One of the recurring themes as we cross Q1 earnings season, is that virtually every sellside strategist has been repeating ad nauseam how as a result of the shaprly lowered earnings expectations…

… companies will have no problems beating consensus estimates. And then we got something like last week’s week’s barrage of tech company misses.

For many pundits this apparently did not register and just today BofA said that “1Q EPS expectations have likely bottomed as companies have begun to beat across the board.” This is how it explained this observation:

With the conclusion of Week 2, 133 companies representing 40% of S&P 500 earnings have reported. Results last week were dominated by Financials-where surprise stats improved as most smaller banks and consumer finance companies beat expectations-and Industrials-where the majority of companies across sub-sectors surprised to the upside, led by Road & Rail. Bottom-up EPS ticked up to $26.48 from $26.36 the prior week, 0.4% higher than analysts’ expectations at the start of earnings season. Expectations often bottom in Week 2, and our forecast of $27.50 implies a 4% beat.

 

While analysts continued to cut estimates last week in Energy and Utilities (which have yet to report), estimates climbed for most other sectors amid better-than-expected results. Health Care has seen the most top- and bottom-line beats so far, consistent with trends over the past few years. Meanwhile, a high proportion of top- and bottom-line beats in Industrials is a shift from recent trends, echoing the improvement in the ISM and other industrial indicators. Overall for the S&P 500, 67% of companies have beaten on EPS, 57% have beaten on sales, and 44% have beaten on both-an improvement from the prior week, and much better than we saw this time last quarter, when just one-fourth of companies beat on both EPS and sales.

However, confirming once again that what is one analyst’s meat, is another analyst’s non-GAAP poison, this “improvment” was not enough for one of Wall Street’s most cheerful analysts, DB’s David Bianco, who in his Q1 earnings tracker admitted something troubling – the truth: “Results so far are disappointing and our 1Q est. is at risk.” In fact, as DB admits, a sharp bounce in the fishhook chart shown above is now dependent on “big beats at Energy.” Good luck with those. Here is why Bianco is displeased with the Q1 results so far:

132 companies or 41% of S&P 500 EPS have reported 1Q EPS. The weighted avg EPS beat is 2.2% (4.1% ex. Fin) with a -0.2% miss on sales (in line ex. Fin). Bottom-up 1Q S&P EPS is now $26.49, -7.2% y/y, and -1.6% ex Energy. Btm-up sales growth is -1.2% y/y for the S&P and 1.9% ex Energy. It will take an avg beat of ~5% from the remaining non Financial & Energy companies and higher from Energy firms to reach our $27.50- 28.00 or down 2-3% y/y 1Q est.

 

After analysts cut their 1Q EPS estimates by a whopping 9.4% from Jan 1 to Mar 31, they continue to make last minute trims to their 1Q EPS estimates, especially at Energy, for companies yet to report this season. These trims keep 1Q btm-up S&P EPS lower than suggested by the beats so far. Thus, the typical “fish hook” upturn in btm-up quarterly EPS has yet to occur and is now dependent on big beats at Energy. However, ex. Financials & Energy the beats are normal. At current oil prices and FX rates 2016, S&P EPS should be $118-120 with a quarterly EPS profile of roughly: $27.50, $29.50, $30.50, $31.50.

 

1Q results are better than feared, but they do not point to any significant upside to our standing 2016 or 2017 S&P EPS outlook. If anything we think it less likely for S&P EPS growth, ex. Energy, to exceed 5% through 2017. However, we also increasingly think that our standing 5.5% real S&P CoE estimate might be too high. If Treasury yields stay low as the profit recession ends and also despite Fed hikes later this year, we see more S&P PE upside.

DB’s summary earnings table:

If excluding energy, perhaps once should also exlude FANG. Doing so shows just how reliant the market is on merely four companies because while the S&P is expected for post a 7% EPS drop in total and “only” 2% ex energy, the plunge is -8% if one excludes the FANG stocks.

So if one excludes both energy and FANG names, S&P earnings are set to tumble about 5%.

In summary this is what the worst quarter since the crisis looks like when charted.

 

And here is the full frontal of EPS in nominal terms including and excluding energy.

Finally, keep in mind that all these earnings are non-GAAP. If one looks at as reported, GAAP earnings, the result has been a disaster, not only in recent years, but also for Q1, where the gap, pardon the pun, between GAAP and non-GAAP earnings is set to be record wide.

The post The True Story Of Q1 Earnings: Deutsche Admits “Results So Far Are Disappointing; Our 1Q Est. Is At Risk” appeared first on crude-oil.top.