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The Retail sector is the only one where a significant number of Q2 earnings reports are still awaited at this stage; the reporting cycle has effectively come to an end for most of the other sectors, particularly in the large-cap S&P 500 index (plenty of small-cap reports are still to come).
Almost 92% of the S&P 500 members have already reported Q2 results, though results from more than 40% of the retailers in the index are still to come. We have 124 companies coming out with quarterly results this week, including 21 S&P 500 members that include major retailers like Home Depot (HD - Free Report) , Target Corp (TGT - Free Report) , Staples , Wal-Mart (WMT - Free Report) , Gap Inc. , and Foot Locker (FL - Free Report) .
We have already seen Q2 results from 56.8% of the Retail sector members in the S&P 500 index. While most of the initial retail sector reports were from online vendors and restaurant operators, most of the recent reports have been from the beleaguered department stores space with market participants pleasantly getting surprised that the sky wasn’t really falling for Macy’s (M - Free Report) , Kohl’s (KSS - Free Report) , Nordstrom (JWN - Free Report) and others.
The problems that have been weighing on these department stores like reduced foot traffic as a result of steady migration of sales to the online medium haven’t gone away. But a couple of things appear to be happening, all favorable to these retailers. First, Macy’s announcement of closing 100 locations appears to be an acknowledgement of the ‘over-stored’ ground reality. Second, inventories finally appear to be in-line with sales, which come after two back-to-back quarters when these operators were saddled with mountains of unsold merchandize as a result of weather and the aforementioned reduced foot traffic issue. Third and most important, expectations were so low from these department stores and their stocks were so beaten down that even a modest improvement have helped push them higher.
These favorable department store results notwithstanding, the overall environment still remains challenging in this space, with the longstanding competitive pressures from Amazon (AMZN - Free Report) and others are only expected to increase over time. The Q2 Retail sector results that have been reported already, as a whole, are on the weak side, with growth tracking below historical periods and very few companies able to come out with positive earnings and revenue surprises. This week’s reports from Wal-Mart, Home Depot and others are expected to be better relative to the department stores, but the overall aggregate picture for the sector may not change much.
The Retail Scorecard
As of Friday August 12th, we have seen Q2 results from 25 retailers in the S&P 500 index (out of the 44 total) that combined account for 59.5% of the sector’s total market cap in the index. Total earnings for these 25 retails are up +6.5% from the same period last year, on +7.8% higher revenues, with a relatively low 52% beating EPS estimates and a very low 24% coming ahead of top-line expectations.
The side-by-side charts below compare the growth rates and beat ratios thus far with what we have seen from the same group of 25 retailers in other recent periods.
The growth comparisons (left hand chart) don’t stand out – Q2 earnings and revenue growth rates are above the 4-quarter average, but about in-line with the 12-quarter average. But the right hand chart, which is tracking the proportion of Retail sector stocks coming out with positive EPS and revenue surprises, shows that Q2 is notably weaker relative to the recent past.
The fact is that the 52% EPS beat % for the Retail sector is the second lowest for the entire S&P 500 index, behind only the Construction sector. The revenue beat % of 24% for the sector is the second lowest (Utilities is the lowest at 23.3%) of all 16 sectors at this stage.
With respect to the growth picture, which appears to be in-line with the recent past, we have to dig a bit deeper to adjust the sector’s growth picture for Amazon’s blockbuster Q2 earnings report. This becomes clear by looking at the left hand chart above, with and without the Amazon numbers.
The right-hand chart above, showing the sector’s growth comparison on an ex-Amazon basis, clearly shows that Q2 is tracking way below what we have been seeing from these same retailers in the recent past.
The Q2 Earnings Scorecard (as of August 12th)
We now have Q2 results from 459 S&P 500 members that combined account for 92.3% of the index’s total market capitalization. Total earnings for these 459 companies are down -3.6% from the same period last year on -0.6% lower revenues, with 71.5% beating EPS estimates and 52.9% coming ahead of top-line expectations.
The table below provides the current scorecard
The first column of the above table shows what percentage of each sector’s total members have reported results; the second column shows what percentage of that sector’s total market cap has reported results. As you can see, the reporting cycle has ended for five sectors already. The Retail sector is the only one that has exactly half of its results still awaited.
The side-by-side charts below compare the results thus far from the 459 index members with what we have seen from the same group of index members in other recent periods. The left-hand chart compares the earnings and revenue growth rates with historical periods while the right-hand chart is doing the same comparisons for positive EPS and revenue surprises.
