Michael Kors, Loews, Archer-Daniels Midland, Coach and Zillow are part of Zacks Earnings Preview:
CHICAGO, Aug. 5, 2014 /PRNewswire/ -- Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes Michael Kors (NYSE:KORS-Free Report), Loews Corp (NYSE:L-Free Report), Archer-Daniels Midland (NYSE:ADM-Free Report), Coach (NYSE:COH-Free Report) and Zillow (Nasdaq:Z-Free Report).
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Bulk of Q2 Earnings Season Now Behind Us
With results from 380 S&P 500 companies that combined account for roughly 82% of the index's total market capitalization already out, the Q2 earnings season is winding down for the large-cap stocks. This is the last major reporting week of this earnings season, with 65 S&P 500 members reporting results.
But plenty of reports are still to come, particularly from small-companies. Using the S&P 600 as the proxy for the small-cap space, we have seen results from 362 of the index's total members or 60.3% of its total membership. While only two sectors for the large-cap index have roughly half of their companies in the still-to-report category (Retail & Consumer Discretionary), we have four sectors in that category in the S&P 600 (Retail, Consumer Staples, Utilities, and Oil/Energy).
Any way you look at it, the 2014 Q2 earnings season has been very positive - the growth rates are better, more companies are coming ahead of estimates, and there is even some modest improvement on the guidance front.
Guidance still remains weak, with most companies providing guidance guiding lower. But the proportion of companies guiding lower is smaller than what we have been seeing in recent quarters. And even those that don't offer guidance have been qualitatively talking up their business outlook.
The Q2 Scorecard (as of Friday morning, August 1st)
Total earnings for the 380 S&P 500 members that have reported already are up +9.3% from the same period last year, with a 'beat ratio' of 66.8% and a median surprise of +2.5%. Total revenues are up +4.8%, with a revenue 'beat ratio' of 56.1% and a median surprise of 0.8%.
This is a better performance than what we have seen from this same group of 380 companies reported in recent quarters.
The beat ratios compared
The beat ratios, particularly on the revenue side, were tracking notably above recent historical levels earlier, though they have come down somewhat in recent days and are now more in-line with what we are used to seeing in recent quarters.
Technology results have been the strongest that we have seen in a while, with total earnings for the sector up +14.2% on +7.3% higher revenues. The sector's strong growth numbers notwithstanding, beat ratios remain below the aggregate for the S&P 500, implying that the growth bump was largely expected. The earnings and revenue beat ratios for Technology are tracking below the S&P 500 as well as what we had seen from the sector in other recent quarters.
We have opposite situation in the Finance sector, where we don't have much growth, but results still came in better than expected. With results from 87.5% of the Finance sector's Q2 results already out, earnings are up +1.6% on +1.1% revenues.
What's Happening with the Small-caps?
Stock prices of small-cap stocks have been underwater this year, with the S&P 600 down -4.5% vs. a gain of +5.1% for the S&P 500 in the year-to-date period. This underwhelming stock price performance is getting confirmed by the group's mixed results thus far in the Q2 reporting cycle.
As of Friday, August 1, we have seen Q2 results from 362 S&P 600 members or 60.3% of the index's total members. Total earnings for these 362 companies are up +16.6% from the same period last year on +9.2% higher revenues, with 51.4% beating EPS estimates and 38.1% coming ahead of top-line expectations.
In terms of comparison to other recent quarters, the earnings growth is better than what we have seen from the same group of 362 small-cap companies in 2014 Q1 as well as the average growth rate of the last four quarters. But the earnings beat ratio is in-line with what the same group has performed over that same period. The top-line performance presents a mixed picture, with the growth rate modestly better while the beat ratios tracking lower.
A word about the beat ratios for the small-cap stocks may be in order. While roughly two-thirds of the S&P 500 companies beat EPS estimates on average, the ratio is a lot lower for the small-cap index, with about 50% of the S&P 600 companies beating earnings estimates.
The Composite Picture
The composite (or blended) growth picture for Q2, combining the actual results for the 380 S&P 500 companies that have reported with estimates for the 120 still-to-come reports, shows total earnings increasing by +7.8% on +3.7% higher revenues and modestly higher net margins. This would follow earnings growth of +1.4% in Q1 on +0.7% higher revenues. The Q2 earnings growth rate has been steadily going up, as more companies report and beat estimates.
Record Earnings in Q2
Total earnings in Q2 are on track to reach a new all-time quarterly record, surpassing the last record set in 2013 Q4. Estimates for the coming quarters are all in record territory.
The Sustainability Question
As discussed in this report, the earnings results thus far represent a notable improvement over what we have become accustomed to seeing in recent quarters. But is it a one-off bounce from the low levels in Q1 or the start of something sustainable and enduring?
The ongoing revisions trend in estimates for the current period appears to be indicating that this favorable trend can be sustained. We will see how the revisions trend unfolds through the remainder of this reporting cycle, but estimates for 2014 Q3 have held up very well thus far – better than what we have seen over comparable periods in other recent quarters.
For a detailed look at the earnings picture, please check out our weekly Earnings Tends report.
Monday-8/4
- Nothing on the economic calendar, with Michael Kors (NYSE:KORS-Free Report) and Loews Corp (NYSE:L-Free Report) as the notable earnings reports on a busy earnings day.
Tuesday -8/5
- We will get the July non-manufacturing ISM survey and the June Factory Orders report after the market opens.
- More than 240 companies will be reporting Q2 results today, including 19 S&P 500 members. Archer-Daniels Midland (NYSE:ADM-Free Report) and Coach (NYSE:COH-Free Report) are among the major companies reporting results before the market's open, while Zillow (Nasdaq:Z-Free Report), among many others, will report after the close.
- Zacks Earnings ESP or Expected Surprise Prediction, our proprietary leading indicator of positive earnings surprises, is showing ADM coming out with an earnings beat.
- Our research shows that companies with positive ESP and Zacks Rank of 1, 2 or 3 are highly likely to beat earnings estimates. ADM currently has Zacks Rank #2 (Buy) and Earnings ESP of +5.3%.
- For more details about Earnings ESP, please check this page.
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