Key Points:

• The Fourth Quarter earnings season is weak, but getting better as it progresses.  Total reported earnings growth is 7.14% for the 467 firms (93.4%) that have reported so far, but those represent 96.7% of total expected earnings.  Ex-Financials growth is 6.98% year over year.   Total revenue growth 6.83%, 7.03% ex Financials.  Median earnings surprise 2.33% and median sales surprise 0.25%.  Net margins reported rise to 9.01% from 8.98% last year.
• Sharp slowdown from the 15.04% earnings, and 11.66% revenue growth those same 467 firms reported in the third quarter.
• For remaining 33 firms, year over year growth expected to fall to -25.08% in fourth quarter, -28.06% excluding Financials.  Dramatic slowdown, but easy hurdle to clear.  
• Full year total earnings for the S&P 500 jumps 44.5% in 2010, expected to rise 15.3% further in 2011.  Growth to continue in 2012 with total net income expected to rise 9.4%.  Financials major earnings driver in 2010.  Excluding Financials growth was 28.2% in 2010, and expected to be 17.4% in 2011 and 6.7% in 2012.  Growth of 11.1%, 12.1% ex-financials expected for 2013  
• Total revenues for the S&P 500 rise 7.94% in 2010, expected to be up 7.71% in 2011, and 2.51% in 2012.  Excluding Financials, revenues up 9.34% in 2010, expected to rise 10.82% in 2011 and 3.39% in 2012.  For 2013, 4.27% growth expected, 4.23% ex financials.  
• Annual Net Margins marching higher, from 5.88% in 2008 to 6.27% in 2009 to 8.39% for 2010, 8.98% expected for 2011 and 9.58% in 2012.  Margin expansion major source of earnings growth.  Net margins ex financials 7.79% in 2008, 6.93% in 2009, 8.13% for 2010, 8.60% expected in 2011, 8.88% in 2012. For 2013 10.21% expected, 9.56% ex financials.
• Revisions ratio for full S&P 500 at 0.79 for 2012 (bearish), at 0.88 for 2013 (neutral). Ratio of firms with rising to falling mean estimates at 0.73 for 2012 (bearish), 0.75 (bearish) for 2013.  Total revisions activity passing seasonal peak.  
• S&P 500 earned $788.8 billion in 2010, expected to climb to $896.8 billion in 2011.  In 2012 the 500 are collectively expected to earn $981.2 billion. For 2013 $1.09 Trillion expected.  
• S&P 500 earned $56.79 in 2009: $82.03 in 2010 and $94.62 in 2011 expected bottom up.  For 2012, $103.53 expected, $114.96 for 2013.  Puts P/E's at 14.41 for 2011, and 13.17x for 2012 and 11.86x for 2013, very attractive relative to 10 year T-note rate of 1.97%.

The Earnings Picture

While we started out the fourth quarter earnings season on a very weak note, the picture has improved as the season has worn on.  I would not want to suggest that this has been a good earnings season, but it is not the ugly one it appeared to be just a few weeks ago.  

So far 467, or 93.4% of the S&P 500 firms have reported.  However, assuming that all the remaining firms report exactly in like with expectations, then 96.7% of all earnings are in.  Normally, when all is said and done, the median surprise runs about 3.00% and the ratio about 3.0.  So far, the median is at 2.33% and the ratio is 2.28.  The median up from last week, and up for the fifth week in a row, but still well below normal.  While we don't have the drama of multi billion dollar bank losses, this is still the weakest earnings season since the depths of the Great Recession.   

In most recent quarters, we have started out of the gate much faster than that only to fade towards these levels, this time the reverse is true, but we are running out of real estate to catch up.  Total net income for the 467 that have reported is 7.14% above a year ago.  It is less than half the 15.04% growth rate that the same 467 firms reported in the third quarter. The picture is similar if we take the Financials out of the picture.   Without them, the year over year rise in net income is 6.98%, down from 18.35% growth in the third quarter.  Sequentially, total net income so far is 2.81% below the third quarter, or 3.91% lower ex financials.  The pressure on the growth rate is coming from both the numerator and the denominator (year ago earnings growth was strong, and thus tougher comps).

The bar is also set low for the remaining 33 firms, and significantly lower than the results we have seen so far.  They are expected to see year over year growth of negative 25.08%.  If we exclude the Financial sector, earnings are expected to be 28.06% below last year's.  In the third quarter, the remaining firms had growth of 10.31%, but it was -4.24% if the financials are excluded.  In other words, we have started out weak, and it is expected to get worse.  Provided the remaining firms report in line with expectations, the final year over year growth should be 5.63%, up from 5.15% expected last week.

Revenue growth has held up better, with the 467 reporting 6.98% growth.  If we exclude the Financials that have reported, revenue is up 7.03% year over year.  In the third quarter, revenue growth was 11.66, or 12.36% excluding Financials.  

For the 467, net margins have come in at 9.01%, up from 8.98% a year ago, and down from 9.47% in the third quarter.  While in an absolute sense, those are still very healthy net margins, much higher than the average of the last 50 years or so, but they are no longer expanding significantly.  Then again, it was unrealistic to expect that they would always rise.  It does mean that earnings growth is going to be harder to come by going forward.

On an annual basis (all 500), net margins continue to march northward.  In 2008, overall net margins were just 5.88%, rising to 6.27% in 2009.  They hit 8.39% in 2010 and are expected to continue climbing to 8.98% in 2011 and 9.58% in 2012.  The very preliminary expectation is that they will rise to 10.21% in 2013.  

The pattern is a bit different if the Financials are excluded, as margins fell from 7.78% in 2008 to 6.93% in 2009, but have started a robust recovery and rose to 8.13% in 2010.  They are expected to rise to 8.60% in 2011.  They are expected to rise to 8.88% in 2012, and then up to 9.56% in 2013.  There should be some caution in using the 2013 numbers, as the analyst sample sizes are still well below those for 2012, especially when it comes to revenues.

Total net income in 2010 rose to $788.8 billion in 2010, up from $538.6 billion in 2009.  The expectations for the full year are very healthy.  In 2011, the total net income for the S&P 500 should be $896.8 billion, or increases of 44.4% and 15.3%, respectively.  The expectation is for 2012 to have total net income come close to $1 Trillion mark to $981.2 Billion, for growth of 9.5%. followed by growth of 11.1% in 2013.  Total net income is expected to finally pass the $1 Trillion mark in 2013 at $1.09 Trillion.

The "EPS" for the S&P 500 is expected to be over the $100 "per share" level for the first time at $103.53 in 2012.  That is up from $56.79 for 2009, $82.03 for 2010, and $94.62 for 2011.  For 2013, the S&P 500 is expected to earn $114.96.  In an environment where the 10 year T-note is yielding 1.97%, a P/E of 14.4x based on 2011 and 13.2x based on 2012 earnings looks attractive.  The P/E based on 2013 earnings is just 11.9x.  

Estimate revisions activity is rising fast, and approaching a seasonal peak.  In previous earnings seasons we have generally seen a bounce in the revisions ratio, as the analysts have reacted to better than expected earnings and the outlooks on the conference calls.  So far there is no evidence of that happening.  The revisions ratio for FY1, which is mostly 2012 earnings now stands at 0.79, or almost four cuts for every three increases.  The picture for FY2, or mostly 2013 is only slightly better, with a revisions ratio of just 0.88. The widespread cuts are also confirmed by the ratio of firms with rising mean estimates to falling mean estimates, which now stand at 0.3 and 0.75, respectively.

As the earnings season has progressed, things have been getting a bit better, but only moved the season from being very poor, to mediocre.  This is happening when the bar is set at its lowest point in a very long time.  For the remaining firms, the bar is set even lower.  The market has been off to a very strong start of the year, despite the weak early results.  Valuations are still compelling, if somewhat less so than a few months ago.  While earnings growth is slowing, it is still positive.  The numbers for the first quarter look like they could be a little weak. With a decline of 2.58% year over year expected for those that have reported, but for the full year, growth of 9.41% is not all that bad, especially with it expected to pick back up again to 11.1% in 2013.

Income Surprises

• So far 467 firms, or 93.4% have reported fourth quarter results.  Total Income Growth at a 7.14%. We have a 2.28 surprise ratio, and 2.33% median surprise, both weaker than normal, but better than last week. Positive Surprises for 62.7% of all firms reporting.
• Positive year over year growth for 295, falling EPS for 168 firms, 1.76 ratio, 63.2% of all firms reporting have higher EPS than last year.
• Five sectors done. Provided remaining firms report in line, 96.7% of total earnings for quarter in.
• Aerospace leads by wide margin, Discretionary and Construction also strong.  Utilities, Materials, and Transports lag.

Historically, a "normal earnings season" will have a surprise ratio of about 3:1 and a median surprise of about 3.0%.  Pay attention to the percent reporting in evaluating the significance of the sector numbers, and probability of a significant change when season is over.

Scorecard & Earnings Surprise 4Q Reported
Income Surprises	Yr/Yr Growth	% Reported	Surprise Median	EPS Surp Pos	EPS Surp Neg	# Grow Pos	# Grow Neg
Aerospace	9.61%	100.00%	10.12	8	0	5	4
Consumer Discretionary	12.96%	93.33%	4.23	21	4	18	9
Computer and Tech	13.42%	100.00%	3.70	49	18	34	35
Construction	61.88%	100.00%	3.57	6	4	8	3
Consumer Staples	5.13%	97.30%	3.11	26	4	24	12
Auto	4.07%	100.00%	3.10	5	3	7	1
Oils and Energy	9.61%	92.86%	3.06	23	14	26	13
Conglomerates	12.31%	87.50%	3.05	6	0	7	0
Business Service	14.09%	94.74%	2.38	14	1	16	2
Medical	3.42%	97.78%	2.22	29	8	28	16
Industrial Products	16.51%	90.91%	1.61	11	8	15	5
Finance	8.12%	97.44%	1.37	43	27	45	30
Retail/Wholesale	0.80%	81.25%	0.91	22	9	26	12
Utilities	-12.31%	78.05%	0.55	16	15	18	14
Basic Materials	-20.53%	91.30%	0.00	10	9	11	10
Transportation	17.15%	100.00%	0.00	4	4	7	2
S&P 500	7.14%	93.40%	2.33	293	128	295	168

Sales Surprises

• Revenue growth of 6.98% among the 467 that have reported, median surprise 0.25 (weak), surprise ratio of 1.27 (weak).  Positive surprise for 55.7%.  
• Growing Revenues outnumber falling revenues by ratio of 2.88 (solid), 73.9% have higher sales than last year.
• A week start to the season, but improving as the season wears on.
• Energy, Auto, and Construction lead, Utilities, Aerospace and Transports lag.
• Six sectors reporting more sales disappointments than positive surprises.

