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Previewing the Q1 Earnings Season

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We are still a couple of weeks away from the end of the March quarter, but the Q1 earnings season has gotten underway already. The four S&P 500 members that have reported results like Oracle (ORCL), Adobe Systems (ADBE) and others have come out with their February fiscal quarter results, which form part of our Q1 earnings tally. We have another 8 index members reporting results this week, including bellwethers like FedEx (FDX - Free Report) , Nike (NKE), and Accenture (ACN) and others.

The Oracle and Adobe reports have been very strong, with both companies showing plenty of momentum in their businesses, which likely helps frame earnings expectations for the Tech sector. This week’s report from Accenture should shed further light on this key sector, the strongest stock price performer in the year-to-date period.  

These early reports notwithstanding, the reporting cycle doesn’t take the spotlight till about mid-April, as the chart below of reporting calendar for the S&P 500 index clearly shows.

This Week’s Key Reports

FedEx (FDX - Free Report) – FedEx reports after the market’s close on Tuesday, March 21st, with the company expected to earn $2.65 per share on $14.98 billion in revenues, up +5.7% and +18% from the year-earlier level, respectively. The company missed expectations in the last earnings report on December 20th, which has weighed on the stock since then. The stock is down -2% since the last earnings report, underperforming the Zacks Transportation sector (up +1.3%) and the S&P 500 (up +4.8%). While FedEx’s surprise history has not been consistent, the stock always responds to the earnings report in a big way.

Nike (NKE) – Nike reports the same day as FedEx after the market’s close on Tuesday, March 21st. The company is expected to earn $0.52 per share on $8.45 billion in revenues, down -4.2% on +5.2% higher revenues from the year-earlier period, respectively. The stock responded positively to the last earnings report on December 20th, but has been a laggard over the past year (down -8.9%) relative to the Consumer Discretionary sector (up +13.8%) and the S&P 500 index (+16%). Competitive challenges from the likes of Under Armour and Adidas and the impact of problems in the retail chain on the company’s inventory situation have been the key issues in the Nike story. We should keep in mind, however, that while the Nike stock has been a laggard over the past year, Under Armour has been an even been bigger laggard.  

Accenture (ACN) – Accenture, the tech consulting firm, reports results before the market’s open on Thursday, March 23rd. The company is expected to earn $1.30 per share on $8.34 billion in revenues, down -3% on +5% higher revenues from the year-earlier period, respectively. The stock responds strongly to the earnings report – it was down in response to the last earnings report on December 21st but has done better than the S&P 500 index since the last earnings report. The key significance of the Accenture report is management’s commentary about technology spending trend, which offers read-throughs for IBM (IBM) and broader Technology space.

ConAgra (CAG), General Mills (GIS) and Micron Technology (MU) are some of the other notable reports this week.

Expectations for Q1

Total Q1 earnings are expected to be up +6.5% from the same period last year on +6.4% higher revenues. This would follow +7.3% earnings growth in 2016 Q4 on +4.7%, the highest growth pace in all most two years.

Estimates for Q1 came down as the quarter unfolded, with the current +6.5% growth down from +10.4% at the end of December. The chart below shows how Q1 earnings growth expectations have evolved over the last three months.

Please note that while Q1 estimates have followed well traversed path that we have been seeing consistently over the last few years, the magnitude of negative revisions compares favorably to other periods, particularly in the first half of last year and all of 2015. In other words, Q1 estimates have come down, but they haven’t come down by as much.

The table below shows the summary picture for Q1, contrasted with what was actually achieved in Q4.

Please note that the Q1 earnings season would follow the strong showing on the earnings front in the preceding reporting cycle. Not only did 2016 Q4 growth reach the highest in two years, but total earnings for the quarter also reached a new quarterly record. The strong Q4 performance came after the first positive earnings growth in 2016 Q3, having declined in each of the preceding 5 quarters, as the chart below of year-over-year earnings growth for the S&P 500 index shows.

Expectations Beyond Q1

The chart below shows the Q1 earnings growth contrasted with what is expected in the following three quarters and actual results in the preceding 5 quarters. As you can see in the chart below, the growth pace is expected to ramp up in 2017.

The market is reflecting this improved earnings backdrop as the chart below of the S&P 500 relative to forward 12-month Zacks Consensus estimates shows.

