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Business Services Q2 Earnings on Jul 29: SPOT, ADP & More

Shuvra Shankar Dey
·6 min read

Business Services is among the sectors to have been adversely impacted by the coronavirus pandemic, mainly due to its high dependency on economic activity. The pandemic had significantly disrupted manufacturing and service activities, hitting economies hard in the United States and across the globe.

However, with the economy reopening and recovering gradually, both manufacturing and non-manufacturing activities started gathering steam. The demand environment for consulting services also got healthier.

Notably, economic activity in the manufacturing sector expanded 9.5% from May to June as the PMI measured by Institute of Supply Management (ISM) touched 52.6%. This is the second consecutive month of expansion after April’s contraction that had interrupted an impressive growth rally of 131 consecutive months.

Non-manufacturing activities clocked 11.7% growth from May to June as the NMI measured by ISM touched 57.1%. This too ended a two-month period of contraction after 122 straight months of expansion.

However, since the virus outbreak started affecting businesses from the second half of March, its impact is expected be more pronounced in second-quarter results. For this reporting cycle, analysts are expecting considerable drop in earnings and revenues from the sector. Total earnings of business services companies in the S&P 500 universe are expected to be down 26.4% on 9.4% lower revenues (read more:The Technology Sector Shows Its Earnings Power Amid Coronavirus).

Glimpse of Upcoming Releases

Against this backdrop, let’s take a look at how five business services companies — Spotify Technology SPOT, Automatic Data Processing ADP, The Interpublic Group of Companies IPG, Rollins ROL and Trane Technologies TT — are placed ahead of their quarterly earnings releases on Jul 29.

Our quantitative model suggests that a company needs the right combination of the following two key ingredients — a positive Earnings ESPand a Zacks Rank #3 (Hold) or better — to increase the odds of a positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Audio streaming services provider Spotify has an Earnings ESP of +17.69% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for revenues in the to-be-reported second quarter is pegged at $2.13 billion, indicating year-over-year growth of 13.9%. Growth of subscribers and monthly active users during the lockdown period is likely to have benefited the top line.

The consensus mark for the second quarter stands at a loss of 49 cents per share. The company had incurred loss of 47 cents in the year-ago quarter and 22 cents in the first quarter of 2020.

Spotify Technology SA Price and EPS Surprise

Spotify Technology SA Price and EPS Surprise
Spotify Technology SA Price and EPS Surprise

Spotify Technology SA price-eps-surprise | Spotify Technology SA Quote

Cloud-based human capital management solutions provider Automatic Data Processing has an Earnings ESP of -2.49% and carries a Zacks Rank of 3, at present.

Automatic Data Processing’s fourth-quarter fiscal 2020 performance is expected to have been affected by coronavirus-led lockdowns that prompted firms to reshore jobs amid lack of labor, supply-chain disruptions and workplace closures.

The Zacks Consensus Estimate for revenues stands at $3.29 billion, indicating decline of 5.9% year over year. The consensus estimate for earnings stands at 96 cents, implying a year-over-year decline of 15.8%. (Read more: What Awaits Automatic Data Processing in Q4 Earnings?)

Automatic Data Processing, Inc. Price and EPS Surprise

Automatic Data Processing, Inc. Price and EPS Surprise
Automatic Data Processing, Inc. Price and EPS Surprise

Automatic Data Processing, Inc. price-eps-surprise | Automatic Data Processing, Inc. Quote

Advertising and marketing services provider Interpublic, with an Earnings ESP of 0.00% and a Zacks Rank of 3 also does not have a favorable combination.

The Zacks Consensus Estimate for revenues is pegged at $1.74 billion, indicating a decrease of 30.8% year over year. Unfavorable impact of foreign currency movements is likely to have offset the positive impact of organic growth.

The Zacks Consensus Estimate for earnings is pegged at 20 cents, indicating a 56.5% year-over-year. (Read more: Interpublic To Report Q2 Earnings: What's In Store? )

Interpublic Group of Companies, Inc. The Price and EPS Surprise

Interpublic Group of Companies, Inc. The Price and EPS Surprise
Interpublic Group of Companies, Inc. The Price and EPS Surprise

Interpublic Group of Companies, Inc. The price-eps-surprise | Interpublic Group of Companies, Inc. The Quote

Pest and termite control services provider Rollins has an Earnings ESP of +3.85% and currently carries a Zacks Rank of 2 (Buy).

Acquisitions, organic growth and pricing are likely to have driven the company’s top line in the to-be-reported second quarter, offsetting impacts of coronavirus-led general reduction in demand for services. The Zacks Consensus Estimate for revenues is pegged at $541.4 million, indicating 3.3% year-over-year growth.

The bottom line is likely to have been negatively impacted by expenses related to the Clark acquisition, increased purchase of PPE kits for employees, and equipment and supplies required for the disinfectant service VitalClean. The consensus mark is pegged at 17 cents, indicating a decline of 19.1% year over year. (Read more: Rollins to Report Q2 Earnings: What's in the Cards?)

Rollins, Inc. Price and EPS Surprise

Rollins, Inc. Price and EPS Surprise
Rollins, Inc. Price and EPS Surprise

Rollins, Inc. price-eps-surprise | Rollins, Inc. Quote

Climate control solutions solutions provider, Trane Technologies with an Earnings ESP of +7.78% and a Zacks Rank of 3 has a favorable combination this time around.

The Zacks Consensus Estimate for the company’s second-quarter earnings is pegged at 77 cents, suggesting a 63.3% year-over-year decline. The consensus mark for revenues is pinned at $2.79 billion, indicating year-over-year decline of 38.3%.

Trane Technologies plc Price and EPS Surprise

Trane Technologies plc Price and EPS Surprise
Trane Technologies plc Price and EPS Surprise

Trane Technologies plc price-eps-surprise | Trane Technologies plc Quote

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

See the 5 high-tech stocks now>>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Automatic Data Processing, Inc. (ADP) : Free Stock Analysis Report
 
Interpublic Group of Companies, Inc. The (IPG) : Free Stock Analysis Report
 
Rollins, Inc. (ROL) : Free Stock Analysis Report
 
Trane Technologies plc (TT) : Free Stock Analysis Report
 
Spotify Technology SA (SPOT) : Free Stock Analysis Report
 
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