Here are the takeaways from these comparison charts are:
First, the earnings growth (green bars in the left-side chart above) remains negative, but it is an improvement over what we saw in the preceding quarter and the average growth pace for these 459 index members in the preceding four quarters.
Second, revenue growth (orange bars in the left-side chart) is also negative, but is tracking above what we saw from this group of 459 S&P 500 members in 2016 Q1 and the 4-quarter average.
Third, positive EPS surprises (green bars in the right-side chart) for this group of companies are about in-line with historical periods, suggesting that estimates may not have been that low after all.
Fourth, comparisons for positive revenue surprises are mixed – they are below the preceding quarter and the 12-quarter average, but modestly above the 12-quarter average.
Standout Sectors
Results in the Technology and Medical sectors have been notably better than expected. Autos, Industrial Products, Aerospace and Finance are some of the other sectors whose results came in better than expected. Growth is notably strong in the Construction sector, but the proportion of sector companies beating EPS and revenue estimates is tracking below the index’s level.
For the Technology sector, we now have results from 89.2% of the sector’s total market cap in the index. Total earnings for these Tech companies are down -0.8% from the same period last year on +3.1% higher revenues, with 82% beating EPS estimates and 72% beating revenue expectations.
The comparison charts below compare the sector’s results thus far with what these same Tech companies had reported in other recent periods.
This is a better growth performance than we have seen from the same group of Tech companies in the preceding quarter. With respect to positive surprises, they are tracking above historical periods for both earnings and revenue beats, as the comparison charts above show. No doubt market participants are so excited for the results from Facebook (FB), Google’s parent Alphabet (GOOGL) and even Apple (AAPL - Free Report) and Microsoft (MSFT - Free Report) .
The table below shows the sector’s scorecard at the medium industry level. As you can see, all of the sector’s growth is coming from the Software/Services industry where Alphabet had +44.3% earnings growth on +22.1% higher revenues while Facebook had +158% growth in earnings on 59.2% higher revenues. The weak growth picture for the hardware industry (Computer – office Equipment) is due to Apple and IBM, with Apple’s earnings down -27% on -14.6% lower revenues.
Expectations for the Quarter As a Whole
Looking at Q2 as a whole, combining the actual results from 459 index members with estimates for the still-to-come 41 companies, total S&P 500 earnings are expected to be down -3.3% on -0.4% lower revenues, with growth in negative territory for 7 of the 16 Zacks sectors. The Q2 growth pace has ‘improved’ as companies have come out with improved results, but the quarter is still on track to be in the negative for the 5th quarter in a row.
As has been the pattern in other recent periods, the Energy sector remains the biggest drag on the aggregate growth picture, with total earnings for the sector expected to be down -78.9% on -26% lower revenues. Excluding the Energy sector, earnings for the rest of the index would be slightly up 0.2%.
The table below shows the summary picture for Q2 contrasted with what was actually achieved in the preceding period.
While Energy stands out for its very tough comparisons, there is not much positive growth coming from the other major sectors either. The Finance and Technology sectors, the two biggest earnings contributors in the S&P 500 index, are not helping the aggregate growth picture either.
For the Finance sector, total Q2 earnings are expected to be down -5.2% on -0.4% lower revenues, which will follow -6.9% decline in the sector’s earnings in the preceding quarter.
The Technology sector, total earnings are expected to be down -0.1% on +2.7% higher revenues, which would follow the sector’s -4.5% earnings decline on +0.4% higher revenues in Q1. The big culprit for the Tech sector’s weak showing this quarter (as well as last one) is Apple (AAPL - Free Report) , whose June quarter earnings were down -27% on -14.6% lower revenues from the same period last year. Excluding Apple, the Tech sector’s Q2 earnings would be up +6.6% (Apple alone brings in roughly a fifth of the Tech sector’s total earnings).
On the positive side, Q2 earnings are expected be up at Autos (+16.3%), Construction (+7.5%), Conglomerates (+20.6%), and Utilities (+8.3%).
Expectations Beyond Q2
The chart below shows current quarterly earnings growth expectations for the index in 2016 Q2 and the following four quarters contrasted with actual declines in the preceding four quarters. As you can see, Q2 is on track to be the 5th quarter in row of earnings declines and estimates of Q3 growth starting to go deeper into negative territory as well.
