Will We Finally See Some Sunshine?
The focus this week is on the economy, with a number of top-tier economic reports dominating the market’s attention. But the earnings season is slowly gaining attention as well.
We don’t have that many earnings reports this week, but more than a dozen S&P 500 companies have already reported 2014 Q1 results (companies with fiscal quarters ending in February get counted as part of the Q1 tally). The reporting cycle will start ramping up materially from next week onwards after Alcoa’s (AA) release. The results thus far from the likes of Nike (NKE), FedEx (FDX), Oracle (ORCL) and others have been underwhelming. But it’s way too early to draw any firm conclusions from what we have seen thus far.
At the 2021 SALT New York conference, which was held earlier this week, one of the panels on the main stage discussed the best macro shifts coming out of the pandemic and investing in value amid distress. The panel featured: Todd Lemkin, the chief investment officer of Canyon Partners; Peter Wallach, the managing director and Read More
The economic data coming out this week, particularly Tuesday’s manufacturing ISM survey and Friday’s non-farm payroll report, is expected to show that the economy is coming out of the weather-induced soft patch. The U.S economy did reasonably well in the second half of 2013, but lost momentum at the start of this year. Investors resigned themselves to the weather explanation for the soft data at the start of the year, but expect to see data showing the economy springing back into action in the coming days.
The market is looking for evidence that the U.S. economy is on track to graduate to a higher growth pace this year than has been the case over the last few years. The first quarter has essentially been washed out because of weather, but growth is expected to resume from the second quarter onwards, with GDP growth going above the +3%-plus pace in the second half and continuing into 2015. This favorable economic outlook is at the root of strong corporate earnings estimates as well.
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 -1.8% 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.
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. 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 $251.5 billion, but the expectation is for a strong ramp up from Q2 onwards.
Scorecard for 2013 Q4 (as of Friday, March 28th)
Total earnings for the 500 S&P 500 members were up +9.1% from the same period last year, with a ‘beat ratio’ of 65.6% and a median surprise of +2.4%. Total revenues were barely in the positive column, up only +0.7%, with a revenue ‘beat ratio’ of 57.2% 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 was 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’ +9.1%, which is about where growth has been in recent quarters.
For a detailed look at the earnings picture, please check out our weekly Earnings Trend Report.
- The Chicago PMI coming out after the market opens will give us a preview of the national manufacturing ISM index coming out on Tuesday. The Chicago index is expected to be modestly down from February’s 59.8 level.
- The manufacturing ISM survey and motor-vehicle sales for March will be coming out today. The ISM survey is expected to be up from February’s 53.2 level, while car sales are expected to reach an annualized pace of 15.8 million from February’s 15.3 million level.
- Apollo Education Group (APOL), the for-profit education provider, is the notable company releasing results today after the close.
- The March ADP jobs report will give us a preview of the government jobs report coming out on Friday. Last month, the ADP job tally of 139K had come short of BLS tally of 175K.
- February Factory Orders will be the other notable economic release today
- Monsanto (MON) will report in the morning, while oilfield services player Mitcham Industries(MIND) will report after the close.
- In addition to weekly Jobless Claims, we will get the service sector ISM reading.
- Schnitzer Steel (SCHN) will report in the morning, while Micron Technology (MU) and Global Payments (GPN) will report after the close.
- Today is jobs day and the spotlight will justifiably be on the March non-farm payroll report, which is expected to show headline gains of 192K vs February’s 175K. Weather was the villain the last couple of months and the hope is that we get out of its grip going forward.
- CarMax (KMX) is the only notable earning release today.
- Earnings ESP or Expected Surprise Prediction, our proprietary leading indicator of positive earnings surprises is showing CarMax coming out with an earning beat.
- To better understand of Zacks Expected Surprise Prediction, please click here.
- Our research shows that companies with Zacks Rank of 1, 2 or 3 and positive Earnings ESP are highly likely to beat EPS estimates. CarMax has Zacks Rank #3 (Hold) and Earnings ESP of +1.9%.
Here is a list of the 56 companies reporting this week, including 3 S&P 500 members.
|Company||Ticker||Current Qtr||Year-Ago Qtr||Last EPS Surprise %||Report Day||Time|
|CHINA AUTO SYS||CAAS||0.22||0.18||18.75||Monday||BTO|
|CUI GLOBAL INC||CUI||0.01||-0.03||-80||Monday||AMC|
|GAS NATURAL INC||EGAS||0.3||0.22||47.06||Monday||AMC|
|HARVEST CAP CRD||HCAP||0.31||N/A||-11.11||Monday||BTO|
|SORL AUTO PARTS||SORL||0.19||0.21||-10.53||Monday||BTO|
|WORLD ENERGY SL||XWES||-0.04||0||16.67||Monday||BTO|
|YOU ON DEMAND||YOD||N/A||-0.34||N/A||Monday||AMC|
|NATL AMER UNIV||NAUH||0.05||0.06||25||Wednesday||AMC|
|PERRY ELLIS INT||PERY||0.03||0.5||6.25||Thursday||BTO|
|RPM INTL INC||RPM||0.09||0.07||4.35||Thursday||BTO|
|CARMAX GP (CC)||KMX||0.53||0.46||-2.08||Friday||BTO|
|SYNERGY RES CP||SYRG||0.09||0.05||0||Friday||N/A|