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Note: The following is an excerpt from this week’sEarnings 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:
• For the S&P 600 index, we now have Q2 results from 76.5% of the index’s total membership. Total earnings for these small-cap companies are down -14.1% from the same period last year on +6% higher revenues, with 61.1% beating EPS estimates and 62.2% beating revenue estimates.
• This is a weak earnings performance from these small-cap companies relative to other recent periods. The earnings growth pace as well as the proportion of positive EPS surprises for Q2 is tracking below other recent quarters.
• 2017 Q2 is on track to be the third quarter in the last four quarters of negative earnings growth for the small-cap index. Earnings growth is in negative territory for half of the 16 Zacks sectors, with the biggest declines in the Energy (-163.2%), Medical (-93.5%), Retail (-20.2%), Consumer Discretionary (-12.9%) and Finance (-9.8%) sectors.
• The primary driver for the earnings weakness appears to be margin pressures for the small-cap space, with Q2 net margins below the year-earlier level for 12 of the 16 Zacks sectors.
• On the positive side, we had double-digit Q2 earnings growth from Aerospace (+71.9%), Conglomerates (+73.3%), Construction (+19.2%), Autos (+17%) and Technology (+17.7%) sectors.
• For the S&P 500 index, the Q2 earnings season has come to an end for 11 of the 16 Zacks sectors, with results from only 21 S&P 500 index members still awaited at this stage. Total earnings for the 479 index members that have reported are up +11.2% from the same period last year on +5.6% higher revenues, with 74.5% beating EPS estimates and 68.3% beating revenue estimates.
• While growth is a bit on the lighter side relative to the preceding period for these 479 S&P 500 members, the proportion of companies beating estimates, particularly revenue estimates, is notably tracking above other periods.
• For Q2 as a whole, combining the actual results with estimates for the still-to-come companies, total earnings for the S&P 500 index are expected to be up +10.9% from the same period last year on +5.4% higher revenues. This would be the second quarter in a row of double-digit earnings growth performance for the S&P 500 index.
• Beyond Q2, total earnings for the S&P 500 index are currently expected to grow by +4% on +4.8% higher revenues in the September quarter and +8.8% on +5.6% higher revenues in Q4.
• Estimates for Q3 have come down, but they appear to be following the moderate revisions pace we saw ahead of the start of the Q2 earnings season. Estimates have fallen for 14 of the 16 Zacks sectors in the S&P 500 index, with the Technology and Industrial Products sectors experiencing positive revisions.
• For full-year 2017, total earnings for the S&P 500 index are expected to be up +7.5% on +4.2% higher revenues, which would follow +0.8% earnings growth on +2.1% higher revenues in 2016. Index earnings are expected to be up +11% in 2018 and +8.9% in 2019.
The Small-Cap Scorecard (as of August 23rd, 2017)
With results from 460 S&P 600 members or 76.5% of the index’s membership already out, total earnings for the small-cap index are down -14.1% from the same period last year on +6% higher revenues, with 61.1% beating EPS estimates and 62.2% beating revenue estimates.
Any way you look at it, this is a weak performance from these 460 S&P 600 members relative to what we have seen from the same group of small-cap companies in other recent periods, as the comparison charts below show.
Not only is earnings growth below other recent periods, but the proportion of companies beating EPS estimates is also tracking below historical periods. The weakness is broad based and not concentrated in one or two sectors, reflecting all-around margin pressures.
Earnings growth has been in negative territory for the small-cap index for the third time in the last four quarters, but the growth picture is expected to improve in the current and following quarters, as the chart below reflects.
S&P 500 Scorecard (as of August 23rd, 2017)
We now have Q2 results from 479 S&P 500 members or 95.8% of the index’s total membership. Total earnings for these 479 index members are up +11.2% from the same period last year on +5.6% higher revenues, with 74.5% beating EPS estimates and 68.3% beating revenue estimates.
The comparison charts below compare the results thus far with what we have seen from the same group of 479 index members in other recent periods.
