EC Previewing The Q4 2019 Earnings Season

The December-quarter reporting season will not take the spotlight until we get into the New Year and the big banks start reporting results in mid-January. But the reporting season will actually get underway this week with Tuesday’s earnings release from AutoZone (AZO) followed by reports from Oracle (ORCL), Costco (COST) and Adobe Systems (ADBE) on Thursday.

All of these companies will be releasing results for their fiscal quarters ending in November, which we count as part of the December-quarter tally. In fact, by the time JPMorgan (JPM) comes out with Q4 report on January 14, 2020, we will have seen such November-quarter results from almost two dozen S&P 500 members.

This earnings season is not expected to change the market’s earnings view in any meaningful way. Growth has been constrained in the first three quarters of 2019 and results of the last quarter of the year are not expected to be any different. A big contributing factor holding growth back has been tough comparisons to the very high levels of profitability in 2018 when earnings were boosted by the tax cut legislation. We will see this factor at play in the Q4 earnings season as well. But the expectation is that positive growth resumes in 2020, which we will show below.

For 2019 Q4, total earnings (or aggregate net income) for the S&P 500 index are expected to be down -3.5% from the same period last year on +3% higher revenues, with 10 of the 16 Zacks sectors expected to have lower earnings than the year-earlier period.

As is typically the case, estimates for the period came down as the quarter got underway, as the chart below shows.

The magnitude of negative revisions that Q4 estimates suffered is in-line with historical trends for comparable periods.  

Estimates have come down across the board, with 15 of the 16 Zacks sectors suffering negative revisions (Utilities is the only sector where estimates modestly ticked up). But not all sectors experienced the same magnitude of estimate cuts. Of the two biggest earnings contributors – Finance & Technology – estimates came down a lot more for the Finance sector than for the Technology space.

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