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Earnings Preview

Retail Earnings Still in the Spotlight

The Q2 earnings season is effectively over, with results from 465 S&P 500 companies, accounting for almost 95.6% of the index’s total market capitalization, already out (as of Friday, August 16th). The earnings season has ended for 9 of the 16 Zacks sectors, including Finance, Energy, Basic Materials, and Utilities.

Retail is the only sector that has a large number of reports still due, with 18 of the remaining 35 S&P 500 companies from the sector. But having seen Q2 results from such sectors bellwethers as Wal-Mart (WMT - Analyst Report) and Macy’s (M - Analyst Report), we probably have a good enough sense of what to expect from the remaining Retail sector reports. The sector is heavily represented in this week’s small line-up of earnings releases, with 32 of the week’s 94 reports from the Retail Sector. By the end of this week, we will have seen Q2 results from 487 S&P 500 members.

Wal-Mart’s soft outlook for the second half of the year is a material negative signal for the sector’s outlook. After all, Wal-Mart alone accounts for almost 22% of the sector’s total earnings. Target (TGT - Analyst Report) and Dollar Tree (DLTR - Analyst Report) reporting this week will likely not do any better, but the Wal-Mart news has brought down expectations for these and other discounters.

The sector’s problems aren’t restricted to the lower-priced end alone as the weak guidance from Macy’s and Nordstrom (JWN - Analyst Report) show. J.C. Penney (JCP - Analyst Report) reporting this week has plenty of other company specific issues, but it will be interesting to see if the reports from Saks (SKS), L Brands (LTD), Gap (GPS - Analyst Report) and Ann (ANN - Snapshot Report) will be any better. In other key reports from the Retail sector this week, Home Depot (HD - Analyst Report) and Lowe’s (LOW - Analyst Report) will likely continue benefiting from the housing recovery, but the uptrend in interest rates is raising questions about the recovery’s momentum.

Total earnings for the 30 S&P 500 members from the Retail sector (out of 48 retailers) that have already reported are up +7.8% on +3.9% higher revenues. The earnings beat ratio has been 53.3%, while 40% of the retailers have come ahead of revenue expectations. The earnings and revenue growth rates for these 30 companies are roughly in-line with what we saw from this group in Q1 and other recent quarters, though the earnings beat ratio is clearly on the weak side. The 53.3% earnings beat ratio for these 30 companies compares to 63.3% in Q1 and the 4-quarter of 64.2% for the same group of companies.

The Q2 Earnings Scorecard

Total earnings for the 465 S&P 500 companies that have reported results already are up +2.7%, with 66% beating earnings expectations and a median surprise of +2.9%. Most of this growth has come from top-line gains, with total revenues for these 465 companies up +2% and 52.7% beating revenue expectations.

The earnings growth rate of +2.7% compares to +2.4% earnings growth rate in Q1 and the 4-quarter average growth pace of +2.9% for the same set of 465 companies. The earnings beat ratio, which was tracking a bit lower earlier in the reporting cycle, has caught on with historical levels. On the revenue side, the growth of +2% compares to +1.8% in Q1 and the 4-quarter average of +2.9% for this group of 465 S&P 500 companies. The revenue beat ratio of 52.7%, however, is decidedly better than what we saw in Q1 (41.9%) and the 4-quarter average (45.5%).

Strong results from the Finance sector are playing a big role in giving respectability to the aggregate Q2 data. It is very hard to be satisfied with the picture once Finance is excluded from the numbers.
With all of the Finance sector’s results already in, total earnings for the sector are up +30% on +8.5% higher revenues, with beat ratios of 76.9% for earnings and 65.4% for revenues. Finance’s performance has been way better than what we have seen from the group in recent quarters.

Earnings growth was particularly strong at the large national and regional banks, with total earnings at the Major Banks industry, which includes 15 banks  like J.P. Morgan (JPM), Bank of America (BAC), Key Corp (KEY) and alone accounts for more than 40% of the sector’s total earnings, were up +8.4% from the same period last year. Total earnings for the Major Banks still remained below the group’s record tally in Q1. The insurance industry, the second largest contributor to Finance sector earnings, had to deal with tough comparisons, resulting in negative growth in Q2. The brokerage firms benefited from easier comps, with total earnings for the Brokerage/Investment Management industry up +16%.

