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Looking Ahead to Q4 Earnings

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With the third quarter earnings season (almost) over and the fourth quarter reporting season still a few weeks away, we are at a relatively quiet phase in the earnings cycle. But we are continuing to see downbeat guidance from management teams, as recent announcements from Yum Brands (YUM) and Tiffany (TIF) show.

In fact, a far bigger proportion of the companies have guided lower this time around than we have seen in any quarter since the post-recession earnings recovery got underway in 2009. As a result, estimates for the fourth quarter have been steadily coming down over the last months. At this stage, total earnings for companies in the S&P 500 are expected to be up 2.2% from the same period last year. This is significantly lower than the roughly 8% growth expected as the third quarter reporting season was getting underway two months back.

But while estimates for the fourth quarter have come down, we have not seen much downward adjustment to estimates for full-year 2013. Total earnings next year are still expected to be up 11%, which would follow the 4.7% growth in 2012.

Given the tough macroeconomic backdrop -- not just in the U.S. but all over the world -- next year’s growth expectations appear to be on the optimistic side. We will most likely see next year’s estimates start coming down as management teams discuss full-year outlooks on the fourth quarter earnings calls. The market will have to come to grip with this tepid earnings picture after it is through with the ‘Fiscal Cliff’ debate.

But before we can start thinking about the fourth quarter earnings season, we need to close the books on the third quarter reporting cycle. We are almost there, but still have a handful of companies still to report third quarter results.

As of Friday, November 30th, we have third quarter results from 494 companies in the S&P 500. This week brings us closer to the end point, with 61 companies reporting quarterly results, including 5 S&P 500 companies.  

With respect to the scorecard for the 494 companies that have already reported results, total earnings are barely in the positive territory (up 0.1%) relative to the same period last year and only 62.8% of the companies came out with positive earnings surprises. Total revenues are down 0.6%, with only 38.9% of the companies beating revenue expectations. The numbers look even weaker once Finance is excluded. Excluding Finance, total earnings in the quarter were down 4%, while total revenues were down 1.3%.

Half of the 16 Zacks sectors had negative year-over-year earnings growth, with only two sectors producing double-digit earnings growth – Finance (up 23.3%) and Construction (up 56.6%). Negative surprises from a host of tech giants this earnings season, including such reliable players as Apple (AAPL) and Microsoft (MSFT), are showing up in the Tech sector’s sub-par performance in the quarter. Total Tech sector earnings were barely in the positive, up only 0.5%. And the picture is expected to get even worse in the fourth quarter, with total Tech sector earnings expected to be down 4.4%.  

The economic landscape has been dominated by the ‘Fiscal Cliff’ debate lately and the trend is unlikely to change this week even though we have a number of top-tier economic reports on deck. The most important report coming out this week is the November jobs report on Friday, but we also have the manufacturing and service-sector ISM surveys on this week’s calendar. Given the distortions created by Superstorm Sandy, it will be difficult to get a clear read on underlying economic trends from even these top-tier indicators.

Monday - 12/3

  • We have the November manufacturing ISM report coming out in the morning, with expectations of a modest pullback from October’s 52.4 level. We also get October’s Construction Spending and November motor vehicle sales data.

Tuesday - 12/4

  • Nothing major on the economic calendar today.
  • We have Big Lots (BIG) and Toll Brothers (TOL) reporting in the morning, while Pandora Media (P) and Mitcham Industries (MIND) report after the close.
  • Zacks ESP (Expected Surprise Prediction), our proprietary leading indicator of earnings surprise, is showing Mitcham beating expectations, while Big Lots and Pandora coming up short.

Wednesday - 12/5

  • We will get the November ADP report in the morning, with expectations of 120K jobs created compared to October’s 158K. We will also get the non-manufacturing ISM report for November, with expectations of a modest decline from October’s 54.2 level.
  • We have Brown-Forman (BF.B) reporting results in the morning, while Men’s Wearhouse (MW) and Greif (GEF) report after the close.
  • Zacks ESP is indicating that Brown-Forman will beat expectations, while Men’s Wearhouse will come up short.

Thursday - 12/6

  • We will get the weekly Jobless Claims data in the morning, with expectations of further declines as the Sandy-related distortions ease.
  • We have Smithfield Food (SFD) and Lululemon Athletica (LULU) reporting in the morning, while Smith & Wesson (SWHC) and Cooper Cos. (COO) report after the close.
  • Zacks ESP is showing Lululemon beating expectations, while Smithfield coming short.

Friday - 12/7

  • We will get the November non-farm payroll report coming out in the morning, with expectations of 80K jobs during the month, down from October’s 171K tally. The unemployment rate is expected to remain unchanged at 7.9%. The actual numbers could vary quite a bit relative to these expectations due to Sandy-related effects.
  • We also have the preliminary University of Michigan sentiment survey for December coming out, with expectations of a modest improvement from November’s final 82.7 level.

