The Q1 earnings season is effectively over for most of the major sectors, with Retail as the only one that still has a number of major reports still awaited.
As such, Retail has a heavy presence in this week’s earnings reports, including industry heavyweights like Target (TGT), Home Depot (HD), Lowe’s (LOW), Gap (GPS) and Staples (SPLS). But we do have couple of bellwether operators from other sectors coming out with results this week, like Hewlett-Packard (HPQ), Salesforce.com (CRM) and Toll Brothers (TOL). In total, we will get Q1 earnings reports from 96 companies this week, including 25 S&P 500 members. By the end of this week, we will have seen Q1 results from 490 members of the S&P 500.
Total Retail sector earnings thus far are up +5.8% from the same period last year on +1.9% higher revenues. This includes strong gains at drugstore chains Walgreens (WAG) and momentum in online players in eBay (EBAY) and Priceline (PCLN). The remaining 17 retailers out of the 47 companies in our S&P 500 Retail sector are expected to see total earnings decline by -0.5% on +2.5% higher revenues. This reflects expectations of earnings declines at Target, Best Buy (BBY) and A few others.
Combining the Retail sector earnings for the 30 companies that have come out with the 17 still to come, the sector’s total earnings in Q1 should be up +4%. 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, as we saw with the Wal-Mart (WMT) report.
We continue to grade the Q1 earnings season as between ‘average’ and ‘below average’ -- it’s definitely not ‘good.’ That said, the overall level of ‘total’ quarterly earnings is at a record level, as we discuss in this video (LINK to Earnings Outlook video)
The Q1 Earnings Scorecard
Here is the summary scorecard for the 465 S&P 500 companies that have reported Q1 results, as of Friday May 17th, 2013.
Source: Zacks Data; ‘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 95.6% of the sector’s total market capitalization already out with Q1 results, total earnings for the sector are down -4.4%, with 63.5% of the sector companies beating earnings expectations (vs. the S&P 500 average of 65.4%). The revenue side for the sector isn’t that bad (up +4.5%), which goes on to spotlight the sector’s margin problems.
The composite growth rate for Q1, where we combine the results of the 465 companies that have come out with results with the 35 still to come, is for a rise of +2.2% in total earnings on -1% lower revenues. In terms of dollar earnings levels, composite earnings in Q1 total $251.6 billion, the all-time highest quarterly total.
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 +1.2% on -0.7% 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 far less pronounced downward adjustment process has gotten underway for the second half of the year as well. Consensus expectations are for 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 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 number of estimates represent totals for the 4-week period preceding 5/10/13.
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 are 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.
Source: Zacks Data; 4-week estimates totals; the latest period is four weeks preceding 5/10/13.
Monday - 5/20
- Not much on the economic calendar.
- Campbell Soup (:CPM) is the key earnings report in the morning, while Urban OutfitterS (URBN) will report after the close.
Tuesday - 5/21
- Nothing major on the economic calendar.
- Home Depot (HD), AutoZone (AZO), Best Buy (BBY) and TJX Cos (TJX) are the key earnings reports today, all in the morning.
Wednesday - 5/22
- The Fed is in the spotlight today, with Bernanke testimony in Congress and the release of the last FOMC meeting. The future of QE is in play and the market will be very interested in looking for clues. We will also be getting the April Existing Home sales data.
- Target (TGT), Lowe’s (LOW), Staples (SPLS) and Toll Brothers (:TOLL) are the key reports in the morning, while Hewlett-Packard (HPQ) and L Brands (LTD), the new name of Limited Brands, will report after the close.
Thursday - 5/23
- In addition to weekly Jobless Claims, we will get the April New Home Sales data, with expectations of a modest increase from the prior month’s 417K seasonally adjusted annualized sales pace. With respect to Jobless Claims, it will be interesting to see some follow through to the surprise jump the week before.
- Ralph Lauren (RL), Dollar Tree (DLTR) and Hormel Foods (HRL) are the key reports in the morning, while Gap (GPS), Salesforce.com (CRM) and Pandora Media (P) will report after the close.
Friday - 5/24
- We will get the April Durable Goods report before the open, with expectations of positive ‘headline’ growth after the decline in March.
- Abercrombie & Fitch (ANF), Foot Locker (FL) and Hibbett Sports (HIBB) will be reporting results, all in the morning.
Here is a list of the 96 companies reporting this week, including 25 S&P 500 members:
|Company||Ticker||Current Qtr||Year-Ago Qtr||Last EPS Surprise %||Report Day||Time|
|CHINA XINIYA FS||XNY||0.07||0.12||60||Monday||BTO|
|JA SOLAR HOLDGS||JASO||-1.01||-1||-103.9||Monday||BTO|
|KID BRANDS INC||KID||0||0.02||-14.3||Monday||AMC|
|QIHOO 360 TECH||QIHU||0.02||0.12||175||Monday||BTO|
|RAVEN INDS INC||RAVN||0.44||0.52||20||Monday||BTO|
|DICKS SPRTG GDS||DKS||0.48||0.45||-3.7||Tuesday||BTO|
|NAVIOS MARI HLD||NM||-0.21||0.09||20||Tuesday||BTO|
|RED ROBIN GOURM||RRGB||0.65||0.71||34.1||Tuesday||BTO|
|TJX COS INC NEW||TJX||0.62||0.55||1.2||Tuesday||BTO|
|AMER EAGLE OUTF||AEO||0.17||0.2||0||Wednesday||BTO|
|BOOZ ALLEN HMLT||BAH||0.35||0.43||11.1||Wednesday||BTO|
|CITI TRENDS INC||CTRN||0.56||0.69||85.7||Wednesday||BTO|
|L BRANDS INC||LTD||0.46||0.41||1.2||Wednesday||AMC|
|PAC SUNWEAR CAL||PSUN||-0.19||-0.2||-6.25||Wednesday||AMC|
|SYNERON MED LTD||ELOS||-0.11||-0.01||800||Wednesday||BTO|
|ZALE CORP NEW||ZLC||0||-0.14||-1.92||Wednesday||BTO|
|ADVANCE AUTO PT||AAP||1.61||1.79||17.33||Thursday||BTO|
|APOLLO INV CP||AINV||0.21||0.18||0||Thursday||BTO|
|CATO CORP A||CATO||1.03||1.09||-3.57||Thursday||BTO|
|DOLLAR TREE INC||DLTR||0.57||0.5||2.02||Thursday||BTO|
|HORMEL FOODS CP||HRL||0.48||0.48||-2.04||Thursday||BTO|
|MARVELL TECH GP||MRVL||0.07||0.19||50||Thursday||AMC|
|PACTERA TEC INT||PACT||0.07||0.15||-34.78||Thursday||BTO|
|PERRY ELLIS INT||PERY||0.62||0.71||4.17||Thursday||BTO|
|RALPH LAUREN CP||RL||1.3||0.99||8.6||Thursday||BTO|
|SEARS HLDG CP||SHLD||999||-0.31||-2.38||Thursday||BTO|
|SIGNET GRP PLC||SIG||1.12||0.96||1.44||Thursday||BTO|
|STEIN MART INC||SMRT||0.28||0.25||-16.67||Thursday||BTO|
|TORONTO DOM BNK||TD||1.83||1.79||1.55||Thursday||BTO|
|UQM TECH INC||UQM||-0.03||-0.04||33.33||Thursday||AMC|
|FOOT LOCKER INC||FL||0.87||0.83||-11.11||Friday||BTO|
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