Please note that the earnings backdrop has not changed in any meaningful way since the November elections, notwithstanding the market’s strong gains since then. The only exception to this comment is the Finance sector whose earnings outlook has improved as a result of the uptrend in interest rates since November 8th. It is reasonable to expect that earnings estimates will move favorably once the new administration’s growth-friendly policies get enacted. For now, however, estimates are following the long-established trend of coming down.  

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Note: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here>>>

Here is a list of the 77 companies including 8 S&P 500 members reporting this week.

Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
JAMBA INCJMBA-0.04-0.28-20.00%MondayBTO
MOVADO GRP INCMOV0.180.428.17%MondayBTO
SHENANDOAH TELESHEN-0.210.24-28.57%MondayBTO
LENNAR CORP -ALEN0.560.635.51%TuesdayBTO
GENL MILLSGIS0.710.65-3.41%TuesdayBTO
COCA-COLA EU PTCCE0.460.532.78%TuesdayBTO
NEOGEN CORPNEOG0.270.223.57%TuesdayBTO
FIFTH STREET AMFSAM0.190.1833.33%TuesdayBTO
NIKE INC-BNKE0.520.5516.28%TuesdayAMC
FEDEX CORPFDX2.652.51-3.78%TuesdayAMC
STEELCASE INCSCS0.230.229.68%TuesdayAMC
AAR CORPAIR0.380.263.57%TuesdayAMC
PARNELL PHARMAPARNF-0.08-0.45-350.00%TuesdayAMC
SILVER WHEATONSLW0.170.14-13.64%TuesdayAMC
ATENTO SAATTO0.160.31-13.04%TuesdayAMC
PETROBRAS-ADR CPBR0.18-0.2133.33%TuesdayAMC
XCEL BRANDS INCXELB0.040.04-88.89%TuesdayAMC
LANDS END INCLE0.30.71-83.33%TuesdayN/A
AMAYA INCAYA0.60.410.53%WednesdayBTO
EVINE LIVE INCEVLV00.01-25.00%WednesdayBTO
ON TRACK INNOVOTIV0-0.03133.33%WednesdayBTO
PERRY ELLIS INTPERY0.60.3543.75%WednesdayBTO
QIWI PLC-ADRQIWI0.20.197.41%WednesdayBTO
TECOGEN INCTGENN/A-0.04125.00%WednesdayBTO
PVH CORPPVH1.221.527.88%WednesdayAMC
FRANCO NV CPFNV0.20.1525.00%WednesdayAMC
ASCENDIS PHARMAASND-0.61-0.54-14.29%WednesdayAMC
HERMAN MILLERMLHR0.330.46-1.82%WednesdayAMC
TRANSATL PETROLTAT-0.01-0.62-125.00%WednesdayAMC
FIVE BELOW INCFIVE0.890.7711.11%WednesdayAMC
CONAGRA BRANDSCAG0.450.688.89%ThursdayBTO
ACCENTURE PLCACN1.31.346.04%ThursdayBTO
ADV ACCELERATORAAAP-0.19-0.1-100.00%ThursdayBTO
PIERIS PHARMACTPIRS-0.13-0.07-7.69%ThursdayBTO
COMMERCIAL METLCMC0.120.15-41.18%ThursdayBTO
CANCER GENETICSCGIX-0.2-0.4817.86%ThursdayBTO
BIOLINE RX LTDBLRX-0.08-0.07-14.29%ThursdayBTO
HANWHA Q CELLSHQCL0.050.33138.10%ThursdayBTO
SCHOLASTIC CORPSCHL-0.27-0.063.65%ThursdayBTO
MICRON TECHMU0.77-0.0516.67%ThursdayAMC
CYMABAY THERAPTCBAY-0.3-0.2619.35%ThursdayAMC
BASIC EGY SVCSBAS-1.1-99.996.94%ThursdayAMC
OXFORD INDS INCOXM0.911.0922.22%ThursdayAMC
SHOE CARNIVALSCVL0.030.210.00%ThursdayAMC
UPLAND SOFTWAREUPLD-0.12-0.02141.18%ThursdayAMC
NEOVASC INCNVCNN/A-0.11-100.00%ThursdayAMC
KB HOMEKBH0.150.148.11%ThursdayAMC
GAMESTOP CORPGME2.292.44.26%ThursdayAMC
FINISH LINE-CLAFINL0.710.83-33.33%FridayBTO

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