By Jeremy Glaser
Morningstar – Sun, Oct 21, 2012
To be sure, earnings have not been a disaster so far. According to data from FactSet, of the 98 members of the S&P 500 that have reported earnings so far, 70% have exceeded analyst expectations. But of those 98 firms, only 42% have beaten estimates for sales. During the last four years, an average of 59% of firms had beaten revenue estimates at this point in the reporting cycle. Some of those current misses are being driven by unrealistically high expectations and very strong currency headwinds, but some firms are starting to show signs of weakness. Given that most firms have already cut about as much as they can from their organizations, the drop in sales is likely to eventually lead to a drop in profit as it will be harder to cut deeper to keep profit growing.
McDonald's(MCD) and Chipotle Mexican Grill(CMG) both fell short of expectations. Profitability at the oil-services firms took a big hit this quarter, and
pressure pumping remained challenged. Baker Hughes(BHI) reported a North American margin of 10.5%, a nearly 300-basis-point sequential decline. This is more than Schlumberger's(SLB) 230-basis-point decline but less than
Halliburton's(HAL) 660-basis-point decline.