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Costco, Lennar, Pepsi, JPMorgan and Micron are part of Zacks Earnings Preview

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For Immediate Release

Chicago, IL – September 30, 2019 – releases the list of companies likely to issue earnings surprises. This week’s list includes Costco (COST - Free Report) , Lennar (LEN - Free Report) , Pepsi (PEP - Free Report) , JPMorgan (JPM - Free Report) and Micron (MU - Free Report) .

Weak Start to Q3 2019 Earnings Season

The Q3 reporting season will really get underway when the big banks report results in mid-October, but the earnings season has actually started already with results from 15 S&P 500 members out. We have another 7 index members on deck to report results this week, including Costco, Lennar, Pepsi and others.

The 15 S&P 500 members that have reported already and the 7 index members coming out with results this week have fiscal quarters ending in August, which we count as part of our September-quarter tally. The fact is that by the time JPMorgan reports September-quarter results on October 15th, we will have seen such Q3 results from almost two dozen S&P 500 members already.

Expectations for 2019 Q3 & Beyond

It is premature to draw any firm conclusions from the results that have come out already, but we are off to a weak start, particularly on the revenues front. Not only is revenue growth for these 15 index members tracking below what we had seen for the same group in other recent periods, but the proportion of these companies beating revenue estimates is also comparing unfavorably. 

The earnings decline of -22.1% is very notable, but this is primarily because of the very tough comparisons for Micron whose Q3 earnings were down -86.7% on -42.3% lower revenues. What is even more notable, however, is the revenue performance.

There is no reason to think that this sub-par trend will persist as the reporting cycle really gets going, but it is a weak start.

For Q3 as a whole, total earnings for the index are expected to decline -4.7% from the same period last year on +4.3% higher revenues, with 12 of the 16 Zacks sectors expected to have lower earnings compared to the year-earlier period, including the Tech sector.

We will know what the final Q3 earnings growth pace turns out to be when all the results are in, but we know that they will be better than these expectations, likely close to the flat line that we saw in the first half of the year.

Tough comparisons to last year when growth was boosted by the tax cut legislation were all along expected to weigh on earnings growth in 2019.

Moderating U.S. economic growth and notable slowdowns in other major global economic regions are having a further negative impact. Uncertainty about the global trade regime and growing resort to tariffs are not helping matters either.

The overall tone and substance of management guidance during the last earnings season was on the negative side. This reflected a combination of slowing economic growth, particularly beyond the U.S., and rising input expenses. As a result, analysts steadily lowered their estimates for 2019 Q3.

The Tech Sector Drag

As you can see, earnings growth is expected to be in negative territory for 12 of the 16 Zacks sectors, with Energy, Basic Materials, and Technology expected to experience double-digit declines. The Finance sector is able to eke out a modestly positive growth rate in Q3.

It is the weak Tech growth that is dragging the aggregate Q3 earnings growth rate for the S&P 500 index into negative territory. The Tech sector is the biggest earnings contributor in the S&P 500 index, bringing in 22.9% of the index’s total earnings in forward 4-quarter period. Excluding the Tech sector’s drag, total earnings growth for the remainder of the index would be down only -2.7% (-4.7% with Tech included).

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