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Earnings Preview

The big banks have given us a reassuring start to the Q3 reporting cycle. If this trend continues next week when a broad and representative cross section of corporate America is on deck to come out with quarterly results, then we will have a tangible reason to get optimistic about the overall earnings picture.  

J.P. Morgan (JPM - Free Report) stayed true to its well-earned reputation for operational excellence, with solid gains in both consumer banking as well as in its capital markets platform. In consumer banking, the core loan portfolio was up a robust +15% from the same period last year on essentially flat net-interest margin. On the investment banking side, J.P. Morgan came out with momentum in both capital markets as well as on the advisory side.

On the markets side, J.P. Morgan’s trading volumes benefited from the post-Brexit surge, which management indicated has continued into Q4 as well. Overall markets revenue was up more than +20%, largely reflecting momentum in fixed income, currencies and commodities. We saw this positive capital markets trend in the Citigroup (C - Free Report) report as well, which has favorable read-throughs for the Goldman Sachs (GS - Free Report) report on Tuesday and Bank of America (BAC - Free Report) report on Monday. The Wells Fargo (WFC - Free Report) report was solid as well, but the issue with them is more about political scrutiny, negative headlines and potential litigation and not earnings, at least no at this stage.

It will be interesting if this positive start from the major banks will continue with the other banks who are reporting this week. Bank earnings continue to be shackled by low interest rates, which have been weighing on the group’s margins. The interest rates question is of course very complicated, as it not only reflects the market’s evolving Fed view, but also the widespread incidence of negative yields in many other developed markets. Current consensus expectations for the group for the coming quarters and beyond reflect a notable improvement in this situation, particularly with respect to margins, as the chart below of annual Finance sector margins, shows.

This week’s reporting docket isn’t just about banks and the broader Finance sector, we have more than 240 companies reporting results this week, including 80 S&P 500 members from a cross section of all major sectors. We will have a pretty good sense of how the Q3 earnings season is unfolding by the end of this week.  

Q3 Earnings Season Scorecard (as of 10/14/2016)

Including the bank earnings reports, we now have Q3 results from 34 S&P 500 members. Total earnings for these 34 S&P 500 members are up +1.3% from the same period last year on +2.9% higher revenues, with 79.4% beating EPS estimates and 64.7% coming ahead of revenue estimates. The table below shows the scorecard of these 34 index members.

This is better performance than we have seen from the same group of 34 index members in other recent periods, as the comparison charts below show.

The picture emerging from the above comparison chart would be in-line with our modestly favorable commentary on the Q2 earnings season when we were detecting an ever-so-slight improvement in the growth picture. Earnings growth was in negative territory in Q2 – the 5th quarter in a row of earnings declines for the index – but the pace of declines was nevertheless an improvement over what we had seen in the preceding two quarters. This gave rise to the narrative that the worst was likely behind us now on the growth front and that the picture will steadily be improving going forward.

For the Finance sector, we have Q3 results from only 5 sector members. But these 5 combined account for more than a fifth of the sector’s total market cap in the index. Total earnings for these 5 sector companies (includes J.P. Morgan, Citigroup & Wells Fargo) are up +1.3% from the same period last year on +2.9% higher revenues, with all of them beating EPS and revenue expectations (100% beat %).

This is better performance than we have seen from these banks in a while, as the below comparison charts show.

Q3 Expectations As a Whole

The strong results from the major banks has helped improve the overall Q3 growth expectations, with total Q3 earnings for the S&P 500 index now expected to be down -2.2% from the same period last year on +1.5% higher revenues. This would compare to 2016 Q2 earnings growth of -2.8% on +0.2% higher revenues.

The table below shows the summary picture for Q3 earnings, revenues and margins contrasted with the corresponding results from the previous quarter.

As you can see, Energy still remains the biggest drag on the aggregate growth picture, with Autos and Transportation as the other major growth laggards. Tough comparisons at Ford (F - Free Report) and the air carriers, particularly United (UAL - Free Report) and American (AAL - Free Report) , explain the growth issues in those two sectors.

For the two biggest sectors, Technology earnings are expected to be down -1.7% on -1.1% lower revenues while Finance earnings are expected to be up +8.5% on +1.4% higher revenues. The Tech decline is solely a function of Apple (AAPL - Free Report) , which is expected to see earnings decline -20.6% from the same period last year on -9.6% lower revenues. Excluding the Apple drag, the Tech sector’s earnings would be up +3.0%.

