The 2013 Q2 earnings season gets into high gear this week as earnings reports from 178 companies come out, including 76 from the S&P 500. By the end of this week, we have earnings reports from more than a fifth of the index’s total membership; giving us a good enough sample size to judge the Q2 earnings season.
This week’s reporting docket is heavy with Finance sector results, but we have plenty of bellwethers from other key sectors on deck as well, which makes this week’s reports a fairly representative sample. From Google (GOOG), IBM (IBM), and Intel (INTC) to Coke (KO) and Johnson & Johnson (JNJ) and Pepsi (PEP) and much more in between, this week’s reports span the full spectrum of the economy. While earnings reports from almost 80% of the S&P 500 companies will still be awaited by the end of the week, the trends established this week will likely carry through the rest of this reporting cycle with only minor changes.
With respect to the results thus far, we have seen Q2 results from 29 S&P 500 members (as of Friday, July 12th). These results provide a bit of a mixed picture, though not materially different from what we saw in Q1. Earnings and revenue growth for these 29 companies are comparable to what these same companies achieved in 2013 Q1. But the beat ratios (% of companies coming out with positive surprises) are modestly weaker on the earnings side and about the same on the revenue side. Given the very small sample size, it is not advisable to draw any conclusions at this stage. As such, the more important story on the earnings front pertains to expectations form the coming reports.
In terms of earnings growth, the remaining Finance sector companies are expected to sustain the trend established by J.P. Morgan (JPM) and Wells Fargo (WFC), even though both banks cautioned against the impact of higher interest rates on mortgages in an otherwise low demand backdrop for loans. The spike in interest rates will in the long run help improve net-interest margins for the banks, though margins will likely be flat at best in Q2, as was the case with these two banks.
Total earnings for the rest of the Finance sector are expected to be up +20.5% from the same period last year, with favorable comparisons at Bank of America (BAC), Citigroup (C), and Goldman Sachs (GS). The composite picture for the Finance sector, combining the results that have come out with those still to come, is for earnings growth of +21.3% from the same period last year, an improvement from what was expected before the JPM/WFC results.
The composite Q2 earnings growth picture - combining the result for the 29 companies that have come out with results with the 471 still awaited – shows a growth rate of +0.7% on -0.7% lower revenues and modestly higher margins. This is sharply down from +3.9% growth expected in early April. Nine of the 16 Zacks sectors are expected to show negative earnings growth in Q2. But the growth picture in Q2 is even more underwhelming when Finance is excluded from the data. Outside of Finance, total earnings for the S&P 500 would be down -3.4%.
Unlike Finance, the earnings picture for the Technology sector remains fairly weak. Total earnings for the sector are expected to be down -8.3% from the same period last year, which follows the -4.2% earnings decline in Q1. Earnings estimates for the sector steadily came down as the quarter progressed, with the current -8.3% decline down from the expected decline of -3.1% in mid-April. Excluding Technology, total Q2 earnings for the S&P 500 would be up +2.8% from the same period last year.
The weakest group within the Technology sector is the PC makers, with total earnings for the Computers and Office Equipment industry expected to be down -16.1% in Q2 after the -14.1% decline in Q1. Semiconductors and electronics are other Tech industries with negative earnings growth in the quarter, while the software group is expected to show a modest positive growth.
High Expectations for Second half & Next year
Expectations for total earnings in 2013 have come down as estimates for Q2 were revised lower, though estimates for the second half of the year and full-year 2014 have held up fairly well. The +6.3% growth in total earnings this year, down from +6.8% in early April, reflects a material ramp up in the second half of the year that is then expected to carry into 2014. Combining the actual results for Q1 with estimates for Q2 gives us +1.7% year-over-year growth in total earnings during the first half of 2013. But total earnings are expected to be up +8.1% in the second half of the year and further +11.4% in full-year 2014.
Total earnings for companies in the S&P 500 in Q2 are expected to remain below Q1’s record level. The Zacks Consensus bottom up earnings estimates aggregate to $250.9 billion in Q2, compared to $249.2 billion in 2012 Q2 and 2013 Q1’s record of $252.7 billion. The Finance sector will generate $49.8 billion or 18.7% of the S&P 500’s total Q2 earnings, while the Tech sector is expected to generate $43.5 billion or 16.7% of the index’s total earnings.
