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1 EARNINGS INSIGHT John Butters, VP, Sr. Earnings Analyst Media Questions/Requests S&P 500 November 18, 2016 Key Metrics Earnings Scorecard: As of today (with 95% of the companies in the S&P 500 reporting earnings for Q3 2016), 72% of S&P 500 companies have reported earnings above the mean estimate and 55%of S&P 500 companies have reported sales above the mean estimate. Earnings Growth: For Q3 2016, the blended earnings growth rate for the S&P 500 is 3.0%. The third quarter marks the first time the index has seen year-over-year growth in earnings since Q (0.5%). Earnings Revisions: On September 30, the estimated earnings decline for Q was -2.2%. All eleven sectors have higher growth rates today (compared to September 30) due to upside earnings surprises, led by the Real Estate sector. Earnings Guidance: For Q4 2016, 68 S&P 500 companies have issued negative EPS guidance and 32 S&P 500 companies have issued positive EPS guidance. Valuation: The forward 12-month P/E ratio for the S&P 500 is This P/E ratio is based on Thursday s closing price ( ) and forward 12-month EPS estimate ($130.99). To receive this report via , please go to: To view other market stories with FactSet content, please go to: All data published in this report is available on FactSet. Please contact media_request@factset.com or FACTSET for more information. FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 1

2 Topic of the Week 1: Did DJIA Companies Report Higher Non-GAAP EPS in Q3 2016? EARNINGS INSIGHT November 18, 2016 While all publicly traded U.S companies report EPS on a GAAP (generally accepted accounting principles) basis, many U.S. companies also choose to report EPS on a non-gaap basis. There are mixed opinions in the market about the use of non-gaap EPS. Supporters of the practice argue that it provides the market with a more accurate picture of earnings from the day-to-day operations of companies, as items that companies deem to be one-time events or non-operating in nature are typically excluded from the non-gaap EPS numbers. Critics of the practice argue that there is no industry-standard definition of non-gaap EPS, and companies can take advantage of the lack of standards to (more often than not) exclude items that have a negative impact on earnings to boost non-gaap EPS. As of today, all of the companies in the Dow Jones Industrial Average (DJIA) have reported EPS for Q What percentage of these companies reported non-gaap EPS for Q3 2016? What was the average difference and median difference between non-gaap EPS and GAAP EPS for companies in the DJIA for Q3 2016? How did these differences compare to last year? For Q3 2016, 21 of the 30 companies in the DJIA (or 70%) reported non-gaap EPS in addition to GAAP EPS for the third quarter. Of these 21 companies, 16 reported non-gaap EPS that was higher than GAAP EPS. The average difference between non-gaap EPS and GAAP EPS for all 21 companies was 181.1%, while the median difference between non-gaap EPS and GAAP EPS for all 21 companies was 10.4%. The average difference between non- GAAP EPS and GAAP EPS for the DJIA was unusually large because of DuPont. For Q3 2016, DuPont reported non-gaap EPS of $0.34 and reported GAAP EPS of $0.01. Thus, the percentage difference between non-gaap EPS and GAAP EPS for DuPont for Q3 was 3300%. Excluding DuPont, the average difference between non-gaap EPS and GAAP EPS for the remaining 20 DJIA companies was 24.7%. For Q3 2015, 19 of the 30 companies in the DJIA (or 63%) reported non-gaap EPS in addition to GAAP EPS for the quarter. Of these 19 companies, 16 reported non-gaap EPS that was higher than GAAP EPS. The average difference between non-gaap EPS and GAAP EPS for all 19 companies was 17.1%, while the median difference between non-gaap EPS and GAAP EPS for all 19 companies was 10.6%. Thus, the average difference between non-gaap EPS and GAAP EPS for the Dow 30 was larger in Q relative to Q However, the median difference between non-gaap EPS and GAAP EPS for the Dow 30 in Q was nearly equal to the median difference in Q While more DJIA companies reported non-gaap EPS in Q (21) compared to Q (19), the same number of DJIA companies (16) reported non-gaap EPS that exceeded GAAP EPS in both quarters. Companies in the DJIA reported higher average and median year-over-year growth in non-gaap EPS compared to GAAP EPS for Q For the 21 companies in the DJIA that reported non-gaap EPS for Q3 2016, the average non-gaap EPS growth rate was 10.8%, while the median non-gaap EPS growth rate was 5.1%. For these same 21 companies, the average GAAP EPS growth rate for Q was -3.7%, while the median GAAP EPS growth rate for Q was -1.2%. Top 5 DJIA Cos. With Widest Gap (%) Between Non-GAAP & GAAP EPS for Q3 2016* (Source: FactSet) Company Ticker Non-GAAP EPS GAAP EPS Difference (%) DuPont DD % Pfizer Inc. PFE % Coca-Cola Company KO % Caterpillar Inc. CAT % Merck & Co., Inc. MRK % * GAAP EPS & Non-GAAP EPS from Continuing Operations were used in calculations when provided FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 2

