The week ended Jan. 30 was the busiest of the fourth quarter earnings season for the companies in the S&P 500 index. Earnings results continued to beat expectations, with 74% of the 137 companies in that week reporting positive EPS surprises. This allowed the blended earnings growth rate to increase to 5.3%, up from 3.5% as of Jan. 23.
Revenue results have not been as strong as earnings throughout season, and the week ended Jan. 30 was no exception (see Exhibit 1 below). Sixty percent of companies beat their revenue estimates, slightly higher than the 58% that beat revenue estimates to this point in the earnings season overall. Still, this performance was good enough to bring Q4 revenue growth rate up to 1.6%.
Exhibit 1. S&P 500: Q4 2014 Earnings Scorecard – Companies Reporting Week ended Jan. 30
Energy weakness
The woes of the energy sector have received much attention this quarter as expected earnings plummeted along with the price of oil. Earnings growth for the sector has fallen from 6.4% at the beginning of the quarter to the current level of -21.9%. Expectations may have neared the end of their fall, however, as this week 90% of energy companies to report exceeded their EPS estimates and 60% beat on the top line. Although these companies have been beating their Q4 estimates, the outlook for 2015 continues to become more pessimistic, with analysts expecting earnings declines for the next four quarters of 59%, 58%, 51%, and 28%, respectively.
Chevron Corp. (CVX.N) is one such energy company that beat its EPS and revenue estimates while announcing large declines in each. Chevron reported a 28% decline in earnings, topping estimates of a 37% decline. Similarly, revenues dropped 18%, better than the expected 45% slide. During the earnings call, CEO John Watson explained the effect of low oil prices on future investments, saying, “If we are in a $50 (per barrel) world, there will not be, just as I said at a macro level … around the world I don’t see many investments that are going to go with the fiscal terms we see in place today, with the cost levels we see today. I see very few major oil projects going forward. There will be incremental investments on existing projects to mitigate the decline.”
Visa Inc. (V.N) beat its EPS and revenue estimates, reporting EPS growth of 15% and revenue growth of 7%. While cheaper oil causes energy companies to struggle, Visa sees benefits. CEO Charlie Scharf explained, “U.S. fuel prices are down approximately 30% since June. This drop amounts to approximately $60 per month for the average consumer. According to our surveys, approximately 50% of the savings consumers are seeing is being saved, 25% is being used to pay down debt, and approximately 25% is being spent in other discretionary categories.”
For more on energy sector expectations, see our recent research piece here.
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