Expectations Beyond Q3

The chart below shows current bottom-up consensus earnings expectations for the index in 2016 Q3 and the following four quarters contrasted with actual results in the preceding four quarters. Please note that the columns represent bottom-up earnings totals for each quarter in billions of dollars while the line represents the quarterly growth rates. As you can see, positive growth is expected to resume from Q4 (+5.2%), with the growth pace expected to ramp up meaningfully in the following quarters.

The Energy sector drag is expected to end in 2016 Q4 and beyond, as the chart below of the sector’s earnings shows.

The improved Energy sector outlook makes sense, given shifting comparisons and the recent momentum in oil prices. But we will have to wait to find out if estimates for the other sectors will hold up as companies report Q3 results and provide guidance for Q4 and beyond.

It will be interesting to see if the decelerated pace of negative revisions that we saw the last earnings season will get repeated this time as well.

Note: Sheraz Mian regularly provides earnings analysis on and appears frequently in the print and electronic media. In addition to this Earnings Preview article, he publishes the Zacks Earnings Trends report every week.

If you want an email notification each time Sheraz publishes a new article, please click here>>>

Here is a list of the 244 companies reporting this week, including 80 S&P 500 member. 


Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
BANK OF AMER CPBAC0.340.375.88%MondayBTO
HASBRO INCHAS1.741.585.13%MondayBTO
HUNT (JB) TRANSJBHT1.020.99-4.17%MondayBTO
LENNOX INTL INCLII2.261.827.66%MondayBTO
NETFLIX INCNFLX0.060.07350.00%MondayAMC
UNITED CONT HLDUAL3.054.531.56%MondayAMC
INTL BUS MACHIBM3.213.342.08%MondayAMC
DEL TACO RSTRNTTACO0.12-0.068.33%MondayAMC
GIGPEAK INCGIG0.010.0450.00%MondayAMC
CELANESE CP-ACE1.611.52.58%MondayAMC
IDEX CORPIEX0.920.896.45%MondayAMC
PHILIP MORRISPM1.231.24-4.96%TuesdayBTO
OMNICOM GRPOMC1.030.971.49%TuesdayBTO
REGIONS FINL CPRF0.210.190.00%TuesdayBTO
JOHNSON & JOHNSJNJ1.651.494.19%TuesdayBTO
COMERICA INCCMA0.790.7413.24%TuesdayBTO
GRAINGER W WGWW3.023.03-8.83%TuesdayBTO
KANSAS CITY SOUKSU1.21.2117.31%TuesdayBTO
GOLDMAN SACHSGS3.862.923.59%TuesdayBTO
BADGER METERBMI0.330.29-2.99%TuesdayBTO
SYNOVUS FINL CPSNV0.50.424.26%TuesdayBTO
DOMINOS PIZZADPZ0.90.675.38%TuesdayBTO
WOLVERINE WORLDWWW0.480.4813.64%TuesdayBTO
HANMI FINL CPHAFC0.440.444.76%TuesdayBTO
MGIC INVSTMT CPMTG0.170.2930.00%TuesdayBTO
TILE SHOP HLDGSTTS0.090.087.69%TuesdayBTO
