Zacks Earnings Preview: Yum Brands, Tiffany, Apple and Microsoft

RELATED QUOTES

SymbolPriceChange
YUM76.79-0.02
TIF88.37+0.47
AAPL567.77+43.02
MSFT39.86+0.17

For Immediate Release

 

Chicago, IL – December 3, 2012 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Yum Brands (YUM), Tiffany (TIF), Apple (AAPL) and Microsoft (MSFT).

 

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Looking Ahead to Q4 Earnings

With the third quarter earnings season (almost) over and the fourth quarter reporting season still a few weeks away, we are at a relatively quiet phase in the earnings cycle. But we are continuing to see downbeat guidance from management teams, as recent announcements from Yum Brands (YUM) and Tiffany (TIF) show.

In fact, a far bigger proportion of the companies have guided lower this time around than we have seen in any quarter since the post-recession earnings recovery got underway in 2009. As a result, estimates for the fourth quarter have been steadily coming down over the last months. At this stage, total earnings for companies in the S&P 500 are expected to be up 2.2% from the same period last year. This is significantly lower than the roughly 8% growth expected as the third quarter reporting season was getting underway two months back.

But while estimates for the fourth quarter have come down, we have not seen much downward adjustment to estimates for full-year 2013. Total earnings next year are still expected to be up 11%, which would follow the 4.7% growth in 2012.

Given the tough macroeconomic backdrop -- not just in the U.S. but all over the world -- next year’s growth expectations appear to be on the optimistic side. We will most likely see next year’s estimates start coming down as management teams discuss full-year outlooks on the fourth quarter earnings calls. The market will have to come to grip with this tepid earnings picture after it is through with the ‘Fiscal Cliff’ debate.

But before we can start thinking about the fourth quarter earnings season, we need to close the books on the third quarter reporting cycle. We are almost there, but still have a handful of companies still to report third quarter results.

As of Friday, November 30th, we have third quarter results from 494 companies in the S&P 500. This week brings us closer to the end point, with 61 companies reporting quarterly results, including 5 S&P 500 companies.  

With respect to the scorecard for the 494 companies that have already reported results, total earnings are barely in the positive territory (up 0.1%) relative to the same period last year and only 62.8% of the companies came out with positive earnings surprises. Total revenues are down 0.6%, with only 38.9% of the companies beating revenue expectations. The numbers look even weaker once Finance is excluded. Excluding Finance, total earnings in the quarter were down 4%, while total revenues were down 1.3%.

Half of the 16 Zacks sectors had negative year-over-year earnings growth, with only two sectors producing double-digit earnings growth – Finance (up 23.3%) and Construction (up 56.6%). Negative surprises from a host of tech giants this earnings season, including such reliable players as Apple (AAPL) and Microsoft (MSFT), are showing up in the Tech sector’s sub-par performance in the quarter. Total Tech sector earnings were barely in the positive, up only 0.5%. And the picture is expected to get even worse in the fourth quarter, with total Tech sector earnings expected to be down 4.4%.  

The economic landscape has been dominated by the ‘Fiscal Cliff’ debate lately and the trend is unlikely to change this week even though we have a number of top-tier economic reports on deck. The most important report coming out this week is the November jobs report on Friday, but we also have the manufacturing and service-sector ISM surveys on this week’s calendar. Given the distortions created by Superstorm Sandy, it will be difficult to get a clear read on underlying economic trends from even these top-tier indicators.

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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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