CHICAGO, Oct. 15, 2012 /PRNewswire/ -- Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes J.P. Morgan (NYSE:JPM), Wells Fargo (NYSE:WFC), Google (Nasdaq:GOOG), IBM (NYSE:IBM), Johnson & Johnson (NYSE:JNJ).
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Earnings Season Into High Gear
We get into high gear this week, with 200 companies reporting results, including 80 from the S&P 500. We will be in much better shape to comment on this reporting season by the end of the week, as by then we will have seen results from more than one-fifth of the S&P 500 members.
The strong-looking results from J.P. Morgan (NYSE JPM) and Wells Fargo (NYSE: WFC) notwithstanding, the picture emerging from these 35 results doesn't paint a very inspiring picture. Largely due to the strong growth performance by these two banking leaders, total earnings for the 35 companies that have already reported results are up 7.4% from the same period last year, with 54.3% of the companies beating earnings expectations.
But all of that growth is coming from J.P. Morgan and Wells Fargo. Excluding the contribution from Finance (basically these two banks at this stage), total earnings growth turns negative (down 3.4% from the same period last year).
Performance on the revenue side is surprisingly not that bad for these companies, even after we exclude J.P. Morgan and Wells Fargo, with total (ex-Finance) revenues up 3% from the same period last year and 43.3% of the companies beating revenue expectations.
But the big story on the earnings front is not what have come out already, but rather what's in store from the 465 companies still to report results in the coming days. We have 80 S&P 500 companies reporting results this week, including such bellwether names as Google (Nasdaq:GOOG), IBM (NYSE:IBM), Johnson & Johnson (NYSE:JNJ), and many others.
Total earnings for these 465 companies are expected to drop 4.3% from the same period last year, with revenues declining 2.3%. Excluding Finance, which is one of only two sectors to produce double-digit earnings growth this quarter (Construction is the other), total earnings growth for the still-to-report companies is a decline of 7.1%.
The actual growth rates will most likely be better than these 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, it 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 21.5% and 24.5%, respectively. Energy and Basic Materials earnings were down 15.7% and 16.8%, respectively, in the second quarter, when total earnings for the S&P 500 as a whole were up 4.4%.
Sheraz Mian is the Director of Research for Zacks.com.
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Contact: Sheraz Mian
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