Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes American Axle & Manufacturing (NYSE: AXL), Callaway Golf Company (NYSE: ELY), Safeco (NYSE: SAF) and Tesoro (NYSE: TSO). To see more earnings analysis, visit http://at.zacks.com/?id=3207.
Earnings Preview is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.
The Federal Open Market Committee (FOMC, aka "the Fed") will meet on Tuesday and Wednesday (Oct 30-31). Most market participants expect a rate cut to be announced, but this is not a certainty. The downside risk is that committee's inflation hawks stand their ground and vote down a rate cut. Such a decision would create turbulence in both the stock and bond markets over fears that the Fed is not being proactive enough. I don't think the Fed will spook investors on Halloween; rather, I believe a 25 basis point rate cut will be announced. Furthermore, the meeting's statement will suggest a willingness by the committee to do what is necessary to maintain economic growth.
Among the economic data the Fed will have to consider will be the Conference Board's October survey of consumer confidence, advance third-quarter GDP, September construction spending and the October Chicago PMI. The consumer confidence survey will published on Tuesday, the other three reports will be published on Wednesday.
Staying on the economic calendar, September personal income and spending data, September pending home sales and the October ISM manufacturing index will be released on Thursday. Friday will feature October employment data and September factory orders.
Competing with the economic data will be earnings reports from approximately 850 companies, 96 of which belong to the S&P 500. Three Dow components are also expected to step up to the plate, including Exxon Mobil (NYSE: XOM). In addition to XOM, 11 other large-cap oil companies are scheduled to report. Despite crude's march towards $100 per barrel, brokerage analysts have lowered third-quarters forecasts on nine of these 12 companies and lowered fourth-quarter forecasts on five of the 12.
There are a few other noteworthy items on the calendar. Monday will be the anniversary of the 1929 crash (technically the anniversary is Sunday and Monday). Wednesday night is Halloween. (Boo!) November begins on Thursday and it has traditionally marked the start of a good six-month period to own stocks. (The Stock Trader's Almanac notes that the Dow has been up on Nov 1 during 22 out of the last 28 times. Given that Fed will announce its decision on Wednesday, I would suggest not using this streak as a reason to buy stocks.) Daylight savings time (set your clocks back one hour) starts on Sunday, Nov 4.
Third-Quarter Earnings Performance
As the proportion of financial companies reporting third-quarter results has dropped, the rate of profit growth has increased. Through Thursday evening, the median company within the S&P 500 has generated year-over-year profit growth of 11.5% on a per share basis. The ratio of positive to negative surprises is running at 2.7:1. These numbers are based on reports from approximately 280 companies.
Expanding the universe to the S&P 1500 Composite (S&P 500, S&P MidCap 400 and S&P SmallCap 600), median growth is 10.9%. Positive surprises are outnumbering negative surprises by a margin of 2:1.
Third-quarter earnings have clearly been impacted by the ongoing credit crisis. For example, I ran the growth numbers for the S&P 1500 Composite with banks and savings & loans excluded. The median growth rate rose by nearly 200 basis points. The overall numbers don't reflect the impact of forecasts that were lowered ahead of earnings reports or retailers, whose third-quarter hasn't ended yet. Therefore, the actual drag on growth is bigger. Partially offsetting the credit crunch is the impact of share repurchases, the weak dollar and faster economic growth abroad. Simply put, we know that the credit crunch is slowing earnings, but it's difficult to quantify the exact speed of the headwind.
Companies That Could Issue Positive Earnings Surprises during the Week of Oct 22 - 26
American Axle & Manufacturing (NYSE: AXL) has been the beneficiary of two positive earnings estimate revisions by brokerage analysts recently. The revisions have resulted in a four-cent increase in the consensus estimate to 29 cents per share. The most accurate consensus is more bullish at 41 cents per share. AXL has topped expectations for two consecutive quarters. American Axle & Manufacturing is scheduled to report on Tuesday, Oct 30.
Callaway Golf Company (NYSE: ELY) recently preannounced third-quarter results. The company estimates that its profits will be between breakeven and two cents per share; brokerage analysts had been forecasting a loss of four cents per share. ELY is enjoying strong sales of woods, irons, golf balls and accessories as well as improved gross margins. After previously missing estimates four consecutive times, ELY has turned things around with two consecutive positive surprises. (Some readers may recall that I predicted the golf company could begin topping expectations last April). The consensus estimate calls for ELY to breakeven, but the most accurate consensus is calling for profits of a penny per share. Callaway Golf is scheduled to report on Thursday, Nov 1, after the close of trading.
Approximately one-third of the covering brokerage analysts have raised their forecasts on Safeco (NYSE: SAF) within the past 30 days. The cumulative impact of these revisions has been a seven-cent jump in the consensus forecast to $1.53 per share. The most accurate consensus is more optimistic at $1.55 per share. SAF has topped expectations for three consecutive quarters. SAF is scheduled to report on Tuesday, Oct 30, before the start of trading.
Companies That Could Issue Negative Earnings Surprises during the Week of Oct 22 - 26
The sharp rise in oil prices may not translate into an upbeat report for refiner Tesoro (NYSE: TSO). Higher feedstock costs and a seasonal decline in margins are expected to have weighed down margins. As a result, more than half of the covering brokerage analysts have cut their third-quarter forecasts within the past 30 days. The consensus estimate calls for earnings of $1.15 per share, 56 cents below the average forecast of a month ago. The most accurate consensus calls for profits of 93 cents per share. TSO has missed once during the past four quarters. Tesoro is scheduled to report on Thursday, Nov 1, before the start of trading.
Want to turn earnings surprises into quick profits? Learn how by visiting http://at.zacks.com/?id=3206.
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Contacts:
Charles Rotblut, CFA, 312-265-9352
pr@zacks.com
www.Zacks.com
