Zacks Earnings Preview: Apple, Google, Amazon, Caterpillar and DuPont

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Oct 29, 2012, 09:30 ET

CHICAGO, Oct. 29, 2012 /PRNewswire/ -- Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes Apple (Nasdaq:AAPL), Google (Nasdaq:GOOG), Amazon (Nasdaq:AMZN), Caterpillar (NYSE:CAT) and DuPont (NYSE:DD).

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Q3 Earnings: Disappointingly Weak

Having seen more than half of the third quarter earnings reports already, we probably don't any need any more evidence to pass a definitive judgment on this earnings season. And what is that verdict? Weak, disappointing, or better still: disappointingly weak.

We have a ton of earnings reports still to come. In fact, we have 716 companies coming out with results this week, including 106 S&P 500 companies. This means that by the end of this week we will have seen 75% of third quarter earnings results. The aggregate metrics will change over the coming days as more and more companies release results.

But it is unlikely that we will have toned down the 'disappointingly weak' description for this reporting season. When even companies like Apple (Nasdaq:AAPL), Google (Nasdaq:GOOG), Amazon (Nasdaq:AMZN), Caterpillar (NYSE:CAT) and DuPont (NYSE:DD) come short of expectations, then you know that the earnings picture can't be good.

Here is the current status of the 270 S&P 500 companies that have reported third quarter results as of Friday, October 25th. Total earnings for these companies are down 2.8% from the same period last year and only 61% of the companies are beating earnings expectations. Total revenues are down 2.3%, but only 30.7% of the companies are able to beat revenue expectations.

In a typical quarter, roughly two-thirds of the companies would beat earnings expectations, and close to 60% would come ahead of revenue expectations. In the second quarter of 2012 -- which by no means was a strong earnings season -- we had 68.3% of the companies that have already reported Q3 results beat earnings expectations.

On the revenue side, the 'beat ratio' was 39.3% in the second quarter. The average earnings and revenue 'beat ratios' over the last four quarters for this same cohort of 270 companies is 69% and 58.2%, respectively.

We always whine that there isn't the much surprise in an 'earnings surprise' since management teams have fine-tuned expectations by under-promising and over-delivering. The third quarter earnings season thus far runs counter to this narrative, as the surprise this time around has predominantly been on the negative side. May be the redeeming feature of this earnings season is that the underperformance this time around restores our confidence in the earnings surprise all over again.

Total earnings for the 241 S&P 500 companies still to report results are expected to up 1.2% from the same period last year. The composite growth rate for third quarter total earnings -- where we combine results for the 270 companies that have reported results with what is expected for the 241 companies – is for a decline of 1.1% and revenue decline of 2.5%.

Modestly down Tech sector earnings (down 0.3%) add to seven other sectors that have negative year-over-year comparisons. The predominantly negative tone of company guidance has started showing up in estimate revisions, but overall estimates for the fourth quarter and beyond remain elevated at present.

Total earnings are expected to grow 6.1% in the fourth quarter and in excess of 11% of in 2013. These growth expectations have come down from a few months back, but they still have more room to fall.

While earnings may no longer have much "newsy" value, we do have a bunch of market-moving economic reports on deck as well. The most important economic report coming out this week is the October non-farm payroll report coming out on Friday, but we also have the manufacturing ISM report and other key reports.

Sheraz Mian is the Director of Research for Zacks.com.

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Contact: Sheraz Mian

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