The early earnings reports are coming in very good as 17 have beaten estimates, four were inline and four missed estimates at the time they reported earnings. Many the companies that have reported so far are in the midst of their earnings off seasons, yet are reporting earnings much better than expected.
This three part report from Traverse City, Michigan provides a look at how the companies in the index are doing in comparison to beginning of the quarter earnings estimates, how earnings estimates are changing on a month to month and quarter to quarter basis, along with sector breakdowns on reported and estimated earnings.
Three constituent changes added three new US tax evaders to the S&P 500 since the November update, bringing the current total to 21 tax evaders in the S&P 500.
S&P 500 constituent Eaton Corporation plc (ETN) completed its acquisition of former S&P 500 constituent Cooper Industries plc (CBE) and Cooper was replaced by Dollar General Corporation (DG) in the S&P 500. The US based Dollar General is headquartered in Goodlettsville, TN, and was added to the consumer discretionary sector. Although the Eaton website still claims Cleveland, Ohio as their world headquarters, upon completion of the merger Eaton re-domesticated to Ireland, becoming one of the US tax evaders.
Former S&P 500 constituent and US based R.R. Donnelley & Sons Co. (RRD) was replaced by former S&P Midcap 400 constituent Garmin Ltd. (GRMN). Garmin was added to the Consumer Discretionary Sector. R.R. Donnelley was moved to the S&P Midcap 400 index. Garmin, once headquartered in Kansas, re-domesticated to Schaffhausen, Switzerland in June 2010, making it one of the US tax evaders.
S&P 500 constituent and US based Precision Castparts Corp. (PCP) completed its acquisition of former S&P 500 constituent Titanium Metals Corp. (TIE). Delphi Automotive plc (DLPH) returns to the S&P 500 after being kicked out in Oct 2005 while trading under the ticker “DPH” prior to filing for bankruptcy. Delphi was also returned to the Consumer Discretionary Sector. During bankruptcy proceedings the then Michigan based Delphi re-domesticated to England to become one of the US tax evaders and is now headquartered in Gillingham, England and not Troy, Michigan as it once was.
There will be one more constituent change before the New Year that has not yet completed.
S&P 500 constituent Abbott Laboratories (ABT) will complete its spinoff of AbbVie Inc. (ABBV) after the close of trading on December 31. AbbVie will replace S&P 500 constituent Federated Investors Inc. (FII) in the S&P 500 at that time, with Federated to be moved to the S&P Midcap 400. The Abbot stub will remain in the S&P 500. AbbVie will be added to the Health Care Sector. All three of these companies are currently US based.
Notes: According to the last Form 10-Q (quarterly earnings report), Form 10-K (annual earnings report) filing with the SEC or recent merger documents: As of Dec 30, 2012 there were 21 of the constituents of the S&P 500 that had listed their jurisdiction of incorporation or organization as a foreign country. Several that have listed a jurisdiction of incorporation or organization as a foreign country, still list a US city as their principle executive offices (main headquarters), yet pay no US federal income taxes.
Based on estimates generated from my research to this point, it is quite likely that US companies that used re-domestication to avoid paying US taxes are skirting well over $100 billion a year in US tax payments. Therefore it is likely that over one-tenth of the current budget deficit is caused by this type of tax evasion. Think about that when they go to raise your taxes, or cut your “entitled” retirement benefits, that you already paid for.
All reports in this article are based on un-weighted operating earnings with the exception of those companies that no longer report operating earnings. All historical numbers have been adjusted for those that no longer provide operating earnings (all major reporting sources I use also updated these historical numbers) unless otherwise noted.
Third Quarter Data
I found third quarter earnings for 498 of the 500 constituents with the two missing reports explained in the data notes. I had reports for 493 of the constituents in the previous month’s report. The small number of constituent changes and reported earnings did not change the data materially over the previous month’s report, and therefore I did not include it in this report.
With one company left to report that will report third quarter earnings, the earnings already reported along with the earnings estimates for those yet to report for the third quarter are currently 4.66% higher than the record quarterly earnings reported in the second quarter. These reported and estimated earnings are also 2.44% higher than the record trailing twelve month earnings, also set in the second quarter. Unless the only constituent left to report, CareFusion Corporation (CFN) reports a huge and unexpected loss in the third quarter, it was a record earnings quarter based on the un-weighted operating earnings of the current constituents.
Fourth Quarter Data
The following data is based on the data I gathered during the Nov 25, 2012 update (beginning of the quarter comparison estimates) and the update completed on Dec 24, 2012, along with any later rechecks/changes after screening the data for possible errors. There will be several constituents omitted from this data for various reasons and these issues are discussed further in the data notes below.
Here is how the 25 (5.00%) I have beginning of the quarter estimates for fared against the beginning of the quarter estimates:
There were 5 (20.00%) that missed, 4 (16.00%) were in-line and 16 (64.00%) that beat the estimates I had gathered for the beginning of the quarter comparisons. Those that beat these estimates are a little above the historical average of the about 62% that beat estimates made closer to the earnings report date.
In comparison, of the 25 that had reported earnings at the time of these updates; there were 4 (16.00%) that missed, 4 (16.00%) were in-line and 17 (68.00%) that beat the earnings projections at the time they reported earnings.
Of the 4 that missed the beginning of the quarter earnings estimates; four (80.00%) were by $0.03 or less and two (40.00%) missed by $0.10 or more. The largest dollar miss of these estimates was $0.21 by Darden Restaurants, Inc. (DRI). Three (60.00%) missed by 10% or more and two (23.08%) missed by 40% or more with the largest percentage miss of the beginning of the quarter earnings estimates also by Darden Restaurants, Inc. (DRI). that missed by 44.67%.
