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Earnings Preview

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The Q1 earnings season is over for most of the major sectors, with the Retail sector as the only one that has a significant number of reports still awaited.  

As such, Retail has a heavy presence in this week’s earnings reports, including industry heavyweights like Wal-Mart (WMT - Analyst Report), Macy’s (M - Analyst Report) and Nordstrom (JWN - Analyst Report). But we do have couple of bellwether operators coming out with results this week from other sectors, like Cisco (CSCO - Analyst Report) and Deere & Co. (DE - Analyst Report). In total, we will get Q1 earnings reports from 127 companies this week, including 11 S&P 500 members.

Total Retail thus far are up +11.2% from the period last year, on 2.6% higher revenues. This includes strong gains at drugstore chains Walgreens (WAG - Analyst Report) and momentum in online players in eBay (EBAY - Analyst Report) and Priceline (PCLN). The remaining 22 retailers out of the 47 companies in our S&P 500 Retail sector are expected to see total earnings decline by -2.9% on +2.7% higher revenues. This reflects expectations of flat earnings growth for Wal-Mart and earnings decline for Target (TGT - Analyst Report) and few others.

Combining the Retail sector earnings for the 25 companies that have come out with the 22 still to come, the sector’s total earnings in Q1 should be up +3.6%. This compares to earnings growth rates of +8.1% and +6.1% in 2012 Q4 and Q3, respectively. April same-store sales data for the sector has generally been on the soft side, with industry players citing colder temperatures in April as a reason for light traffic. But it could very well be that the payroll tax changes in January are finally starting to have an effect      
We continue to grade the Q1 earnings season as between ‘average’ and ‘below average’ – it’s definitely neither ‘good’ nor ‘bad’ not materially different from what we have been seeing over the last few earnings seasons. That said, the overall level of ‘total’ quarterly earnings is at a record level, as we discuss in this video.

The Q1 Earnings Scorecard

Here is the summary scorecard for the 453 S&P 500 companies that have reported Q1 results, as of Friday May 10th, 2013.


 
Note: ‘Beat Ratio’ is the percentage of companies coming out with positive surprises; ‘Median Surp’ is the median % surprise.

As you can see, the earnings season has come to an end for 9 of the 16 sectors and except for Retail, the other sectors are close to or more than 90% done as well. A couple of things stand out in the Q1 results: the pronounced negative revenue surprises and the weakness in the Technology sector.  

The Technology sector’s growth rates and ‘beat ratios’ are weaker than the same for the S&P 500 as well as what the group reported in 2012 Q4. With 88.5% of the sector’s total market capitalization already out with Q1 results, total earnings for the sector are down -4.4%, with 63.2% of the sector companies beating earnings expectations (vs. the S&P 500 average of 65.3%). The revenue side for the sector isn’t that bad (up +5.7%), which goes on to spotlight the sector’s margin problems.  

The composite growth rate for Q1, where we combine the results of the 453 companies that have come out with results with the 47 still to come, is for a rise of +2.4% in total earnings on -0.8% lower revenues. In terms of dollar earnings levels, composite earnings in Q1 total $251.6 billion, the highest quarterly total since the current earnings cycle started back in 2009 (is that why the market is at a new all-time high as well?)

For a detailed look at the earnings picture, please check out our weekly Earnings Trends report here.

Expectations for the second quarter have come down, though estimates for second half of the year still represent a material improvement in the earnings picture. Total earnings in 2013 Q2 are now expected to be up +1.4% on -0.8% lower revenues. This is a drop from the +3.9% total earnings growth expected in Q2 on +0.5% higher revenues in early April.

A similar though less pronounced downward adjustment process has gotten underway for the second half of the year as well. Current expectations are total earnings growth of +5.7% (down from +7.6% in early April) in 2013 Q3 and +13.5% (down from +14.3% in early April) in Q4. For full years 2013 and 2014, total earnings are expected to be up +6.1% (down from +6.8%) and +11.3% (down from +11.5%).

The charts below show trends in earnings estimate revisions. Both charts represent the ratio of total number of upward revisions over the preceding four weeks to the total number of revisions (positive and negative). The first chart shows the current state of this ‘revisions ratio’ for 2013, while the second chart plots the ratio’s trajectory over the preceding 24 months.


 
Source: Zacks Data
   
The ratio doesn’t tell you the ‘magnitude’ of the revisions, only the direction. The ‘50%’ level is the dividing line between positive and negative trends, with readings above 50% implying more positive than negative revisions. But our analysis shows that readings between 45% and 55% don’t offer material insights into the magnitude of revisions. It is only readings above 55% and below 45% that offer bullish and bearish signals about the magnitude of earnings revisions.

