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Hs the Earnings Picture Started Weakening?
Strength in corporate earnings has been a key source of support for the stock market, helping offset to some extent other worries about issues like trade uncertainty and the Fed outlook. The market will be looking for reconfirmation of earnings strength in the Q3 earnings season, which has gotten underway already but will really get going following October 12th releases from the big banks.
Our reading of the evolving earnings picture shows that while corporate profitability still remains very strong, it is not as strong and pristine as it was in the last few quarters. Overall growth reached its highest level in almost 8 years in each of the last two quarters, with the growth pace starting to decelerate in the second half of the year and into next year.
If we look at earnings growth for the S&P 500 index on a trailing 4-quarter basis, to smooth out the quarter-to-quarter variation, then the growth acceleration trend remains in place through 2018 Q4 before starting to trend down next year.
Please note that the negative revisions trend for Q3 is in contrast to the three preceding quarters when the revisions trend was a lot more favorable. A big part of the positive revisions over the last two quarters was due to the direct impact of the tax cuts. With that issue now behind us, the revisions trend appears to be moving back to how it has behaved over the last few years. That said, the magnitude of negative revisions to Q3 estimates is lower than the historical norm of the last few years. With the outlook for the global economy starting to weaken and companies starting to feel the pinch of cyclical cost inflation, this negative revisions trend will likely only accelerate going forward.
Earnings Season Scorecard
We will get into the thick of the Q3 earnings season in another two weeks, but the reporting cycle has gotten underway already, with results from 16 S&P 500 members out and another 5 index members on deck to report this week. All of these early reporters have fiscal quarters ending in August, but they get counted as part of the September-quarter tally.
All in all, we will have seen Q3 results from almost two dozen S&P 500 members by the time JPMorgan (unofficially) kicks-off this earnings season on Friday, October 12th.
The notable earnings reports coming out this week include:
Pepsi – Pepsi reports quarterly results before the market’s open on Tuesday, October 2nd, with the company expected to earn $1.56 per share on $16.38 billion in revenues, representing year-over-year gains of +5.4% and +0.9%, respectively. Estimates for the quarter have come down from the three-months back level, but they have been stable lately. The stock has been weak lately, down -7.4% in the year-to-date period, underperforming Coca Cola’s roughly flat stock price in the same time period.
This will be the last earnings release for the outgoing CEO, Indra Nooyi, who is stepping down on October 3rd after remaining in the CEO role for 12 years. The company has already named an insider to fill the CEO role and no issues are expected in the transition, though the market will be hoping for a strategy change from the new CEO.
Lennar – Lennar is expected to report results before the market’s open on Wednesday, October 3rd, with the homebuilder expected to earn $1.27 per share on $5.67 billion in revenues. Earnings per share for the quarter will be +19.8% higher from the year-earlier period while revenues would be up +73.9% from the same period last year. Shares of this Miami, Florida-based homebuilder have been struggling lately, as have the broader homebuilder space, on the back of unfavorable trends in interest rates and costs. Lennar shares are down -25.4% in the year-to-date period, underperforming the Zacks Construction sector’s -12% decline in the period.
Costco – Costco reports results after the market’s close on Thursday, October 4th, with the retail giant expected to post $2.34 in EPS on $44.4 billion in revenues, up +12.5% and +5% from the year-earlier level, respectively. The revisions trend has been positive, with the current consensus EPS estimate for the quarter steadily going up since the start of the period. The stock has been standout performer this year, up +26.2% vs. +18.4% gain for the Zacks Retail sector, on the back of stellar top-line performance. U.S. comps accelerated to more than +7% in fiscal 2018 from less than +6% in 2017 and the average of about +5% in the five years prior to that. The stock was modestly down following each of the last two quarterly releases and will likely behave similarly following this report given how strong its recent performance has been.
Other notable companies reporting this week include Constellation Brands before the market’s open on Thursday, October 4th. The company’s recent investment in Canada’s cannabis player Canopy Growth will likely come up on the earnings call.
Expectations for Q3
Total Q3 earnings are expected to be up +17.9% from the same period last year on +7.3% higher revenues. This would follow +25.5% earnings growth in 2018 Q2 on +9.8% revenue growth, the highest growth pace since 2010.
Earnings growth is expected to be in double-digits for 10 of the 16 Zacks sectors, with the strongest growth in the Energy, Finance, Basic Materials and Construction sectors.
As mentioned earlier, we have Q3 results from 16 S&P 500 members already. It is hard to draw any firm conclusions from the results thus far, but total earnings for these 16 index members are up +26.8% from the same period last year on +10.6% higher revenues, with 81.3% beating EPS estimates and +62.5% beating revenue estimates.
This is not a representative sample of results, but the earnings growth pace is tracking below what we had seen from the same group of companies in the preceding quarter.
For more details about the overall earnings picture and the Q3 earnings season, please check our weekly Earnings Trends report.
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 includeEarnings Trends and Earnings Preview.
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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JPMorgan, Pepsi, Lennar, Costco and Constellation Brands are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – October 1, 2018 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes JPMorgan (JPM - Free Report) , Pepsi (PEP - Free Report) , Lennar (LEN - Free Report) , Costco (COST - Free Report) and Constellation Brands (STZ - Free Report) .
