Q4 Earnings Reports Trickle In: All Eyes On The Fed

Fed in Focus as Q4 Earnings Reports Trickle In

The market’s focus is justifiably on the Fed this week, given expectations that the FOMC will start ‘Tapering’ its bond-purchase program. Also of interest, will be the FOMC members’ updated economic forecasts, and Bernanke’s last press conference as the Fed Chairman, where he will try to explain FOMC’s ‘Taper’ decision, or lack thereof.

Many in the market continue to hope that the Fed will hold off on the ‘Taper’ decision this week. A Wall Street Journal poll of 46 economists shows that only a quarter of the respondents expect this week’s FOMC meeting to result in the Taper announcement, while over a third of the total see the Fed holding off through the March 2014 meeting.

The Fed will no doubt be the big subject this week, but the 2013 Q4 earnings reports start trickling in as well. We still have a couple of more weeks to go before the (calendar) quarter ends, but we count all companies with fiscal quarters ending in November as part of our Q4 tally. And by that definition, the Q4 earnings season got underway with the earning release from Adobe Systems (ADBE – Analyst Report) after the close on Thursday. We have a number of industry leaders reporting results this week, including FedEx (FDX – Analyst Report), Oracle (ORCL – Analyst Report), Nike (NKE– Analyst Report), General Mills (GIS – Analyst Report) and others.

As has been the case at the start of recent quarterly earnings cycles, expectations for the Q4 earnings season have fallen sharply over the last three months. Total earnings for companies in the S&P 500 are now expected to be up 6.8% from the same period last year. This is down materially from what was expected at the start of the quarter, as the chart below shows.

Q4 earnings

This negative revisions behavior is hardly unusual as we have been repeatedly seeing this pattern play out in recent quarters. Companies have been overwhelmingly guiding lower, prompting analysts to cut estimates for the following quarter. The revisions behavior ahead of the Q3 earnings season was no different and most of the same sectors have experienced negative revisions this time around as well. The ‘regulars’ on the negative estimate revisions beat include Technology, Industrials, and Energy. Construction and Aerospace suffered negative revisions as well, while estimates for Basic Materials went up.

The earnings growth expected in Q4, at this stage of the reporting cycle, is the highest that we have seen in any of the last few quarters. This is partly a function of easy comparisons, as 2012 Q4 represents the lowest quarterly earnings total for the S&P 500 in the last six quarters, with the comps particularly easy for the Finance sector. But it’s not all due to easy comparisons, as the expected earnings totals for Q4 represent a new all-time quarterly record. Total earnings for the S&P 500 reached a new record at $262.2 billion in Q3, surpassing Q2’s $259 billion record. But they are expected to reach $263.5 billion in 2013 Q4, a new all-time record.

But of more interest than Q4 growth will be management guidance for 2014. Companies typically provide guidance only for the following quarter, but they do tend to discuss their outlook for the coming year on the Q4 earnings calls. It will be interesting to see if management teams see any material improvement in the earnings picture this year along the lines of current consensus earnings expectations for 2014. Total earnings are expected to be up +10.9% in 2014, up from +6.3% growth in 2013, with most of the growth coming in the back half of the year.

Monday-12/16

We will get the December Empire State manufacturing survey and the November Industrial Production index and capacity utilization numbers in the morning. The expectation is for +0.5% increase in IP and an uptick in utilization.

Tuesday -12/17

The Fed’s two-day meeting gets underway today. On the data front, we will get the November CPI and the December homebuilder sentiment index.
Jabil Circuit (JBL) is the only notable earnings release today, coming out after the close.

Wednesday-12/18

The big news of the day is whether the FOMC meeting will result in the ‘Taper’ announcement or not. Economic projections of FOMC members and the Bernanke press conference, his last as Fed Chairman, will be other key events of the day. But the Fed activities will take place in the afternoon.
In the morning, we will get the November Housing Starts and Permits numbers, with expectations of gains on the Starts and a modest decline on the Permits fronts.
FedEx (FDX – Analyst Report), General Mills (GIS – Analyst Report) and Lennar (LEN – Analyst Report) will be the key Q4 earnings reports in the morning, while Oracle (ORCL – Analyst Report) will report after the close.
Zacks Earnings ESP or Expected Earnings Surprise, our proprietary leading indicator of earnings surprises, is showing FedEx and Lennar coming out with earnings beats.
Stocks with positive Earnings ESP and Zacks Rank of 1, 2 or 3 are highly likely to come out with positive earnings surprises. Lennar Corp has a Zacks Rank #3 (Hold) and Earnings ESP of +1%, while FedEx has Zacks Rank #2 (Buy) and Earnings ESP of +0.6%.
To get a better understanding of Zacks Earnings ESP, please click here.

