Zacks Earnings Preview: Cisco, Coca-Cola, PepsiCo, Whole Foods and Prudential Financial

Feb 11, 2013, 09:30 ET from Zacks Investment Research, Inc.


CHICAGO, Feb. 11, 2013 – releases the list of companies likely to issue earnings surprises. This week's list includes Cisco (Nasdaq:CSCO), The Coca-Cola Company (NYSE: KO), PepsiCo, Inc. (NYSE: PEP), Whole Foods (Nasdaq:WFM) and Prudential Financial (NYSE: PRU).


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Q4 Earnings Season Slowing Down

We still have plenty of Q4 earnings reports to come, but the bulk of the earnings season is now behind us, with results from 342 S&P 500 companies already out as of Friday, February 1. Please note that these 342 companies are more than just 68.4% of the index's total membership – they account for 77.1% of the index's total market capitalization and bring in 78.6% of all Q4 earnings.

This week brings in Q4 earnings results from 367 companies, including 52 S&P 500 members. This includes industry leaders likeCisco (Nasdaq:CSCO), The Coca-Cola Company (NYSE: KO), PepsiCo, Inc. (NYSE: PEP), Whole Foods (Nasdaq:WFM), and many others.

By the end of this week, we will have Q4 earnings reports from 394 S&P 500 companies that together account for 86.3% of the index's total market capitalization. The Retail sector will be the only group by the end of the week that will have more than half of its Q4 results still awaited (retailers typically have fiscal Q4 period ends in January).

The reality of the Q4 earnings season is that it has turned out to be not as bad as many of us suspected. Leaving aside anemic earnings growth, on most other metrics the fourth quarter reporting season is quite good. Not only are the ratio and magnitude of surprises better than the previous quarter and comparable to the last many, but the tone of management guidance has also been on the reassuring side.

Total earnings for the 342 S&P 500 companies that have come out with Q4 results are up +2.8% from the same period last year, with 67% of the companies beating expectations with a median surprise of +3.3%. Total revenues are up +2.7%, with 63.5% of the companies beating revenue expectations.

The aggregate revenue picture is a bit distorted by the roughly $32 billion positive year-over-year swing in Prudential Financial (NYSE: PRU) revenue, even though it missed both on the top and bottom lines in an otherwise noisy quarter for the insurer. Excluding Prudential, total revenues would be up 1% from the same period last year.

Excluding Finance as a whole, total earnings are down -0.3%, while total revenues are flat. The composite growth rate for Q4, where we combine the reports that have come out with those still to come, is +1.8% for earnings and +2.2% for total revenues (up +1.7% ex-Finance).

Expectations for the coming quarters have started coming down, but they still represent a meaningful improvement from what we saw in 2012. Total earnings are expected to be -3.1% in the first quarter, +3.9% in the second quarter, +7% in the third quarter and +14.3% in the fourth quarter of 2013. For full years, total earnings are expected to be +6.9% in 2013 and 11.8% in 2014.

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