Finance is reclaiming its dominant earnings position in the index which was taken over by the Tech sector following the 2008 crash. Tech remained the biggest earnings producer for the S&P 500 from 2008 through 2012, but the leadership role moves back to Finance this year. Finance is on track to produce $198 billion in 2013 (19.2% of the total), up from $173.7 billion in 2012 (17.9% of the total), while Tech is expected to produce $186.1 billion this year (18% of the total), up from $181.9 billion in 2012 (18.8% of the total).
Trends in Estimate Revisions
The revisions trend that appeared to be moving in a positive direction a few weeks back has lost ground lately, though revisions activity is typically closed to its lowest point ahead of the reporting cycle, as is the case at present. We should see a material pick up in revisions activity, as analysts adjust their estimates for the following quarters after earnings releases. The ‘Revisions Ratio’, the key metric plotted below, is basically the ratio of total number of upward revisions over the preceding four weeks to the total number of revisions (positive and negative) over that same period.
We have two charts each for 2013 and 2014. The bar charts show the current state of the ‘revisions ratio’ (as of 7/7/13), while the line charts plot the ratio’s trajectory over the preceding 24 months. As you can see below, the revisions ratio for 2013 dropped to 42% from the prior week’s 47% level, while the same for 2014 dropped to 44% from 49% the week before. Both ratios are now moderately in negative territory.
The ratio doesn’t tell you the ‘magnitude’ of the revisions, only the direction. The ‘50%’ level (the dark line) is the dividing line between positive and negative trends, with readings above 50% implying more positive than negative revisions. That said our analysis shows that readings between 45% and 55% don’t offer material insights into the magnitude of revisions. It is only readings above 55% and below 45% that offer bullish and bearish signals about the magnitude of earnings revisions.
As you can see in the 2013 chart above, the revisions trend for the index as a whole has moved into bearish territory, with only 6 of the 16 sectors at or above the 50% level this week, down from 7 sectors last week (Tech went below the 50% level). On the bearish side, 9 of the 16 sectors remain below the 45% level, with revisions activity in Basic Materials and Consumer Staples continuing to the down side.
Finance’s revisions ratio currently (as of 7/5) stands at 56% for 2013 (down from 66% the week before) and 56% for 2014 (down from 70%), signaling material loss of momentum though the trend still remains positive. This week’s earnings reports will give us a clear signal about the direction of estimate revisions for the coming quarters. J. P. Morgan and Wells Fargo generally made favorable comments about the outlook for net-interest margins, though they did caution towards potentially tougher times in the mortgage banking business in an elevated interest rate environment.
Earnings will be the focus all week, though we have the June Retail Sales, Industrial Production, CPI, and Housing Starts data on the docket as well. The Fed will likely steal the limelight later in the week, with Bernanke’s testimony to the House on Wednesday and the Senate on Thursday.
- We will get the June Retail Sales data in the morning, with expectations of +0.9% ‘headline’ increase after the +0.6% increase the month before. We will also get the July Empire State regional manufacturing survey.
- Citigroup (C) is the only major report in the morning.
- We will get June CPI and Industrial Production and the July homebuilder index. Inflation is expected to be up +0.4% on the ‘headline’ and +0.2% on the ‘core’, while Industrial Production is expected to be up +0.1% in June after the flat reading in May.
- Coke (KO), Johnson & Johnson (JNJ), and Goldman Sachs (GS) are the key reports before the open, while Yahoo (YHOO) and CSX Corp (CSX) will report after the close.
- Zacks ESP or Earnings Surprise Prediction, our proprietary leading indicator of earnings surprises, is showing CSX Corp coming out with an earnings beat.
- For a full report on Zacks ESP, click here.
- Bernanke will likely dominate the headlines with his House testimony, though we have a ton of earnings reports and the June Housing Starts numbers coming out.
- Bank of America (BAC), Piper Jaffray (PJC), and PNC Financial (PNC) are the key reports in the morning, while Intel (INTC), IBM (IBM), and eBay (EBAY) will report after the close.
- Zacks ESP is showing Bank of America and Intel coming out with positive earnings surprises.
