The Q1 earnings season is over for most of the major sectors, with the Retail sector as the only one that has a significant number of reports still awaited.
As such, Retail has a heavy presence in this week’s earnings reports, including industry heavyweights like Wal-Mart (WMT), Macy’s (M) and Nordstrom (JWN). But we do have couple of bellwether operators coming out with results this week from other sectors, like Cisco (CSCO) and Deere & Co. (DE). In total, we will get Q1 earnings reports from 127 companies this week, including 11 S&P 500 members.
Total Retail thus far are up +11.2% from the period last year, on 2.6% higher revenues. This includes strong gains at drugstore chains Walgreens (WAG) and momentum in online players in eBay (EBAY) and Priceline (PCLN). The remaining 22 retailers out of the 47 companies in our S&P 500 Retail sector are expected to see total earnings decline by -2.9% on +2.7% higher revenues. This reflects expectations of flat earnings growth for Wal-Mart and earnings decline for Target (TGT) and few others.
Combining the Retail sector earnings for the 25 companies that have come out with the 22 still to come, the sector’s total earnings in Q1 should be up +3.6%. This compares to earnings growth rates of +8.1% and +6.1% in 2012 Q4 and Q3, respectively. April same-store sales data for the sector has generally been on the soft side, with industry players citing colder temperatures in April as a reason for light traffic. But it could very well be that the payroll tax changes in January are finally starting to have an effect
We continue to grade the Q1 earnings season as between ‘average’ and ‘below average’ – it’s definitely neither ‘good’ nor ‘bad,’ not materially different from what we have been seeing over the last few earnings seasons. That said, the overall level of ‘total’ quarterly earnings is at a record level.
The Q1 Earnings Scorecard
Here is the summary scorecard for the 453 S&P 500 companies that have reported Q1 results, as of Friday May 10th, 2013.
Note: ‘Beat Ratio’ is the percentage of companies coming out with positive surprises; ‘Median Surp’ is the median % surprise.
As you can see, the earnings season has come to an end for 9 of the 16 sectors and except for Retail, the other sectors are close to or more than 90% done as well. A couple of things stand out in the Q1 results: the pronounced negative revenue surprises and the weakness in the Technology sector.
The Technology sector’s growth rates and ‘beat ratios’ are weaker than the same for the S&P 500 as well as what the group reported in 2012 Q4. With 88.5% of the sector’s total market capitalization already out with Q1 results, total earnings for the sector are down -4.4%, with 63.2% of the sector companies beating earnings expectations (vs. the S&P 500 average of 65.3%). The revenue side for the sector isn’t that bad (up +5.7%), which goes on to spotlight the sector’s margin problems.
The composite growth rate for Q1, where we combine the results of the 453 companies that have come out with results with the 47 still to come, is for a rise of +2.4% in total earnings on -0.8% lower revenues. In terms of dollar earnings levels, composite earnings in Q1 total $251.6 billion, the highest quarterly total since the current earnings cycle started back in 2009 (is that why the market is at a new all-time high as well?)
For a detailed look at the earnings picture, please check out our weekly Earnings Trends report here.
Expectations for the second quarter have come down, though estimates for second half of the year still represent a material improvement in the earnings picture. Total earnings in 2013 Q2 are now expected to be up +1.4% on -0.8% lower revenues. This is a drop from the +3.9% total earnings growth expected in Q2 on +0.5% higher revenues in early April.
A similar though less pronounced downward adjustment process has gotten underway for the second half of the year as well. Current expectations are total earnings growth of +5.7% (down from +7.6% in early April) in 2013 Q3 and +13.5% (down from +14.3% in early April) in Q4. For full years 2013 and 2014, total earnings are expected to be up +6.1% (down from +6.8%) and +11.3% (down from +11.5%).
The charts below show trends in earnings estimate revisions. Both charts represent the ratio of total number of upward revisions over the preceding four weeks to the total number of revisions (positive and negative). The first chart shows the current state of this ‘revisions ratio’ for 2013, while the second chart plots the ratio’s trajectory over the preceding 24 months.
Source: Zacks Data
The ratio doesn’t tell you the ‘magnitude’ of the revisions, only the direction. The ‘50%’ level is the dividing line between positive and negative trends, with readings above 50% implying more positive than negative revisions. But our analysis shows that readings between 45% and 55% don’t offer material insights into the magnitude of revisions. It is only readings above 55% and below 45% that offer bullish and bearish signals about the magnitude of earnings revisions.
Looked at that way, the aggregate 2013 revisions ratio for the S&P 500 is essentially in neutral territory. But a number of sectors do stand out. The positive revisions trend in Construction and Finance is not that surprising, but Consumer Discretionary sector’s strong showing is notable given all the macro headwinds. The positive trend in Aerospace is no less significant, particularly given the group’s supposed budget sequester exposure. Aerospace reported very strong Q1 results as well, as the ‘Earnings Scorecard’ chart above shows.