The only meaningful positive earnings growth this year is expected to come from the last quarter of the year, which is then expected to continue into 2017 when earnings for the S&P 500 index are expected to be up in double-digits. We will see if those estimates will hold up as we reach the last quarter of the year. But given what we have seen over the last few quarters, the odds don’t look that favorable.
Note: Sheraz Mian regularly provides earnings analysis on Zacks.com and appears frequently in the print and electronic media. In addition to this Earnings Preview article, he publishes the Zacks Earnings Trends report every week.
If you want an email notification each time Sheraz publishes a new article, please click here>>>
Here is a list of the 124 companies reporting this week, including 21 S&P 500 members.
Company
Ticker
Current Qtr
Year-Ago Qtr
Last EPS Surprise %
Report Day
Time
SYSCO CORP
SYY
0.6
0.52
9.52%
Monday
BTO
CLEAN DIESEL
CDTI
-0.46
-0.8
-10.00%
Monday
BTO
ECO-STIM ENERGY
ESES
-0.22
-0.52
-9.09%
Monday
BTO
FORBES ENERGY
FES
-0.81
-0.41
-33.73%
Monday
BTO
VASCULAR BIOGNC
VBLT
-0.2
-0.15
-23.53%
Monday
BTO
ASURE SOFTWARE
ASUR
-0.02
0.04
-650.00%
Monday
BTO
CELSION CORP
CLSN
-0.21
-0.27
0.00%
Monday
BTO
MERUS LABS INTL
MSLI
0
-0.01
-200.00%
Monday
BTO
ABILITY INC
ABIL
0.11
N/A
-266.67%
Monday
BTO
CELLECTAR BIOSC
CLRB
-0.4
-3
-
Monday
BTO
PATRIOT NATIONL
PN
0.19
0.09
-10.00%
Monday
BTO
SORL AUTO PARTS
SORL
0.18
0.12
-85.71%
Monday
BTO
VUZIX CORP
VUZI
-0.13
-0.17
-73.33%
Monday
BTO
YOU ON DEMAND
YOD
N/A
-0.06
-
Monday
BTO
EVOKE PHARMA
EVOK
-0.43
-0.52
-18.42%
Monday
AMC
ALARM.COM HLDGS
ALRM
0.1
-0.31
22.22%
Monday
AMC
ASTERIAS BIOTHR
AST
-0.19
-0.1
-80.00%
Monday
AMC
FABRINET
FN
0.6
0.34
-5.56%
Monday
AMC
INNERWORKINGS
INWK
0.04
0.04
100.00%
Monday
AMC
RED ROCK RESRTS
RRR
0.4
N/A
-
Monday
AMC
FAMOUS DAVES
DAVE
0.12
0.18
87.50%
Monday
AMC
MARATHON PATENT
MARA
0.5
-0.37
25.00%
Monday
AMC
SITO MOBILE LTD
SITO
-0.04
-0.07
-75.00%
Monday
AMC
AVINO SILVER&GD
ASM
-0.01
0.01
-100.00%
Monday
AMC
BRIDGELINE DGTL
BLIN
-0.11
-0.22
0.00%
Monday
AMC
BARFRESH FD GRP
BRFH
-0.03
-0.02
0.00%
Monday
AMC
CINEDIGM CORP
CIDM
-1.25
-1.3
20.00%
Monday
AMC
FOUNDATION HLTH
FDNH
-0.02
0.03
-1400.00%
Monday
AMC
FIFTH STREET AM
FSAM
0.12
0.19
-20.00%
Monday
AMC
GOL LINHAS-ADR
GOL
-2.45
-4.7
122.50%
Monday
AMC
IMPRIMIS PHARMA
IMMY
N/A
-0.39
4.65%
Monday
AMC
RAND LOGISTICS
RLOG
N/A
0.14
-28.36%
Monday
AMC
ONE GROUP HOSP
STKS
0.05
-0.04
-100.00%
Monday
AMC
COPSYNC INC
COYN
N/A
-0.5
-
Monday
AMC
PARKERVISION
