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Zacks Earnings Trends Highlights: Caterpillar, DuPont, U.S. Steel, Intel and McDonald's
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For Immediate Release
Chicago, IL – July 27, 2017 – Zacks Director of Research Sheraz Mian says, "While growth is a bit on the lighter side relative to the preceding period, the proportion of companies beating estimates, particularly revenue estimates, is notably tracking above other periods."
Q2 Earnings On Track to Reach New Record
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: • With results from 171 S&P 500 members already out, total earnings are up +8.8% from the same period last year on +3.4% higher revenues, with 78.9% beating EPS estimates and 70.8% beating revenue estimates.
• While growth is a bit on the lighter side relative to the preceding period for these 171 index members, the proportion of companies beating estimates, particularly revenue estimates, is notably tracking above other periods.
• The fact that companies are easily beating Q2 estimates even though estimates hadn’t fallen by that much ahead of the start of this earnings season, as had historically been the case, is a notable positive that needs to be acknowledged.
• For Q2 as a whole, combining the actual results with estimates for the still-to-come companies, total earnings are expected to be up +8.7% from the same period last year on +4.7% higher revenues. This would be coming after +13.3% earnings growth on +7% higher revenues in Q1.
• While the Q2 earnings growth pace represents a deceleration from the prior-quarter’s level, total earnings for the quarter are on track to reach a new all-time quarterly record.
• The Q2 growth is broad-based and not concentrated in one or two sectors. The strongest growth in Q2 is from the Energy, Technology, Aerospace, Construction, Finance, and Industrial Products sectors. Q2 earnings growth would fall to +6.6% on +3.8% higher revenues an ex-Energy basis.
• Beyond Q2, total earnings for the S&P 500 index are currently expected to grow by +4.6% on +4.1% higher revenues in the September quarter and +8.6% on +5% higher revenues in Q4. Estimates for the September quarter have started coming down, but they appear to be following the moderate revisions pace we saw ahead of the start of the Q2 earnings season, at least at this stage.
• For full-year 2017, total earnings for the index are expected to be up +7.7% on +4.0% higher revenues, which would follow +0.7% earnings growth on +2% higher revenues in 2016. Index earnings are expected to be up +11.4% in 2018 and +8.9% in 2019.
It is easy to be cynical about a preponderance of positive earnings surprises during reporting cycles. After all, corporate management teams’ ability to anchor investor expectations at easy-to-beat levels is well known by now. That said, I would caution against dismissing the above-average proportion of positive surprises in the ongoing Q2 as a replay of the aforementioned trend.
The fact is that the magnitude of Q2 estimate cuts in the run up to the start of this earnings season was one of the lowest in the last two years. Importantly, revenue surprises are even more numerous relative to historical periods than EPS beats and we all know that revenues aren’t as prone to accounting tricks as the bottom-line numbers are.
The bottom line is that the preponderance of positive surprises this earnings season, particularly on the revenues front, is reflecting a genuine improvement in underlying economic fundamentals. We see this view confirmed by the strong results from economically sensitive operators like Caterpillar(NYSE:CAT – Free Report), DuPont(NYSE:DD – Free Report), U.S. Steel(NYSE:X – Free Report) and others.
That said, a favorable economic backdrop and end-market fundamentals is not the only factor that produces outperformance. Equally important is management effectiveness in executing the company’s strategic and operating plans. After all, we have seen companies likeIntel(NASDAQ:(INTC - Free Report) – Free Report) repeatedly fail to capitalize on numerous opportunities in its end-markets even as many of its peers continue to thrive. Similarly, the exceptionally strong McDonald’s(NYSE:MCD – Free Report) results doesn’t mean that all restaurants will thrive this earnings season.
Q2 Earnings Season Scorecard (as of July 26th, 2017)
We now have Q2 results from 117 S&P 500 members that combined account for 44.1% of the index’s total market capitalization. Total earnings for these 117 index members are up +8.8% from the same period last year on +3.4% higher revenues, with 78.9% beating EPS estimates and 70.8% beating revenue estimates.
The earnings and revenue growth pace is tracking modestly below what we saw from the same group of companies in the preceding period. But the proportion of positive surprises, particularly revenue surprise is notably tracking above historical periods.
Looking at Q2 as a whole, combining the actual results from the 117 index members with estimates for the still-to-come 383 companies, total earnings are expected to be up +8.7% on +4.7% higher revenues.
The expected growth pace has been steadily rising in recent days as companies have been coming out with better than expected results. Going by historical trends, I wouldn’t be surprised if the final growth pace for Q2 reaches in the +9% to +10% range when all is said and done. But it will still be the below Q1’s double-digit growth rate.
While the earnings growth pace is decelerating from the prior-quarter’s level, the overall dollar tally of Q2 earnings is on track to reach a new all-time record for the index, surpassing the previous record achieved in 2016 Q4.
This record isn’t expected to last very long, with growth expected to ramp up notably in the coming quarters.
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 Trendsand Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.
Our Best Private Investment Ideas
How would you like to see specific recommendations to capitalize on current market conditions? Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover stocks likely to beat earnings estimates (our system is more than 80% accurate), stocks that corporate insiders are buying up, ETFs and more. You can even look inside exclusive portfolios that are normally closed to new investors. Click here for Zacks' private trades >>
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year. See these high-potential stocks free >>.
