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Fed in Focus as 2013 Q3 Earnings Season Gets Underway - Earnings Preview

Posted: 9/13/2013 3:07:00 AM
Referenced Stocks: AA;ADBE;CAG;CBRL;FDS

Fed in Focus as 2013 Q3 Earnings Season Gets Underway

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 the Bernanke press conference where the outgoing Fed Chairman will try to explain their 'Taper' decision, or lack thereof.

Some in the market continue to hope that the Fed will hold off on the 'Taper' decision this week given the still-tepid economic picture and the potentially destabilizing upcoming budget and debt-ceiling debates in Congress. With the Syria debate now moving to the background, Congress's attention will be shifting to these divisive topics in the coming days, not to mention a potentially noisy Senate confirmation battle for Larry Summers as the next Fed Chairman, should he get the nod as many speculations seem to suggest.

Please check out the very informative post by Nick Kalivas on the evolving monetary policy picture and the issues facing the Fed. Click here .

The Fed will no doubt be the big subject this week, but we are getting close to the start of the 2013 Q3 earnings season as well. In fact, the Q3 earnings season will actually get underway this week with the earning release from Adobe Systems ( ADBE ) after the close on Tuesday, followed by reports from such bellwethers as FedEx ( FDX ) and Oracle ( ORCL ) on Wednesday.

Alcoa (AA) typically gets credited for kick-starting each earnings season, but since we count all companies with quarters ending in August as part of our Q3 tally, the Q3 earnings season will have gotten underway weeks before Alcoa reports on October 8th. It will be interesting to see how much attention the aluminum giant's earnings report will get this earnings season since it will have lost its position in the Dow Jones Industrial Average. In total, we have 20 companies reporting Q3 results this week, including 5 S&P 500 members.

As has been the case at the start of recent quarterly earnings cycles, expectations for the Q3 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 only +1.3% from the same period last year. This is down materially from what was expected at the start of the quarter in early July, as the chart below shows.

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 Q2 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, Basic Materials, and Industrials. But Retail and Consumer Discretionary have played material roles in bringing down expectations for Q3.

The chart below compares the Q3 total earnings growth expected for these five sectors at the start of the quarter and where those expectations stand at present

Estimates for other sectors have come down as well, with even the Finance sector earnings expected to be up +7% now vs. the +8.1% that was expected in early July. Energy, Utilities, Conglomerates and even Construction have suffered negative revisions in varying degrees.

While estimates for Q3 have come down, the same for Q4 and the following quarters have held up fairly well, as the chart below shows.  

Part of the extremely strong growth expected in Q4 is a function of easier 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 $255.9 billion in Q2, surpassing Q1's $253.9 billion record. But they are expected to reach $273.6 billion in 2013 Q4, with total earnings growth outside of Finance expected at +8.5%.

Judging by what has happened over the past year or so, these Q4 estimates will come down as companies share their outlooks on the Q3 earnings calls. The market didn't care much as estimates came down in the last few quarters, hoping for better times ahead. Will it do the same this time as well, pushing its hopes of earnings ramp up into 2014? We will find out the answer to that question over the next two months.


Tuesday -9/17


Thursday -9/19


Here is a list of the 20 companies reporting this week, including 5 S&P 500 members.

Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
OCLARO INC OCLR -0.37 -0.23 -50 Monday AMC
FACTSET RESH FDS 1.19 1.11 -1.71 Tuesday BTO
STUDENT TRANSPT STB 0.06 0.06 -60 Tuesday BTO
ADOBE SYSTEMS ADBE 0.21 0.45 14.29 Tuesday AMC
DIGITAL CINEMA DCIN -0.12 -0.23 -78.57 Tuesday AMC
TOWER GRP INTL TWGP -0.62 -0.34 5.66 Tuesday N/A
FEDEX CORP FDX 1.5 1.45 8.67 Wednesday BTO
GENL MILLS GIS 0.7 0.66 -1.85 Wednesday BTO
CRACKER BARREL CBRL 1.35 1.47 7.37 Wednesday BTO
ORACLE CORP ORCL 0.53 0.49 0 Wednesday AMC
CLARCOR INC CLC 0.66 0.6 -1.49 Wednesday AMC
HERMAN MILLER MLHR 0.38 0.38 19.44 Wednesday AMC
STEELCASE INC SCS 0.25 0.25 0 Wednesday AMC
APOGEE ENTRPRS APOG 0.21 0.17 -17.65 Wednesday AMC
CONAGRA FOODS CAG 0.41 0.44 1.69 Thursday BTO
PIER 1 IMPORTS PIR 0.21 0.19 0 Thursday BTO
IHS INC-A IHS 0.75 0.7 1.45 Thursday BTO
RITE AID CORP RAD -0.04 -0.05 0 Thursday BTO
MARCUS CORP MCS 0.46 0.37 -6.25 Thursday BTO
TIBCO SOFTWARE TIBX 0.15 0.2 0 Thursday AMC

ALCOA INC (AA): Free Stock Analysis Report

ADOBE SYSTEMS (ADBE): Free Stock Analysis Report

CONAGRA FOODS (CAG): Free Stock Analysis Report

CRACKER BARREL (CBRL): Free Stock Analysis Report

FACTSET RESH (FDS): Free Stock Analysis Report

FEDEX CORP (FDX): Free Stock Analysis Report

GENL MILLS (GIS): Free Stock Analysis Report

ORACLE CORP (ORCL): Free Stock Analysis Report

PIER 1 IMPORTS (PIR): Free Stock Analysis Report

RITE AID CORP (RAD): Free Stock Analysis Report

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