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Earnings Preview

Companies Struggling to Meet Expectations

The bulk of the 2013 Q4 earnings reports thus far have been from the Finance sector, but the reporting cycle ramps up materially this week, with almost 200 companies including 69 S&P 500 members reporting results. We will get results from a diverse group of bellwethers from industries, ranging from IBM (IBM) and Microsoft (MSFT - Analyst Report) to McDonald’s (MCD - Analyst Report), Starbucks (SBUX - Analyst Report) and Proctor & Gamble (PG - Analyst Report).  

The Finance centric results thus far indicate that companies are struggling to exceed the lowered earnings and expectations. The beat ratios, both for earnings and revenues, are weaker relative to what we would typically see at this stage of the reporting cycle. The growth picture looks good on surface, but a lot of that is due to easy comparisons.

It is hard to take a definitive feel for the guidance picture at this stage as we haven’t seen that many earnings reports outside of the Finance sector and banks typically don’t provide guidance. But the overall trend among the few non-financial companies continues to be towards negative guidance. The hope has been that the recent uptrend economic fundamentals will start showing up in improved management commentary that will stem the persistent downward revision trend in earnings estimates. We will know more this week, but recent results from the likes of Intel (INTC), CSX Corp (CSX) and UPS don’t inspire much confidence on that front.

Q3 Earnings Scorecard (as of Friday, 1/17/2013)

Total earnings for the 52 S&P 500 members that have reported already are up +14.8% from the same period last year, with a ‘beat ratio’ of 55.8% and a median surprise of +1.7%. Total revenues are up +3.4%, with a revenue ‘beat ratio’ of 51.9% and a median surprise of +0.9%. The earnings and revenue growth rates for these 52 companies are not materially different from what we have seen from them in recent quarters. But the beat ratios are on the weak side, as the chart below shows.

 

With results from almost 50% of the sector’s total market capitalization already known, Finance has the most representative sample of Q4 results of the major sectors. Total Finance sector are earnings are up +14.2% from the same period last year, with strong year-over-year gains at Bank of America (BAC) driving most of the gain.

Excluding the $2.7 billion positive year-over-year swing in BAC’s total earnings, growth for the sector would be down +3%. But even including Bank of America’s hefty contribution, the Finance sector’s growth rates and beat ratios at this stage don’t compare favorably to what we have seen from this same group of companies in recent quarters.

The insurance industry, the second largest in the Finance sector accounting for almost a quarter of its total earnings, will start reporting results this week as Travelers (TRV - Analyst Report) reports numbers. Total earnings for the insurance industry are expected to be up +41.6%, as the year-earlier period was held down by Sandy-related expenses.

The Composite Growth Picture

The ‘composite’ picture for Q4, where we combine the results from the 52 companies that have reported already with the 448 still to come, is for growth rate of +7.1%. This reflects +1.5% higher revenues and net margin gains of about 50 basis points. Finance remains a big growth driver in Q4 – total earnings growth for the S&P 500 in Q4 drop to +3.4% once the sector is excluded.  

Technology earnings are expected be flat in Q4, up only +1% after the +5.9% gain in Q3. We will have to wait a bit longer to get results from the sector’s growth leaders like Google (GOOG) and Facebook (FB) as the legacy players like IBM and Microsoft on the docket this week are unlikely to move the needle much.

Lack of corporate capital spending has been an issue for the sector for some time and the consensus view is that we will see a turnaround on that front later this year. We haven’t heard anything yet that will add to our confidence in that expectation. But this optimistic view is a big contributor to the expected upturn in the Tech sector’s growth estimate later this year. Total earnings for the sector are expected to be up +9.4% this year and +10.9% in 2015, pronounced acceleration from the flat reading in 2013.

Will Guidance Finally Turn Around?  

For obvious reasons, the market is very interested 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 +9.3% in 2014, up from +4.6% growth in 2013, with most of the growth coming in the back half of the year.

Monday-1/20

  • Nothing major on the economic or earnings calendars today because of the Martin Luther King Jr. holiday.

Tuesday -1/21

  • Nothing on the economic calendar, but a busy day on the earnings front.
  • Johnson & Johnson (JNJ), Verizon (VZ - Analyst Report), Travelers (TRV - Analyst Report) and Halliburton (HAL) are the key reports in the morning, while IBM (IBM) and Texas Instruments (TXN - Analyst Report) will report after the close.
  • Zacks Earnings ESP or Expected Earnings Surprise, our proprietary leading indicator of earnings surprises, is showing JNJ and TRV 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. JNJ has a Zacks Rank #3 (Hold) and Earnings ESP of +0.8%, while TRV has a Zacks Rank #2 (Buy) and positive ESP +0.5%.  
  • To get a better understanding of Zacks Earnings Surprise Predictor, please click here.  

 Wednesday-1/22

  • Another busy day on the earnings front and not much on the economic calendar.
  • Coach (COH), Abbott Labs (ABT), Norfolk Southern (NSC - Analyst Report) and United Technology (UTX - Analyst Report) are the key reports in the morning, while eBay (EBAY) will report after the close.
  • United Technology with Earnings ESP of +3.3% and Zacks Rank #3 is expected to come out with a positive earnings surprise, as is Norfolk Southern.

Thursday -1/23

  • A busy day on the economic calendar, with weekly Jobless Claims, December Existing Home sales and Leading Indicators coming out.
  • McDonald’s (MCD - Analyst Report), Union Pacific (UNP - Analyst Report) and Southwest Air (LUV - Analyst Report) are the key reports in the morning, while Microsoft (MSFT - Analyst Report) and Starbucks (SBUX - Analyst Report) will report after the close.
  • Starbucks’ 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-1/24

  • Nothing on the economic calendar.
  • Proctor & Gamble (PG - Analyst Report), Kimberly Clark (KMB), WW Grainger (GWW), and Kansas City Southern (KSU - Analyst Report) are the key reports today, all in the morning.


Here is a list of the 197 companies reporting this week, including 69 S&P 500 members.

Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
FIRST DEFIANCE FDEF 0.51 0.52 3.85 Monday AMC
INTL BUS MACH IBM 6.01 5.39 1.01 Tuesday AMC
JOHNSON & JOHNS JNJ 1.2 1.19 3.82 Tuesday BTO
ROCKWELL COLLIN COL 0.95 0.94 -2.29 Tuesday BTO
TRAVELERS COS TRV 2.15 0.72 18.09 Tuesday BTO
HALLIBURTON CO HAL 0.89 0.63 1.22 Tuesday BTO
BAKER-HUGHES BHI 0.66 0.62 3.85 Tuesday BTO
CA INC CA 0.68 0.61 22.06 Tuesday AMC
VERIZON COMM VZ 0.65 0.38 2.67 Tuesday BTO
XILINX INC XLNX 0.53 0.38 -5.77 Tuesday AMC
TEXAS INSTRS TXN 0.47 0.36 -1.75 Tuesday AMC
DELTA AIR LINES DAL 0.63 0.28 5.22 Tuesday BTO
REGIONS FINL CP RF 0.2 0.22 -4.76 Tuesday BTO
FOREST LABS A FRX 0.06 -0.21 157.14 Tuesday BTO
SAP AG ADR SAP 1.59 1.23 2.04 Tuesday BTO
SIGNATURE BANK SBNY 1.26 1.05 4.24 Tuesday BTO
WINTRUST FINL WTFC 0.7 0.61 9.23 Tuesday AMC
COMMNTY BK SYS CBU 0.53 0.52 3.85 Tuesday AMC
WOODWARD INC WWD 0.41 0.39 8.57 Tuesday AMC
MERCANTILE BANK MBWM 0.4 0.35 26.32 Tuesday BTO
PINNACLE FIN PT PNFP 0.43 0.34 0 Tuesday AMC
RENASANT CORP RNST 0.35 0.29 -31.43 Tuesday AMC
TD AMERITRADE AMTD 0.32 0.27 5.88 Tuesday BTO
CREE INC CREE 0.31 0.23 -6.25 Tuesday AMC
MARTEN TRANS MRTN 0.25 0.23 4.35 Tuesday AMC
PETMED EXPRESS PETS 0.23 0.23 -4.55 Tuesday BTO
FNB CORP FNB 0.21 0.23 4.76 Tuesday AMC
FULTON FINL FULT 0.2 0.2 5 Tuesday AMC
INTERACTIVE BRK IBKR 0.15 0.19 0 Tuesday AMC
STILLWATER MNG SWC 0.06 0.13 425 Tuesday BTO
SUPERTEX INC SUPX 0.18 0.12 41.18 Tuesday AMC
SUPER MICRO COM SMCI 0.22 0.11 0 Tuesday AMC
TRUSTCO BK -NY TRST 0.1 0.1 10 Tuesday AMC
OMNOVA SOLUTION OMN 0.12 0.07 -13.64 Tuesday BTO
SOUTHWEST BC-OK OKSB 0.2 0.05 11.76 Tuesday AMC
COASTAL CONTACT COA -0.13 -0.09 50 Tuesday BTO
SYNOVUS FINL CP SNV 0.05 -0.1 0 Tuesday BTO
NEW ORIENTAL ED EDU -0.01 -0.1 3.85 Tuesday BTO
ADV MICRO DEV AMD 0.06 -0.14 100 Tuesday AMC
IRONWOOD PHARMA IRWD -0.5 -0.41 12.07 Tuesday BTO
WESTERN DIGITAL WDC 2.08 2.09 3.92 Wednesday AMC
ABBOTT LABS ABT 0.58 1.52 7.84 Wednesday BTO
GENL DYNAMICS GD 1.76 1.39 9.52 Wednesday BTO
NORFOLK SOUTHRN NSC 1.5 1.3 10.07 Wednesday BTO
UTD TECHS CORP UTX 1.53 1.29 6.54 Wednesday BTO
COACH INC COH 1.12 1.23 0 Wednesday BTO
PARKER HANNIFIN PH 1.22 1.19 13.61 Wednesday BTO
STRYKER CORP SYK 1.22 1.14 -1.01 Wednesday AMC
MOTOROLA SOLUTN MSI 1.5 0.99 33.7 Wednesday BTO
SANDISK CORP SNDK 1.47 0.99 23.77 Wednesday AMC
AMPHENOL CORP-A APH 0.98 0.94 2.08 Wednesday BTO
ST JUDE MEDICAL STJ 0.97 0.92 1.12 Wednesday BTO
VARIAN MEDICAL VAR 0.9 0.89 -3.57 Wednesday AMC
F5 NETWORKS INC FFIV 0.91 0.88 0 Wednesday AMC
FREEPT MC COP-B FCX 0.81 0.78 38.1 Wednesday BTO
JACOBS ENGIN GR JEC 0.73 0.76 -3.45 Wednesday AMC
US BANCORP USB 0.75 0.75 0 Wednesday BTO
NORTHERN TRUST NTRS 0.75 0.71 -2.56 Wednesday BTO
TE CONNECT-LTD TEL 0.77 0.65 3.33 Wednesday BTO
EBAY INC EBAY 0.71 0.64 1.89 Wednesday AMC
TEXTRON INC TXT 0.61 0.56 -25.53 Wednesday BTO
NOBLE CORP PLC NE 0.85 0.5 21.43 Wednesday AMC
PROGRESSIVE COR PGR 0.42 0.34 0 Wednesday BTO
CROWN CASTLE CCI 0.16 0.22 -5.88 Wednesday AMC
ALLEGHENY TECH ATI -0.19 0.18 3.57 Wednesday BTO
NETFLIX INC NFLX 0.65 0.13 8.33 Wednesday AMC
UTD RENTALS INC URI 1.45 1.27 3.16 Wednesday AMC
FLAGSTAR BANCP FBC 0.1 1.12 -5.88 Wednesday AMC
ASML HOLDING NV ASML 1.26 0.97 -15.94 Wednesday BTO
TEXAS CAP BCSHS TCBI 0.79 0.82 -3.9 Wednesday AMC
FAIR ISAAC INC FICO 0.59 0.77 6.25 Wednesday AMC
RAYMOND JAS FIN RJF 0.73 0.69 47.62 Wednesday AMC
BANNER CORP BANR 0.66 0.69 0 Wednesday AMC
TAYLOR CAP GRP TAYC 0.34 0.66 -17.07 Wednesday AMC
NVE CORP NVEC 0.63 0.6 17.86 Wednesday AMC
BRINKER INTL EAT 0.58 0.5 -6.52 Wednesday BTO
EAST WEST BC EWBC 0.54 0.49 -1.85 Wednesday AMC
COHEN&STRS INC CNS 0.41 0.49 2.5 Wednesday AMC
RLI CORP RLI 0.56 0.44 47.37 Wednesday AMC
PREFERRED BANK PFBC 0.37 0.4 12.12 Wednesday N/A
EAGLE BCP INC EGBN 0.43 0.39 2.33 Wednesday AMC
ETHAN ALLEN INT ETH 0.42 0.39 6.45 Wednesday AMC
PAC PREMIER BCP PPBI 0.22 0.32 -21.74 Wednesday BTO
PTC INC PTC 0.37 0.26 13.04 Wednesday AMC
UMPQUA HLDGS CP UMPQ 0.24 0.26 -7.69 Wednesday AMC
SUSQUEHANNA BSH SUSQ 0.21 0.23 4.35 Wednesday AMC
CVB FINL CVBF 0.22 0.21 9.52 Wednesday AMC
PACIFIC CONTL PCBK 0.22 0.19 4.76 Wednesday AMC
BANCORPSOUTH BXS 0.28 0.18 0 Wednesday AMC
FIRST MIDWST BK FMBI 0.26 0.18 62.5 Wednesday BTO
LOGITECH INTL LOGI 0.15 0.1 240 Wednesday AMC
ADTRAN INC ADTN 0.14 0.08 31.82 Wednesday BTO
TAL EDUCATN-ADR XRS 0.09 0.07 3.57 Wednesday BTO
TERADYNE INC TER 0.04 0.07 4.55 Wednesday AMC
POLYCOM INC PLCM 0.06 0.04 -50 Wednesday AMC
8X8 INC EGHT 0.03 0.04 -16.67 Wednesday AMC
FUSION-IO INC FIO -0.18 0.03 -10.53 Wednesday AMC
ZHONE TECH INC ZHNE 0.05 0.02 50 Wednesday AMC
INTUITIVE SURG ISRG 3.75 4.25 18.05 Thursday AMC
PRECISION CASTP PCP 3.04 2.4 2.84 Thursday BTO
UNION PAC CORP UNP 2.49 2.19 0.4 Thursday BTO
LOCKHEED MARTIN LMT 2.02 1.78 13.72 Thursday BTO
MCDONALDS CORP MCD 1.39 1.38 1.33 Thursday BTO
BAXTER INTL BAX 1.25 1.26 0 Thursday BTO
DISCOVER FIN SV DFS 1.18 1.07 0 Thursday AMC
MICROSOFT CORP MSFT 0.67 0.81 14.81 Thursday AMC
AMERISOURCEBRGN ABC 0.79 0.67 6.76 Thursday BTO
KLA-TENCOR CORP KLAC 0.79 0.63 3.03 Thursday AMC
STARBUCKS CORP SBUX 0.69 0.57 0 Thursday AMC
JOHNSON CONTROL JCI 0.69 0.52 1.06 Thursday BTO
FIFTH THIRD BK FITB 0.42 0.46 -4.76 Thursday BTO
ALTERA CORP ALTR 0.3 0.37 8.82 Thursday AMC
LEGGETT & PLATT LEG 0.33 0.32 -2.27 Thursday AMC
INTL GAME TECH IGT 0.3 0.28 -11.76 Thursday AMC
KEYCORP NEW KEY 0.24 0.21 13.64 Thursday BTO
JUNIPER NETWRKS JNPR 0.27 0.19 0 Thursday AMC
SOUTHWEST AIR LUV 0.28 0.09 6.25 Thursday BTO
E TRADE FINL CP ETFC 0.2 -0.65 0 Thursday AMC
OPEN TEXT CORP OTEX 1.39 1.53 6.5 Thursday AMC
CASH AM INTL CSH 0.99 1.34 4.94 Thursday BTO
ARCTIC CAT INC ACAT 1.26 1.3 -12.82 Thursday BTO
TELEDYNE TECH TDY 1.22 1.17 2.63 Thursday BTO
AVNET AVT 1.11 1.01 2.27 Thursday BTO
DELUXE CORP DLX 0.99 0.95 4.35 Thursday BTO
CITY NATIONAL CYN 1.06 0.87 10 Thursday AMC
POPULAR INC BPOP 0.67 0.81 -15.71 Thursday BTO
ALASKA AIR GRP ALK 1.01 0.7 5.24 Thursday BTO
HUNT (JB) TRANS JBHT 0.79 0.7 -3.85 Thursday BTO
CELANESE CP-A CE 1.01 0.67 4.35 Thursday AMC
TESSCO TECH INC TESS 0.58 0.65 12.24 Thursday AMC
INDEP BK MASS INDB 0.62 0.61 5 Thursday AMC
BANKUNITED INC BKU 0.46 0.61 13.04 Thursday BTO
GATX CORP GMT 0.93 0.56 9 Thursday BTO
RESMED INC RMD 0.63 0.53 -1.75 Thursday AMC
HANCOCK HLDG CO HBHC 0.56 0.5 1.82 Thursday AMC
COLUMBUS MCKINN CMCO 0.33 0.49 16.13 Thursday BTO
SIMMONS FIRST A SFNC 0.5 0.48 9.76 Thursday BTO
CUBIST PHARM CBST 0.31 0.48 -25.45 Thursday AMC
HILL-ROM HLDGS HRC 0.51 0.47 8.33 Thursday BTO
DOLBY LAB INC-A DLB 0.33 0.47 30.56 Thursday AMC
SILICOM LIMITED SILC 0.63 0.46 12.24 Thursday BTO
FEDERATED INVST FII 0.36 0.44 2.7 Thursday AMC
