Earnings Season in the Last Stretch - Earnings Preview
22 November 2013 - 10:16AM
Zacks
Earnings Season in the Last Stretch
We don’t have much in terms of earnings releases this Thanksgiving
Day week, but we still have 47 companies releasing results,
including 5 S&P 500 members. The Q3 earnings season is mostly
over, with results from 489 S&P 500 members, or 97.8% of the
index’s total membership, already known. Most of this week’s
reports are coming out on Tuesday, including
Hewlett-Packard (HPQ), Tiffany
(TIF), and Hormel Foods (HRL). By the end of this
week, we will have seen Q3 results from 494 of the S&P 500
members.
Our overall verdict on the Q3 earnings season is favorable,
particularly relative to the last few quarters. The fact that
actual results have been better relative to the lowered pre-season
expectations is no surprise given management team’s impressive
track record in under-promising and over-delivering. There is still
not much growth and most companies are still guiding lower,
prompting estimates for Q4 to come down. But whatever little growth
we have in Q3 thus far is better than we have seen in recent
quarters. And for those keeping records, the Q3 earnings season
appears on track a new quarterly record for total earnings,
surpassing the level achieved in Q2.
The Retail sector has been in focus lately, with the broadly
underwhelming guidance from Wal-Mart (WMT),
Target (TGT), Best Buy (BBY) and
others pointing towards a soft holiday shopping season for the
sector. Even before the earnings reports from these retailers, we
knew that consumer spending growth had decelerated in Q3. We know
that in the Q3 GDP report personal consumption expenditures were up
only +1.5%, down from Q2’s +1.8% growth pace. A low-growth
environment forces retailers to rely on promotional efforts to grab
more consumer dollars. But this zero-sum drive for market share
where one company’s gain is another’s loss typically drives down
margins for everyone.
Looked at this way, Wal-Mart’s sub-par outlook may not solely be a
function of under-pressured household finances, but also reflective
of a hyper competitive retail environment where some operators like
Amazon (AMZN) are more than willing to sacrifice
margins for more sales. Wal-Mart referred to this competitive
dynamic in their earnings call, which apparently more than offset
the beneficial effects of recent downtrend in gasoline prices.
Q3 Earnings Scorecard (as of Friday,
11/22/2013)
Total earnings for the 489 S&P 500 companies that have reported
results are up +4.9% with 65.4% beating earnings expectations,
while total revenues for these companies are up +3.0% and 42.1% are
beating top-line expectations. The table below shows the current
earnings scorecard.
This is better performance than what this same group of 489
companies reported in Q2 and the 4-quarter average. As you can see
in the chart below, the earnings and revenue growth rates for these
companies is notably better than what we saw from this same group
of companies in Q2 and the 4-quarter average.
Unlike recent quarters, The Finance sector isn’t driving growth
in Q3. Total earnings growth outside of Finance of +3.7% compares
to earnings decline of -2.0% in Q2 and the average -0.4% decline in
the preceding four quarters. Improved growth at the Technology,
Basic Materials, and Transportation sectors accounts for the
positive ex-Finance variance in Q3 relative to the recent past.
Total earnings for the 97.0% of the Technology sector’s market
capitalization that have reported results already are up +6.0% from
the same period last year, which compares to earnings declines of
-8.9% in Q2 and the 4-quarter average of -1.6%.
At the medium industry level (or M level), we have 7 industries in
the Technology sector, of which only Telecom Services hasn’t
reported any results yet. The growth picture has improved for each
of the other six industries, with the improvement particularly
notable for the Software & Services and Semiconductor
industries. These two industries combined account for 41% of the
sector’s total earnings.
Strong earnings growth at Google (GOOG) and
Microsoft (MSFT) accounts for the positive growth
profile of the Software & Services industry and account for a
big part of the Tech sector’s positive growth picture. Excluding
both these companies form the Tech sector’s tally, the sector’s Q3
total earnings growth drops from +6% to +3.3%.
