For Immediate Release
Chicago, IL – February 11, 2018 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Under Armour UAA, Activision Blizzard ATVI, Nike NKE, Groupon GRPN and Cisco CSCO.
Earnings Growth Deceleration Details
The picture emerging from the Q4 earnings season is not great, but it is not as bad either as many in the market had feared ahead of the start of this earnings season.
We knew that the period of very strong growth was now behind us. But the steady negative revisions to earnings estimates for the current and coming quarters have left growth expectations for the first half of 2019 barely in positive territory. This negative revisions trend is a function of uncertainty about global economic growth, with a host of leading companies in different industries citing weakness in China, Europe and elsewhere as the driver of weak guidance.
We will share the current scorecard and what’s on deck this week a little later, but let’s first point out the key trends that we have seen from the Q4 results through Friday, February 8th.
First, growth is decelerating. This isn’t a surprise, as we knew already that Q4 growth would be materially below the pace set in the first three quarters of the year.
Total earnings for the 332 companies that have reported are up +13.4% from the same period last year on +7.2% higher revenues. Earnings and revenue growth for the same cohort of companies had been +24.3% and +9.7% in the preceding earnings season, respectively.
The growth pace is on track to decelerate even further in the current and coming quarters, as we will show a little later.
Second, companies appear to be struggling to beat consensus EPS estimates.
For the 332 index members that have reported results already, 67.2% are beating EPS estimates and only 62% are beating revenue estimates. For the same cohort of companies, the proportion of positive EPS and revenue surprises was 78.6% and 60.8% in the Q3 earnings season, respectively.
The proportion of these 332 index members beating both EPS and revenue estimates is 46.7%, which compares to 50.9% for the same group of companies in the preceding reporting cycle and 12-quarter average of 53.9%.
The revenue beats percentage is on the weak side relative to historical periods, but the lag on the EPS beats percentage side is particularly noteworthy. The fact is that the Q4 EPS beats percentage is the lowest in more than 3 years.
With Q4 positive surprises this hard to come by, one would reasonably assume that perhaps estimates had been too high. We know that wasn’t the case as estimates for the quarter had fallen the most of any other recent periods.
Third, estimates for 2019 Q1 and full-year 2019 are coming down in a major way, with the Q1 growth rate now in negative territory.
Negative revisions to 2019 Q1 estimates are along the same lines that we saw ahead of the start of the Q4 earnings season as well. Estimates for full-year 2019 have been coming down as well. Estimates were effectively unchanged during the September quarter, but they have been on a consistent downtrend since early October. Many in the market suspect that estimates have further to drop before stabilizing.
Key Earnings Reports This Week
We have more than 400 companies coming out with quarterly reports this week, including 63 S&P 500 members.
Tuesday, February 12th: We have 15 index members reporting results on Tuesday, of which 9 will come out before the market’s open and the rest after the market’s close. There is no shortage of big-name reporters today, but Under Armour will be the notable report in the morning session and Activision Blizzard after the market’s close. Under Armour shares jumped following the Q3 earnings release on October 30th and even though the stock has since lost ground, it is still up big over the past year, up +57.3% vs. +31.3% gain for Nike and +5.1% gain for the S&P 500 index.
Activision Blizzard and other game publishers have been struggling lately, with Epic Games’ Fortnight stealing their thunder. While estimates for the December quarter have been stable, the same for full-year have been steadily coming down. The stock is down -34% over the past year, lagging its industry’s -25.3% decline over the same time period.
Groupon is another notable company reporting after the close on Tuesday.
Wednesday, February 6th: We have 21 S&P 500 members reporting results on Wednesday, with Cisco as the more prominent company reporting after the market’s close. Cisco shares have outperformed the Tech sector as well as the broader market in the last 12 months, with the networking giant up +21.3% vs. +4% gain for the Zacks Tech sector. The stock typically responds in a major way to quarterly releases; it was up following the last two quarterly reports.
Q4 Earnings Season Scorecard(as of Feb 8th, 2019)
We now have Q4 results from 332 S&P 500 members that combined account for 78% of the index’s total market capitalization. Total earnings for these 332 index members are up +13.4% from the same period last year on +7.2% higher revenues, with 67.2% beating EPS estimates and 62% beating revenue estimates.
For Q4 as a whole, combining the actual results from the 332 index members that have reported with estimates for the still-to-come 168 companies, total earnings for the S&P 500 index are expected to be up +13.7% from the same period last year on +6.2% higher revenues, which would follow the +25.7% earnings growth on +8.5% higher revenues in 2018 Q3.
Earnings growth is expected to be in double digits for 8 of the 16 Zacks sectors, with Energy (+100.3% growth), Finance (+16.1%), Construction (+21.8%) and Transportation (+29.3%) as the strongest growth. Tech sector earnings are track to decelerate meaningfully in Q4, up +7.7%, after back-to-back quarters of very strong growth.
Four sectors are expected to have lower earnings in Q4 relative to the year-earlier period, namely Conglomerates (-7.4% decline), Autos (-9.8%), Utilities (-7.8%) and Basic Materials (-0.7%)
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