Sales Surprises 4Q Reported
Sales Surprises	Yr/Yr Growth	% Reported	Surprise Median	Sales Surp Pos	Sales Surp Neg	# Grow Pos	# Grow Neg
Oils and Energy	13.43%	92.86%	3.299	29	9	37	2
Auto	11.31%	100.00%	1.15	4	4	8	0
Construction	11.66%	100.00%	0.761	6	5	9	2
Basic Materials	7.55%	91.30%	0.693	12	9	19	2
Medical	5.02%	97.78%	0.459	28	16	39	5
Computer and Tech	10.90%	100.00%	0.343	42	28	43	26
Business Service	8.83%	94.74%	0.312	12	6	17	1
Retail/Wholesale	7.25%	81.25%	0.298	25	14	34	5
Industrial Products	12.60%	90.91%	0.171	11	9	17	3
Finance	-2.50%	97.44%	0.169	43	32	43	33
Consumer Staples	4.50%	97.30%	-0.073	17	19	28	8
Consumer Discretionary	11.30%	93.33%	-0.718	10	18	22	6
Conglomerates	-1.72%	87.50%	-0.738	2	5	5	2
Transportation	10.59%	100.00%	-1.09	2	7	8	1
Aerospace	0.78%	100.00%	-2.054	3	6	3	6
Utilities	3.43%	78.05%	-7.186	14	18	13	18
S&P 500	6.83%	93.40%	0.252	260	205	345	120

Reported Quarterly Growth: Total Net Income

• The total net income for the 467 that have reported so far is 7.14% above what was reported in the fourth quarter of 2010, down sharply from 15.04% growth the same 467 firms reported in the third quarter.  Excluding Financials, net income up 6.98%, down from 18.35% growth reported in the third quarter.
• Sequential earnings fall 2.81% for the 467 that have reported, down 3.51% ex Financials.
• Growth (for the 467 firms) to fall to -2.58% in the first quarter, and -1.54% ex Financials.
• Total net income reported (467 firms) $226.3 Billion, vs. $211.2 billion year ago, but down from $232.9 billion in third quarter.  Final growth projected to be just 5.63%, up from 5.15% last week.  Now have 96.7% of expected net income in.  
• Refer back to % reported in Scorecard to assess probability of significant change in the growth rates for sectors.  

Quarterly Growth: Total Net Income Reported
Income Growth	"Sequential Q1/Q4 E"	"Sequential Q4/Q3 A"	Year over Year 4Q 11 A	Year over Year 1Q 12 E	Year over Year 3Q 11 A
Construction	-42.48%	-16.52%	61.88%	75.56%	60.64%
Transportation	-17.19%	3.37%	17.15%	19.82%	13.19%
Industrial Products	5.25%	-10.49%	16.51%	5.62%	27.51%
Business Service	-6.49%	6.55%	14.09%	15.79%	21.98%
Computer and Tech	-20.57%	22.52%	13.42%	1.90%	9.51%
Consumer Discretionary	-28.52%	0.46%	12.96%	2.59%	14.18%
Conglomerates	-11.63%	-3.14%	12.31%	4.09%	24.87%
Aerospace	-24.57%	6.63%	9.61%	0.23%	12.44%
Oils and Energy	4.71%	-20.22%	9.61%	-3.79%	61.33%
Finance	10.23%	1.45%	8.12%	-7.39%	-1.84%
Consumer Staples	-14.98%	-5.57%	5.13%	-2.01%	6.31%
Auto	27.02%	-36.53%	4.07%	-25.96%	22.75%
Medical	3.69%	-7.13%	3.42%	-2.36%	6.83%
Retail/Wholesale	-19.85%	29.27%	0.80%	0.26%	6.39%
Utilities	31.98%	-43.48%	-12.31%	-8.52%	9.48%
Basic Materials	55.33%	-31.10%	-20.53%	-15.35%	34.51%
S&P	-4.67%	-2.81%	7.14%	-2.58%	15.04%
.	-7.22%	-3.51%	6.98%	-1.54%	18.35%

Expected Quarterly Growth: Total Net Income

• Total net income (for the 33 yet to report) is expected to be 25.08% below what was reported in the fourth quarter of 2010, versus 10.31% growth in the third quarter.  Excluding Financials, negative growth of 28.06%, down from +4.24% reported in the third quarter.  
• Relative to the third quarter total net income to fall 8/09%, ex Financials to drop 7.92%.  
• Should have little effect on final numbers.