Total earnings for the Computer & Office Equipment industry,
the biggest industry in the sector accounting for almost 44% of the
sector’s total earnings, are down -1.9% from the same period last
year, primarily driven by tough comparisons for Apple (AAPL). But
this still better performance than what the industry was able to
achieve in recent quarters. Apple’s negative year-over-year
comparison has been a big drag on the sector’s growth picture.
Excluding Apple, total earnings for the Tech sector would be up
+9.9% (up +6% including the company).
Total earnings for the Basic Materials sector are up +3.6% on
+1.1% higher revenues. The improvement in the sector’s growth
numbers is primarily a function of easy comparisons, particularly
in the sector’s dominant chemicals industry (67.6% of total sector
earnings come from the Chemicals & Fertilizer industry). The
Chemicals industry earnings are up +11.3% at this stage, largely
due to easy comparisons at Dow Chemicals (DOW).
Dow missed and guided lower, but its Q3 total earnings were up year
over year.
The Composite Growth Picture
Total earnings for the S&P 500 as a whole, combining the
results from the 489 that have reported with estimates for the
remaining 11, is for growth of +4.7% on +2.9% higher revenues. This
compares to +3.7% earnings growth in Q2 on 2.0% revenues.
Only five of the 16 Zacks sectors are expected to have double-digit
earnings growth in Q3 – Consumer Discretionary (11.9%),
Construction (+32.1%), Transportation (+13.2%), Autos (+32.3%) and
Aerospace (+13.1%). Excluding Finance, total earnings for the
S&P 500 are expected to be up +3.7% on +3.4% higher revenues,
which is up from a decline of -2.0% in total earnings on +1.2%
higher revenues in Q2.
Q4 Estimates Coming Down
Estimates for Q4 have started coming down, though they still have
plenty of room to go before reaching ‘reasonable’ levels. The chart
below shows how estimates for Q4 have evolved in recent weeks.
Investors seem to be fine with the current record level of
earnings as providing enough justification for the stock market’s
all-time record level. We will have wait to see if this
justification would work once the Fed starts getting out of the QE,
which some suspect could happen as early as this December. But
irrespective of when the Fed starts tapering, the stock market
needs stronger earnings growth in the coming quarters than we have
seen in the recent past to maintain its recent momentum.
For a more detailed look at the overall earnings picture, please
check out our weekly Earnings Trends report by clicking here.
Here is a list of the 47 companies reporting this week,
including 5 S&P 500 members:
Company |
Ticker |
Current Qtr |
Year-Ago Qtr |
Last EPS Surprise % |
Report Day |
Time |
SEADRILL LTD |
SDRL |
0.67 |
0.4 |
13.11 |
Monday |
BTO |
DYCOM INDS |
DY |
0.46 |
0.36 |
-2.22 |
Monday |
AMC |
COPART INC |
CPRT |
0.33 |
0.36 |
-20 |
Monday |
AMC |
NUANCE COMM INC |
NUAN |
0.14 |
0.33 |
10 |
Monday |