STEPAN COSCL0.940.9211.97%TuesdayBTO
INTEL CORPINTC0.730.6411.32%TuesdayAMC
LINEAR TEC CORPLLTC0.540.461.89%TuesdayAMC
NAVIENT CORPNAVI0.470.474.44%TuesdayAMC
LEGACY TX FINLLTXB0.510.3811.11%TuesdayAMC
HANCOCK HLDG COHBHC0.580.5234.09%TuesdayAMC
UTD COMM FIN CPUCFC0.110.0910.00%TuesdayAMC
HAWAIIAN HLDGSHA1.821.296.14%TuesdayAMC
HOPE BANCORPHOPE0.320.32-3.23%TuesdayAMC
PINNACLE FIN PTPNFP0.790.661.35%TuesdayAMC
SOUTHWEST BC-OKOKSB0.270.2216.67%TuesdayAMC
ADTRAN INCADTN0.20.1615.79%TuesdayAMC
FRANKLIN FNL NWFSB0.660.4610.71%TuesdayAMC
MANHATTAN ASOCMANH0.430.3812.20%TuesdayAMC
UNIVL FST PRODSUFPI1.461.2613.89%TuesdayAMC
FULTON FINLFULT0.230.24.55%TuesdayAMC
RENASANT CORPRNST0.570.533.51%TuesdayAMC
CREE INCCREE0.030.12-14.29%TuesdayAMC
SEAGATE TECHSTX0.890.5415.00%WednesdayBTO
NORTHERN TRUSTNTRS1.080.960.95%WednesdayBTO
AMPHENOL CORP-AAPH0.680.653.17%WednesdayBTO
HALLIBURTON COHAL-0.060.3126.32%WednesdayBTO
BB&T CORPBBT0.70.649.23%WednesdayBTO
M&T BANK CORPMTB2.041.93-0.48%WednesdayBTO
MORGAN STANLEYMS0.640.3425.00%WednesdayBTO
GENUINE PARTSGPC1.291.24-1.54%WednesdayBTO
ST JUDE MEDICALSTJ1.010.970.00%WednesdayBTO
US BANCORPUSB0.840.812.47%WednesdayBTO
ABBOTT LABSABT0.580.543.77%WednesdayBTO
REYNOLDS AMERRAI0.650.55-4.92%WednesdayBTO
DOVER CORPDOV0.821.141.16%WednesdayBTO
TUPPERWARE BRNDTUP0.80.794.50%WednesdayBTO
CDN PAC RLWYCP2.122.061.92%WednesdayBTO
UNIFIRST CORPUNF1.231.438.76%WednesdayBTO
ASML HOLDING NVASML1.070.836.90%WednesdayBTO
PAC PREMIER BCPPPBI0.420.38-9.52%WednesdayBTO
SUPERVALU INCSVU0.10.13-9.52%WednesdayBTO
NATUS MEDICALBABY0.360.398.33%WednesdayBTO
MATTEL INCMAT0.70.7166.67%WednesdayAMC
EBAY INCEBAY0.360.350.00%WednesdayAMC
XILINX INCXLNX0.540.4810.91%WednesdayAMC
FMC TECH INCFTI0.230.61-26.67%WednesdayAMC
AMER EXPRESS COAXP0.961.249.37%WednesdayAMC
SL GREEN REALTYSLG1.521.717.23%WednesdayAMC
UTD RENTALS INCURI2.452.5711.96%WednesdayAMC
CITRIX SYS INCCTXS0.970.877.61%WednesdayAMC
LAM RESEARCHLRCX1.771.829.76%WednesdayAMC
TRACTOR SUPPLYTSCO0.660.640.00%WednesdayAMC
EASTGROUP PPTYSEGP1.040.940.00%WednesdayAMC
PACKAGING CORPPKG1.311.265.93%WednesdayAMC
HELIX EGY SOLUTHLX0.040.0923.08%WednesdayAMC
CVB FINLCVBF0.240.26-8.00%WednesdayAMC
SIMMONS FIRST ASFNC0.850.851.23%WednesdayAMC
BJ'S RESTAURANTBJRI0.330.39-1.75%WednesdayAMC
LASALLE HTL PRPLHO0.870.87-1.04%WednesdayAMC
EAST WEST BCEWBC0.690.652.90%WednesdayAMC
BRANDYWINE RTBDN0.330.433.23%WednesdayAMC
SELECT COMFORTSCSS0.570.62200.00%WednesdayAMC
HEXCEL CORPHXL0.610.559.37%WednesdayAMC
STEEL DYNAMICSSTLD0.650.253.57%WednesdayAMC
UMPQUA HLDGS CPUMPQ0.310.286.90%WednesdayAMC
FNB CORPFNB0.240.22-4.35%WednesdayAMC
