MARKET SNAPSHOT: 'Earnings Recession' On Hold As Quarter Showing Fractional Gain

By Wallace Witkowski, MarketWatch

Results snap back from steep forecast cuts

Earnings estimates appear to have been lowballed more than usual this season, as what looked to be the first quarterly year-over-year decline in a few years is shaping up to be a slight gain.

Stocks ended the week mostly higher (http://www.marketwatch.com/story/us-stocks-a-cautious-move-higher-as-big-jobs-data-looms-2015-05-08) following Friday's strong jobs report with the Dow Jones Industrial Average (DJI) advancing 0.9%, the S&P 500 index (SPX) rising 0.4%, and the Nasdaq Composite Index (RIXF) declining less than 0.1%.

For the S&P 500, blended earnings--meaning, earnings results of companies that have already reported combined with estimates of those companies that haven't reported yet--crept into the black this past week, showing 0.1% growth for the first quarter, according to John Butters, senior earnings analyst at FactSet, a far cry from the expected 4.7% year-over-year decline that was forecast on March 31.

That makes for a larger-than-average swing, seeing earnings growth, on average, tends to end up about 2 to 3 percentage points higher than expected.

As energy prices tumbled over the first quarter, so did analyst estimates, making for a larger-than-average lowballing of corporate results. Analyst estimates went from a forecast 4.3% growth as the first quarter began, down to that expected 4.7% decline over the course of the quarter.

The sharp decline in expectations stoked concerns of an "earnings recession," where earnings decline year-over-year for at least two consecutive quarters. That concern, however, remains somewhat viable for the rest of the year as analysts expect a 4.3% decline in earnings for the second quarter, a 0.5% decline in the third quarter, and flat earnings for the fourth, according to FactSet's Butters.

Still, even if first-quarter earnings growth holds at 0.1%, it will still be the worst quarter since the third quarter of 2012, when S&P 500 earnings declined 1%. About nine-tenths of the S&P 500 has already reported results this season.

A mixed bag of sectors report this week with an emphasis on health care, tech, and retailers. Only 14 S&P 500 companies report this week including Cisco Systems Inc. (CSCO), Actavis PLC(ACT), McKesson Corp.(MCK), Macy's Inc. (M), and Nordstrom Inc.(JWN)

The following week, larger cap retailers like Wal-Mart, Target, and Home Depot will report.

Notable earnings reports this week

Report date     Company/Ticker (FactSet EPS / revenue estimate) 
Mon., May 11    Actavis ($3.94 / $4 billion)Sotheby's US:BID  (break-even / $151.7 million) Dish Network Corp. US:DISH  (40 cents / $3.73 billion) 
Tues., May 12   McKesson ($2.74 / $45.04 billion)International Flavors & Fragrances Inc. US:IFF  ($1.43 / $767.9 million) GoDaddy Inc. US:GDDY  (22 cents / $370.3 million)Zillow Group Inc. US:Z  (loss of 11 cents / $127.8 million) 
Weds., May 13   Cisco (53 cents / $12.07 billion)Macy's (62 cents / $6.32 billion)Ralph Lauren Corp. US:RL  ($1.32 / $1.88 billion)J.C. Penney Co. US:JCP  (loss of 80 cents / $2.86 billion)Shake Shack Inc. US:SHAK  (loss of 3 cents / $34 million) 
Thurs., May 14  Nordstrom (71 cents / $3.17 billion)Kohl's Corp. US:KSS  (54 cents / $4.18 billion)Symantec Corp. US:SYMC  (44 cents / $1.56 billion)Applied Materials Inc. US:AMAT  (28 cents / $2.4 billion) 
Fri., May 15    nothing of note 
 

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