For Immediate Release
Chicago, IL – February 19, 2018 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Wal-Mart WMT, CVS Health CVS, Agilent A, Hewlett-Packard Enterprises HPE and Kraft-Heinz KHC.
3 Things to Know About Q4 Earnings Season
We continue to see the picture that emerged from the Q4 earnings season as not great, but it is not bad either. Results have turned out to be better than 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 lower 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 15th.
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 394 companies that have reported through Friday, February 15th, are +12.9% from the same period last year on +7.6% higher revenues. Earnings and revenue growth for the same cohort of companies had been +25.1% and +9.5% 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 394 index members that have reported results already, 66.5% are beating EPS estimates and 62.4% are beating revenue estimates. For the same cohort of companies, the proportion of positive EPS and revenue surprises was 78.4% and 62.4% in the Q3 earnings season, respectively.
The proportion of these 394 index members beating both EPS and revenue estimates is 45.7%, which compares to 52.5% for the same group of companies in the preceding reporting cycle and 12-quarter average of 53.7%.
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 5 years.
With Q4 positive surprises this hard to come by, one would reasonably assume that perhaps estimates had been too high. But we know that’s not 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 and Q2 barely positive.
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. And estimates for full-year 2019 have been coming down.
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 49 S&P 500 members. The Retail and Utilities sectors are the only ones that have a sizable number of reports still to come, and this week brings in plenty of reports from these sectors.
Tuesday, February 19th: We have 16 index members reporting results on Tuesday, of which 8 will come out before the market’s open and the rest after the close. Wal-Mart is the notable report on the Tuesday morning docket, with the retail giant expected to have flat earnings of $1.33 per share on +2.2% higher revenues of $139.3 billion.
The stock was down after the last earnings release and has struggled over the past year, lagging the broader market. Wal-Mart has made good headway in its digital strategy, but its purchase of India’s Flipkart has emerged as a headwind.
Wednesday, February 20th: We have 17 S&P 500 members reporting results on Wednesday, with CVS Health as the notable company in the morning session and Agilent after the market’s close.
Thursday, February 21st: Hewlett-Packard Enterprises and Kraft-Heinz are the more notable of the 14 index members reporting results on Thursday.
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