Von Aldo

Take Q4 Corporate Earnings with a Large Grain of Salt

It’s earnings season, and consensus analysts’ estimates are predicting a 184.2 percent jump in earnings for the S&P 500 companyies in Q4 over a year ago. Obviously, Q4 earnings have an easy bogey, since Q4 2008 earnings were pathetic. The rebound in Q4 earnings will be driven by financial, analysts say.

Financials, according to Thomson Reuters, are expected to post $2.4bn in earnings in Q4. That’s against a loss of $81bn in Q4 2008. Basically, financials were responsible for the index’s low Q4 2008 earnings. And just as the group ruined 2008, so the group is carrying earnings growth estimates this year, says Thomson Reuters in its “This Week in Earnings” report. Without the financial sector, the estimate earnings growth rate for the S&P 500 in Q4 2009 would plummet to just 8 percent.

In addition, ThomsonReuters survey of analysts estimates says materials and consumer discretionary sectors (which includes autos) is also where the highest earnings growth rates for the quarter will be found.

Ford Motor, of all things, is projected to be the biggest contributor to consumer discretionary sector earnings growth. The current mean estimate for Ford Motor is $0.25 per share compared to last year when it lost $1.27 a share. ThomsonReuters notes that if Ford were removed, the growth rate for the consumer discretionary sector would fall to 25 percent—versus the 114 percent expected Q4 growth rate.

If there were ever a time to examine top-line (revenue) growth to gauge a company's health, it's probably now.

Yup, headlines will matter little in this earnings season.

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