Looked at that way, the aggregate 2013 revisions ratio for the S&P 500 is essentially in neutral territory. But a number of sectors do stand out. The positive revisions trend in Construction and Finance is not that surprising, but Consumer Discretionary sector’s strong showing is notable given all the macro headwinds. The positive trend in Aerospace is no less significant, particularly given the group’s supposed budget sequester exposure. Aerospace reported very strong Q1 results as well, as the ‘Earnings Scorecard’ chart above shows.

The chart below shows how the 2013 revisions ratio has evolved over time. We have featured the Technology (red line) and Construction (blue line) sectors to contrast how the aggregate picture has evolved. As you can see, the aggregate ratio has been below or at the 50% line for quite some time.

Monday - 5/13

  • We will get the April Retail Sales number in the morning, with expectations of -0.4% ‘headline’ decline after an equivalent drop the month before. The ex-Autos number if expected to be up +0.3% after the -0.4% decline in March.
  • A number of companies will be reporting Q1 results, but no major names.

Tuesday - 5/14

  • Nothing major on the economic calendar.  
  • Valspar (VAL - Analyst Report) is the only notable report in the morning, while Agilent (A) is the key report after the close.

Wednesday - 5/15

  • A busy day on the economic calendar, with April PPI, Industrial Production, and May readings of the Empire State and Homebuilder sentiment index coming out.
  • Deere (DE - Analyst Report) and Macy’s (M - Analyst Report) are the key reports in the morning, while Cisco (CSCO - Analyst Report) reports after the close.
  • The ‘magnitude’ of estimate revisions for CSCO hasn’t been that material, but the direction of revisions has been solely on the negative side. This accounts for the stock’s Zacks Rank # 4 (Sell) at present.

Thursday - 5/16

  • Another busy day on economic data. In addition to weekly Jobless Claims, we will get the April CPI, Housing Starts, and the May Philly Fed surveys.
  • Wal-Mart (WMT - Analyst Report) and Kohl’s (KSS - Analyst Report) are the key reports in the morning, while J.C. Penney (JCP - Analyst Report) and Applied Materials (AMAT - Analyst Report) will report after the close.

Friday - 5/10

  • We will get the May Consumer Sentiment survey from the University of Michigan and the Conference Board’s April Leading Indicators reading.
  • No major earnings report.


Here is a list of the 126 companies reporting this week, including 11 S&P 500 members:

Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
7 DAYS GRP-ADR SVN 0.11 0.06 16.67 Monday AMC
AIRMEDIA GP-ADR AMCN -0.13 -0.11 0 Monday AMC
ANTHERA PHARMA ANTH -0.08 -0.51 31.25 Monday AMC
ATLAS FINL HLDG AFH 0.13 0.06 N/A Monday AMC
AUGME TECH INC AUGT -0.04 -0.1 -16.67 Monday AMC
CHEMOCENTRYX CCXI -0.27 -0.28 3.45 Monday AMC
CHINA GREEN AGR CGA 0.45 0.46 -3.23 Monday BTO
CONSOLTD WATER CWCO 0.15 0.16 19.05 Monday BTO
COPA HLDGS SA-A CPA 2.31 2.04 -9.87 Monday BTO
CTI INDUSTRIES CTIB 0.01 0.12 -450 Monday BTO
ELONG INC-ADR LONG 0 0.09 -70 Monday BTO
ENGILITY HLDGS EGL 0.89 0.84 18.46 Monday N/A AMC
GOL LINHAS-ADR GOL -0.01 -0.09 -109.09 Monday N/A BTO
HOME INNS&HOTEL HMIN -0.18 -0.15 333.33 Monday N/A BTO
IFM INVEST-ADS CTC 0.02 -0.49 102 Monday N/A AMC
INFORMATION SVC III 0 0.01 300 Monday AMC BTO
INTEROIL CORP IOC -0.13 0.19 264.29 Monday AMC AMC
MERRIMACK PHAR MACK -0.28 -2.14 0 Monday AMC AMC
NORDIC AMERICAN NAT -0.37 -0.18 0 Monday AMC AMC
OTC MARKETS GRP OTCM 0.13 0.12 190 Monday AMC BTO
PDI INC PDII -0.11 -0.02 57.14 Monday AMC AMC
PERION NETWORK PERI 0.35 0.18 -9.09 Monday AMC AMC
PLANET PAYMENT PLPM 0 0.01 N/A Monday AMC BTO
POST HOLDINGS POST 0.27 0.39 30.43 Monday AMC BTO
PRIMUS TELECOMM PTGI 0.08 -0.49 -9.09 Monday AMC AMC
RENREN INC-ADR RENN -0.07 -0.03 14.29 Monday AMC BTO
S&W SEED CO SANW -0.04 -0.2 -66.67 Monday AMC AMC
SARATOGA RESRCS SARA 0.02 0.02 -157.14 Monday AMC AMC
SCIENTIFIC LRNG SCIL -0.07 -0.26 16.67 Monday AMC
SKY-MOBI LTD MOBI -0.08 0.06 100 Monday AMC BTO
STEREOTAXIS INC STXS -0.5 -1.1 27.5 Monday AMC BTO
STRATASYS LTD SSYS -0.16 0.27 -7.41 Monday AMC AMC
SUMMER INFANT SUMR 0.02 0.07 -550 Monday AMC AMC
SUPERNUS PHARMA SUPN -0.63 -6.05 30.14 Monday AMC AMC
SUTOR TECH GRP SUTR 0.05 0.03 100 Monday AMC AMC
TAKE-TWO INTER TTWO 0.16 -0.72 18 Monday AMC AMC
TEARLAB CORP TEAR -0.12 -0.12 -9.09 Monday AMC AMC
TURQUOISE HILL TRQ -0.04 -0.11 -350 Monday AMC AMC
US ENERGY CP-WY USEG 0.01 -0.01 -200 Monday AMC AMC
VELTI PLC VELT -0.44 -0.13 -49.02 Monday AMC AMC
VERSAR INC VSR 0.11 0.13 0 Monday AMC BTO
WUXI PHARMATECH WX 0.27 0.28 32 Monday AMC AMC
AGILENT TECH A 0.67 0.78 -5.97 Tuesday AMC AMC
ALEXZA PHARMACT ALXA -0.53 -0.5 -41.3 Tuesday AMC BTO
ATHERSYS INC ATHX -0.1 -0.17 25 Tuesday AMC BTO
AUTONAVI HL-ADR AMAP 0.14 0.18 -14.29 Tuesday AMC AMC
BRIGUS GOLD CP BRD 0.03 0.03 -50 Tuesday AMC AMC
CORGENIX MEDICL CONX 0 0 N/A Tuesday AMC AMC
CRUMBS BAKE SHP CRMB -0.35 -0.09 -220 Tuesday AMC AMC
DIGITAL CINEMA DCIN -0.06 -0.27 -5 Tuesday AMC AMC
EAGLE MATERIALS EXP 0.4 0.2 0 Tuesday AMC AMC
EXONE CO/THE XONE -0.09 -0.18 157.14 Tuesday AMC BTO
GENERAL FINANCE GFN 0.11 0.05 N/A Tuesday AMC AMC
GLOBAL SRCS-LTD GSOL 0.17 0.09 59.09 Tuesday AMC BTO
HESKA CORP HSKA 0.12 0.11 0 Tuesday AMC AMC
NETLIST INC NLST -0.14 -0.04 -88.89 Tuesday AMC
NUPATHE INC PATH -0.16 -0.43 -245.16 Tuesday AMC AMC
OXYSURE SYSTEMS OXYS -0.01 -0.02 N/A Tuesday AMC BTO
PALATIN TECH PTN -0.05 -0.17 -300 Tuesday AMC AMC
PAN AMER SILVER PAAS 0.25 0.58 2.78 Tuesday AMC BTO
PHOENIX NEW MED FENG 0.05 0.06 100 Tuesday AMC AMC
PHOTRONICS INC PLAB 0.09 0.14 100 Tuesday AMC
PLUG POWER INC PLUG -0.14 -0.31 -37.5 Tuesday AMC AMC
PRIMO WATER CP PRMW -0.1 -0.14 37.5 Tuesday AMC AMC
