U.S. Markets open in 8 hrs 1 min

Zacks Earnings Trends Highlights: Caterpillar, Honeywell and 3M

General Mills (GIS) Q2 results to be hurt by escalating input costs. Nevertheless, strategies to boost sales are encouraging.

For Immediate Release

Chicago, IL – December 13, 2018 – Zacks Director of Research Sheraz Mian says, “Total Q4 earnings for the S&P 500 index are expected to be up +12.3% from the same period last year on +5.6% higher revenues, with the growth pace meaningfully decelerating from the rate we saw in the first three quarters of the year.”

Handicapping Q4 Earnings Season

Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>

Here are the key points:

  • The Q4 earnings season has gotten underway already, but it will really get going with the January 11th releases from the big banks.
  • Total Q4 earnings for the S&P 500 index are expected to be up +12.3% from the same period last year on +5.6% higher revenues, with the growth pace meaningfully decelerating from the rate we saw in the first three quarters of the year.
  • Q4 estimates have been coming down since the quarter got underway, with the current +12.3% earnings growth expected for the period down from +15.9% at the start of the quarter.
  • The negative revisions trend is widespread, with estimates for 15 of the 16 Zacks sectors coming down since the quarter got underway. Estimates have come down the most for the Conglomerates, Construction, Energy and Consumer Discretionary sectors.
  • The Transportation sector is the only one experiencing positive estimate revisions, a reflection of weakening oil prices.
  • The strongest year-over-year earnings growth in Q4 is expected to come from the Energy, Transportation, Construction, and Retail sectors. Excluding the Finance sector’s strong growth, Q4 earnings growth for the rest of the index comes down to +10% (from +12.3%).
  • For the small-cap S&P 600 index, total Q4 earnings are expected to be up +7.2% on +6.3 higher revenues. This would follow +33.6% earnings growth on +5.7% revenue growth in Q3.
  • For full-year 2018, total earnings for the S&P 500 index are expected to be up +20.8% on +6.8% higher revenues. For full-year 2019, total earnings are expected to be up +7.9% on +5.2% higher revenues.
  • The implied ‘EPS’ for the index, calculated using current 2018 P/E of 16.7X and index close, as of December 11th, is $158.02. Using the same methodology, the index ‘EPS’ works out to $170.51 for 2019 (P/E of 15.5X) and $187.53 for 2020 (P/E of 14.1X). The multiples for 2018, 2019 and 2020 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year. 

A number of major companies provided weak guidance at the time of the Q3 earnings season, blaming factors like the impact of the strong U.S. dollar, cost inflation (particularly on the freight front) and trade tariffs. Questions about the international economic growth backdrop has emerged as an additional headwind to corporate earnings.

As a result, estimates for the December quarter as well as full-year have been coming down for operators like Caterpillar CAT, Honeywell HON, 3M MMM and others. This is showing up in the aggregate revisions trend for the index as well.

The magnitude of negative revisions that we have seen for 2018 Q4 is not unusual in a historical sense, though it is high and more widespread relative to what we have been seeing over the preceding three quarters.

The bigger issue will be how estimates for the coming quarters hold up going forward, particularly given the emerging late-cycle narrative of slowing economic growth or even a recession on the horizon. The growth pace was expected to decelerate in 2019 already as the direct benefits of the tax law changes faded.

But even these low growth expectations for the coming quarters are vulnerable to further downward revisions. In other words, it is reasonable for market participants to nurse some doubts about the current earnings backdrop.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>

Follow us on Twitter:  https://twitter.com/zacksresearch

Join us on Facebook:  https://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

support@zacks.com

https://www.zacks.com

Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
3M Company (MMM) : Free Stock Analysis Report
 
Honeywell International Inc. (HON) : Free Stock Analysis Report
 
Caterpillar Inc. (CAT) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research