Not So Good Outside Finance   

Strip out Finance and total earnings growth for the S&P 500 turns negative – down -3%. This is weaker than what these same companies reported in Q1. Weakness in the Technology sector spotlights the broad growth challenge outside of Finance, though Basic Materials (total earnings down -11.1%) and Energy (-12.7%) also played roles.

Total earnings for the 95.5% of Tech sector market cap that has reported already are down -9.7% on +1.5% higher revenues, the weakest performance from the sector in a while. Technology is a big area, ranging from hardware makers like Apple (AAPL) and Dell (DELL) to software vendors like Adobe (ADBE) and Microsoft (MSFT) and chipmakers like Intel (INTC). The hardware and software industries individually bring in roughly 45% and 35% of the Technology sectors total quarterly earnings. In Q2, the modestly positive growth for the software industry was more than offset by weakness at the hardware vendors, with total earnings for the Computer & Office Equipment industry down -6.2% from the same period last year.   

The composite Q2 growth rate, where we combine the results for the 465 that have come out with the 35 still to come, is for +2.6% total earnings growth on +2% higher revenues. Excluding Finance, the composite earnings growth rate drops to a decline of -2.8%. Bottom line, the earnings picture outside of Finance is very weak.

Expectations for Second half & Next year Remain Positive

The predominant negative tone of company guidance has started showing up in expectations for Q3 and the second half of the year. As a result, full-year 2013 earnings growth expectations have come down despite the typical positive earnings season outperformance in Q2. The recent downtrend in estimates notwithstanding, there is still plenty of room for estimates to come down.  

The chart below plots the current Q3 and Q4 growth expectations in the context of where growth has been over the last few quarters. The current +2.2% expected growth rate in Q3 is down from +2.5% last week and +5.2% in early July.

 
The chart below looks at the same data as is in the chart above, but takes Finance out of the numbers. As you can see, a lot of the expected growth in the second half of the year is from sectors outside of the Finance sector.
Given what we have seen thus far in Q2 and in the last few quarters from sectors outside of Finance (above chart), it doesn’t seem reasonable to expect a strong growth ramp up later this year. What this means is that we will see further acceleration in negative estimate revisions in the coming days as retailers and others guide lower towards Q3 and beyond.  

Monday-8/19

  • Nothing major on the economic calendar.
  • Urban Outfitter (URBN) is the only major earnings report, which comes after the close.

Tuesday -8/20

  • No major economic release today.
  • A relatively busy day on the earnings calendar, with Home Depot (HD - Analyst Report), J.C. Penney (JCP - Analyst Report), Saks (SKS), Best Buy (BBY), and TJX (TJX) reporting results, all in the morning.
  • Zacks Earnings ESP or Expected Surprise Prediction, our proprietary leading indicator of earnings surprises, is showing Home Depot coming out with a positive earnings surprise.  
  • For a detailed description of Zacks Earnings ESP, please click here.
  • For more details on Zacks Earnings ESP, please check this video.  

 Wednesday-8/21

  • We will get the July Existing Home sales numbers, while the afternoon will bring minutes of the last Fed meeting. The minutes will get parsed in every imaginable way to
  • Target (TGT - Analyst Report), Lowe’s (LOW - Analyst Report), Staples (SPLS), JM Smucker (SJM), and Petsmart (PETM) are the notable companies reporting in the morning, while Hewlett-Packard (HPQ) will report after the close.
  • Zacks Earnings ESP is showing Hewlett-Packard and Lowe’s coming out with positive earnings surprises.

Thursday -8/22

  • Jobless Claims were down sharply last week. It would be interesting to see if that is confirmed or reversed in this week’s data, particularly given the sensitivity of labor market data to the Fed outlook.  
  • Gap (GPS - Analyst Report), Dollar Tree (DLTR - Analyst Report), Bon-Ton Stores (BONT) and Gamestop (GME) are some of the notable names reporting in the morning, while Pandora Media (P) and AutoDesk (ADSK) will report after the close.  
  • Zacks Earnings ESP is showing Gap, Pandora, and the Children’s Place (PLCE) coming out with positive earnings surprises.

