Zacks Earnings Trends Highlights: Gap, DuPont, Bank of America, Verizon and
CHICAGO, March 12, 2014
CHICAGO, March 12, 2014 /PRNewswire/ --Zacks Director of Research Sheraz Mian
says, "Positive earnings surprises started off on the weak side, but even
those turned out to be better than what we had in the earlier quarters."
Zacks Investment Research, Inc., www.zacks.com
Closing the Books on Q4 Earnings Season
With the 2013 Q4 reporting season now mostly behind us, it is fair to say that
this earnings season was no better or worse than what we have been seeing in
the last few quarters. In some respects, the Q4 earnings season was an
improvement over the recent past.
Specifically, total earnings for the S&P 500 reached a new all-time quarterly
record and even earnings growth for the quarter was the highest of the year
(even after accounting for easy comparisons). Positive surprises started off
on the weak side, but even those turned out to be better than what we had in
the earlier quarters.
Where Q4 was no different from other recent reporting cycles was in terms of
top-line growth and company guidance. Revenue growth has been a challenge for
companies for quite some time and we didn't see any improvement on that front
in Q4 either.
Guidance has been no better – it has been week for more than a year now and Q4
provided no improvement on that front. Part of the guidance weakness is likely
a function of management's need for expectations management. The need for
conservatism aside, one has to be extremely cynical to believe that management
teams would guide lower while knowing that their business outlook was stable,
if not improving. Weather provided a good excuse for many companies as well,
with Gap (NYSE:GPS-Free Report) and DuPont (NYSE:DD-Free Report) as the latest
to cite this year's tough winter in guiding lower for Q1.
The 2013 Q4 Scorecard
The earnings season is almost over, with results from 496 S&P 500 members
already out. Total earnings for these companies are up +9.2% from the same
period last year, with 64.3% beating earnings expectations with a median
surprise of +2.4%. Total revenues for these companies are barely in the
positive, up only +0.7%, with 56.0% beating revenue expectations with a median
surprise of 0.6%.
The +9.2 % 'headline' total earnings growth rate definitely looks fairly
strong, particularly when compared to the growth rate for this same group of
496 companies in the last few quarters. Easy comparisons for three companies –
Bank of America (NYSE:BAC-Free Report), Verizon (NYSE:VZ-Free Report), and
Travelers (NYSE:TRV-Free Report) – account for a big part of the strong Q4
earnings growth. Exclude these three and total earnings growth for the S&P 500
companies that have reported drops by almost half. Performance on the revenue
front is notably sub-par relative to recent quarters, dragged down by weakness
in the Finance and Energy sectors.
The composite picture for Q4 – combining the results for the 496 companies
that have reported already with the 4 still to come – is for earnings growth
of +9.1%. This will be the highest quarterly growth pace of 2013, with easy
comparisons playing a non-trivial role propping up the growth rate. But it's
not all easy comparisons, as total earnings for the index are on track to
reach a new all-time quarterly record.
Trends on the estimate revision front have been negative for a while, but we
could afford to overlook such details in the Fed-inspired rally. It will be
interesting to see if investors will continue to shrug estimate cuts in the
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