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Jobs in Focus as Q4 Earnings Reports Trickle In

The focus this week is justifiably on the labor market data, particularly the government jobs report coming out on Friday. The overall tone of recent U.S. economic data has been favorable, prompting positive revisions to Q4 GDP growth. Given this underlying momentum, it is perhaps reasonable to look for a positive surprise to the expected 190K ‘headline’ jobs reading on Friday. Also of interest in the economic docket will be minutes of the Fed’s December that resulted in the ‘Taper’ announcement.

The labor market will no doubt be the big subject this week, but the drumbeat for the start of the 2013 Q4 earnings season will also get underway this week. We only have 6 S&P 500 companies reporting results this week, including Alcoa (AA), Monsanto (MON - Analyst Report), and Family Dollar (FDO - Analyst Report), with the full list of companies reporting in the week totaling about 40. The Q4 earnings season will get in the spotlight the following week when J.P. Morgan (JPM - Analyst Report) and Wells Fargo (WFC - Analyst Report) will report results.

The 6 S&P 500 companies reporting this week aren’t (officially) the first Q4 earning releases. Companies with fiscal quarters ending in November start reporting in mid-December and get counted as part of the Q4 earnings season. By this definition, we already have seen reports from 18 S&P 500 members, including such industry bellwethers as FedEx (FDX - Analyst Report), Oracle (ORCL - Analyst Report), and Nike (NKE - Analyst Report).

Here is the Scorecard for the 18 S&P 500 companies that have already reported Q4 results, as of Friday, January 3, 2014. Total earnings for these 18 companies (not EPS, median or otherwise) are up +3.2% from the same period last year, with a ‘beat ratio’ of 55.6% and a median surprise of +1.5%. Total revenues are up +5.4%, with an impressive revenue ‘beat ratio’ of 66.7% and a median surprise of +1.3%.

In comparative terms, the earnings growth for these 18 companies is below what these same companies reported in recent quarters, while performance on the revenue front compares favorably to the recent past.

But the Q4 earnings season’s story isn’t about the few companies that have reported, but rather about the still-to-come reports. To that point, the ‘composite’ picture for Q4, where we combine the results from the 18 companies that have reported already with the 488 still to come, is for growth rate of +6.3%. As has been the case at the start of recent quarterly earnings cycles, the current +6.3% growth rate for Q4 represents a sharp drop over the last three months, 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. A big reason for that is easy comparisons, as 2012 Q4 represented the lowest quarterly earnings total for the S&P 500 in the last six quarters, with the comps particularly easy for the Finance sector, helping produce the sector’s impressive +20.1% growth rate.

Within the Finance sector, the comparisons are particularly easy for the insurance industry – the industry alone accounts for more than a quarter of the sector’s total earnings – given the impact on the industry’s profitability from the East Coast storms in late 2012. Total earnings for the insurance industry are expected to be up more than +40% in Q4, with all the major industry players like Chubb (CB - Analyst Report) and Travelers (TRV - Analyst Report) producing strong growth rates.   

While easy comparisons are driving the year over year growth rate in Q4, there hasn’t been much growth lately despite very high level overall total earnings. Total earnings for companies in the S&P 500 reached an all-time record at $262.5 billion, surpassing the previous record reached the quarter before. Current estimates for Q4 work out to a modestly lower total for the quarter. But when all is said and done about Q4, we will likely have seen another quarterly 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 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 +9.8% in 2014, up from +4.6% growth in 2013, with most of the growth coming in the back half of the year.

Monday-1/6

  • We will get the December non-manufacturing ISM index reading, with expectations of an increase to 54.6 from November’s 53.9 level.

Tuesday -1/7

  • We will get the November Trade Deficit data in the morning, with expectations of a modestly lower deficit than the month before.
  • Micron Technology (MU - Analyst Report) and the Apollo Group (APOL) are the only notable earnings release today, both after the close.
  • Zacks Earnings ESP or Expected Earnings Surprise, our proprietary leading indicator of earnings surprises, is showing Micron coming out with an earnings beat.
  • Stocks with positive Earnings ESP and Zacks Rank of 1, 2 or 3 are highly likely to come out with positive earnings surprises. Micron has a Zacks Rank #3 (Hold) and Earnings ESP of +7.3%.  
  • To understand Zacks Earnings ESP better, please click here

 Wednesday-1/8

  • We will get the ADP jobs report in the morning, with consensus expectations of 230K private sector jobs in December, up from November’s 215K level. Also coming out in the afternoon are the minutes of the Fed’s December meeting where they decided the ‘Taper’ question.
  • Constellation Brands (STZ - Analyst Report) and Monsanto (MON - Analyst Report) will be the key reports in the morning, while Bed, Bath & Beyond (BBBY) will report after the close.

