THIS WEEK IN EARNINGS September 8, 2008 September 12, 2008 Thomson Reuters Proprietary Research Group, 617-856-2459 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 Q2 2008 earnings Q2 2008 S&P 500 earnings growth rate: -22.1% Q3 2008 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 Q2 2008 results and the first few companies reporting numbers for Q3 2008. During the week of September 8 th, one S&P 500 company is expected to announce earnings for Q2 2008. Q3 2008 Earnings Growth - Revisions At this time, the estimated growth rate for Q3 2008 stands at 0.8%. On April 1 st, the estimated growth rate for Q3 2008 was 17.3%. On July 1 st, the estimated growth rate was 12.6%. If the final growth rate for Q3 2008 is 0.8%, it will mark the first quarter the S&P 500 has recorded earnings growth since Q2 2007 (7.7%). Since the start of the quarter, most of the decrease in the Q3 2008 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). Q3 2008 Earnings Growth Sectors At the sector level, the Energy (60%) sector is expecting the highest earnings growth in Q3 2008. 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 Q3 2005 (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 Q3 2008 growth rate for the remaining nine sectors would be -9.7%. 2008 Thomson Reuters. All marks herein are used under license. 1
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 Q3 2008 compared to earnings of $36.5 billion in Q3 2007. 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 Q3 2008 growth rate for the remaining nine sectors would be 13.9%. If both the Energy and Financials sectors are removed from the index, the Q3 2008 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 Q3 2008 compared to a loss of $2.6 billion in Q3 2007. 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 Q3 2007. Q3 2008 Earnings Guidance In the FC Universe (about 5500 companies) there have been 395 negative EPS pre-announcements issued by corporations for Q3 2008 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 Q2 2008 (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 Q3 2008 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 Q2 2008 (1.9) but slightly below the long-term average for the S&P 500 (2.1). Q4 2008 Earnings Growth At this time, the estimated growth rate for Q4 2008 stands at 62.1%. On July 1 st, the estimated growth rate for Q4 2008 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 Q4 2008 compared to a loss of $27 billion in Q4 2007. Valuation: Forward P/E Ratio At this time, the forward four-quarter (Q3 2008 Q2 2009) P/E ratio for the S&P 500 stands at 12.7. This P/E ratio is below the forward four-quarter P/E ratio last week (13.1) and below the average forward four-quarter P/E ratio recorded over the previous 52 weeks (13.9). Notes (1) For more details, see Lab Thomson titled Merrill Lynch Write-Down Leads published 15-Aug-08. 2008 Thomson Reuters. All marks herein are used under license. 2
EARNINGS DATA Reporting Season Q208 Reported To Date Report This Week Report Next week Report week After next Subsequent Weeks DJIA 30 30 0 0 0 0 S&P 500 494 1 2 0 3 Earnings vs. Estimates: Q2 2008 # % Above 322 65% On-Target 52 11% Below 120 24% Total 494 Calendar Year 2008: Valuation EPS P/E Industry Analysts 83.44 14.9 Forward 4 Quarter (Q3 2008 Q2 2009): Valuation EPS P/E Industry Analysts 97.57 12.7 Calendar Year 2009: Valuation EPS P/E Industry Analysts 106.08 11.7 2008 Thomson Reuters. All marks herein are used under license. 3
PRE-ANNOUNCEMENT DATA Earnings Pre-announcement N/P ratio: Q3 2008 1-Aug 8-Aug 15-Aug 22-Aug 29-Aug 5-Sep LT Avg Q3 2008 2.2 2.2 2.4 2.5 2.6 2.6 2.2 Q3 2007* 2.5 2.4 2.5 2.5 2.5 2.5 2.2 Q2 2008* 1.7 1.8 1.9 1.9 1.9 1.9 2.2 * on equivalent date in earlier quarters. Major Q3 2008 Positive Pre-announcements (Sep 1 Sep 5) Anc Date Tic Company Qtr End PreAnc Summary Est @Anc Current Est Major Q3 2008 Negative Pre-announcements (Sep 1 Sep 5) Anc Date Tic Company Qtr PreAnc Summary Est Current End @Anc Est 2-Sep CAG ConAgra Aug Slightly below 0.26 0.29 0.24 2008 Thomson Reuters. All marks herein are used under license. 4
CALENDAR Monday: September 8 Economic Reports: Report Median Low High Prior Consumer Credit - Jul - 15:00 8.75$bn 5.7 10 14.3 Earnings Reports: Date Ticker Company Qtr Est Yr Ago % Dif 2008 Thomson Reuters. All marks herein are used under license. 5
Tuesday: September 9 Economic Reports: Report Median Low High Prior Pend Home Sls ldx - Jul - 10:00 88.6Idx 86.1 91 89 Wholesale Invent. - Jul - 10:00 0.7%m/m 0.4 1 1.1 Wholesale Sales - Jul - 10:00 1.5%m/m 1.5 1.5 2.8 IBD/TIPP Optimism - Sep - 10:00 43.25Idx 41.5 45 42.8 Earnings Reports: Date Ticker Company Qtr Est Yr Ago % Dif 2008 Thomson Reuters. All marks herein are used under license. 6
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
Thursday: September 11 Economic Reports: Report Median Low High Prior International Trade - Jul - 08:30-58$bn -61-56 -56.8 Import Prices - Aug - 08:30-1.7%m/m -3.3-0.8 1.7 Initial Claims - 09/06-08:30 440k 430 454 444 Cont. Claims - 08/30-08:30 3462.5k 3400 3480 3435 Treasury Budget - Aug - 14:00-107$bn -126.9-100 -117 Earnings Reports: Date Ticker Company Qtr Est Yr Ago % Dif 11-Sep-08 CPB CAMPBELL SOUP CO Q4-Jul.08 0.25 0.14 76.5% 2008 Thomson Reuters. All marks herein are used under license. 8
Friday: September 12 Economic Reports: Report Median Low High Prior Retail Sales - Aug - 08:30 0.3%m/m -0.2 1.1-0.1 Retail Sls ex autos - Aug - 08:30-0.2%m/m -0.5 0.2 0.4 PPI - Aug - 08:30-0.5%m/m -1.2-0.1 1.2 PPI-YOY - Aug - 08:30 9.9%y/y 9.5 10.3 9.8 PPI Core - Aug - 08:30 0.2%m/m 0 0.4 0.7 PPI Core-YOY - Aug - 08:30 3.6%y/y 3.5 3.7 3.6 U of Mich (prel) - Sep 09:55 64Idx 63 65 63 Business Invent. - Jul 10:00 0.5%m/m 0.3 0.9 0.7 Business sls. - Jul - 10:00 1.35%m/m 1.2 1.5 1.7 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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