CHICAGO, Nov. 11, 2013 /PRNewswire/ -- Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes Google (Nasdaq:GOOG-Free Report), Microsoft (Nasdaq:MSFT-Free Report), Apple (Nasdaq:AAPL-Free Report) and Dow Chemicals (NYSE:DOW-Free Report).
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Q3 Earnings Season Winding Down
Unlike recent quarters, The Finance sector isn't driving growth in Q3. Total earnings growth outside of Finance of +3.1% compares to earnings decline of -2.1% in Q2 and the average -1.5% decline in the preceding four quarters. Improved growth at the Technology, Basic Materials, and Transportation sectors accounts for the positive ex-Finance variance in Q3 relative to the recent past.
Total earnings for the 88.9% of the Technology sector's market capitalization that have reported results already are up +5.3% from the same period last year, which compares to earnings declines of -10.1% in Q2 and the 4-quarter average of -3.4%.
At the medium industry level (or M level), we have 7 industries in the Technology sector, of which only Telecom Services hasn't reported any results yet. The growth picture has improved for each of the other six industries, with the improvement particularly notable for the Software & Services and Semiconductor industries. These two industries combined account for 41% of the sector's total earnings.
Strong earnings growth at Google (Nasdaq:GOOG-Free Report) and Microsoft (Nasdaq:MSFT-Free Report) accounts for the positive growth profile of the Software & Services industry and account for a big part of the Tech sector's positive growth picture. Excluding both these companies form the Tech sector's tally, the sector's Q3 total earnings growth drops from +5.1% to +1.6%.
Total earnings for the Computer & Office Equipment industry, the biggest industry in the sector accounting for almost 44% of the sector's total earnings, are down -4.3% from the same period last year, primarily driven by tough comparisons for Apple (Nasdaq:AAPL-Free Report). But this still better performance than what the industry was able to achieve in recent quarters. Apple's negative year-over-year comparison has been a big drag on the sector's growth picture. Excluding Apple, total earnings for the Tech sector would be up +9.3% (up +5.3% including the company).
Total earnings for the Basic Materials sector are up +3.6% on +1.1% higher revenues. The improvement in the sector's growth numbers is primarily a function of easy comparisons, particularly in the sector's dominant chemicals industry (69% of total sector earnings come from the Chemicals & Fertilizer industry). The Chemicals industry earnings are up +11.3% at this stage, largely due to easy comparisons at Dow Chemicals (NYSE:DOW-Free Report). Dow missed and guided lower, but its Q3 total earnings were up year over year.
The Composite Growth Picture
Total earnings for the S&P 500 as a whole, combining the results from the 449 that have reported with estimates for the remaining for the 51, is for growth of +4.6% on +2.9% higher revenues. This compares to +3.6% earnings growth in Q2 on 1.8% revenues.
Only six of the 16 Zacks sectors are expected to have double-digit earnings growth in Q3 – Consumer Discretionary (11.0%), Retail Wholesale (14.0%), Construction (+34.1%), Transportation (+13.2%), Autos (+32.3%) and Aerospace (+13.1%). Excluding Finance, total earnings for the S&P 500 are expected to be up +3.3% on +3.3% higher revenues, which is up from a decline of -2.7% in total earnings on +0.8% higher revenues in Q2.
Given the trend we have seen thus far, actual earnings growth in Q3, when all reports are in, will most likely be better than what saw in the first two quarters of the year – likely in the +4.5% to +5% range. As modest as this growth rate is, it will still be the best quarterly earnings growth rate of 2013 thus far.
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