Earnings Recap – July 30th 2014

Earnings growth for the S&P 500 increases to 6.8% while Newmont Mining Corp (NEM.N) Q2 2014 earnings decline 56% compared to Q2 2013.

OBSERVATIONS: INDONESIA’S EXPORT BAN STRIKE A BLOW TO NEWMONT MINING CORP (NEM.N)

Fifteen percent of the S&P 500’s constituents reported Q2 2014 earnings this week. Newmont Mining Corp (NEM.N) reported earnings of $0.20 per share, 5.3% above expectations. However, earnings were down 55.6% compared to Q2 2013. This is the largest decline of the 76 companies that reported so far this week and well below the materials industry group actual earnings of 17.0%. Additionally, Newmont’s Q2 2014 revenue of $1.77B decreased by 11.4% from Q2 2013 and missed estimates by 2.1%.

Some of the issues facing NEM were a decline in gold prices and the export restrictions and duties related to Indonesia’s mineral export ban. Newmont CFO, Laurie Brlas said, “comparing this Q2 to the prior-year quarter, as you can see, we experienced a 7% drop in gold price and a 13% drop in revenue over the prior-year quarter. While our production was up, we did experience a decline in sales volume, primarily due to the export issues in Indonesia.”

PTNNT’s operations at the Batu Hijau, Indonesia mine were halted on June 5 and due to their inability to export copper concentrate, and no room to store additional production. Newmont’s CEO, Gary Goldberg, said, “We are pursuing two parallel paths to resolve this issue as quickly as possible. First, we are continuing our efforts to engage with the government, which we hope will lead to a resolution outside of the arbitration. At the same time, we have filed for international arbitration to insure PTNNT’s rights and assets are protected for the benefit of its stakeholders.” Goldberg stated that they expect to receive an export permit for Batu Hijau by January 1, 2015.

Newmont has announced plans to invest ~$0.9B to $1B in Capex to develop the Merian gold mine in Suriname, which could be reduced to $650 million if the government of Suriname were to exercise its right to acquire a 25% fully funded interest. Merian reserves are reported at 4.2 million ounces, with a projected mine life of 11 years. NEM expects first production from the mine in late 2016.

EXHIBIT 1. S&P 500: Q2 2014 ACTUAL EARNINGS GROWTH RATE BY INDUSTRY GROUP

Source: I/B/E/S data

Through July 30, 61% of the S&P 500 companies have reported earnings for Q2 2014. In aggregate the actual earnings growth rate for those 305 companies that have reported earnings is 7.6%. Excluding Citigroup (C.N), the actual earnings growth rate is 10.2% and the Financials sector actual earnings growth estimate is -0.5%.

Q2 2014: EARNINGS SCORECARD

EXHIBIT 2. S&P 500: Q2 2014 EARNINGS SCORECARD

Source: I/B/E/S data

Through July 30, 61% of the S&P 500 companies have reported earnings for Q2 2014. Of these 305 companies, 69% reported earnings above analyst expectations, 10% reported earnings in line with analyst expectations and 21% reported earnings below analyst expectations. In a typical quarter (since 1994), 63% of companies beat estimates, 16% match and 21% miss estimates. Over the past four quarters, 67% of companies beat the estimates, 10% matched and 23% missed estimates.

In aggregate, companies are reporting earnings that are 1.7% above estimates, which is below the 3% long-term (since 1994) average surprise factor, and below the 3% surprise factor recorded over the past four quarters. Excluding Citigroup (C.N), reported earnings for the S&P 500 are 3.5% above estimates, and the Financials sector reported earnings are 2.1% above analyst estimates.

The Q2 2014 blended earnings growth rate for the S&P 500 is 6.8%, which is below the long-term (since 1994) average earnings growth of 8.9%, and above the 6.6% trailing four quarter average earnings growth. Excluding Citigroup (C.N), the blended earnings growth rate is 8.5% and the Financials sector blended earnings growth estimate is -0.3%.

Q2 2014: REVENUE SCORECARD

EXHIBIT 3. S&P 500: Q2 2014 REVENUE SCORECARD

Source: I/B/E/S data

Through July 30, 61% of the S&P 500 companies have reported revenue for Q2 2014. Of these 305 companies, 65% reported revenue above analyst expectations, 0% reported revenue in line with analyst expectations and 35% reported revenue below analyst expectations. In a typical quarter (since 2002), 61% of companies beat estimates and 39% miss estimates. Over the past four quarters, 55% of companies beat estimates and 45% missed estimates

In aggregate, companies are reporting revenue that are 1.3% above estimates, which is above the 1.1% long-term (since 2002) average surprise factor, and above the 0.5% surprise factor recorded over the past four quarters.

The Q2 2014 blended revenue growth rate for the S&P 500 is 3.8%, which is above the 2.3% trailing four quarter average earnings growth.

In aggregate the actual revenue growth rate for the S&P 500 companies have reported revenue for Q2 2014 is 5.2%.

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