Unexpectedly Intriguing!
23 September 2005

Maxim Group Chief Market Strategist and admitted "graphic groupie and chart whore" Barry Ritholtz of The Big Picture excerpted the following chart (modified to provide dynamic sorting capability) from Zacks summary of the S&P 500's 2005 second quarter year-over-year earnings:

2Q 2005 Sector Scorecard - S&P 500
Sector EPS Growth (%) Sales Growth (%)
Energy 51 27
Industrials 28 13
Materials 24 7
Telecom Services 23 2
Utilities 20 7
Health Care 14 12
Technology 11 7
Financials 8 12
Consumer Staples 6 7
Consumer Discretionary 5 6
Total 14 10

From which, he opines:

My key takeaway is Energy, Utilities and Materials showed alot of strength, while Financials and Consumer were particularly weak. Note that Telecom and Industrials were surprisingly strong. In terms of Revenue and Earnings gains, however, Energy was the best game in town.

What does this mean? Energy being up is hardly a good thing -- it has a tendency to suck all the air out of the room; Two other points: Consumer staples and discretionary were at the bottom of the heap (we've addressed this previously).

But is Energy really such a economic Hoover (or Dyson)? Let's look at a bigger picture of 2Q 2005 stock market data (from BusinessWeek), but measured slightly differently, with profits (earnings) presented as cents per dollar of sales. I've also broken out the Energy sectors two major subcomponents for closer inspection.

There's a minor glitch in the Year-over-Year Change columns - when clicking these column headings, they will correctly display the data from low-to-high value, but switching them to high-to-low value leads to an incorrect display for both columns. All the other columns appear to function correctly. The sorttable table function was developed by The Daily Kryogenix, which appears to have difficulty in processing negative numbers.

2Q 2005 Sector Performance
Industry 2005-2Q Profit 2004-2Q Profit YOY Change YOY Pct Change
All U.S. Industries 7.9 7.5 0.4 5.3
Automobiles & Components 1.1 4.3 -3.2 -74.4
Banks 19.6 22.0 -2.4 -10.9
Capital Goods 7.5 6.9 0.6 8.7
Commercial Services & Supplies 6.2 4.9 1.3 26.5
Consumer Durables & Apparel 6.6 6.1 0.5 8.2
Consumer Services 10.9 12.3 -1.4 -11.4
Diversified Financials 12.2 10.2 2.0 19.6
Energy 9.5 8.7 0.8 9.2
Energy: Equipment & Services 9.5 8.7 0.8 9.2
Energy: Oil, Gas & Consumable Fuels 9.4 9.0 0.4 4.4
Food & Staples Retailing 2.5 2.5 0.0 0.0
Food, Beverage & Tobacco 9.4 9.0 0.4 4.4
Health Care Equipment & Services 4.4 4.2 0.2 4.8
Household & Personal Products 11.3 11.6 -0.3 -2.6
Insurance 10.7 9.4 1.3 13.8
Materials 8.3 5.6 2.7 48.2
Media 4.6 6.0 -1.4 -23.3
Pharmaceuticals & Biotechnology 18.6 19.5 -0.9 -4.6
Real Estate 8.9 9.9 -1.0 -10.1
Retailing 4.2 4.0 0.2 5.0
Semiconductors & Semiconductor Equipment 14.6 14.9 -0.3 -2.0
Software & Services 17.0 13.5 3.5 25.9
Technology Hardware & Equipment 7.2 6.8 0.4 5.9
Telecommunication Services 9.6 8.5 1.1 12.9
Transportation 2.2 0.5 1.7 340.0
Utilities 5.7 5.9 -0.2 -3.4

A special note is needed for the Transportation sector - the data is significantly skewed given the major level of distress of its Airline component, which appears to have been omitted from the sector roll-up. It's really not doing anywhere near as well as it would appear....

Looking at the Energy sector and its subcomponents, there really hasn't been that great of a year-over-year change in profits, as measured in cents per dollar of sales.

So, what accounts for the major difference between the two year-over-year measures of stock market sector second quarter earnings performance?

Zack's listed its profit measure as Earnings Per Share (EPS), rather than earnings per dollar of sales. If the number of shares in the Energy sector decreased, this would tend to inflate the EPS measure. As it happens, many of the companies in the Energy sector have been engaging in share buybacks in recent years (ExxonMobil, Kerr-McGee, Royal Dutch, just to name a few) so this seems likely.

So, it really is all in how you look at it, especially if you're willing to look at the bigger picture and to dig out the details. My take: profits earned by the publicly-traded companies in the Energy sector really aren't all that out of line in the year over year comparison, at least as of the second quarter of 2005, and certainly not out of line enough to "suck all the air out of the room."

About Political Calculations

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations

Thanks in advance!

Recent Posts

Indices, Futures, and Bonds

Closing values for previous trading day.

Most Popular Posts
Quick Index

Site Data

This site is primarily powered by:

This page is powered by Blogger. Isn't yours?

CSS Validation

Valid CSS!

RSS Site Feed

AddThis Feed Button

JavaScript

The tools on this site are built using JavaScript. If you would like to learn more, one of the best free resources on the web is available at W3Schools.com.

Other Cool Resources

Blog Roll

Market Links

Useful Election Data
Charities We Support
Shopping Guides
Recommended Reading
Recently Shopped

Seeking Alpha Certified

Archives