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Zacks Earnings Trends Highlights: American Airlines, United-Continental, Deere and Caterpillar

For Immediate Release

Chicago, IL – July 07, 2017 – Zacks Director of Research Sheraz Mian says, "The Q2 earnings season takes the spotlight with quarterly reports from the big banks next week, but companies with fiscal quarters ending in May have been reporting results already."

Start of Q2 Earnings Season

Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>

Here are the key points:

• The Q2 earnings season takes the spotlight with quarterly reports from the big banks next week, but companies with fiscal quarters ending in May have been reporting results already and these reports form part of our Q2 tally.

• Of such companies with fiscal quarters end in May, we have seen results from 23 S&P 500 members. This is too small a sample to draw any firm conclusions from. But for whatever it is worth, the growth and proportion of positive surprises for these 23 index members are tracking above what we had seen from the same cohort of companies in other recent periods.

• Q2 Estimates have come down since the quarter got underway, but the magnitude of negative revisions nevertheless compares favorably to other recent periods.

• Total Q2 earnings for the S&P 500 index are expected to be up +5.7% from the same period last year on +4.6% higher revenues. The Energy, Aerospace, Finance, Technology, Construction and Industrial Products are expected to be big growth drivers in Q2, with the quarterly earnings growth pace dropping to +3.3% on an ex-Energy basis.

• Beyond Q2, total earnings for the S&P 500 index are currently expected to grow by +6.3% on +4.5% higher revenues in the September quarter and +9.8% on +5.3% higher revenues in Q4.

• For full-year 2017, total earnings for the index are expected to be up +7.4% on +4.2% higher revenues, which would follow +1.1% earnings growth on +2.1% higher revenues in 2016. Index earnings are expected to be up +11.3% in 2018 and +9.2% in 2019.

• The Energy, Technology and Finance sectors are the biggest earnings contributors in 2017 – 2017 earnings growth would be +4.8% on an ex-Energy basis.

This trend of negative revisions ahead of the start of each reporting cycles is not new; we have been seeing this play out quarter after quarter for more than 3 years. That said, the revisions trend has been moving in a favorable direction over the last two quarters and that same trend is even more at play in Q2 estimates. What this means is that while estimates for Q2 have come down, they haven’t come down as much as would typically be the case by this time in other recent periods.

Estimates for 10 of the 16 Zacks sectors have come down since the start of the period, with Energy, Consumer Discretionary, Utilities, and Basic Materials suffering the most revisions.

Estimates for 6 Zacks sectors have gone up since the start of the period, with estimates for the Industrial Products and Transportation sectors going up the most. Positive estimate revisions forAmerican Airlines (NASDAQ: AAL Free Report ), United-Continental (NYSE: UAL Free Report ), Deere & Company (NYSE: DE Free Report ) and Caterpillar (NYSE: CAT Free Report ) reflect revision trends for these two sectors. Technology, Aerospace, Business Services, and Construction are the other sectors where Q2 estimates have gone up since the start of the quarter.

Expectations for Q2 & Beyond

The Q2 earnings season will follow the strong showing in the preceding reporting cycle when growth reached its highest level in more than five years and an above-average proportion of companies beat revenue estimates. Importantly, estimates for Q2 didn’t fall as much as had historically been the case, as mentioned earlier. The market will be looking for continuation of these favorable trends this earnings season, which has (officially) gotten underway already but wouldn’t take the spotlight till next week, when the major banks come out with results (thankfully, Alcoa’s report no longer serves that purpose).

Of the standout sectors, earnings growth is expected to be the strongest for the Energy (expected to be up +247.7%), Aerospace (+48.8%), Construction (+15.7%) and Industrial Products (+11.8%) sectors are expected to have double-digit earnings growth in Q2.

For Finance and Technology, the two biggest sectors in the index, earnings are expected to be up +5.9% and +10.1%, respectively. This would follow double-digit growth for both the sectors in the preceding period. Of these two major sectors, the Finance sector remains at risk of coming up short this earnings season for a number of reasons, including the unfavorable interest rate backdrop, the continued deceleration in loan growth and a likely sub-par capital markets showing.

Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks.com and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview . He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.

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Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks.com and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview . He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.

If you want an email notification each time Sheraz Mian publishes a new article, please click here>>>

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Caterpillar, Inc. (CAT): Free Stock Analysis Report
 
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