For Immediate Release
Chicago, IL – January 30, 2019 – Zacks Director of Research Sheraz Mian says, “Estimates for Q1 as well as full-year 2019 have been steadily coming down, with Q1 earnings growth now in negative territory, the first quarterly earnings decline since 2016 Q2.”
Q1 Earnings Growth Turns Negative
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:
As expected, Q4 earnings and revenue growth is tracking notably below what we had seen from the same group of 136 index members in other recent periods, but positive EPS and revenue surprises are at their lowest level in two years.
Looking at Q4 as a whole, combining the actual results that have come out with estimates for the still-to-come companies, total earnings for the S&P 500 index are expected to be up +11.2% from the same period last year on +5.3% higher revenues.
The strongest year-over-year earnings growth in Q4 is expected to come from the Energy, Transportation, Construction, Finance, and the Retail sectors. Excluding the Finance sector’s strong growth, Q4 earnings growth for the rest of the index comes down to +9.3% (from +11.2%).
For the small-cap S&P 600 index, total earnings for the 88 index members that have reported results already are up +29% on +10.4% higher revenues, with 52.3% beating EPS estimates and 54.5% beating revenue estimates.
For full-year 2019, total earnings for the S&P 500 index are expected to be up +5.6% on +5.8% higher revenues, which would follow the +20.5% earnings growth on +6.3% higher revenues in 2018. Estimates for 2019 have been steadily coming down, with the current +5.8% growth rate down from +9.8% in early October 2018.
The implied ‘EPS’ for the index, calculated using current 2018 P/E of 16.8X and index close, as of January 28th, is $156.96. Using the same methodology, the index ‘EPS’ works out to $165.74 for 2019 (P/E of 16X) and $183.19 for 2020 (P/E of 14.4X). The multiples for 2018, 2019 and 2020 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.
Q4 Earnings Season Scorecard (as of January 29th, 2019)
Total earnings for the 136 S&P 500 members that have reported Q4 results are up +12.6% on +5.9% higher revenues, with 69.1% beating EPS estimates and 60.3% beating revenue estimates.
We knew that growth would be decelerating in Q4 and we are seeing that in the results thus far. But positive surprises are also tracking below what we had seen from the same group of 136 index members in other recent periods.
Please note that the Q4 beats percentages started out on the low side for both EPS as well as revenues. The revenue beats percentage has since improved modestly, but the proportion of these index members beating EPS estimates is tracking notably below what we have been seeing from the same group of companies in other recent periods. In fact, the Q4 EPS beats % is the lowest since 2016 Q4.
More than positive EPS and revenue surprises for Q4, it is management’s guidance for the current period that will help anchor the market’s expectations. Global economic slowdown has emerged as a recurring theme this earnings season for companies in a variety of industries.
Apple (AAPL - Free Report) got the ball rolling on the global growth question when it came out with a negative pre-announcement in early January, with company specifically pointing to weakness in China as a major reason. Many other companies since then, including Caterpillar (CAT - Free Report) , Nvidia (NVDA - Free Report) and others, have cited the same reason(s) for their weak outlook.
No doubt estimates for the current year and full-year 2019 have been steadily coming down.
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