Zacks Earnings Trends Highlights: Starbucks, Dow Chemical, Caterpillar, Whole Foods and Kellogg
CHICAGO, Nov. 8, 2013 /PRNewswire/ -- Director of Research Sheraz Mian says, "Q3 earnings season had a shaky start... but all of that changed over the last two weeks."
Q3 Earnings: The Best of 2013 Thus Far
The Q3 earnings season started weak, but has turned out to be the best of 2013. But before we get too carried away with that positive take, let's not forget that the 'best of 2013' may not be much to crow about, particularly in terms of growth. There is simply not much growth and most companies are still guiding lower, prompting estimates for Q4 to come down.
That said, the picture emerging from the Q3 earnings season compares favorably to recent quarters in terms of growth, beat ratios, and the absolute level of total earnings, which are on track to reach a new all-time record in Q3.
Total earnings for the 440 S&P 500 companies that have reported results already, as of Thursday morning November 7th, are up +4.6% from the same period last year, with 65.7% beating earnings expectations with a median surprise of +2.6%. Total revenues for these companies are up +2.9%, with 51.4% beating revenue expectations with a median surprise of +0.1%.
The earnings beat ratio looks more normal now than was the case earlier in this reporting cycle. It didn't make much sense for companies to be struggling to beat earnings expectations following the significant estimate cuts in the run up to the reporting season.
The composite earnings growth rate for Q3, combining the results from the 440 that have come out with the 60 still to come, currently remains at +4.6% on +2.9% higher revenues. This will be the best earnings growth rate of 2013 thus far, though expectations are for even stronger growth in Q4.
Guidance has been overwhelmingly negative over the last few quarters and is not much different in Q3 either, a few notable exceptions aside. We saw underwhelming guidance earlier in the cycle from such bellwethers as Starbucks (Nasdaq: SBUX-Free Report), Dow Chemicals (NYSE: DOW-Free Report), and Caterpillar (NYSE: CAT-Free Report), and more recently from Whole Foods (Nasdaq: WFM-Free Report), Kellogg (NYSE: K-Free Report), and others.
Given this backdrop, estimates for Q4 will most likely come down quite a bit in the coming weeks. And with the market expecting the Fed to wait till early next year to start Tapering its QE program, investors may shrug this coming period of negative estimate revisions, just like they have been doing for more than a year now.
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