PRKR
N/A
-0.5
-
Monday
AMC
PROGRESSIVE CR
RXMD
N/A
N/A
-
Monday
AMC
CIA SIDERUR-ADR
SID
N/A
-0.15
-
Monday
AMC
VIPSHOP HOLDNGS
VIPS
0.14
0.12
-6.67%
Monday
AMC
TARENA INTL-ADR
TEDU
N/A
0.05
-
Monday
AMC
ANGLOGOLD LTD
AU
N/A
0.06
-360.00%
Monday
N/A
LIVE VENTURES
LIVE
N/A
-0.23
-
Monday
N/A
HOME DEPOT
HD
1.95
1.71
7.46%
Tuesday
BTO
TJX COS INC NEW
TJX
0.8
0.8
8.57%
Tuesday
BTO
ADVANCE AUTO PT
AAP
2.14
2.27
-3.83%
Tuesday
BTO
DICKS SPRTG GDS
DKS
0.68
0.77
2.04%
Tuesday
BTO
COTY INC-A
COTY
0.06
0.05
-25.00%
Tuesday
BTO
G&K SVCS A
GK
0.95
0.83
0.00%
Tuesday
BTO
ECOPETROL- ADR
EC
0.11
N/A
-
Tuesday
BTO
UNIQUE FABRICTG
UFAB
0.2
0.24
5.00%
Tuesday
BTO
AUTOHOME INC
ATHM
N/A
0.42
56.00%
Tuesday
BTO
GWG HOLDINGS
GWGH
-0.44
-0.32
411.11%
Tuesday
BTO
CHINA LODGING
HTHT
0.38
0.37
100.00%
Tuesday
BTO
MOMO INC -ADR
MOMO
0.08
0.01
-40.00%
Tuesday
BTO
XBIOTECH INC
XBIT
-0.35
-0.22
17.95%
Tuesday
BTO
BHP BILLITN LTD
BHP
N/A
N/A
-
Tuesday
BTO
VERSO CORP-A
VRS
N/A
N/A
-
Tuesday
BTO
URBAN OUTFITTER
URBN
0.56
0.52
0.00%
Tuesday
AMC
OSI SYSTEMS INC
OSIS
0.49
1.22
-1.54%
Tuesday
AMC
JACK HENRY ASSC
JKHY
0.8
0.75
3.03%
Tuesday
AMC
CREE INC
CREE
0.05
-0.3
-50.00%
Tuesday
AMC
21VIANET GP-ADR
VNET
-0.12
-0.16
-111.11%
Tuesday
AMC
POPEYES LA KTCH
PLKI
0.47
0.44
-7.94%
Tuesday
AMC
LOWES COS
LOW
1.41
1.2
2.35%
Wednesday
BTO
ANALOG DEVICES
ADI
0.76
0.77
3.23%
Wednesday
BTO
TARGET CORP
TGT
1.13
1.22
7.50%
Wednesday
BTO
STAPLES INC
SPLS
0.12
0.12
6.25%
Wednesday
BTO
AMER EAGLE OUTF
AEO
0.21
0.17
22.22%
Wednesday
BTO
CHILDRENS PLACE
PLCE
-0.24
-0.33
28.16%
Wednesday
BTO
EATON VANCE
EV
0.55
0.57
2.13%
Wednesday
BTO
HARMONY GOLD
HMY
N/A
0.03
-
Wednesday
BTO
SITEONE LANDSCP
SITE
0.78
N/A
-553.85%
Wednesday
BTO
BIO-TECHNE CP
TECH
0.88
0.87
14.12%
Wednesday
BTO
INNOCOLL HLDGS
INNL
-0.62
-0.54
-36.11%
Wednesday
BTO
PERFORMANCE FG
PFGC
0.4
N/A
0.00%
Wednesday
BTO
CITI TRENDS INC
CTRN
-0.05
0.01
-17.57%
Wednesday
BTO
JA SOLAR HOLDGS
JASO
0.59
0.27
63.64%
Wednesday
BTO
PARTNER COMM
PTNR
0
0.01
-
Wednesday
BTO
L BRANDS INC
LB
0.59
0.68
7.27%
Wednesday
AMC
CISCO SYSTEMS
CSCO
0.55
0.52
0.00%
Wednesday
AMC
AGILENT TECH
A
0.47
0.44
12.82%
Wednesday
AMC
NETAPP INC
NTAP
0.18
0.04
-10.00%
Wednesday
AMC
SYNOPSYS INC
SNPS
0.43
0.35
37.50%
Wednesday
AMC
CACI INTL A
CACI
1.58
1.68
12.00%
Wednesday
AMC
ACCURAY INC
ARAY
-0.06
-0.07
120.00%
Wednesday
AMC
BRIGGS & STRATT
BGG
0.52
0.51
-10.11%
Wednesday
AMC
SPARTAN NASH CO
SPTN
0.57
0.53
10.20%
Wednesday
AMC
IMMUNOMEDICS
IMMU
-0.11
-0.13
-15.38%
Wednesday
AMC
NETEASE INC
NTES
2.56
1.74
24.68%
