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Previewing the Q1 Earnings Season

Sheraz Mian

We are still a couple of weeks away from the end of the March quarter, but the Q1 earnings season has gotten underway already. The four S&P 500 members that have reported results like Oracle (ORCL), Adobe Systems (ADBE) and others have come out with their February fiscal quarter results, which form part of our Q1 earnings tally. We have another 8 index members reporting results this week, including bellwethers like FedEx (FDX), Nike (NKE), and Accenture (ACN) and others.

The Oracle and Adobe reports have been very strong, with both companies showing plenty of momentum in their businesses, which likely helps frame earnings expectations for the Tech sector. This week’s report from Accenture should shed further light on this key sector, the strongest stock price performer in the year-to-date period.  

These early reports notwithstanding, the reporting cycle doesn’t take the spotlight till about mid-April, as the chart below of reporting calendar for the S&P 500 index clearly shows.

This Week’s Key Reports

FedEx (FDX) – FedEx reports after the market’s close on Tuesday, March 21st, with the company expected to earn $2.65 per share on $14.98 billion in revenues, up +5.7% and +18% from the year-earlier level, respectively. The company missed expectations in the last earnings report on December 20th, which has weighed on the stock since then. The stock is down -2% since the last earnings report, underperforming the Zacks Transportation sector (up +1.3%) and the S&P 500 (up +4.8%). While FedEx’s surprise history has not been consistent, the stock always responds to the earnings report in a big way.

Nike (NKE) – Nike reports the same day as FedEx after the market’s close on Tuesday, March 21st. The company is expected to earn $0.52 per share on $8.45 billion in revenues, down -4.2% on +5.2% higher revenues from the year-earlier period, respectively. The stock responded positively to the last earnings report on December 20th, but has been a laggard over the past year (down -8.9%) relative to the Consumer Discretionary sector (up +13.8%) and the S&P 500 index (+16%). Competitive challenges from the likes of Under Armour and Adidas and the impact of problems in the retail chain on the company’s inventory situation have been the key issues in the Nike story. We should keep in mind, however, that while the Nike stock has been a laggard over the past year, Under Armour has been an even been bigger laggard.  

Accenture (ACN) – Accenture, the tech consulting firm, reports results before the market’s open on Thursday, March 23rd. The company is expected to earn $1.30 per share on $8.34 billion in revenues, down -3% on +5% higher revenues from the year-earlier period, respectively. The stock responds strongly to the earnings report – it was down in response to the last earnings report on December 21st but has done better than the S&P 500 index since the last earnings report. The key significance of the Accenture report is management’s commentary about technology spending trend, which offers read-throughs for IBM (IBM) and broader Technology space.

ConAgra (CAG), General Mills (GIS) and Micron Technology (MU) are some of the other notable reports this week.

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 +7.3% earnings growth in 2016 Q4 on +4.7%, the highest growth pace in all most two years.

Estimates for Q1 came down as the quarter 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.  

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Note: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here>>>

Here is a list of the 77 companies including 8 S&P 500 members reporting this week.

Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
ASURE SOFTWARE ASUR 0.1 -0.08 42.86% Monday BTO
DESTINATION XL DXLG 0 -0.02 16.67% Monday BTO
JAMBA INC JMBA -0.04 -0.28 -20.00% Monday BTO
MOVADO GRP INC MOV 0.18 0.4 28.17% Monday BTO
SHENANDOAH TELE SHEN -0.21 0.24 -28.57% Monday BTO
LENNAR CORP -A LEN 0.56 0.63 5.51% Tuesday BTO
GENL MILLS GIS 0.71 0.65 -3.41% Tuesday BTO
FRANCESCAS HLDG FRAN 0.37 0.36 44.44% Tuesday BTO
COCA-COLA EU PT CCE 0.46 0.53 2.78% Tuesday BTO
NEOGEN CORP NEOG 0.27 0.22 3.57% Tuesday BTO
CHEETAH MBL-ADR CMCM N/A 0.1 -66.67% Tuesday BTO
FIFTH STREET AM FSAM 0.19 0.18 33.33% Tuesday BTO
CANADIAN SOLAR CSIQ 0.22 1.05 0.00% Tuesday BTO
NIKE INC-B NKE 0.52 0.55 16.28% Tuesday AMC
FEDEX CORP FDX 2.65 2.51 -3.78% Tuesday AMC
HEALTHEQUITY HQY 0.05 0.05 11.11% Tuesday AMC
DULUTH HOLDINGS DLTH 0.33 0.37 57.14% Tuesday AMC
STEELCASE INC SCS 0.23 0.22 9.68% Tuesday AMC
AAR CORP AIR 0.38 0.26 3.57% Tuesday AMC
IMPRIMIS PHARMA IMMY -0.28 -0.53 N/A Tuesday AMC
SPARK NETWORKS LOV N/A -0.05 100.00% Tuesday AMC
PARNELL PHARMA PARNF -0.08 -0.45 -350.00% Tuesday AMC
SILVER WHEATON SLW 0.17 0.14 -13.64% Tuesday AMC
ATENTO SA ATTO 0.16 0.31 -13.04% Tuesday AMC
PETROBRAS-ADR C PBR 0.18 -0.21 33.33% Tuesday AMC
XCEL BRANDS INC XELB 0.04 0.04 -88.89% Tuesday AMC
LANDS END INC LE 0.3 0.71 -83.33% Tuesday N/A
AMAYA INC AYA 0.6 0.4 10.53% Wednesday BTO
ACUSHNET HLDGS GOLF 0.05 N/A -833.33% Wednesday BTO
EVINE LIVE INC EVLV 0 0.01 -25.00% Wednesday BTO
WINNEBAGO WGO 0.45 0.35 71.43% Wednesday BTO
ON TRACK INNOV OTIV 0 -0.03 133.33% Wednesday BTO
PERRY ELLIS INT PERY 0.6 0.35 43.75% Wednesday BTO
QIWI PLC-ADR QIWI 0.2 0.19 7.41% Wednesday BTO
TECOGEN INC TGEN N/A -0.04 125.00% Wednesday BTO
PVH CORP PVH 1.22 1.52 7.88% Wednesday AMC
FRANCO NV CP FNV 0.2 0.15 25.00% Wednesday AMC
ASCENDIS PHARMA ASND -0.61 -0.54 -14.29% Wednesday AMC
HERMAN MILLER MLHR 0.33 0.46 -1.82% Wednesday AMC
TRANSATL PETROL TAT -0.01 -0.62 -125.00% Wednesday AMC
FIVE BELOW INC FIVE 0.89 0.77 11.11% Wednesday AMC
CONAGRA BRANDS CAG 0.45 0.68 8.89% Thursday BTO
ACCENTURE PLC ACN 1.3 1.34 6.04% Thursday BTO
ADV ACCELERATOR AAAP -0.19 -0.1 -100.00% Thursday BTO
PIERIS PHARMACT PIRS -0.13 -0.07 -7.69% Thursday BTO
COMMERCIAL METL CMC 0.12 0.15 -41.18% Thursday BTO
GALMED PHARMA GLMD N/A -0.29 8.11% Thursday BTO
CANCER GENETICS CGIX -0.2 -0.48 17.86% Thursday BTO
BIOLINE RX LTD BLRX -0.08 -0.07 -14.29% Thursday BTO
HANWHA Q CELLS HQCL 0.05 0.33 138.10% Thursday BTO
SCHOLASTIC CORP SCHL -0.27 -0.06 3.65% Thursday BTO
MICRON TECH MU 0.77 -0.05 16.67% Thursday AMC
LONESTAR RESRCS LONE -0.13 N/A -512.50% Thursday AMC
CYMABAY THERAPT CBAY -0.3 -0.26 19.35% Thursday AMC
BASIC EGY SVCS BAS -1.1 -99.99 6.94% Thursday AMC
OXFORD INDS INC OXM 0.91 1.09 22.22% Thursday AMC
SHOE CARNIVAL SCVL 0.03 0.21 0.00% Thursday AMC
UPLAND SOFTWARE UPLD -0.12 -0.02 141.18% Thursday AMC
VERASTEM INC VSTM N/A -0.32 12.50% Thursday AMC
NOVABAY PHARMAC NBY -0.12 -1.26 N/A Thursday AMC
NEOVASC INC NVCN N/A -0.11 -100.00% Thursday AMC
KB HOME KBH 0.15 0.14 8.11% Thursday AMC
GAMESTOP CORP GME 2.29 2.4 4.26% Thursday AMC
SPORTSMANS WRHS SPWH 0.27 0.27 0.00% Thursday AMC
KLONDEX MINES KLDX N/A 0.05 33.33% Thursday N/A
SANCHEZ PRODUCT SPP -1.17 -19.95 N/A Friday BTO
FINISH LINE-CLA FINL 0.71 0.83 -33.33% Friday BTO
REX AMERICAN RS REX N/A 0.54 13.33% Friday BTO

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Oracle Corporation (ORCL): Free Stock Analysis Report
Nike, Inc. (NKE): Free Stock Analysis Report
Micron Technology, Inc. (MU): Free Stock Analysis Report
General Mills, Inc. (GIS): Free Stock Analysis Report
FedEx Corporation (FDX): Free Stock Analysis Report
ConAgra Foods Inc. (CAG): Free Stock Analysis Report
Adobe Systems Incorporated (ADBE): Free Stock Analysis Report
Accenture PLC (ACN): Free Stock Analysis Report
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