Zacks Earnings Trends Highlights: Apple, Dell, Wal-Mart and Target

CHICAGO, May 10, 2012 /PRNewswire/ -- Zacks Director of Research Sheraz Mian explains how first quarter earnings season is an improvement on fourth quarter earnings.

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1^st Quarter Better Than 4^th Quarter

The first quarter 2012 earnings season has turned out to be way better relative to pre-season expectations. And with the bulk of the results now known, this reporting season has also proven to be better than the fourth quarter of 2011. Most of us suspected in the run up to the earnings season that the odds of disappointing results were lower, given the extremely low expectations. But hardly anyone of us could foretell how good the earnings season has turned out to be, particularly at this late stage of the earnings cycle.

Total earnings for the 88% of S&P 500 companies that have already reported are up 7.4% from the same period last year. Approximately 65% of the companies are coming ahead of expectations, with the median surprise at a very good 3.5%. At this stage in the previous quarter (4Q-11), total earnings for the same companies were up 6.6%. Approximately 62% of these companies beat expectations in the fourth quarter, with a median surprise of 2.3%.

Most of the earnings growth is coming from top-line gains, with margins essentially flat from the year-earlier level. Revenues for the companies that have already reported are up 4.7% year over year, though only 38.7% have come out with positive revenue surprises, with a median surprise of 0.9%.

As the Earnings Scorecard table below shows, the Tech and Finance sectors have been major growth drivers, though overall growth is fairly well dispersed with half of the sixteen Zacks sectors showing double-digit earnings growth.

Blowout results from Apple (Nasdaq:AAPL) no doubt play a major role in the Tech sector's strong performance. Excluding Apple's results, the sector's earnings growth drops to only 3.4% from the very impressive 21.8%. Earnings growth for the 88% of companies that have already reported drop to 4.9% from 7.4%, once Apple's results are excluded.

Expectations Remain Low

Estimates have started going up a little in recent days, though they still remain quite low relative to what we have seen thus far this season.

Most of the remaining companies still to report results are in the retail sector, though we do have a number notable tech companies such as Dell (Nasdaq:DELL) and Cisco (Nasdaq:CSCO) coming out with results as well. Many important retail players such as Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) still have to report results. In total, these 59 S&P 500 companies are expected to show an earnings drop of 1.9% from the year-earlier level. A major contributor to the negative growth expectation is Dell, which is expected to see earnings decline from the year-earlier level.

The first quarter is expected to be the low point in terms of earnings growth this year, with a meaningful ramp-up apparent in current growth expectations for the second quarter and the rest of the year.

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