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Surprise! 2Q Sales Growth = +2.7%

Posted By Barry Ritholtz On August 5, 2013 @ 7:30 am In Earnings,Valuation | Comments Disabled

click for larger graphic
sales revisions trend [1]
Source: Merrill Lynch Research

 

 

We interrupt the upcoming economic apocalypse and market collapse for this surprising message. Earnings are being revised higher, as are Revenues as well.

Merrill Lynch, who tracks these sorts of things, notes that the latest revised expectations for Q2 are “1.3% higher than they were at the start of reporting season.” And ex-Energy, its closer to 3% (but I hate ex-anything),

Yes, these are only expectations, but history teaches us that the latter earnings revisions are far more accurate than the early “guesses.”

Perhaps the most surprising part of Q2 reporting season is that”Sales growth is no longer elusive.” Sales expectations as of early August are tracking ~1% higher than on July 1. The drivers are better than expected sales results for most sectors, with the soft spots being Materials, Staples and Technology.

Merrill now sees the consensus earnings expectations of a 2.7% year-over-year growth — with that +2.7% dominated by big gains in Financials.

If you were to look at the rest of the earnings growth without the biggest positive and negative contributors — Financials and Energy — than earnings are flat versus Q2 2012. (for a broader look, see the August 2 Factset Earnings Insight [2])

On the other hand, back out Financials and Energy, and Sales are expected to grow 3.4%. All sectors are expected to see gains of 2.7%.

Perhaps the most interesting data point in the report is that the 2.7% sales growth ex-Financials are likely to be up 1.7%. In other words, Revenues are finally rising.

The usual caveats apply: These are only estimates; the financial community has a tendency to skew too bullish; Analysts are less negative on sales than they were a quarter ago, but its just one quarter.And its worth noting that while EPS beats at 55% are above historical average of 53% (for MER’s coverage universe), sales beats at 52% are still below the 57% average.

But as Merrill points out, there have been four months of modest increases in sales forecasts.

If sales growth actually accelerates, we may be on to something . . .

 

 

Source:
Sales are making a comeback this quarter
Savita Subramanian
Equity and Quant Strategy
MLPF&S United States 05 August 2013


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[1] Image: http://www.ritholtz.com/blog/wp-content/uploads/2013/08/sales-revisions-trend.png

[2] Earnings Insight: http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_8.2.13

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