The Last Earnings Trickle In

Zacks

The Last Earnings Trickle In

The bulk of the Q3 earnings season is now behind us, with results from 463 S&P 500 members, or 92.6% of the index’s total membership, already known. There are still plenty of reports to come, particularly from the Retail sector, with Target (TGT), Gap (GPS), Home Depot (HD), and Best Buy (BBY) on deck for releases this week. Including these retailers and companies from other sectors, we will get reports from more than 89 companies this week, including 26 S&P 500 members. By the end of this week, we will have seen Q3 results from 489 of the S&P 500 members.

Our overall verdict on the Q3 earnings season is favorable, particularly relative to the last few quarters. 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 focus this week has taken added significance given the broadly underwhelming outlook for the holiday season that emerged from Wal-Mart (WMT). It will be interesting to see if Target will further validate what we heard from Wal-Mart, but consumer spending growth did decelerate in Q3. We saw in the recent Q3 GDP report that 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, 11/15/2013)

Total earnings for the 463 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 43.4% are beating top-line expectations. The table below shows the current earnings scorecard.

 

 

This is better performance than what this same group of 463 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 -2.3% 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 92.5% 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 -8.7% 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 (69% 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 463 that have reported with estimates for the remaining 37, is for growth of +4.9% on +3.0% higher revenues. This compares to +3.7% earnings growth in Q2 on 1.9% revenues.

Only five of the 16 Zacks sectors are expected to have double-digit earnings growth in Q3 – Consumer Discretionary (11.6%), Construction (+34.6%), 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 -2.3% in total earnings on +1.0% 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.


Monday-11/18

  • Not much on the economic calendar today, except for the NAHB’s Housing Market Index, which comes out after the market’s open. This index tracks homebuilder sentiment and is expected to have modestly increased from October’s 55 level.
  • Tyson Foods (TSN) is the only notable report in the morning, Salesforce.com (CRM) and Urban Outfitter (URBN) will report after the close.
  • Zacks Earnings ESP or Expected Surprise Prediction, our proprietary leading indicator of earnings surprises, is showing Tyson Foods beating EPS estimates. Tyson has Zacks Rank #3 (Hold) and Earnings ESP of +0.5%. Our research shows that companies with Zacks Rank of 3 or better (meaning Zacks Rank or 1, 2 or 3), when coupled with a positive Earnings ESP are highly likely to come out a positive earnings surprise.
  • To understand more about Zacks Earnings ESP, please click here.


Tuesday -11/19

  • Nothing major on the economic docket, but we have a number of major retailers reporting results this morning, including Best Buy (BBY), Home Depot (HD) and TJX Companies (TJX).
  • Earnings ESP is showing Best Buy beating EPS estimates. Best Buy has Zacks Rank #2 (Buy) and Earnings ESP of +2.5%.

Wednesday-11/20

  • A busy day on the economic calendar, with October Retail sales, CPI and Existing Home sales numbers coming out. Also coming out this afternoon are the minutes of the Fed’s last meeting.
  • Deere & Co. (DE), Lowe’s (LOW), J.C. Penney (JCP) are the key earnings reports in the morning, while Green Mountain Coffee (GMCR) will report after the close.

Thursday -11/21

  • Weekly Jobless Claims, October PPI and Leading Indicators, and the November Philly Fed manufacturing survey will be coming out today.
  • Target (TGT), Dollar Tree (DLTR), and Abercrombie & Fitch (ANF) are the key reports in the morning, while Gap (GPS) and Pandora (P) will report after the close.

Friday-11/22

  • Not much on the economic calendar, but we will get earnings reports from PetSmart (PETM), Foot Locker (FL) and Hibbett Sports (HIBB).


