Earnings Preview – Week of October 8

Q3 Earnings Season Gets Underway

Alcoa’s (AA) release after the close on Tuesday will ‘unofficially’ kick-off the third reporting season, even though ‘officially’ results have been trickling in since last month. Even though companies like FedEx (FDX), Nike (NKE), Oracle (ORCL) and quite a few others have already reported third quarter results, Alcoa’s report is typically considered as kick-starting the quarterly reporting cycle.

Alcoa’s first-to-report status notwithstanding, we have third-quarter results from 24 companies in the S&P 500 (as of Friday, October 5th). Though admittedly in the very early going at this stage, the picture emerging from these 24 results doesn’t paint a very inspiring picture.

Total earnings are down 4.7% from the same period last year and only 41.7% of the companies beat earnings expectations. This is a weaker performance than what these same companies did in each of the last five quarters. Performance on the revenue side is surprisingly not that bad for these 24 companies, with total revenues up 1.2% from the same period last year and 11 coming ahead of revenue expectations.

But the big story on the earnings front is not what has come out already, but rather what’s in store from the 476 companies still to report results. We have 9 S&P 500 companies reporting results this week, which includes, besides Alcoa, Yum! Brands (YUM), Costco (COST), JP Morgan (JPM) and Wells Fargo (WFC). Total earnings for these 476 companies are expected to drop 3.4% from the same period last year, with revenues declining 2.3%.

The actual growth rates will most likely be better than these expectations, given how company managements have refined the art of under-promising and over-delivering quarter after quarter. Just to give you an idea of how good they are at anchoring expectations, roughly two-thirds of the companies in the S&P 500 would typically beat earnings expectations in any given quarter – it was 62% in the second quarter and 65% in the first quarter.

If we do get negative earnings growth this quarter as currently expected, that will be the first decline in quarterly earnings since the earnings recovery got underway after the end of the Great Recession in 2009. The earnings weakness is quite broad-based, with half of the 16 Zacks sectors expected to have negative earnings growth.

As was the case in the second quarter, the Energy and Basic Material sectors are the weakest, with earnings declines of 23.5% and 25.5%, respectively. Energy and Basic Materials earnings were down 16% and 20.5% respectively in the second quarter, when total earnings for the S&P 500 as a whole were up 4%.

Only two sectors are expected to have double-digit earnings growth – Finance (up 17.3%) and Construction (up 37.6%). Construction doesn’t carry much weight in the aggregate picture as it contributes less than 0.5% of total S&P 500 earnings, but the Finance strength is making the aggregate growth rate look a lot better than it otherwise would be. Excluding Finance, total S&P 500 earnings in the third quarter would be down 7.1%.

Monday - 10/8

• Nothing major on the economic or earnings calendars today.

Tuesday - 10/9

• We will get results from Alcoa (AA) and Yum! Brands (YUM) after the close. Given Yum’s outsized China exposure, it will be interesting to hear to what they have to say about the growth outlook for that key market.

Wednesday - 10/10

• We will get the Fed’s Beige Book report in the afternoon.
• Costco (COST) and Progressive Corp (PGR) will report in the morning, while Ruby Tuesday (RT) will report after the close.

Thursday - 10/11

• Weekly Jobless Claims will be coming out this morning. It will be interesting to see if the jobless claims numbers will build on the preceding week’s favorable momentum.
• Safeway (SWY) and Fastenal (FAST) are the key earnings reports in the morning.

Friday - 10/12

• We will get the September Producer Price Index (PPI) in the morning and the preliminary Michigan sentiment survey after the market opens.
• JP Morgan (JPM) and Wells Fargo (WFC) will be reporting in the morning.

Here is a list of the 34 companies reporting this week:

Company	Ticker	Current Qtr	Year-Ago Qtr	Last EPS Surprise %	Report Day	Time
TORTOISE CAP RS	TTO	0.96	-0.07	-120	Monday	BTO
ANGIODYNAMICS	ANGO	0.09	0.08	11.11	Monday	AMC
E2OPEN INC	EOPN	-0.06	999	N/A	Monday	N/A
YUM! BRANDS INC	YUM	0.97	0.83	-4.29	Tuesday	AMC
GIVEN IMAGING	GIVN	0.17	0.13	6.67	Tuesday	AMC
MISTRAS GROUP	MG	0.14	0.11	-16.67	Tuesday	AMC
ALCOA INC	AA	0	0.14	0	Tuesday	AMC
EXFO INC	EXFO	-0.09	0.03	-200	Tuesday	AMC
COSTCO WHOLE CP	COST	1.3	1.08	0	Wednesday	BTO
HELEN OF TROY	HELE	0.86	0.74	-15.91	Wednesday	BTO
PROGRESSIVE COR	PGR	0.26	0.24	-25.93	Wednesday	BTO
HOST HOTEL&RSRT	HST	0.21	0.16	3.03	Wednesday	BTO
MATERIAL SCI CP	MASC	0.2	0.29	58.33	Wednesday	BTO
ADTRAN INC	ADTN	0.17	0.56	0	Wednesday	BTO
MISSION WEST	MSW	0.13	0.13	-21.43	Wednesday	AMC
VOXX INTL CP	VOXX	0.13	0.16	7.69	Wednesday	AMC
RICHARDSON ELEC	RELL	0.06	0.05	100	Wednesday	AMC
RUBY TUESDAY	RT	0.06	0.05	-16	Wednesday	AMC
AUGME TECH INC	AUGT	-0.06	-0.08	0	Wednesday	BTO
OCZ TECHNOLOGY	OCZ	-0.18	-0.04	-46.15	Wednesday	AMC
HUNT (JB) TRANS	JBHT	0.67	0.57	0	Thursday	AMC
BANK OZARKS	OZRK	0.55	0.57	5.77	Thursday	AMC
SAFEWAY INC	SWY	0.43	0.38	2.04	Thursday	BTO
FASTENAL	FAST	0.37	0.33	2.7	Thursday	BTO
ZEP INC	ZEP	0.35	0.24	5.41	Thursday	N/A
WINNEBAGO	WGO	0.17	0.12	8.33	Thursday	BTO
API TECH CORP	ATNY	-0.01	-0.04	80	Thursday	BTO
JPMORGAN CHASE	JPM	1.2	1.02	55.13	Friday	BTO
WELLS FARGO-NEW	WFC	0.87	0.72	1.23	Friday	BTO
INFOSYS LTD	INFY	0.74	0.72	0	Friday	BTO
WEBSTER FINL CP	WBS	0.45	0.45	0	Friday	BTO
IGATE CORP	IGTE	0.34	0.14	-40.74	Friday	BTO
KMG CHEMICALS	KMG	0.33	0.1	0	Friday	BTO
DIAMONDROCK HOS	DRH	0.19	0.16	0	Friday	BTO