ten years was providing angel funding for a local metal-recycling company.  Some rednecks I knew owned lots of land two junkyards and had heavy equipment that could be modified to handle the crushing and grinding of cars.  All those clunkers had to go somewhere.  

Fri, 02/01/2013 - 15:03 | 3206945 Al Huxley
Al Huxley's picture

I'll go out on a limb and say that this summer  the .1% will still have an iron grasp on the system, the market will soar, then crash, then surprisingly recover, the prices of precious metals will be managed carefully higher but within a safe range, the pm miners will trade at new lows as the extinction of the industry draws nearer, tensions in the middle east will remain high but not explosive, food and gas will be more expensive but inflation will be faithfully reported by the MSM as surprisingly benign and the general public will continue to complacently go along with being robbed and fucked by the elite without much complaint, provided the new reality shows are still on.

Fri, 02/01/2013 - 15:18 | 3207011 fonzannoon
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i wish you could basket that prediction into an etf. I would buy the shit out of it.

Fri, 02/01/2013 - 15:59 | 3207217 LawsofPhysics
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Perhaps, but with over 16 kg of silver per tomahawk, let them drop a ton, I've got physical.

Fri, 02/01/2013 - 14:47 | 3206885 EscapeKey
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"just buy any stock"

yeah i remember when everyone thought the good times would last forever... back in 1999.

Fri, 02/01/2013 - 16:17 | 3207288 yogibear
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Fed dealing with a currency crisis is inevitable. It's not if but when. In the mean time enjoy the ride!!!!!!

Fri, 02/01/2013 - 14:42 | 3206866 fonzannoon
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I just watched the Kyle Bass interview with Kaminsky. His main concern  was inflation and his recommendation for the viewers was to own an apartment complex, an oil well, or a global corporation. So we have that going for us.


Fri, 02/01/2013 - 15:04 | 3206952 Al Huxley
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Finally, some advice I can use - do you know where I might pick up a good global corporation or oil well?

Fri, 02/01/2013 - 15:15 | 3206993 dick cheneys ghost
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I heard Mali was nice this time of year

Fri, 02/01/2013 - 16:43 | 3207399 Panafrican Funk...
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2 birds, one stone.  XOM.

Fri, 02/01/2013 - 15:25 | 3207046 DavidC
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Thanks fonzannoon,
I'll just nip out and buy one of each before the market closes today.


Fri, 02/01/2013 - 14:42 | 3206867 CheapBastard
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Looks more like the "Rabbit running into the Hole" formation to me.

Fri, 02/01/2013 - 14:44 | 3206873 ebworthen
ebworthen's picture

What?  -1% with all that FED gravy?

Who cooked the Turkey, is it that dry?

What?  It's a road-kill escapee from the Ostrich farm?

Fri, 02/01/2013 - 14:54 | 3206905 Al Huxley
Al Huxley's picture

If you don't mind, please stop bothering me with these facts.  I'm very busy enjoying the fairytales spun by the media about how all is well, the recovery is underway, the govt is working to reduce the deficit and the Fed has an 'exit plan'.  These intrusions of reality are annoying - why can't you play ball with the rest of the team Tylers?

Fri, 02/01/2013 - 14:57 | 3206917 Cdad
Cdad's picture

The only financial metric that cannot be manipulated...or ignored for any significant length of Revenue.  And revenue numbers for companies I follow continue to tell the real of a continuously deteriorating real economy.

But whatever...engage The Bernanke Levitation machine...and then lie all day, every day, when standing in front of a camera over at The BlowHorn [CNBC]...collect your bonus...and call it a career in financial services. 

If we could just get the TBTF banks to hire 100,000 more brokers, perhaps we could avoid the official recession we are entering just now.

Fri, 02/01/2013 - 15:06 | 3206959 Cognitive Dissonance
Cognitive Dissonance's picture

Brother Cdad,

Have you ever noticed that they never 'officially' call the beginning of a recession until they can officially declare that it just ended?