Friday-8/23

  • We will get the July New Home sales numbers in the morning, with expectations of a pullback from June’s 497K level.
  • Ann (ANN - Snapshot Report), Foot Locker (FL) and Hibbett Sports (HIBB) are the only notable company reporting results today.
  • ANN is expected to come out with a positive earnings surprise, given the stock’s +1.5% ESP and Zacks Rank #3 (Hold).

Here is a list of the 94 companies reporting this week, including 22 S&P 500 members.
 

Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
URBAN OUTFITTER URBN 0.48 0.42 10.34 Monday AMC
AEGEAN MARINE ANW 0.17 0.15 -7.14 Monday AMC
AMERICAS CAR-MT CRMT 0.93 0.83 0 Monday AMC
BOB EVANS FARMS BOBE 0.57 0.58 9.23 Monday AMC
CELLCOM ISRAEL CEL 0.27 0.31 34.78 Monday BTO
CHINA XINIYA FS XNY -0.01 0.06 28.57 Monday BTO
CHINACACHE INTL CCIH -0.01 0.03 14.29 Monday AMC
GREENWAY MEDICL GWAY -0.05 0.08 -120 Monday AMC
HASTING ENTMT HAST -0.3 -0.41 -400 Monday BTO
INTL RECTIFIER IRF -0.11 -0.18 27.5 Monday AMC
PACTERA TEC INT PACT 0.09 0.18 -42.86 Monday BTO
PERFECT WORLD PWRD 0.33 0.51 -10.42 Monday AMC
RAVEN INDS INC RAVN 0.27 0.32 -13.64 Monday BTO
ANALOG DEVICES ADI 0.54 0.56 -3.85 Tuesday AMC
BEST BUY BBY 0.12 0.2 28 Tuesday BTO
HOME DEPOT HD 1.19 1.01 7.79 Tuesday BTO
INTUIT INC INTU -0.08 -0.08 0.7 Tuesday AMC
MEDTRONIC MDT 0.88 0.85 6.8 Tuesday BTO
PENNEY (JC) INC JCP -1.13 -0.37 -12.93 Tuesday BTO
TJX COS INC NEW TJX 0.63 0.56 0 Tuesday BTO
21VIANET GP-ADR VNET 0.03 0.09 -16.67 Tuesday AMC
AMER WOODMARK AMWD 0.31 0.07 100 Tuesday BTO
BARNES & NOBLE BKS -0.9 -0.78 52.22 Tuesday BTO
BOTTOMLINE TECH EPAY 0.17 0.16 -14.29 Tuesday AMC
CHINA DISTANCE DL 0.06 0.03 -33.33 Tuesday AMC
DAKTRONICS INC DAKT 0.11 0.16 -33.33 Tuesday BTO
DICKS SPRTG GDS DKS 0.75 0.65 0 Tuesday BTO
GASLOG LTD GLOG 0.1 0.04 -16.67 Tuesday BTO
KEY TRONIC KTCC 0.24 0.35 -3.7 Tuesday AMC
LA-Z-BOY INC LZB 0.15 0.08 7.14 Tuesday AMC
MOBILE TELE-ADR MBT 0.45 0.4 -13.04 Tuesday BTO
NAVIOS MARI ACQ NNA 0 -0.04 200 Tuesday BTO
SAKS INC SKS -0.08 -0.08 0 Tuesday BTO
STEALTHGAS INC GASS 0.25 0.31 -16.13 Tuesday BTO
TRINA SOLAR LTD TSL -0.64 -0.93 -27.78 Tuesday BTO
VELTI PLC VELT -0.26 -0.17 27.27 Tuesday AMC
HEWLETT PACKARD HPQ 0.87 1 7.41 Wednesday AMC
L BRANDS INC LTD 0.6 0.5 4.35 Wednesday AMC
LOWES COS LOW 0.79 0.65 -3.92 Wednesday BTO
PETSMART INC PETM 0.86 0.71 2.08 Wednesday BTO
SMUCKER JM SJM 1.2 1.17 12.17 Wednesday BTO
STAPLES INC SPLS 0.18 0.18 -3.57 Wednesday BTO
