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

Here is a quick rundown of the key points

•    We have Q1 results from 181 S&P 500 members that combined account for 40% of the index’s total market capitalization.

•    Total earnings for these 181 S&P 500 members are up +10% from the same period last year on +4.3% higher revenues, with 75.7% beating EPS estimates and 64.1% beating revenue estimates.

•    These results represent a notable improvement over what we have been seeing from the same group of 181 index members in the recent past. Not only is growth (both earnings as well as revenues) tracking above other recent historical periods, but also a bigger proportion of companies are beating EPS and revenue estimates.

•    For the Finance sector, we now have Q1 results from 59.2% of the sector’s total market cap in the S&P 500 index. Total earnings for these Finance companies are up +9% from the same period last year on +7.3% higher revenues, with 67.4% beating EPS estimates and 65.1% beating revenue estimates.

•    For Q1 as a whole, combining the actual results from the 181 S&P 500 members that have reported with estimates from the still-to-come 319 companies, total earnings are expected to be up +9.7% on +5.9% higher revenues, with Finance, Technology, Industrial Products, and Basic Materials expected to come out with double-digit earnings growth.

•    As is typically the trend, estimates for the current period (2017 Q2) have started coming down, but the magnitude of negative revisions nevertheless compares favorably to other recent periods.

We now have Q1 results from 181 S&P 500 members that combined account for 40% of the index’s total market capitalization. Total earnings for these 181 index members are up +10% from the same period last year on +4.3% higher revenues, with 75.7% beating EPS estimates and 64.1% coming ahead of top-line expectations. The proportion of companies beating both EPS and revenue estimates is currently 53%.

The side-by-side charts below compare the growth rates and beat ratios for the 181 index members with what we saw from the same companies in other recent periods.

The comparison charts above show that both growth as well as positive beat percentages are tracking above historical periods. The proportion of companies beating revenue estimates is as notable as is the revenue growth pace.

Please note that the growth comparisons remain favorable even when looked at on an ex-Finance basis, highlighting the broad-based nature of the positive Q1 showing. Sectors are beating revenue estimates at a proportion higher than the average for the S&P 500 index, which is already tracking above historical periods, include Industrial Products (90% beating revenue estimates), Conglomerates (100%), Technology (70.6%), and Medical (77.8%).

This broad-based positivity comes across from the standout Q1 earnings reports in recent days, which have been from diverse backgrounds such as Caterpillar (CAT Quick QuoteCAT - Free Report) , DuPont (DD Quick QuoteDD - Free Report) , McDonald’s (MCD Quick QuoteMCD - Free Report) and others. The Consumer Staples operators appear to be struggling, as the mixed releases from Coke (KO Quick QuoteKO - Free Report) , Pepsi (PEP Quick QuotePEP - Free Report) and Procter & Gamble (PG Quick QuotePG - Free Report) shows.

All in all, there is plenty to like in how the Q1 earnings season has unfolded.  

Q1 Expectations As a Whole

Looking at Q1 as a whole, combining the actual results from the 181 S&P 500 members that have already reported with estimates for the still-to-come 319 companies, total earnings are expected to be up +9.7% from the same period last year on +5.9% higher revenues. The Q1 growth pace has been steadily improving in recent days as companies, particularly banks, have been coming out with better than expected year-over-year growth.

This would follow the +7.4% growth in 2016 Q4 earnings on +4.8% higher revenues, the best growth pace of the index in almost two years. With Q1 earnings growth already tracking above the preceding quarter’s pace, which itself was a big improvement over the quarter before that (2016 Q3).

The bottom line is that Q1 results represent an acceleration in earnings growth, which current consensus estimates project to continue in the coming periods as well, as the chart below shows.

Please note that we have yet to see any ‘Trump bump’ in estimates to reflect the heightened post-election expectations. Stocks moved ahead of actual legislative changes, but the analysts will raise their estimates only after Congress passes tax and other reforms. Estimates have moved up for the Finance sector, but that’s primarily a function of higher interest rates since November 8th.

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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