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The overall tone of Q2 results continues to be reassuring, with a number of companies showing pockets of strength and momentum in an otherwise tough earnings environment. Market participants were particularly impressed with results from the big banks as estimates were coming down as the reporting season got underway with investors concerned about the impact of the low interest rates and the Brexit-centric uncertainty.
In the end, banks came out with surprising strength in their trading businesses, particularly on the fixed income side, and also positive momentum in their loan portfolios. We saw that with J.P. Morgan (JPM - Free Report) , Bank of America (BAC - Free Report) and a number of the regional players as well. It is still relatively early going for the Finance sector as most of the insurance results are still to come, but it has been a favorable earnings season for banks at this stage.
We don’t have a big enough sample of results beyond the Finance sector at this stage. But for all the disappointing results from the likes of Netflix (NFLX) and others, we have positive ones as well from the likes of Microsoft (MSFT), Johnson & Johnson (JNJ - Free Report) and others. We will know more in the coming days as the reporting cycle heats up, but it has been better than many of us were fearing earlier, at least at this stage.
In terms of the Q2 earnings scorecard, we now have results from 70 S&P 500 members that combined account for 20.7% of the index’s total market capitalization. Total earnings for these 70 index members are down -5.2% from the same period last year on +1.1% higher revenues, with 70% beating EPS estimates and 55.7% beating revenue estimates.
Relative to other recent periods, the earnings growth picture is notably weaker compared to the 4-quarter and 12-quarter growth pace for these 70 index members. Revenue growth is tracking better relative to the 4-quarter average, but remains below the 12-quarter growth pace. The proportion of companies beating EPS and revenue estimates is about in-line with historical levels, which can be interpreted to mean that Q2 estimates may not be have been that low as many of us had been suspecting.
Looking at Q2 as a whole, combing the actual results from the 70 index members with estimates for the still to come 430 operators, total earnings are expected to be down -4.3% from the same period last year on -0.5% lower revenues. This would follow earnings declines of -6.5% on -0.9% lower revenues in 2016 Q1.
While Q2 is on track to be the 5th quarter in a row of earnings declines for the index, estimates for the current period (Q3) has started coming down in recent days. Total earnings for the index are currently expected to be down -0.9% in the September quarter, with the growth pace expected to go deeper into negative territory as companies report Q2 results and provide guidance for Q3. This pattern of negative revisions to current-period estimates is not unusual, but the pace and magnitude of the negative revisions will be the biggest takeaway from the Q2 earnings season. A below average magnitude of negative revisions will indicate that the earnings picture has started improving along the lines of consensus expectations that sees a material improvement in the growth picture in 2017.
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Sizing Up the Q2 Earnings Season
The overall tone of Q2 results continues to be reassuring, with a number of companies showing pockets of strength and momentum in an otherwise tough earnings environment. Market participants were particularly impressed with results from the big banks as estimates were coming down as the reporting season got underway with investors concerned about the impact of the low interest rates and the Brexit-centric uncertainty.
In the end, banks came out with surprising strength in their trading businesses, particularly on the fixed income side, and also positive momentum in their loan portfolios. We saw that with J.P. Morgan (JPM - Free Report) , Bank of America (BAC - Free Report) and a number of the regional players as well. It is still relatively early going for the Finance sector as most of the insurance results are still to come, but it has been a favorable earnings season for banks at this stage.
We don’t have a big enough sample of results beyond the Finance sector at this stage. But for all the disappointing results from the likes of Netflix (NFLX) and others, we have positive ones as well from the likes of Microsoft (MSFT), Johnson & Johnson (JNJ - Free Report) and others. We will know more in the coming days as the reporting cycle heats up, but it has been better than many of us were fearing earlier, at least at this stage.
In terms of the Q2 earnings scorecard, we now have results from 70 S&P 500 members that combined account for 20.7% of the index’s total market capitalization. Total earnings for these 70 index members are down -5.2% from the same period last year on +1.1% higher revenues, with 70% beating EPS estimates and 55.7% beating revenue estimates.
Relative to other recent periods, the earnings growth picture is notably weaker compared to the 4-quarter and 12-quarter growth pace for these 70 index members. Revenue growth is tracking better relative to the 4-quarter average, but remains below the 12-quarter growth pace. The proportion of companies beating EPS and revenue estimates is about in-line with historical levels, which can be interpreted to mean that Q2 estimates may not be have been that low as many of us had been suspecting.
Looking at Q2 as a whole, combing the actual results from the 70 index members with estimates for the still to come 430 operators, total earnings are expected to be down -4.3% from the same period last year on -0.5% lower revenues. This would follow earnings declines of -6.5% on -0.9% lower revenues in 2016 Q1.
While Q2 is on track to be the 5th quarter in a row of earnings declines for the index, estimates for the current period (Q3) has started coming down in recent days. Total earnings for the index are currently expected to be down -0.9% in the September quarter, with the growth pace expected to go deeper into negative territory as companies report Q2 results and provide guidance for Q3. This pattern of negative revisions to current-period estimates is not unusual, but the pace and magnitude of the negative revisions will be the biggest takeaway from the Q2 earnings season. A below average magnitude of negative revisions will indicate that the earnings picture has started improving along the lines of consensus expectations that sees a material improvement in the growth picture in 2017.