Zacks Earnings Trends Highlights: J.P. Morgan, Apple

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Jun 20, 2012, 09:30 ET

CHICAGO, June 20, 2012 /PRNewswire/ -- Zacks Director of Research Sheraz Mian explains how expectations continue to come down for the 2nd quarter.

(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)

Setting the Table Ahead of 2Q

Key Points:

Getting ready for the start of the second-quarter 2012 reporting season. Expectations continue to come down, with total earnings expected to increase 2.1% from the same period last year. This growth expectation is down from roughly double that rate two months ago as the first quarter reporting season was getting into high gear. This growth expectation reflects 0.6% growth in revenue and a 13-basis point expansion in net margins.
The Finance sector accounts for most of the second quarter growth, with earnings in the sector expected to be up 41.6% in the quarter despite the massive trading hit to J.P. Morgan's(NYSE:JPM) earnings. Excluding Finance, total earnings in the second quarter of 2012 will be down 4% from the same period last year.
Tech earnings are expected to increase by only 1.8% -- a sharp deceleration from the persistent double-digit quarterly growth trend of recent quarters. This compares to growth of 13.6% in the first quarter. Excluding Apple(Nasdaq:AAPL), Tech earnings are expected to be down 4.2% in the second quarter. Tech revenue is expected to up 5.1% in the second quarter, after the 9.9% gain in the first quarter. Excluding Apple, Tech revenues are expected to be up 2% in the second quarter following a 5% gain in the first quarter.
Full-year earnings for companies in the S&P 500 are expected to total $977.5 billion in 2012 and approximately $1.1 trillion in 2013, representing growth rates of 9.6% and 12.4% for 2012 and 2013, respectively. This compares to growth of 15.2% in 2011 and 44.9% in 2010. Nine of the sixteen Zacks sectors will have double-digit earnings growth in 2012, with Finance expected to grow 26.4%, Tech 14.3% and Construction 40.6%. The weakest sectors are Utilities (down 6.2%) and Energy (down 1.4%).
Total revenues are expected to increase 3.4% in 2012 and 4.6% in 2013, after gains of 9% and 8.1% in 2011 and 2010, respectively. Construction is the only sector with a double-digit revenue growth this year, with Industrial Products in the high single digits.
The best of the margin expansion trend is now firmly behind us, with second quarter margins expected to be down by 10 basis points sequentially. However, aggregate margins are expected to expand by an additional 30 basis points in the second quarter. Keep in mind, however, that only 7 of the 16 Zacks sectors will have positive year-over-year margin comparisons, with Finance as the biggest positive driver. Excluding Finance, the year-over-year margin comparison turns negative.
For the full-year 2012, margins are expected to increase 57 basis points, with Finance as the biggest contributor to the expansion and five sectors experiencing contracting margins. Excluding Finance, margins would be up a much more modest 12 basis points this year.
The bottom-up 'EPS' estimates for 2012 and 2013, reflecting projections of analysts at brokerage firms covering individual companies, currently stand at $103.30 and $116.16, respectively. The top-down estimate for 2012 and 2013, reflecting the projections of strategists at brokerage firms, currently stand at $102.97 and $110.00 for 2012 and 2013, respectively.

Expectations Still Coming Down

Earnings expectations for the second quarter and full-year 2012 have continued to come down even as results in the first quarter came significantly better than expected. Total earnings are expected to increase 2.1% in the second quarter from the same period last year, a growth rate that is less than half of the pace expected three months back. Total earnings are expected to be up 9.6% in 2012 and 12.5% in 2013.

The 2.1% growth expected for the second quarter reflects 0.6% higher revenues and a 13 basis point expansion in net margins. Finance is the primary growth driver in the second quarter, despite the earnings hit at J.P. Morgan due to the trading loss. Excluding Finance, second quarter earnings growth will be down 3.6% from the same period last year. Finance is also a major contributor to the full-year earnings growth.

Half of the sixteen Zacks sectors are expected to have negative year-over-year earnings growth comparisons in the second quarter, while only five sectors had negative earnings growth in the first quarter. Earnings growth at Staples, Discretionary and Aerospace turns negative in the second quarter.

Earnings in the Tech sector are expected to decelerate sharply from the persistent quarterly trend of double-digit growth rates and increase by only 1.8% in the second quarter. This compares to growth of 13.6% in the first quarter. Excluding Apple, Tech earnings are expected to be down 4.2% in the second quarter.

Keep in mind that Apple will single-handedly account for 21.5% of all Tech sector earnings in the second quarter, while Apple's earnings will be 4.1% of the entire S&P 500 earnings in the quarter. For the full year 2012, Apple's earnings account for 23.2% of all Tech sector earnings and 4.5% of S&P 500 earnings. In terms of market cap, however, the tech giant accounts for 4.3% of the index's market cap, bigger than 9 of the 16 Zacks sectors.

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Contact: Sheraz Mian
Company: Zacks.com
Phone: 312-265-9211
Email: [email protected]
Visit: www.Zacks.com

SOURCE Zacks Investment Research, Inc.