Zacks Earnings Trends Highlights: Citigroup, Caterpillar and General Electric

For Immediate Release

Chicago, IL – February 9, 2018 – Zacks Director of Research Sheraz Mian says,  "Total Q4 earnings for the 294 S&P 500 members that have reported results are up +15.3% from the same period last year on +9.4% higher revenues, with 79.6% beating EPS estimates and 76.9% beating revenue estimates."

Standout Features from Q4 Earnings Season

Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>

Here are the key points:

•    The standout features of the Q4 earnings season include very strong revenue momentum, an above-average proportion of positive surprises, and an unusually positive revisions trend for the current and coming quarters.

•    Total Q4 earnings for the 294 S&P 500 members that have reported results are up +15.3% from the same period last year on +9.4% higher revenues, with 79.6% beating EPS estimates and 76.9% beating revenue estimates.

•    This is a materially better performance relative to what we have been seeing from the same group of companies in other recent periods.

•    As expected, companies are announcing big one-time charges related to the tax law change, which is making the gap between adjusted operating earnings and GAAP earnings the highest in recent years.

•    For Q4 as a whole, total earnings for the S&P 500 index are expected to be up +13.7% from the same period last year on +8% higher revenues. Earnings growth is expected to be positive for 14 of the 16 Zacks sectors, with double-digit growth for the Energy, Technology, Aerospace, Construction, Industrial Products, Basic Materials, Business Services, and Autos sectors.

•    Q4 earnings growth for the Energy sector is the highest of all sectors, with total earnings for the sector expected to be up +150.1% from the same period last year on +23.1% higher revenues. Excluding the Energy sector, total Q4 earnings for the rest of the S&P 500 index would be up +11.5%.

•    Earnings growth is expected to be strong for the Technology sector, with total Q4 earnings for the sector expected to be up +22.1% on +10.5% higher revenues. Finance sector earnings are expected to be up +5.6% on +2.8% year-over-year growth in revenues.

•    For the small-cap S&P 600 index, we now have Q4 results from 32.3% of its members, with earnings up +11.8% on +10.6% higher revenues and the proportion of positive EPS and revenue surprises at 68.6% and 71.6%, respectively. Please check page 26 through 33 of the full report for more details on the small-cap index.

•    Earnings estimates for the current period (2018 Q1) and following quarters have been going up in a notable way, with tax law changes as the most notable reason for the positive revisions. The positive revisions are broad-based and not restricted to the Energy sector, with estimates for 15 of the 16 Zacks sectors up since over the last few weeks.

•    For full-year 2017, total earnings for the S&P 500 index are expected to be up +7.4% on +3.9% higher revenues, which would follow +0.7% earnings growth on +3.5% higher revenues in 2016. Index earnings are expected to be up +19.7% in 2018 and +9.7% in 2019.

Q4 Scorecard (as of February 7, 2018)

We now have Q4 results from 294 S&P 500 members that combined account for 75.1% of the index’s total market capitalization. Total earnings for these 294 index members are up +15.3% from the same period last year on +9.4% higher revenues, with 79.6% beating EPS estimates and 76.9% beating revenue estimates.

The Q4 earnings and revenue growth pace for these 294 companies is notably tracking above what we had seen from the same group of companies in other recent periods. The proportion of positive EPS and revenue surprises is similarly significantly above other recent periods for this group of index members.

Here are the four key trends emerging out of the Q4 earnings season

First, there is clear momentum on the revenue front, with both the growth pace as well as the proportion of positive top-line surprises tracking above historical periods.

Second, an above-average proportion of companies are beating EPS and revenue estimates. 

A high proportion of positive surprises is typically not a big deal given management teams’ expertise in anchoring expectations at easy-to-beat levels. We typically see this show in lowered estimates ahead of the start of earnings seasons. But what makes this above-average proportion of positive surprises notable is the fact that estimates for Q4 had help up very nicely ahead of this earnings season.

Third, the gap between adjusted operating earnings and GAAP earnings is extremely high.

The all-around one-time charges this earnings season pertain to the accounting impact of tax-law changes, which we are stripping out of our (adjusted) earnings numbers for comparability reasons. Adjusted earnings have historically been 10% to 11% higher than GAAP earnings for the 294 index members that have reported results already, but they are an extremely high 44% in Q4.

The issue is widespread and not restricted to one sector. For example, Citigroup C reported adjusted earnings of $3.38 billion while its GAAP earnings were a loss of $18.3 billion. Caterpillar’s CAT adjusted earnings for the quarter of $1.29 billion compare to its GAAP loss of $1.3 billion. While adjusted earnings for the 294 S&P 500 members are up +15.3% from the same period last year, while the same growth on a GAAP basis represents a decline of -13.8%.

There is no question that these are one time and non-cash charges. But the wide gap between adjusted and GAAP earnings this earnings season is nevertheless an unflattering comment on the ‘quality’ of the earnings performance.  

Fourth is the unusually positive revisions trend for the current and following quarters. This is a sight that we haven’t seen in a very long time; definitely not over the last 6 years.

The most important factor driving this positive revisions trend is the tax cuts. The rise in oil prices and the impact of uptrend bond yields on banks’ profitability are some of the other factors.

Estimates have gone up across the board for 15 of the 16 Zacks sectors, with the Conglomerates sector as the only to have suffered modest negative revisions, primarily a reflection of the never-ending General Electric GE saga. Estimates have gone up the most, in dollar terms, at the Finance sector, followed by Energy, Technology, Medical and the others.

Follow us on Twitter:  https://twitter.com/zacksresearch

Join us on Facebook:  https://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

support@zacks.com

https://www.zacks.com

Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.

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/performancefor information about the performance numbers displayed in this press release.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Citigroup Inc. (C) : Free Stock Analysis Report
 
General Electric Company (GE) : Free Stock Analysis Report
 
Caterpillar, Inc. (CAT) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.