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Earnings Preview

A Make or Break Week for Q1 Earnings Season

The 2014 Q1 reporting season is underway and we have results from 29 S&P 500 members. The reporting pace accelerates this week, with 126 companies announcing first-quarter results, including 56 S&P 500 members. While the Finance sector is heavily represented in this week’s list of companies reporting results, we have enough bellwethers from other sectors to give us a good representative of the Q1 earnings season.  

The low expectations for the Finance sector were borne out by the J.P. Morgan (JPM - Analyst Report) report and will most likely be reconfirmed by this week’s Finance-heavy line-up of results. There is plenty of read through from the J.P. Morgan and Wells Fargo (WFC - Analyst Report) reports, most of it negative, for this week’s reporters, particularly Bank of America (BAC), Goldman Sachs (GS) and Citigroup (C).

The mortgage banking weakness has been well known and no one was surprised by the sharp declines at both J.P. Morgan and Wells Fargo on that front. But even J.P. Morgan’s top-notch investment banking franchise couldn’t shield its results from the persistently weak capital market flows and volumes, particularly on the fixed income side. It doesn’t bode well for Goldman Sachs, Bank of America, and Citigroup, though Morgan Stanley has steadily reduced its reliance on the capital markets business.

Beyond Finance, we have plenty of leaders from other key sectors on deck for releasing results this week as well. From Google (GOOGL), IBM (IBM - Analyst Report), Intel (INTC - Analyst Report) and others in the Technology sector to Coke (KO - Analyst Report) and Pepsi (PEP - Analyst Report) in Consumer Staples and Transportation bellwethers like Union Pacific (UNP - Analyst Report) and CSX Corp (CSX) and much more in between, this week’s reports span the full spectrum of the economy. As such, it may not be unfair to characterize this as the make or break week for the Q1 earnings season. The trends established this week will likely carry through the rest of this reporting cycle with only minor changes.   

Scorecard for 2014 Q1 (as of Friday, April 10th)

Total earnings for the 29 S&P 500 members that have reported results are up +3.2% from the same period last year, with a ‘beat ratio’ of 58.6% and a median surprise of +2.5%. Total revenues are up +2.4%, with a revenue ‘beat ratio’ of 37.9% and a median surprise of -0.2%. Ex-finance is 12.7%

It’s premature to draw any conclusions from this small sample of results, but the growth rates and beat ratios for these 29 companies in Q1 are weaker than what we have seen from the same group of companies in other recent quarters. It has overall been a fairly uninspiring start to the Q1 earnings season.

The chart below shows how the earnings and revenue growth rates for Q1 thus far compare to what these same companies reported in 2013 Q4 and the 4-quarter average. Keep in mind, however, that we have a very small sample size at this stage.

Expectations for 2014 Q1

Total Q1 earnings for companies in the S&P 500 are currently expected to be down -4.0% from the same period last year, a material decline from the +2.1% growth expected in early January 2014. Estimates for Q1 started coming down at an accelerated pace as companies predominantly guided lower on the 2013 Q4 earnings calls, consistent with the trend we have been seeing for more than a year now.

The negative revision trend is widespread, but is particularly notable for the Retail, Basic Materials, Autos, Consumer Staples, and the Energy sectors, as the chart below shows.

With roughly two-thirds of S&P 500 companies beating earnings expectations in any reporting cycle, actual Q1 results will almost certainly be better than these pre-season expectations. But Q1 is unlikely to repeat the performance of the last few quarters where we would witness a new all-time earnings total record each quarter. Total earnings for the S&P 500 reached a new all-time record of $267.4 billion in 2013 Q4.

Current estimates for 2014 Q1 aggregate to a quarterly total of $247.1 billion, but the expectation is that Q1 will be the low point for earnings this year, both in terms of earnings totals as well as the growth rate. Consensus expectations reflect a rebound in Q2, with the earnings totals in each of the following three quarters of the year setting new all-time records one after the other.

The chart below shows the aggregate quarterly earnings for the S&P 500 as whole.

 

Given the low Q1 expectations, it wouldn’t take much for companies to come out ahead of them. Roughly two-thirds of the S&P 500 members beat earnings expectations every quarter any way. So, more results along those lines would be nothing new and wouldn’t tell us much about the health of corporate earnings.

