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Final 3Q Report: B400 Companies’ Earnings Are 5% Better Than Forecast

John A. PrestboJohn A. Prestbo

Though not all third quarter earnings have been reported yet—the last tail-ender won’t straggle in for nearly another week—it’s time to summarize how Barron’s 400 Index companies fared. With more than 97% of the reports in, the results are pretty close to final.

Overall the financially strong companies did well, if not spectacularly. (For these comparisons, we’re using current components, even though many of them weren’t in the Barron’s 400 in 2012’s third period. We believe this approach to be the most valid statistically and the most useful in looking forward, as these components will remain until the next index reconstitution in March.)

The Barron’s 400 companies beat security analysts’ per-share earnings forecasts by an average 4.86%, or five cents a share. Most of the bigger variances were on the upside, as the median was 3.24% (two cents a share). Compared with a year earlier, per-share earnings were up 15.23% on average; the median gain was 14.29%.

Analysts seem to be better at forecasting revenue. The average revenue surprise was 3.55%. A lot of the deviations were on the downside, however, putting the median at 0.8%. Revenue rose 14.71% on average from the same 2012 period; the median increase was 9.7%.

From the sector perspective, health care had the biggest average earnings surprise, but still fell short of year-earlier results. Inversely, energy disappointed on expectations but did much better than in the 2012 period. Technology was stronger than many investors had been anticipating, which helped the sector rally recently. Here is a table of average results:

3Q Earnings Per Share 3Q Revenue
Sector Vs. Estimate Vs. Year Ago Vs. Estimate Vs. Year Ago
Consumer Discretionary -0.32% 17.32% 0.60% 11.41%
Consumer Staples 3.99% 28.50% 1.37% 12.69%
Energy -12.51% 23.41% 3.36% 32.89%
Financials 1.38% 11.69% 8.82% 10.37%
Health Care 25.63% -8.73% 3.39% 22.94%
Industrials 7.36% 27.81% 0.02% 11.74%
Materials 8.29% 4.48% 3.02% 8.47%
Technology 9.57% 31.96% 8.42% 15.74%
Utilities 40.80% -29.20% -27.19% -6.01%

Grade slippage was minimal for Barron’s 400 components. The average grade one week after reporting results dropped 1.3% to 66.98 from 67.87. One reason was that further stock-price increases dimmed the companies’ value scores.

John Prestbo, senior advisor to MarketGrader Capital, was formerly editor and executive director of Dow Jones Indexes. He was also chairman of the Dow Jones Index Oversight Committee. During his time at Dow Jones Indexes he worked, along with Barron's and MarketGrader, on the development of the Barron's 400 Index. Prior to that, Mr. Prestbo worked as an editor and writer for The Wall Street Journal in various capacities, including page-one editor, commodity news editor and markets editor. Mr. Prestbo has co-authored or edited several books over the past 30 years. The most recent was "The Market's Measure: An Illustrated History of America Told Through the Dow Jones Industrial Average," published by Dow Jones Indexes in 1999 and "Barron's Guide to Making Investment Decisions" which he helped to compile and edit in 2006. Mr. Prestbo won the University of Missouri Award for Distinguished Business Writing in 1967 and the George M. Loeb Achievement Award for Business Writing in 1968. In 2007, he won the William F. Sharpe Indexing Lifetime Achievement Award. That same year, he was honored for his leadership by Dow Jones Indexes during its celebration of 10 years as a separate business unit.

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