Earnings Season Wrap-Up

Fourth quarter corporate earnings season is largely complete with all but twelve of the S&P 500 companies having posted results.  Overall, the quarter was stronger than analysts were expecting, with earnings growth of 5.8% year/year, versus mid-January estimates of 1.9% growth.  This was a stark improvement from third quarter results, which were only slightly positive.  Driving growth were financial companies, particularly banks, who appear to be increasing lending activity.  The retail sector was also a bright spot, with holiday shopping results beating estimates.  Our favorite retailers, Macy’s and TJX Companies, saw 4th quarter earnings growth of 21% and 32% respectively, and issued upbeat guidance for the full year 2013.  Lagging slightly were multinational industrials, where the slowdown in Europe and Asia has hurt results.  Many of the corporates we follow are performing nicely and in-line with our expectations.  We will continue to watch each company closely however, as the trend of increasing capital returns to shareholders is re-emerging.  We are also closely following revenue growth as an indicator of corporate strength, as many of the cost cutting measures put in place since the great recession have run their course.  Our strategy of targeting corporate bonds with strong fundamentals or issuer specific catalysts should allow our holdings to perform nicely in an environment where many skeptics are questioning the value of the corporate sector.