Costco, FedEx and Oracle are part of the Zacks Earnings Preview

For immediate publication

Chicago, IL – September 30, 2024 – Zacks.com releases the list of companies expected to post earnings surprises. This week's list includes Costco COST, FedEx FDX and Oracle ORCL.

Third quarter earnings season preview

Costco Shares fell after the company's mixed quarterly earnings release, in which the company narrowly missed revenue despite comfortably beating earnings estimates. Aside from the minor decline in sales, there's not much in the report for Costco shareholders to complain about, as the company continues to deliver impressive results despite consumer spending challenges for many of its competitors.

Costco's quarterly profit rose +6.1% on +1% higher sales, with comparable same-store sales in the US and Canada rising +5.3% and +5.5%, respectively. Costco continues to outperform with double-digit gains in discrete categories such as jewelry, furniture, tires, etc. and has strong momentum in digital, where comps rose +19.5%.

The post-release decline in Costco shares is primarily a result of the stock's higher valuation following an impressive year-to-date performance. The stock has significantly outperformed the Zacks Retail sector and the broader market year to date, with gains of +34.7% versus +20.3% for the Zacks Retail sector and +20.5% for the S&P 500 Index.

Costco shares trade at 50.8 times the forecast 12-month EPS estimate, compared to a 5-year low of 29.5, a high of 55.8 and a median of 35.9. Such a premium valuation might be justified given Costco's high-income consumer base and operational excellence, but it still requires impeccable results. Costco's results were good, but not flawless, as its lost sales show.

The Costco report covered its fourth fiscal quarter, which ended on September 1st^stwhat we and other data providers consider to be part of the Q3 balance sheet. The results of the last few days FedEx, oracle and others also affected the companies' fiscal quarters ending in August and are therefore included in our third quarter 2024 comprehensive income statistics. As we mentioned here, the Oracle report was really impressive, while the FedEx release was the opposite.

Including Costco, FedEx, Oracle and others, we now have such Q3 results from 14 S&P 500 members, with an additional 6 index members poised to report results this week. Notable companies reporting this week include Nike, Conagra, Constellation Brands and others.

Total third quarter revenue for these 14 index members that have already reported increased +26.8% compared to the same period last year, on +3.4% higher sales, with 71.4% EPS estimates and 78.6% % exceeded sales estimates.

The story continues

Given the small and unrepresentative sample size, it is premature to look for trends at this early stage of the reporting cycle. But it's still a good start.

The overall revenue picture

Total earnings for the S&P 500 index in the third quarter are expected to rise +3.34% compared to the same period last year on revenue +4.5%. This would follow the index's +10% earnings growth in the previous period on +5.5% higher sales.

Regular readers of our earnings commentary are familiar with our optimistic view of company profitability; The earnings situation is not particularly good, but not bad either.

The only recent negative development on this front is the reversal of the previous positive revision trend that we have regularly highlighted in our commentary. This negative revision trend is particularly notable with respect to expectations for the third quarter of 2024, as earnings estimates for this period have been revised down significantly more than we have seen in other recent periods.

Not only is the magnitude of the third quarter estimate cuts larger than what we have seen in comparable periods over the past three quarters, but they are widespread and not concentrated in one or a few sectors.

Of the 16 Zacks sectors, estimates for 14 sectors were revised downward, with the transportation, energy, business services and aerospace sectors suffering the largest declines. The technology and financial sectors are the only sectors whose estimates have increased slightly since the start of the period.

Notwithstanding the negative revision trend mentioned above, the growth trend is expected to accelerate in the coming periods. Additionally, the profit total for the period is expected to set a new quarterly record.

Please note that earnings growth improves to +9.6% excluding energy from +7.7% this year.

Expectations for the Magnificent 7 and the tech sector

Tesla will be the first Mag 7 company to report third-quarter results on October 16^Thwith most of his colleagues in the elite group due to report in the following two weeks.

For the third quarter, Mag 7's profit is expected to increase by +17.2% compared to the same period last year, with sales up +13.6%.

Q3 earnings from Mag 7 will account for 21.4% of all S&P 500 earnings for the quarter. Without Mag 7's contribution, third quarter returns for the remainder of the index would remain essentially in line with the same period last year.

On an annual basis, Mag 7's earnings are expected to rise +30.7% this year on +10% higher sales, with earnings rising by +16.4% in 2025 and +17.9% in 2025 2026 is expected.

Without taking Mag. 7 into account, the profits of the rest of the S&P 500 index would rise by +2.6% in 2024 (otherwise +7.7%).

The Zacks Tech sector is expected to post earnings growth of +11.6% compared to the same period last year, with revenue up +10.7%.

The US stock market is unique within the OECD group as the technology sector accounts for 39.4% of the S&P 500 index (by market capitalization). The sector is not only very profitable, but also enjoys robust and sustainable growth momentum.

For a detailed overview of the overall earnings picture, including expectations for the coming periods, see our weekly earnings trends report >>>>Q3 Earnings Season: An Outlook

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