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Strong Start to Q1 Earnings Season

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Note: The following is an excerpt from this week’s Earnings 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:

•    Total Q1 earnings for the 52 S&P 500 companies that have reported results already are up +27.9% from the same period last year on +10.7% higher revenues, with 84.6% beating EPS estimates and 78.8% beating revenue estimates.
 
•    This is better performance than we have seen from the same group of 52 index members in other recent periods, both in terms of growth rate as well as the proportion of companies beating EPS and revenue estimates.

•    The strong revenue momentum that was a notable feature of the 2017 Q4 earnings season has continued this earning season as well.

•    Finance sector results have been very strong, with total earnings for the 42.2% of the sector’s market cap in the S&P 500 index already reported up +27.1% on +8.6% higher revenues, with 93.3% beating EPS estimates and 73.3% beating revenue estimates.

•    Looking at Q1 as a whole, total earnings are expected to be up +17.8% from the same period last year on +7.6% higher revenues, the highest quarterly earnings growth pace in 7 years.
 
•    Earnings growth is expected to be in double-digit territory from the year-earlier level for 11 of the 16 Zacks sectors, including the Technology and Finance sectors. Only two sectors (Autos & Conglomerates) are expected to show earnings declines in Q1.

•    Energy sector earnings are expected to be up +58.6% from the same period last year on +15.9% higher revenues. Excluding the Energy sector, total S&P 500 earnings growth drops from +17.8% to +16.5%.

•    For the S&P 600 index, we now have Q1 results from 24 companies or only 4% of the index’s total membership. Total earnings for these 24 companies are up +18.4% on +11.6% higher revenues, with 58.3% beating EPS estimates and 37.5% beating revenue estimates.  

•    For the S&P 600 index, total Q1 earnings are expected to be up +12.8% from the same period last year on +6.7% higher revenues. This would follow +15.1% earnings growth on +7.9% revenue growth in the preceding quarter.

•    For full-year 2018, total earnings for the S&P 500 index are track to be up +17.9% on +5.2% higher revenues, with full-year 2019 earnings and revenues for the index expected to be up +9.5% and +4.2%, respectively.

•    The implied ‘EPS’ for the index, calculated using current 2018 P/E of 17.6X and index close, as of April 17th , is $148.13. Using the same methodology, the index ‘EPS’ works out to $162.24 for 2019 (P/E of 16.1X). The multiples for 2018 and 2019 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.   

We now have Q1 results from 52 S&P 500 members that combined account for 16.8% of the index’s total market capitalization. Total earnings for these 52 index members are up +27.9% from the same period last year on +10.7% higher revenues, with 84.6% beating EPS estimates and 78.8% beating revenue estimates.

The comparison charts below compare the results thus far with what we have seen from the same group of 52 index members in other recent periods.

 

What these comparison charts shows are:

•    The earnings growth rate (+27.9%) for these 52 index members is more than double the pace that we have been seeing from the same group of companies in other recent periods.
•    The Q1 revenue growth rate (+10.7%) similarly represents an acceleration from all other periods in the chart.
•    The proportion of positive EPS beasts (84.6%) is above what we saw in 2017 Q4 (80.8%), the 4-quarter average (79.8%) and 12-quarter average (77.1%).   
•    Revenue beats for these 52 index members at 78.8% is similarly above what we have been seeing from the same group of companies in other recent periods.

The most notable element of the results thus far is the momentum on the revenue side, as the above points how. This was a stand-out feature of the preceding earnings season as well and we are seeing this trend continue in the Q1 earnings season as well.

I am emphasizing this revenue momentum through modified comparison in this chart:

The key takeaway at this relatively early stage in the reporting cycle is that we are off to an impressive start in the Q1 earnings season, with the strong momentum of the preceding earnings season continuing into this reporting cycle as well.

Expectations Beyond Q1

The chart below contrasts the Q4 earnings growth rate with what was actually achieved in the last 5 quarters and what is expected in the coming three periods.

It will be interesting to see if expectations for the following quarters follow the positive revisions trend we had witnessed ahead of the Q1 earnings season, or if we will go back to negative revisions trends that had been the recurring theme over the last many years.

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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