Here is a list of the 61 companies reporting this holiday-shortened week, including 5 S&P 500 members:

Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
CASELLA WASTE CWST -0.26 -0.02 -24 Monday AMC
CONNS INC CONN 0.27 -0.12 2.86 Monday BTO
LDK SOLAR CO LDK -1.3 -0.51 -28.67 Monday BTO
AEROVIRONMENT AVAV 0.21 0.3 -100 Tuesday AMC
AMTEC SYSTEMS ASYS -0.52 0.5 40.38 Tuesday AMC
AUTOZONE INC AZO 5.4 4.68 0.83 Tuesday BTO
BANK MONTREAL BMO 1.42 1.25 7.14 Tuesday BTO
BIG LOTS INC BIG -0.24 0.06 -12.2 Tuesday BTO
BRIDGELINE SFWR BLIN -0.01 0.02 75 Tuesday AMC
FEMALE HEALTH FHCO 0.11 0.07 125 Tuesday BTO
JTH HOLDING INC TAX -0.5 -0.38 N/A Tuesday BTO
MATTRESS FIRM MFRM 0.41 0.55 7.14 Tuesday AMC
MITCHAM INDS MIND 0.21 0.52 14.29 Tuesday AMC
NCI BLDG SYSTEM NCS 0.08 -0.19 225 Tuesday AMC
OXFORD INDS INC OXM 0.22 0.16 3.17 Tuesday AMC
PANDORA MEDIA P -0.02 0 57.14 Tuesday AMC
PEP BOYS M M &J PBY 0.17 0.13 -20 Tuesday BTO
PHOTRONICS INC PLAB 0.04 0.14 6.67 Tuesday AMC
POWELL INDS POWL 0.67 0.16 117.02 Tuesday AMC
RESOURCE AMER-A REXI -0.15 -0.01 -412.5 Tuesday AMC
SEACHANGE INTL SEAC 0.04 0.09 -133.33 Tuesday AMC
TOLL BROTHERS TOL 0.23 0.09 44.44 Tuesday BTO
VAIL RESORTS MTN -1.6 -1.54 3.85 Tuesday BTO
VITESSE SEMICON VTSS -0.03 -0.27 400 Tuesday AMC
ASCENA RETAIL ASNA 0.34 0.32 -5.56 Wednesday AMC
BROWN FORMAN B BF.B 0.78 0.73 11.29 Wednesday BTO
FINISAR CORP FNSR 0.06 0.17 -77.78 Wednesday AMC
FRANCESCAS HLDG FRAN 0.22 0.11 16.67 Wednesday BTO
GREIF INC GEF 0.7 0.64 5.63 Wednesday AMC
MENS WEARHOUSE MW 0.97 0.79 2.68 Wednesday AMC
REX AMERICAN RS REX -0.23 0.65 -80 Wednesday BTO
SAIC INC SAI 0.35 0.35 -3.03 Wednesday AMC
SIGMA DESIGNS SIGM -0.29 -0.17 52.27 Wednesday AMC
SYNOPSYS INC SNPS 0.38 0.45 0 Wednesday AMC
SYSWIN INC-ADS SYSW 0.09 0 200 Wednesday AMC
TORO CO TTC 0 0.08 8.06 Wednesday BTO
VERA BRADLEY VRA 0.38 0.32 -5.71 Wednesday AMC
ALICO INC ALCO -0.12 -0.2 -25.99 Thursday N/A
ANALOGIC CORP ALOG 0.69 0.41 44.93 Thursday AMC
BLOCK H & R HRB -0.4 -0.38 -2.7 Thursday AMC
CANTEL MED CORP CMN 0.28 0.23 9.37 Thursday BTO
CDN IMPL BK CM 1.97 1.81 8.33 Thursday BTO
CHEROKEE INC CHKE 0.16 0.12 5.56 Thursday AMC
COOPER COS COO 1.53 1.46 12.4 Thursday AMC
ESTERLINE TECHN ESL 1.58 1.21 0.9 Thursday AMC
FLOW INTL CORP FLOW 0.06 0.06 0 Thursday AMC
HARRY WINSTON HWD 0.15 0.04 -60 Thursday AMC
HI TECH PHARMA HITK 0.59 1.04 -38.03 Thursday BTO
LAYNE CHRISTENS LAYN 0.4 0.45 -40.48 Thursday BTO
LULULEMON ATHLT LULU 0.37 0.27 16.13 Thursday BTO
METHODE ELECT-A MEI 0.12 0.01 66.67 Thursday BTO
MET-PRO CORP MPR 0.14 0.14 -15.38 Thursday BTO
PALO ALTO NETWK PANW 0.03 N/A -1700 Thursday AMC
SMITH & WESSON SWHC 0.23 0.01 55.56 Thursday AMC
SMITHFIELD FOOD SFD 0.44 0.76 -11.11 Thursday BTO
SONIC FOUNDRY SOFO 0.03 0.03 16.67 Thursday AMC
TITAN MACHINERY TITN 0.65 0.61 -41.86 Thursday BTO
TORONTO DOM BNK TD 1.8 1.73 7.82 Thursday BTO
UTI WORLDWIDE UTIW 0.24 0.28 -13.04 Thursday BTO
BANK OF NOVA SC BNS 1.19 1.08 -0.86 Friday BTO
KMG CHEMICALS KMG 0.31 0.31 3.03 Friday BTO

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