The following excerpt is from this week's Earnings
Trends. To see the full report,
please click here.
Retail Sector's Cloudy Earnings Picture
With results from 460 S&P 500 members already out, the Q3
earnings season is effectively over. Results from the remaining
40 companies wouldn't change the aggregate earnings picture by
much, but they are nevertheless important since almost half of
them belong to the Retail sector. Of interest is not so much how
these retailers did in Q3, but how they see the outlook for the
holiday season unfolding.
) results appeared fairly encouraging on that front, but Macy's
doesn't speak for the entire sector.
) clearly is such a bellwether, but its results and outlook don't
inspire much confidence about what to expect from the sector as
whole in Q4. We will have to wait and see how the remaining
retailers report, but Wal-Mart's underwhelming results despite
the recent sharp drop in gasoline prices don't bode well for
Fewer shopping days this holiday season is not only prompting
retailers to open their doors even earlier on Thanksgiving Day
this year, but is likely making it a more promotional affair as
well. Retailers are beating top-line expectations at a very low
rate in Q3 relative to the last few quarters and we should
probably brace ourselves for negative bottom-line surprises in
For the Q3 earnings season as a whole, total earnings for the
460 S&P 500 companies that have reported results
already, as of Thursday morning November 14th, are up +4.8% from
the same period last year, with 65.2% beating earnings
expectations with a median surprise of +2.5%. Total revenues for
these companies are up +3.0%, with 42.2% beating revenue
expectations with a median surprise of +0.1%.
The charts below show how the results from these 460 companies
compare to what these same companies reported in Q2 and the
average for the last 4 quarters. The earnings and revenue growth
rates, which looked weaker in the earlier phase of the Q3
reporting cycle, improved materially.
The earnings and revenue growth rates for the 56.8% of Retail
sector companies in the S&P 500 that have reported already
are modestly better than what we have seen from those same
companies in recent quarters. But the beat ratios, specifically
on the revenue side, remain very weak, with the sector's revenue
beat ratio the second worst of all 16 Zacks sectors in the
The chart below shows the sector's revenue surprises compare to
what we have seen in recent quarters. Please note that the chart
compares the revenue surprises for the 25 retailers in the
S&P 500 (out of 44 total) that have reported Q3 results
already with the performance of those same 25 companies in Q2 and
the 4-quarter average.
The composite earnings growth rate for Q3, combining the results
from the 460 that have come out with the 40 still to come,
currently remains at +4.8% on +3.0% higher revenues. This will be
the best earnings growth rate of 2013 thus far, though
expectations are for even stronger growth in Q4.
Estimates for Q4 have started coming down, though judging by the
) guidance, they likely still have plenty of room to go down. The
chart below shows the evolution of Q4 growth rate over the last
The picture emerging from the chart above would hardly be the
first time estimates would be coming down like this - we have
been seeing this play out quarter after quarter for more than a
year now. The market hasn't cared much about this uninspiring
earnings picture thus far, likely a reflection of the
ever-supportive Fed. And with most market participants expecting
the Fed to hold off on making any changes to its policy stance
till at least through April 2014, they may see no reason to worry
about negative estimate revisions for Q4.
- Total earnings for the 460 S&P 500 companies that have
reported results already are up +4.8%, with 65.2% beating
earnings expectations. Revenues for these companies are up
+3.0%, with a revenue 'beat ratio' of 42.2%.
- Unlike Q2, the Finance sector has been less of a growth
driver in Q3, with total earnings for the sector up +9.9%.
Bank of America
), the sector's Q3 earnings growth drops to +3.6%. The sector's
growth momentum has decelerated from the last few quarters,
with industry leaders
- Technology spotlights the ex-Finance variance from Q2, with
total earnings for the 94.0% of the sector's total market
capitalization that have reported up +5.7% on +3.5% higher
revenues. The +5.7% earnings growth for the 60 Tech companies
that have reported compare to -8.5% earnings decline in Q2 and
the 4-quarter average of -1.2% for the same group of
- Total Q3 earnings for all S&P 500 companies, combing
the 460 that have reported with the 40 still to come, are
expected to be up +4.8%, which reflects +3.0% revenue growth
and modest gains in margins. This compares to +3.7% earnings
growth in Q2.
- Guidance remains negative, prompting estimate cuts for Q4,
though there likely still plenty of downside to current +7.1%
growth expected in Q4. While there is not much growth, the
overall level of total earnings is quite high, with total
earnings in Q3 on track to reach a new all-time quarterly
record at $261.3 billion, surpassing Q2's record of $258.5
- Total earnings for the S&P 500 are expected to be up
+6.3% in 2013 and +11.1% in 2014.
To see the Full Earnings Trends PDF,
please click here
BANK OF AMER CP (BAC): Free Stock Analysis
GOLDMAN SACHS (GS): Free Stock Analysis
JPMORGAN CHASE (JPM): Free Stock Analysis
MACYS INC (M): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis
To read this article on Zacks.com click here.