Quarterly Growth: Total Net Income Expected
Income Growth	Sequential Q1/Q4 E	Sequential Q4/Q3 E	Year over Year 4Q 11 E	Year over Year 1Q 12 E	Year over Year 3Q 11 A
Auto	na	na	na	na	na
Construction	na	na	na	na	na
Computer and Tech	na	na	na	na	na
Aerospace	na	na	na	na	na
Transportation	na	na	na	na	na
Basic Materials	-20.79%	16.98%	46.41%	50.02%	13.33%
Industrial Products	30.39%	-18.43%	25.94%	21.00%	28.90%
Oils and Energy	-11.24%	7.18%	8.37%	-6.65%	-10.07%
Retail/Wholesale	-5.04%	3.51%	4.79%	7.67%	19.42%
Medical	41.18%	168.51%	1.85%	-5.23%	-375.00%
Utilities	27.34%	-43.35%	-6.51%	1.87%	8.03%
Business Services	1.18%	-2.80%	-12.37%	-9.97%	-22.73%
Consumer Staples	-42.29%	-6.15%	-14.68%	-26.31%	-23.66%
Finance	-90.64%	-8.30%	-21.18%	-80.99%	34.56%
Consumer Discretionary	635.05%	249.71%	-25.71%	-7.36%	+ to -
Conglomerates	266.67%	79.90%	-103.50%	715.28%	-212.31%
S&P 500	-29.62%	-8.09%	-25.08%	-18.01%	10.31%
Excluding Financial	21.62%	-7.92%	-28.06%	4.33%	-4.24%

Quarterly Growth: Total Revenues Reported

• Revenue growth (for the 463 that have reported) at 6.83%, down from the 11.66% growth posted in the third quarter.  Growth ex Financials 7.03%, down from 12.36%.
• Slowdown expected to continue in first quarter, with 7.75% growth, 1.28% ex Financials.
• Sharp slowdown despite improving U.S. economy, may reflect Europe and the dollar.
• Sequentially revenues 2.14% higher than in the third quarter, up 2.52% ex Financials.
• Aerospace and Utilities the only sectors seeing an acceleration in Revenue growth.
• Finance and Conglomerates show lower revenues than in the third quarter.

Quarterly Growth: Total Revenues Reported
Sales Growth	"Sequential Q1/Q4 E"	"Sequential Q4/Q3 A"	Year over Year 4Q 11 E	Year over Year 1Q 12 E	Year over Year 3Q 11 A
Oils and Energy	-5.98%	-2.51%	13.43%	5.05%	31.94%
Industrial Products	2.57%	-3.60%	12.60%	6.46%	18.22%
Construction	-4.31%	-1.95%	11.66%	20.10%	8.47%
Auto	-4.63%	1.76%	11.31%	7.68%	17.84%
Consumer Discretionary	-9.28%	3.48%	11.30%	19.31%	15.63%
Computer and Tech	-9.19%	10.03%	10.90%	16.88%	11.42%
Transportation	-2.40%	1.05%	10.59%	11.90%	12.69%
Business Service	-6.99%	4.20%	8.83%	11.92%	12.67%
Basic Materials	3.90%	-3.43%	7.55%	0.29%	19.68%
Retail/Wholesale	-6.93%	8.90%	7.25%	14.25%	8.45%
Medical	-2.87%	2.35%	5.02%	5.12%	7.06%
Consumer Staples	-18.06%	0.93%	4.50%	13.32%	10.98%
Utilities	5.20%	-4.04%	3.43%	-1.55%	1.40%
Aerospace	-11.07%	6.20%	0.78%	15.57%	-1.04%
Conglomerates	-6.81%	3.36%	-1.72%	4.95%	5.59%
Finance	-3.70%	-2.44%	-2.50%	-4.43%	0.40%
S&P 500	-5.78%	2.14%	6.83%	7.75%	11.66%
Excluding Financial	-6.40%	2.52%	7.03%	1.28%	12.36%

Quarterly Growth: Total Revenues Expected

• Revenue growth for the 33 yet to report expected to fall to negative 32.01%, from the 3.47% growth posted in the third quarter.  Growth ex Financials 6.34%, down from 8.31% in 3rd quarter. With so few left, should have little impact on final numbers.
• Sequentially revenues down 21.20% from the third quarter, up 1.70% ex Financials.
• Three sectors expecting revenue growth over 10%, Finance to see sharp 86.62% year over year drop in revenues.
• Year over year revenue growth in first quarter expected to be -32.94%, -8.01% ex Financials.

Quarterly Growth: Total Revenues Expected
Sales Growth	Sequential Q1/Q4 E	Sequential Q4/Q3 E	Year over Year 4Q 11 E	Year over Year 1Q 12 E	Year over Year 3Q 11 A
Auto	na	na	na	na	na
Construction	na	na	na	na	na
Computer and Tech	na	na	na	na	na
Aerospace	na	na	na	na	na
Transportation	na	na	na	na	na
Basic Materials	48.34%	9.86%	22.42%	83.95%	12.75%
Industrial Products	20.21%	-10.29%	20.86%	24.14%	23.40%
Oils and Energy	-1.38%	-6.54%	20.36%	26.93%	50.66%
Utilities	-18.50%	-8.40%	7.76%	-16.73%	11.10%
Retail/Wholesale	1.66%	5.98%	6.78%	-5.28%	7.11%
Medical	1.16%	2.82%	4.65%	-2.79%	3.54%
Business Services	-3.45%	-3.06%	-1.59%	-2.12%	-2.02%
Consumer Staples	-57.40%	-0.68%	-5.53%	-53.32%	-2.34%
Consumer Discretionary	-24.52%	33.15%	-12.13%	-57.52%	-15.77%
Conglomerates	-34.33%	55.51%	-37.37%	-15.14%	26.88%
Finance	-91.69%	-77.80%	-86.62%	-98.15%	-6.80%
S&P 500	-9.11%	-21.20%	-32.01%	-32.94%	3.47%
Excluding Financial	-4.03%	1.70%	6.34%	-8.10%	8.31%

Quarterly Net Margins Reported

• Sector and S&P net margins are calculated as total net income for the sector divided by total revenues for the sector.    
• Net margins for the 467 that have reported rise to 9.01% from 8.98% a year ago, but down from 9.47% in the third quarter.  Net margins ex Financials fall to 8.13% from 8.14% a year ago but down from 8.64% in the third quarter.
• Final Net Margins will be lower as remaining firms are lower margin businesses but looks like the margin expansion game is getting old.  However, these should be very close to final.
• Margin expansion has been the key driver behind earnings growth.  Due to seasonality, it is best to compare to a year ago, particularly at the individual company and sector levels.  Mix of companies reporting will lead to big changes in both the reported and expected net margin tables from week to week.