Wednesday
AMC
KEYSIGHT TECH
KEYS
0.53
0.51
16.00%
Wednesday
AMC
YY INC-ADR
YY
0.71
0.82
13.89%
Wednesday
AMC
WAL-MART STORES
WMT
1.02
1.08
11.36%
Thursday
BTO
HORMEL FOODS CP
HRL
0.34
0.28
5.26%
Thursday
BTO
MSG NETWORKS
MSGN
0.49
0.6
15.69%
Thursday
BTO
PERRY ELLIS INT
PERY
0
0.31
14.77%
Thursday
BTO
PHOTRONICS INC
PLAB
0.14
0.17
0.00%
Thursday
BTO
STAGE STORES
SSI
0.05
0.22
-27.27%
Thursday
BTO
TORO CO
TTC
1
0.94
5.00%
Thursday
BTO
LANCASTER COLON
LANC
1.06
0.93
27.71%
Thursday
BTO
TWIN DISC
TWIN
-0.16
0.04
43.75%
Thursday
BTO
CANADIAN SOLAR
CSIQ
0.4
0.31
184.62%
Thursday
BTO
NAVIOS MARI ACQ
NNA
0.11
0.14
0.00%
Thursday
BTO
GAP INC
GPS
0.59
0.64
0.00%
Thursday
AMC
ROSS STORES
ROST
0.67
0.63
0.00%
Thursday
AMC
APPLD MATLS INC
AMAT
0.47
0.33
6.25%
Thursday
AMC
DEVRY EDUCATION
DV
0.61
0.57
16.39%
Thursday
AMC
SPORTSMANS WRHS
SPWH
0.16
0.14
100.00%
Thursday
AMC
AMERICAS CAR-MT
CRMT
0.51
0.52
-29.82%
Thursday
AMC
MENTOR GRAPHICS
MENT
-0.03
0.3
45.45%
Thursday
AMC
NEW YORK & CO
NWY
0
0.03
-325.00%
Thursday
AMC
GOLD FIELDS-ADR
GFI
N/A
0.03
0.00%
Thursday
N/A
SWISSCOM AG ADR
SCMWY
N/A
0.89
-2.74%
Thursday
N/A
NESTLE S A REG
NSRGY
N/A
N/A
-
Thursday
N/A
SPARK NEW ZEALD
SPKKY
N/A
N/A
-
Thursday
N/A
MOBILE TELE-ADR
MBT
N/A
0.33
-
Thursday
N/A
ESTEE LAUDER
EL
0.4
0.4
21.67%
Friday
BTO
DEERE & CO
DE
0.95
1.53
6.85%
Friday
BTO
FOOT LOCKER INC
FL
0.91
0.84
-0.71%
Friday
BTO
HIBBET SPORTS
HIBB
0.27
0.28
1.67%
Friday
BTO
TUESDAY MORNING
TUES
-0.12
-0.1
0.00%
Friday
BTO
MADISON SQUAR-A
MSG
-1.16
N/A
-57.14%
Friday
BTO
CHEETAH MBL-ADR
CMCM
N/A
0.07
-66.67%
Friday
BTO
STEIN MART INC
SMRT
0.07
0.1
7.14%
Friday
BTO
AVIANCA HOLDNGS
AVH
-0.09
-0.16
0.00%
Friday
AMC
BUCKLE INC
BKE
0.33
0.49
-11.11%
Friday
N/A
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Are Retail Earnings Really Improving?
The Retail sector is the only one where a significant number of Q2 earnings reports are still awaited at this stage; the reporting cycle has effectively come to an end for most of the other sectors, particularly in the large-cap S&P 500 index (plenty of small-cap reports are still to come).
Almost 92% of the S&P 500 members have already reported Q2 results, though results from more than 40% of the retailers in the index are still to come. We have 124 companies coming out with quarterly results this week, including 21 S&P 500 members that include major retailers like Home Depot (HD - Free Report) , Target Corp (TGT - Free Report) , Staples , Wal-Mart (WMT - Free Report) , Gap Inc. , and Foot Locker (FL - Free Report) .
