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Zacks Earnings Trends Highlights: Bank of America, Morgan Stanley, Intel, UPS and GE

CHICAGO, Jan. 20, 2014 /PRNewswire/ -- Zacks Director of Research Sheraz Mian says, "Even though the early going has been Finance weighted, the overall picture emerging from the results thus far isn't very inspiring."

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Uninspiring Start to Q4 Earnings Season

The 2013 Q4 earnings season ramps up in the coming days, but we have results from 52 S&P 500 members already, as of Friday January 17th. And even though the early going has been Finance weighted, the overall picture emerging from the results thus far isn't very inspiring.

The earnings reports thus far may not offer a representative sample for the S&P 500 as a whole. But we do have a good enough sample for the Finance sector as the 19 Finance sector companies that have reported already account for 47.5% of the sector's total market capitalization and contribute more than 50% of the sector's total Q4 earnings.

The sector's better looking earnings growth picture is primarily due to easy comparisons, particularly at Bank of America (NYSE:BAC-Free Report). But in fairness to Bank of America, it didn't simply benefit from easy comparisons, its earnings report actually was very good. Outside of Bank of America and perhaps Morgan Stanley (NYSE:MS-Free Report), the rest of the Finance sector results were actually so-so; while we didn't see any major mishaps, nothing stood out for positive reasons either.

Finance sector earnings growth has been primarily a function of cost controls, reserve releases, and some modest momentum in capital markets activity. Loan growth still remains anemic and the mortgage business is steadily losing ground, keeping top-line gains hard to come by.

Total earnings for the 19 Finance sector companies that have reported already are up +14.2% on -1% lower revenues. The earnings beat ratio is 63.2%, while only 36.8% of the companies have come out with positive top-line surprises.

This looks good enough performance, but is actually weaker than what we had seen from these same banks in recent quarters. Not only are the earnings and revenue growth rates for the companies below what they achieved in Q3 and the 4-quarter average, but the beat ratios are weaker as well. The insurance industry, the sector's largest industry behind the large banks, has still to report results and could potentially turnaround this growth and surprise picture for the sector.

We haven't seen that many reports from companies outside of the Finance sector. But the few that we have seen don't inspire much confidence. Hard to characterize any other way what we have seen from the likes of Intel (Nasdaq:INTC-Free Report), UPS (NYSE:UPS-Free Report) and even GE (NYSE:GE-Free Report). But it's still relatively early and we will know more in the coming days.

The composite picture for Q4 – combining the results for the 52 companies that have reported already with the 448 still to come – is for earnings growth of +7.1% on +1.5% higher revenues and 50 basis points higher margins. The actual Q4 growth rally will most likely be higher than this, a function of management's well refined expectations management skills.

But even this growth rate will be the highest quarterly growth pace of 2013.

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