THIS WEEK IN EARNINGS September 8, 2008 September 12, 2008

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1 THIS WEEK IN EARNINGS September 8, 2008 September 12, 2008 Thomson Reuters Proprietary Research Group, Volume 6 - Issue 36 - Sep 5, 2008 John Butters, Director, U.S. Earnings: john.butters@ David Dropsey, Senior Research Analyst: david.dropsey@ OVERVIEW One S&P 500 company expected to announce Q earnings Q S&P 500 earnings growth rate: -22.1% Q S&P 500 earnings growth rate: 0.8% EARNINGS OUTLOOK by John Butters The next couple of weeks will see the last few companies reporting Q results and the first few companies reporting numbers for Q During the week of September 8 th, one S&P 500 company is expected to announce earnings for Q Q Earnings Growth - Revisions At this time, the estimated growth rate for Q stands at 0.8%. On April 1 st, the estimated growth rate for Q was 17.3%. On July 1 st, the estimated growth rate was 12.6%. If the final growth rate for Q is 0.8%, it will mark the first quarter the S&P 500 has recorded earnings growth since Q (7.7%). Since the start of the quarter, most of the decrease in the Q growth rate (to 0.8% from 12.6%) can be attributed to downward estimate revisions in the Financials sector. At the industry level, the aggregated net income for companies in the Investment Bank & Brokerage (-$9.3 billion), Diversified Financials (-$3.3 billion) and Thrifts & Mortgage (-$3.0 billion) industries has decreased by $15.5 billion since the beginning of the quarter (1). Q Earnings Growth Sectors At the sector level, the Energy (60%) sector is expecting the highest earnings growth in Q The Financials (-49%) and Consumer Discretionary (-7%) sectors are expecting the weakest earnings growth. The Energy sector is expecting the highest earnings growth rate of any sector at 60%. Should the growth rate finish at 60%, it will mark the highest growth for the sector since Q (62%). At the industry level, the Oil & Gas Integrated industry is the largest contributor to earnings growth, accounting for about 70% of the growth in the sector. The Oil & Gas Refining & Marketing industry is the only industry (out of seven) anticipating an earnings decline compared to the year-ago quarter. If the Energy sector is removed from the index, the Q growth rate for the remaining nine sectors would be -9.7% Thomson Reuters. All marks herein are used under license. 1

2 The Financials sector is expecting the weakest earnings growth rate of any sector at -54%. In aggregate, the sector is expected to earn $16.7 billion in Q compared to earnings of $36.5 billion in Q Should the growth rate finish at -54%, it will mark the fifth consecutive quarter of negative earnings growth for the sector. The Investment Bank & Brokerage and Diversified Financials industries are the largest contributors to the earnings decline. These two industries combined are anticipating earnings to be $11 billion below yearago levels. If the Financials sector is removed from the index, the Q growth rate for the remaining nine sectors would be 13.9%. If both the Energy and Financials sectors are removed from the index, the Q growth rate for the remaining eight sectors would be 3.3%. The Consumer Discretionary sector is expecting the second weakest earnings growth rate (-7%) of any sector. Over the past four quarters, the sector has recorded an average earnings growth rate of -29%. At the industry level, the Automobile Manufacturing industry is the largest detractor to earnings growth. If this industry is removed from the index, the growth rate for the sector would be 11%. Despite an estimated loss for the quarter, the Homebuilding industry is the largest contributor to earnings growth for the sector. The industry is expecting a loss of $600 million for Q compared to a loss of $2.6 billion in Q If the Homebuilding industry is removed from the index, the growth rate for the sector would be -20%. If both the Automobile Manufacturers and the Homebuilding industries are removed from the index, the growth rate for the sector would be -3%. Of the 33 industries that comprise the sector, only thirteen are expecting an earnings improvement relative to Q Q Earnings Guidance In the FC Universe (about 5500 companies) there have been 395 negative EPS pre-announcements issued by corporations for Q compared to 150 positive EPS pre-announcements. By dividing 395 by 150, one arrives at a negative-to-positive (N/P) ratio of 2.6 for the FC Universe. This 2.6 ratio is above the N/P ratio at the same point in time in Q (1.9) and above the long-term average (2.2). In the S&P 500, there have been 78 negative EPS pre-announcements issued by corporations for Q compared to 40 positive EPS pre-announcements. By dividing 78 by 40, one arrives at an N/P ratio of 2.0 for the S&P 500 Index. This 2.0 ratio is slightly above the N/P ratio at the same point in time in Q (1.9) but slightly below the long-term average for the S&P 500 (2.1). Q Earnings Growth At this time, the estimated growth rate for Q stands at 62.1%. On July 1 st, the estimated growth rate for Q was 59.3%. Last week, the estimated growth rate was 62.5%. The Energy (39%) and Materials (33%) sectors are expecting the highest growth rates for the quarter. The Financials sector is expected to earn $32.4 billion in Q compared to a loss of $27 billion in Q Valuation: Forward P/E Ratio At this time, the forward four-quarter (Q Q2 2009) P/E ratio for the S&P 500 stands at This P/E ratio is below the forward four-quarter P/E ratio last week (13.1) and below the average forward four-quarter P/E ratio recorded over the previous 52 weeks (13.9). Notes (1) For more details, see Lab Thomson titled Merrill Lynch Write-Down Leads published 15-Aug Thomson Reuters. All marks herein are used under license. 2

