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Handicapping the Q3 Earnings Season

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The overall earnings picture has been steadily improving over the last three months as big parts of the U.S. economy have started coming out of the pandemic-driven lockdown. The market will be looking for this improving earnings trend to accelerate in the Q3 earnings season.

The wide majority of companies have fiscal quarters that correspond with the calendar quarters, which is September 30th for Q3. These calendar-quarter companies will start reporting Q3 results after September 30th. Back in the day when Alcoa (AA - Free Report) was in all the major indexes, the aluminum producer was generally seen as kick-starting quarterly reporting cycles.

The rump Alcoa took following its split a few years back means it no longer has this distinction, with the big banks now kicking off the reporting cycle. We will see the same with the September-quarter earnings season when JPMorgan (JPM - Free Report) and Citigroup (C - Free Report) report quarterly results before the market’s open on October 13th.

Not all companies have fiscal quarters that correspond with the calendar quarters, with about two dozen S&P 500 members that have fiscal quarters that ended in August and 12 such companies, including Costco (COST - Free Report) , Nike (NKE - Free Report) , FedEx (FDX - Free Report) and others have reported their fiscal August-quarter results in recent days.

We and other data aggregators put the results from these 12 index members as part of the Q3 tally. And we have another 6 S&P 500 members on deck to report fiscal August-quarter results this week, including Pepsi (PEP - Free Report) , Micron (MU - Free Report) and others. Looked at this way, the Q3 earnings season has gotten underway already from our standpoint.

The expectation is for total S&P 500 earnings to decline -23.1% from the same period last year -3.1% 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 is not restricted to Q3, but also for Q4 and beyond. Estimates have started moving up again in recent days, after staying essentially stable through most of August and the first week of September. The chart below shows the revisions trend for full-year 2020.











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 (green bars) and revenue (Orange bars) 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.













To get a sense of the aforementioned favorable revisions trend, the current $282.3 billion estimate is up from $281.2 billion last week.

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 -20.8% and -4.8%, respectively.













The above annual growth picture approximates to an index ‘EPS’ of $126.86 for 2020, down from $160.20 in 2019 and $159.10 in 2021.

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

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