The chart below shows how the 2013 revisions ratio has evolved over time. We have featured the Technology (red line) and Construction (blue line) sectors to contrast how the aggregate picture has evolved. As you can see, the aggregate ratio has been below or at the 50% line for quite some time.
Monday - 5/13
- We will get the April Retail Sales number in the morning, with expectations of -0.4% ‘headline’ decline after an equivalent drop the month before. The ex-Autos number if expected to be up +0.3% after the -0.4% decline in March.
- A number of companies will be reporting Q1 results, but no major names.
Tuesday - 5/14
- Nothing major on the economic calendar.
- Valspar (VAL) is the only notable report in the morning, while Agilent (A) is the key report after the close.
Wednesday - 5/15
- A busy day on the economic calendar, with April PPI, Industrial Production, and May readings of the Empire State and Homebuilder sentiment index coming out.
- Deere (DE) and Macy’s (M) are the key reports in the morning, while Cisco (CSCO) reports after the close.
- The ‘magnitude’ of estimate revisions for CSCO hasn’t been that material, but the direction of revisions has been solely on the negative side. This accounts for the stock’s Zacks Rank # 4 (Sell) at present.
Thursday - 5/16
- Another busy day on economic data. In addition to weekly Jobless Claims, we will get the April CPI, Housing Starts, and the May Philly Fed surveys.
- Wal-Mart (WMT) and Kohl’s (KSS) are the key reports in the morning, while J.C. Penney (JCP) and Applied Materials (AMAT) will report after the close.
Friday - 5/10
- We will get the May Consumer Sentiment survey from the University of Michigan and the Conference Board’s April Leading Indicators reading.
- No major earnings report.
Here is a list of the 126 companies reporting this week, including 11 S&P 500 members:
|Company||Ticker||Current Qtr||Year-Ago Qtr||Last EPS Surprise %||Report Day||Time|
|7 DAYS GRP-ADR||SVN||0.11||0.06||16.67||Monday||AMC|
|ATLAS FINL HLDG||AFH||0.13||0.06||N/A||Monday||AMC|
|AUGME TECH INC||AUGT||-0.04||-0.1||-16.67||Monday||AMC|
|CHINA GREEN AGR||CGA||0.45||0.46||-3.23||Monday||BTO|
|COPA HLDGS SA-A||CPA||2.31||2.04||-9.87||Monday||BTO|
|OTC MARKETS GRP||OTCM||0.13||0.12||190||Monday||AMC||BTO|
|S&W SEED CO||SANW||-0.04||-0.2||-66.67||Monday||AMC||AMC|
|SUTOR TECH GRP||SUTR||0.05||0.03||100||Monday||AMC||AMC|
|US ENERGY CP-WY||USEG||0.01||-0.01||-200||Monday||AMC||AMC|
|BRIGUS GOLD CP||BRD||0.03||0.03||-50||Tuesday||AMC||AMC|
|CRUMBS BAKE SHP||CRMB||-0.35||-0.09||-220||Tuesday||AMC||AMC|
|PAN AMER SILVER||PAAS||0.25||0.58||2.78||Tuesday||AMC||BTO|
|PHOENIX NEW MED||FENG||0.05||0.06||100||Tuesday||AMC||AMC|
|PLUG POWER INC||PLUG||-0.14||-0.31||-37.5||Tuesday||AMC||AMC|
|PRIMO WATER CP||PRMW||-0.1||-0.14||37.5||Tuesday||AMC||AMC|
|VOXX INTL CP||VOXX||0.19||0.49||30.77||Tuesday||AMC||AMC|
|DEERE & CO||DE||2.74||2.61||17.02||Wednesday||AMC||AMC|
|ARCTIC CAT INC||ACAT||-0.4||-0.49||-2.26||Wednesday||AMC||AMC|
|COPEL-ADR PR B||ELP||0.72||0.59||18.75||Wednesday||AMC||AMC|
|JACK IN THE BOX||JACK||0.31||0.48||38.46||Wednesday||BTO|
|JINPAN INTL LTD||JST||0.04||0.24||21.05||Wednesday||BTO||AMC|
|OXFORD RES PTNR||OXF||-0.25||-0.32||-208.33||Wednesday||BTO||AMC|
|APPLD MATLS INC||AMAT||0.13||0.27||100||Thursday||BTO||AMC|
|PENNEY (:JC) INC||JCP||-1.13||-0.25||-926.32||Thursday||BTO||AMC|
|BRADY CORP CL A||BRC||0.62||0.57||-22.45||Thursday||BTO|
|BROCADE COMM SY||BRCD||0.12||0.12||30.77||Thursday||BTO||BTO|
|CHIPMOS TEC LTD||IMOS||0.13||-0.21||0||Thursday||BTO|
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