QUALSTAR CORP QBAK -0.1 -0.05 0 Tuesday AMC BTO
RESPONSE GENETC RGDX -0.04 -0.14 83.33 Tuesday AMC BTO
SYPRIS SOLUTION SYPR 0.03 0.17 100 Tuesday AMC AMC
TRANSWITCH CORP TXCC -0.05 -0.2 -20 Tuesday AMC BTO
TREE.COM INC TREE 0.12 -0.29 -150 Tuesday AMC BTO
VALSPAR CORP VAL 0.89 0.84 -9.09 Tuesday AMC AMC
VIPSHOP HOLDNGS VIPS 0 -0.33 1100 Tuesday AMC AMC
VOXX INTL CP VOXX 0.19 0.49 30.77 Tuesday AMC AMC
ZAIS FINANCIAL ZFC 0.39 2.06 N/A Tuesday AMC BTO
CISCO SYSTEMS CSCO 0.45 0.42 9.3 Wednesday AMC
COMP SCIENCE CSC 0.97 -0.14 22.22 Wednesday AMC AMC
DEERE & CO DE 2.74 2.61 17.02 Wednesday AMC AMC
MACYS INC M 0.53 0.43 3.54 Wednesday AMC BTO
AEGEAN MARINE ANW 0.14 0.13 0 Wednesday AMC AMC
ARCTIC CAT INC ACAT -0.4 -0.49 -2.26 Wednesday AMC AMC
ARES COMMERCIAL ACRE 0.17 -0.12 -38.1 Wednesday AMC AMC
AUXILIO INC AUXO 0.01 -0.07 82 Wednesday AMC AMC
BRIDGELINE SFWR BLIN -0.03 0.01 -50 Wednesday AMC BTO
CONSOL GRAPHICS CGX 0.51 0.23 44.92 Wednesday AMC
COPEL-ADR PR B ELP 0.72 0.59 18.75 Wednesday AMC AMC
E-HOUSE CHINA EJ -0.19 -0.29 160 Wednesday AMC BTO
FIRST MAJESTIC AG 0.32 0.26 -10.34 Wednesday AMC AMC
GASLOG LTD GLOG 0.06 0.06 -20 Wednesday AMC AMC
JACK IN THE BOX JACK 0.31 0.48 38.46 Wednesday BTO
JINPAN INTL LTD JST 0.04 0.24 21.05 Wednesday BTO AMC
LIFEWAY FOODS LWAY 0.08 0.07 16.67 Wednesday BTO AMC
NATUS MEDICAL BABY 0.12 0.07 11.54 Wednesday BTO BTO
NETEASE INC NTES 1.17 1.14 16.04 Wednesday BTO
NETQIN MOBILE NQ 0.06 0.04 800 Wednesday BTO AMC
OVERLAND STORAG OVRL -0.14 -0.16 -7.14 Wednesday BTO BTO
OXFORD RES PTNR OXF -0.25 -0.32 -208.33 Wednesday BTO AMC
RADIANT LOGIST RLGT 0.02 0.01 50 Wednesday BTO AMC
SAFE BULKERS SB 0.21 0.32 -10 Wednesday BTO
TUCOWS INC TCX 0.01 0.03 -66.67 Wednesday BTO AMC
WIDEPOINT CORP WYY 0 0 N/A Wednesday BTO AMC
YOUKU.COM- ADR YOKU -0.22 -0.2 9.09 Wednesday BTO AMC
APPLD MATLS INC AMAT 0.13 0.27 100 Thursday BTO AMC
AUTODESK INC ADSK 0.35 0.37 2.63 Thursday BTO AMC
KOHLS CORP KSS 0.59 0.63 1.84 Thursday BTO AMC
NORDSTROM INC JWN 0.76 0.7 4.48 Thursday BTO AMC
PENNEY (JC) INC JCP -1.13 -0.25 -926.32 Thursday BTO AMC
WAL-MART STORES WMT 1.15 1.09 6.37 Thursday BTO AMC
21VIANET GP-ADR VNET 0.06 0.1 -44.44 Thursday BTO AMC
ARUBA NETWORKS ARUN 0.01 0.06 -16.67 Thursday BTO AMC
BONA FILM-ADR BONA 0 0.04 -400 Thursday BTO BTO
BRADY CORP CL A BRC 0.62 0.57 -22.45 Thursday BTO
BROCADE COMM SY BRCD 0.12 0.12 30.77 Thursday BTO BTO
CAE INC CAE 0.19 0.21 12.5 Thursday BTO AMC
CHIPMOS TEC LTD IMOS 0.13 -0.21 0 Thursday BTO
COMMTOUCH SOFTW CTCH 0.03 0.05 -100 Thursday BTO AMC
DERMA SCIENCES DSCI -0.37 -0.24 12.9 Thursday BTO BTO
FLOWERS FOODS FLO 0.41 0.28 12 Thursday BTO AMC
HOLLYSYS AUTOMT HOLI 0.2 0.21 -17.86 Thursday BTO AMC
ITERIS INC ITI 0.01 0.01 -150 Thursday AMC BTO
PRESTIGE BRANDS PBH 0.34 0.25 8.82 Thursday AMC AMC
RENESOLA LT-ADR SOL -0.39 -0.47 2.7 Thursday AMC AMC
SINA CORP SINA -0.11 -0.27 400 Thursday AMC AMC
SMART TECHNOL-A SMT -0.04 0 N/A Thursday AMC BTO
XUEDA EDUC-ADR XUE 0.04 0.01 7.69 Thursday AMC AMC
DONALDSON CO DCI 0.48 0.46 -10.53 Friday AMC
ISOFTSTONE LTD ISS 0.04 0.08 15.38 Friday AMC AMC
STAGE STORES SSI 0.08 0.05 -5.93 Friday AMC AMC

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