- In addition to weekly Jobless Claims, we will get the July Philly Fed survey in the morning. We will also have another day of Bernanke testimony, this time in the Senate.
- A very busy day on the earnings front, with Verizon (VZ), Morgan Stanley (MS), Sherwin Williams (SHW), and Union Pacific (UNP) reporting in the morning, while Google (GOOG) and Microsoft (MSFT) report after the close.
- Not much on the economic calendar, but plenty of earnings reports. We will have General Electric (GE), Schlumberger (SLB), Kansas City Southern (KSU), Honeywell (HON), Baker Hughes, and State Street (STT) as the key reports today, all in the morning.
Here is a list of the 178 companies reporting this week, including 76 S&P 500 members.
|Company||Ticker||Current Qtr||Year-Ago Qtr||Last EPS Surprise %||Report Day||Time|
|BROWN & BROWN||BRO||0.35||0.29||5.13||Monday||AMC|
|HUNT (JB) TRANS||JBHT||0.74||0.67||-4.69||Monday||N/A|
|JOES JEANS INC||JOEZ||0.03||0.02||50||Monday||AMC|
|STANLEY FURN CO||STLY||-0.12||-0.1||-18.18||Monday||AMC|
|COCA COLA CO||KO||0.63||0.61||2.22||Tuesday||BTO|
|DEL FRISCOS RST||DFRG||0.19||0.2||5||Tuesday||BTO|
|JOHNSON & JOHNS||JNJ||1.4||1.3||2.13||Tuesday||BTO||BTO||$6.58|
|PINNACLE FIN PT||PNFP||0.39||0.23||18.18||Tuesday||AMC||AMC||$18.74|
|UTD RENTALS INC||URI||1.02||0.66||11.54||Tuesday||AMC||BTO||$31.30|
|AMER EXPRESS CO||AXP||1.21||1.15||3.6||Wednesday||AMC||$49.85|
|ASML HOLDING NV||ASML||0.61||1.13||-7.55||Wednesday||BTO||BTO||$20.01|
|ASTORIA FINL CP||AF||0.12||0.13||7.69||Wednesday||AMC||BTO||$18.49|
|BANK OF AMER CP||BAC||0.25||0.19||-13.04||Wednesday||BTO||AMC||$31.06|
|BANK OF NY MELL||BK||0.58||0.57||9.62||Wednesday||BTO||AMC||$58.52|
|BOSTON PRIV FIN||BPFH||0.19||0.14||-23.53||Wednesday||AMC||AMC||$7.50|
|CATHAY GENL BCP||CATY||0.35||0.33||-6.25||Wednesday||AMC||AMC||$7.31|
|CORE LABS NV||CLB||1.31||1.14||6.09||Wednesday||AMC||AMC||$3.80|
|CROWN HLDGS INC||CCK||0.93||0.84||4.17||Wednesday||AMC||AMC||$4.89|
|EAST WEST BC||EWBC||0.51||0.47||0||Wednesday||AMC||BTO||$21.28|
|EL PASO PIPELIN||EPB||0.47||0.44||7.41||Wednesday||AMC||AMC||$18.96|
|FIRST CASH FINL||FCFS||0.57||0.56||0||Wednesday||BTO||BTO||$36.77|
|FIRST REP BK SF||FRC||0.63||0.6||0||Wednesday||BTO||BTO||$83.56|
|GRAINGER W W||GWW||2.96||2.63||7.69||Wednesday||BTO||AMC||$0.96|
|GREENHILL & CO||GHL||0.45||0.07||-34.78||Wednesday||AMC||AMC||$3.15|
|INTL BUS MACH||IBM||3.78||3.51||-1.96||Wednesday||AMC||AMC||$36.48|
|KINDER MORG ENG||KMP||0.62||0.37||0||Wednesday||AMC||BTO||$25.32|
|LASALLE HTL PRP||LHO||0.72||0.72||8||Wednesday||AMC||AMC||$34.15|
|M&T BANK CORP||MTB||2.09||1.74||6.19||Wednesday||BTO||$11.28|
