CHICAGO, Sept. 22, 2014 /PRNewswire/ -- Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes AutoZone (NYSE:AZO-Free Report), Accenture (NYSE:ACN-Free Report), Nike (NYSE:NKE-Free Report), and Bank of America (NYSE:BAC-Free Report).
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Q3 Earnings Estimates Fall Further
The 2014 Q3 earnings season has gotten underway already and this week will bring even more results. In total, we will get Q3 results from over three dozen companies this week, including 9 S&P 500 members like AutoZone (NYSE:AZO-Free Report), Accenture (NYSE:ACN-Free Report) and Nike (NYSE:NKE-Free Report).
All of these early reporters have fiscal quarters ending in August and their earnings reports form part of our Q3 tally. By the end of this month, we will have seen Q3 results from over two dozen S&P 500 members. But as you can see in the chart below, we will have to wait till the middle of next month for the Q3 reporting cycle to really ramp up.
This earnings season will give us a good sense of whether the profitability strength on display in the last reporting cycle was a one-off event or the start of something enduring. Please recall that part of the Q2 strength was a bounce back from the extremely low levels to which all activity levels had fallen in the weather-disrupted first quarter of the year. As such, one could argue that none of the last two earnings seasons represented truly normal conditions, which we will most likely see for the first time this year only in Q3.
The table below shows a summary picture of current Q3 expectations compared to what was actually achieved in Q2. As you can see, total earnings are expected to be up +1.3% from the same period last year on +1.4% higher revenues and modest margin gains.
As has been the trend each quarter for quite some time, estimates for Q3 have come down as the quarter has unfolded. Bank of America (NYSE:BAC-Free Report) is the primary reason for the sharp drop in estimates last week, with the bank's settlement with the government causing its Q3 EPS estimates to drop from positive 32 cents to the current 8 cents loss. In dollar terms, that's a $4.2 billion negative swing in Bank of America's Q3 earnings estimates.
The negative revisions trend has been broad based, with most sectors suffering downward adjustments in estimates. But the trend has been most pronounced for Oil/Energy, Retail, and Consumer Disc. The Finance sector swing is primarily due to Bank of America.
Total earnings for the S&P 500 reached an all-time quarterly record in 2014 Q2 and current estimates for Q3 put the quarterly total as the second highest ever. But given the historical trend of roughly two-thirds of the companies beating earnings estimates, the final Q3 tally will likely be right in the preceding quarter's record vicinity.
For these estimates to hold, we need an improvement on the guidance front, which has been persistently been weak for almost two years now. There was modest improvement in tone of management guidance on the Q2 earnings calls, but the majority of companies providing guidance still guided lower. That said, continuation of even the modest improvement in guidance will be a net positive in the overall earnings picture.
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