3 * GAAP EPS & Non-GAAP EPS from Continuing Operations were used in calculations when provided * GAAP EPS & Non-GAAP EPS from Continuing Operations were used in calculations when provided FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 3

4 Topic of the Week 2: How Did DJIA Companies Perform in Europe Post-Brexit? EARNINGS INSIGHT November 18, 2016 Coming into the Q3 earnings season, there were concerns in the market regarding the impact of Brexit on U.S. corporate earnings for the third quarter. With the final DJIA components reporting results for Q3 this week, how did companies in the DJIA perform in the third quarter in Europe in terms of sales? How did the revenue numbers for Q compare to prior quarters? Overall, 11 of the 30 companies in the DJIA provided revenue growth numbers for Europe for the third quarter. Of these eleven companies, seven reported a year-over-year decline in revenues. This number is slightly above the number of Dow 30 companies that reported a year-over-year sales decrease in the second quarter (6). However, it is below the number of Dow 30 companies that reported a year-over-year sales decrease in the first quarter of 2016 (8) and the fourth quarter of 2015 (9). For four of these seven DJIA companies, the third quarter marked (at least) the third consecutive quarter of year-over-year declines in revenues from Europe. It is also interesting to note that only six companies in the entire Dow 30 specifically discussed the term Brexit during their earnings calls for Q3. Thus, it appears Brexit was not a topic of concern for most companies in the DJIA during their earnings calls for Q3. The list of the six companies that discussed Brexit and some of their comments are provided below. *EMEA (Europe, Middle East, & Africa) ^ Western Europe + Pharmaceutical Sales Economic growth in Europe, it's been kind of okay, but we're still concerned about Brexit. And as that draws nearer, the concerns that we have are does it impact economic growth and business confidence and investment. Caterpillar (Oct. 25) In Europe, we have seen a slowdown in construction activity in the U.K., we think as a result of the Brexit vote, but the rest of Europe appears to be improving slowly, more than compensating for the slowdown in the U.K. United Technologies (Oct. 25) Only Europe slowed due to general economic weakness as well as the impact of the Brexit vote on the euro and the pound. Visa (Oct. 24) FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 4

5 Within the EMEA region, our U.K. business continues to perform very well with FX-adjusted growth of 16% during the third quarter. The weakening of the British pound that has occurred since the Brexit vote at the end of June has been a drag on our reported billings and revenues. But from an earnings perspective, as you'll recall, we are relatively hedged naturally against the pound as the U.K. serves as the headquarters for many of our international operations. American Express (Oct. 19) Currencies was essentially unchanged compared to the second quarter with lower client activity, particularly post the Brexit vote.i would say that Brexit potentially is something that could drive share to the U.S. I think what we've witnessed over the last several years is U.S. firms like ourselves with really strong markets share and leading business positions, whether you look at FICC, investment banking, equities, asset management. If you're a leader in a franchise throughout this cycle, particularly as activity picks up, I think there is share to gain. I think our European clients need us, but in terms of Brexit I think it's unclear whether that's having any impact at this stage. It feels like early days. Goldman Sachs (Oct. 18) As we think back to the discussion 90 days ago, it was around Brexit and its impact on Europe, global spending and sectors like banking, and the attractiveness of investment in the emerging markets. All of these topics have the capacity to drive some volatility in results. But what you see in our third quarter results is stability in our revenue, with continued strong growth in strategic imperatives and a top and bottom line consistent with what we expected. IBM (Oct. 17) FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 5

