Q4 Earnings Estimates Are Coming Down - Earnings Outlook

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

Q4 Earnings Estimates Are Coming Down

With more than 80% of Q3 results already on the books, the picture emerging from this reporting cycle is decent enough; it's not great, but it's not bad either.

In terms of growth rates, beat ratios and guidance, it's a mixed bag when Q3 results are viewed in the context of other recent periods. Some metrics are showing an improvement, such as a modestly bigger ratio of companies is beating earnings estimates and the revenue growth rate appears to have picked up. But other metrics are showing weakness, such as the relatively lower earnings growth rate and the fewer positive revenue surprises.

The guidance picture is no different from what we have been seeing in recent quarters, with a majority of the companies providing guidance guiding lower, with Michael Kors ( KORS ), Priceline ( PCLN ) and Este Lauder ( EL ) as the latest in a long line of leading operators providing weak outlook.

As a result, estimates for the current quarter (2014 Q4) are following the all-too-familiar pattern of sliding down, as the chart below clearly shows.

In some aspects, the negative revisions trend for the current quarter is somewhat more pronounced than what we had seen at a comparable stage in the preceding reporting cycle. (More on that on page 10)

Q3 Earnings Scorecard ( as of November 5th, 2014 )

Including this morning's earnings announcements, we now have Q3 results from 414 S&P 500 members that combined account for 86.7% of the index's total market capitalization. Total earnings for these 414 companies are up +7.4% from the same period last year on +3.9% higher revenues, with 72.9% beating EPS estimates and 56.3% coming out with positive revenue surprises.

The two charts below compare the Q3 growth rates and beat ratios for these 414 companies with what these same companies reported in 2014 Q2 and the 4-quarter average (through Q2).

As you can see, the earnings and revenue growth performance for these 414 companies (+7.4% for earnings and +3.9% for revenues) are below what we got from these same companies in Q2, but compare favorably to the respective 4-quarter averages. With respect to surprises, the earnings and revenue beat ratios are following divergent paths, with earnings surprises notably more widespread while revenue surprises a little hard to come by.

Looking at Q3 expectations as a whole, combining the actual results from the 414 S&P 500 members that have reported with estimates for the remaining 86, total earnings are expected to be up +6.3% on +3.7% higher revenues. The composite growth has started going up as more companies report and beat estimates. The overall level of total earnings in Q3 are on track to be the second highest ever, second only to the record level of the preceding quarter - 2014 Q2.

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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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