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Fed in Focus as Q4 Earnings Reports Trickle In

The market’s focus is justifiably on the Fed this week, given expectations that the FOMC will start ‘Tapering’ its bond-purchase program. Also of interest, will be the FOMC members’ updated economic forecasts, and Bernanke’s last press conference as the Fed Chairman, where he will try to explain FOMC’s ‘Taper’ decision, or lack thereof.

Many in the market continue to hope that the Fed will hold off on the ‘Taper’ decision this week. A Wall Street Journal poll of 46 economists shows that only a quarter of the respondents expect this week’s FOMC meeting to result in the Taper announcement, while over a third of the total see the Fed holding off through the March 2014 meeting.   

The Fed will no doubt be the big subject this week, but the 2013 Q4 earnings reports start trickling in as well. We still have a couple of more weeks to go before the (calendar) quarter ends, but we count all companies with fiscal quarters ending in November as part of our Q4 tally. And by that definition, the Q4 earnings season got underway with the earning release from Adobe Systems (ADBE - Analyst Report) after the close on Thursday. We have a number of industry leaders reporting results this week, including FedEx (FDX - Analyst Report), Oracle (ORCL - Analyst Report), Nike (NKE - Analyst Report), General Mills (GIS - Analyst Report) and others.

As has been the case at the start of recent quarterly earnings cycles, expectations for the Q4 earnings season have fallen sharply over the last three months. Total earnings for companies in the S&P 500 are now expected to be up 6.8% from the same period last year. This is down materially from what was expected at the start of the quarter, as the chart below shows.

 

 


This negative revisions behavior is hardly unusual as we have been repeatedly seeing this pattern play out in recent quarters. Companies have been overwhelmingly guiding lower, prompting analysts to cut estimates for the following quarter. The revisions behavior ahead of the Q3 earnings season was no different and most of the same sectors have experienced negative revisions this time around as well. The ‘regulars’ on the negative estimate revisions beat include Technology, Industrials, and Energy. Construction and Aerospace suffered negative revisions as well, while estimates for Basic Materials went up.

The earnings growth expected in Q4, at this stage of the reporting cycle, is the highest that we have seen in any of the last few quarters. This is partly a function of easy comparisons, as 2012 Q4 represents the lowest quarterly earnings total for the S&P 500 in the last six quarters, with the comps particularly easy for the Finance sector. But it’s not all due to easy comparisons, as the expected earnings totals for Q4 represent a new all-time quarterly record. Total earnings for the S&P 500 reached a new record at $262.2 billion in Q3, surpassing Q2’s $259 billion record. But they are expected to reach $263.5 billion in 2013 Q4, a new all-time record.

But of more interest than Q4 growth will be management guidance for 2014. Companies typically provide guidance only for the following quarter, but they do tend to discuss their outlook for the coming year on the Q4 earnings calls. It will be interesting to see if management teams see any material improvement in the earnings picture this year along the lines of current consensus earnings expectations for 2014. Total earnings are expected to be up +10.9% in 2014, up from +6.3% growth in 2013, with most of the growth coming in the back half of the year.

Monday-12/16

  • We will get the December Empire State manufacturing survey and the November Industrial Production index and capacity utilization numbers in the morning. The expectation is for +0.5% increase in IP and an uptick in utilization.

Tuesday -12/17

  • The Fed’s two-day meeting gets underway today. On the data front, we will get the November CPI and the December homebuilder sentiment index.
  • Jabil Circuit (JBL) is the only notable earnings release today, coming out after the close.

 Wednesday-12/18

  • The big news of the day is whether the FOMC meeting will result in the ‘Taper’ announcement or not. Economic projections of FOMC members and the Bernanke press conference, his last as Fed Chairman, will be other key events of the day. But the Fed activities will take place in the afternoon.
  • In the morning, we will get the November Housing Starts and Permits numbers, with expectations of gains on the Starts and a modest decline on the Permits fronts.
  • FedEx (FDX - Analyst Report), General Mills (GIS - Analyst Report) and Lennar (LEN - Analyst Report) will be the key Q4 earnings reports in the morning, while Oracle (ORCL - Analyst Report) will report after the close.
  • Zacks Earnings ESP or Expected Earnings Surprise, our proprietary leading indicator of earnings surprises, is showing FedEx and Lennar coming out with earnings beats.
  • Stocks with positive Earnings ESP and Zacks Rank of 1, 2 or 3 are highly likely to come out with positive earnings surprises. Lennar Corp has a Zacks Rank #3 (Hold) and Earnings ESP of +1%, while FedEx has Zacks Rank #2 (Buy) and Earnings ESP of +0.6%.  
  • To get a better understanding of Zacks Earnings ESP, please click here.