Thursday -12/19

Jobless Claims, Existing Home sales, Philly Fed and Leading Indicators round out a busy economic docket.
ConAgra (CAG – Analyst Report), Accenture (ACN – Snapshot Report), and Darden Restaurants (DRI – Analyst Report) are the key reports in the morning, while Nike (NKE – Analyst Report) reports after the close.

Friday-12/20

We will get the Q3 GDP revision report, expected to remain unchanged from the last +3.6% reading.
Walgreen (WAG – Analyst Report) andCarMax (KMX – Analyst Report) are the only notable reports today, both in the morning.
Walgreen’s Zacks Rank #3 (Hold) and Earnings ESP of +1.1% shows that the company is expected to come out with a positive earnings surprise.

Here is a list of the 39 companies reporting this week, including 13 S&P 500 members.

Company	Ticker	Current Qtr	Year-Ago Qtr	Last EPS Surprise %	Report Day	Time
FUELCELL ENERGY	FCEL	-0.03	-0.05	0	Monday	AMC
CHINAEDU CP-ADR	CEDU	0.17	0.1	114.29	Monday	AMC
FACTSET RESH	FDS	1.23	1.14	-2.52	Tuesday	BTO
JABIL CIRCUIT	JBL	0.47	0.53	2.13	Tuesday	AMC
HEICO CORP	HEI	0.41	0.36	14.89	Tuesday	AMC
VERIFONE SYSTMS	PAY	0.18	0.66	25	Tuesday	AMC
SANDERSON FARMS	SAFM	2.34	0.41	11.32	Tuesday	BTO
VALASSIS COMMS	VCI	0.85	0.85	-14.29	Wednesday	BTO
APOGEE ENTRPRS	APOG	0.33	0.28	0	Wednesday	AMC
FEDEX CORP	FDX	1.64	1.39	2.68	Wednesday	BTO
GENL MILLS	GIS	0.88	0.86	0	Wednesday	BTO
LENNAR CORP -A	LEN	0.63	0.56	17.39	Wednesday	BTO
HERMAN MILLER	MLHR	0.41	0.35	13.16	Wednesday	AMC
ORACLE CORP	ORCL	0.64	0.6	5.66	Wednesday	AMC
PAYCHEX INC	PAYX	0.42	0.41	2.33	Wednesday	AMC
STEELCASE INC	SCS	0.26	0.21	-7.69	Wednesday	AMC
ARROWHEAD RSRCH	ARWR	-0.23	-0.43	-4.55	Wednesday	AMC
LGI HOMES INC	LGIH	0.33	999	N/A	Wednesday	BTO
ACCENTURE PLC	ACN	1.09	1.06	1	Thursday	BTO
AAR CORP	AIR	0.5	0.44	2.27	Thursday	AMC
ACTUANT CORP	ATU	0.46	0.49	0	Thursday	BTO
CONAGRA FOODS	CAG	0.55	0.57	-7.5	Thursday	BTO
DARDEN RESTRNT	DRI	0.21	0.26	-23.19	Thursday	BTO
MARCUS CORP	MCS	0.17	0.18	8.7	Thursday	BTO
NEOGEN CORP	NEOG	0.25	0.19	0	Thursday	BTO
NIKE INC-B	NKE	0.58	0.57	10.26	Thursday	AMC
PIER 1 IMPORTS	PIR	0.28	0.25	-19.05	Thursday	BTO
RITE AID CORP	RAD	0.04	0.07	300	Thursday	BTO
RED HAT INC	RHT	0.24	0.2	9.09	Thursday	AMC
TIBCO SOFTWARE	TIBX	0.32	0.32	60	Thursday	AMC
WINNEBAGO	WGO	0.39	0.26	35.71	Thursday	BTO
WORTHINGTON IND	WOR	0.56	0.46	0	Thursday	BTO
BIO REFERNC LAB	BRLI	0.4	0.46	1.92	Thursday	BTO
IEC ELECTRS NEW	IEC	0.06	0.16	-42.86	Thursday	BTO
BLACKBERRY LTD	BBRY	-0.46	-0.22	6	Friday	BTO
FINISH LINE-CLA	FINL	0	0	20	Friday	BTO
CARMAX GP (CC)	KMX	0.48	0.41	8.77	Friday	BTO
WALGREEN CO	WAG	0.72	0.58	0	Friday	BTO
ZUOAN FASHION	ZA	0.19	0.53	14.29	Friday	BTO