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Mixed Start to Q4 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:

  • The Q4 earnings season has gotten underway, with results from 36 S&P 500 members that combined account for 11.8% of the index’s total market capitalization already out.


  • Lowered estimates and weak market sentiment has increased the odds of producing positive surprises, but a lot will be riding on management guidance for the current and coming periods.


  • Total earnings for these 36 index members are up +18.3% from the same period last year on +8.5% higher revenues, with 77.8% beating EPS estimates and 58.3% beating revenue estimates. This is a weaker showing relative to what these same 36 companies had reported in other recent periods.


  • For the Finance sector, we now have Q4 results from 36.8% of the sector’s total market cap in the index. Total earnings for these banks are up +17.4% on +4% higher revenues, with 75% beating EPS estimates and 50% beating revenue estimates. 


  • Looking at Q4 as a whole, combining the actual results that have come out with estimates for the still-to-come companies, total earnings for the S&P 500 index are expected to be up +11.1% from the same period last year on +5.2% higher revenues.


  • Estimates for Q4 as well as full-year 2019 have been steadily coming down over the last three months, with broad-based negative revisions across all of the 16 Zacks sectors. We are starting to see estimates for 2019 Q1 come down in a notable way since the Q4 reporting cycle got underway.


  • The strongest year-over-year earnings growth in Q4 is expected to come from the Energy, Transportation, Construction, Finance, and the Retail sectors. Excluding the Finance sector’s strong growth, Q4 earnings growth for the rest of the index comes down to +8.8% (from +11.1%).


  • For the small-cap S&P 600 index, total Q4 earnings are expected to be up +4.7% on +6.5 higher revenues. This would follow +36.5% earnings growth on +7.7% revenue growth in Q3.


  • For full-year 2019, total earnings for the S&P 500 index are expected to be up +6.1% on +6.0% higher revenues, which would follow the +20.5% earnings growth on +6.0% higher revenues in 2018. Estimates for 2019 have been steadily coming down, with the current +6.1% growth rate down from +9.8% in early October 2018.


  • The implied ‘EPS’ for the index, calculated using current 2018 P/E of 20.5X and index close, as of January 15th, is $157.47. Using the same methodology, the index ‘EPS’ works out to $167.14 for 2019 (P/E of 6.1X) and $184.47 for 2020 (P/E of 10.4X). The multiples for 2018, 2019 and 2020 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.


Banks have an oversized contribution in the Q4 results that have come out at this stage and the industry’s earnings performance is at best mixed. The market’s positive reaction to results from Goldman Sachs (GS - Free Report) , Bank of America (BAC - Free Report) and a few others is more a function of how low expectations had fallen rather than operating strength.

All in all, banks’ Q4 results aren’t materially different than we have been seeing from the group in recent quarters, with heightened market uncertainty and volatility adding to the group’s woes in the trading business. The loan portfolios have not been growing for some time and the same trend was in place in Q4, with the uncertain economic backdrop likely continuing to weigh on loan demand. Margins have improved ever so slightly as a result of the Fed tightening, but the flattening yield curve is not helpful.

The comparison charts below put the Finance sector’s Q4 results thus far in a historical context.



The Finance sector has been one of the biggest beneficiaries of the tax cuts, with a big part of the earnings growth in 2018 resulting from tax benefits. Those easy comparisons come to an end in Q4, with growth going back to ‘normal’ from the current period (2019 Q1) onwards, as we show later on this report.

Q4 Earnings Season Scorecard

Total earnings for the 36 S&P 500 members that have reported Q4 results are up +18.3% on +8.5% higher revenues, with 77.8% beating EPS estimates and 58.3% beating revenue estimates.

We knew that growth would be decelerating in Q4 and we are seeing that in the results thus far. But positive EPS and revenue surprises are also tracking below what we had seen from the same group of 36 index members in other recent periods, as the comparison charts below show.

More than positive EPS and revenue surprises for Q4, it is management’s guidance for the current period that will ease the market’s earnings worries. This guidance will also determine how estimates for the current period (2019 Q1) shape up as we go through the Q4 earnings season. Estimates for 2019 Q1 had already been coming down, even before the Q4 earnings season got underway and currently remain barely in positive territory, as the chart below of quarterly earnings and revenue growth show.

But even these low growth expectations for the coming quarters are vulnerable to further downward revisions. In other words, it is reasonable for market participants to nurse some doubts about the current earnings backdrop. 

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