As you can see, 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 growth pace is nevertheless a notable improvement over the four and 12-quarter averages. The proportion of positive surprises, particularly revenue surprise is notably tracking above historical periods.
The Technology Momentum
While the aggregate Q2 growth pace for the S&P 500 index is tracking below the preceding-quarter’s level, that isn’t the case with the Technology sector where both growth as well as the proportion of positive surprises are tracking above other periods. Total earnings for the 91.8% of the sector companies that have reported results are up +17.3% from the same period last year +9% higher revenues, with 82.1% beating EPS estimates and 85.7% beating revenue estimates.
This is an improvement over what we have seen form the same group of Tech companies in other recent periods, including the preceding quarter when the sector’s results were very strong.
Record Q2 Earnings & Expectations Beyond
Looking at Q2 as a whole, combining the actual results from the 479 index members with estimates for the still-to-come 21 companies, total earnings are expected to be up +10.9 on +5.4% higher revenues. This would follow +13.5% earnings growth on +7.5% higher revenue growth in 2017 Q1.
Estimates for the current period (2017 Q3) have come down, with the current +4% earnings growth down from +6.3% at the start of the period, as the chart below shows.
This is about in-line with the revisions trend we saw ahead of the start of the Q2 earnings season and a notable improvement over the trend we have been seeing over the last few years. Estimates have fallen for 14 of the 16 Zacks sectors, with Energy, Basic Materials and Autos experiencing the most negative revisions. Estimates have gone up for the Technology and Industrial Products sectors, which can be seen in the revisions trend for operators like Caterpillar (CAT - Free Report) , Facebook , Intel (INTC - Free Report) and others.
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 S&P 500 index, surpassing the previous record achieved in 2016 Q4. The chart below shows the quarterly earnings totals for index, contrasting the highlighted Q2 tally with actual results from the last 4 quarters and expected tallies in the coming 4 quarters.
As you can see, 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 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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Image: Bigstock
Weak Small Cap Earnings Results
Note: The following is an excerpt from this week’sEarnings 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:
• For the S&P 600 index, we now have Q2 results from 76.5% of the index’s total membership. Total earnings for these small-cap companies are down -14.1% from the same period last year on +6% higher revenues, with 61.1% beating EPS estimates and 62.2% beating revenue estimates.
• This is a weak earnings performance from these small-cap companies relative to other recent periods. The earnings growth pace as well as the proportion of positive EPS surprises for Q2 is tracking below other recent quarters.
• 2017 Q2 is on track to be the third quarter in the last four quarters of negative earnings growth for the small-cap index. Earnings growth is in negative territory for half of the 16 Zacks sectors, with the biggest declines in the Energy (-163.2%), Medical (-93.5%), Retail (-20.2%), Consumer Discretionary (-12.9%) and Finance (-9.8%) sectors.
• The primary driver for the earnings weakness appears to be margin pressures for the small-cap space, with Q2 net margins below the year-earlier level for 12 of the 16 Zacks sectors.
• On the positive side, we had double-digit Q2 earnings growth from Aerospace (+71.9%), Conglomerates (+73.3%), Construction (+19.2%), Autos (+17%) and Technology (+17.7%) sectors.
• For the S&P 500 index, the Q2 earnings season has come to an end for 11 of the 16 Zacks sectors, with results from only 21 S&P 500 index members still awaited at this stage. Total earnings for the 479 index members that have reported are up +11.2% from the same period last year on +5.6% higher revenues, with 74.5% beating EPS estimates and 68.3% beating revenue estimates.
• While growth is a bit on the lighter side relative to the preceding period for these 479 S&P 500 members, the proportion of companies beating estimates, particularly revenue estimates, is notably tracking above other periods.
• For Q2 as a whole, combining the actual results with estimates for the still-to-come companies, total earnings for the S&P 500 index are expected to be up +10.9% from the same period last year on +5.4% higher revenues. This would be the second quarter in a row of double-digit earnings growth performance for the S&P 500 index.