TRUEBLUE INCTBI0.750.5418.60%WednesdayAMC
PREFERRED BANKPFBC0.630.573.39%WednesdayAMC
VALMONT INDSVMI1.51.396.32%WednesdayAMC
EXPONENT INCEXPO0.330.43-11.63%WednesdayAMC
SLM CORPSLM0.110.19.09%WednesdayAMC
WD 40 COWDFC0.820.82.33%WednesdayAMC
CATHAY GENL BCPCATY0.60.472.33%WednesdayAMC
COHEN&STRS INCCNS0.510.37-8.00%WednesdayAMC
EAGLE BCP INCEGBN0.690.635.97%WednesdayAMC
FIRST CT BANCRPFBNK0.250.25-4.35%WednesdayAMC
GREAT SOUTH BCPGSBC0.810.7911.25%WednesdayAMC
RLI CORPRLI0.610.7-3.17%WednesdayAMC
TRISTATE CP HLDTSC0.230.229.09%WednesdayAMC
BANCO LATINOAMEBLX0.780.86-21.33%WednesdayAMC
CAROLINA FIN CPCARO0.370.413.89%WednesdayAMC
NVE CORPNVEC0.560.6820.37%WednesdayAMC
LANDSTAR SYSTEMLSTR0.810.9-7.32%WednesdayAMC
CROWN HLDGS INCCCK1.31.348.18%WednesdayAMC
GRACO INCGGG0.880.86-10.10%WednesdayAMC
CORE LABS NVCLB0.390.830.00%WednesdayAMC
KAISER ALUMINUMKALU1.231.07-27.66%WednesdayAMC
HNI CORPHNI0.770.9311.48%WednesdayAMC
UNION PAC CORPUNP1.391.50.00%ThursdayBTO
FIFTH THIRD BKFITB0.410.458.11%ThursdayBTO
BANK OF NY MELLBK0.810.741.33%ThursdayBTO
QUEST DIAGNOSTCDGX1.351.282.29%ThursdayBTO
PROLOGIS INCPLD0.70.581.69%ThursdayBTO
VERIZON COMMVZ0.991.041.08%ThursdayBTO
WALGREENS BAIWBA0.990.883.51%ThursdayBTO
DANAHER CORPDHR0.821.0514.68%ThursdayBTO
TRAVELERS COSTRV2.292.933.77%ThursdayBTO
AMER AIRLINESAAL1.662.777.27%ThursdayBTO
ALASKA AIR GRPALK2.042.161.92%ThursdayBTO
PULTE GROUP ONCPHM0.430.3312.12%ThursdayBTO
NUCOR CORPNUE0.90.714.29%ThursdayBTO
TEXTRON INCTXT0.660.634.76%ThursdayBTO
ILL TOOL WORKSITW1.491.394.29%ThursdayBTO
PPG INDS INCPPG1.561.610.54%ThursdayBTO
ALLIANCE DATAADS4.173.73-1.20%ThursdayBTO
SNAP-ON INCSNA2.151.986.31%ThursdayBTO
ICON PLCICLR1.181.020.88%ThursdayBTO
GENTEX CORPGNTX0.30.273.45%ThursdayBTO
DANA INCDAN0.430.4112.77%ThursdayBTO
LITHIA MOTORSLAD2.162.030.51%ThursdayBTO
DUNKIN BRANDSDNKN0.580.521.79%ThursdayBTO
WABCO HOLDINGSWBC1.471.392.14%ThursdayBTO
BANC OF CA INCBANC0.420.294.88%ThursdayBTO
FIRST AMER FINLFAF0.860.7113.58%ThursdayBTO
GATX CORPGATX1.331.5220.16%ThursdayBTO
POOL CORPPOOL0.990.93.66%ThursdayBTO
DST SYSTEMSDST1.481.4913.60%ThursdayBTO
LAWSON PRODUCTSLAWS0.060.27-88.24%ThursdayBTO
MONRO MUFFLERMNRO0.560.572.04%ThursdayBTO
S&T BANCORP INCSTBA0.50.54-2.00%ThursdayBTO
SUNCOKE ENERGYSXCP0.310.43-46.51%ThursdayBTO
ULTRATECH STEPUTEK0.17-0.1744.44%ThursdayBTO
WNS HLDGS-ADRWNS0.370.41-2.78%ThursdayBTO
ROGERS COMM CLBRCI0.670.69-3.12%ThursdayBTO
STEWART INFO SVSTC0.970.94-43.02%ThursdayBTO
SUNCOKE ENERGYSXC-0.09-0.06-400.00%ThursdayBTO
BENCHMARK ELETRBHE0.360.41-6.06%ThursdayBTO
DNB FINANCIALDNBF0.390.4514.63%ThursdayBTO
