The following is an excerpt from this week's Earnings Trends Report, to see the full article, please click here.
Handicapping the Q4 Earnings Season
The December quarter hasn't ended yet, but the Q4 earnings season has gotten underway already. The reason for that is that we count companies with fiscal quarters ending in November as part of our Q4 tally. Using this definition, the AutoZone (AZO – Analyst Report) release on December 9th was the first Q4 earnings report, with the tally thus far at 9 S&P 500 members. By the end of this week, we will have seen Q4 results from 15 S&P 500 members. That said, the reporting cycle wouldn't get heated up till around the middle of next month.
Estimates for Q4 have come down as the quarter has unfolded, with current expectations of +2.2% total earnings growth in the quarter down from +9.6% growth expected in late September. The chart below shows how estimates for the quarter have evolved over the past two and a half months.
Estimates for 14 out of 16 sectors have declined, though revisions for the Energy, Autos, Basic Materials, Industrial Products, and finance are the most pronounced. The chart below shows the sectors with the major negative estimate revisions.
The revisions trend has been broadly negative across all sectors, with the magnitude of revisions for Q4 the highest we have seen in more than a year. This isn't reflective of a fresh deterioration in the earnings picture, the ongoing global growth worries notwithstanding. Energy has been the biggest drag on Q4 estimates.
The Zacks Consensus EPS estimates for Exxon (XOM – Analyst Report), Chevron (CVX – Analyst Report) and ConocoPhillips (COP – Analyst Report) for the December quarter have fallen by -21.6%, -29.9% and -44.8% since the quarter started – no doubt the overall Q4 growth rate for the sector has flipped from a positive growth rate of +7% to a decline of -17.6% at present. The sector's growth picture isn't expected to improve anytime soon either, as the chart below of total energy sector quarterly earnings shows.
