Looking Ahead to Q3 Earnings Season - Earnings Outlook

The following is an excerpt from this week's Earnings Trends article. To access the full article, please click here .

Looking Ahead to Q3 Earnings Season

We are still a few weeks away from the end of the September quarter, but the Q3 earnings season will have gotten underway by then. The reason for that is that we and other researchers count companies with fiscal quarters ending in August as part of our Q3 tally.

Using this definition, Darden Restaurants ( DRI ) will be the first to come out with Q3 results later this week followed by 8 S&P 500 members next week, including such industry leaders as Oracle ( ORCL ), FedEx ( FDX ) and Nike ( NKE ). In fact, by October 1st, we will have seen Q3 results from almost 20 S&P 500 members. In all fairness however, the reporting cycle wouldn't get heated up till mid-October. The chart below shows weekly reporting calendar for the S&P 500 companies.

Estimates for Q3 have come down as the quarter has unfolded, with current expectations of +3.1% total earnings growth in the quarter down from +5.6% growth expected in early July. Estimates for most sectors came down, though Medical, Basic Materials, Aerospace, and Transportation experienced modest positive revisions during the quarter. The negative revisions trend for Q3 has been in keeping with what we have been witnessing for quite some time, though the pace and magnitude of negative revisions for Q3 compares favorably with what we have been used to in the recent past.

The chart below compares the revisions trend for 2014 Q3 with what we witnessed in the year-earlier period.

Final Q2 Scorecard

We will officially close the books on the Q2 earnings season following Kroger's ( KR ) tomorrow morning. But for all practical purposes, the reporting cycle is over now. This was a strong earnings season after a long time, with total earnings up +8.1% from the same period last year on +4.4% higher revenues and with 62.5% beating EPS estimates and 58.3% coming out with positive revenue surprises.

We have two sets of charts below - one compares the Q2 earnings and revenue growth rates with what these same companies reported in 2014 Q1 and the 4-quarter average and the second chart compares the beat ratios for these companies.

Better Growth

The aggregate growth picture is actually even better once the Finance sector's anemic growth numbers are excluded. Excluding Finance, total earnings are up +10.1% from the same period last year on +4.7% higher revenues.

And More Positive Revenue Surprises

The Q2 earnings performance was a notable departure from what we have been seeing in other recent reporting cycles. But was it a one-off bounce from the anemic Q1 level or the start of something more enduring? We don't know yet, though the coming Q3 earnings season will give us a good sense of how to answer that question.

To see the full Earnings Trends report, please click here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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