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Zacks Earnings Preview: Google, Intel, Union Pacific, CSX and AIG

Zacks Equity Research

For Immediate Release

Chicago, IL – April 15, 2013– Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Google (GOOG), Intel (INTC), Union Pacific (UNP), CSX Corp (CSX) and AIG (AIG).

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Make-or-Break Week for Earnings Season

From Google (GOOG), Intel (INTC) and others in the Technology sector to Transportation bellwethers like Union Pacific (UNP) and CSX Corp (CSX) and much more in between, this week’s reports span the full spectrum of the economy. As such, it wouldn’t be unfair to characterize this as the make-or-break week for Q1 earnings season. The trends established this week will likely carry through the rest of this reporting cycle with only minor changes.

Evaluating the 31 S&P 500 results that we have seen already provides a bit of a mixed picture. Earnings and revenue growth for these 31 companies are a bit weaker than what these same companies achieved in 2012 Q4. But the beat ratios (% of companies coming out with positive surprises) are modestly better on the earnings side and bit lower on the revenue side. It is hard to see a trend from these reports, but with 94% of the reports still to come, the more important story on the earnings front pertains to expectations from the coming reports.

J.P. Morgan and Wells Fargo achieved earnings growth of 25% and 16%, respectively. But total earnings for the rest of the Finance sector are expected to be down -6.4% from the same period last year, with tough comparisons at Bank of America and AIG (AIG)

J.P. Morgan’s strong investment banking results are a good omen for Goldman Sachs and Morgan Stanley, which has partly been showing up in upward earnings estimate revisions for Goldman. The composite picture for the Finance sector, combining the results that have come out with those still to come, is for earnings decline of -1.6% from the same period last year, an improvement from what was expected before the JPM/WFC results (-3.8%).

The aggregate earnings picture for the 471 S&P 500 reports still to come is for earnings decline of -3.5%, which compares to +1.1% earnings growth for the same group of companies in the preceding quarter. The composite view is showing total earnings decline of -1.6% on -0.5% drop in revenues. This compares to +2% total earnings growth in 2012 Q4 on roughly equivalent revenue gains.

My sense is that if this earnings season turns out to be along the lines of what we saw in the last two reporting seasons, then it wouldn’t change the market’s recent trajectory. But how were the last couple of earnings seasons? They were ‘OK’ -- neither good nor bad.

The recent ‘norm’ has been that about two-thirds of the companies would beat expectations, earnings and revenue growth would be essentially non-existent and the overall tone of guidance would be on the weak side. If we see a repeat performance, then estimates for Q2 (currently for up +3.5%) will come down, but estimates for Q3 (currently at +7.5%) and Q4 (currently at +14.5%) will hold up.

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