It’s Okay

May 6, 2014

Earnings season is past its peak, and things generally look good. We didn’t have blow out good news, nor did we have any big negatives. All in all, the trend of the last few years—slow and steady earnings growth with a sprinkle of exogenous worries—remains intact. In short, things are okay.

Let’s let the data speak (All of the data below comes from Standard & Poor’s). As of Friday’s market close, 375 (i.e., 75%) of the 500 S&P 500 constituent companies had reported results. Two-thirds (i.e., 250) of the reporting companies beat analysts’ estimates, 87 missed and 38 hit their number exactly. This is pretty consistent with recent history.

Consider the “beat rate” in the four quarters of 2013. First, second, third and fourth quarters of 2013 saw beat rates of 66%, 65%, 66% and 64%, respectively. We are right on pace to achieve a very similar beat rate for the first quarter of this year.

What about earnings growth? It remains fairly uninspiring, but it’s still growth. It currently looks like Q1 earnings growth over the same quarter in 2013 is only going to come in around 4% – 5%. On a year-over-year basis, however, we continue to plug along nicely with 12-month earnings growth coming in between 10% and 15% depending on whether we prefer to use operating earnings or all-in earnings-per-share.

What about sales? Sales growth is certainly slower than earnings growth, but it is growth. Analysts expect year-over-year sales growth to be about 4% in Q1. That isn’t exactly exciting, but it has to be taken in context. The average year-over-year sales growth for the last three years has been just above 3%. We achieved 4% during a quarter that was hampered by the polar vortex cold spell.

We’ve thrown a lot of statistics at you in the last few paragraphs, so let’s break it all down into the short version. Earnings continue to grow at a double-digit pace with sales growing in the low single-digits. While valuations no longer look cheap to us, companies continue to grow earnings and sales, and the economy continues to expand. Profit margins are very healthy, and consumers continue to spend, as housing and the employment market continue to improve. In short, we’ll take it.

We find nothing terribly inspiring about the current earnings season, but we don’t find any major negatives either. It was another okay quarter in a bull market that has been defined by only “okay” statistics. GDP Growth has been okay. Earnings and revenue growth have been okay. Jobs growth has been okay. In short, we just got more evidence that things are okay.

Blog Disclosure
Examples are hypothetical in nature and are for illustrative purposes only. HFG Wealth Management, LLC (“HFG”) is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. The views expressed by the author are the author’s alone and do not necessarily represent the views of HFG or its affiliates. The information contained in any third-party resource cited herein, including but not limited to other blogs, websites or articles, is not owned or controlled by HFG, and HFG does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by HFG of third party or any of its content or use of its content. The standard information provided in this article is for general educational purposes only and should not be construed as, or used as a substitute for, financial, investment, or other professional advice. If you have questions regarding your financial situation you should consult your financial planner, investment advisor, attorney or other professional. A copy of HFG’s current ADV Part 2A discussing HFG’s investment advisory and financial planning services and fees is available for review upon request or at



Asset Allocation
Investment Review Selection
Portfolio Management
Risk Analysis Management
Tax Impact Analysis
Asset Transition Analysis

Copyright © 2017. HFG Wealth Management, LLC. Investment advisory services offered through HFG Wealth Management, LLC – An independent Registered Investment Advisory firm registered with the SEC. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Therefore, any information presented here should only be relied upon when coordinated with individual professional advice. [ more disclosures ]