This is the second part of the three part series providing S&P500 earnings reports for Traverse City, Michigan. In this report we will look at how earnings projections are doing in comparison to previous time periods and on a sector basis. I also included some comments at the close of the article for investors in the Traverse City area to think about.
Overall the un-weighted next full year forward earnings projections that were gathered on Sept 27, 2012 increased by 0.08% over those gathered on Aug 18, 2012.
The next full year forward projections increased on 150 (30.00%) of the constituents, of these 26 (17.33%) had increases of $0.10 or more and 56 (37.33%) had an increase of $0.01. There were 7 (4.67%) that had increases of 10% or more and 98 (65.33%) had an increase of less than 1%. The projections remained the same on 182 (36.40%) of the constituents. The projections decreased on 168 (33.60%), of these 34 (20.24%) had decreases of $0.10 or more and 62 (30.90%) had decreases of $0.01. There were 10 (5.95 %) that had decreases of 10% or more and 103 (61.31%) had a decrease of less than 1%.
Of the 150 constituents with increases, Energy (51.11%), Telecommunications Services (37.50%) and Consumer Discretionary (35.00%) had the highest rate of constituent increases. Utilities (16.13%), Industrials (20.00%) and Information Technology (22.54%) had the lowest rate of increases.
Of the 168 constituents with decreases, Industrials (43.33%), Energy (42.22%) and Utilities (41.94%) had the highest rate of decreases. Consumer Staples (26.83%), Telecommunications Services (25.00%), and Financials (25.93%) had the lowest rate of decreases.
Of the 182 constituents that remained unchanged Consumer Staples (53.66%), Utilities (41.94%) and Information Technology (40.85%) had the highest rates that remained the same. The lowest rates of unchanged earnings were seen in Energy (6.67%) Consumer Discretionary (32.50%) and Health Care (36.54%).
The largest earnings projection increases seen between the two reports were in Consumer Discretionary (0.65%), Telecommunication Services (0.52%) and Energy (0.36%). The largest earnings projections decreases were seen in Industrials (-0.48%), Utilities (-0.27%) and Information Technology (-0.10%).
The largest earnings projection increases over the projections of a quarter ago were seen in Telecommunications Services (3.51%), Consumer Staples (0.83%) and Health Care (0.39%). All other sectors are expected to see a decrease with the largest decrease in the quarter ago estimates expected in Energy (-12.49%), Materials (-4.76%) and Consumer Discretionary (-2.66%). Overall there was a decrease in earnings projections of 2.67% over those a quarter ago.
The following is based on the beginning of quarter earnings estimates I gathered on May 13, 2012. These numbers do not include Seagate Technology plc (STX), Monster Beverage Inc. (MNST), Ensco plc (ESV), or LyondellBasell Industries NV (LYB) as they were not constituents at the time the comparison update was made and they will be noted as omissions in this portion of the report.
Of the 500 constituents (four omissions) that have reported earnings in the second quarter, the sectors with the highest percentage beating the beginning of the quarter estimates were seen in Health Care (69.23%) with 52 of 52 reporting, Consumer Staples (65.00%) with 40 of 41 (one omission) reporting and Telecommunication Services (62.50%) with 8 of 8 reporting. The lowest rates were seen in Energy (31.82%) with 44 of 45 (one omission) reporting, Materials (43.33%) with 30 of 31 (one omission) reporting and Financials (49.38%) with 81 of 81 reporting.
The sector with the highest percentage missing the beginning of the quarter estimates was seen in Energy (63.64%) with 44 of 45 (one omission) reporting, Materials (50.00%) with 30 of 31 (one omission) reporting, and Utilities (45.16%) with 31 of 31 reporting. The lowest rates of misses were seen in: Telecommunications Services (12.50%) with 8 of 8 reporting, Consumer Staples (22.50%) with 40 of 41 (one omission) reporting and Health Care (23.08%) with 52 of 52 reporting.
Of the 500 constituents (four omissions) that have reported earnings in the second quarter, the sector with the highest percentage increase in the actual earnings amounts reported over the beginning of the quarter estimates was seen in Utilities (17.75%) with 31 of 31 reporting, Telecommunications Services (14.22%) with 8 of 8 reporting and Consumer Discretionary (8.15%) with 80 of 80 reporting. Three sectors saw decreases in comparison to the beginning of the quarter estimates with those being Financials (-8.15%) with 81 of 81 reporting, Energy (-2.68%) with 44 of 45 (one omission) reporting and Materials (-2.11%) with 30 of 30 reporting.
Overall the reporting constituents beat the beginning of the quarter earnings estimates by 1.38%.
Only 10 had reported earnings at the time of this update, and there were not enough earnings reports for third quarter data to be meaningful in the normal format. Only four sectors have constituents that had reported earnings. Here is the breakdown of those sectors as compared to the beginning of the quarter estimates.
Industrials 2 of 60 reporting, 50% beat, 50% missed. The sector currently is beating the beginning of the quarter estimates by 0.75%.
Information Technologies 1 of 71 reporting and 100% inline. The sector currently is inline with the beginning of the quarter estimates.
Consumer Discretionary 5 of 80, 40% beat, 40% missed and 20% were inline. The sector currently is missing the beginning of the quarter estimates by 1.01%.
Consumer Staples 2 of 41, 50% beat, 50% missed. The sector currently is missing the beginning of the quarter estimates by 9.27%.
