Corporate revenue has stagnated amid a sluggish U.S. and global economy, raising doubts about the sustainability of earnings growth that's already languishing in the low-single digits.
With a little more than half of S&P 500 earnings tallied through Friday, analysts now expect first-quarter revenue to decline 0.3% while earnings rise 3.9%.
"That suggests low-quality earnings that are coming more from cost-cutting than growth in their underlying businesses," said Greg Harrison, a research analyst at Thomson Reuters. "A lot of them are suspect quality.
That would be the second S&P 500 sales drop in three quarters, falling 0.8% in Q3, according to Thomson Reuters data. Earnings rose just 0.1% that quarter.
But before that, revenue had climbed since just after the U.S. exited the last recession in 2009.
Meanwhile, earnings are coming in better than forecast. Estimates for bottom-line growth were as low as 1.5% on April 1, just after the quarter ended.
Sixty-nine percent have so far beat analysts' earnings targets, but more than half have missed sales projections, Harrison said.
The energy sector — especially oil and gas firms — are leading the sales decline amid weaker demand and prices with a 16.7% fall-off in revenue.
Chevron (CVX) topped profit forecasts Friday, but revenue fell 6%, missing. It was a similar story Thursday for Exxon Mobil (XOM).
Materials sector revenue is seen slipping 1.7%.
Industrial sector revenue is seen edging up just 0.2%. General Electric (GE) and Honeywell (HON) both reported flat Q1 sales.
Technology is expected to climb 4.2%, though without the sales boost from battered giant Apple (AAPL), that group's sales would grow just 3%.
Even the consumer — the bulwark of this recovering economy — is pinching more pennies. Analysts expect 5.5% sales growth for the consumer discretionary sector, including many homebuilders and automakers. But that's well shy of the group's 10.5% 10-year average. Consumer staples are now seen rising 1.9% vs. a 6.6% 10-year average.
Hugh Johnson, chairman of Hugh Johnson Advisors, said results have been mixed but are lagging his forecasts.
"When you look back at the quarter, you're going to come away and say this is a bad one," he said.
Analysts have a slightly rosier picture for Q2, expecting 4.4% earnings growth on a 2.9% sales uptick. But those figures have been coming down as corporate chiefs issue lukewarm guidance.
Sales and earnings should rebound in the back half of the year, Johnson said.
As for CEOs' cautious comments, "I'm not sure I take those very seriously anymore," he said.
Q1 earnings season is far from over. Facebook (FB), Comcast (CMCSA), Visa (V) and MasterCard (MA) report Wednesday. Kellogg (K) and Kraft Foods (KRFT) are on tap Thursday.
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