S&P 500 Stocks: Third Quarter Earnings Update

Sam Subramanian PhD, MBA

The earnings report season is in full swing. More than 130 of the S&P 500 member companies are reporting their third quarter results this week. Here is a sampling of earnings reports from a selected group of large companies spanning different sectors with economically sensitive business.

General Electric (GE): Industrial conglomerate General Electric reported EPS of 22 cents a share, exceeding analysts' forecast by 8%. The global titan's revenue however declined 20% and fell short of analysts' forecast by 4%. Revenue declined in all of the conglomerate's diverse business segments with the Energy Infrastructure segment reporting the lowest decline at 9% drop. Even a massive tax gain could not prevent an 87% decline in profits at GE Capital, the company's money lending unit.

JPMorgan Chase (JPM): The second largest U. S. bank by assets JPMorgan Chase earned 82 cents a share, thrashing analysts' 52 cents a share forecast by 58%. These results follow a string of massive positive earnings surprises. As in prior quarters, JPMorgan's investment banking division is thriving from larger spreads and less intense competition in a post-Lehman world. The bank's traditional lending segment however continues to pose problems and the bank added $2 billion to loan-loss reserves in the quarter.

Apple (AAPL): In-demand products enabled technology company Apple to post its sixth straight double-digit earnings surprise. Apple earned $1.82 a share, beating analysts' estimate by nearly 28%. The company sold 3.05 million Macs and 7.4 million iPhones, both quarterly records. Apple is among the few companies that is able to pull off positive year-over-year revenue comparisons. The company's quarterly revenue increased 25% to nearly $10 billion.

Freeport-McMoRan Copper & Gold (FCX): The world's largest publicly traded copper producer Freeport-McMoRan Copper & Gold earned $2.07 a share barreling through analysts’ $1.34 estimate by a wide 54% margin. Even though third quarter revenue declined 10% year-over-year, the top line encouragingly increased over 12% from the second quarter. Freeport benefited from strong global demand for copper as well as massive cost cuts. Notably, the company reinstated its 60 cents a share annual cash dividend.

What are Earnings from S&P 500 Stocks Saying?

Having managed earnings expectations well, companies are having little trouble exceeding guidance. According to Bloomberg, 79% of the companies that have reported third-quarter earnings have exceeded analysts' forecasts.

Revenue growth is hard to come by. Companies that lack in-demand products are generally having trouble demonstrating year-over-year-revenue growth. Revenue has declined over 2% for the S&P 500 companies that have reported third-quarter results and lagged analysts' forecast.

Stock prices as measured by the S&P 500 are up 62% from the March 6 intra-day bottom. The index now trades at nearly 20 times reported operating earnings, the highest since 2004. Equity valuation metrics appear to be implying a robust recovery. While certain economic indicators do support such expectations, corporate revenues do not.

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