For Immediate Release
Chicago, IL - October 24, 2016 - Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes Ford (NYSE: F - Free Report ), United (NYSE: UAL - Free Report ), American (NASDAQ: AAL - Free Report ) and Apple (NASDAQ: AAPL - Free Report ) .
To see more earnings analysis, visit https://at.zacks.com/?id=3207 .
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Earnings Growth Finally Turns Positive
The Q3 earnings season is on track to be the first quarter to show positive earnings growth after 5 quarters of back-to-back declines. The growth pace is barely in positive territory at this stage, with the aggregate Q3 earnings growth for the S&P 500 index currently at +0.1%. This growth pace will most likely improve further in the coming days, but even this low growth pace is an improvement over what we have become used to seeing in recent reporting cycles.
The growth angle isn't the only favorable aspect of the ongoing Q3 earnings season. Positive surprises are notably more numerous relative to other recent periods and estimates for the current period (2016 Q4) appear to be holding up fairly well. As we mentioned in our weekly Earnings Trends report - Is the Earnings Improvement for Real? - continuation of this trend through the rest of this earnings season will add to confidence in expectations for the coming quarters when the growth picture is expected to ramp up in a material way.
Q3 Earnings Scorecard ( as of 10/21/2016 )
We now have Q3 results from 116 S&P 500 members or 23.2% of the index's total membership that combined account for almost 30% of the index's total market capitalization. Total earnings for these 116 companies are up +3.3% from the same period last year on +1.8% higher revenues, with 80.2% beating EPS estimates and 62.9% coming ahead of revenue estimates.
This is better performance than we have seen from the same group of 116 index members in other recent periods.
The picture emerging is in-line with our modestly favorable commentary on the Q2 earnings season when we were detecting an ever-so-slight improvement in the growth picture. Earnings growth was in negative territory in Q2 - the 5th quarter in a row of earnings declines for the index - but the pace of declines was nevertheless an improvement over what we had seen in the preceding two quarters.
This gave rise to the narrative that the worst was likely behind us now on the growth front and that the picture will steadily be improving going forward. We are clearly seeing confirmation of that view in the Q3 results thus far.
Is the Improvement All Finance Driven?
As we discussed last week in Reassuring Start to Q3 Earnings Season , results from the Finance sector have been particularly positive this reporting cycle.
For the Finance sector, we now have Q3 results from almost half of the sector's total market cap in the index. Total earnings for these are up +7.9% from the same period last year on +5.1% higher revenues, with an unusually high 90% beating EPS and an almost equally high 86.7% beating revenue expectations.
This is better performance than we have seen from these Finance sector companies in a while.
Excluding the Finance sector from the aggregated reported picture at this stage, total earnings for the rest of S&P 500 members that have reported results will be up +0.8% on an equivalent revenue growth pace, with 80.2% beating EPS estimates and 62.9% beating revenue estimates.
The growth picture becomes less notable without the Finance sector, but it is still an improvement over the recent past.
Q3 Expectations as a Whole
Combining the actual results from the 116 S&P 500 members with estimates from the still-to-come 384 index members, total Q3 earnings are now expected to be up +0.1% from the same period last year on +1.5% higher revenues. This would compare to 2016 Q2 earnings growth of -2.8% on +0.2% higher revenues.
As you can see, Energy still remains the biggest drag on the aggregate growth picture, the Autos and Transportation as the other major growth laggards. Tough comparisons at Ford (NYSE: F - Free Report ) and the air carriers, particularly United (NYSE: UAL - Free Report ) and American (NASDAQ: AAL - Free Report ), explain the growth issues in those two sectors.
For the two biggest sectors, Technology earnings are expected to be up +1.1% on -1.0% lower revenues while Finance earnings are expected to be up +14.4% on +1.4% higher revenues. The Tech sector's weak showing is solely a function of Apple (NASDAQ: AAPL - Free Report ), which is expected to see earnings decline -19.8% from the same period last year on -9.1% lower revenues. Excluding the Apple drag, the Tech sector's earnings would be up +6.4%. A strong report from Apple on Tuesday will have a big impact on both the sector's and index's growth picture.
Expectations Beyond Q3
The chart below shows current bottom-up consensus earnings expectations for the index in 2016 Q3 and the following four quarters contrasted with actual results in the preceding four quarters. Please note that the columns represent bottom-up earnings totals for each quarter in billions of dollars while the line represents the quarterly growth rates. At the start of the Q3 earnings season, growth was expected to be in negative territory in Q3 for the 6th quarter in a row, with positive growth expected to resume from Q4 (+5.1%) onwards. But as indicated at the top, growth in Q3 has turned positive already (up +0.1%).
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