|PNC FINL SVC CP||PNC||1.64||1.25||12.1||Wednesday||BTO||BTO||$114.57|
|ST JUDE MEDICAL||STJ||0.94||0.88||0||Wednesday||BTO||AMC||$14.94|
|UMPQUA HLDGS CP||UMPQ||0.22||0.21||-4.35||Wednesday||AMC||$43.78|
|UNIVL FST PRODS||UFPI||0.72||0.67||2500||Wednesday||AMC||AMC||$5.61|
|ZHONE TECH INC||ZHNE||0.02||-0.07||N/A||Wednesday||AMC||AMC||$12.71|
|ADV MICRO DEV||AMD||-0.12||0.06||23.53||Thursday||AMC||BTO||$42.28|
|ALIGN TECH INC||ALGN||0.28||0.34||13.04||Thursday||AMC||$2.02|
|AMER RIVER BSH||AMRB||0.07||0.09||-12.5||Thursday||AMC||AMC||$7.48|
|ASSOC BANC CORP||ASBC||0.25||0.24||8||Thursday||AMC||AMC||$5.57|
|CAPITAL ONE FIN||COF||1.71||0.33||17.79||Thursday||AMC||BTO||$33.19|
|CHECK PT SOFTW||CHKP||0.76||0.71||0||Thursday||BTO||AMC||$15.52|
|COBIZ FINL INC||COBZ||0.14||0.14||7.69||Thursday||N/A||AMC||$27.10|
|CYTEC INDS INC||CYT||1.27||0.73||-12.79||Thursday||AMC||AMC||$12.36|
|ERICSSON LM ADR||ERIC||0.16||0.11||50||Thursday||BTO||AMC||$16.48|
|FIFTH THIRD BK||FITB||0.44||0.36||12.82||Thursday||BTO||$2.13|
|FORWARD AIR CRP||FWRD||0.53||0.48||-7.69||Thursday||AMC||BTO||$96.40|
|GOOGLE INC-CL A||GOOG||9.01||8.82||13.25||Thursday||AMC||BTO||$9.31|
|HOME LOAN SERVC||HLSS||0.46||0.33||2.33||Thursday||BTO||AMC||$16.82|
|HUB GROUP INC-A||HUBG||0.49||0.46||0||Thursday||AMC||BTO||$6.70|
|HUBBELL INC -B||HUB.B||1.31||1.29||-0.9||Thursday||BTO||AMC||$2.85|
|ICU MEDICAL INC||ICUI||0.65||0.63||28.89||Thursday||AMC||AMC||$15.35|
|MARRIOT VAC WW||VAC||0.49||0.33||10.2||Thursday||AMC||AMC||$24.59|
|NOKIA CP-ADR A||NOK||-0.03||-0.1||33.33||Thursday||BTO||AMC||$25.47|
|PEOPLES UTD FIN||PBCT||0.19||0.19||0||Thursday||AMC||AMC||$6.79|
|PPG INDS INC||PPG||2.34||2.36||1.28||Thursday||BTO||AMC||$4.78|
|SAP AG ADR||SAP||0.91||0.77||41.51||Thursday||BTO||BTO||$34.29|
|SIMMONS FIRST A||SFNC||0.4||0.38||-9.76||Thursday||BTO||$2.72|
|UNION PAC CORP||UNP||2.35||2.1||3.57||Thursday||BTO||BTO||$11.47|
|UTD FINL BCP||UBNK||0.26||0.21||0||Thursday||AMC||BTO||$32.35|
|FIRST HRZN NATL||FHN||0.19||-0.5||0||Friday||BTO||BTO||$36.22|
|KANSAS CITY SOU||KSU||0.95||0.85||2.3||Friday||BTO||AMC||$25.27|
|MANPOWER INC WI||MAN||0.89||0.76||40||Friday||BTO||BTO||$40.60|
|STATE ST CORP||STT||1.19||1.01||3.23||Friday||BTO||DMT||$15.54|
|V F CORP||VFC||1.17||1.11||11.98||Friday||N/A||BTO||$44.41|
GENL ELECTRIC (GE): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis Report
INTL BUS MACH (IBM): Free Stock Analysis Report
INTEL CORP (INTC): Free Stock Analysis Report
JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
COCA COLA CO (KO): Free Stock Analysis Report
PEPSICO INC (PEP): Free Stock Analysis Report
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