Quarterly: Net Margins Reported
Net Margins	Q1 2012 Estimated	Q4 2011 Reported	Q3 2011 Reported	Q2 2011 Reported	Q1 2011 Reported	4Q 2010 Reported
Computer and Tech	15.65%	17.89%	16.07%	16.88%	16.30%	17.49%
Business Service	12.96%	12.89%	12.60%	12.19%	11.65%	12.29%
Medical	13.35%	12.50%	13.78%	13.68%	13.96%	12.70%
Finance	13.49%	11.79%	11.33%	9.19%	13.41%	10.63%
Consumer Staples	10.97%	10.57%	11.30%	11.06%	10.39%	10.51%
Consumer Discretionary	8.21%	10.42%	10.74%	9.65%	8.66%	10.27%
Conglomerates	9.62%	10.14%	10.83%	9.97%	9.04%	8.88%
Transportation	7.40%	8.73%	8.53%	8.43%	6.75%	8.24%
Industrial Products	8.27%	8.06%	8.68%	8.56%	8.55%	7.79%
Oils and Energy	7.91%	7.11%	8.68%	8.54%	8.07%	7.35%
Aerospace	5.99%	7.06%	7.03%	6.88%	6.14%	6.49%
Utilities	7.21%	5.75%	9.76%	8.37%	8.17%	6.78%
Basic Materials	7.87%	5.27%	7.38%	9.17%	9.69%	7.13%
Retail/Wholesale	3.26%	3.79%	3.19%	3.48%	3.46%	4.03%
Auto	4.79%	3.60%	5.77%	6.62%	6.65%	3.85%
Construction	1.77%	2.95%	3.47%	3.10%	1.16%	2.04%
S&P 500	9.12%	9.01%	9.47%	9.26%	9.49%	8.98%
Excluding Financial	8.06%	8.13%	8.64%	8.68%	8.29%	8.14%

Quarterly Net Margins Expected

• Sector and S&P net margins are calculated as total net income for the sector divided by total revenues for the sector.  Data for the 33 that have not reported.
• Net margins expected to rise to 8.29% from 7.52% a year ago, and up from 7.11% in the third quarter.  Net margins ex Financials expected to fall to 4.90% from 7.25% a year ago and down from 5.42% in the third quarter.  
• Margin expansion is the key driver behind earnings growth.  Due to seasonality, it is best to compare to a year ago, particularly at the individual company and sector levels.  Mix of companies reporting will lead to big changes in both the reported and expected net margin tables from week to week.
• Remaining firms naturally lower margin businesses than those that have reported, with so few left, should not significantly change overall picture.

Quarterly: Net Margins Expected
Net Margins	Q1 2012 Expected	Q4 2011 Expected	3Q 2011 Reported	2Q 2011 Reported	1Q 2011 Reported	4Q 2010 Reported
Auto	NA	NA	NA	NA	NA	NA
Construction	NA	NA	NA	NA	NA	NA
Computer and Tech	NA	NA	NA	NA	NA	NA
Aerospace	NA	NA	NA	NA	NA	NA
Transportation	NA	NA	NA	NA	NA	NA
Finance	52.48%	46.63%	11.29%	9.02%	5.10%	7.91%
Oils and Energy	14.29%	15.88%	13.84%	15.20%	19.43%	17.63%
Industrial Products	13.58%	12.52%	13.77%	13.26%	13.93%	12.01%
Basic Materials	5.81%	10.87%	10.21%	9.54%	7.12%	9.09%
Consumer Staples	12.51%	9.23%	9.77%	8.63%	7.92%	10.22%
Utilities	8.59%	5.50%	8.89%	6.66%	7.02%	6.34%
Business Service	4.45%	4.24%	4.23%	4.04%	4.84%	4.77%
Consumer Discretionary	40.26%	4.13%	-3.68%	-2.61%	18.46%	4.89%
Retail/Wholesale	3.50%	3.74%	3.83%	3.97%	3.07%	3.81%
Medical	3.42%	2.45%	0.94%	2.15%	3.51%	2.52%
Conglomerates	40.59%	-15.99%	-123.73%	24.30%	4.23%	286.18%
S&P 500	6.56%	8.29%	7.11%	6.47%	5.37%	7.52%
Excluding Financial	6.21%	4.90%	5.42%	5.30%	5.47%	7.25%

Annual Total Net Income Growth

• Following rise of just 2.4% in 2009, total earnings for the S&P 500 jumps 44.5% in 2010, 15.3% further expected in 2011.  Growth ex Financials 28.2% in 2010, 17.4% in 2011.  
• For 2012, 9.4% growth expected, 6.7% ex-Financials.  For 2013, 11.1% and 12.1% ex Financials.
• Thirteen sectors expected to see total net income rise in 2011 and all but Aerospace and Utilities in 2012. Utilities only (small) decliner in 2010.  Eight sectors expected to post double digit growth in 2011 and nine in 2012, 12 in 2013.  Energy and Health Care expected to grow less than 5% in 2012. Aerospace and Utilities only sectors to decline.  Slow growers in 2011 to be high growers in 2012.
• Cyclical/Commodity sectors lead in earnings growth in 2011.  Materials, Industrials and Energy expected to grow over 30% for second year.
• Sector dispersion of earnings growth narrows dramatically between 2010 and 2012, only Construction and Financials (low base) expected to grow more than 20% in 2012, eight grew more than 30% in 2010.  

