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Alcoa, FedEx and Nike are part of Zacks Earnings Preview:

CHICAGO, April 7, 2014 /PRNewswire/ -- Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes Alcoa (NYSE:AA-Free Report), FedEx (NYSE:FDX-Free Report) and Nike (NYSE:NKE-Free Report).

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Will Q1 Earnings Be the Low Point for the Year?

The 2014 Q1 earnings season takes center stage this week with Alcoa's (NYSE:AA-Free Report) release after the close on Tuesday. Alcoa isn't the overall first to report Q1 results, though it is the first S&P 500 member with the calendar fiscal quarter to come out with results. Companies with fiscal quarters ending in February have been reporting since mid-March and all 21 of those form part of the Q1 tally.

In fairness to Alcoa, however, the market starts paying attention to the earnings season after their earnings announcement even though the list of companies that report before it includes such industry leaders like FedEx (NYSE:FDX-Free Report), Nike (NYSE:NKE-Free Report) and others. In total, we have 33 companies reporting Q1 results this week, including 8 S&P 500 members. The reporting cycle really gets into high gear from next.

Expectations for 2014 Q1

Estimates for Q1 started coming down at an accelerated pace as companies predominantly guided lower on the 2013 Q4 earnings calls, consistent with the trend we have been seeing for more than a year now. Total Q1 earnings for companies in the S&P 500 are currently expected to be down -3.3% from the same period last year, a material decline from the +2.1% growth expected in early January 2014. Please note that the expected Q1 earnings decline has been exacerbated by Google's new class of stock. Excluding Google from the S&P 500, total S&P 500 earnings would be down (only) -2.7%.  

The negative revision trend is widespread, but is particularly notable for the Retail, Basic Materials, Autos, Consumer Staples, and the Energy sectors.

With roughly two-thirds of S&P 500 companies beating earnings expectations in any reporting cycle, actual Q1 results will almost certainly be better than these pre-season expectations. But Q1 is unlikely to repeat the performance of the last few quarters where we would witness a new all-time earnings total record each quarter. Total earnings for the S&P 500 reached a new all-time record of $267.6 billion in 2013 Q4.

Current estimates for 2014 Q1 aggregate to a quarterly total of $248.8 billion, but the expectation is that Q1 will be the low point for earnings this year, both in terms of earnings totals as well as the growth rate. Consensus expectations reflect a rebound in Q2, with the earnings totals in each of the following three quarters of the year setting new all-time records one after the other.

Given the low Q1 expectations, it wouldn't take much for companies to come out ahead of them. Roughly two-thirds of the S&P 500 members beat earnings expectations every quarter any way. So, more results along those lines would be nothing new and wouldn't tell us much about the health of corporate earnings.

What we haven't seen for a while instead is some evidence of strength on the revenue front and favorable comments from management teams about business outlook. Corporate guidance has been negative for almost two years now, causing estimates to keep coming down and the long hoped-for earnings growth turnaround getting pushed forward.  Guidance is important in any earnings season, but it is particularly important this time around given the relatively elevated expectations for the second half of the year and beyond.

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