6 Q Earnings Season: By the Numbers Overview To date, 95% of the companies in the S&P 500 have reported actual results for Q3. In terms of earnings, 72% of companies have reported actual EPS above estimates, which is above the 5-year average. In aggregate, companies have reported earnings that exceeded estimates by 6.3%, which is above the 5-year average. In terms of sales, 55% of companies have reported actual sales above estimates, which is above the 5-year average. In aggregate, companies have reported sales that exceeded estimates by 0.5%, which is below the 5-year average. The blended (combines actual results for companies that have reported and estimated results for companies yet to report) earnings growth rate for Q is 3.0%. The third quarter marks the first time the index has seen year-overyear growth in earnings since Q (0.5%). Eight sectors are reporting or have reported year-over-year earnings growth, led by the Real Estate and Utilities sectors. Three sectors are reporting or have reported a year-over-year decline in earnings, led by the Energy sector. The blended sales growth rate for Q is 2.7%. The third quarter marks the first time the index has seen yearover-year growth in sales since Q (2.0%). Nine sectors are reporting or have reported year-over-year growth in revenues, led by the Consumer Discretionary, Health Care, and Real Estate sectors. Two sectors reported a yearover-year decline in revenues, led by the Energy sector. The forward 12-month P/E ratio is now 16.7, which is above the 5-year and 10-year averages. During the upcoming week, 13 S&P 500 companies are scheduled to report results for the third quarter. More Companies Beat EPS and Sales Estimates than Average, Led By the Technology Sector Percentage of Companies that Beat EPS Estimates (72%) is Above 5-Year Average Overall, 95% of the companies in the S&P 500 have reported earnings to date for the third quarter. Of these companies, 72% have reported actual EPS above the mean EPS estimate, 7% have reported actual EPS equal to the mean EPS estimate, and 21% have reported actual EPS below the mean EPS estimate. The percentage of companies that have reported EPS above the mean EPS estimate is above the 1-year (70%) average and above the 5-year (67%) average. At the sector level, the Information Technology (89%) sector has the highest percentage of companies reporting earnings above estimates, while the Telecom Services (40%) sector has the lowest percentage of companies reporting earnings above estimates. Earnings Surprise Percentage (+6.3%) is Above 5-Year Average In aggregate, companies have reported earnings that exceeded estimated by 6.3%. This surprise percentage is above the 1-year (+4.8%) average and above the 5-year (+4.4%) average. The Energy (+47.1%) and Real Estate (+32.2%) reported the largest upside aggregate differences between actual earnings and estimated earnings for the quarter. In the Energy sector, Chevron ($0.72 vs. $0.37), Newfield Exploration ($0.45 vs. $0.23), and Transocean ($0.25 vs. $0.14) have reported the largest upside earnings surprises. In the Real Estate sector, General Growth Properties ($0.70 vs. $0.13), Digital Realty Trust ($1.25 vs. $0.27), and AvalonBay Communities ($2.59 vs. $1.17) have reported actual results above mean EPS estimates by the widest margins. Percentage of Companies that Beat Revenue Estimates (55%) is Above 5-Year Average In terms of revenues, 55% of companies have reported actual sales above estimated sales and 45% have reported actual sales below estimated sales. The percentage of companies that have reported sales above estimates is above the 1- year average (50%) and above the 5-year average (54%). At the sector level, the Information Technology (76%) and Real Estate (75%) sectors have the highest percentages of companies reporting revenues above estimates, while the Telecom Services (20%) and Utilities (29%) sectors have the lowest percentages of companies reporting revenues above estimates. Revenue Surprise Percentage (+0.5%) is Below 5-Year Average In aggregate, companies have reported sales that exceeded estimates by 0.5%. This surprise percentage is above the 1-year (0.0%) average but below the 5-year (+0.6%) average. FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 6