Overall the reporting constituents are missing the beginning of the quarter earnings estimates by 1.78%.
In a Standard and Poors report published shortly after my August earnings update, they reported US sales abroad are slipping, with 46.1% of all sales made abroad in 2011, down from 46.3% in 2010. It also noted a large decrease in Europe (ex-United Kingdom) sales had dropped from 12% in 2010 to about 8.7% in 2011. This data shows very well that most of the decreases seen in Europe are being made up in other markets. This data is based on 252 constituents of the S&P500 that supply full disclosure data to Standard and Poors.
Although I have not looked at all of these 252 companies’ reports, the earning reports that I have looked at in the first two quarters of 2012 would indicate this trend is probably continuing. In fact many have seen growth elsewhere that more than offset losses seen in Europe.
The same report noted that these US companies paid 54.7% of their entire tax bill to foreign governments in 2011, this is down from the peak seen in 2008 of 55.8%, but is again rising.
Much is made about the high corporate income tax rate in the US, but few companies pay anywhere near the 35% tax rate. US companies accounted for about 10% of the total US tax revenue in 2011. Individual income taxes provide most of the tax base, about 55% in 2011, with middle class wage earners shouldering a larger and larger portion of this burden.
On average in 2011, companies employees collectively paid about three times as much in income taxes on their earnings than the company they worked for based on employment taxes verses business taxes, as found in Table 6. Gross Collections, by Type of Tax, Fiscal Years 1960–2011 on the IRS tax stats webpage.
The same table shows that US businesses used to pay a far greater share of the tax load. In 1960 the workers of a company on average paid about half as much in taxes on their income as the company did on its income. The workers share gradually increased to about even in 1970, then to about double in 1981, to about triple in 1990, and has been fluctuating slightly higher or lower since.
In 1960 individual income taxes provided about 49% of the total tax collections, with businesses chipping in about 24%. By 1970 individual income taxes provided about 53% of the tax base, with businesses contributing only 18%. By 1980 individual income taxes provided over 55% of the tax base, with businesses contributing only 14%. From 1980 to 2011, businesses average only 11.7% of the total revenues, while individual taxpayers averaged about 51.4%.
Why the big difference? Individual taxpayers are taxed on total earnings (or revenues), whereas companies are taxed on profits. It makes a huge difference in the tax burden.
Consider this, if personal income was taxed like businesses, all expenses to maintain a household would be written off: Utilities, food, clothing, insurance, medical expenses, legal fees, etc. would all be “business expenses”.
Under “equipment” any purchases of new appliances would be considered equipment, and be amortized. Your vehicle would also be equipment being amortized if you owned it, or the lease payments completely written off. Any gas and maintenance expenses on the vehicle, household or appliance repair expenses would be written off under business expenses too.
Under “plant”, a rented home would have the entire rent written off and an owned home would be amortized, an individual taxpayer could write off the entire purchase price of their house over 30 years.
Any interest on the mortgage would be written off under “interest” along with interest on credit cards, personal loans, automobile loans, etc.
After an individual paid for everything, what was left over is profit and that would be taxed at 35%. If more was spent than took in, then a refund is given.
Under Goodwill, during the real estate price collapse, any value lost on an owned home would have been written off. Any losses in stocks or bonds would have been written off, even if these losses we not realized. Of course they would be taxed as these assets rebounded, but the individual taxpayer would have seen a huge tax break earlier.
Goodwill could also be used when the individual taxpayer gets laid off, since revenue has decreases but expenses haven’t, the individual has suffered a “loss of business value”.
Then there are always the loopholes for any that haven’t written off their entire income already.
Most individual taxpayers would be getting refunds, and paying no taxes. According to a New York Times article published last May, 55% of businesses haven’t paid any taxes at least once in the past seven years. Based on the earnings reports I read along with a couple examples given in the NYT article, few ever pay more than 20% of their profits, but most say they pay a higher rate than they actually do, and almost all pay way less than 1% of their revenues.
Businesses averaged a whopping *effective tax rate of 0.96% from 1980 to 2008 based on how an individual is taxed, taxes paid dividend by adjusted gross earnings. It looks like the US has the lowest tax rate in the world already. Even Ireland’s businesses pay higher.
US businesses made over $34.6 trillion is sales in 2008. The data from 2009 to 2011 is currently being reviewed by the IRS and is not available, but it is pretty safe to say they are making way more now. It looks like they could afford to pay a higher rate than less than 1%, considering most middle income families are paying over 9%, they should be able to do at least the same amount.
*The average effective rate for business tax above was based on the business tax paid from Table 6. Gross Collections, by Type of Tax, Fiscal Years 1960–2011 divided by the business’s total receipts information provided on Table 1. Number of Returns, Total Receipts, Business Receipts, Net Income (less deficit), Net Income, and Deficit by Form of Business Tax Years 1980-2008 as found on the IRS tax stats webpage.
Many of these sources were used in this article.
Have a great day trading,
Disclosure: I currently have no investments in STX, MNST, ESV or LYB. I am currently about 91% long in stocks in my trading accounts.
Disclaimer: This article is intended to provoke thought about investment possibilities. Acting on the information provided is at your own risk. You are urged to do your own research and where appropriate, seek professional investment advice before acting on any information contained in these articles.