2014

Zacks Earnings Trends Highlights: Macy's, Wal-Mart, Target, and Cisco

CHICAGO, Nov. 15, 2013 /PRNewswire/ -- Zacks Director of Research Sheraz Mian says, "With results from 460 S&P 500 members already out, the Q3 earnings season is effectively over."

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Retail Sector's Cloudy Earnings Picture

With results from 460 S&P 500 members already out, the Q3 earnings season is effectively over. Results from the remaining 40 companies wouldn't change the aggregate earnings picture by much, but they are nevertheless important since almost half of them belong to the Retail sector. Of interest is not so much how these retailers did in Q3, but how they see the outlook for the holiday season unfolding.

Macy's (NYSE: M-Free Report) results appeared fairly encouraging on that front, but Macy's doesn't speak for the entire sector. Wal-Mart (NYSE: WMT-Free Report) clearly is such a bellwether, but its results and outlook don't inspire much confidence about what to expect from the sector as whole in Q4. We will have to wait and see how the remaining retailers report, but Wal-Mart's underwhelming results despite the recent sharp drop in gasoline prices don't bode well for others like Target (NYSE: TGT-Free Report).

Fewer shopping days this holiday season is not only prompting retailers to open their doors even earlier on Thanksgiving Day this year, but is likely making it a more promotional affair as well. Retailers are beating top-line expectations at a very low rate in Q3 relative to the last few quarters and we should probably brace ourselves for negative bottom-line surprises in Q4.

For the Q3 earnings season as a whole, total earnings for the 460  S&P 500 companies that have reported results already, as of Thursday morning November 14th, are up +4.8% from the same period last year, with 65.2% beating earnings expectations with a median surprise of +2.5%. Total revenues for these companies are up +3.0%, with 42.2% beating revenue expectations with a median surprise of +0.1%.

The earnings and revenue growth rates for the 56.8% of Retail sector companies in the S&P 500 that have reported already are modestly better than what we have seen from those same companies in recent quarters. But the beat ratios, specifically on the revenue side, remain very weak, with the sector's revenue beat ratio the second worst of all 16 Zacks sectors in the S&P 500.

The composite earnings growth rate for Q3, combining the results from the 460 that have come out with the 40 still to come, currently remains at +4.8% on +3.0% higher revenues. This will be the best earnings growth rate of 2013 thus far, though expectations are for even stronger growth in Q4.

Estimates for Q4 have started coming down, though judging by the Wal-Mart (NYSE: WMT-FreeReport) and Cisco (Nasdaq: CSCO-Free Report) guidance, they likely still have plenty of room to go down.

The picture emerging from the chart above would hardly be the first time estimates would be coming down like this – we have been seeing this play out quarter after quarter for more than a year now. The market hasn't cared much about this uninspiring earnings picture thus far, likely a reflection of the ever-supportive Fed. And with most market participants expecting the Fed to hold off on making any changes to its policy stance till at least through April 2014, they may see no reason to worry about negative estimate revisions for Q4.

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