• Beyond Q2, total earnings for the S&P 500 index are currently expected to grow by +4% on +4.8% higher revenues in the September quarter and +8.8% on +5.6% higher revenues in Q4.
• Estimates for Q3 have come down, but they appear to be following the moderate revisions pace we saw ahead of the start of the Q2 earnings season. Estimates have fallen for 14 of the 16 Zacks sectors in the S&P 500 index, with the Technology and Industrial Products sectors experiencing positive revisions.
• For full-year 2017, total earnings for the S&P 500 index are expected to be up +7.5% on +4.2% higher revenues, which would follow +0.8% earnings growth on +2.1% higher revenues in 2016. Index earnings are expected to be up +11% in 2018 and +8.9% in 2019.
The Small-Cap Scorecard (as of August 23rd, 2017)
With results from 460 S&P 600 members or 76.5% of the index’s membership already out, total earnings for the small-cap index are down -14.1% from the same period last year on +6% higher revenues, with 61.1% beating EPS estimates and 62.2% beating revenue estimates.
Any way you look at it, this is a weak performance from these 460 S&P 600 members relative to what we have seen from the same group of small-cap companies in other recent periods, as the comparison charts below show.
Not only is earnings growth below other recent periods, but the proportion of companies beating EPS estimates is also tracking below historical periods. The weakness is broad based and not concentrated in one or two sectors, reflecting all-around margin pressures.
Earnings growth has been in negative territory for the small-cap index for the third time in the last four quarters, but the growth picture is expected to improve in the current and following quarters, as the chart below reflects.
S&P 500 Scorecard (as of August 23rd, 2017)
We now have Q2 results from 479 S&P 500 members or 95.8% of the index’s total membership. Total earnings for these 479 index members are up +11.2% from the same period last year on +5.6% higher revenues, with 74.5% beating EPS estimates and 68.3% beating revenue estimates.
The comparison charts below compare the results thus far with what we have seen from the same group of 479 index members in other recent periods.
As you can see, 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 growth pace is nevertheless a notable improvement over the four and 12-quarter averages. The proportion of positive surprises, particularly revenue surprise is notably tracking above historical periods.
The Technology Momentum
While the aggregate Q2 growth pace for the S&P 500 index is tracking below the preceding-quarter’s level, that isn’t the case with the Technology sector where both growth as well as the proportion of positive surprises are tracking above other periods. Total earnings for the 91.8% of the sector companies that have reported results are up +17.3% from the same period last year +9% higher revenues, with 82.1% beating EPS estimates and 85.7% beating revenue estimates.
This is an improvement over what we have seen form the same group of Tech companies in other recent periods, including the preceding quarter when the sector’s results were very strong.
Record Q2 Earnings & Expectations Beyond
Looking at Q2 as a whole, combining the actual results from the 479 index members with estimates for the still-to-come 21 companies, total earnings are expected to be up +10.9 on +5.4% higher revenues. This would follow +13.5% earnings growth on +7.5% higher revenue growth in 2017 Q1.
Estimates for the current period (2017 Q3) have come down, with the current +4% earnings growth down from +6.3% at the start of the period, as the chart below shows.
This is about in-line with the revisions trend we saw ahead of the start of the Q2 earnings season and a notable improvement over the trend we have been seeing over the last few years. Estimates have fallen for 14 of the 16 Zacks sectors, with Energy, Basic Materials and Autos experiencing the most negative revisions. Estimates have gone up for the Technology and Industrial Products sectors, which can be seen in the revisions trend for operators like Caterpillar (CAT - Free Report) , Facebook , Intel (INTC - Free Report) and others.
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 S&P 500 index, surpassing the previous record achieved in 2016 Q4. The chart below shows the quarterly earnings totals for index, contrasting the highlighted Q2 tally with actual results from the last 4 quarters and expected tallies in the coming 4 quarters.
As you can see, 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 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.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
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