7 The Financials (+3.6%) sector reported the largest upside aggregate difference between actual sales and estimated sales, while the Utilities (-3.1%) sector reported the largest downside aggregate difference between actual sales and estimated sales. S&P 500 Reporting Higher Earnings Growth This Week on Upside Surprises from Two Sectors S&P 500 Reporting Higher Earnings Growth This Week on Upside Surprises from Two Sectors The blended earnings growth rate for the third quarter is 3.0% this week, which is above the blended earnings growth rate of 2.9% last week. Upside earnings surprises reported by companies in the Consumer Discretionary and Information Technology sectors were mainly responsible for the increase in the overall earnings growth rate for the index during the past week. Real Estate Sector Has Seen Largest Increase in Earnings Growth since September 30 The blended earnings growth rate for Q of 3.0% is above the estimated decline of -2.2% at the end of the third quarter (September 30). All eleven sectors have recorded an increase in earnings growth since the end of the quarter due to upside earnings surprises, led by the Real Estate (to 35.0% from 2.1%), Utilities (to 16.4 from 5.4%), and Financials (to 8.0% from 0.2%) sectors. Earnings Growth: First Quarter of Year-Over-Year Earnings Growth (3.0%) Since Q The blended (combines actual results for companies that have reported and estimated results for companies yet to report) earnings growth rate for Q is 3.0%. The third quarter marks the first time the index has seen year-overyear growth in earnings since Q (0.5%). Eight sectors are reporting or have reported year-over-year growth in earnings, led by the Real Estate and Utilities sectors. Three sectors are reporting or have reported a year-over-year decline in earnings, led by the Energy sector. Real Estate: Residential REITs and Health Care REITs Led Growth The Real Estate sector reported the highest earnings growth of all eleven sectors at 35.0%. Six of the eight subindustries in this sector reported earnings growth for the quarter. Five of these six sub-industries reported earnings growth of 25% or more, led by the Residential REITs (89%) and Health Care REITs (83%) sub-industries. On the other hand, the Office REITs (-66%) sub-industry reported the largest decline in earnings for the quarter. Utilities: Broad-Based Growth The Utilities sector reported the second highest earnings growth of all eleven sectors at 16.4%. All four industries in this sector reported earnings growth. Three of the four industries in this sector reported double-digit earnings growth: Independent Power and Renewable Electricity Producers (86%), Multi-Utilities (16%) and Electric Utilities (14%). Energy: Largest Detractor to Earnings Growth in the S&P 500 The Energy sector reported the largest year-over-year decline in earnings of all eleven sectors at -62.9%. Five of the six sub-industries in this sector reported a year-over-year decrease in earnings: Oil & Gas Exploration & Production (N/A), Oil & Gas Drilling (-85%), Oil & Gas Equipment & Services (-85%), Oil & Gas Refining & Marketing (-66%), and Integrated Oil & Gas (-41%). The Oil & Gas Storage & Transportation (8%) sub-industry is the only sub-industry in the sector that reported earnings growth for the quarter. This sector was also the largest detractor to earnings growth for the S&P 500 as a whole. If the Energy sector is excluded, the blended earnings growth rate for the S&P 500 would improve to 6.4% from 3.0%. Revenues: First Quarter of Year-Over-Year Revenue Growth (2.7%) Since Q The blended revenue growth rate for Q is 2.7%. The third quarter marks the first time the index has seen yearover-year growth in sales since Q (2.0%). Nine sectors are reporting or have reported year-over-year growth in revenues, led by the Consumer Discretionary, Health Care, and Real Estate sectors. Two sectors reported a yearover-year decline in revenues, led by the Energy sector. Consumer Discretionary: Internet Retail, Home Goods, and Media Lead Growth The Consumer Discretionary sector is reporting the highest revenue growth of all eleven sectors at 7.9%. Ten of the 12 industries in this sector are reporting or have reported sales growth for the quarter, led by the Internet & Direct Marketing Retail (28%), Household Durables (20%), and Media (15%) industries. FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 7

8 Health Care: Broad-Based Growth EARNINGS INSIGHT November 18, 2016 The Health Care sector is reporting the second highest revenue growth of all eleven sectors at 7.1%. All six industries in this sector are reporting or have reported sales growth for the quarter, led by the Health Care Provider & Services (8%) and Life Sciences Tools & Services (8%) industries. Real Estate: Real Estate Services & Specialized REITs Led Growth The Real Estate sector reported the third highest revenue growth of all eleven sectors at 6.7%. Four of the eight subindustries in this sector reported sales growth for the quarter, led by the Real Estate Services (18%) and Specialized REITs (13%) sub-industries. On the other hand, the Office REITs (-6%) sub-industry reported the largest decline in sales for the quarter. Energy: Largest Detractor to Revenue Growth in the S&P 500 The Energy sector reported the largest year-over-year decrease in sales for the quarter at -15.3%. Five of the six sub-industries in this sector reported a year-over-year decrease in revenues: Oil & Gas Drilling (-43%), Oil & Gas Equipment & Services (-30%), Oil & Gas Exploration & Production (-16%), Oil & Gas Refining & Marketing (-15%), and Integrated Oil & Gas (-13%). The Oil & Gas Storage & Transportation (3%) sub-industry is the only sub-industry in the sector that reported revenue growth for the quarter. This sector was also the largest detractor to sales growth for the S&P 500 as a whole. If the Energy sector is excluded, the blended revenue growth rate for the S&P 500 would improve to 4.5% from 2.7%. FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 8

