Zacks Earnings Trends Highlights: Wal-Mart, Macy's, Gilead Sciences and Verizon

News provided by

Aug 15, 2014, 09:30 ET

CHICAGO, Aug. 15, 2014 /PRNewswire/ -- Zacks Director of Research Sheraz Mian says, "The weak Retail sector results notwithstanding, the Q2 earnings season has turned out to be better relative to other recent reporting periods."

Strong Earnings Season Winding Down

The weak Retail sector results notwithstanding, the Q2 earnings season has turned out to be better relative to other recent reporting periods. Total earnings for the S&P 500 are on track to reach a new all-time quarterly record. Importantly, strong earnings growth this quarter has been broad-based and driven by top-line gains, not just cost cutting.

Total earnings for the 464 S&P 500 members that have reported Q2 results already are up +8.2% from the same period last year on +4.4% higher revenues, with 65.9% beating EPS estimates and 61.0% coming out with positive revenue surprises. This is better performance than we have seen in other recent reporting cycles.

We have two sets of charts below – one compares the earnings and revenue growth rates for these 464 companies with what these same companies reported in 2014 Q1 and the 4-quarter average and the second chart compares the beat ratios for these companies.

Growth is Better

The aggregate growth picture is actually even better once the Finance sector's anemic growth numbers are excluded. Excluding Finance, total earnings for the companies that have reported results are up +10.2% from the same period last year on +4.7% higher revenues.

And More Positive Revenue Surprises

The composite picture for Q2, combining the actual results from the 464 S&P 500 members that have reported with estimates for the still-to-come 36 companies, shows total earnings reaching a new all-time quarterly record, and increasing by +8.0% from the same period last year on +4.4% higher revenues. This is a material improvement over the preceding quarter, when total earnings and revenues were essentially flat.

Estimates for the 2014 Q3 have started coming down, with the current +4.0% total earnings growth expected in the current period down from +6.3% at the start of the quarter. But the magnitude of negative revisions in Q3 thus far is the lowest we have seen in more than a year. The chart below compares the magnitude of negative revision to 2014 Q3 estimates over the first six weeks of the quarter to negative revisions over comparable periods in the preceding 5 quarters.

Most of the remaining Q2 earnings reports are from the beleaguered Retail sector, which will likely put downward pressure on Q3 estimates. But even then, the magnitude of negative revisions for Q3 will be the lowest that we have seen in a while. If sustained over the next reporting season (Q3 earnings season), this will represent a material improvement in the corporate earnings picture.

Key Points

The 2014 Q2 earnings season is presenting a much improved picture of the overall earnings picture relative to what we have become used to seeing in recent quarters.
Total earnings for the 464 S&P 500 members that have reported results are up +8.2% on +4.4% higher revenues, with 65.9% beating EPS estimates and 61.0% coming ahead of revenue estimates. This is better performance than we have saw from the same group of companies in recent quarters, with the revenue beat ratio notably impressive.
The Retail sector's results have been no better than what we have been seeing in other recent quarters. Total earnings for the 60.5% of retail sector companies in the S&P 500 that have reported results are up +2% on +5.9% higher revenues. Most of the sector leaders like Wal-Mart (NYSE:WMT-Free Report), Macy's (NYSE:M-Free Report) and others have guided lower for the current period.
Growth from the Technology sector has been the best in many recent quarters, with total earnings up +12.3% on +6.2% higher revenues. Other sectors with strong earnings performance include Medical (Up +16.1%), Construction (+14.2%), Utilities (+12.3%), Aerospace (+10.7%), Transportation (+11.5%), and Energy (+12.2%).
The Medical sector's +16.1% earnings growth on +12.5% higher revenues is primarily due to strength at Gilead Sciences (Nasdaq:GILD-Free Report), but most of the sector companies have also come out with positive earnings and revenue beats. Easy comparisons at Verizon (NYSE:VZ-Free Report) account for the Utilities sector's strong growth numbers.
The composite Q2 picture for the S&P 500, combining the actual results from the 464 companies with estimates for the 36 still to come, is for earnings to be up +8.0% from the same period last year, on +4.4% higher revenues and 34 basis points in higher margins. Sequentially, total earnings for the S&P 500 are expected to be up +8.9%, with the overall level of total earnings for the index expected to reach a new all-time quarterly record.
The Q2 earnings is moving along nicely for the small-cap space as well, with results from 539 S&P 600 members or 90.7% of the index's total membership already out. Total earnings for these 539 index members are up +12.6% on +11.2% higher revenues, with 48.8% beating EPS estimates and 38.4% coming ahead of top-line expectations.
The beat ratios for these 539 S&P 600 members are lower relative to what we have seen from this same group of companies in other recent quarters, but the earnings and revenue growth rates compare favorably to historical levels.
The top-down 'EPS' estimate for the S&P 500 is currently $117 for 2014 and $125 for 2015, while the bottom-up estimate are $116 and $130, respectively.

Want stock picks from Zacks Equity Research that are based on earnings estimates? Subscribe to the free "Profit from the Pros" newsletter: Click here

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term. Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Click here to subscribe to this free newsletter today.

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros.

Get the full Report on WMT - FREE

Get the full Report on M - FREE

Get the full Report on GILD - FREE

Get the full Report on VZ - FREE

http://www.zacks.com/registration/pfp/?ALERT=ZR_LINK&adid=PR_ET&d_alert=rd_final_rank&t=TRV

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

[email protected]

http://www.zacks.com

Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Logo - http://photos.prnewswire.com/prnh/20101027/ZIRLOGO

SOURCE Zacks Investment Research, Inc.