Credit: Shutterstock photoThe Q2 earnings season, which has crossed the half-way mark already, reconfirms the positive earnings picture that emerged as a result of the preceding reporting cycle.
The key positive aspects of this earnings season that we have been pointing out all long include broad-based growth, record earnings tally, an abundance of positive surprises and favorable trends on the revisions front. Plenty of reports are still to come - more than 1000 companies are on deck to come out with results this week, including 130 S&P 500 members - but the positive and reassuring view of corporate earnings that we have seen already will likely remain in place. Apple ( AAPL ), Pfizer ( PFE ), and Yum Brands ( YUM ) are some of the major reports coming out this week.
Here are the four takeaways from the results that have come out already.
First , the earnings and revenue growth pace is steadily going up relative to pre-season expectations. Total Q2 earnings for the index are currently expected to be up +9.2% from the same period last year on +5.0% higher revenues.
Please note that the +9.2% growth rate is the blended growth rate; it combines the actual growth for the 286 S&P 500 members that have reported with estimates for the still-to-come 214 index members. At the start of the quarter, the expectation was for earnings growth of +7.9%, which came down as the quarter unfolded, reaching as low as +5.6% just ahead of the start of the reporting season.
Since plenty of results are still to come, the actual Q2 earnings growth could very well go above +10%, which will follow the +13.3% earnings growth in the preceding quarter.
The deceleration in Q2 earnings growth notwithstanding, the quarter's earnings tally is on track to reach a new all-time quarterly record, surpassing the 2016 Q4 level, as you can see in the chart below. The chart below contrasts the estimated 2017 Q2 total of $292.2 billion with the actual earnings for the preceding four quarters and estimates for the following four periods.
This record isn't expected to last very long, with each of the coming quarters expected to bring in ever bigger earnings tallies.
Second , an above-average proportion of companies are beating EPS and revenue estimates. We typically don't give this factor a lot of weight in evaluating or assessing an earnings season since we all know that management teams are experts in managing expectations. Even then, the trend emerging in the Q2 earnings season is noteworthy for two reasons. First, estimates for the quarter had not fallen by as much as had historically been the case. Second, the proportion of positive revenue surprises, a much harder variable to manipulate relative to earnings, is really off the chart.
The chart below shows the proportion of 286 S&P 500 members that have beaten both EPS and revenue estimates and how that compares to historical periods.
Third , Q2 growth is broad-based and not dependent on one or two sectors. There is strong growth contribution from the Finance, Technology and Energy sectors in Q2, but we have 12 of the 16 Zacks sectors on track to produce more earnings than the year-earlier period.
Fourth , estimates for the September quarter have started coming down, but the pace and magnitude of negative revisions compares favorably to other comparable periods. Total Q3 earnings are currently expected to be up +4.6% from the same period last year, down from +6.3% at the start of July. The chart below shows the evolution of Q3 growth expectations since the start of the period.
This is a reassuring start on the revisions front, but we will have to see if this trend will remain in place through the rest of this earnings season.
Q2 Earnings Season Scorecard (as of Friday, July 28, 2017)
We now have Q2 results from 286 S&P 500 members that combined account for 68.8% of the index's total market capitalization. Total earnings for these companies are up +11.3% from the same period last year on +6.1% higher revenues, with 74.5% beating EPS estimates and 69.2% beating revenue estimates.
The table below shows the current Q2 Scorecard
The charts below compare the Q2 results thus far from the 286 index members with what we had seen from the same group of companies in other recent periods.
As pointed out earlier, the proportion of companies beating EPS and revenue estimates is tracking above historical periods (right-hand chart). The earnings and revenue growth pace for these 286 companies is below what we had seen from the same sample of companies in Q1, but an improvement over other recent periods.
Q2 Expectations
Total Q2 earnings are expected to be up +9.2% from the same period last year on +5.0% higher revenues. This would follow +13.3% earnings growth in 2017 Q1 on +7.0% revenues growth, the highest growth pace in all most two years.
The table below shows the summary picture for Q2, contrasted with what was actually achieved in Q1.
The chart below shoes Q2 earnings growth expectations contrasted with what is expected in the following three quarters and actual results in the preceding 5 quarters. As you can see in the chart below, this growth pace is expected to continue through the rest of the year.
Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks.com 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 1049 companies including 130 S&P 500 members reporting this week.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
