So far, Q4 earnings season has been pretty disappointing. A third of the S&P 500 has announced earning, and more companies have announced earnings that have missed estimates rather than beat them.
However, the total dollar value of earnings have actually held up decently. But, this is due largely to Apple announcing blowout earnings last night, noted UBS strategists Thomas Doerflinger and Jonathan Golub in a note to clients this morning.
Because the S&P 500 is a market capitalization weighted index, Apple's earnings account for a huge share of the index's earnings estimate. Apple is neck-and-neck with ExxonMobil, the largest company in the world.
From UBS's note to clients:
About as Weak as Expected, Except for AAPL
With 34% of market cap reporting, we calculate a Q4 2011 bottom-up S&P 500 EPS estimate of
$24.09 vs. our $24.00. The final figure should be fairly close to our number. Even after Apple’s large upside surprise added ~$0.37, the bottom-up estimate is lower than at the start of earnings season ($24.26 on Jan 9). The EPS surprise ratio is much weaker than Q3, with more companies missing than beating estimates. Compared to consensus one month into the quarter, 42% are missing, 19% are in line, and 39% are beating; in Q3 the ratio was 29% / 23% / 48%. Many companies report weak demand, in many cases tied to inventory corrections that are expected to continue in Q1 but hopefully end by mid-year if not sooner. The 2012 bottom-up estimate has declined ~1% so far this year (to ~$106 vs. our $99 estimate), and it should continue to decline during the rest of earnings season.
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