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Plenty of Small-Cap Earnings Still to come

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There aren’t that many large-cap earnings reports still to come, but plenty of small-cap companies have yet to report Q2 results. At this stage, Q2 results are awaited from only 9 S&P 500 index members, though the number of companies from the small-cap S&P 600 index yet to report results is 131.

We have 67 companies on deck to report results this week, including 7 S&P 500 members and 17 S&P 600 members. Best Buy (BBY - Free Report) , Lululemon Athletica (LULU - Free Report) and H&R Block (HRB - Free Report) are some of the notable companies reporting quarterly results this week.

The earnings focus lately has been on the Retail sector where only 3 companies in the S&P 500 are still to report results. Total Q2 earnings for the Retail sector in the S&P 500 index are up +0.3% from the same period last year on +4.6% higher revenues, with 75.7% beating EPS estimates and 81.1% beating revenue estimates.

Please note that we have a stand-alone Retail sector, unlike the official Standard & Poor’s placement of this space in the Consumer Discretionary sector. The Zacks Retail sector includes, besides the traditional department stores and other brick-and-mortar retailers, the online vendors like Amazon and Priceline and restaurant operators. Results from the online vendors and most of the restaurant operators typically come out in the first phase of each reporting cycle.  

The side-by-side charts below compare the sector’s results thus far with what we have seen from the same group of 37 retailers in other recent periods.

The aggregate growth pace from the 37 retailers that have reported results already are tracking below what we had seen from the same companies in other recent periods. A big contributor to the weak earnings growth showing this quarter is the -77% drop in Amazon’s earnings on +24.8% higher revenues. Excluding the Amazon drag, Q2 earnings for the sector would be up +3.9% on +3% higher revenues. This ex-Amazon growth picture compares relatively favorably with historical periods, as the chart below shows.

Unlike growth, positive surprises are as numerous in this sector as they have been all along in other sectors this earnings season. In fact, the proportion of retailers beating revenue estimates is the third highest of all 16 Zacks sectors in Q2 at 81.1%, behind only the Conglomerates (83.3%) Technology (86.4%) sectors.

Scorecard for the Small-Cap Retailers

The Retail sector has a shade more earnings weight in the small-cap S&P 600 index than is the case with the large-cap S&P 500 index. The sector accounted for 9.2% of the small-cap index’s total earnings over the last four quarters, with its earnings contribution to the large-cap index over the comparable period is 7.2%.

For the S&P 600 index, we now have Q2 results from 35 of the 54 retailers in the index. Total earnings for these small-cap retailers are down -13.5% from the same period last year on +1.8% higher revenues, with 60% beating EPS estimates and 51.4% beating revenue estimates. The comparison charts below put these small-cap Q2 results in a historical context.

Q2 Earnings Season Scorecard (as of Friday, August 25, 2017)
The Q2 earnings season has come to an end for 11 of the 16 Zacks sectors, with results from 491 S&P 500 members or 98.2% of the index’s total membership already out. Total earnings for these companies are up +11.2% from the same period last year on +5.6% higher revenues, with 74.3% beating EPS estimates and 68.4% beating revenue estimates.

The table below shows the current Q2 Scorecard

The charts below compare the Q2 results thus far from the 491 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 revenue estimates is tracking above historical periods (right-hand chart). The earnings and revenue growth pace for these 491 companies is below what we had seen from the same sample of companies in Q1, but an improvement over other recent periods.

Here are the four takeaways from the Q2 earnings season.

First, the earnings and revenue growth pace has steadily gone up relative to pre-season expectations. Total Q2 earnings for the index are currently expected to be up +11% from the same period last year on +5.5% higher revenues.

Please note that the +11% growth rate is the blended growth rate; it combines the actual growth for the 491 S&P 500 members that have reported with estimates for the still-to-come 9 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 $294.7 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 estimates, particularly 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.

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 14 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 +3.9% 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 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 67 companies including 7 S&P 500 and 17 S&P 600 members reporting this week.


Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
STANDEX INTL COSXI1.291.31-10.91%MondayBTO
CATALENT INCCTLT0.560.515.71%MondayAMC
PROSPECT CAP CPPSEC0.20.26-16.67%MondayAMC
EXA CORPEXA-0.2-0.0426.09%MondayAMC
PERCEPTRON INCPRCP0.050.08-200.00%MondayAMC
BEST BUYBBY0.630.5750.00%TuesdayBTO
BANK MONTREALBMO1.571.493.57%TuesdayBTO
BANK OF NOVA SCBNS1.281.26.96%TuesdayBTO
J JILL INCJILL0.2999933.33%TuesdayBTO
MOVADO GRP INCMOV0.250.27-90.00%TuesdayBTO
FANG HOLDINGSSFUN-0.03-0.090.00%TuesdayBTO
BLOCK H & RHRB-0.63-0.557.12%TuesdayAMC
OLLIES BGN OUTLOLLI0.250.218.70%TuesdayAMC
CALERES INCCAL0.450.4611.11%TuesdayAMC
SCANSOURCE INCSCSC0.680.51-1.52%TuesdayAMC
NCI BLDG SYSTEMNCS0.310.3333.33%TuesdayAMC
GRUPO AVAL SAAVAL0.180.185.88%TuesdayAMC
EMBOT ANDINA-BAKO.B0.090.052.44%TuesdayAMC
ANALOG DEVICESADI1.150.8221.18%WednesdayBTO
BROWN FORMAN BBF.B0.390.36-5.00%WednesdayBTO
NATL BK CDANTIOF1.031.027.69%WednesdayBTO
GOLAR LNG LTDGLNG-0.4-0.48-7.89%WednesdayBTO
DYCOM INDSDY1.441.648.33%WednesdayBTO
VERA BRADLEYVRA0.10.1730.77%WednesdayBTO
FRONTLINE LTDFRO-0.030.3133.33%WednesdayBTO
SHIP FIN INTLSFL0.280.489.38%WednesdayBTO
BOB EVANS FARMSBOBE0.350.482.74%WednesdayBTO
BARNES NOB EDUCBNED-0.69-0.56-100.00%WednesdayBTO
CHICOS FAS INCCHS0.210.25-10.34%WednesdayBTO
GOLAR LNG PARTNGMLP0.60.62-23.91%WednesdayBTO
FIVE BELOW INCFIVE0.260.187.14%WednesdayAMC
WORKDAY INC-AWDAY-0.39-0.4929.41%WednesdayAMC
BOX INC-ABOX-0.29-0.290.00%WednesdayAMC
GREIF INCGEF0.840.91-5.63%WednesdayAMC
KEYSIGHT TECHKEYS0.540.613.46%WednesdayAMC
CTRIP.COM INTLCTRP0-0.17133.33%WednesdayAMC
PHIBRO ANIMALPAHC0.350.40.00%WednesdayAMC
SHOE CARNIVALSCVL0.210.22-9.43%WednesdayAMC
SEMTECH CORPSMTC0.320.290.00%WednesdayAMC
FERROGLOBE PLCGSM0.01-0.0166.67%WednesdayN/A
DOLLAR GENERALDG1.091.084.04%ThursdayBTO
CAMPBELL SOUPCPB0.550.46-7.81%ThursdayBTO
TORONTO DOM BNKTD1.080.978.70%ThursdayBTO
CIENA CORPCIEN0.430.3531.03%ThursdayBTO
TITAN MACHINERYTITN-0.01-0.12-46.15%ThursdayBTO
LANDS END INCLE-0.12-0.064.00%ThursdayBTO
LEJU HOLDINGSLEJU-0.160.0930.00%ThursdayBTO
GENESCO INCGCO-0.060.34-78.57%ThursdayBTO
METHODE ELECT-AMEI0.540.577.81%ThursdayBTO
COOPER COSCOO2.572.311.11%ThursdayAMC
LULULEMON ATHLTLULU0.350.3814.29%ThursdayAMC
PALO ALTO NETWKPANW-0.2-0.51-24.39%ThursdayAMC
TECH DATA CORPTECD2.041.4234.53%ThursdayAMC
AMBARELLA INCAMBA0.10.25133.33%ThursdayAMC
OXFORD INDS INCOXM1.421.487.69%ThursdayAMC
NUTANIX INC-ANTNX-0.7599910.47%ThursdayAMC

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