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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 market’s favorable reaction to otherwise mixed Q1 results suggests that many in the market feared a much weaker showing. In other words, lowered expectations are helping actual results look better than they actually are.
Total earnings for the 131 S&P 500 members that have reported results already are up 2.3% on +4.8% higher revenues, with 81.7% beating EPS estimates and 58% beating revenue estimates.
Other than Q1 EPS beats that are tracking above what we had seen for the same group of 131 index members, the performance thus far is weaker than what we have been seeing from this group of companies in other recent periods.
For the Finance sector, we now have Q1 results from 52.9% of the sector’s market cap in the index. Total earnings for these Finance companies are up +1.2% on 0.4% higher revenues, with 77.8% beating EPS estimates and 52.8% beating revenue estimates.
Looking at Q1 as a whole, total S&P 500 earnings are expected to decline -2.3% from the same period last year on +4.7% higher revenues and 80 basis points of compression in net margins. Earnings growth is expected to be negative for 9 of the 16 Zacks sectors, with Technology and Energy as the biggest drags.
If we do get an earnings decline in Q1, it will be the first year-over-year decline since 2016 Q2. Driving the Q1 earnings decline is margin pressures across all major sectors even as revenues continue to grow.
Tough comparisons to last year when margins got a one-time boost from the tax legislation coupled with the rise in payroll, materials and transportation expenses are weighing on margins.
Technology sector earnings are expected to decline -8.3% from the same period last year on +2.7% higher revenues, with the semiconductor space as the biggest drag. Excluding the Tech sector’s weak growth in Q1, total earnings for the rest of the index would be down by -0.5% from the year-earlier period.
For the small-cap S&P 600 index, we now have Q1 results from 83 index members. Total earnings for these 83 companies are down -0.2% from the same period last year on 4.2% higher revenues, with 57.8% beating EPS estimates and 38.6% beating revenue estimates.
Looking at Q1 as a whole for the small-cap index, total Q1 earnings are expected to be down -11.9% from the same period last year on +3.5% higher revenues.
For full-year 2019, total earnings for the S&P 500 index are expected to be up +1.9% on +3.2% higher revenues, which would follow the +23.3% earnings growth on +9.3% higher revenues in 2018. Double-digit growth is expected to resume in 2020, with earnings expected to be up +11.2% that year.
Estimates for 2019 Q2 and full-year 2019 have come down, with the current +1.9% growth rate for full-year 2019 is down from +9.8% in early October 2018.
The implied ‘EPS’ for the index, calculated using current 2019 P/E of 17.9X and index close, as of April 23rd, is $161.88. Using the same methodology, the index ‘EPS’ works out to $180.02 for 2020 (P/E of 16.1X). The multiples for 2019 and 2020 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.
We now have Q1 results from 131 S&P 500 members that combined account for 31.5% of the index’s total market capitalization. Total earnings for these 131 index members are up +2.3% from the same period last year on +4.8% higher revenues, with 81.7% beating EPS estimates and 58.0% beating revenue estimates.
The comparison charts below put the results thus far in a historical context.
The growth picture is notably tracking below what we had seen from the same companies in the past. But that is not a surprise, as we knew all along that growth was drastically coming down from the preceding quarters’ level. Positive EPS surprises are tracking above what we had seen from the companies in the preceding quarter, while revenue surprises are tracking notably below other recent periods, as the chart above shows.
The results thus far weighted towards the Finance sector, with results from 52.9% of the sector’s market capitalization in the S&P 500 index already out. Total earnings for these Finance sector companies are up +1.2% on 0.4% higher revenues, with 77.8% beating EPS estimates and 52.8% beating revenue estimates.
In terms of the market’s reaction to these Finance sector results, JPMorgan (JPM - Free Report) and Citigroup (C - Free Report) shares went up while Goldman Sachs (GS - Free Report) and Wells Fargo (WFC - Free Report) were down. The chart below shows the sector’s Q1 results in the context what we had seen from these Finance sector companies in the past.
Looking at Q1 as a whole, combining the actual results from these 131 index members with estimates from the still-to-come companies, total S&P 500 companies are expected to be down -2.3% on +4.7% higher revenues. The chart below of quarterly year-over-year earnings and revenue growth for the S&P 500 index shows estimates for the current and following three quarters and actual results for the preceding 5 quarters.
Driving the negative growth in the first half of the year is tough comparisons due to huge boost to profitability in the year-earlier period. The chart below puts earnings growth expectations for full-year 2019 in the context of where growth has been in recent years and what is expected next year.
The market appears to have priced the deceleration in growth this year in the hope that growth resumes from next year onwards. It is in the context of these lowered expectations that market participants find the actual Q1 results reassuring. The key issue will be if expectations for the second half of the year and beyond will hold or come down as we move through the remainder of the year.
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Image: Bigstock
Earnings Picture Good, Not Great
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:
We now have Q1 results from 131 S&P 500 members that combined account for 31.5% of the index’s total market capitalization. Total earnings for these 131 index members are up +2.3% from the same period last year on +4.8% higher revenues, with 81.7% beating EPS estimates and 58.0% beating revenue estimates.
The comparison charts below put the results thus far in a historical context.
The growth picture is notably tracking below what we had seen from the same companies in the past. But that is not a surprise, as we knew all along that growth was drastically coming down from the preceding quarters’ level. Positive EPS surprises are tracking above what we had seen from the companies in the preceding quarter, while revenue surprises are tracking notably below other recent periods, as the chart above shows.
The results thus far weighted towards the Finance sector, with results from 52.9% of the sector’s market capitalization in the S&P 500 index already out. Total earnings for these Finance sector companies are up +1.2% on 0.4% higher revenues, with 77.8% beating EPS estimates and 52.8% beating revenue estimates.
In terms of the market’s reaction to these Finance sector results, JPMorgan (JPM - Free Report) and Citigroup (C - Free Report) shares went up while Goldman Sachs (GS - Free Report) and Wells Fargo (WFC - Free Report) were down. The chart below shows the sector’s Q1 results in the context what we had seen from these Finance sector companies in the past.
Looking at Q1 as a whole, combining the actual results from these 131 index members with estimates from the still-to-come companies, total S&P 500 companies are expected to be down -2.3% on +4.7% higher revenues. The chart below of quarterly year-over-year earnings and revenue growth for the S&P 500 index shows estimates for the current and following three quarters and actual results for the preceding 5 quarters.
Driving the negative growth in the first half of the year is tough comparisons due to huge boost to profitability in the year-earlier period. The chart below puts earnings growth expectations for full-year 2019 in the context of where growth has been in recent years and what is expected next year.
The market appears to have priced the deceleration in growth this year in the hope that growth resumes from next year onwards. It is in the context of these lowered expectations that market participants find the actual Q1 results reassuring. The key issue will be if expectations for the second half of the year and beyond will hold or come down as we move through the remainder of the year.
The Could Be the Fastest Way to Grow Wealth in 2019
Research indicates one sector is poised to deliver a crop of the best-performing stocks you'll find anywhere in the market. Breaking news in this space frequently creates quick double- and triple-digit profit opportunities.
These companies are changing the world – and owning their stocks could transform your portfolio in 2019 and beyond. Recent trades from this sector have generated +98%, +119% and +164% gains in as little as 1 month.
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