We have already seen Q2 results from 56.8% of the Retail sector members in the S&P 500 index. While most of the initial retail sector reports were from online vendors and restaurant operators, most of the recent reports have been from the beleaguered department stores space with market participants pleasantly getting surprised that the sky wasn’t really falling for Macy’s (M - Free Report) , Kohl’s (KSS - Free Report) , Nordstrom (JWN - Free Report) and others.
The problems that have been weighing on these department stores like reduced foot traffic as a result of steady migration of sales to the online medium haven’t gone away. But a couple of things appear to be happening, all favorable to these retailers. First, Macy’s announcement of closing 100 locations appears to be an acknowledgement of the ‘over-stored’ ground reality. Second, inventories finally appear to be in-line with sales, which come after two back-to-back quarters when these operators were saddled with mountains of unsold merchandize as a result of weather and the aforementioned reduced foot traffic issue. Third and most important, expectations were so low from these department stores and their stocks were so beaten down that even a modest improvement have helped push them higher.
These favorable department store results notwithstanding, the overall environment still remains challenging in this space, with the longstanding competitive pressures from Amazon (AMZN - Free Report) and others are only expected to increase over time. The Q2 Retail sector results that have been reported already, as a whole, are on the weak side, with growth tracking below historical periods and very few companies able to come out with positive earnings and revenue surprises. This week’s reports from Wal-Mart, Home Depot and others are expected to be better relative to the department stores, but the overall aggregate picture for the sector may not change much.
The Retail Scorecard
As of Friday August 12th, we have seen Q2 results from 25 retailers in the S&P 500 index (out of the 44 total) that combined account for 59.5% of the sector’s total market cap in the index. Total earnings for these 25 retails are up +6.5% from the same period last year, on +7.8% higher revenues, with a relatively low 52% beating EPS estimates and a very low 24% coming ahead of top-line expectations.
The side-by-side charts below compare the growth rates and beat ratios thus far with what we have seen from the same group of 25 retailers in other recent periods.
The growth comparisons (left hand chart) don’t stand out – Q2 earnings and revenue growth rates are above the 4-quarter average, but about in-line with the 12-quarter average. But the right hand chart, which is tracking the proportion of Retail sector stocks coming out with positive EPS and revenue surprises, shows that Q2 is notably weaker relative to the recent past.
The fact is that the 52% EPS beat % for the Retail sector is the second lowest for the entire S&P 500 index, behind only the Construction sector. The revenue beat % of 24% for the sector is the second lowest (Utilities is the lowest at 23.3%) of all 16 sectors at this stage.
With respect to the growth picture, which appears to be in-line with the recent past, we have to dig a bit deeper to adjust the sector’s growth picture for Amazon’s blockbuster Q2 earnings report. This becomes clear by looking at the left hand chart above, with and without the Amazon numbers.
The right-hand chart above, showing the sector’s growth comparison on an ex-Amazon basis, clearly shows that Q2 is tracking way below what we have been seeing from these same retailers in the recent past.
The Q2 Earnings Scorecard (as of August 12th)
We now have Q2 results from 459 S&P 500 members that combined account for 92.3% of the index’s total market capitalization. Total earnings for these 459 companies are down -3.6% from the same period last year on -0.6% lower revenues, with 71.5% beating EPS estimates and 52.9% coming ahead of top-line expectations.
The table below provides the current scorecard
The first column of the above table shows what percentage of each sector’s total members have reported results; the second column shows what percentage of that sector’s total market cap has reported results. As you can see, the reporting cycle has ended for five sectors already. The Retail sector is the only one that has exactly half of its results still awaited.
The side-by-side charts below compare the results thus far from the 459 index members with what we have seen from the same group of index members in other recent periods. The left-hand chart compares the earnings and revenue growth rates with historical periods while the right-hand chart is doing the same comparisons for positive EPS and revenue surprises.
Here are the takeaways from these comparison charts are:
First, the earnings growth (green bars in the left-side chart above) remains negative, but it is an improvement over what we saw in the preceding quarter and the average growth pace for these 459 index members in the preceding four quarters.
Second, revenue growth (orange bars in the left-side chart) is also negative, but is tracking above what we saw from this group of 459 S&P 500 members in 2016 Q1 and the 4-quarter average.
Third, positive EPS surprises (green bars in the right-side chart) for this group of companies are about in-line with historical periods, suggesting that estimates may not have been that low after all.
