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9/24/2015

What to Expect from the Q3 Earnings Season? September 10, 2015

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What to Expect from the Q3 Earnings Season?

by Sheraz Mian Published on September 10, 2015 | No Comments ORCL FDX ADBE

Earnings aren't in the spotlight at present the market's focus is justifiably on the Fed which starts its twoday meeting on Wednesday (September 16th). The big question is whether they will announce the first rate increase in a long time on Thursday afternoon or delay that decision to a later date in response to recent Chinacentric uncertainty.

Regular readers know that we have strong views on the subject. But instead of speculating about what they will or will not do on Thursday, we will rather discuss the Q3 earnings season whose early reports will start arriving next week. The FedEx ( FDX Analyst Report) report Wednesday morning will be the first Q3 earnings report from amongst S&P 500 members, followed by Oracle ( ORCL Analyst Report) that same evening and Adobe Systems ( ADBE Analyst Report) the following day. All of these early reporters have fiscal quarters ending in August, which we count as part of our 2015 Q3 tally.

In total, we will get results from more than two dozen companies this week, including 4 S&P 500 members. But as you can see in the chart below of weekly reporting calendar for companies in the S&P 500 index, we will have to wait another 4 weeks for the Q3 reporting cycle to really ramp up.

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Will the Earnings Growth Picture Improve?

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We know that the growth picture was quite bad in Q2, with total earnings for the

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S&P 500 index down 2.1% from the same period last year on 3.4% lower

revenues. The Energy sector was the primary reason for the aggregate decline ?

the growth picture improves once the Energy sector is excluded from the

aggregate numbers. Excluding Energy, total earnings for the S&P 500 index

would have been up +5.2% in Q2 on +1.3% higher revenues.

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What to Expect from the Q3 Earnings Season? September 10, 2015

The growth picture isn't expected to improve in the current period either, with total earnings for the S&P 500 index expected to be down 5.5% from the same period last year on 4.4% lower revenues. The headwinds from Q2 are at play in Q3 as well, with a combination of Energy sector weakness, dollar weakness and global growth uncertainties weighing on the outlook. Excluding the drag from the Energy sector (Energy sector earnings expected to be down 63.9% year over year), total earnings for the index would be up +1.7% on +0.7% higher revenues.

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Estimates for the quarter came down over the last couple of months, following a trend that has now been well entrenched for quite some time. The chart below shows the evolution of Q3 earnings growth estimates since the start of the period in early July.

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Standout Sectors in Q3

Energy stands out for the wrong reasons, as briefly mentioned earlier, but it is hardly the only one with negative earnings growth in Q3. In fact, half of the 16 Zacks sectors are expected to have lower earnings in 2015 Q3 relative to the yearearlier period, with Industrial Products (earnings decline of 24.5%), Conglomerates (15.6%), Basic Materials (13.3%), and Consumer Discretionary (12.5%) as the big decliners.

On the positive side, the Finance sector is expected to have another good quarter, with total earnings for the sector expected to be up +8.8% after the +7.2% gain in the preceding quarter. Other sectors with positive earnings growth in Q3 include Transportation (earnings growth of +16.5%), Autos (+21.3%), Construction (+8.7%) and Medical (+8.1%).

The table below presents the summary picture for Q3 contrasted with what companies actually reported in the 2015 Q2 earnings season.

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9/24/2015

What to Expect from the Q3 Earnings Season? September 10, 2015

Looking Beyond Q3

The chart below shows current consensus earnings growth expectations for the coming quarters contrasted with what is expected for Q3 and what was actually achieved in Q2. As you can see, this year has effectively been washed out, with growth expected to resume early next year and accelerate from there onwards. Total earnings for the S&P 500 index are effectively flat this year, but are expected to be up in doubledigits next year.

The relatively optimistic looking expectations for the outer periods aren't unusual ? Wall Street analysts always tend to be more optimistic about the future. But estimates start coming down as the period in question comes closer. The erosion of 2015 growth estimates was driven largely by what happened to the Energy sector. But estimates for other sectors came down too...............and we will likely see something similar to current 2016 estimates as well.

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Note: For a complete analysis of 2015 Q3 estimates and actual Q2 results, please check out weekly Earnings Trends report.

Here is a list of the 28 companies reporting this week, including 4 S&P 500 members.

Company Ticker Current Qtr YearAgo Qtr Last EPS Surprise % Report Day Time



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9/24/2015 Kroger Co KR

Brady Corp Cl A BRC Mattress Firm MFRM

Student Transpt STB Energy Xxi Ltd EXXI

Tenax Therapeut TENX Conifer Hldgs CNFR

Full Circle Cap FULL Park City Grp PCYG Unilife Corp UNIS

Nevada Gold&Cas UWN Netsol Tech Inc NTWK Utd Natural Fds UNFI Fedex Corp FDX Ascena Retail ASNA Cracker Barrel CBRL LightintheboxA LITB Supercom Ltd SPCB Oracle Corp ORCL Analogic Corp ALOG Apogee Entrprs APOG Clarcor Inc CLC Herman Miller MLHR Marcus Corp MCS Rite Aid Corp RAD Adobe Systems ADBE Mcbc Holdings MCFT Zayo Group Hldg ZAYO

0.4 0.34

0.7 0.06 1.27 N/A 0.15 0.11 0.01 0.16 0.04 0.15 0.72 2.44 0.05 1.89 0.08 0.27 0.48 1.15

0.5 0.84 0.47 0.54 0.03 0.35 0.19 0.05

What to Expect from the Q3 Earnings Season? September 10, 2015

0.35

3.31%

Friday BTO

0.41

10.53%

Friday BTO

0.61

13.16%

Friday BTO

0.06

0.00%

Monday N/A

0.2

5.61%

Monday BTO

0.08

N/A

Monday BTO

N/A

N/A

Monday AMC

0.15

11.76%

Monday AMC

0.03

50.00%

Monday AMC

0.13

21.43%

Monday AMC

0.02

N/A

Monday AMC

0.79

10.53% Tuesday BTO

0.67

9.30% Tuesday AMC

2.1

1.48% Wednesday BTO

0.13

5.26% Wednesday BTO

1.63

7.19% Wednesday BTO

0.11

13.64% Wednesday BTO

0.19

0.00% Wednesday BTO

0.59

9.76% Wednesday AMC

1.2

13.86% Wednesday AMC

0.35

17.14% Wednesday AMC

0.83

1.30% Wednesday AMC

0.47

17.50% Wednesday AMC

0.45

25.00% Thursday BTO

0.13

100.00% Thursday BTO

0.14

9.68% Thursday AMC

N/A

N/A Thursday AMC

N/A

300.00%

Friday BTO

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What to Expect from the Q3 Earnings Season? September 10, 2015

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