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Zacks Earnings Trends Highlights: Nike, Bed Bath & Beyond, Lennar, Oracle, FedEx and General Mills.
Read MoreHide Full Article
For Immediate Release
Chicago, IL – July 14, 2022 – Zacks Director of Research Sheraz Mian says, "Part of the uncertainty in the market at present is related to how earnings estimates should evolve in an aggressive Fed tightening cycle."
Q2 Earnings Season Gets Underway
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 2022 Q2, total S&P 500 earnings are expected to increase +2.1% from the same period last year on +9.7% higher revenues and net margin compression of 95 basis points.
· Excluding the hefty contribution from the Energy sector, total Q2 earnings for the rest of the S&P 500 index are expected to be down -6.1% on +7.4% higher revenues.
· Q2 earnings are expected to be above the year-earlier period for 9 of the 16 Zacks sectors, with the strongest gains in Energy (up +212.1%), Transportation (+130.5%), Basic Materials (+16.7%), Construction (+19.8%), Autos (+20.8%), and Business Services (+8.0%) sectors.
Part of the uncertainty in the market at present is related to how earnings estimates should evolve in an aggressive Fed tightening cycle. The market has a sense of what should happen to earnings estimates, but it isn't seeing much of that just yet.
The natural order of things is that rising interest rates take the edge off of aggregate demand, causing the economy to start cooling off. Businesses start experiencing this changed ground reality in their normal operations, which shows up in their quarterly numbers and management's guidance.
We have started seeing some of that already. For example, recent quarterly results and guidance from the likes of Nike (NKE - Free Report) , Bed Bath & Beyond , and Lennar (LEN - Free Report) could be indicative of many more such reports, as the June-quarter reporting cycle really gets going. That said, not every early reporting company is missing estimates or guiding lower, as we saw in the results from Oracle (ORCL - Free Report) , FedEx (FDX - Free Report) and General Mills (GIS - Free Report) .
It is reasonable to expect the Q2 earnings season to give analysts a clear directional thrust to adjust their estimates in-line with the economic moderation resulting from Fed tightening. But history tells us that analysts aren't very good at identifying inflection points in the economy.
This suggests that we will likely need to wait some more, perhaps until the Q3 reporting cycle in October, to get clarity on the revisions question. That said, we have had some estimate cuts already, though they are nowhere near what would be consistent with a significant economic slowdown, not to mention a recession.
The aggregate earnings total for this year has actually increased since the start of the year. A very big part of the above positive revisions trend is thanks to the Energy sector.
Aggregate S&P 500 earnings outside of the Energy sector have declined -1.4% since the start of the year, with double-digit percentage declines in the Consumer Discretionary (down -15.5%), Retail (-13.9%) and Aerospace (-12.8%) sectors.
Aggregate Energy sector earnings estimates for the year have increased by +79.2% since the start of the year. Other sectors enjoying significant positive revisions since the start of the year include Basic Materials, Autos, Consumer Staples and Construction.
A lot will be riding on how management teams share evolving business trends in their industries on the Q2 earnings calls. But given the lag with which tighter monetary policy seeps through to the broader economy, we may have to wait some more to get greater clarity.
The Overall Earnings Picture
Beyond Q2, the growth picture is expected to modestly improve, with growth momentum expected to continue.
As strong as the full-year 2022 earnings growth picture is expected to be, it's worth remembering that a big part of it is due to the unprecedented Energy sector momentum. Excluding the Energy sector, full-year 2022 earnings growth for the remainder of the index drops to only +2.8%.
There is a rising degree of uncertainty about the outlook, reflecting a lack of macroeconomic visibility in a backdrop of Fed monetary policy tightening. The evolving earnings revisions trend will reflect this macro backdrop.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
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.
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/performancefor information about the performance numbers displayed in this press release.
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Zacks Earnings Trends Highlights: Nike, Bed Bath & Beyond, Lennar, Oracle, FedEx and General Mills.
For Immediate Release
Chicago, IL – July 14, 2022 – Zacks Director of Research Sheraz Mian says, "Part of the uncertainty in the market at present is related to how earnings estimates should evolve in an aggressive Fed tightening cycle."
Q2 Earnings Season Gets Underway
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 2022 Q2, total S&P 500 earnings are expected to increase +2.1% from the same period last year on +9.7% higher revenues and net margin compression of 95 basis points.
· Excluding the hefty contribution from the Energy sector, total Q2 earnings for the rest of the S&P 500 index are expected to be down -6.1% on +7.4% higher revenues.
· Q2 earnings are expected to be above the year-earlier period for 9 of the 16 Zacks sectors, with the strongest gains in Energy (up +212.1%), Transportation (+130.5%), Basic Materials (+16.7%), Construction (+19.8%), Autos (+20.8%), and Business Services (+8.0%) sectors.
Part of the uncertainty in the market at present is related to how earnings estimates should evolve in an aggressive Fed tightening cycle. The market has a sense of what should happen to earnings estimates, but it isn't seeing much of that just yet.
The natural order of things is that rising interest rates take the edge off of aggregate demand, causing the economy to start cooling off. Businesses start experiencing this changed ground reality in their normal operations, which shows up in their quarterly numbers and management's guidance.
We have started seeing some of that already. For example, recent quarterly results and guidance from the likes of Nike (NKE - Free Report) , Bed Bath & Beyond , and Lennar (LEN - Free Report) could be indicative of many more such reports, as the June-quarter reporting cycle really gets going. That said, not every early reporting company is missing estimates or guiding lower, as we saw in the results from Oracle (ORCL - Free Report) , FedEx (FDX - Free Report) and General Mills (GIS - Free Report) .
It is reasonable to expect the Q2 earnings season to give analysts a clear directional thrust to adjust their estimates in-line with the economic moderation resulting from Fed tightening. But history tells us that analysts aren't very good at identifying inflection points in the economy.
This suggests that we will likely need to wait some more, perhaps until the Q3 reporting cycle in October, to get clarity on the revisions question. That said, we have had some estimate cuts already, though they are nowhere near what would be consistent with a significant economic slowdown, not to mention a recession.
The aggregate earnings total for this year has actually increased since the start of the year. A very big part of the above positive revisions trend is thanks to the Energy sector.
Aggregate S&P 500 earnings outside of the Energy sector have declined -1.4% since the start of the year, with double-digit percentage declines in the Consumer Discretionary (down -15.5%), Retail (-13.9%) and Aerospace (-12.8%) sectors.
Aggregate Energy sector earnings estimates for the year have increased by +79.2% since the start of the year. Other sectors enjoying significant positive revisions since the start of the year include Basic Materials, Autos, Consumer Staples and Construction.
A lot will be riding on how management teams share evolving business trends in their industries on the Q2 earnings calls. But given the lag with which tighter monetary policy seeps through to the broader economy, we may have to wait some more to get greater clarity.
The Overall Earnings Picture
Beyond Q2, the growth picture is expected to modestly improve, with growth momentum expected to continue.
As strong as the full-year 2022 earnings growth picture is expected to be, it's worth remembering that a big part of it is due to the unprecedented Energy sector momentum. Excluding the Energy sector, full-year 2022 earnings growth for the remainder of the index drops to only +2.8%.
There is a rising degree of uncertainty about the outlook, reflecting a lack of macroeconomic visibility in a backdrop of Fed monetary policy tightening. The evolving earnings revisions trend will reflect this macro backdrop.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
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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/performancefor information about the performance numbers displayed in this press release.