Zacks Earnings Trends Highlights: FedEx, Bank of America, AIG, Apple and Intel

Zacks Earnings Trends Highlights: FedEx, Bank of America, AIG, Apple and Intel

PR Newswire

CHICAGO, April 9, 2013

CHICAGO, April 9, 2013 /PRNewswire/ --Director of Research Sheraz Mian says
growth expectations remain weak -- a reflection of touch comparisons and
underwhelming management guidance.


Q1 Earnings Season Takes the Spotlight

Economic data was in the forefront last week, and it overwhelmingly came out
short of expectations. The focus this week shifts to the first quarter
earnings season, which has been underway for the last few weeks but gets into
high gear next week.

It has been mixed bag thus far, with negative surprises from the likes of
FedEx (NYSE:FDX). But it would be premature to extrapolate the performance of
the 22 Q1 results onto the entire earnings season.

Growth expectations remain weak, a reflection of touch comparisons and
underwhelming management guidance – the first quarter of 2012 remains the high
point of total quarterly earnings since the current earnings cycle got
underway in 2009. These tough comparisons are particularly pronounced in the
Finance sector, which is expected to experience an earnings decline after many
quarters of double-digit growth. The outlook for Tech is even weaker and
fairly widespread, which comes after the sector's underwhelming performance in
the previous quarter.

But lack of growth in the first quarter is not much of a concern for the
market, as investors are looking ahead to period of robust growth later in the
year, particularly in the back half of 2013 and all of 2014. The expectation
is that the +0.7% earnings growth in the first half of 2013 will be followed
by double-digit earnings growth in the second half of the year and into next
year. Driving these optimistic growth expectations are strong revenue gains
and further expansion in margins which are already in record territory.

Revenue growth is a function of economic growth. And while GDP growth has been
fairly erratic in recent quarters, the expectation is for a sustained period
of growth starting in the second half of the year. Hard to tell how reasonable
the revenue growth expectations are since they are so closely tied to the
uncertain economic backdrop.

But margins are a different story. Expecting margins to continue expanding
after they have crossed the prior cyclical peak does not seem reasonable or

Key Points:

  oThe first-quarter 2013 reporting season has gotten underway. The 22
    companies that have reported results present a mixed picture, with a few
    high-profile negative surprises.
  oTotal Q1 earnings are expected to be down -2.6% from the same period last
    year, which reflects -0.9% drop in revenues and a modest contraction in
  oTough comparisons and weak management guidance account for the weak
    earnings growth picture. Total earnings reached their highest quarterly
    total in the first quarter of 2012 and have yet to get back to that level.
  oUnlike the last many quarters, Finance will be a drag on growth this
    quarter. Tough comparisons for Bank of America (NYSE:BAC) and AIG
    (NYSE:AIG) account for most of the earnings weakness.
  oTech earnings were weak last quarter and they are expected to be even
    weaker this time around. The sector's earnings weakness is broad-based and
    not solely due to the negative comparisons for Apple (Nasdaq:AAPL) and
    Intel (Nasdaq:INTC).
  oThere hasn't been much earnings growth in recent quarters, but the
    absolute level of quarterly earnings is expected to have bottomed in 2012
    Q4 and start going up from 2013 Q2 onwards. 
  oTotal earnings in the first half of 2013 are expected to increase by
    +0.7%, but ramp up to a +10.9% growth pace in the back half of the year
    and a further +11.7% in 2014. A combination of revenue gains and margin
    expansion reflect the positive outlook for the back half of the year.
  oNet margins modestly contract in the first quarter, but start expanding
    from the second quarter onwards. For the full year 2013, net margins are
    expected to top the 2006 peak and expand even more in 2014.
  oTotal earnings are expected to increase by +6.8% in 2013 and +11.7% in
    2014. In dollar terms, earnings are expected to total $1.03 trillion in
    2013 and $1.15 trillion in 2014, up from the 2012 total of $965 billion.
  oThe bottom-up 'EPS' for the S&P 500 for 2013 and 2014 currently stands at
    $109.75 and $122.60, respectively. The top-down 'EPS' estimates for 2013
    and 2014 currently stand at $107.83 and $114.80. It seems that Wall Street
    strategists are a bit less enthusiastic about the earnings picture than
    the analysts.

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Contact: Sheraz Mian


Phone: 312-265-9211



SOURCE Zacks Investment Research, Inc.

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