Thursday -12/19

Friday-12/20

  • We will get the Q3 GDP revision report, expected to remain unchanged from the last +3.6% reading.
  • Walgreen (WAG - Analyst Report) and CarMax (KMX - Analyst Report) are the only notable reports today, both in the morning.
  • Walgreen’s Zacks Rank #3 (Hold) and Earnings ESP of +1.1% shows that the company is expected to come out with a positive earnings surprise.

Here is a list of the 39 companies reporting this week, including 13 S&P 500 members.

Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
FUELCELL ENERGY FCEL -0.03 -0.05 0 Monday AMC
CHINAEDU CP-ADR CEDU 0.17 0.1 114.29 Monday AMC
FACTSET RESH FDS 1.23 1.14 -2.52 Tuesday BTO
JABIL CIRCUIT JBL 0.47 0.53 2.13 Tuesday AMC
HEICO CORP HEI 0.41 0.36 14.89 Tuesday AMC
VERIFONE SYSTMS PAY 0.18 0.66 25 Tuesday AMC
SANDERSON FARMS SAFM 2.34 0.41 11.32 Tuesday BTO
VALASSIS COMMS VCI 0.85 0.85 -14.29 Wednesday BTO
APOGEE ENTRPRS APOG 0.33 0.28 0 Wednesday AMC
FEDEX CORP FDX 1.64 1.39 2.68 Wednesday BTO
GENL MILLS GIS 0.88 0.86 0 Wednesday BTO
LENNAR CORP -A LEN 0.63 0.56 17.39 Wednesday BTO
HERMAN MILLER MLHR 0.41 0.35 13.16 Wednesday AMC
ORACLE CORP ORCL 0.64 0.6 5.66 Wednesday AMC
PAYCHEX INC PAYX 0.42 0.41 2.33 Wednesday AMC
STEELCASE INC SCS 0.26 0.21 -7.69 Wednesday AMC
ARROWHEAD RSRCH ARWR -0.23 -0.43 -4.55 Wednesday AMC
LGI HOMES INC LGIH 0.33 999 N/A Wednesday BTO
ACCENTURE PLC ACN 1.09 1.06 1 Thursday BTO
AAR CORP AIR 0.5 0.44 2.27 Thursday AMC
ACTUANT CORP ATU 0.46 0.49 0 Thursday BTO
CONAGRA FOODS CAG 0.55 0.57 -7.5 Thursday BTO
DARDEN RESTRNT DRI 0.21 0.26 -23.19 Thursday BTO
MARCUS CORP MCS 0.17 0.18 8.7 Thursday BTO
NEOGEN CORP NEOG 0.25 0.19 0 Thursday BTO
NIKE INC-B NKE 0.58 0.57 10.26 Thursday AMC
PIER 1 IMPORTS PIR 0.28 0.25 -19.05 Thursday BTO
RITE AID CORP RAD 0.04 0.07 300 Thursday BTO
RED HAT INC RHT 0.24 0.2 9.09 Thursday AMC
TIBCO SOFTWARE TIBX 0.32 0.32 60 Thursday AMC
WINNEBAGO WGO 0.39 0.26 35.71 Thursday BTO
WORTHINGTON IND WOR 0.56 0.46 0 Thursday BTO
BIO REFERNC LAB BRLI 0.4 0.46 1.92 Thursday BTO
IEC ELECTRS NEW IEC 0.06 0.16 -42.86 Thursday BTO
BLACKBERRY LTD BBRY -0.46 -0.22 6 Friday BTO
FINISH LINE-CLA FINL 0 0 20 Friday BTO
CARMAX GP (CC) KMX 0.48 0.41 8.77 Friday BTO
WALGREEN CO WAG 0.72 0.58 0 Friday BTO
ZUOAN FASHION ZA 0.19 0.53 14.29 Friday BTO

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