Annual Total Net Income Growth
Net Income Growth	2010	2011	2012	2013
Construction	- to +	-4.60%	32.47%	40.24%
Finance	291.69%	4.76%	24.39%	6.09%
Transportation	80.26%	-3.05%	18.10%	14.62%
Conglomerates	11.13%	6.29%	16.49%	13.32%
Industrial Products	36.40%	37.19%	13.97%	14.35%
Consumer Discretionary	23.18%	20.30%	12.45%	15.97%
Business Service	13.57%	19.76%	12.21%	13.98%
Computer and Tech	47.14%	22.60%	11.93%	12.77%
Retail/Wholesale	14.81%	10.42%	11.44%	14.91%
Auto	1448.79%	6.87%	6.91%	17.54%
Consumer Staples	11.65%	8.97%	5.47%	9.64%
Basic Materials	56.29%	30.85%	4.85%	18.23%
Medical	10.33%	8.09%	2.05%	6.66%
Oils and Energy	50.66%	36.41%	0.73%	11.86%
Aerospace	21.78%	11.50%	-3.08%	11.80%
Utilities	-0.64%	4.42%	-3.49%	9.18%
S&P	44.50%	15.28%	9.41%	11.10%

Annual Total Revenue Growth

• The number of revenue estimates is smaller than earnings estimates, especially for 2013.
• Total revenues for the S&P 500 expected to rise 7.71% in 2011, 2.51% in 2012, early expectation for 4.27% growth in 2013.
• Energy, Industrials, Materials and Autos to lead revenue race in 2011.  Three other sectors (all cyclical) also expected to show double digit revenue growth in 2011. Construction leads by wide margin for 2012, Industrials, Transports and Tech also strong.
• All sectors but Staples, Finance and Aerospace expected to show positive top line growth in 2011.  Thirteen sectors see 2012 growth, all see 2013 growth.
• Revenue growth significantly different if Financials are excluded, down 10.56% in 2009 but growth of 9.34% in 2010, 11.02% in 2011, and 3.39% in 2012.  Early expectation for 4.23% growth in 2013.

Annual Total Revenue Growth
Sales Growth	2010	2011	2012	2013
Construction	0.47%	4.19%	10.36%	10.38%
Industrial Products	12.34%	19.87%	8.94%	6.73%
Transportation	10.70%	12.60%	7.75%	6.96%
Computer and Tech	15.51%	13.75%	7.53%	7.93%
Basic Materials	10.76%	18.31%	7.01%	6.09%
Retail/Wholesale	4.10%	5.96%	6.81%	2.65%
Consumer Discretionary	5.30%	12.29%	5.38%	4.84%
Utilities	2.13%	4.23%	4.22%	3.07%
Conglomerates	0.94%	3.70%	4.13%	6.57%
Business Service	4.81%	9.65%	3.45%	5.33%
Aerospace	-0.34%	-1.05%	2.16%	2.24%
Auto	9.21%	18.33%	2.09%	6.77%
Medical	11.40%	5.57%	0.59%	2.96%
Oils and Energy	23.74%	22.15%	-1.18%	2.53%
Finance	0.07%	-11.66%	-4.22%	4.57%
Consumer Staples	4.79%	7.43%	-5.81%	3.81%
S&P 500	7.94%	7.71%	2.51%	4.27%
Excluding Financial	11.02%	10.87%	3.39%	4.23%

Annual Net Margins

• Net Margins marching higher, from 5.88% in 2008 to 6.27% in 2009 to 8.39% for 2010, 8.98% expected for 2011.  Trend expected to continue into 2012 with net margins of 9.58% expected.   Rise to 10.21% expected for 2013.
• Financials significantly distort overall net margins. Net margins ex financials 7.78% in 2008, 6.93% in 2009, 8.13% for 2010, 8.60% expected in 2011.  Expected to rise to 8.88% in 2012, then to 9.56% in 2013.  
• Financials net margins soar from -8.42% in 2008 to15.52% expected for 2012, 15.90% for 2013.
• All sectors but Medical and Utilities saw higher net margins in 2010 than in 2009.  Forteen sectors expected to post higher net margins in 2011 than in 2010.  Thirteen sectors expected to see margin expansion in 2012.  All sectors see expansion in 2013.
• Sector net margins are calculated as total net income for sector divided by total revenues.  However, there are generally fewer revenue estimates than earnings estimates for individual companies.

