For Immediate Release

Chicago, IL – September 12, 2019 – Zacks Director of Research Sheraz Mian says, “The Q3 earnings season, which will really get underway in mid-October with the bank results, is not expected to show any improvement from the tepid earnings growth trends of the first half of the year.”

Q3 Earnings Season Preview

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Here are the key points:

• The Q3 earnings season, which will really get underway in mid-October with the bank results, is not expected to show any improvement from the tepid earnings growth trends of the first half of the year.
• Total Q3 earnings for the S&P 500 index are expected to be down -4.7% from the same period last year on +4.3% higher revenues. This would follow -0.1% decline in Q2 and a flat showing in Q1.
• Q3 earnings growth is expected to be negative for 12 of the 16 Zacks sectors, with double-digit declines for Energy (-23.1%), Basic Materials (-20.5%) and Technology (-11.2%). Excluding the Technology sector, total Q3 earnings would be down -2.6%. 
• Sectors with positive earnings growth in Q3 include Business Services (+7.3%), Transportation (+6.5%), Utilities (+3.1%) and Finance (+1.7%). Q3 earnings for the index would be down -6.3% on an ex-Finance basis.
• Estimates for Q3 came down as the quarter got underway, with the current -4.7% decline down from -1.3% in late-June. The magnitude of negative revisions to Q3 estimates are in-line with the comparable periods in other recent quarters.
• For the small-cap S&P 600 index, total Q3 earnings are expected to be down – 13% from the same period last year on +3.8% higher revenues. This would follow declines of -12.3% and -18.4% in 2019 Q2 and Q1, respectively.
• The growth challenge is expected to be a 2019 affair only, with tough comparisons to last year’s tax-cut driven record earnings the primary contributing factor, with growth expected to resume from 2020 onwards.
• Total earnings for the S&P 500 index are expected to be down -0.4% on +2.6% higher revenues this year, which would follow the +23.1% earnings growth on +9.2% higher revenues in 2018. Growth is expected to resume in 2020, with earnings growth of +10% on +5.5% higher revenues.  
• The implied ‘EPS’ for the index, calculated using current 2019 P/E of 18.5X and index close, as of September 10th, is $161.48. Using the same methodology, the index ‘EPS’ works out to $177.64 for 2020 (P/E of 16.8X). The multiples for 2019 and 2020 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.

We still have about four weeks to go before the Q3 earnings season really gets going, but we will officially start tracking this reporting cycle in the next few days as companies with fiscal quarters ending in August like Oracle (ORCL Quick QuoteORCL - Free Report) , FedEx (FDX Quick QuoteFDX - Free Report) and others coming out with quarterly results. All of these companies with fiscal quarters ending in August can count as part of the September-quarter tally. In fact, we will have seen results from almost two dozen such companies by the time JPMorgan (JPM Quick QuoteJPM - Free Report) reports results on October 15th.

The expectation is that the overall earnings growth picture emerging from the Q3 earnings season will not be much different from what we saw in the first two quarters of the year.

Total Q3 earnings for the S&P 500 index are expected to be down -4.7% from the same period last year on +4.3% higher revenues. Driving this weak growth picture is tough comparisons to last year when earnings were boosted by the tax reform.

Estimates for Q3 came down as the quarter got underway.

While the revisions trend is undoubtedly negative, the magnitude of decline in Q3 earnings estimates is about in-line with historical trends.

Earnings growth was flat in the March and June quarters, and is expected to be down -4.7% in the current period and in modestly positive territory in the last quarter of the year. My sense is that actual Q3 growth will most likely be in the vicinity of what we saw in the first half of the year and Q4 earnings growth will most likely turn negative by the time we are closing the books on the Q3 reporting cycle.

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