Q1 Earnings Season Gets Underway

We will start counting Tuesday’s earnings announcements from Adobe Systems (ADBE) and Oracle(ORCL) as part of 2014 Q1 reporting cycle, though we are still a few weeks away from the earnings season taking the spotlight.

The market has plenty of domestic economic data to digest this week in a backdrop of developments in Ukraine and renewed questions about China’s growth outlook. On the docket this week are a host of housing, inflation, and manufacturing sector reports, but the focus will be on the FOMC meeting, particularly Fed Chairwoman Yellen’s first press conference.

The Fed isn’t expected to spring any surprises on the market. But with the unemployment rate not too far from the Fed’s 6.5% target, they will need to move past explicit thresholds without roiling the markets. This isn’t easy to do, as too vague a threshold leaves open the risk that the market gets ahead of the Fed in pricing the eventual monetary tightening. The FOMC could address this issue in its official statement on Wednesday, but the issue is bound to come in Janet Yellen’s press event that afternoon.

Beyond the Fed and economic data, we have a number of corporate bellwethers coming out with 2014 Q1 results (companies with fiscal quarters ending in February and reporting in March get counted as part of Q1 tally), which includes besides Oracle, Nike (NKE), FedEx (FDX), General Mills (GIS) and KB Home(KBH).

These Q1 earnings reports aside, we are in the transition phase between two earnings seasons when the last one hasn’t completely ended even as the new one is upon us. Of this week’s 80 earnings announcements, there are only 18 companies with fiscal quarters ending in February and getting counted towards the Q1 tally; the rest belong the 2013 Q4 reporting cycle (we have Q4 earnings reports from 497 S&P 500 companies, as of Friday, March 14th).

Expectations for 2014 Q1

Estimates for 2014 Q1 started coming down at an accelerated pace as companies predominantly guided lower on the 2013 Q4 earnings calls, consistent with the trend we have been seeing for more than a year now. Total Q1 earnings for companies in the S&P 500 are currently expected to be down -1.5% from the same period last year, a material decline from the +2.1% growth expected in early January 2014.

The negative revision trend is widespread, but is particularly notable for the Retail, Basic Materials, Autos, Consumer Staples, and the Energy sectors, as the chart below shows.

Q1 Earnings Season

Q1 Earnings Season

With roughly two-thirds of S&P 500 companies beating earnings expectations in any reporting cycle, actual Q1 results will almost certainly be better than these pre-season expectations. But Q1 is unlikely to repeat the performance of the last few quarters where we would witness a new all-time earnings total record each quarter. Total earnings for the S&P 500 are on track to reach $269.4 billion in 2013 Q4 (we still have 3 more companies to report results before ‘closing the books’ on that quarter). This is a new all-time quarterly record for total earnings, surpassing the previous record set in 2013 Q3 at $262.7 billion. Current estimates for 2014 Q1 aggregate to a quarterly total of $252.4 billion, but the expectation is for a strong ramp up from Q2 onwards.

Scorecard for 2013 Q4 (as of Friday, March 14th)

With respect to the ‘scorecard’ for 2013 Q4, we are still waiting for results from 3 S&P 500 members. Total earnings for the 497 S&P 500 members that have reported results  are up +9.2% from the same period last year, with a ‘beat ratio’ of 64.2% and a median surprise of +2.4%. Total revenues are barely in the positive column, up only +0.7%, with a revenue ‘beat ratio’ of 55.9% and a median surprise of +0.6%. While the revenue growth rate in Q4 was held down by tough comparisons in the Finance sector, the overall earnings growth rate in the quarter was the highest of 2013.

A big contributor to the strong Q4 earnings growth is easy comparisons for three companies – Bank of America (BAC), Verizon (VZ), and Travelers (TRV). Exclude these three companies and total earnings growth for the S&P 500 companies that have reported drops to +5.5% from the ‘headline’ +9.2%, which is about where growth has been in recent quarters.

For a detailed at the Q4 earnings season and the overall earnings picture, please check out our weekly Earnings Trends report.  

Monday-3/17

  • A busy day on the economic calendar, with March Empire State manufacturing survey and Homebuilder sentiment index coming out before the open. Also coming out this morning is the February Industrial Production report.

Tuesday -3/18

  • Housing Starts and CPI for February are the notable economic reports this morning. The two-day FOMC meeting will get underway today.
  • Adobe Systems (ADBE) and Oracle (ORCL) are the notable earnings reports today, both after the close.
  • Earnings ESP or Expected Surprise Prediction, our proprietary leading indicator of positive earnings surprises is showing Oracle coming out with an earning beat.
  • Our research shows that companies with Zacks Rank of 1, 2 or 3 and positive Earnings ESP are highly likely to beat EPS estimates. Oracle has Zacks Rank #3 (Hold) and Earnings ESP of +1.5%.
  • To get a better understanding of Zacks Earnings Surprise Predictor, please click here.

Wednesday-3/19

  • The Fed is in focus today, with the FOMC coming out with its statement and followed by Chairwoman Yellen’s press conference.
  • FedEx (FDX), General Mills (GIS) and KB Homes (KBH) will report in the morning, while Jabil Circuit (JBL) and Guess (GES) will report after the close.
  • Earnings ESP is showing General Mills beating EPS expectations. General Mills has Zacks Rank #3 (Hold) and Earnings ESP of +1.5%

Thursday -3/20

  • In addition to weekly Jobless Claims, we will get the February Existing Home sales data and the March Philly Fed regional survey.
  • ConAgra (CAG) and Lennar Corp (LEN) are the notable earnings reports in the morning, while Nike(NKE) will report after the close.

Friday-3/21

  • Not much on the economic calendar, while Tiffany (TIF) and Darden Restaurants (DRI) will report earnings results, both in the morning.
  • Tiffany with a Zacks Rank of 3 and Earnings ESP of +0.7% is expected to come out with a positive earnings surprise.

Here is a list of the 80 companies reporting this week, including 10 S&P 500 members.

ADOBE SYSTEMS (ADBE): Free Stock Analysis Report

BANK OF AMER CP (BAC): Free Stock Analysis Report

CONAGRA FOODS (CAG): Free Stock Analysis Report

DARDEN RESTRNT (DRI): Free Stock Analysis Report

FEDEX CORP (FDX): Free Stock Analysis Report

GUESS INC (GES): Free Stock Analysis Report

GENL MILLS (GIS): Free Stock Analysis Report

JABIL CIRCUIT (JBL): Free Stock Analysis Report

KB HOME (KBH): Free Stock Analysis Report

LENNAR CORP -A (LEN): Free Stock Analysis Report

NIKE INC-B (NKE): Free Stock Analysis Report

ORACLE CORP (ORCL): Free Stock Analysis Report

TIFFANY & CO (TIF): Free Stock Analysis Report

VERIZON COMM (VZ): Free Stock Analysis Report

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