AMC |
CULP INC |
CFI |
0.32 |
0.31 |
8.57 |
Monday |
AMC |
PERFECT WORLD |
PWRD |
0.37 |
0.28 |
-18.18 |
Monday |
AMC |
FIFTH STREET FI |
FSC |
0.26 |
0.27 |
-10.71 |
Monday |
AMC |
QIHOO 360 TECH |
QIHU |
0.26 |
0.11 |
100 |
Monday |
BTO |
21VIANET GP-ADR |
VNET |
0.05 |
0.08 |
-33.33 |
Monday |
AMC |
NAVIOS MARI HLD |
NM |
-0.11 |
0.04 |
-23.08 |
Monday |
BTO |
PALO ALTO NETWK |
PANW |
-0.03 |
-0.05 |
-75 |
Monday |
AMC |
NJ RESOURCES |
NJR |
-0.02 |
-0.27 |
15 |
Monday |
BTO |
WORKDAY INC-A |
WDAY |
-0.26 |
-0.49 |
20.83 |
Monday |
AMC |
HASTING ENTMT |
HAST |
-0.78 |
-0.98 |
-66.67 |
Monday |
BTO |
HEWLETT PACKARD |
HPQ |
1 |
1.16 |
-1.15 |
Tuesday |
AMC |
PALL CORP |
PLL |
0.69 |
0.68 |
2.27 |
Tuesday |
BTO |
ANALOG DEVICES |
ADI |
0.58 |
0.58 |
5.56 |
Tuesday |
AMC |
TIFFANY & CO |
TIF |
0.58 |
0.49 |
12.16 |
Tuesday |
BTO |
HORMEL FOODS CP |
HRL |
0.54 |
0.49 |
-4.55 |
Tuesday |
BTO |
CHILDRENS PLACE |
PLCE |
1.83 |
1.6 |
22.22 |
Tuesday |
BTO |
CRACKER BARREL |
CBRL |
1.13 |
1.08 |
5.93 |
Tuesday |
BTO |
MOVADO GRP INC |
MOV |
0.87 |
0.67 |
70.83 |
Tuesday |
BTO |
BEACON ROOFING |
BECN |
0.62 |
0.6 |
-22.54 |
Tuesday |
BTO |
BROWN SHOE CO |
BWS |
0.62 |
0.6 |
22.22 |
Tuesday |
BTO |
EATON VANCE |
EV |
0.61 |
0.53 |
-8.77 |
Tuesday |
BTO |
DSW INC CL-A |
DSW |
0.58 |
0.51 |
21.25 |
Tuesday |
BTO |
SIGNET JEWELERS |
SIG |
0.42 |
0.43 |
0 |
Tuesday |
BTO |
AEROVIRONMENT |
AVAV |
0.08 |
0.39 |
-142.86 |
Tuesday |
AMC |
TILLYS INC |
TLYS |
0.21 |
0.3 |
15.38 |
Tuesday |
AMC |
CHICOS FAS INC |
CHS |
0.24 |
0.25 |
-16.25 |
Tuesday |
BTO |
FREDS INC |
FRED |
0.2 |
0.18 |
0 |
Tuesday |
BTO |
SHANDA GAME-ADR |
GAME |
0.2 |
0.16 |
27.78 |
Tuesday |
AMC |
AMER WOODMARK |
AMWD |
0.39 |
0.14 |
38.71 |
Tuesday |
BTO |
QAD INC-A |
QADA |
0.12 |
0.12 |
-11.11 |
Tuesday |
AMC |
LTX-CREDENCE CP |
LTXC |
-0.13 |
0.03 |
0 |
Tuesday |
BTO |
LACLEDE GRP INC |
LG |
-0.06 |
0.02 |
71.43 |
Tuesday |
BTO |
INFOBLOX INC |
BLOX |
-0.02 |
-0.04 |
500 |
Tuesday |
AMC |
BARNES & NOBLE |
BKS |
-0.05 |
-0.04 |
4.44 |
Tuesday |
BTO |
TIVO INC |
TIVO |
0.06 |
-0.13 |
20 |
Tuesday |
AMC |
CITI TRENDS INC |
CTRN |
-0.18 |
-0.25 |
20.93 |
Tuesday |
BTO |
STAR BULK CARRS |
SBLK |
-0.07 |
-0.7 |
1025 |
Tuesday |
BTO |
JA SOLAR HOLDGS |
JASO |
-0.42 |
-0.85 |
6.45 |
Tuesday |
BTO |
ZALE CORP NEW |
ZLC |
-0.87 |
-0.88 |
21.88 |
Tuesday |
AMC |
LDK SOLAR CO |
LDK |
-0.84 |
-1.08 |
-5.43 |
Tuesday |
BTO |
ISLE OF CAPRI |
ISLE |
-0.05 |
0 |
-266.67 |
Wednesday |
BTO |
RENREN INC-ADR |
RENN |
-0.09 |
-0.06 |
71.43 |
Wednesday |
AMC |
FRONTLINE LTD |
FRO |
-0.46 |
-0.63 |
-11.11 |
Wednesday |
BTO |
AMAZON.COM INC (AMZN): Free Stock Analysis Report
BEST BUY (BBY): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis Report
HEWLETT PACKARD (HPQ): Free Stock Analysis Report
HORMEL FOODS CP (HRL): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
TIFFANY & CO (TIF): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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