Earnings season so far--surprisingly good but are worries rising about next quarter?

01/28/2013 2:48 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Are we starting to see a pattern to earnings season? And does it point to problems not this quarter (as expected) but next?

Just about one-third (160) of the companies in the Standard & Poor’s 500 stock index have reported through today, January 28. To date S&P 500 earnings are up 6%. That’s quite a bit better than the 2.5% earnings growth that analysts were expecting just before the start of the earnings season. About 61% of companies in the S&P 500 that have reported have come in above Wall Street earnings estimates.

The revenue picture is just as strong—and that strength is more surprising. Sales for the S&P 500 companies that have reported are up 4%. At the start of the quarter Wall Street analysts had grown very pessimistic. They were projecting revenue growth of just 2% for the quarter.

But there is one trend this earnings season that isn’t quite so positive. Many companies that are reporting beats for the fourth quarter on earnings and revenue are then lowering guidance for the first quarter of 2013.

Caterpillar (CAT), which reported this morning before the markets opened in New York, is a good example of the trend. The company reported earnings of $1.91 a share (excluding a one time charge against goodwill). That was 19 cents a share above the Wall Street consensus. Revenue came in at $16.07 billion, just a bit shy of the $16.2 billion projection.

Of course, both “beats” were due to very low expectations for the quarter. Revenue, for example, fell 6.8% from the fourth quarter of 2011. The $1.91 a share that Caterpillar earned in the fourth quarter of 2012 was down from the $2.32 it reported in the fourth quarter of 2011.

But it was the company’s guidance that hurt—and that forms part of a worrying trend for the first quarter of 2013. Caterpillar told investors to expect revenue of just $14 billion in the first quarter (against a Wall Street consensus of $15.09 billion.) The company didn’t give specific guidance for earnings in the first quarter of 2013 but told Wall Street to expect something lower than the $2.37 the company reported in the first quarter of 2012. In giving that guidance for the first quarter of 2013, Caterpillar noted that dealers didn’t finish working down excess inventory in the fourth quarter and had more to do before they began ordering again. Sales in China and the United States would pick up slightly but Europe remained a huge question mark.

To my ears Caterpillar’s remarks sound similar to what other companies have said about the first quarter. Listen carefully during the rest of earnings season to see if you hear a trend.

 

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