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Zacks Earnings Trends Highlights: Amazon and Chipotle Mexican Grill

CMG AMZN

Trades from $3

For Immediate Release

Chicago, IL – November 10, 2016 – Zacks Director of Research Sheraz Mian says, “The proportion of companies beating both earnings and revenue estimates are modestly tracking above historical periods, but not in a big way.”

The Earnings Recession Ends in Q3

Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actuals and estimates for the current and following periods, please click here>>>

We now have Q3 results from 445 S&P 500 members or 89% of the index’s total membership. Total earnings for these 445 index members are up +4.0% from the same period last year on +2.7% higher revenues, with 72.8% beating EPS estimates and 55.3% coming ahead of top-line expectations.

Positive surprises were notably tracking above historical periods earlier, but are about in-line with what we have been seeing from this same group of 445 index members in the recent past. The proportion of companies beating both earnings and revenue estimates are modestly tracking above historical periods, but not in a big way.

The earnings and revenue growth pace for these 445 index members is still low, but nevertheless an improvement over other recent periods. The growth picture improves once the Energy sector’s drag is removed from the data. The Energy sector’s results have come in better than expected, but they are still down in a big way from the year-earlier period, with the sector’s Q3 earnings down -63% on -12.8% lower revenues. Excluding the Energy sector, total Q3 earnings would be up +7.6% from the same period last year on +4.5% higher revenues.

For Q3 as a whole, combining the actual results from the 445 index members with estimates from the still-to-come 55 companies, total earnings are expected to be up +3.3% from the same period last year on +1.5% higher revenues. The blended Q3 growth rate has been steadily improving in recent days (the growth rate was +2.4% last week, and 1.4% the week before that). The Q3 growth isn’t much to write home about, but it is nevertheless the best growth pace since the first quarter of 2015.

Estimates Beyond Q3

Estimates for Q4 have come down, in-line with the trend that we have been seeing for almost three years now. Total Q4 earnings for the S&P 500 index are currently expected to be up +3.4% from the same period last year, which is down from +5.5% in late September.

While Q4 estimates for the Technology and Finance sectors, the two largest in the S&P 500 index, have held up nicely, they have come down for the Retail, Basic Materials, Industrials and Auto sectors in recent days. Earnings for the Retail sector are now expected to be up +1.1% in Q4, which is a drop from the +4.5% growth expected in late September. A number of retailers have suffered negative revisions, but the cuts are most pronounced for Amazon (NASDAQ:(AMZN - Free Report) –Fee Report) and Chipotle Mexican Grill (NYSE:(CMG - Free Report) – Fee Report). It will be interesting to see if this negative trend will continue as the traditional brick-and-mortar operators will report results in the coming days.

Easier comparisons for the Energy sector arrive in Q4, when the sector’s earnings growth turns positive. But the expected growth in Q4 and beyond isn’t solely a function of easy comparisons for the Energy sector – the expectation is for positive momentum from a broad cross section of sectors. Those expectations will most likely need to come down. But it will be interesting to see to what extent they will have to come down.

Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks.com and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.

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

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