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Q1 Earnings Season Gets Underway

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It is too early to start talking about the 2019 Q1 earnings season, as we are almost a month away from the big banks kicking-off the latest reporting cycle. That’s when everyone in the market will start paying attention to the Q1 earnings season. Unfortunately for us, we don’t have the luxury to wait that long as we are responsible for maintaining the ‘books’ on every earnings season.

From our standpoint, the 2019 Q1 earnings season has actually gotten underway already. Including the March 14 releases from Adobe (ADBE - Free Report) and Oracle (ORCL - Free Report) that both reported quarterly results for their fiscal quarters ending in February. We now have results from four such S&P 500 members. Costco (COST - Free Report) and AutoZone (AZO - Free Report) are the other index members that have reported results for their February quarters.

The bulk of 2019 Q1 results will be comprised of companies coming out with fiscal March-quarter results. But as we all know, fiscal and calendar quarters don’t match for all companies, as is the case with Adobe, Oracle, AutoZone and Costco whose fiscal quarters ended in February. We club such fiscal February-quarter results as part of our March-quarter tally. It is in this context that the 2019 Q1 earnings season has gotten underway for us already. We have another 7 S&P 500 members with fiscal quarters ending in February on deck to report such 2019 Q1 results this week, which includes a number of industry leaders like FedEx (FDX - Free Report) , Nike (NKE - Free Report) and others.

The fact is that by the time the big banks come around to report March-quarter results on April 12, we will have seen Q1 results from almost two dozen S&P 500 members already.

Expectations for 2019 Q1

The expectation is that earnings will actually decline in Q1, after many quarters of very strong growth. Growth got a huge boost last year from the tax-cut legislation, but it was fairly impressive in 2017 when there was no such support. If actual 2019 Q1 earnings growth turns out to be negative, it will be the first earnings decline since the second quarter of 2016.

Total earnings for the S&P 500 index are expected to be down -3.5% from the same period last year on +4% higher revenues. This would follow +13.4% earnings growth in 2018 Q4 and a quarterly growth pace that was roughly double the Q4 pace in the first three quarters of the year.

The overall tone and substance of management guidance during the last earnings season was on the negative side. This reflected a combination of slowing economic growth, particularly beyond the U.S., and rising input expenses. As a result, analysts steadily lowered their estimates for 2019 Q1 as well as full-year 2019, as you can see in the chart below.



The weak guidance from Adobe and Oracle suggests that we will likely see a replay of what we experienced the last earnings season and that pushed estimates lower. We will be keeping a close eye on how estimates for 2018 Q2 evolve as companies report Q1 results and share their outlook for Q2 and beyond.

The chart below shows the earnings growth picture for the S&P 500 index for Q1, contrasted with what was actually reported in the preceding 5 quarters and what is expected in the following three periods.

As you can see here, it wouldn’t take much to push 2019 Q2 growth into negative territory.



The table below shows the summary picture for 2019 Q1, contrasted with what was actually achieved in the preceding period.



Standout Sectors

As you can see, growth is expected to be in negative territory for 9 of the 16 Zacks sectors, with Autos, Basic Materials and Energy having the weakest growth.

Of the two largest earnings contributing sectors, the Finance sector is expected to have a barely positive showing while earnings growth is expected to be negative for the Technology sector. Total earnings for the Technology sector in the S&P 500 are expected to be down -9.9% from the same period last year on +2.9% higher revenues.

Driving the Tech sector’s weak earnings growth expectation for the quarter is Apple (AAPL - Free Report) and the broader semiconductor space. For Apple, March quarter earnings are expected to be down -15.5% on -5.8% lower revenues. Micron (MU - Free Report) , Nvidia (NVDA - Free Report) , and Applied Materials (AMAT - Free Report) are some of the chip makers who are track to have lower earnings in 2019 Q1 relative to the year-earlier period. The Tech sector’s Q1 earnings decline drops to -4.5% from -9.9% if we exclude Apple, Micron, Nvidia and Applied Materials from the sector.

For an in-depth look at the overall earnings picture and expectations for Q1, please check out our weekly Earnings Trends report >>>> First Earnings Decline in 3 Years

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