The bulk of the Q2 earnings season is now behind us, with results from only about 16% of the S&P 500 members still awaited. The Retail sector is the only one at this stage that has a sizable number of reports still to come, with a number of traditional retailers on deck to report results. With another 35 index members reporting results this week, the Q2 earnings season will have come to an end for 91% of S&P 500 members by the end of the week.

As we have been saying all along since the start of this reporting cycle, the Q2 earnings season has turned out to be very good. The key positives include broad-based growth reaching double-digit level for the second quarter in a row, record earnings tally, an abundance of positive surprises and favorable trends on the revisions front.

We will discuss Q2 results in greater detail below, but let’s focus on what’s coming out this week.

Key Earnings Reports for the Week of August 7th   

This week brings in results from more than 700 companies, including 35 from the S&P 500 index. There is no shortage of big-name operators coming out with results this week, but we are featuring just a few here

NVIDIA (NVDA Quick QuoteNVDA - Free Report) shares have literally been on fire since the last earnings report on May 9th. The stock was down -3.5% on the year through May 9th, but has been an outstanding performer since that day. Year to date, the stock is now up +57.3%, handily outperforming the Zacks Semiconductor industry’s +17% gain and the broader Zacks Tech sector’s +17.2% gain. The stock has long history of making big moves on earnings releases, though the reaction following the May 9th report was in a league of its own. Estimates for the June quarter initially went up, but have been otherwise stable for the last two months, with the company expected to earn 69 cents on +1.96 billion in revenues, up 56% and +37.1% from the year-earlier period, respectively. NVIDIA is scheduled to report Q2 results after the market’s close on August 10th.

Disney (DIS Quick QuoteDIS - Free Report) shares led the S&P 500 index through April 27th this year, but have been steady underperformers since then. The stock is currently up +3.3% in the year-to-date period, underperforming the +10.5% gain for the S&P 500 index and the Zacks Consumer Discretionary sector’s +14.5% gain. The never ending worry about Disney remains the fate of its ESPN franchise in the current cord-cutting media environment. Disney reports Q2 results after the market’s close on August 8th, with the company expected to come out with $1.53 per share in earnings (down -5.4% from the year-earlier period) on $14.4 billion in revenues (up +1.2%). Estimates have been steadily coming down since the start of the period, with the current $1.53 per share estimate down from $1.69 per share on July 1st.

Priceline has been a standout performer this year, with the stock up +38.5% in the year-to-date period vs. +33.7% for Expedia and +47.4% gain for the Zacks e-commerce industry. The stock always responds strongly to the earnings report; it was down big following the last earnings release on May 9th.  The company is scheduled to report Q2 results after the market’s close on August 8th. The online travel leader is expected to report $14.27 in EPS on $3 billion in revenues, which represents year-over-year changes of +10.7% and +17.2%, respectively. Trends in estimate revisions have mostly been negative. TripAdvisor (TRIP) will also report after the market’s close on August 8th.

Macy’s (M Quick QuoteM - Free Report) and the broader department store space appear to be in an existential struggle. The stock is down -34.7% in the year-to-date period vs. -24.2% decline for the Zacks department store industry. This compares to +10.6% gain for the S&P 500 index and +31.4% gain for Amazon (AMZN Quick QuoteAMZN - Free Report) . Driving this underperformance is the industry’s competitive landscape characterized by the secular shift of sales to the online medium that is showing up in falling traffic and same-store sales. The company has been trying to bring down its store count and we will likely hear more on that front as it reports Q2 results before the market’s open on Thursday August 10th. The company is expected to report $0.44 per share in earnings on $5.49 billion in revenues, down -18.3% and -6.4% from the year-earlier period, respectively. Kohl’s (KSS Quick QuoteKSS - Free Report) and Nordstrom (JWN Quick QuoteJWN - Free Report) report on August 10th as well.

Q2 Earnings Season Scorecard (as of Friday, August 4, 2017)
 
We now have Q2 results from 420 S&P 500 members that combined account for 86.7% of the index’s total market capitalization. Total earnings for these companies are up +11.6% from the same period last year on +5.6% higher revenues, with 74.3% beating EPS estimates and 68.3% beating revenue estimates.

The table below shows the current Q2 Scorecard

The charts below compare the Q2 results thus far from the 420 index members with what we had seen from the same group of companies in other recent periods.

As pointed out earlier, the proportion of companies beating EPS and revenue estimates is tracking above historical periods (right-hand chart). The earnings and revenue growth pace for these 420 companies is below what we had seen from the same sample of companies in Q1, but an improvement over other recent periods.

4 Takeaways from the Q2 Earnings Season

Here are the four takeaways from the results that have come out already.

First, the earnings and revenue growth pace is steadily going up relative to pre-season expectations. Total Q2 earnings for the index are currently expected to be up +10% from the same period last year on +5.1% higher revenues.

Please note that the +10% growth rate is the blended growth rate; it combines the actual growth for the 420 S&P 500 members that have reported with estimates for the still-to-come 80 index members. At the start of the quarter, the expectation was for earnings growth of +7.9%, which came down as the quarter unfolded, reaching as low as +5.6% just ahead of the start of the reporting season.

The deceleration in Q2 earnings growth notwithstanding, the quarter’s earnings tally is on track to reach a new all-time quarterly record, surpassing the 2016 Q4 level, as you can see in the chart below. The chart below contrasts the estimated 2017 Q2 total of $293.6 billion with the actual earnings for the preceding four quarters and estimates for the following four periods.

This record isn’t expected to last very long, with each of the coming quarters expected to bring in ever bigger earnings tallies.

Second, an above-average proportion of companies are beating EPS and revenue estimates. We typically don’t give this factor a lot of weight in evaluating or assessing an earnings season since we all know that management teams are experts in managing expectations. Even then, the trend emerging in the Q2 earnings season is noteworthy for two reasons. First, estimates for the quarter had not fallen by as much as had historically been the case. Second, the proportion of positive revenue surprises, a much harder variable to manipulate relative to earnings, is really off the chart.

The chart below shows the proportion of 420 S&P 500 members that have beaten both EPS and revenue estimates and how that compares to historical periods

Third, Q2 growth is broad-based and not dependent on one or two sectors. There is strong growth contribution from the Finance, Technology and Energy sectors in Q2, but we have 13 of the 16 Zacks sectors on track to produce more earnings than the year-earlier period.

Fourth, estimates for the September quarter have started coming down, but the pace and magnitude of negative revisions compares favorably to other comparable periods. Total Q3 earnings are currently expected to be up +4.3% from the same period last year, down from +6.3% at the start of July. The chart below shows the evolution of Q3 growth expectations since the start of the period.

This is a reassuring start on the revisions front, but we will have to see if this trend will remain in place through the rest of this earnings season.

The chart below shoes Q2 earnings growth expectations contrasted with what is expected in the following three quarters and actual results in the preceding 5 quarters. As you can see in the chart below, this growth pace is expected to continue through the rest of the year.

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 Trends and Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.

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Here is a list of the 741 companies including 35 S&P 500 members reporting this week.