Zacks Earnings Trends Highlights: Starbucks, Dow Chemical, Caterpillar, IBM and Intel

 Zacks Earnings Trends Highlights: Starbucks, Dow Chemical, Caterpillar, IBM
                                  and Intel

PR Newswire

CHICAGO, Nov. 1, 2013

CHICAGO, Nov. 1, 2013 /PRNewswire/ --Director of Research Sheraz Mian says,
"Q3 earnings season had a shaky start... but all of that changed over the last
two weeks."

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

· Record Earnings, But Outlook is Uncertain

The Q3 earnings season had a shaky start, with companies struggling to meet
lowered expectations and growth rates tracking below recent quarters. But all
of that changed over the last two weeks, with Q3 now on track to surpass the
performance of the first two quarters of the year. There is still not much
growth and most companies are still guiding lower, prompting estimates for Q4
to come down.

But when all is said done about the Q3 earnings season, we will have a new
quarterly record for total earnings and the quarter's earnings growth rate
will likely be the best thus far this year.

Total earnings for the 355 S&P 500 companies that have reported results
already, as of Thursday morning October 31st, are up +4.5% from the same
period last year, with 67.3% beating earnings expectations with a median
surprise of +2.6%. Total revenues for these companies are up +2.9%, with 49%
beating revenue expectations with a median surprise of +0.1%.

The earnings beat ratio looks more normal now than was the case earlier in
this reporting cycle. It didn't make much sense for companies to be struggling
to beat earnings expectations following the significant estimate cuts in the
run up to the reporting season.

The current above average earnings beat ratio for the 355 S&P 500 companies
that have reported already confirms what many of us were suspecting all along
– that estimates had fallen enough to make it easy for companies to come ahead
of them. We see this quarter after quarter, with about two-thirds of the
companies beating earnings expectations – a good illustration of management
teams' tendency to under-promise and over-deliver.

The composite earnings growth rate for Q3, combining the results from the 355
that have come out with the 145 still to come, currently remains at +4.2% on
+2.4% higher revenues. It is perhaps reasonable to expect that the final Q3
earnings growth tally will likely be not much different from the +3.4%
achieved in Q2.

  oWe may not have had much growth in recent quarters, but the expectation is
    for strong growth resumption in Q4 and beyond. Estimates for Q4 have
    started coming down, with the current +8.4% growth pace down from last
    week's +9.1%. But consensus estimates for Q4 and beyond represent a
    material acceleration in earnings growth.

· Guidance has been overwhelmingly negative over the last few quarters
and is not much different thus far in Q3 either, a few notable exceptions
aside. The weak guidance from Starbucks (Nasdaq:SBUX-Free Report) today is
just the latest in long line of industry leaders like Dow Chemical
(NYSE:DOW-Free Report), Caterpillar (NYSE:CAT-Free Report), IBM (NYSE:IBM-Free
Report), and Intel (Nasdaq:INTC-Free Report) that offered less than reassuring
outlook. 

Given this backdrop, estimates for Q4 will most likely come down quite a bit
in the coming weeks. And with the market expecting the Fed to wait till early
next year to start Tapering its QE program, investors may shrug this coming
period of negative estimate revisions, just like they have been doing for more
than a year now.

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