With 95% of EPS reported and approximately 80% of the data items collected via S.E.C. documents:
Buybacks are on track to be the second highest on record, as more companies do Share Count Reduction (SCR), therefore giving their EPS a tailwind. With over 90% of the issues reported, 119 issues have decreased their share count by at least 1%, with 25 increasing them at least that amount. For the Q1 2014 EPS period, 95 issues added at least a 4% EPS increase via a reduction of at least 4% in their average diluted share count, which is used for EPS calculation. Looking ahead to the Q2 2014 reporting season (off fiscals start in three weeks), I found 73 issues which have at least a 4% tailwind based on their Q1 2014 shares compared to their Q2 2013 shares – which (obviously) excludes any Q2 2014 share reduction. Keep in mind while it is easy to find issues which have enhanced their EPS via SCR (ie: 5% net income increase with a 10% EPS increase), the S&P 500 index adjusts for share counts, therefore limiting the impact of buybacks on index level EPS. Also, of a small, but growing concern on my side, are estimates which are not adjusted for share counts – therefore under estimating the EPS (net / larger share count), making the initial release appear as a beat. Analyst’s appear much more conscious of this than they were in 2006/7, but it is still an open issue.
It had to happened – after six record quarters of cash holdings, S&P 500 Industrials (Old) are running 6% below Q4,’13, and could be less than Q3,’13 (making it the third highest). Cash levels are running at 8.9% of market value, and 90 weeks of the current 12 month net income – and earning very little as it sits on the side (attracting activists). Haven’t run cash-flow yet (one of the last items).
CapX is running 7% above Q1,’13, and 15% less than Q4,’13 (Q4,’13 was a record and Q1 typically runs lower). Oils and telecoms still dominate the expenditure. Don’t have a breakdown on the type of Q1 expenditure, but through 2013 it was mostly maintenance and related improved productivity items – no new plants or shifts (with the exception of the re-opening/re-expanding autos).
Pensions & OPEB:
A 29.6% stock gain for the S&P 500 and mixed interest rates combined to reduce pension funding (YTD 2014 has lower returns and lower interest rates). S&P 500 pensions appear to have cut their 2012 $451 billion record deficit in half. OPEB, which remains massively underfunded and is a pay-as-you-go expense, has improved, but is still less than 30% funded (note in WSJ on who pays for ACA). Combined, the $686 billion in underfunding from last year is coming in near the $400 billion area. More companies are fully funded, but still a minority. The discount rate up running 74 bps higher, with return rate down 20 bps.
Looks like 2013 was a tick higher on foreign sales, to the 47-48% level; still poor reporting.
Q1 2014 earnings are generally being considered a success – given that they did not fall apart. However, the expected gain in Q2 from delayed Q1 purchases has not yet shown up in economic data, and is concerning. Q2 2014 EPS estimates have been declining, but are still 4.2% above the record Q4 2013 Operating EPS, and 11.7% above the Q2 2013 level (again: buybacks don’t help the index EPS, but they do help on the issue level).
P.S. 60.4% of the time when the index makes a new high (when the prior day was not a new high), it goes on to make a new high the next day – which would be today (back-to-back). The stats on back-to-back-to-back is 54.9% (if it makes it to 2, today, than it makes it to 3, tomorrow).