Of the 16 that beat the beginning of the quarter earnings estimates; one (6.25%) was by $0.01, 11 (68.75%) were by $0.03 or less and 2 (12.50%) were by $0.10 or more with the largest dollar beat being $0.14 by both Nike, Inc. (NKE) and Joy Global Inc. (JOY). Two (12.50%) beat the estimates by 1% or less, two (12.50%) beat by 10% or more and one (6.25%) by 20% or more. The largest percentage beat was by Carnival Corporation (CCL) at 30.00%.
The 25 reported earnings gathered on Dec 24, 2012 were 0.99% higher than the projected earnings of these companies when gathered for the beginning of the quarter comparison data.
These data notes apply to all three articles, although additional notes may be included in the remaining articles.
The information provided in these reports is based on the current constituents of the S&P500, including any historical comparisons unless otherwise noted. Most historical comparisons use the constituents at the time of the past data and compare it to the present constituents. As can be seen in my reports, the S&P500 changes frequently. I believe comparing unadjusted past data to the present constituents without adjusting this data for these changes wherever possible can be misleading.
Third Quarter Specific
I found third quarter reported earnings for 498 of the constituents at the time of the Dec 24, 2012 update.
The ADT Corporation (ADT) did not report earnings in the third quarter due to it being a newly formed company.
CareFusion Corporation (CFN) has yet to release estimated earnings for the third quarter due to required changes in the method it applies to lease accounting principles to sales-type leases of its Pyxis ® medication and supply dispensing product lines. They have stated they hope to have the Form 10-Q for the third quarter filed by the Feb 11, 2013 deadline for filing their Form 10 K. It appears they will not release estimated earnings for the third quarter as was expected prior to this filing, however the company did not expect the accounting changes to effect guidance already given, nor materially change previous earnings statements, although they stated they would file amended forms and restate earnings of previous quarters if necessary.
Since Kraft Foods Group, Inc. (KRFT), PetSmart, Inc. (PETM), The ADT Corporation (ADT), Pentair Ltd. (PNR), Dollar General Corporation (DG), Garmin Ltd. (GRMN) and Delphi Automotive plc (DLPH) were not constituents at the time the comparison data was gathered, they were not used in the comparison data. Further, the earnings estimates of the remaining stubs of recent spin-offs Mondelēz International, Inc. (MDLZ) and Tyco International Ltd. (TYC) resulted in substantial reductions in the earnings estimates of these companies, and since this change cannot be adjusted in the comparison data, they too were omitted from this comparison data.
The Washington Post Company (WPO) was also omitted from the third quarter tally, as the estimate I made for the third quarter was well below the actual reported. This large discrepancy would have skewed the percentage of increase over the beginning of the quarter data provided in this portion of the report.
I took earnings per share information for The Washington Post Company (WPO) and Leucadia National Corporation (LUK) from their earnings reports, as I could not find it reported in any of my normal sources.
Fourth Quarter Specific
Since Dollar General Corporation (DG), Garmin Ltd. (GRMN) and Delphi Automotive plc (DLPH) were not constituents at the time I gathered beginning of the quarter comparison data for the fourth quarter, they will be omitted from beginning of the quarter comparison data.
Additional Data Notes
I continue to have difficulty finding earnings estimates for the The Mosaic Company (MOS), AGL Resources Inc. (GAS), ProLogis, Inc. (PLD), LyondellBasell Industries NV (LYB), The ADT Corporation (ADT), The Washington Post Company (WPO) and Leucadia National Corporation (LUK).
To this point I have managed to piece most of this data together through several sources, however in any case where I find no earnings projections for these companies, I will make my own based on my research of these companies. If made, these estimates will be noted below and will not be used in earnings beat/miss or increase/decrease counts, instead counted as inline or omitted in these respective tallies; however they will be used in any other data I provide.
The full current year and next full year earnings on LyondellBasell and ADT are based on the total of quarterly estimates, as I cannot find yearly estimates for these companies.
I was mistaken in the November earnings update when I stated The ADT Corporation (ADT) had not yet filed with the SEC. An EDGAR search of their ticker still provides an error, but a search using the company name provides several filings, beginning with a Form 10-12B on April 10, 2012. Several of the constituents provide the same error when a ticker search is used, but load flawlessly when using the exact name of registration.
In the absence of estimated earnings for The Washington Post for the third, fourth and first quarters, I have made my own. These estimates were $3.63 for the third quarter and they reported earnings of $12.64. The estimate for the fourth quarter remained at $8.05 and the first quarter of 2013 remained at $8.99. I increased the next full year from $18.99 to $21.99. The Washington Post’s data was omitted in many of the places that it would have skewed the results.
I have accessed the most recent earnings report for all 500 of the current constituents, and updated several key statistics in my data base. I also updated the exact name of registration, the city of the principle executive offices and the State or other jurisdiction of incorporation or organization for each of the constituent companies. The exact name of registration is used for all the current constituents in this article wherever it is preceded by the ticker symbol, with the exception that many use all capital letters in this registration.
Many of these sources were used in this article.
Have a great day trading,
Disclosure: I have investments in RRD, ABT, FII, KRT, MDLZ and PLD. I currently have no investments in ETN, CBE, DG, GRMN, PCP, TIE, DLPH, ABBV, (but will when issued upon the completion of the spin-off), DRI, NKE, JOY, CCL, ADT, CFN, PETM, PNR, TYC, WPO, LUK, MOS, GAS or LYB although I have owned some of these stocks in the past, and I am interested in some of these stocks. I am currently about 95% invested long in stocks in my trading accounts.
Disclaimer: This article is intended to provoke thought about investment possibilities. Acting on the information provided is at your own risk. You are urged to do your own research, and where appropriate, seek professional investment advice before acting on any information contained in these articles.