What we haven’t seen for a while instead is some evidence of strength on the revenue front and favorable comments from management teams about business outlook. Corporate guidance has been negative for almost two years now, causing estimates to keep coming down and the long hoped-for earnings growth turnaround getting pushed forward.  Guidance is important in any earnings season, but it is particularly important this time around given the relatively elevated expectations for the second half of the year and beyond.

For a detailed look at the earnings picture, please check out our weekly Earnings Trends report.

Monday-4/14

  • We will get the March Retail Sales numbers in the morning, with expectations of +0.8% growth following the +0.3% gain the month before.
  • Citigroup and the M&T Banks (MTB - Analyst Report) will be the notable earnings reports today, both in the morning.


Tuesday -4/15

  • We will get the March CPI and the April Empire State manufacturing survey and the homebuilder sentiment index in the morning.
  • Johnson & Johnson (JNJ - Analyst Report) and Coca Cola (KO - Analyst Report) will be the key reports in the morning, while Intel (INTC - Analyst Report), Yahoo (YHOO - Analyst Report) and CSX Corp (CSX) will report after the close.
  • Zacks Earnings ESP or Expected Surprise Prediction, our proprietary leading indicator of positive earnings surprises, is showing Intel coming out with a positive earnings surprise.
  • Our research shows that companies with Zacks Rank of 1, 2 or 3 and positive Earnings ESP are highly likely of beating EPS estimates. Intel currently has Zacks Rank #3 (Hold) and Earnings ESP of +2.7%.
  • To get a better understanding of Zacks Earnings ESP, please click here.  

Wednesday-4/16

  • We will get the March Housing Starts and Industrial Production reports, with expectations of strong gains on the Starts front.
  • Bank of America and Abbot Labs (ABT) will report in the morning, while Google (GOOGL), IBM (IBM - Analyst Report) and American Express (AXP).

Thursday -4/17

  • In addition to Jobless Claims, we will get the April Philly Fed manufacturing survey.
  • A very busy day on the earnings with a host of bellwethers reporting results today. The notable names include DuPont (DD), General Electric (GE), Goldman Sachs (GS), Pepsi (PEP - Analyst Report), Morgan Stanley (MS - Analyst Report), Schlumberger (SLB - Analyst Report) and Baker Hughes (BHI).

Friday-4/18

  • Good Friday, Markets Closed.  


Here is a list of the 126 companies reporting this week, including 56 S&P 500 members.

 

Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
CITIGROUP INC C 1.18 1.29 -19.15 Monday BTO
M&T BANK CORP MTB 1.61 2.06 -6.28 Monday BTO
INFOSYS LTD INFY 0.79 0.78 8 Monday AMC
HUNT (JB) TRANS JBHT 0.63 0.61 -2.53 Monday BTO
SEMILEDS CORP LEDS -0.21 -0.22 14.81 Monday AMC
BANK OZARKS OZRK 0.65 0.56 3.13 Monday AMC
PEP BOYS M M &J PBY 0.06 -0.05 -61.54 Monday AMC
PINNACLE FIN PT PNFP 0.45 0.39 2.33 Monday AMC
TRIANGLE PETROL TPLM 0.1 -0.2 -25 Monday AMC
COMERICA INC CMA 0.72 0.7 4.05 Tuesday BTO
CSX CORP CSX 0.38 0.45 -2.33 Tuesday AMC
INTEL CORP INTC 0.37 0.4 -1.92 Tuesday AMC
JOHNSON & JOHNS JNJ 1.48 1.44 3.33 Tuesday BTO
COCA COLA CO KO 0.44 0.46 0 Tuesday BTO
LINEAR TEC CORP LLTC 0.46 0.47 4.55 Tuesday AMC
NORTHERN TRUST NTRS 0.78 0.71 -1.32 Tuesday BTO
SCHWAB(CHAS) SCHW 0.22 0.15 9.52 Tuesday BTO
YAHOO! INC YHOO 0.29 0.34 30 Tuesday AMC
BOSTON PRIV FIN BPFH 0.2 0.13 5.26 Tuesday AMC
COMVERSE INC CNSI N/A 0.49 277.27 Tuesday BTO
INTERACTIVE BRK IBKR 0.29 0.14 -53.33 Tuesday AMC
MARTEN TRANS MRTN 0.17 0.21 -12 Tuesday AMC
SKF AB SKFRY N/A 0.27 N/A Tuesday BTO
SENSIENT TECH SXT 0.66 0.62 1.61 Tuesday BTO
WESTAMER BANCP WABC 0.58 0.64 -4.76 Tuesday N/A
WINTRUST FINL WTFC 0.66 0.65 0 Tuesday AMC
ABBOTT LABS ABT 0.35 0.42 0 Wednesday BTO
AMER EXPRESS CO AXP 1.3 1.15 -0.79 Wednesday AMC
BANK OF AMER CP BAC 0.05 0.2 11.54 Wednesday BTO
CAPITAL ONE FIN COF 1.68 1.92 -3.9 Wednesday AMC
GOOGLE INC-CL A GOOGL 5.37 10 -4.06 Wednesday AMC
GRAINGER W W GWW 2.97 2.94 -1.52 Wednesday BTO
HUNTINGTON BANC HBAN 0.17 0.17 11.76 Wednesday BTO
INTL BUS MACH IBM 2.54 3 2 Wednesday AMC
KANSAS CITY SOU KSU 0.98 0.89 -6.36 Wednesday AMC
NOBLE CORP PLC NE 0.69 0.59 -1.2 Wednesday AMC
PEOPLES UTD FIN PBCT 0.2 0.18 0 Wednesday AMC
PNC FINL SVC CP PNC 1.66 1.76 3.05 Wednesday BTO
SLM CORP SLM 0.56 0.61 -11.59 Wednesday AMC
SANDISK CORP SNDK 1.17 0.79 8.84 Wednesday AMC
ST JUDE MEDICAL STJ 0.95 0.92 3.13 Wednesday BTO
US BANCORP USB 0.73 0.73 1.33 Wednesday BTO
ADTRAN INC ADTN 0.16 0.14 50 Wednesday BTO
ASTORIA FINL CP AF 0.15 0.14 20 Wednesday AMC
ALBEMARLE CORP ALB 0.95 0.93 3.85 Wednesday AMC
ASML HOLDING NV ASML 0.81 0.49 15.87 Wednesday BTO
B&G FOODS CL-A BGS 0.39 0.37 -12.5 Wednesday AMC
BADGER METER BMI 0.44 0.2 4.76 Wednesday AMC
CATHAY GENL BCP CATY 0.39 0.3 0 Wednesday AMC
CROWN HLDGS INC CCK 0.51 0.5 -4 Wednesday AMC
COHEN&STRS INC CNS 0.4 0.44 4.88 Wednesday AMC
CREDIT SUISSE CS N/A 0.8 N/A Wednesday N/A
ELECTRN IMAGING EFII 0.23 0.25 -16.67 Wednesday AMC
EASTGROUP PPTYS EGP 0.82 0.76 0 Wednesday AMC
EAST WEST BC EWBC 0.51 0.5 0 Wednesday AMC
FIRST REP BK SF FRC 0.64 0.72 0 Wednesday BTO
HANCOCK HLDG CO HBHC 0.57 0.56 -1.79 Wednesday AMC
HNI CORP HNI 0.09 0.03 11.11 Wednesday AMC
HOOKER FURNITUR HOFT 0.23 0.34 -20 Wednesday N/A
NEUSTAR INC -A NSR 0.78 0.72 -2.6 Wednesday AMC
PACIFIC CONTL PCBK 0.21 0.19 -9.09 Wednesday AMC
PLEXUS CORP PLXS 0.6 0.52 0 Wednesday AMC
PLATINUM UNDRWT PTP 1.24 2.24 40.65 Wednesday AMC