Here is a list of the 89 companies reporting this week, including 26 S&P 500 members:
 

Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
JACOBS ENGIN GR JEC 0.87 0.8 -1.19 Monday AMC
SALESFORCE.COM CRM -0.04 -0.1 -125 Monday AMC
TYSON FOODS A TSN 0.69 0.55 16.95 Monday BTO
URBAN OUTFITTER URBN 0.45 0.4 6.25 Monday AMC
ACTIVE POWER ACPW -0.13 -0.05 200 Monday AMC
AMERIGAS PARTNR APU -0.46 -0.44 2.27 Monday AMC
BROCADE COMM SY BRCD 0.14 0.12 66.67 Monday AMC
CHINACACHE INTL CCIH -0.04 0.02 900 Monday AMC
CHIPMOS TEC LTD IMOS 0.39 0.45 33.33 Monday BTO
JINKOSOLAR HLDG JKS 0.35 -0.3 900 Monday BTO
MAZOR ROBOTICS MZOR -0.09 -0.03 76.19 Monday BTO
NOAH HLDGS LTD NOAH 0.25 0.14 52.94 Monday AMC
SEMTECH CORP SMTC 0.27 0.45 12.2 Monday AMC
SPECTRASCIENCE SCIE -0.01 -0.01 N/A Monday AMC
UGI CORP UGI -0.1 -0.09 160 Monday AMC
BEST BUY BBY 0.11 0.03 166.67 Tuesday BTO
CAMPBELL SOUP CPB 0.87 0.88 7.14 Tuesday BTO
HOME DEPOT HD 0.89 0.74 3.33 Tuesday BTO
MEDTRONIC MDT 0.9 0.88 0 Tuesday BTO
TJX COS INC NEW TJX 0.74 0.62 4.76 Tuesday BTO
AMERICAS CAR-MT CRMT 0.83 0.76 -15.05 Tuesday AMC
AUTONAVI HL-ADR AMAP -0.05 0.2 -33.33 Tuesday BTO
DAKTRONICS INC DAKT 0.22 0.27 18.18 Tuesday BTO
DATAWATCH CORP DWCH -0.21 0.04 N/A Tuesday AMC
DIANA SHIPPING DSX -0.06 0.15 0 Tuesday BTO
DICKS SPRTG GDS DKS 0.39 0.4 -4.05 Tuesday BTO
GLADSTONE CAPTL GLAD 0.2 0.22 5 Tuesday AMC
LA-Z-BOY INC LZB 0.26 0.15 20 Tuesday AMC
MOBILE TELE-ADR MBT 0.4 0.64 73.33 Tuesday BTO
OCULUS INNOVATV OCLS -0.15 -0.35 19.23 Tuesday AMC
SOC QUIMICA MIN SQM 0.51 0.63 -34.92 Tuesday AMC
TRINA SOLAR LTD TSL -0.18 -0.62 25 Tuesday BTO
VALSPAR CORP VAL 0.91 0.86 -3.6 Tuesday BTO
XUEDA EDUC-ADR XUE 0.01 -0.05 13.04 Tuesday AMC
ADT CORP ADT 0.46 0.43 23.26 Wednesday BTO
DEERE & CO DE 1.89 1.75 18.52 Wednesday BTO
L BRANDS INC LTD 0.28 0.26 1.67 Wednesday AMC
LOWES COS LOW 0.48 0.4 10 Wednesday BTO
PENNEY (:JC) INC JCP -1.86 -0.93 -91.15 Wednesday BTO
SMUCKER JM SJM 1.59 1.45 3.33 Wednesday BTO
STAPLES INC SPLS 0.42 0.46 -5.56 Wednesday BTO
BAZAARVOICE INC BV -0.12 -0.12 44.44 Wednesday AMC
CHINA DISTANCE DL 0.22 0.11 0 Wednesday AMC
CHINA XINIYA FS XNY 0.04 0.16 400 Wednesday BTO
GREEN MTN COFFE GMCR 0.75 0.64 5.13 Wednesday AMC
JACK IN THE BOX JACK 0.4 0.27 7.89 Wednesday AMC
JIAYUAN.COM INT DATE 0.07 0.08 16.67 Wednesday AMC
