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Companies Lower Guidance Ahead of Q4 Earnings

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Thursday, January 10, 2019

We’re certainly not above tooting our own horn here at Zacks, but we try to be somewhat dignified about it when we do — and only when it’s truly justified. Currently, we see ourselves with an excellent opportunity to crow about the developing trend in the stock market first spied by Zacks’ Director of Research Sheraz Mian, who has been talking about earnings estimates coming down for a notable amount of companies in the S&P 500 recently.

Back on December 12th of last year, Sheraz had this to say: “The magnitude of negative revisions that we have seen for 2018 Q4 is not unusual in a historical sense, though it is high and more widespread relative to what we have been seeing over the preceding three quarters.” Two days later, he put out this statement: “Earnings estimates for 2018 Q4 and full-year 2019 have been coming down lately, but they likely have more to go down given the headwinds.”

This is the sort of information that can really give a leg-up to investors who are paying attention. For instance, those who’ve been blindsided this morning by lowered guidance from Macy’s (M - Free Report) — down 18% in the premarket ahead of its Q4 2019 report, expected later in the Q4 earnings season cycle — or slow holiday sales growth from Kohl’s (KSS - Free Report) — down 9% this morning — were likely not paying heed to Sheraz’s warnings about the S&P 500 as a whole.

Fortunately for us all, his latest Earnings Trends piece came out yesterday afternoon, and it is again well worth reading: 3 Key Charts for Q4 Earnings Season. In it, he brings particular perspective regarding where we are with companies’ growth projections: “Total Q4 earnings for the S&P 500 index are expected to be up +10.7% from the same period last year, on +5.2% higher revenues. This represents a notable deceleration from the average +25% earnings growth in the first three quarters of 2018.”

Lest we think all the downward pressure rests on the Retail industry, we’re also seeing American Airlines (AAL - Free Report) ratchet down guidance, pushing shares down 7% in today’s early trading. And all this without yet mentioning Apple (AAPL - Free Report) , with the warning heard ‘round the world last week, and its first lowered revenue projection mid-quarter in recent memory.

Not all new is bad this morning, however: Initial Jobless Claims sank back to 216K — within the historically low 200-225K range we enjoyed for most of 2018, bottoming near 200K four months ago. These week-to-week figures had been inching higher, such as last week’s read of (upwardly revised) 233K, but always seem to tack back down to the range consistent with a very robust U.S. labor market.

Continuing Claims also went down a tad, to 1.722 million from 1.75 million in the last read. These figures are off the lows we saw back in late summer/early autumn last year, but remain at extremely healthy workforce levels.
Mark Vickery
Senior Editor

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