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.
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: Caterpillar, DuPont, U.S. Steel, Intel and McDonald's
For Immediate Release
Chicago, IL – July 27, 2017 – Zacks Director of Research Sheraz Mian says, "While growth is a bit on the lighter side relative to the preceding period, the proportion of companies beating estimates, particularly revenue estimates, is notably tracking above other periods."
Q2 Earnings On Track to Reach New Record
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:
• With results from 171 S&P 500 members already out, total earnings are up +8.8% from the same period last year on +3.4% higher revenues, with 78.9% beating EPS estimates and 70.8% beating revenue estimates.
• While growth is a bit on the lighter side relative to the preceding period for these 171 index members, the proportion of companies beating estimates, particularly revenue estimates, is notably tracking above other periods.
• The fact that companies are easily beating Q2 estimates even though estimates hadn’t fallen by that much ahead of the start of this earnings season, as had historically been the case, is a notable positive that needs to be acknowledged.
• For Q2 as a whole, combining the actual results with estimates for the still-to-come companies, total earnings are expected to be up +8.7% from the same period last year on +4.7% higher revenues. This would be coming after +13.3% earnings growth on +7% higher revenues in Q1.
• While the Q2 earnings growth pace represents a deceleration from the prior-quarter’s level, total earnings for the quarter are on track to reach a new all-time quarterly record.
• The Q2 growth is broad-based and not concentrated in one or two sectors. The strongest growth in Q2 is from the Energy, Technology, Aerospace, Construction, Finance, and Industrial Products sectors. Q2 earnings growth would fall to +6.6% on +3.8% higher revenues an ex-Energy basis.
• Beyond Q2, total earnings for the S&P 500 index are currently expected to grow by +4.6% on +4.1% higher revenues in the September quarter and +8.6% on +5% higher revenues in Q4. Estimates for the September quarter have started coming down, but they appear to be following the moderate revisions pace we saw ahead of the start of the Q2 earnings season, at least at this stage.
• For full-year 2017, total earnings for the index are expected to be up +7.7% on +4.0% higher revenues, which would follow +0.7% earnings growth on +2% higher revenues in 2016. Index earnings are expected to be up +11.4% in 2018 and +8.9% in 2019.
It is easy to be cynical about a preponderance of positive earnings surprises during reporting cycles. After all, corporate management teams’ ability to anchor investor expectations at easy-to-beat levels is well known by now. That said, I would caution against dismissing the above-average proportion of positive surprises in the ongoing Q2 as a replay of the aforementioned trend.
The fact is that the magnitude of Q2 estimate cuts in the run up to the start of this earnings season was one of the lowest in the last two years. Importantly, revenue surprises are even more numerous relative to historical periods than EPS beats and we all know that revenues aren’t as prone to accounting tricks as the bottom-line numbers are.
The bottom line is that the preponderance of positive surprises this earnings season, particularly on the revenues front, is reflecting a genuine improvement in underlying economic fundamentals. We see this view confirmed by the strong results from economically sensitive operators like Caterpillar(NYSE:CAT – Free Report), DuPont(NYSE:DD – Free Report), U.S. Steel(NYSE:X – Free Report) and others.
That said, a favorable economic backdrop and end-market fundamentals is not the only factor that produces outperformance. Equally important is management effectiveness in executing the company’s strategic and operating plans. After all, we have seen companies likeIntel(NASDAQ:(INTC - Free Report) – Free Report) repeatedly fail to capitalize on numerous opportunities in its end-markets even as many of its peers continue to thrive. Similarly, the exceptionally strong McDonald’s(NYSE:MCD – Free Report) results doesn’t mean that all restaurants will thrive this earnings season.
Q2 Earnings Season Scorecard (as of July 26th, 2017)
We now have Q2 results from 117 S&P 500 members that combined account for 44.1% of the index’s total market capitalization. Total earnings for these 117 index members are up +8.8% from the same period last year on +3.4% higher revenues, with 78.9% beating EPS estimates and 70.8% beating revenue estimates.
The earnings and revenue growth pace is tracking modestly below what we saw from the same group of companies in the preceding period. But the proportion of positive surprises, particularly revenue surprise is notably tracking above historical periods.
Looking at Q2 as a whole, combining the actual results from the 117 index members with estimates for the still-to-come 383 companies, total earnings are expected to be up +8.7% on +4.7% higher revenues.
The expected growth pace has been steadily rising in recent days as companies have been coming out with better than expected results. Going by historical trends, I wouldn’t be surprised if the final growth pace for Q2 reaches in the +9% to +10% range when all is said and done. But it will still be the below Q1’s double-digit growth rate.
While the earnings growth pace is decelerating from the prior-quarter’s level, the overall dollar tally of Q2 earnings is on track to reach a new all-time record for the index, surpassing the previous record achieved in 2016 Q4.
This record isn’t expected to last very long, with growth expected to ramp up notably in the coming quarters.
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 Trendsand Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.
Our Best Private Investment Ideas
How would you like to see specific recommendations to capitalize on current market conditions? Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover stocks likely to beat earnings estimates (our system is more than 80% accurate), stocks that corporate insiders are buying up, ETFs and more. You can even look inside exclusive portfolios that are normally closed to new investors. Click here for Zacks' private trades >>
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year. See these high-potential stocks free >>.
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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.