RLI CORP RLI 0.54 0.52 28.57 Wednesday AMC
STEEL DYNAMICS STLD 0.16 0.21 -4 Wednesday AMC
UNIVL FST PRODS UFPI 0.47 0.26 105.56 Wednesday AMC
UTD RENTALS INC URI 0.7 0.58 9.66 Wednesday AMC
ALLIANCE DATA ADS 2.59 2.36 2.29 Thursday BTO
AUTONATION INC AN 0.75 0.68 7.79 Thursday BTO
BAXTER INTL BAX 1.11 1.05 0.8 Thursday BTO
BB&T CORP BBT 0.71 0.69 0 Thursday BTO
BAKER-HUGHES BHI 0.8 0.65 1.64 Thursday BTO
BLACKROCK INC BLK 4.11 3.65 12.33 Thursday BTO
CHIPOTLE MEXICN CMG 2.82 2.35 0.4 Thursday BTO
ROCKWELL COLLIN COL 1.06 1.17 1.05 Thursday BTO
DU PONT (EI) DE DD 1.6 1.56 7.27 Thursday BTO
DANAHER CORP DHR 0.8 0.75 1.05 Thursday BTO
DOVER CORP DOV 1.02 1.1 0 Thursday BTO
FIFTH THIRD BK FITB 0.41 0.44 0 Thursday BTO
GENL ELECTRIC GE 0.32 0.39 0 Thursday BTO
GOLDMAN SACHS GS 3.43 4.29 11.11 Thursday BTO
HONEYWELL INTL HON 1.26 1.21 1.64 Thursday BTO
KEYCORP NEW KEY 0.24 0.21 8.33 Thursday BTO
MATTEL INC MAT 0.08 0.11 -10.83 Thursday BTO
MORGAN STANLEY MS 0.6 0.61 13.64 Thursday BTO
PEPSICO INC PEP 0.75 0.77 3.96 Thursday BTO
PHILIP MORRIS PM 1.17 1.29 0 Thursday BTO
PPG INDS INC PPG 1.98 1.58 4.62 Thursday BTO
SHERWIN WILLIAM SHW 1.08 1.11 1.57 Thursday BTO
SCHLUMBERGER LT SLB 1.2 1.01 2.27 Thursday BTO
SNAP-ON INC SNA 1.55 1.4 3.23 Thursday BTO
UNITEDHEALTH GP UNH 1.09 1.16 0.71 Thursday BTO
UNION PAC CORP UNP 2.37 2.03 2.41 Thursday BTO
ACACIA RESEARCH ACTG 0.06 0.37 -428.57 Thursday AMC
ACTELION LTD ALIOF 1.12 0.98 101.43 Thursday N/A
ALLISON TRANSMN ALSN 0.24 0.41 112.5 Thursday BTO
ADV MICRO DEV AMD 0 -0.13 0 Thursday AMC
AMER RIVER BSH AMRB 0.09 0.07 0 Thursday AMC
ASSOC BANC CORP ASBC 0.26 0.27 0 Thursday AMC
ATHENAHEALTH IN ATHN -0.01 0.16 53.57 Thursday AMC
BLACKSTONE GRP BX 0.56 0.55 38.27 Thursday BTO
CAPITAL BNK FIN CBF 0.24 0.26 14.29 Thursday AMC
CEPHEID INC CPHD -0.19 0.02 30 Thursday AMC
CYPRESS SEMICON CY -0.04 -0.05 -300 Thursday BTO
FIRST CASH FINL FCFS 0.67 0.68 -10.11 Thursday BTO
FAIRCHILD SEMI FCS 0.03 -0.04 22.22 Thursday BTO
FIRST HRZN NATL FHN 0.15 0.17 23.53 Thursday BTO
HOME LOAN SERVC HLSS 0.53 0.44 12 Thursday BTO
HOME BANCSHARES HOMB 0.42 0.31 -43.24 Thursday BTO
HUB GROUP INC-A HUBG 0.37 0.42 4.17 Thursday AMC
INDEP BK MASS INDB 0.55 0.58 -1.61 Thursday AMC
INVESTORS BANCP ISBC 0.24 0.25 0 Thursday AMC
KNOLL INC KNL 0.12 0.13 -8.7 Thursday BTO
NATL PENN BCSHS NPBC 0.17 0.16 0 Thursday BTO
POOL CORP POOL 0.11 0.07 0 Thursday BTO
PRIVATEBANCORP PVTB 0.41 0.35 4.88 Thursday BTO
SAP AG ADR SAP 0.62 0.75 1.89 Thursday BTO
SANDY SPRING SASR 0.38 0.42 -9.52 Thursday BTO
SELECT COMFORT SCSS 0.31 0.42 -20 Thursday AMC
SIMMONS FIRST A SFNC 0.48 0.37 -4 Thursday BTO
SONOCO PRODUCTS SON 0.52 0.5 0 Thursday BTO
TAIWAN SEMI-ADR TSM N/A 0.26 3.57 Thursday BTO
WEBSTER FINL CP WBS 0.49 0.44 4 Thursday BTO
WIPRO LTD-ADR WIT 0.13 0.12 8.33 Thursday BTO
WATSCO INC WSO 0.47 0.39 2.04 Thursday BTO
CHINA ZENIX AUT ZX 0.29 0.13 N/A Thursday BTO

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