Back to top

Earnings Outlook

The following excerpt is from this week's Earnings Trends.  To see the full report, please click here. 

Q4 Earnings Season Gets Underway

We are still a couple of weeks away from getting into the heart of 2013 Q4 earnings season. But the reporting cycle has gotten underway, with results from 18 S&P 500 companies out already. Even though these early reports from companies with fiscal quarters ending in November include a few industry leaders like Oracle (ORCL - Analyst Report), FedEx (FDX - Analyst Report), and Nike (NKE - Analyst Report), we can’t draw any firm conclusions from what we have seen thus far.

The real Q4 earnings story is not about the 18 companies that have reported already, but the remaining 482 companies. And as we have been seeing repeatedly over the past year or so, estimates have come down sharply as the quarter unfolded. The current expected Q4 total earnings growth for the S&P 500 of +6.3% is down quite a bit over the last three months, as the chart below shows


 
The actual earnings growth rate in Q4 will most certainly be higher than the +6.3% expected at this stage, a function of management’s highly refined expectations management game (more on that a little later). But even this growth rate will be the highest quarterly growth pace of 2013, as the chart below shows.

 


 

The chart above is a picture of accelerating growth. But looks could be deceiving, as the stronger-looking Q4 growth pace is primarily a function of easy comparisons, particularly for the Finance sector. Bank of America (BAC - Analyst Report) has a roughly $2 billion positive swing in its total earnings and many insurers like Chubb (CB - Analyst Report), Travelers (TRV - Analyst Report) and others don’t have to deal with the type of catastrophic losses they suffered in the 2012 East Coast storms. Outside of Finance, total earnings growth for the S&P 500 drops to +3.5%.

Key Points

  • Total earnings for the 18 S&P 500 companies that have reported results are up +3.2%, with 55.6% beating earnings expectations. Revenues for these companies are up +5.4%, with a revenue ‘beat ratio’ of 66.7%.
  • Total Q4 earnings for all S&P 500 companies, combing the 18 that have reported with the 482 still to come, are expected to be up +6.3%, which reflects +1.5% revenue growth and modest gains in margins. This compares to +5.1% earnings growth in Q3.
  • Easy comparisons, particularly for the Finance sector, account for a big part of the Q4 growth. Total earnings for the Finance sector are expected to be up +20.1%. Outside of Finance, total earnings growth drops to +3.5%.  
  • Technology sector earnings are expected to be flat from the year-earlier period, while earnings in the Energy, Medical, and Staples sectors are expected to be below the year-earlier level.
  • Earnings growth is expected to accelerate this year, with full-year 2014 earnings expected to be up +9.8% after the expected +4.6% growth in 2013. Total earnings are expected to increase a further +11% in 2015.
  • Guidance has overwhelmingly been negative in recent quarters and the trend from pre-announcements in the run up to the Q4 reporting season doesn’t appear to be much different either. It will be interesting to see if the recently quarterly trend of negative guidance will remain in place this quarter as well.

To see the Full Earnings Trends PDF, please click here

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
RPC INC RES 24.91 +8.35%
LITHIA MOTO… LAD 94.59 +4.60%
DELTA AIR L… DAL 39.15 +3.90%
FLAMEL TECH… FLML 14.51 +3.50%
SOUTHWEST A… LUV 28.87 +2.92%