For Immediate Release
Chicago, IL –August 5, 2019 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Disney DIS, CBS CBS, Kraft Heinz KHC, Tyson Foods TSN and Devon Energy DVN.
The Earnings Picture Is Good Enough
The overall picture emerging from the Q2 earnings season is good enough; not great, but not bad either. The fact that there is not much growth is hardly news to anyone, as we knew all along the very tough comparisons for this quarter, as well as the remainder of this year. Earnings growth was essentially flat in the first quarter of the year and we appear to be on track for a similar performance in Q2 as well.
Some pockets of resilience have reassuringly come out, with the Finance and Consumer Staples sectors particularly showing better results than many of us expected. I will explain the earnings performance of these two sectors a little later, but it appears that companies exposed to household spending appear to have done better than those needing business spending. The trade overhang is negative for both groups of companies, but it appears to be a bigger drag on business spending.
On the reporting docket, we have now entered the final phase of Q2 results for the S&P 500 index, with results from more than three quarters of the index’s members already out. Plenty of reports are still to come, but they are mostly in the small- and mid-cap area. This week brings results from more than 1,000 companies, including 56 S&P 500 members. This week’s docket brings in the major media players like Disney, CBS, Consumer Staples players like Kraft Heinz and Tyson Foods and exploration and production (E&P) operators like Devon Energy.
Here are the key takeaways from the Q2 earnings season after seeing results from 388 S&P 500 members through Friday, August 2nd.
First, no major surprises on the growth front, which we knew will be anemic. We should keep in mind however that the growth challenge is more a function of tough comparisons to last year’s record results than a cyclical downturn in profitability.
Total earnings for the 388 index members that have reported are up +0.8% from the same period last year on +4.3% higher revenues. Earnings and revenue growth for the same cohort of companies had been -0.3% and +4.5% in the preceding earnings season, respectively. In other words, earnings growth is tracking modestly above what we had seen in the March quarter and revenue growth is almost even.
Earnings growth for the quarter was expected to be in negative territory before this earnings season got underway. But the blended growth rate, which combines the actual results that have come out with estimates for the still-to-come companies is for flat growth (-0.1% decline to be precise) on +4.4% revenue growth. This could change as we go through the remainder of this earnings season. But at least at this stage, Q2 growth is even with what we had seen in the preceding quarter.
Second, positive EPS surprises are about in-line with historical trends while the proportion of these companies beating revenue estimates is notably on the weaker side.
For the 388 index members that have reported results already, 76.8% are beating EPS estimates and 57.7% are beating revenue estimates. For the same cohort of companies, the proportion of positive EPS and revenue surprises was 77.1% and 61.3% in the Q1 earnings season.
Third, estimates for 2019 Q3 are coming down more than what we saw in the comparable period for the preceding two quarters, but about in-line with historical trends. The current -3.4% decline is down from -2.7% a week ago.
Estimates for full-year 2019 are coming down as well, though the magnitude of negative revisions is a lot lower currently than had been the case at the start of the year.
Q2 Earnings Season Scorecard (as of August 2nd)
We now have Q2 results from 388 S&P 500 members that combined account for 82.7% of the index’s total market capitalization. Total earnings for these 388 index members are up +0.8% from the same period last year on +4.3% higher revenues, with 76.8% beating EPS estimates and 57.7% beating revenue estimates.
For the Consumer Staples sector that I earlier mentioned as having come out with surprisingly stronger results, we now have Q2 results from 67.7% of the sector companies in the S&P 500 index. Total earnings for these companies are up +7.1% from the same period last year on +7.3% higher revenues, with 71.4% beating EPS estimates and 61.9% beating revenue estimates.
Consumer Staples stocks had been some of the strongest stock market performers recently and the momentum was typically explained by the group’s defensive attributes in an uncertain macro environment. Year to date, the Zacks Consumer Staples sector stocks are up +17.4% vs. +16.4% gain for the S&P 500 index.
The strong recent results from many of the group’s leading players suggests that the Staples space is comprised of more than just safety and dividends.
For the Technology sector, we now have Q2 results from 84.6% of the sector’s total market cap in the S&P 500 index. Total earnings for these Tech companies are down -5.6% from the same period last year on +5.6% higher revenues, with 79.5% beating EPS estimates and 63.6% beating revenue estimates.
Join us on Facebook: https://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks Investment Research
800-767-3771 ext. 9339
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Click to get this free report CBS Corporation (CBS) : Free Stock Analysis Report The Walt Disney Company (DIS) : Free Stock Analysis Report Tyson Foods, Inc. (TSN) : Free Stock Analysis Report The Kraft Heinz Company (KHC) : Free Stock Analysis Report Devon Energy Corporation (DVN) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research