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Alcoa, FedEx, Oracle, Adobe and Apple are part of Zacks Earnings Preview

Zacks Equity Research
Updated

For Immediate Release

Chicago, IL – July 05, 2016 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Alcoa (AA), FedEx (FDX), Oracle (ORCL), Adobe (ADBE) and Apple (AAPL).

To see more earnings analysis, visit https://at.zacks.com/?id=3207.

Every day, Zacks.com makes their Bull Stock of the Day available, free of charge. To see it, click here .

5th Straight Quarter of Negative Earnings Growth

Q2 earnings season will get into the spotlight following Alcoa’s ( AA) July 11th report. But the earnings season has actually gotten underway already, with results from 21S&P 500 members already out. All of these early reporters, which includes major operators likeFedEx (FDX),Oracle (ORCL) and Adobe ( ADBE), have fiscal quarters ending in May, but get clubbed as part of the June quarter tally. We have another 2 index members with fiscal quarters ending in May on deck to report results this week. All in all, we will have seen Q2 results from almost two dozen S&P 500 members by the time Alcoa comes out with its results.

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We are about two weeks away from the reporting cycle really ramping up. Keep in mind that the week of July 11th that gets underway with Alcoa’s report will also have reports from all the major banks.

Expectations for the Quarter

Total earnings for the 21 index members that have reported results are down -4.1% on +0.9% higher revenues, with 60% beating EPS estimates and equal proportion coming ahead of top-line expectations. Comparison of the Q2 results thus far with prior periods offers a mixed picture. But it’s likely too small a sample to draw any conclusions from in any case.

For Q2 as a whole, total earnings for the S&P 500 are expected to be down -6.2% on -0.7% lower revenues, with growth in negative territory for 9 of the 16 Zacks sectors. This will be the 5th quarter in a row of negative earnings growth for the S&P 500 index.

As has been the pattern in other recent periods, the Energy sector remains the biggest drag on the aggregate growth picture, with total earnings for the sector expected to be down -78.9% on -27.1% lower revenues.

Excluding the Energy sector, earnings for the rest of the index would be down -2.8%.

As negative as this revisions trend looks, it is nevertheless an improvement over what we had seen in the comparable period(s) in other recent quarters. The improved commodity-price backdrop and the reduced dollar drag are some of the explanations for this development. It will be interesting to see if this trend of decelerated negative revisions will continue this earnings season. But we will have to wait a few more weeks to get a better read on this development after companies start reporting June quarter results and guide towards Q3 estimates. Current estimates for Q3 are showing flat growth from the year-earlier level.

Standout Sectors

While Energy stands out for its very tough comparisons, there is not much positive growth coming from the other major sectors either. The Finance and Technology sectors, the two biggest earnings contributors in the S&P 500 index, are also expected to see earnings decline in Q2 from the year-earlier levels.

For the Finance sector, total Q2 earnings are expected to be down -5.8% on -0.3% lower revenues, which will follow -6.9% decline in the sector’s earnings in the preceding quarter. It has been a tough period for the sector, with benchmark treasury yields going down the summary 2012 record lows on the back of the Brexit surprise and Fed expectations. This low interest rate environment is a big restraint on the group’s earnings power through continued pressures on net interest margins. The recent completion of the Fed stress tests has improved the outlook for share buybacks and dividend increases across the major banks space, but the group’s earnings outlook continues to remain under pressure.

The Technology sector, total earnings are expected to be down -6.4% on +2.2% higher revenues, which would follow the sector’s -4.5% earnings decline on +0.4% higher revenues in Q1. The big culprit for the Tech sector’s weak showing this quarter (as well

as last one) is Apple (AAPL), whose June quarter earnings are expected to be down -28.4% on -15.2% lower revenues from the same period last year. Excluding Apple, the Tech sector’s Q2 earnings would be down only -0.9% (Apple alone brings in roughly a fifth of the Tech sector’s total earnings).

About the Zacks Rank

Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank stocks have generated an average annual return of +28%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have significantly underperformed the S&P 500 (+3% versus +10%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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ALCOA INC (AA): Free Stock Analysis Report
 
ORACLE CORP (ORCL): Free Stock Analysis Report
 
APPLE INC (AAPL): Free Stock Analysis Report
 
FEDEX CORP (FDX): Free Stock Analysis Report
 
ADOBE SYSTEMS (ADBE): Free Stock Analysis Report
 
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