Into the Thick of Q2 Earnings Season

We get into the thick of the second quarter earnings season this week, with reports from almost 850 companies coming out, including 163 from the S&P 500. By the end of the week, we will be past the halfway mark, with results from 56% of the companies released. We will get a much better sense of the second quarter reporting season after this week, but what we have seen thus far is not as bad as many of us feared just a few days back.

Based on the results from the roughly 25% of the companies in the S&P 500 that have already reported, we can safely say that the second quarter earnings season may not be materially different from what we saw in the last two quarters.

Total earnings for the companies that have already reported results are up 17% from the same period last year, primarily due to easy comparisons for the large banks in general and Bank of America (BAC) in particular. This compares to 7.7% growth for these same companies in the first quarter, when banks didn’t have such easy comparisons.

Approximately 67% of all companies are coming out with positive earnings surprises, with a median surprise of 2.5%. These same companies did a lot better in the first quarter, when 84% beat expectations and the median surprise was 4.6%. Excluding Finance, total earnings growth is a still respectable 4%, which compares to 6.4% in the first quarter.

The strong aggregate earnings growth rate will come down in the coming days as reports from other sectors pour in. We haven’t seen that many reports yet from Utilities and Oil/Energy companies that are expected to negative year-over-year comparisons. Total earnings for the 75% of companies that have still to report results are expected to be down 4.3% from the same period last year, with earnings in the Oil/Energy and Utilities sectors down 21.6% and 15.3%, respectively.

Earnings for the remaining Tech companies are expected to be up 10.4%, while those that have reported already are up much more modest 2.1%. The reason for the variance is Apple (AAPL), which reports after the close on Tuesday. Excluding Apple, total earnings for the Tech companies still to report will be down 0.7%.

The economic calendar is not that busy, with Friday’s first read on the second quarter GDP as the most significant report. Other major reports include New Home sales for June (Wednesday), Durable Goods Orders for June (Thursday), Jobless Claims (Thursday) and the University of Michigan Consumer Sentiment survey for July on Friday.

Monday - 7/23

• No major economic releases this morning.
• The key earnings reports in the morning include McDonald’s (MCD, Eaton Corp (ETN) and Halliburton (HAL). Estimates have been coming down for all three companies in recent days. We will check for answers to all global growth questions in management comments, particularly from McDonald’s and Eaton.
• The major earnings release after the close is from Texas Instruments (TXN).

Tuesday - 7/24

• Nothing major on the economic calendar, but everyone will be waiting for results from Apple (AAPL) after the close.
• We will get results from two economic bellwethers in the morning in the shape of DuPont (DD) and United Parcel Service (UPS). DuPont shares have not been exactly very hot lately given all the global growth worries. It will be interesting to see if UPS confirms the issues raised by FedEx (FDX) in its report some time back. Another key report in the morning is from AT&T (T).
• The focus will be on Apple, which is expected to generate $9.7 billion in earnings in the quarter or roughly a fifth of all Tech sector earnings in the second quarter. Better still, Apple’s expected earnings in the second quarter will account for about 4% of all earnings by the S&P 500 companies in the second quarter. No doubt it is the most valuable company in the world.

Wednesday - 7/25

• We will get the June New Home sales data in the morning, with expectations of a modest increase from the May level.
• Results from Caterpillar (CAT) will be in the focus this morning, particularly following the Cummins (CMI) announcement a few days back. These companies have effectively been riding the emerging market growth story over the last few years. But they seem to be in a bind now with that story losing its appeal lately.
• Other major reports this morning include Boeing (BA), ConocoPhillips (COP), Pepsi (PEP) and Eli Lilly (LLY).

Thursday - 7/26

• It will be interesting to see whether the weekly Jobless Claims numbers this morning reverses the sharp jump from the preceding week. Also coming out this morning are June Durable Goods Orders and Pending Home Sales.
• Among the notable results in the morning are from ExxonMobil (XOM), 3M (MMM), International Paper (IP) and Dow Chemicals (DOW). Amazon (AMZN) and Starbucks (SBUX) will report after the close.

Friday - 7/27

• We will get the first read on second quarter GDP, which is expected to show 1.3% growth, following the 1.9% growth in the first quarter. We will also get the University of Michigan survey this morning, which is not expected to change much from the prior reading.
• We will get results from Chevron (CVX), Merck (MRK) and Weyerhaeuser (WY) in the morning.

Here is a list of companies reporting this week.