To see more earnings analysis, visit https://at.zacks.com/?id=3207.
Every day, Zacks.com makes their Bull Stock of the Day available, free of charge. To see it, click here.
Hs the Earnings Picture Started Weakening?
Strength in corporate earnings has been a key source of support for the stock market, helping offset to some extent other worries about issues like trade uncertainty and the Fed outlook. The market will be looking for reconfirmation of earnings strength in the Q3 earnings season, which has gotten underway already but will really get going following October 12th releases from the big banks.
Our reading of the evolving earnings picture shows that while corporate profitability still remains very strong, it is not as strong and pristine as it was in the last few quarters. Overall growth reached its highest level in almost 8 years in each of the last two quarters, with the growth pace starting to decelerate in the second half of the year and into next year.
If we look at earnings growth for the S&P 500 index on a trailing 4-quarter basis, to smooth out the quarter-to-quarter variation, then the growth acceleration trend remains in place through 2018 Q4 before starting to trend down next year.
Please note that the negative revisions trend for Q3 is in contrast to the three preceding quarters when the revisions trend was a lot more favorable. A big part of the positive revisions over the last two quarters was due to the direct impact of the tax cuts. With that issue now behind us, the revisions trend appears to be moving back to how it has behaved over the last few years. That said, the magnitude of negative revisions to Q3 estimates is lower than the historical norm of the last few years. With the outlook for the global economy starting to weaken and companies starting to feel the pinch of cyclical cost inflation, this negative revisions trend will likely only accelerate going forward.
Earnings Season Scorecard
We will get into the thick of the Q3 earnings season in another two weeks, but the reporting cycle has gotten underway already, with results from 16 S&P 500 members out and another 5 index members on deck to report this week. All of these early reporters have fiscal quarters ending in August, but they get counted as part of the September-quarter tally.
All in all, we will have seen Q3 results from almost two dozen S&P 500 members by the time JPMorgan (unofficially) kicks-off this earnings season on Friday, October 12th.
The notable earnings reports coming out this week include:
Pepsi – Pepsi reports quarterly results before the market’s open on Tuesday, October 2nd, with the company expected to earn $1.56 per share on $16.38 billion in revenues, representing year-over-year gains of +5.4% and +0.9%, respectively. Estimates for the quarter have come down from the three-months back level, but they have been stable lately. The stock has been weak lately, down -7.4% in the year-to-date period, underperforming Coca Cola’s roughly flat stock price in the same time period.
This will be the last earnings release for the outgoing CEO, Indra Nooyi, who is stepping down on October 3rd after remaining in the CEO role for 12 years. The company has already named an insider to fill the CEO role and no issues are expected in the transition, though the market will be hoping for a strategy change from the new CEO.
Lennar – Lennar is expected to report results before the market’s open on Wednesday, October 3rd, with the homebuilder expected to earn $1.27 per share on $5.67 billion in revenues. Earnings per share for the quarter will be +19.8% higher from the year-earlier period while revenues would be up +73.9% from the same period last year. Shares of this Miami, Florida-based homebuilder have been struggling lately, as have the broader homebuilder space, on the back of unfavorable trends in interest rates and costs. Lennar shares are down -25.4% in the year-to-date period, underperforming the Zacks Construction sector’s -12% decline in the period.
Costco – Costco reports results after the market’s close on Thursday, October 4th, with the retail giant expected to post $2.34 in EPS on $44.4 billion in revenues, up +12.5% and +5% from the year-earlier level, respectively. The revisions trend has been positive, with the current consensus EPS estimate for the quarter steadily going up since the start of the period. The stock has been standout performer this year, up +26.2% vs. +18.4% gain for the Zacks Retail sector, on the back of stellar top-line performance. U.S. comps accelerated to more than +7% in fiscal 2018 from less than +6% in 2017 and the average of about +5% in the five years prior to that. The stock was modestly down following each of the last two quarterly releases and will likely behave similarly following this report given how strong its recent performance has been.
Other notable companies reporting this week include Constellation Brands before the market’s open on Thursday, October 4th. The company’s recent investment in Canada’s cannabis player Canopy Growth will likely come up on the earnings call.
Expectations for Q3
Total Q3 earnings are expected to be up +17.9% from the same period last year on +7.3% higher revenues. This would follow +25.5% earnings growth in 2018 Q2 on +9.8% revenue growth, the highest growth pace since 2010.
Earnings growth is expected to be in double-digits for 10 of the 16 Zacks sectors, with the strongest growth in the Energy, Finance, Basic Materials and Construction sectors.
As mentioned earlier, we have Q3 results from 16 S&P 500 members already. It is hard to draw any firm conclusions from the results thus far, but total earnings for these 16 index members are up +26.8% from the same period last year on +10.6% higher revenues, with 81.3% beating EPS estimates and +62.5% beating revenue estimates.
This is not a representative sample of results, but the earnings growth pace is tracking below what we had seen from the same group of companies in the preceding quarter.
For more details about the overall earnings picture and the Q3 earnings season, please check our weekly Earnings Trends report.
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.
Zacks "Profit from the Pros" e-mail newsletter offers continuous coverage of the industries and the stocks poised to outperform the market. Click to subscribe to this free newsletter today.
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros.
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.