Annual Net Margins
Net Margins	2010A	2011A	2012E	2013E
Computer and Tech	14.97%	16.14%	16.80%	17.55%
Finance	10.00%	11.86%	15.40%	15.62%
Medical	12.75%	13.06%	13.25%	13.72%
Business Service	10.82%	11.82%	12.82%	13.87%
Consumer Staples	10.31%	10.46%	11.71%	12.37%
Conglomerates	9.02%	9.24%	10.34%	10.99%
Consumer Discretionary	8.49%	9.09%	9.70%	10.73%
Industrial Products	7.35%	8.41%	8.80%	9.43%
Transportation	9.28%	7.99%	8.75%	9.38%
Oils and Energy	7.23%	8.07%	8.23%	8.97%
Basic Materials	7.08%	7.83%	7.67%	8.55%
Utilities	7.88%	7.89%	7.31%	7.74%
Aerospace	5.86%	6.60%	6.26%	6.85%
Auto	5.24%	4.73%	4.95%	5.45%
Retail/Wholesale	3.27%	3.41%	3.56%	3.98%
Construction	2.64%	2.65%	3.19%	4.05%
S&P 500	8.39%	8.98%	9.58%	10.21%
Excluding Financial	8.13%	8.60%	8.88%	9.56%

Earnings Estimate Revisions: Current Fiscal Year
The Zacks Revisions Ratio: 2012

• Revisions ratio for full S&P 500 at 0.79, up from 0.73, still bearish.  Total revisions activity passing seasonal peak.
• Conglomerates lead, Business Service also strong, both with two cuts per increase or more.  Utilities, Transports and Aerospace very weak.
• Ratio of firms with rising to falling mean estimates at 0.73, unchanged, a bearish reading.
• Total number of revisions (4 week total) near seasonal peak at 4,685, up from 4,454 last week (5.2%).  Increases at 1853, down from 1,974 (-6.1%), cuts at 2,352 down from 2,711 (-13.2%).

The Zacks Revisions Ratio: 2012
Sector	%Ch Curr Fiscal Yr Est - 4 wks	# Firms Up	# Firms Down	# Ests Up	# Ests Down	Revisions Ratio	Firms up/down
Conglomerates	1.64	5	2	39	9	4.33	2.50
Business Service	-0.09	10	8	105	48	2.19	1.25
Retail/Wholesale	-0.5	25	16	262	191	1.37	1.56
Auto	-3.16	3	5	35	26	1.35	0.60
Construction	1.44	5	6	51	43	1.19	0.83
Consumer Discretionary	-0.84	14	15	171	152	1.13	0.93
Computer and Tech	-0.41	34	28	265	286	0.93	1.21
Industrial Products	-2.07	10	11	78	92	0.85	0.91
Consumer Staples	-0.57	17	19	128	160	0.80	0.89
Finance	-1.51	27	48	207	337	0.61	0.56
Basic Materials	-1.74	10	13	62	101	0.61	0.77
Medical	-0.82	12	31	165	272	0.61	0.39
Oils and Energy	-0.82	14	28	166	308	0.54	0.50
Transportation	-0.8	2	7	27	61	0.44	0.29
Aerospace	-1.77	2	7	28	77	0.36	0.29
Utilities	-1.68	10	29	64	189	0.34	0.34
S&P 500	-0.91	200	273	1853	2352	0.79	0.73

Earnings Estimate Revisions: Next Fiscal Year
The Zacks Revisions Ratio: 2013

• Revisions ratio for full S&P 500 at 0.88 up from 0.82, now in neutral territory.
• The low Revisions and Firm Up/Down Ratios are a troubling sign for the market, especially now that total activity is high.
• Five sectors have positive revisions ratios (above 1.0).  Utilities and Transports very weak, has more than two cuts per increase.
• Ratio of firms with rising estimate to falling mean estimates at 0.75, up from 0.73.  Still in bearish territory.
• Total number of revisions (4 week total) at 2,777, down from 2,974 (-6.6%).    
• Increases at 1,229 down from1,337 last week (-2.8%), cuts at 1,478, down from 1,635 (-9.6%).

The Zacks Revisions Ratio: 2013
Sector	%Ch Next Fiscal Yr Est - 4 wks	# Firms Up	# Firms Down	# Ests Up	# Ests Down	Revisions Ratio	Firms up/down
Business Service	0.68	9	7	70	23	3.04	1.29
Conglomerates	1.26	6	1	22	10	2.20	6.00
Auto	-2.45	4	4	23	13	1.77	1.00
Retail/Wholesale	-0.21	24	19	166	102	1.63	1.26
Construction	-0.99	5	6	24	22	1.09	0.83
Basic Materials	-0.37	13	9	51	51	1.00	1.44
Industrial Products	-0.43	11	10	55	58	0.95	1.10
Consumer Discretionary	-1.18	11	18	100	106	0.94	0.61
Computer and Tech	-1.41	27	34	172	198	0.87	0.79
Finance	-0.67	31	43	180	209	0.86	0.72
Consumer Staples	-0.42	14	20	85	118	0.72	0.70
Oils and Energy	-0.02	11	30	130	181	0.72	0.37
Medical	-0.81	13	31	143	210	0.68	0.42
Aerospace	-0.43	4	5	20	33	0.61	0.80
Transportation	-0.85	3	6	20	41	0.49	0.50
Utilities	-3.06	14	25	38	103	0.37	0.56
S&P	-0.84	200	268	1299	1478	0.88	0.75

