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Earnings Growth to Continue in Q2

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We are in a quiet period in the quarterly earnings reporting cycle, with the March quarter results effectively behind us now and a few weeks still to go before we really get into the heart of the Q2 earnings season. But quiet period or not, earnings reports never really stop, with this week bringing in 21 quarterly reports, including 2 from S&P 500 members. In fact, these 2 S&P 500 members reporting results this week – H&R Block (HRB) and Kroger (KR - Free Report) – are officially the last earnings reports of the Q1 earnings season.

We will start the tally for the Q2 earnings season the following week, as companies like Adobe (ADBE), Oracle (ORCL) and others start coming out with results for their May-ending fiscal quarters that form part of our Q2 tally.  

Expectations for Q2

Total Q2 earnings are expected to be up +5.7% from the same period last year on +6.5% higher revenues. This would follow +7.4% earnings growth in 2016 Q4 on +3.7% revenue growth, the highest growth pace in all most two years.

Estimates for Q2 came down as the quarter unfolded, with the current +5.7% growth down from +7.9% at the end of March. The chart below shows how Q2 earnings growth expectations have evolved over the last three months.

Please note that while Q2 estimates have followed well traversed path that we have been seeing consistently over the last few years, the magnitude of negative revisions compares favorably to other periods. In other words, Q2 estimates have come down, but they haven’t come down by as much.

The table below shows the summary picture for Q2, contrasted with what was actually achieved in Q1 (please note that we haven’t officially closed the books on Q1 yet, as 2 index members still have to report quarterly results).

The chart below shoes Q2 earnings growth expectations contrasted with what is expected in the following three quarters and actual results in the preceding 6 quarters. As you can see in the chart below, this growth pace is expected to continue through the rest of the year.

Recap of the Q1 Earnings Season

Total earnings for the 498 S&P 500 members that have reported quarterly results already are up +13.4% from the same period last year on +7.1% higher revenues, with 72.5% beating EPS estimates and 65.5% beating revenue estimates. The proportion of companies beating both EPS and revenue estimates is 52%.

The table provides the current earnings season scorecard, as of June 9th, 2017.

Comparing Q1 Results

The chart below provides a comparison of the growth performance thus far with what we have seen from this same group of 498 S&P 500 members in other recent periods.

As you can see, the Q1 growth pace is notably tracking above what we had seen from the same group of 498 index members in other recent periods. Importantly, the growth performance is broad-based and not narrowly concentrated. We got the leadership from the Finance space earlier in the reporting cycle, but the baton has since shifted to Tech and host of other areas, including Industrials, Basic Materials, and Energy.

Positive Revenue Surprises

The chart below compares the proportion of positive EPS and revenue surprises in Q1 thus far with what we had seen from the same group of 498 index members in other recent periods.

The proportion of Q1 companies beating EPS estimates is tracking above historical periods, with positive revenue surprises particularly coming out ahead of what we are used to seeing in the recent past. You can see the same in the chart below that compares the proportion of Q1 companies beating both EPS and revenue estimates with other recent periods.

Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.

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Here is a list of the 21 companies including 2 S&P 500 members reporting this week.

Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
BLOCK H & RHRB3.513.1630.99%TuesdayAMC
CAPSTONE TURBINCPST-0.13-0.25-37.50%TuesdayAMC
CSW INDUSTRIALSCSWI0.40.35-13.33%WednesdayBTO
LEJU HOLDINGSLEJU-0.3-0.0617.39%WednesdayBTO
CROWN CRAFTSCRWS0.180.2246.15%WednesdayBTO
LIBERTY TAX INCTAX2.462.32850.00%WednesdayBTO
LAKELAND INDSLAKE0.140-27.78%WednesdayAMC
DIGITAL TURBINEAPPS-0.09-0.0911.11%WednesdayAMC
JABIL CIRCUITJBL0.220.111.11%WednesdayAMC
KROGER COKR0.570.70.00%ThursdayBTO
YINGLI GREEN ENYGE-2.270.6-67.69%ThursdayBTO
RENESOLA LT-ADRSOL-1.290.3-57.50%ThursdayBTO
FINISAR CORPFNSR0.40.18-7.84%ThursdayAMC

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