<Funny how that works.>

Fri, 02/01/2013 - 15:19 | 3207017 Cdad
Cdad's picture

Yeppers...they never really call the beginning of recession until such time as equities are sold out of the book and short positions are set.  With this as the primary metric to determine the start date of our newest recession, I suspect it begins on Monday or Tuesday of next week...if not in the last hour of this market session.

As for the economists who call such things...they are still coming to terms with the recession of 2008...which minus Ben ongoing.  

The Wall Street crime wave continues on unabated.  Thank you, Ben Bernanke, for this wasteland you have created for us.

Fri, 02/01/2013 - 15:26 | 3207053 DavidC
DavidC's picture

Nice one CD, that made me laugh!


Fri, 02/01/2013 - 15:07 | 3206964 adr
adr's picture

Revenue is the easiest number to fake. Corporation A has division B and C, and shadow company Z incorporated in Delaware, nice mailbox.

Corporation A sells product to division B, books revenue, division B tranfers inventory to division C, books revenue for B, Shadown company Z buys inventory from C, more revenue booked. Shadow company books all inventory as a loss. Corporation A uses loss of Z to lower tax burden of all booked revenue. Because the same product gets booked as sold three times, the loss of the product from Z pretty much equals the tax.

The metric that matters is open cash flow. That is what has gone to zero.

Fri, 02/01/2013 - 15:12 | 3206984 Cdad
Cdad's picture

Obviously, you are a year ahead of me in the School of Corporate Fraud.  That said, I am referring to S&P companies...not nickle stocks.

I'm going to have to plead no contest to your assertion here on revenue...while also suggesting that Earnings per share is the easiest number to fudge.

Fri, 02/01/2013 - 16:58 | 3207456 optimator
optimator's picture

Just one of the benefits of being a conglomerate.

Fri, 02/01/2013 - 15:00 | 3206935 adr
adr's picture

Since $23.47 is complete accounting bullshit, what does that tell you. I'm willing to give publicly traded corporate America $.01 of real true earned profit. I might be too generous at that.

I guess if you're playing in the game and the scoreboard says 100 without a team next to it. Everyone thinks they're the ones winning.

Turns out the guy running the board fell asleep and his head hit the button. Who cares though WE'RE WINNING!!!

Dow 14k, I'm going to run out and buy a new car and a new house!!!

Wait, what are you saying? I can't sell my house because it lost 25% in value since last year, fuck that DOW 14K!!!! You can't say no. My company will probably shut its doors in two months, I CAN BUY A CAR, fuck I CAN BUY TWO CARS!!! DOW 14K!!!!

Isn't that what the stock market is supposed to mean? All time highs make me feel rich so I'll go out and buy. HELLO FUCKTARDS I CAN'T BUY ANYTHING IF I HAVE NO MONEY!!!

And the answer from the peanut gallery, "Don't complain, go buy stocks."

WITH WHAT!!! The Cramers and the Pisanis just don't get it.

Can you tell I'm not in a good mood? Found out another buyer of mine got fired today. 35, two kids, didn't go nuts with his house, made $55k. No other major retailers to work for where he lives, so he'll have to relocate IF he can find another job. But that can't be true jobs were created by the shitload, nobody gets fired anymore, DOW 14K!!!

Fri, 02/01/2013 - 15:13 | 3206978 mdtrader
mdtrader's picture

There's $85 billion a month of freshly printed cash and whole bunch of people who are overweight bonds! Party on dudes!

Fri, 02/01/2013 - 15:45 | 3207144 SheepDog-One
SheepDog-One's picture

Earnings, Schmernings....what the hell does EARNINGS have to do with anything just PRINT AND PUMP! All that matters is stawks, just look at Zimbabwe's 'best performing market ever'....yet the downside is your entire portfolio will only buy you 1 piece of bread. FUCK IT, just BUY! What do you got, something BETTER to do on the road to serfdom??

Fri, 02/01/2013 - 16:17 | 3207299 yogibear
yogibear's picture

That's right, print and pump. Bernanke and the Fed want it.

Zimbabwe time at some point.

Fri, 02/01/2013 - 16:23 | 3207317 dobermangang
dobermangang's picture

Guns, ammo, booze, silver coins and mini tablets are selling well.  That's about it.  We live in interesting times.