TARGET CORP TGT 0.95 1.12 23.53 Wednesday BTO
AFC ENTERPRISES AFCE 0.33 0.27 2.56 Wednesday AMC
AMER EAGLE OUTF AEO 0.1 0.21 5.88 Wednesday BTO
CITI TRENDS INC CTRN -0.43 -0.54 -26.32 Wednesday BTO
EATON VANCE EV 0.56 0.43 0 Wednesday BTO
ENERGY XXI LTD EXXI 0.45 0.9 -8 Wednesday BTO
HAIN CELESTIAL HAIN 0.62 0.47 0 Wednesday AMC
JIAYUAN.COM INT DATE 0.05 0.1 0 Wednesday AMC
LAN CHILE-ADR LFL -0.06 0.14 80 Wednesday BTO
MADISON SQUARE MSG 0.27 0.37 58.06 Wednesday BTO
NOAH HLDGS LTD NOAH 0.17 0.11 112.5 Wednesday AMC
PROSPECT CAP CP PSEC 0.3 0.51 -16.13 Wednesday AMC
SAFE BULKERS SB 0.18 0.31 0 Wednesday AMC
SEMTECH CORP SMTC 0.42 0.37 -5.26 Wednesday AMC
SYNOPSYS INC SNPS 0.34 0.44 31.11 Wednesday AMC
TOLL BROTHERS TOL 0.27 0.26 0 Wednesday BTO
VALUEVISION CLA VVTV 0.03 -0.08 100 Wednesday AMC
ABERCROMBIE ANF 0.29 0.19 -80 Thursday BTO
AUTODESK INC ADSK 0.31 0.37 -11.43 Thursday AMC
DOLLAR TREE INC DLTR 0.57 0.51 3.51 Thursday BTO
GAMESTOP CORP GME 0.04 0.16 15 Thursday BTO
GAP INC GPS 0.64 0.49 2.9 Thursday AMC
HORMEL FOODS CP HRL 0.44 0.41 0 Thursday BTO
PATTERSON COS PDCO 0.48 0.45 -1.59 Thursday BTO
AEROPOSTALE INC ARO -0.27 0 5.88 Thursday AMC
ARUBA NETWORKS ARUN 0 0 -800 Thursday AMC
BON-TON STORES BONT -1.71 -1.88 23.91 Thursday BTO
BUCKLE INC BKE 0.52 0.49 -4.88 Thursday BTO
CAMELOT INF-ADS CIS 0 0.06 140 Thursday BTO
CATO CORP A CATO 0.48 0.59 1.94 Thursday BTO
CHILDRENS PLACE PLCE -0.54 -0.62 33.87 Thursday BTO
CYBERONICS INC CYBX 0.46 0.38 6.98 Thursday BTO
DFC GLOBAL CORP DLLR 0.47 0.58 -9.09 Thursday AMC
KIRKLANDS INC KIRK -0.1 -0.11 100 Thursday BTO
MARVELL TECH GP MRVL 0.13 0.19 85.71 Thursday AMC
MENTOR GRAPHICS MENT 0.1 0.17 400 Thursday AMC
MICROS SYS MCRS 0.58 0.64 5.45 Thursday AMC
NAVIOS MARI HLD NM -0.13 0.04 52.38 Thursday BTO
NET 1 UEPS TECH UEPS 0.16 0.25 -80 Thursday AMC
NORDSON CORP NDSN 1.04 1.06 0 Thursday AMC
PANDORA MEDIA P -0.02 -0.03 0 Thursday AMC
PERRY ELLIS INT PERY -0.08 0.01 0 Thursday BTO
SCANSOURCE INC SCSC 0.61 0.71 8.16 Thursday AMC
SEARS HLDG CP SHLD N/A -0.86 -2.38 Thursday BTO
SOLERA HOLDINGS SLH 0.62 0.59 5 Thursday AMC
STEIN MART INC SMRT 0.05 0.05 13.79 Thursday BTO
TAOMEE HOLDINGS TAOM 0.03 0.08 -25 Thursday BTO
TORO CO TTC 0.64 0.67 10.92 Thursday BTO
ANN INC ANN 0.65 0.63 4.76 Friday BTO
FOOT LOCKER INC FL 0.49 0.39 3.41 Friday BTO
HIBBET SPORTS HIBB 0.38 0.3 -6.54 Friday BTO
IMMUNOMEDICS IMMU -0.1 -0.1 222.22 Friday BTO

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