U.S. Markets closed

Handicapping the Q1 Earnings Season

Sheraz Mian

The Q1 earnings season has gotten underway with earnings reports from 17 S&P 500 members already out. All of these initial Q1 earnings reports are from companies that have their fiscal quarters ending in February, which form part of our Q1 earnings tally. The results thus far are tracking better than what we have been seeing from this same group of 17 index members, but it’s premature to draw any firm conclusions from the unrepresentative sample at this stage.

The chart below shows the weekly reporting calendar for the S&P 500 index, with this week bringing in results from 6 index members. As you can see, we are about two weeks away from a real ramp up in the reporting cycle.




This Week’s Key Reports include:

Acuity Brands (AYI) – Acuity Brands, the maker and distributor of lighting fixtures, reports results before the market’s open on Tuesday, April 4th, with the company expected to earn $1.70 per share on $825 million in revenues. Acuity shares have struggled lately, with the stock losing ground following each of the last two quarterly earnings releases. Estimates have been coming down in the run up the Q1 earnings release, with the current $1.70 per share estimate down from $1.99 per share three months ago. The stock is down -11.4% in the year-to-date period, underperforming the Zacks Construction sector (up +7.8%) and the S&P 500 index (up +5.7%).

Monsanto (MON) – Monsanto reports results before the market’s open on Wednesday, April 5th, with company expected to earn $2.76 per share on $4.82 billion in revenues, up +14.1% and +6.3% from the year-earlier period, respectively. The stock has been a strong performer lately, up +8% this year on a steadily improving earnings outlook, outperforming the Zacks Basic Materials sector (up +7.1%) and the S&P 500 Index (+5.7%) in the same time period. The stock was up following positive surprises in each of the last three quarters. The revisions trend has been positive, with the current $2.76 per share EPS estimate for Q1 up +10.8% over the last three months.

Constellation Brands (STZ) – Spirits maker Constellation Brands reports results on Thursday, April 6th. The company is expected to earn $1.37 per share on $1.59 billion in revenues, up +14.9% and +2.8% from the year-earlier period, respectively. The stock was down following the last earnings release when it beat on the top- and bottom-lines, but guided lower. Year to date, the stock is up +6.1% vs. +7% gain for the Zacks Consumer Staples sector.

Other notable reports this week include Walgreens-Boots (WBA) on Wednesday, CarMax (KMX) on Thursday and Schnitzer Steel (SCHN) on Thursday.

Expectations for Q1

Total Q1 earnings are expected to be up +6.5% from the same period last year on +6.4% higher revenues. This would follow +7.4% earnings growth in 2016 Q4 on +4.7%, the highest growth pace in all most two years.

Estimates for Q1 have come down as the quarter has unfolded, with the current +6.5% growth down from +10.4% at the end of December. The chart below shows how Q1 earnings growth expectations have evolved over the last three months.

Please note that while Q1 estimates have followed well traversed path that we have been seeing consistently over the last few years, the magnitude of negative revisions compares favorably to other periods, particularly in the first half of last year and all of 2015. In other words, Q1 estimates have come down, but they haven’t come down by as much.

The table below shows the summary picture for Q1, contrasted with what was actually achieved in Q4.

Please note that the Q1 earnings season would follow the strong showing on the earnings front in the preceding reporting cycle. Not only did 2016 Q4 growth reach the highest in two years, but total earnings for the quarter also reached a new quarterly record. The strong Q4 performance came after the first positive earnings growth in 2016 Q3, having declined in each of the preceding 5 quarters, as the chart below of year-over-year earnings growth for the S&P 500 index shows.








Expectations Beyond Q1

The chart below shows the Q1 earnings growth contrasted with what is expected in the following three quarters and actual results in the preceding 5 quarters. As you can see in the chart below, the growth pace is expected to ramp up in 2017.


The market is reflecting this improved earnings backdrop as the chart below of the S&P 500 relative to forward 12-month Zacks Consensus estimates shows.

Please note that the earnings backdrop has not changed in any meaningful way since the November elections, notwithstanding the market’s strong gains since then. The only exception to this comment is the Finance sector whose earnings outlook has improved as a result of the uptrend in interest rates since November 8th. It is reasonable to expect that earnings estimates will move favorably once the new administration’s growth-friendly policies get enacted. For now, however, estimates are following the long-established trend of coming down.  

Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks.com and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.

Our Best Private Investment Ideas

If you’d like to see specific recommendations to capitalize on current market conditions, there is a way you can follow all Zacks' private buys and sells in real time. Our experts cover everything from earnings surprises and insider buys to stocks under $10 and ETFs. Starting today, for the next month, you can have unrestricted access to all of our exclusive portfolios. Click here for Zacks' private trades >>

Here is a list of 23 companies including 6 S&P 500 members reporting this week.


Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
ASCENDIS PHARMA ASND -0.64 -0.9 9.84% Monday AMC
ACUITY BRANDS AYI 1.7 1.7 -8.74% Tuesday BTO
CONNS INC CONN -0.11 0.11 57.89% Tuesday BTO
INTL SPEEDWAY ISCA 0.48 0.44 -7.69% Tuesday BTO
LANDEC CORP LNDC 0.18 0.01 -16.67% Tuesday AMC
SCHULMAN(A) INC SHLM 0.3 0.31 4.26% Tuesday AMC
MONSANTO CO-NEW MON 2.76 2.42 800.00% Wednesday BTO
WALGREENS BAI WBA 1.36 1.31 0.92% Wednesday BTO
GREENBRIER COS GBX 0.84 1.41 -5.95% Wednesday BTO
BED BATH&BEYOND BBBY 1.77 1.85 -15.00% Wednesday AMC
8POINT3 ENERGY CAFD -0.18 0.27 -9.52% Wednesday AMC
RESOURCES CNCTN RECN 0.14 0.16 -5.26% Wednesday AMC
YUM CHINA HLDGS YUMC 0.35 N/A 41.67% Wednesday AMC
MITCHAM INDS MIND -0.41 -0.63 -63.16% Wednesday AMC
CARMAX GP (CC) KMX 0.79 0.74 1.41% Thursday BTO
CONSTELLATN BRD STZ 1.37 1.19 13.95% Thursday BTO
RPM INTL INC RPM 0.11 0.14 -13.33% Thursday BTO
MSC INDL DIRECT MSM 0.9 0.8 2.15% Thursday BTO
LAMB WESTON HLD LW 0.54 N/A 14.55% Thursday BTO
FREDS INC FRED -0.19 0.07 -58.82% Thursday BTO
SCHNITZER STEEL SCHN 0.36 -0.25 25.00% Thursday BTO
WD 40 CO WDFC 0.9 0.94 -5.75% Thursday AMC
PRICESMART INC PSMT 0.86 0.85 5.13% Thursday AMC

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Walgreens Boots Alliance, Inc. (WBA): Free Stock Analysis Report
Constellation Brands Inc (STZ): Free Stock Analysis Report
Schnitzer Steel Industries, Inc. (SCHN): Free Stock Analysis Report
Monsanto Company (MON): Free Stock Analysis Report
CarMax Inc (KMX): Free Stock Analysis Report
Acuity Brands Inc (AYI): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research