Fourth, comparisons for positive revenue surprises are mixed – they are below the preceding quarter and the 12-quarter average, but modestly above the 12-quarter average.
Standout Sectors
Results in the Technology and Medical sectors have been notably better than expected. Autos, Industrial Products, Aerospace and Finance are some of the other sectors whose results came in better than expected. Growth is notably strong in the Construction sector, but the proportion of sector companies beating EPS and revenue estimates is tracking below the index’s level.
For the Technology sector, we now have results from 89.2% of the sector’s total market cap in the index. Total earnings for these Tech companies are down -0.8% from the same period last year on +3.1% higher revenues, with 82% beating EPS estimates and 72% beating revenue expectations.
The comparison charts below compare the sector’s results thus far with what these same Tech companies had reported in other recent periods.
This is a better growth performance than we have seen from the same group of Tech companies in the preceding quarter. With respect to positive surprises, they are tracking above historical periods for both earnings and revenue beats, as the comparison charts above show. No doubt market participants are so excited for the results from Facebook (FB), Google’s parent Alphabet (GOOGL) and even Apple (AAPL - Free Report) and Microsoft (MSFT - Free Report) .
The table below shows the sector’s scorecard at the medium industry level. As you can see, all of the sector’s growth is coming from the Software/Services industry where Alphabet had +44.3% earnings growth on +22.1% higher revenues while Facebook had +158% growth in earnings on 59.2% higher revenues. The weak growth picture for the hardware industry (Computer – office Equipment) is due to Apple and IBM, with Apple’s earnings down -27% on -14.6% lower revenues.
Expectations for the Quarter As a Whole
Looking at Q2 as a whole, combining the actual results from 459 index members with estimates for the still-to-come 41 companies, total S&P 500 earnings are expected to be down -3.3% on -0.4% lower revenues, with growth in negative territory for 7 of the 16 Zacks sectors. The Q2 growth pace has ‘improved’ as companies have come out with improved results, but the quarter is still on track to be in the negative for the 5th quarter in a row.
As has been the pattern in other recent periods, the Energy sector remains the biggest drag on the aggregate growth picture, with total earnings for the sector expected to be down -78.9% on -26% lower revenues. Excluding the Energy sector, earnings for the rest of the index would be slightly up 0.2%.
The table below shows the summary picture for Q2 contrasted with what was actually achieved in the preceding period.
While Energy stands out for its very tough comparisons, there is not much positive growth coming from the other major sectors either. The Finance and Technology sectors, the two biggest earnings contributors in the S&P 500 index, are not helping the aggregate growth picture either.
For the Finance sector, total Q2 earnings are expected to be down -5.2% on -0.4% lower revenues, which will follow -6.9% decline in the sector’s earnings in the preceding quarter.
The Technology sector, total earnings are expected to be down -0.1% on +2.7% higher revenues, which would follow the sector’s -4.5% earnings decline on +0.4% higher revenues in Q1. The big culprit for the Tech sector’s weak showing this quarter (as well as last one) is Apple (AAPL - Free Report) , whose June quarter earnings were down -27% on -14.6% lower revenues from the same period last year. Excluding Apple, the Tech sector’s Q2 earnings would be up +6.6% (Apple alone brings in roughly a fifth of the Tech sector’s total earnings).
On the positive side, Q2 earnings are expected be up at Autos (+16.3%), Construction (+7.5%), Conglomerates (+20.6%), and Utilities (+8.3%).
Expectations Beyond Q2
The chart below shows current quarterly earnings growth expectations for the index in 2016 Q2 and the following four quarters contrasted with actual declines in the preceding four quarters. As you can see, Q2 is on track to be the 5th quarter in row of earnings declines and estimates of Q3 growth starting to go deeper into negative territory as well.
The only meaningful positive earnings growth this year is expected to come from the last quarter of the year, which is then expected to continue into 2017 when earnings for the S&P 500 index are expected to be up in double-digits. We will see if those estimates will hold up as we reach the last quarter of the year. But given what we have seen over the last few quarters, the odds don’t look that favorable.
Note: Sheraz Mian regularly provides earnings analysis on Zacks.com and appears frequently in the print and electronic media. In addition to this Earnings Preview article, he publishes the Zacks Earnings Trends report every week.
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Here is a list of the 124 companies reporting this week, including 21 S&P 500 members.