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Q3 Earnings Season Gets Underway

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The market is struggling with Oracle’s (ORCL - Free Report) interest in TikTok, but it has no trouble appreciating the resumption of growth momentum in its cloud business as it reported better-than-expected fiscal August-quarter results on Thursday, September 10.

Oracle’s earnings increased +5.4% from the same period last year on +1.6% higher revenues, but its cloud revenues increased +9% on the back of new and increased business from the likes of Zoom Video (ZM - Free Report) and others. The company’s TikTok crush is supposedly part of its cloud push as well, but it is not clear how the TikTok crowd will sync in with its existing audience.

Oracle’s quarterly report will get counted as part of the September-quarter tally of results that will really get going when the big banks come out with results on October 20th. But we will have a number of other important companies report August-quarter results ahead of the mid-October banks results and all of those reports will form part of our 2020 Q3 earnings season tally.

As such, the Oracle earnings release is the first quarterly report of an S&P 500 member for the Q3 earnings season. Lennar (LEN - Free Report) , Adobe (ADBE - Free Report) and FedEx (FDX - Free Report) are other index members that are on deck to report August-quarter results this week that will also get counted as Q3 results.

For Q3 as a whole, total S&P 500 earnings are expected to decline -23.7% from the same period last year -3.3% lower revenues. This would follow the -32.5% decline in Q2 when economic and business activities came to a halt as a result of the pandemic driven lockdowns.

The earnings outlook has been steadily improving since the start of Q3, as economic and business activities have resumed. The chart below of how estimates for 2020 Q3 have evolved since early July clearly shows that the revisions trend has turned positive.

 

 

 

 

 

 

 

 

 

 

 

The positive revisions trend continues after Q3 to Q4 and beyond. Estimates have not moved up that much over the last few weeks, but they have nevertheless remained stable. The chart below shows the revisions trend for full-year 2020.

 

 

 

 

 

 

 

 

 

 

 

 

At the sector level, Q3 earnings are expected to be below the year-earlier level for 14 of the 16 Zacks sectors, with Construction (+4.3% earnings growth) and Medical (+0.1%) the only sectors expected to have positive earnings growth. Sectors with the biggest declines include Transportation (-128.3% earnings decline), Energy (-97.4%), Consumer Discretionary (-89.3%), Conglomerates (-50.2%), Aerospace (-47.1%), and Autos (-35.5%).

For the Finance sector, Q3 earnings are expected to be down -25.6% on -1.8% lower revenues, which would follow the sector’s -45.2% earnings decline on -1.6% lower revenues. Tech sector earnings are expected to be down -4.7% on +3.8% higher revenues, with tough comparisons for Apple (AAPL - Free Report) and Intel (INTC - Free Report) a big driver of the year-over-year decline.

The table below shows a summary picture for Q3, contrasted with what was actually achieved in 2020 Q2.

 

 

 

 

 

 

 

 

 

 

 

 

The chart below takes a big-picture view of the quarters, showing Q3 earnings and revenue growth in the context of what was actually achieved in the last few quarters and what is expected in the coming periods.

 

 

 

 

 

 

 

 

 

 

 

The chart below shows quarterly earnings totals or quarterly aggregate net income, instead of year-over-year growth rates. This gives us a better appreciation of the pandemic’s earnings imapct.

 

 

 

 

 

 

 

 

 

 

 

 

The chart below presents the big-picture view on an annual basis. As you can see below, 2020 earnings and revenues are expected to be down -20.9% and -4.9%, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

For an in-depth look at the overall earnings picture and expectations for the coming quarters, please check out our weekly Earnings Trends report >>>> Looking Ahead to the Q3 Earnings Season

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