Guidance is always an important component of any earnings report. We always want to skate to where the puck is going, etc, etc. But guidance from companies this quarter is especially important given the elevated earnings expectations among analysts and the market for the balance of 2013.
To illustrate what I mean, let’s look at a couple charts courtesy of GS research. First, here is the chart of the bottom-up consensus estimates of “Recurring EPS” (which does not include one-off items; whether that’s justified is another debate):
As we’ve highlighted before, the rally over the last 18 months has occurred under a backdrop of tepid earnings growth. But future expectations are much more optimistic, anticipating a re-acceleration in earnings growth in the second half of 2013. Similarly, sales growth expectations are also much higher than the recent past:
Once again, the analyst community is optimistic about an improved corporate revenue environment in the second half of 2013. That’s why guidance will be especially closely watched this quarter, since existing estimates are quite high to start.
On a sector specific basis for the first quarter results, financials and consumer discretionary are the sectors with the highest expected growth rates, whereas energy and industrials are expected to see a slight contraction in earnings.
The bulk of earnings reports will be reported between Apr 15th and Apr 30th, so the next few weeks will be the meat of the season. Watch guidance especially closely this quarter, as companies set the stage for expectations for the rest of 2013.