As Q1 Winds Down, Economic News is in the Forefront
With the Q1 earnings season effectively over and the next reporting cycle a few weeks away, earnings aren’t the focus this week. The spotlight is on the economy, with the May non-farm payroll report coming out on Friday. This jobs report isn’t expected to be as strong as the last one when 288K jobs were created.
Payback for the weak readings during the Winter months gave us a bumper jobs tally in April, while the gains this month are expected to reflect a more ‘normalized’ labor market reading. The consensus expectation is of 200K jobs gains on Friday. But with initial jobless claims now at a 7-year low, the risk to consensus estimates is to the upside.
A small number of 2014 Q1 results are still awaited, with this week’s reporting docket comprised of 52 companies coming out with results, including 5 S&P 500 members. The notable companies reporting results this week include Dollar General (DG), PVH Corp (PVH), JM Smucker (SJM), Joy Global (JOY) and others.
After this week, we will have seen Q1 results from 497 S&P 500 and will be getting ready to (officially) close the books on this reporting cycle. We will start tracking the Q2 earnings season in the second half of June with the earnings announcements from FedEx (FDX) and Oracle (ORCL).
Scorecard for 2014 Q1 (as of Friday, May 30th)
Total earnings for the 492 S&P 500 members that have reported results are up 1.3% from the same period last year, with a ‘beat ratio’ of 67.5% and a median surprise of +3.9%. Total revenues are up +2.7%, with a revenue ‘beat ratio’ of 51.6% and the median company beating top-line expectations by 0.1%.
The table below shows the current scorecard for all 16 Zacks sectors. As you can see, the earnings season has come to an end for 11 of the 16 Zacks sectors, with results from just 1.6% of the index’s total market capitalization still awaited.
The chart below shows how the earnings and revenue growth rates for Q1 thus far compare to what these same companies reported in 2013 Q4 and the 4-quarter average.
The Q1 earnings growth picture is no doubt weak. But we should keep two things in mind while evaluating this growth picture. Firstly, it wasn’t news to the market, as expectations had fallen sharply ahead of the start of the reporting season. As such, as shocking as the above picture seems to be, nobody was exactly shocked at seeing them. Secondly, the growth picture actually isn’t as bad as the above picture is making it out to be once the drag from the Finance sector (which itself is a function of weak results at Bank of America) is excluded from the aggregate results.
The comparison chart below of ex-Finance results clearly shows this.
This chart of ex-Finance growth is showing that the earnings and revenue growth rates in Q1 are roughly comparable to historical averages. Nothing exciting about that finding, but it is actually an improvement over what was expected just a couple of weeks back.
Looking at the composite Q1 picture, meaning combining the actual results from the 492 companies that have reported with estimates for the 8 still-to-come reports, total earnings are expected to be up 1.3% on +2.7% higher revenues. The table below presents the (composite) summary picture for Q1, showing the year-over-year change in total earnings, revenues and margins for all 16 Zacks sectors.
As we saw in the Q1 results, the low expectations made it easy for companies to come out ahead of them. Roughly two-thirds of the S&P 500 members beat earnings expectations every quarter any way and we are right around that level in Q1 as well. What we haven’t seen for a while is positive guidance and favorable comments from management teams about business outlook. And Q1 is largely along those same lines, causing estimates for the current period to come down, as the chart below of evolving Q2 estimates shows.
The downtrend in Q2 estimates is consistent with the trend that has been in place for almost two years now. Stocks made impressive gains over the last two years even though estimates were coming down during that time period, with the Fed QE keeping alive hopes of an eventual growth recovery. It will be interesting to see if investors will respond any differently to the coming period of negative revisions.
For a detailed look at the earnings picture, please check out our weekly Earnings Tends report.
- The May manufacturing ISM report will be coming out, with expectations for a 55.8 reading, up from April’s 54.9 level.
- Conns (CONN) is the only notable earnings release in the morning, while Krispy Kreme (KKD) will report after the close.
- We will get the April Factory Orders and May motor vehicle sales readings.
- Dollar General (DG) and G-III Apparel (GIII) will release Q1 results in the morning, while ABM Industries (ABM) will report after the close.
- A buy day on the economic calendar, with May ADP jobs and service-sector ISM and April Trade Deficit reports coming out.
- Brown Forman (BF.B) and Hovnanian Enterprises (HOV) will report Q1 results in the morning, while PVH Corp. (PVH) will report after the close.
- Weekly Jobless Claims is the only key economic reading this morning.
- Joy Global (JOY), JM Smucker (SJM) and Ciena Corp (CIEN) will report in the morning, while VeriFone Systems (PAY) will report after the close.
- Will get the May non-farm payroll report in the morning, with consensus expectations of ‘headline’ gains of 200K vs. 288K in April. The unemployment rate is expected to tick up to 6.4% from April’s 6.3% level.
Here is a list of the 52 companies reporting this week, including 5 S&P 500 members.
|Company||Ticker||Current Qtr||Year-Ago Qtr||Last EPS Surprise %||Report Day||Time|
|BROWN FORMAN B||BF.B||0.59||0.45||9.33||Wednesday||BTO|
|FIVE BELOW INC||FIVE||0.06||0.05||4.44||Wednesday||AMC|
|CHINA XINIYA FS||XNY||N/A||0.09||-50||Wednesday||AMC|
|JOY GLOBAL INC||JOY||0.7||1.73||-23.44||Thursday||BTO|
|BIO REFERNC LAB||BRLI||0.33||0.41||-21.43||Thursday||BTO|
|QUANEX BLDG PRD||NX||0.01||-0.2||-75||Thursday||BTO|
|THOR INDS INC||THO||1.11||0.82||-13.51||Thursday||AMC|
|VINCE HOLDNG CP||VNCE||0||N/A||4.55||Thursday||BTO|
ABM INDUSTRIES (ABM): Free Stock Analysis Report
BROWN FORMAN B (BF.B): Free Stock Analysis Report
CIENA CORP (CIEN): Free Stock Analysis Report
CONNS INC (CONN): Free Stock Analysis Report
DOLLAR GENERAL (DG): Free Stock Analysis Report
FEDEX CORP (FDX): Free Stock Analysis Report
G-III APPAREL (GIII): Free Stock Analysis Report
HOVNANIAN ENTRP (HOV): Free Stock Analysis Report
JOY GLOBAL INC (JOY): Free Stock Analysis Report
KRISPY KREME (KKD): Free Stock Analysis Report
ORACLE CORP (ORCL): Free Stock Analysis Report
VERIFONE SYSTMS (PAY): Free Stock Analysis Report
PVH CORP (PVH): Free Stock Analysis Report
SMUCKER JM (SJM): Free Stock Analysis Report
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