COMSTOCK MININGLODE-0.02-0.070.00%ThursdayBTO
MCCLATCHY CO-AMNI-0.690.4-250.00%ThursdayBTO
NEUROMETRIX INCNURO-0.82-1.04-477.42%ThursdayBTO
UNITIL CORPUTL0.140.1238.46%ThursdayBTO
RELIANCE STEELRS1.311.163.82%ThursdayBTO
SONOCO PRODUCTSSON0.680.657.35%ThursdayBTO
BANKUNITED INCBKU0.530.51.96%ThursdayBTO
IMAX CORPIMAX0.030.12-10.00%ThursdayBTO
GROUP 1 AUTOGPI2.081.912.86%ThursdayBTO
KCG HOLDINGSKCG0.10.4811.76%ThursdayBTO
CAPITAL BNK FINCBF0.430.3310.53%ThursdayBTO
JAKKS PACIFICJAKK1.151.1210.00%ThursdayBTO
NORTHWESTERN CPNWE0.590.5116.07%ThursdayBTO
CROWN CASTLECCI1.131.075.45%ThursdayAMC
KLA-TENCOR CORPKLAC1.060.7123.78%ThursdayAMC
MICROSOFT CORPMSFT0.680.6718.97%ThursdayAMC
SCHLUMBERGER LTSLB0.230.784.55%ThursdayAMC
SOUTHWESTRN ENESWN0.070.0118.18%ThursdayAMC
E TRADE FINL CPETFC0.380.3323.08%ThursdayAMC
PEOPLES UTD FINPBCT0.230.234.55%ThursdayAMC
ADV MICRO DEVAMD-0.01-0.1936.36%ThursdayAMC
BOSTON PRIV FINBPFH0.20.145.26%ThursdayAMC
FIRST FIN BC-OHFFBC0.360.35.88%ThursdayAMC
SVB FINL GPSIVB1.751.575.33%ThursdayAMC
TEXAS CAP BCSHSTCBI0.860.752.63%ThursdayAMC
ASSOC BANC CORPASB0.320.313.33%ThursdayAMC
BROWN & BROWNBRO0.490.4711.36%ThursdayAMC
ATHENAHEALTH INATHN0.210.11-62.50%ThursdayAMC
MB FINANCL INCMBFI0.60.513.57%ThursdayAMC
GLACIER BANCORPGBCI0.420.39-2.44%ThursdayAMC
PROOFPOINT INCPFPT-0.41-0.4736.07%ThursdayAMC
FCB FINL HLDGSFCB0.580.481.82%ThursdayAMC
AMER RIVER BSHAMRB0.20.2-5.00%ThursdayAMC
COBIZ FINL INCCOBZ0.20.1716.67%ThursdayAMC
CLEARWATER PAPRCLW0.151.355.13%ThursdayAMC
INDEP BK MASSINDB0.750.712.63%ThursdayAMC
NATIONAL BK HLDNBHC0.250.17-28.57%ThursdayAMC
MAXIM INTG PDTSMXIM0.470.422.08%ThursdayAMC
WERNER ENTRPRSWERN0.260.448.70%ThursdayAMC
BOSTON BEER INCSAM2.542.854.57%ThursdayAMC
SEI INVESTMENTSSEIC0.490.47-2.00%ThursdayAMC
KNOLL INCKNL0.40.382.33%ThursdayAMC
FORWARD AIR CRPFWRD0.510.58-1.72%ThursdayAMC
SKECHERS USA-ASKX0.460.58-5.88%ThursdayAMC
SANDY SPRINGSASR0.490.45-2.22%ThursdayN/A
ACTELION LTDALIOF2.121.918.01%ThursdayN/A
MOODYS CORPMCO1.181.114.00%FridayBTO
GENL ELECTRICGE0.310.3210.87%FridayBTO
SYNCHRONY FINSYF0.680.695.45%FridayBTO
MANPOWER INC WIMAN1.711.865.26%FridayBTO
OFG BANCORPOFG0.250.03-3.85%FridayBTO
TCF FINL CORPTCB0.30.296.90%FridayBTO
PRECISION DRILLPDS-0.16-0.0625.00%FridayBTO
SOUTH STATE CPSSB1.161.126.31%FridayBTO
SENSIENT TECHSXT0.810.776.33%FridayBTO
WEBSTER FINL CPWBS0.530.541.92%FridayBTO
ERICSSON LM ADRERIC0.120.16-28.57%FridayBTO
POTLATCH CORPPCH0.70.5385.71%FridayBTO
VOLVO AB-BVLVLY0.18N/A-42.86%FridayBTO
WIPRO LTD-ADRWIT0.140.14-14.29%FridayAMC
SAP AG ADRSAP0.790.83-2.56%FridayN/A