CHICAGO, Ill., Oct. 1, 2012 /PRNewswire/ -- Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes Alcoa (NYSE:AA), FedEx (NYSE:FDX), Oracle (Nasdaq:ORCL) and Nike (NYSE:NKE).
To see more earnings analysis, visit http://at.zacks.com/?id=3207.
Big Week for Economic Data
Economic reports dominate the news flow this week, with the September non-farm payroll report coming out on Friday as the most significant. The tepid pace of jobs improvement has been a persistent source of frustration for investors. But the loss of momentum in the manufacturing sector in recent months has added to those worries. The two ISM surveys on deck this week will give a good sense of where the factory and service sectors stood.
Alcoa's (NYSE:AA) release the following week will 'unofficially' kick-off the third reporting season, but we 'officially' count all companies that have financial quarters ending in August as part of our third quarter results tally. As such, recent earnings from reports FedEx (NYSE:FDX), Oracle (Nasdaq:ORCL), Nike (NYSE:NKE) and others are part of the 'official' third quarter tally.
That said, it is the very early going at this stage. We will need to wait two to three more weeks to get a sense of the third quarter reporting season.
We have a total of 16 companies reporting results this week, including five S&P 500 companies. Expectations for the third quarter remain quite low, with total earnings expected to drop 3% from the same period last year. This growth expectation reflects a 2.4% drop in total revenues and a 10-basis point expansion in net margins.
The actual growth rates will most likely be better than these pre-season expectations, given how company managements have refined the art of under-promising and over-delivering quarter after quarter. Just to give you an idea of how good they are at anchoring expectations, roughly two-thirds of the companies in the S&P 500 would typically beat earnings expectations in any given quarter – it was 62% in the second quarter and 65% in the first quarter.
If we do get negative earnings growth this quarter as currently expected, that will be the first decline in quarterly earnings since the earnings recovery got underway after the end of the Great Recession in 2009. The earnings weakness is quite broad-based, with half of the 16 Zacks sectors expected to have negative earnings growth.
As was the case in the second quarter, the Energy and Basic Material sectors are the weakest, with earnings declines of 24.9% and 22.3%, respectively. Energy and Basic Materials earnings were down 16% and 20.5% respectively in the second quarter, when total earnings for the S&P 500 as a whole were up 4%.
Only two sectors are expected to have double-digit earnings growth – Finance (up 15.5%) and Construction (up 42.3%). Construction doesn't carry much weight in the aggregate picture as it contributes less than 0.5% of total S&P 500 earnings, but the Finance strength is making the aggregate growth rate look a lot better than it otherwise would be. Excluding Finance, total S&P 500 earnings in the third quarter would be down 6.6%.
Sheraz Mian is the Director of Research for Zacks.com.
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