MAXIM INTG PDTS MXIM 0.4 0.42 5.13 Thursday AMC
MATTHEWS INTL-A MATW 0.39 0.42 0 Thursday AMC
CABOT MICROELEC CCMP 0.61 0.41 20.69 Thursday BTO
MICROSEMI CORP MSCC 0.35 0.41 0 Thursday AMC
SANDY SPRING SASR 0.42 0.4 11.63 Thursday BTO
CUSTOMERS BANCP CUBI 0.33 0.4 6.45 Thursday BTO
HEXCEL CORP HXL 0.46 0.36 4.35 Thursday AMC
PEOPL BNCP-OHIO PEBO 0.34 0.36 9.76 Thursday BTO
SYNAPTICS INC SYNA 0.7 0.35 10.38 Thursday AMC
INFORMATICA CRP INFA 0.39 0.34 -16.67 Thursday AMC
COLUMBIA BK SYS COLB 0.35 0.34 0 Thursday BTO
CATHAY GENL BCP CATY 0.4 0.31 2.7 Thursday AMC
NETSCOUT SYSTMS NTCT 0.37 0.31 12 Thursday BTO
GLACIER BANCORP GBCI 0.36 0.29 6.06 Thursday AMC
FIDELITY SOUTHN LION 0.3 0.27 3.45 Thursday N/A
QUALITY SYS QSII 0.18 0.26 -8.7 Thursday BTO
ENTERPRISE FINL EFSC 0.41 0.23 18.92 Thursday N/A
BRIDGE CAP HLDG BBNK 0.28 0.23 7.41 Thursday AMC
OCEANFIRST FINL OCFC 0.21 0.23 3.57 Thursday AMC
WESTERN ALLIANC WAL 0.33 0.22 0 Thursday AMC
JANUS CAP GRP JNS 0.18 0.19 0 Thursday BTO
COBIZ FINL INC COBZ 0.18 0.17 21.43 Thursday AMC
NATL PENN BCSHS NPBC 0.17 0.17 0 Thursday BTO
CAPITALSOURCE CSE 0.17 0.16 20 Thursday BTO
BANCORP BNK/THE TBBK 0.13 0.15 -13.33 Thursday AMC
COMPUWARE CORP CPWR 0.12 0.12 50 Thursday AMC
CAPITAL BNK FIN CBF 0.21 0.1 10 Thursday BTO
FAIRCHILD SEMI FCS 0.09 0.1 41.67 Thursday BTO
AMER RIVER BSH AMRB 0.1 0.09 25 Thursday AMC
NOKIA CP-ADR A NOK 0.05 0.08 100 Thursday BTO
BRIGGS & STRATT BGG 0.1 0.07 -12.9 Thursday BTO
UTD CMNTY BK/GA UCBI 0.22 0.04 10.53 Thursday BTO
DIGI INTL INC DGII 0.05 0.04 28.57 Thursday AMC
DELTA APPAREL DLA -0.09 0.01 -76.67 Thursday AMC
CYPRESS SEMICON CY -0.01 -0.02 100 Thursday BTO
UROPLASTY INC UPI -0.05 -0.02 -50 Thursday AMC
UTD FINL BCP UBNK 0.24 -0.05 -11.54 Thursday AMC
OLD REP INTL ORI 0.18 -0.09 218.18 Thursday BTO
SHORETEL INC SHOR -0.05 -0.11 142.86 Thursday AMC
APPLD MICRO CIR AMCC 0.02 -0.2 -200 Thursday AMC
MGIC INVSTMT CP MTG -0.02 -2.33 133.33 Thursday BTO
GRAINGER W W GWW 2.63 2.42 -3.91 Friday BTO
KIMBERLY CLARK KMB 1.4 1.37 2.86 Friday BTO
STANLEY B&D INC SWK 1.3 1.37 0.72 Friday BTO
PROCTER & GAMBL PG 1.2 1.22 0 Friday BTO
STATE ST CORP STT 1.19 1.11 0 Friday BTO
HONEYWELL INTL HON 1.22 1.1 0 Friday BTO
COVIDIEN PLC COV 0.94 1.1 1.11 Friday BTO
KANSAS CITY SOU KSU 1.1 0.91 -0.9 Friday BTO
BRISTOL-MYERS BMY 0.43 0.47 4.55 Friday BTO
XEROX CORP XRX 0.29 0.3 4 Friday BTO
PROSPERITY BCSH PB 0.91 0.85 0 Friday BTO
WEST BANCORP WTBA 0.24 0.22 3.85 Friday BTO
FIRST NIAGARA FNFG 0.2 0.19 5.26 Friday BTO
IMMUNOGEN INC IMGN -0.18 -0.29 40.91 Friday BTO

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