Profitability Issues

After-Tax Corporate Profits Chart 2nd Quarter 2013

Today’s GDP release (Q2, 2nd Estimate) was accompanied by the BLS Corporate Profits (preliminary estimate) report for the 2nd Quarter.

Of course, there are many ways to adjust and depict overall Corporate Profits. For reference purposes, here is a chart from the St. Louis Federal Reserve (FRED) showing the Corporate Profits After Tax (last updated August 29,2013, with a value of $1830.4 Billion) :

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Here is the Corporate Profits After Tax measure shown on a Percentage Change from a Year Ago perspective:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Corporate Profits After Tax [CP]; U.S. Department of Commerce: Bureau of Economic Analysis; accessed August 29, 2013; https://research.stlouisfed.org/fred2/series/CP

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StratX, LLC (stratxllc.com) is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.

The Sustainability Of Profit Margins

The topic of corporate earnings growth and its sustainability, given a variety of metrics, has been discussed in various posts in this blog.

The Wall Street Journal article of August 24-25, 2013, titled “Lofty Profit Margins Hint at Pain to Come for U.S. Shares,” discusses various facets of whether corporate profit margins are likely to be sustained. As well, corporate profit margins and fluctuations are discussed from a long-term historical perspective.

While the article contains various noteworthy comments, here is one excerpt:

U.S. corporations, on average, currently report a profit of 9.3 cents for every dollar of sales, according to U.S. Commerce Department data—a profit margin of 9.3%. It has gotten only slightly higher than this over the past six decades: In the fourth quarter of 2011, it was 10%. The average since 1952 is 5.9%.
Profit margins in the past have exhibited a strong historical tendency to “revert to the mean,” according to James Montier, a visiting fellow at the U.K.’s University of Durham and a member of the asset-allocation team at Boston-based GMO, an investment firm with $108 billion under management. That is, above-average levels in the past have tended to quickly fall, just as below-average levels in the past have soon risen.
Consider all occasions since the early 1950s in which the profit margin rose to at least 6.9% or fell to at least 4.9%—one percentage point away from its historical mean, in other words. On average, it was back at its mean in just 4.8 years.

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StratX, LLC offers the above commentary for informational purposes only, and does not necessarily agree with the views expressed by these outside parties.

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S&P500 Earnings Estimates Trends

S&P500 earnings trends and estimates are a notably important topic, for a variety of reasons, at this point in time.

FactSet publishes a report titled “Earnings Insight” that contains a variety of information including the trends and expectations of S&P500 earnings.

For reference purposes, here are two charts as seen in the “Earnings Insight” (pdf) report of August 16, 2013:

from page 11:

(click on charts to enlarge images)

CY Bottom-Up EPS vs. Top-Down Mean EPS (Trailing 26-Weeks)

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from page 12:

Calendar Year Bottom-Up EPS Actuals & Estimates

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StratX, LLC offers the above data and projections for informational purposes only, and does not necessarily agree with information provided by these outside parties.

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Earnings Forecasts For The S&P500

As many are aware, Thomson Reuters publishes earnings estimates for the S&P500.

The following estimates are from Exhibit 12 of “The Director’s Report” of August 20, 2013, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts:

Year 2013 estimate:

$110.70/share

Year 2014 estimate:

$123.01/share

Year 2015 estimate:

$135.62/share

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StratX, LLC offers the above data and projections for informational purposes only, and does not necessarily agree with information provided by these outside parties.

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S&P Estimates For 2013 & 2014 S&P500 EPS

As many are aware, Standard & Poor’s publishes earnings estimates for the S&P500.

For reference purposes, the most current estimates are reflected below, and are as of August 15, 2013:

Year 2013 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $108.41/share

-From a “top down” perspective, operating earnings of N/A

-From a “top down” perspective, “as reported” earnings of $100.91/share

Year 2014 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $122.28/share

-From a “top down” perspective, operating earnings of $114.53/share

-From a “top down” perspective, “as reported” earnings of $111.53/share

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StratX, LLC offers the above data and projections for informational purposes only, and does not necessarily agree with information provided by these outside parties.

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