Total Income and Share

• S&P 500 earned $538.6 billion in 2009, rising to earn $788.8 billion in 2010, $896.8 billion expected in 2011.  Earnings to approach the $1 Trillion mark in 2012 at $981.2 billion, pass in 2013 at $1.09 Trillion.
• Finance share of total earnings moves from 5.9% in 2009 to 17.3% in 2010, dip to 15.2% expected for 2011; rebound to 17.3% hen slip to 16.5% in 2013.  Energy share also rising going from 11.9% in 2009 to 14.7% in 2011, dip to 13.5% in 2012, 13.6% in 2013.
• Medical share of total earnings exceeds market cap share (index weight), but earnings share expected to shrink from 17.3% in 2009 to 10.7% in 2013, down each year.
• Market Cap shares of Construction, Staples, Retail, Transportation, and Business Service sectors far exceed earnings shares of any of the years from 2010 through 2013.
• Earnings shares of Energy, Finance, Autos, Materials and Medical well above market cap shares
• As a general rule, one should try to overweight sectors with rising earnings shares, underweight falling earnings shares, but also over weight sectors where earnings shares exceed market cap shares.

Total Income and Share
Income ($ Bill)	Total Net Income $ 2011	Total Net Income $ 2012	Total Net Income $ 2013	% Total S&P Earn 2011	% Total S&P Earn 2012	% Total S&P Earn 2013	% Total S&P Mkt Cap
Computer and Tech	$165,706	$185,483	$209,164	18.48%	18.90%	19.19%	19.26%
Finance	$136,212	$169,438	$179,760	15.19%	17.27%	16.49%	14.44%
Oils and Energy	$131,697	$132,664	$148,402	14.69%	13.52%	13.61%	11.61%
Medical	$107,154	$109,350	$116,632	11.95%	11.15%	10.70%	10.25%
Consumer Staples	$67,980	$71,698	$78,613	7.58%	7.31%	7.21%	8.64%
Retail/Wholesale	$63,880	$71,188	$81,805	7.12%	7.26%	7.50%	8.98%
Utilities	$50,191	$48,441	$52,887	5.60%	4.94%	4.85%	5.87%
Conglomerates	$29,385	$34,230	$38,792	3.28%	3.49%	3.56%	3.58%
Consumer Discretionary	$30,211	$33,973	$39,398	3.37%	3.46%	3.61%	3.96%
Basic Materials	$31,555	$33,085	$39,116	3.52%	3.37%	3.59%	3.37%
Industrial Products	$22,757	$25,935	$29,656	2.54%	2.64%	2.72%	2.69%
Business Service	$16,959	$19,030	$21,690	1.89%	1.94%	1.99%	2.51%
Transportation	$13,824	$16,326	$18,713	1.54%	1.66%	1.72%	1.80%
Aerospace	$15,101	$14,636	$16,364	1.68%	1.49%	1.50%	1.38%
Auto	$12,176	$13,018	$15,302	1.36%	1.33%	1.40%	1.10%
Construction	$2,000	$2,650	$3,716	0.22%	0.27%	0.34%	0.55%
S&P 500	$896,789	$981,146	$1,090,011	100.00%	100.00%	100.00%	100.00%

P/E Ratios

• Trading at 16.62x 2010, 14.41x 2011 earnings, or earnings yields of 6.02% and 6.94%, respectively.  P/E for 2012 at 13.17x or earnings yield of 7.59%.  Very Preliminary 2013 P/E of 11.86, or earnings yield of 8.43%
• Earnings Yields still attractive relative to 10 year T-Note rate of 1.97% and 30 year bond rate of 3.10%.
• No single digit P/E sectors for 2012, Autos, Oil and Finance Cheapest for 2012 and 2013.
• Construction has highest P/E for all four years by wide margin
• S&P 500 earned $56.79 in 2009 rising to $82.03 in 2010.  Currently expected to earn $94.62 in 2011 and $103.53 for 2012.  Preliminary 2013 estimate $114.96.

P/E Ratios
P/E	2010	2011	2012	2013
Auto	12.53	11.72	10.96	9.33
Finance	14.35	13.70	11.01	10.38
Oils and Energy	15.55	11.40	11.31	10.11
Medical	13.36	12.36	12.11	11.36
Aerospace	13.20	11.84	12.21	10.92
Basic Materials	18.04	13.79	13.15	11.12
Industrial Products	20.94	15.27	13.40	11.71
Computer and Tech	18.42	15.02	13.42	11.90
Conglomerates	16.72	15.73	13.50	11.91
Transportation	16.34	16.85	14.27	12.45
Consumer Discretionary	20.39	16.95	15.07	13.00
Consumer Staples	17.90	16.43	15.58	14.21
Utilities	15.79	15.12	15.66	14.35
Retail/Wholesale	20.07	18.17	16.31	14.19
Business Service	22.92	19.14	17.06	14.97
Construction	37.48	35.83	27.05	19.29
S&P 500	16.62	14.41	13.17	11.86

Data in this report, unless stated otherwise, is through the close on Thursday 2/23/2012.

We use the convention of referring to the next full fiscal year to be completed as 2011, not all firms are on December fiscal years, this can cause discontinuities in the data.  The data is based on FY1, not based on 2011, even though I may call it 2011 in the report. All numbers, including historical ones, reflect the current composition of the S&P 500, thus some historical numbers may differ from those reported by S&P which are based on the composition of the index at the time of the reports.
 
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