The 2014 Q4 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 (17 S&P 500 companies have reported results) are from companies with fiscal quarters ending in November, which we count as part of the Q4 tally.
Results for companies with fiscal quarter ending in December will start next week with Alcoa’s (NYSE:AA) release on January 12th. But the cycle wouldn’t ramp up really till the following week, as the chart below of weekly Q4 earnings for the S&P 500 index shows.
Estimates for Q4 came down as the quarter unfolded, with current expectations of +1.2% total earnings growth down from +9.6% growth expected in late September. The chart below shows how estimates for the quarter have evolved over the past three months.
Estimates for 13 out of 16 sectors have declined, though revisions for the Energy, Basic Materials and Autos the most pronounced. The chart below shows the sectors with the major negative estimate revisions.
The green bars in the chart above show the earnings growth rate that was expected for each of those sectors at the beginning of Q4 while the orange bar shows what that expected growth rate is at present. As you can see, negative revisions to the Energy sector estimates really stand out. In fact, the Energy sector alone accounts for roughly 45% of all negative revisions to the bottom-up estimates for the S&P 500 index. The negative revisions trend is broad based, but the magnitude of Q4 revisions wouldn’t be as pronounced had it not been for the Energy sector.
The Zacks Consensus EPS estimates for Exxon (NYSE:XOM), Chevron (NYSE:CVX) and ConocoPhillips (COP) for the December quarter have fallen by -22.5%, -33.2% and -44.7% since the quarter started – no doubt the overall Q4 growth rate for the sector has flipped from a positive growth rate of +7% to a decline of -19.9% at present. The sector’s growth picture isn’t expected to improve anytime soon either, as the chart below of total energy sector quarterly earnings shows.
Beyond the Energy sector, the outlook for activity levels has been looking up on the home front, with business and consumer confidence expected to push economic growth into above-trend levels going forward. But the picture is a lot less reassuring beyond the U.S. borders, with recent data from Europe as well as China showing renewed loss of momentum in those regions.