We are past the halfway mark in the Q1 reporting cycle, with results from 277 S&P 500 members, or 55.4% of the index’s total membership out already, as of Friday, May 1st. The flood of earnings releases continues this week, with more than 1,200 companies on deck to come out with results, including 156 S&P 500 members. By the end of this week, we will have seen Q1 results from more than 85% of the index’s total membership.
The results thus far have given us a good sense of the earnings impact of Covid-19 related policies. This week brings in another batch of companies that have either been hit hard by the pandemic or have proved to be relatively immune to its ravages, if not benefiting from it.
Of the social-distancing ‘victims’, this week brings results from Uber (UBER - Free Report) , Live Nation (LYV - Free Report) , General Motors (GM - Free Report) and others. On the other hand, many consumers have developed newfound respect for companies like Activision-Blizzard (ATVI - Free Report) , Peloton (PTON - Free Report) , Grub Hub (GRUB - Free Report) and others during these tough times and this new reality will show in their Q1 results this week. Others like Disney (DIS - Free Report) , also reporting this week, don’t fall neatly into either camp. The launch of the company’s Disney Plus streaming service has given the stock a lot of support during this downturn, but the company’s results on Tuesday, May 5th, will show the full extent of the pandemic’s impact on theme parks, ESPN and the rest of its business.
The fact is that no company is truly immune from the effects of this pandemic, though the impressive results from many Technology players in recent days reminds us all over again why many in the market have been gravitating to these names during the Covid-19 turmoil.
I am totally brushing off the market’s Friday sell off following the Tech results as nothing more than sell-the-news after having piled into Amazon (AMZN - Free Report) , Microsoft (MSFT - Free Report) , Alphabet (GOOGL - Free Report) and others throughout the market recovery in April, as you can see in the year-to-date performance chart below of the S&P 500 index (red line showing -9.5%), Nasdaq Composite (blue line showing -4.4%) and these stocks.
Tech Sector Scorecard
For the Zacks Technology sector, we now have Q1 results from 27 of the sector’s 69 companies in the S&P 500 index. Please note that these 27 Tech companies that have reported already account for 80.8% of the sector’s total market capitalization in the index.
Total Q1 earnings for these Tech companies that have reported are up +6.2% from the same period last year on +4.5% higher revenues, with 74.3% beating EPS estimates and 71.5% beating revenue estimates. The proportion of Tech companies beating both EPS and revenue estimates is 62.9%, which compares to 48.4% for the S&P 500 index as a whole.
The comparison charts below put the sector’s Q1 performance thus far in a historical content. The first set of charts compare the earnings and revenue growth rates.
The second set of charts compare the Q1 EPS and revenue beats percentages.
We are not suggesting that Tech companies are immune to the pandemic, they are not. But Tech profitability should hold up a lot better than is the case in other spaces.
Q1 Earnings Season Scorecard
As of Friday, May 1st, we have seen Q1 results from 277 S&P 500 members or 55.4% of the index’s total membership. Total earnings or aggregate net income for these 277 index members that have reported already are down -12.6% from the same period last year on +2.1% higher revenues, with 68.6% beating EPS and 63.9% beating revenue estimates.
The Q1 results thus far show the opposing effects that results from the two largest sectors in the S&P 500 index are having on the aggregate growth picture. These two largest sectors are Finance and Technology, with Finance dragging it down and Technology pushing it higher.
Had it not been for the Finance sector drag, Q1 earnings growth for the remaining S&P 500 companies at this stage would have been a lot better, thanks primarily to the aforementioned Technology results.
- Excluding the Finance sector, whose Q1 earnings for the companies that have reported already are down -39.9% on +3.7% higher revenues, earnings for the rest of S&P 500 companies that have reported would be down only -3.3% (vs. down -12.6% with Finance).
- Excluding the Technology sector results, earnings for the rest of S&P 500 companies that have reported would be down -18.8% (vs. down -12.6% with Technology).
The comparison charts below put the results from these 277 index members in a historical context. The first set of two charts compare the earnings and revenue growth rates for these companies.
The second set compares the proportion of these companies beating EPS and revenue estimates.
The earnings growth comparisons start looking a lot better when seen on an ex-Finance basis, as the comparison chart below shows.
For Q1 as a whole, combining the 277 companies that have reported results already with estimates for the still-to-come results, total earnings are expected to be down -12.5% on +2.1% higher revenues.
The table below shows the summary picture for Q1, contrasted with actual results in the preceding period. We have underlined the sectors with the biggest declines in Q1.
As you can see above, the overall Q1 earnings growth rate drops to a decline of -7.6% when seen on an ex-Finance basis. On the other hand, the Q1 decline expands to -17% when the Tech sector’s positive results are excluded.
Earnings Estimates Are Still Falling
With most economic activity at a standstill and millions of Americans losing jobs, the economic growth backdrop in the current period (2020 Q2) is very bad. We are seeing this in earnings estimates, which are falling sharply.
To get a sense of this evolving earnings picture, take a look below at how earnings estimates for the June quarter have evolved over the last couple of months.
As you can see above, the negative revisions trend has accelerated in recent days, a trend that we expect to see continue as more companies report Q1 results and discuss trends in their businesses, even though most of them are withdrawing previously issued guidance for the year. We are seeing something similar at play in estimates for full-year 2020 as well, as the chart below shows.
The chart below puts full-year 2020 earnings and revenue growth expectations in the context of where growth has been in recent years and what is expected beyond this year.
As you can see here, current estimates reflect a strong rebound in growth next year and beyond. But it is hard to have a lot of confidence in these expectations as long as the public health issue remains unsettled.
For an in-depth look at the overall earnings picture and expectations for Q1, please check out our weekly Earnings Trends report >>>> The Coronavirus Pandemic and its impact on Corporate Earnings
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