9 Looking Ahead: Forward Estimates and Valuation Growth Expected to Continue in Q Analysts currently expect earnings and revenue growth to continue in Q For the fourth quarter, analysts are projecting earnings growth of 3.4% and revenue growth of 4.9%. For all of 2016, analysts are projecting earnings growth of 0.1% and revenue growth of 2.2%. For all of 2017, analysts are projecting earnings growth of 11.4% and revenue growth of 5.9%. Guidance: Negative EPS Guidance (68%) for Q4 Below Average At this point in time, 100 companies in the index have issued EPS guidance for Q Of these 100 companies, 68 have issued negative EPS guidance and 32 have issued positive EPS guidance. The percentage of companies issuing negative EPS guidance is 68% (68 out of 100), which is below the 5-year average of 74%. In the Information Technology sector, more companies have issued positive EPS guidance (16) than negative EPS guidance (12). Valuation: Forward P/E Ratio is 16.7, above the 10-Year Average (14.3) The forward 12-month P/E ratio is This P/E ratio is based on Thursday s closing price ( ) and forward 12- month EPS estimate ($130.99). It is above the 5-year average of 15.0, and above the 10-year average of However, it is below the forward 12-month P/E ratio of 16.8 recorded at the start of the fourth quarter (September 30). Since the start of the fourth quarter, the price of the index has increased by 0.9%, while the forward 12-month EPS estimate has increased by 1.0%. At the sector level, the Energy (44.1) sector has the highest forward 12-month P/E ratio, while the Telecom Services (12.6) sector has the lowest forward 12-month P/E ratio. Nine sectors have forward 12-month P/E ratios that are above their 10-year averages, led by the Energy (44.1 vs. 17.5) sector. One sector (Telecom Services) has a forward 12-month P/E ratio that is below the 10-year average (12.6 vs. 14.6). Historical averages are not available for the Real Estate sector. Companies Reporting Next Week: 13 During the upcoming week, 13 S&P 500 companies are scheduled to report results for the third quarter. FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 9

10 Q3 2016: Scorecard FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 10

11 Q3 2016: Scorecard FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 11

12 Q3 2016: Scorecard FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 12

13 Q3 2016: Projected EPS Surprises (Sharp Estimates) FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 13

14 Q3 2016: Growth FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 14

15 Q4 2016: EPS Guidance EARNINGS INSIGHT November 18, 2016 FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 15

16 Q4 2016: EPS Revisions EARNINGS INSIGHT November 18, 2016 FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 16

17 Q4 2016: Growth FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 17

18 CY 2016: Growth FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 18

19 CY 2017: Growth FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 19

20 Geographic Revenue Exposure EARNINGS INSIGHT November 18, 2016 FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 20

21 Bottom-Up EPS Estimates: Revisions EARNINGS INSIGHT November 18, 2016 FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 21

22 Bottom-Up EPS: Current & Historical EARNINGS INSIGHT November 18, 2016 FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 22

23 Bottom-Up SPS: Current & Historical EARNINGS INSIGHT November 18, 2016 FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 23

24 Net Margins: Current & Historical EARNINGS INSIGHT November 18, 2016 FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 24

25 Forward 12M Price / Earnings Ratio: Sector Level FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 25

26 Forward 12M Price / Earnings Ratio: Long-Term Averages FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 26

27 Trailing 12M Price / Earnings Ratio: Long-Term Averages FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 27

28 Important Notice The information contained in this report is provided as is and all representations, warranties, terms and conditions, oral or written, express or implied (by common law, statute or otherwise), in relation to the information are hereby excluded and disclaimed to the fullest extent permitted by law. In particular, FactSet, its affiliates and its suppliers disclaim implied warranties of merchantability and fitness for a particular purpose and make no warranty of accuracy, completeness or reliability of the information. This report is for informational purposes and does not constitute a solicitation or an offer to buy or sell any securities mentioned within it. The information in this report is not investment advice. FactSet, its affiliates and its suppliers assume no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this report. About FactSet FactSet is a leading provider of integrated financial information and analytical applications. More than 63,000 users stay ahead of global market trends, access extensive company and industry intelligence, and monitor performance with FactSet s desktop analytics, mobile applications, and comprehensive data feeds. The Company has been included in FORTUNE's Top 100 Best Companies to Work For, the United Kingdom s Great Places to Work and France s Best Workplaces. FactSet is listed on the New York Stock Exchange and NASDAQ (NYSE:FDS) (NASDAQ:FDS). Learn more at and follow us on Twitter: FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 28