Thursday -1/9

  • Jobless Claims is the only economic report on the docket today.
  • Family Dollar (FDO - Analyst Report) and Super Value (SVU - Analyst Report) will report in the morning, while Alcoa (AA) reports after the close.
  • Alcoa’s Zacks Rank #3 (Hold) and Earnings ESP of +2.9% show that the company is highly likely to come out with a positive earnings surprise.  

Friday-1/10

  • We will get the December non-farm payroll report in the morning, with expectations of ‘headline’ gains of 190K vs. 203K the month before. The unemployment rate is expected to remain unchanged at 7%.


Here is a list of the 40 companies reporting this week, including 6 S&P 500 members.

Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
SCHULMAN(A) INC SHLM 0.48 0.5 22.22 Monday AMC
CALAVO GROWERS CVGW 0.38 0.42 29.73 Monday BTO
PARK ELECTROCHE PKE 0.28 0.25 -3.33 Monday N/A
ZEP INC ZEP 0.16 0.2 21.74 Monday BTO
SONIC CORP SONC 0.14 0.11 0 Monday AMC
MICRON TECH MU 0.43 -0.27 -8.7 Tuesday AMC
CONTAINER STORE TCS 0.08 N/A N/A Tuesday AMC
APOLLO GROUP APOL 0.9 1.22 120 Tuesday AMC
IHS INC-A IHS 0.87 0.91 10.67 Tuesday BTO
TEAM INC TISI 0.62 0.66 -36.11 Tuesday AMC
COMMERCIAL METL CMC 0.21 0.28 47.06 Tuesday BTO
FRANKLIN COVEY FC 0.14 0.15 67.86 Tuesday AMC
SYNERGY RES CP SYRG 0.08 0.04 -33.33 Tuesday N/A
BED BATH&BEYOND BBBY 1.15 1.03 0.87 Wednesday AMC
CONSTELLATN BRD STZ 0.91 0.63 7.87 Wednesday BTO
MONSANTO CO-NEW MON 0.63 0.62 -9.3 Wednesday BTO
UNIFIRST CORP UNF 1.62 1.54 8.57 Wednesday BTO
MSC INDL DIRECT MSM 0.94 1.01 6.74 Wednesday BTO
GLOBAL PAYMENTS GPN 1.02 0.93 6.38 Wednesday AMC
WD 40 CO WDFC 0.73 0.69 17.78 Wednesday AMC
AZZ INC AZZ 0.71 0.6 -12.31 Wednesday BTO
VOXX INTL CP VOXX 0.49 0.56 12.5 Wednesday AMC
RPM INTL INC RPM 0.46 0.4 10 Wednesday BTO
GREENBRIER COS GBX 0.54 0.35 31.67 Wednesday BTO
MISTRAS GROUP MG 0.3 0.32 36.36 Wednesday AMC
NATL AMER UNIV NAUH 0.04 0.11 0 Wednesday AMC
EXFO INC EXFO 0.01 0 300 Wednesday AMC
SCHNITZER STEEL SCHN -0.07 -0.02 -240 Wednesday BTO
RUBY TUESDAY RT -0.21 -0.07 -420 Wednesday AMC
TEXAS INDS TXI -0.23 -0.36 -80 Wednesday AMC
FAMILY DOLLAR FDO 0.69 0.69 3.61 Thursday BTO
ALCOA INC AA 0.06 0.06 83.33 Thursday AMC
BARRACUDA NTWRK CUDA 0 N/A N/A Thursday AMC
SYNNEX CORP SNX 1.17 1.16 30.53 Thursday AMC
INFOSYS LTD INFY 0.75 0.76 4.29 Thursday AMC
ACUITY BRANDS AYI 0.85 0.69 0.98 Thursday BTO
PRICESMART INC PSMT 0.74 0.66 2.99 Thursday AMC
ANGIODYNAMICS ANGO 0.07 0.1 33.33 Thursday AMC
SUPERVALU INC SVU 0.13 0.03 18.18 Thursday BTO
E2OPEN INC EOPN -0.25 0.02 5.56 Thursday AMC

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