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Zacks Earnings Trends Highlights: Alcoa, FedEx, Nike and Oracle

CHICAGO, April 4, 2014 /PRNewswire/ -- Zacks Director of Research Sheraz Mian says, "Expectations for the Q1 earnings season as whole remain low, with total earnings expected to be down -2.6% from the same period last year."

Taking Stock of the Q1 Earnings Season

Zacks Investment Research, Inc., www.zacks.com

The 2014 Q1 earnings season takes center stage from next week onwards even though the reporting cycle has actually been underway for a couple of weeks. The reports thus far (19 S&P 500 companies have reported results) are from companies with fiscal quarters ending in February, which we count as part of the Q1 tally. Results for companies with March ending quarter will start next week with Alcoa's (NYSE:AA-Free Report) release on April 8th.

Many of these early February quarter-ending companies aren't obscure players as the list includes industry leaders like FedEx (NYSE:FDX-Free Report), Nike (NYSE:NKE-Free Report), Oracle (NYSE:ORCL-Free Report), and others. These initial reports don't inspire much confidence and appear to be pointing towards another underwhelming reporting season ahead. But it's perhaps premature to draw any firm conclusions based on such an unrepresentative sample of reports.

The chart below shows weekly schedule for how Q1 results will come out.

Expectations for the Q1 earnings season as whole remain low, with total earnings expected to be down -2.6% from the same period last year on +1.0% higher revenues and modestly lower margins. As has been the trend for more than a year now, estimates for Q1 came down sharply as the quarter unfolded. The current -2.6% decline in total earnings in Q1 is down from +2.1% growth expected at the start of the quarter in January.

Current estimates for total S&P 500 earnings in Q1 are down -2.9% from what was expected at the start of the quarter in early January. This magnitude of negative revision to Q1 earnings over the last three months is greater than what we witnessed in the comparable period in 2013 Q4, but is broadly in-line with the magnitude of the 4-quarter average of negative revision.

The chart below shows the magnitude of negative earnings revision for 2014 Q1 and each of the preceding four quarters over the course of each quarter.

Estimates for Q1 have fallen across the board, but the trend is particularly notable for the Retail, Basic Materials, Autos, Consumer Staples, and the Energy sectors, as the chart below shows.

With two-thirds of S&P 500 members typically beating earnings estimates in any reporting cycle, actual Q1 results will almost certainly be better than these pre-season expectations. But Q1 is unlikely to repeat the performance of the last few quarters when we would witness new all-time records for total earnings each quarter.

Guidance has been overwhelmingly weak for more than a year now, keeping the revisions trend firmly in the negative direction. Odds are that we wouldn't see any change on that front this earnings season either, bringing down estimates for the rest of the year. Investors haven't cared about negative estimate revisions thus far, but it will be interesting that behavior will remain in place going forward as well.

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