Subscribe to Entrepreneur for $5
Subscribe

Zacks Earnings Trends Highlights: Brinker International, Apple, Amazon, McDonald's and Kraft Heinz

Zacks Earnings Trends Highlights: Brinker International, Apple, Amazon, McDonald's and Kraft Heinz

By
This story originally appeared on Zacks

For Immediate Release

Chicago, IL – November 4, 2021 – Zacks Director of Research Sheraz Mian says, “For the 363 S&P 500 members that have reported Q3 results through Wednesday, total earnings and revenues are up +40.1% and +18.5%, respectively from the same period last year, with 81.0% beating EPS estimates and 73.6% beating revenue estimates."

- Zacks

Looking at Margins in the Face of Inflationary and Logistical Issues

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:

  • For the 363 S&P 500 members that have reported Q3 results through Wednesday, November 3rd, total earnings and revenues are up +40.1% and +18.5%, respectively from the same period last year, with 81.0% beating EPS estimates and 73.6% beating revenue estimates. The proportion of these 363 index members beating both EPS and revenue estimates is 63.4%.

     
  • The Q3 earnings and revenue growth rates and the EPS and revenue beats percentages for these 363 index members are below what we saw for the same group of companies in the preceding two periods, but these metrics are tracking above historical averages.

     
  • Rising cost pressures amid supply-chain disruptions and labor/material shortages are keeping trends in margins in the spotlight. The +40.1% earnings growth in Q3 on +18.5% higher revenues reflect 230 basis-point expansion in aggregate net margins for these companies.

     
  • Thus far in Q3, net margins are up the most for the Transportation, Energy and Basic Materials sectors but they are below the year-earlier level for Consumer Staples, Utilities, Retail and Auto sectors.

     
  • For the Technology sector, we now have Q3 results from 79.1% of the sector’s market capitalization in the S&P 500 index. Total earnings for these Tech companies are up +35.1% from the same period last year on +17.7% higher revenues, with 86.7% beating EPS estimates and 64.4% beating revenue estimates.

     
  • While Tech sector net margins have expanded from the year-earlier level, companies in the sector have struggled with beating revenue estimates. The 64.4% revenue beat percentage in Q3 is the lowest in the last three years.

     
  • Looking at Q3 as a whole, total S&P 500 earnings are expected to be up +38.5% from the same period last year on +16.0% higher revenues. This would follow the +95.0% earnings growth on +25.3% higher revenues in Q2.

     
  • Total S&P 500 earnings for the current period (2021 Q4) are expected to be up +20.2% from the same period last year on +10.6% higher revenues. Importantly, estimates have started coming down over the last few days after modestly inching up at the start of the reporting cycle.

     
  • Looking at the calendar-year picture for the S&P 500 index, earnings are projected to climb +44.7% on +11.7% higher revenues in 2021 and increase +8.4% on +6.8% higher revenues in 2022. This would follow the -13.0% earnings decline on -1.6% lower revenues in 2020.

     
  • Unlike the revision trend for the current period (2021 Q4) that has modestly turned negative in recent days, estimates for full-year 2022 are still going up. Current full-year 2022 earnings for the index are up +24.6% since the start of January 2021 and +13.7% since the start of June 2021.

     
  • For the small-cap S&P 600 index, we now have Q3 results from 323 index members or 53.8% of the index’s total membership. Total earnings for these 323 index members are up +34.9% on +21.8% higher revenues, with 72.4% beating EPS estimates and 68.7% beating revenue estimates.

     
  • As with their large-cap peers, the Q3 EPS and revenue beats percentages for these companies are tracking below what we had seen in the preceding period, but they are within historical ranges.

     
  • Looking at Q3 as a whole for the small-cap index, total earnings are expected to be up +44.9% on +18.5% higher revenues, which would follow the +269.9% earnings growth on +34.5% higher revenues in 2021 Q2.

     
  • The implied ‘EPS’ for the S&P 500 index, calculated using the current 2021 P/E of 23.6X and index close, as of November 2nd, is $196.48, up from $135.81 in 2020. Using the same methodology, the index ‘EPS’ works out to $212.93 for 2022 (P/E of 21.7X) and $233.00 in 2023 (P/E of 19.9X). The multiples have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.

The market has been focused on the rising cost of inputs and labor and other supply chain issue for the last few months. There was tangible nervousness in the market ahead of the start of the Q3 earnings season that these headwinds will start weighing on corporate profits through compressed margins.

We have seen some of that this earnings season, with companies like Brinker International EAT struggling to effectively deal with higher input and labor costs. Even mighty Apple AAPL and Amazon AMZN came up short in their quarterly reports as a result of these developments. But many other companies have been able to pass on higher costs to the end consumer, as we saw with McDonald’s MCD, Kraft Heinz KHC and others.

While these unfavorable cost trends may not have had as much negative impact on earnings as many had feared ahead of the start of the Q3 reporting cycle, they still remain a risk to long-term earnings trends. In fact, a number of sectors where the margin cushion is already fairly thin, appear to be struggling with these trends.

A notable sector suffering such a margin squeeze in the ongoing Q3 reporting cycle is Consumer Staples whose Q3 earnings growth of +2.1% on +10.5% includes 130 basis-point net margin contraction. The Utilities, Autos, Retail and Construction sectors are also suffering margin squeeze though relatively less pronounced compared to Consumer Staples. 

Margin expectations embedded in current consensus earnings and revenue estimates for the coming periods suggest some pressures.

But this is expected to be nothing more than a temporary speed bump.

We remain positive in our earnings outlook, as we see the overall growth picture steadily improving, as the near-term logistical issues get addressed.

Follow us on Twitter:  https://twitter.com/zacksresearch

 

Join us on Facebook:  https://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

 

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

 

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

support@zacks.com

https://www.zacks.com

 

Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.

 

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.



Zacks' Top Picks to Cash in on Artificial Intelligence

In 2021, this world-changing technology is projected to generate $327.5 billion in revenue. Now Shark Tank star and billionaire investor Mark Cuban says AI will create "the world's first trillionaires." Zacks' urgent special report reveals 3 AI picks investors need to know about today.

See 3 Artificial Intelligence Stocks With Extreme Upside Potential>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

 

Amazon.com, Inc. (AMZN): Free Stock Analysis Report

 

Apple Inc. (AAPL): Free Stock Analysis Report

 

McDonald's Corporation (MCD): Free Stock Analysis Report

 

Brinker International, Inc. (EAT): Free Stock Analysis Report

 

The Kraft Heinz Company (KHC): Free Stock Analysis Report

 

To read this article on Zacks.com click here.

 

Zacks Investment Research