NORTHERN TECH NTIC 0.35 0.1 31.25 Wednesday BTO
PLANAR SYSTEMS PLNR -0.01 -0.13 40 Wednesday AMC
STANDARD PKG CP STAN 0.24 0.29 35.29 Wednesday AMC
VALUEVISION MDA VVTV 0 -0.08 -200 Wednesday AMC
WILLIAMS-SONOMA WSM 0.54 0.49 4.26 Wednesday AMC
ABERCROMBIE ANF 0.44 0.87 -42.86 Thursday BTO
AUTODESK INC ADSK 0.27 0.28 12.9 Thursday AMC
DOLLAR TREE INC DLTR 0.6 0.51 -1.75 Thursday BTO
GAMESTOP CORP GME 0.58 0.38 125 Thursday BTO
GAP INC GPS 0.71 0.63 0 Thursday AMC
INTUIT INC INTU -0.2 -0.17 -22.22 Thursday AMC
PATTERSON COS PDCO 0.48 0.44 -6.25 Thursday BTO
ROSS STORES ROST 0.8 0.72 5.38 Thursday AMC
TARGET CORP TGT 0.62 0.9 22.68 Thursday BTO
ARUBA NETWORKS ARUN -0.01 0.01 -800 Thursday AMC
BERRY PLASTICS BERY 0.24 0.34 -5.41 Thursday AMC
BON-TON STORES BONT -0.5 -0.53 -2.34 Thursday BTO
BRADY CORP CL A BRC 0.48 0.59 6 Thursday BTO
BUCKLE INC BKE 0.9 0.88 0 Thursday BTO
CATO CORP A CATO 0.14 0.16 6.25 Thursday BTO
CYBERONICS INC CYBX 0.49 0.44 4.35 Thursday BTO
DONALDSON CO DCI 0.39 0.36 8.89 Thursday BTO
FRESH MARKET TFM 0.26 0.23 0 Thursday AMC
GILDAN ACTVWEAR GIL 0.84 0.8 1.06 Thursday BTO
KIRKLANDS INC KIRK 0.02 -0.02 70 Thursday BTO
LIQUIDITY SVCS LQDT 0.41 0.34 2.63 Thursday BTO
MARVELL TECH GP MRVL 0.17 0.14 15.38 Thursday AMC
MENTOR GRAPHICS MENT 0.13 0.27 118.18 Thursday AMC
NATURAL GROCERS NGVC 0.1 0.05 -7.14 Thursday AMC
PANDORA MEDIA P 0.01 0.01 0 Thursday AMC
RAVEN INDS INC RAVN 0.3 0.3 -14.81 Thursday BTO
SPECTRUM BRANDS SPB 0.85 0.5 -17.43 Thursday BTO
SPLUNK INC SPLK -0.12 -0.06 -18.18 Thursday AMC
STAGE STORES SSI -0.24 -0.28 -10.87 Thursday BTO
TAOMEE HOLDINGS TAOM 0.01 0.05 0 Thursday BTO
WESCO AIRCRAFT WAIR 0.32 0.28 0 Thursday AMC
PETSMART INC PETM 0.86 0.75 3.49 Friday BTO
ANN INC ANN 0.87 0.76 16.92 Friday BTO
DESTINATION XL DXLG -0.09 -0.03 400 Friday BTO
FOOT LOCKER INC FL 0.66 0.63 -4.17 Friday BTO
HIBBET SPORTS HIBB 0.65 0.71 5.26 Friday BTO
SIRONA DENTAL SIRO 0.8 0.71 0 Friday BTO

APPLE INC (AAPL): Free Stock Analysis Report
AMAZON.COM INC (AMZN): Free Stock Analysis Report
BEST BUY (BBY): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
DOW CHEMICAL (DOW): Free Stock Analysis Report
GAP INC (GPS): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis Report
HOME DEPOT (HD): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report


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