3 EARNINGS DATA Reporting Season Q208 Reported To Date Report This Week Report Next week Report week After next Subsequent Weeks DJIA S&P Earnings vs. Estimates: Q # % Above % On-Target 52 11% Below % Total 494 Calendar Year 2008: Valuation EPS P/E Industry Analysts Forward 4 Quarter (Q Q2 2009): Valuation EPS P/E Industry Analysts Calendar Year 2009: Valuation EPS P/E Industry Analysts Thomson Reuters. All marks herein are used under license. 3

4 PRE-ANNOUNCEMENT DATA Earnings Pre-announcement N/P ratio: Q Aug 8-Aug 15-Aug 22-Aug 29-Aug 5-Sep LT Avg Q Q3 2007* Q2 2008* * on equivalent date in earlier quarters. Major Q Positive Pre-announcements (Sep 1 Sep 5) Anc Date Tic Company Qtr End PreAnc Summary Current Est Major Q Negative Pre-announcements (Sep 1 Sep 5) Anc Date Tic Company Qtr PreAnc Summary Est Current Est 2-Sep CAG ConAgra Aug Slightly below Thomson Reuters. All marks herein are used under license. 4

5 CALENDAR Monday: September 8 Economic Reports: Report Median Low High Prior Consumer Credit - Jul - 15: $bn Earnings Reports: Date Ticker Company Qtr Est Yr Ago % Dif 2008 Thomson Reuters. All marks herein are used under license. 5

6 Tuesday: September 9 Economic Reports: Report Median Low High Prior Pend Home Sls ldx - Jul - 10: Idx Wholesale Invent. - Jul - 10:00 0.7%m/m Wholesale Sales - Jul - 10:00 1.5%m/m IBD/TIPP Optimism - Sep - 10: Idx Earnings Reports: Date Ticker Company Qtr Est Yr Ago % Dif 2008 Thomson Reuters. All marks herein are used under license. 6

7 Wednesday: September 10 Economic Reports: Report Median Low High Prior Earnings Reports: Date Ticker Company Qtr Est Yr Ago % Dif 2008 Thomson Reuters. All marks herein are used under license. 7

8 Thursday: September 11 Economic Reports: Report Median Low High Prior International Trade - Jul - 08:30-58$bn Import Prices - Aug - 08:30-1.7%m/m Initial Claims - 09/06-08:30 440k Cont. Claims - 08/30-08: k Treasury Budget - Aug - 14:00-107$bn Earnings Reports: Date Ticker Company Qtr Est Yr Ago % Dif 11-Sep-08 CPB CAMPBELL SOUP CO Q4-Jul % 2008 Thomson Reuters. All marks herein are used under license. 8

9 Friday: September 12 Economic Reports: Report Median Low High Prior Retail Sales - Aug - 08:30 0.3%m/m Retail Sls ex autos - Aug - 08:30-0.2%m/m PPI - Aug - 08:30-0.5%m/m PPI-YOY - Aug - 08:30 9.9%y/y PPI Core - Aug - 08:30 0.2%m/m PPI Core-YOY - Aug - 08:30 3.6%y/y U of Mich (prel) - Sep 09:55 64Idx Business Invent. - Jul 10:00 0.5%m/m Business sls. - Jul - 10: %m/m Earnings Reports: Date Ticker Company Qtr Est Yr Ago % Dif 2008 Thomson Reuters. All marks herein are used under license. 9

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