What Will This Earnings Season Bring?

As of late, the market has been preoccupied with, global growth worries, and the Fed. But these macro issues will likely take a bit of back seat in the coming days as the Q3 earnings season takes the spotlight.

Investors tend to start paying attention to the earnings season when Alcoa (AA) reports, which will come out October 8th. But the earnings season has gotten underway, with results from 15 S&P 500 members already out. These early reporters include such industry leaders as Nike (NKE), FedEx (FDX) and others - all of them have fiscal quarters ending in August, which we count as part of our 2015 Q3 tally. We have more reports on deck this week, with a total 20 companies reporting results, including 4 S&P 500 members.

The chart below shows the weekly reporting calendar for companies in the S&P 500 index.

Will the Earnings Growth Picture Improve?

We know that the growth picture was quite bad in Q2, with total earnings for the S&P 500 index down -2.2% from the same period last year on -3.5% lower revenues. The Energy sector was the primary reason for the aggregate decline - the growth picture improves once the Energy sector is excluded from the aggregate numbers. Excluding Energy, total earnings for the S&P 500 index would have been up +5.1% in Q2 on +1.2% higher revenues.

The growth picture isn't expected to improve in Q3, with total earnings for the S&P 500 index expected to be down -5.9% from the same period last year on -3.9% lower revenues. The headwinds from Q2 are at play in Q3 as well, with a combination of Energy sector weakness, dollar strength and global growth uncertainties weighing on the outlook. Excluding the drag from the Energy sector (Energy sector earnings expected to be down -65.3% year over year), total earnings for the index would be up +1.4% on +1.4% higher revenues.

Estimates for the quarter came down over the last couple of months, following a trend that has now been well entrenched for quite some time. The chart below shows the evolution of Q3 earnings growth estimates since the start of the period in early July.

Please note that while the revisions trend has been negative and along the lines of what we are used to seeing in the recent past, the magnitude of revisions has been less than what we experienced in the comparable periods in other recent quarters. In other words, estimates for Q3 are down, but they aren't down as much as was the case in the last few quarters.

Stand-out Sectors in Q3

Energy stands out for the wrong reasons, as briefly mentioned earlier, but it is hardly the only one with negative earnings growth in Q3. In fact, 9 of the 16 Zacks sectors are expected to have lower earnings in 2015 Q3 relative to the year-earlier period, with Industrial Products (earnings decline of -24.8%), Conglomerates (-15.6%), Basic Materials (-13.8%), and Consumer Discretionary (-13.0%) as the big decliners.

On the positive side, the Finance sector is expected to have another good quarter, with total earnings for the sector expected to be up +8.3% after the +7.2% gain in the preceding quarter. A big part of the Finance sector gains this quarter are due to easy comparisons at Bank of America (BAC). Other sectors with positive earnings growth in Q3 include Transportation (earnings growth of +17.3%), Autos (+21.2%), Construction (+8.3%) and Medical (+8.0%).

The table below presents the summary picture for Q3 contrasted with what companies actually reported in the 2015 Q2 earnings season.

Looking Beyond Q3

The chart below shows the current consensus earnings growth expectations for the coming quarters contrasted with what is expected for Q3 and what was actually achieved in Q2. As you can see, this year has effectively been washed out, with growth expected to resume early next year and accelerate from there onwards. Total earnings for the S&P 500 index are effectively flat this year, but are expected to be up in double-digits next year.

Economists define two back-to-back quarters of negative GDP growth as a recession. If the Q3 earnings growth rate stays in the negative territory as currently projected, then we will be well within out rights to call it an earnings recession. As you can see in the above chart, analysts expect the earnings growth picture to start turning around next year and really accelerate towards the back-half of 2016.

The relatively optimistic looking expectations for the outer periods aren't unusual - Wall Street analysts always tend to be more optimistic about the future. But estimates start coming down as the period in question comes closer. The erosion of 2015 growth estimates was driven largely by what happened to the Energy sector. But estimates for other sectors came down as well……………and we will likely see something similar to current 2016 estimates as well.

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Note : For a complete analysis of 2015 Q3 estimates and actual Q2 results, please check out weekly Earnings Trends report .

Here is a list of the 20 companies reporting this week, including 4 S&P 500 members.

Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
CAL-MAINE FOODS CALM 3.17 0.57 -18.1 Monday BTO
VAIL RESORTS MTN -1.96 -1.86 -6.32 Monday BTO
COMTECH TELECOM CMTL 0.37 0.48 30.43 Monday AMC
ENSYNC INC ESNC -0.09 -0.12 -12.5 Monday AMC
SYNNEX CORP SNX 1.44 1.59 0.65 Monday AMC
AZZ INC AZZ 0.69 0.63 11.59 Tuesday BTO
IHS INC-A IHS 1.07 1.03 8.26 Tuesday BTO
FERRELLGAS -LP FGP -0.22 -0.58 -27.12 Tuesday BTO
COSTCO WHOLE CP COST 1.66 1.58 1.74 Tuesday AMC
BARRACUDA NTWRK CUDA 0.02 0.04 -175 Tuesday AMC
DIAMOND FOODS DMND 0.22 0.19 43.75 Tuesday AMC
LANDEC CORP LNDC 0.13 0.09 -21.05 Tuesday AMC
PAYCHEX INC PAYX 0.51 0.47 0 Wednesday BTO
ACTUANT CORP ATU 0.28 0.47 18.87 Wednesday BTO
8POINT3 ENERGY CAFD -0.14 N/A N/A Wednesday AMC
MCCORMICK & CO MKC 0.87 0.95 10.29 Thursday BTO
MICRON TECH MU 0.37 0.82 -5.26 Thursday AMC
CALAMP CORP CAMP 0.22 0.19 9.09 Thursday AMC
PROGRESS SOFTWA PRGS 0.29 0.3 22.73 Thursday AMC

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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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