Apple Results Distorting S&P 500 Earnings, Golub Says: Tom Keene

Record profit from iPhone and iPad maker Apple Inc. is masking weakness at other Standard & Poor’s 500 Index companies during the fourth-quarter reporting season, according to UBS AG’s Jonathan Golub.

The degree to which S&P 500 earnings beat the average analyst estimate drops by about two-thirds when Apple is excluded, New York-based Golub in an interview today on “Bloomberg Surveillance” with Tom Keene. He is the chief U.S. market strategist at UBS.

The world’s largest company by market capitalization said on Jan. 24 that profit in the quarter ended Dec. 31 was $13.1 billion, 36 percent more than the average analyst projection, while revenue beat forecasts by $7.3 billion, the most ever. The Cupertino, California-based company single-handedly erased a drop in S&P 500 earnings for the October-to-December period, turning a 4.2 percent decline into a 4.4 percent gain.

Apple’s report “obfuscates the fact that the underlying earnings trend is really weak,” Golub said. “It’s a terrific company, but it’s also important you get a sense of how the average stock, the average company is doing. You want to make sure you don’t distort that view.”

Analysts project income for S&P 500 companies climbed 4.9 percent in the fourth quarter, according to data compiled by Bloomberg. Out of 280 companies that have reported since Jan. 9, 68 percent have exceeded analysts’ estimates by an average 2.9 percent, while profit has gained 3.5 percent.

The S&P 500’s fourth-quarter income growth rate was 1.6 percent, excluding Apple, Golub wrote in a Feb. 2 report.

Faster growth overseas, higher oil prices and a weak dollar have boosted the perceived success of U.S. corporations in the past year, Golub said during today’s interview.

“Now that those things are rolling off and becoming effectively headwinds not tailwinds, and then you take out the Apple numbers, you just see how weak the underlying trend is,” he said.

To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Tom Keene in New York at tkeene@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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