Earnings Enter the Final Stretch

We still have plenty of Q4 earnings reports to come, but the bulk of the earnings season is now behind us, with results from 395 S&P 500 companies already out, as of Friday, February 15. Please note that while these 395 companies account for 86.4% of the index’s total market capitalization and bring in 86.8% of all Q4 earnings.

This holiday-shortened week is the last major reporting week of the Q4 earnings season, with results from 362 companies, including 48 S&P 500 members. This includes industry leaders like Wal-Mart (WMT), Nordstrom (JWN), Abercrombie & Fitch (ANF), Safeway (SWY), Toll Brothers (TOL) and many others. By the end of this week, we will have Q4 earnings reports from 443 S&P 500 companies. The Retail sector will be the only group by the end of the week that will have more than half of its Q4 results still awaited (retailers typically have fiscal Q4 period ends in January).

The reality of the Q4 earnings season is that it has turned out to be not as bad as many of us suspected. Leaving aside anemic earnings growth, on most other metrics the fourth quarter reporting season is quite good. Not only are the ratio and magnitude of surprises better than the previous quarter and comparable to the last many, but the tone of management guidance has also been less worrisome than was the case in the third quarter reporting season.

Total earnings for the 395 S&P 500 companies that have come out with Q4 results are up 2.8% from the same period last year, with 66.6% beating expectations with a median surprise of +3.4%. Total revenues are up 1.3%, with 63% of the companies beating revenue expectations, with a median revenue surprise of +0.8%.

Excluding the Finance sector, total earnings are barely in the positive column (up 0.1%), while total revenues are up 0.3%. The composite growth rate for Q4, where we combine the reports that have come out with those still to come, is +2.2% for total earnings and up +0.6% excluding Finance.

Expectations for the coming quarters have started coming down, but they still represent a meaningful improvement from what we saw in 2012. Total earnings are expected to be down 3.2% in the first quarter, up 4% in the second quarter, +7.2% in the third quarter and +14.1% in the fourth quarter of 2013. For full years, total earnings are expected to be up +6.9% in 2013 and 11.7% in 2014.

Monday - 2/18

• No economic reports are scheduled due to the President’s Day holiday, though we do have a handful of companies reporting fourth quarter earnings today.
• Pharmacy benefits manager Express Scripts (ESRX) is the major company reporting while the markets are closed.

Tuesday - 2/19

• The February NAHB housing market index, also known as the Homebuilder Sentiment Index, comes out in the morning. The expectation for the index to increase to 48 from the previous month’s 47 level.
• Sealed Air (SEE) and Medtronic (MDT) are the only major companies reporting in the morning, Dell (DELL), Marriott (MAR), Nabors (NBR) and Herbalife (HLF) report after the close. Herbalife is in spotlight given the opposite positions in the stock by Carl Icahn and Bill Ackman.
• Zacks ESP, our proprietary leading indicator of earnings surprises, is showing Medtronic and Marriott coming out with earnings beats.

Wednesday - 2/20

• A number of key economic reports are coming out this morning, ranging from the January wholesale inflation (PPI) reading to January Housing Starts and the release of the minutes of the last FOMC meeting.
• Housing Starts are expected to give back some of the strong gains shown in December, with total Starts coming in at 918K vs. 954K in December.
• Toll Brothers (TOL), Devon Energy (DVN), Newfield Exploration (NFX) are the key reports in the morning, while Boston Beer (SAM), Cheesecake Factory (CAKE) and KBR (KBR) report after the close.
• Zacks ESP is showing Cheesecake Factory coming out with a positive earnings surprise.

Thursday - 2/21

• We have a busy day on the economic calendar, with January CPI, Existing Home Sales and Leading Indicators coming out in the morning, in addition to the weekly Jobless Claims numbers. It will be interesting to see whether last week’s sharp pullback in the Jobless Claims data reflected the East Coast snowstorm or was driven by actual improvement.
• We also have the February Philly Fed survey coming out in the morning. It will be interesting to see what the Philly Fed brings up following the strong showing from the Empire State survey.
• Hewlett-Packard (HPQ), Nordstrom (JWN), AIG (AIG) and Newmont Mining (NEM) are the major reports coming out after the market close, while Wal-Mart (WMT), Hormel Foods (HRL), Host Hotels (HST), Ensco (ESV) and Chesapeake Energy (CHK) will report in the morning.
• Zacks ESP is showing Host Hotels coming out with a positive earnings surprise.

Friday - 2/22

• Nothing on the economic calendar.
• Abercrombie & Fitch (ANF), Agrium (AGU) and the Interpublic Group (IPG) are the major reports today, all in the morning.
• Zacks ESP is showing Abercrombie & Fitch coming out with a positive earnings surprise.

Here is a list of the 362 companies reporting this week, including 48 S&P 500 members: