The earnings season is gradually picking up steam with over 240 companies reporting this week. Although it is too early to predict any clear pattern, the 81 S&P 500 companies that have reported results till Oct 19, more or less confirm that overall third-quarter results are likely to improve significantly from the preceding quarters. Based on the hitherto observed pattern, Q3 might well end up in the positive territory after five consecutive quarters of earnings decline for the benchmark index.
Per the latest Earnings Trend report, overall Q3 earnings for the S&P 500 companies are expected to be down 1.0% on a 1.5% growth in revenues. The relative improvement in estimate revisions for the quarter is largely due to a turnaround in the economy and rising oil prices. Experts widely believe that Q3 would be the inflection point with positive growth likely to resume in Q4 and ramp up in the following quarters. Thereafter, earnings growth is expected to be in double-digits in 2017 and beyond.
For Q3 as a whole, about 8 of the 16 Zacks sectors are expected to witness an earnings decline, with Oil/Energy, Transportation and Autos being the biggest drag.
Among the Conglomerates slated to report their third-quarter 2016 numbers this week, let’s have a sneak peek at two major industrial goods stocks to see how things are shaping up for the upcoming results.
General Electric Company (NYSE:GE) is scheduled to report its earnings before the opening bell tomorrow. During the quarter, General Electric had initiated steps to supplement its digital presence and foster growth of the industrial ecosystem through strategic acquisitions of Meridium, Inc. and ShipXpress. This will likely help General Electric gain a competitive edge over peers, grow its customer base and generate higher revenues by expanding its IT portfolio. However, for a company as large as General Electric, the additional revenues needed for growth are quite large, posing a challenge in developing businesses on such a vast scale. The company’s objectives of simplification and productivity improvement pose operational execution risks as well. For the impending quarter, the company has an Earnings ESP of -3.23%, and Zacks Rank #3 (Hold), making an earnings prediction uncertain. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. (Read more: Will GE's Q3 Earnings Falter Despite Industrial Focus?)
Honeywell International Inc. (NYSE:HON) will report its results before the opening bell tomorrow as well. The company is divesting its $1.3 billion resins and chemicals business into a standalone, publicly traded company called AdvanSix. With the spin-off, the company’s overall revenues are likely to decline, thereby adversely impacting its earnings as well. Honeywell has also revised its guidance downward due to a decline in shipments to Business and General Aviation OEMs, program delays and completions in the domestic and international businesses within Defense & Space, and reduced volumes in Productivity Solutions. For the impending quarter, this Zacks Rank #4 (Sell) stock has an Earnings ESP of 0.00%. (Read more: Honeywell (HON) Q3 Earnings: Will the Stock Disappoint?)
Stay tuned! Check later on our full write-up on earnings releases of these stocks.
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