Zacks Earnings Trends Highlights: Caterpillar, JPMorgan and CSX
For Immediate Release
Chicago, IL – July 25, 2019 – Zacks Director of Research Sheraz Mian says, "Total earnings for the 138 S&P 500 members that have reported Q2 results already are up +2.8% on +3.4% higher revenues, with 79.0% beating EPS estimates and 59.4% beating revenue estimates."
Q2 Earnings Season & the Trade Issue
Note: The following is an excerpt from this week’sEarnings 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:
While most companies are beating estimates, the tone and substance of management commentary is on the cautious side, with uncertainty about global trade a notable headwind.
Total earnings for the 138 S&P 500 members that have reported Q2 results already are up +2.8% on +3.4% higher revenues, with 79.0% beating EPS estimates and 59.4% beating revenue estimates.
The earnings and revenue growth pace for these 138 index members is unsurprisingly very weak relative to other recent periods. The proportion of these index members beating EPS estimates is about in-line with historical trends, but positive revenue surprises are modestly on the low side.
For the Finance sector, we now have Q2 results from 54.5% of the sector’s market cap in the index. Total earnings for these Finance companies are up +4.1% on +3.2% higher revenues, with 71.8% beating EPS estimates and 66.7% beating revenue estimates.
The most notable part of the Finance sector results thus far is the favorable momentum on the revenue front, both in terms of growth as well as surprises.
Looking at Q2 as a whole, total S&P 500 earnings are expected to be down -1.3% from the year-earlier period on +4.0% higher revenues. This would follow the -0.1% earnings decline on +4.5% higher revenues in Q1.
Q2 earnings growth is expected to be negative for 9 of the 16 Zacks sectors, with Basic Materials and Conglomerates as double-digit decliners, while Technology, and Construction are expected to fall nearly -9%
With a number companies guiding lower, estimates for the current period (2019 Q3) are coming down, with earnings growth for the period currently expected to be a decline of -2.5% on +4.4% higher revenues.
For the small-cap S&P 600 index, we now have Q2 results from 76 index members. Total earnings for these 76 companies are down -5.7% from the same period last year on +2.7% higher revenues, with 68.4% beating EPS estimates and 63.2% beating revenue estimates.
Looking at the quarter as a whole for the small-cap index, total Q2 earnings are expected to be -11.3% below the year-earlier level on +3.0% higher revenues. This compares to -18.2% decline in Q1 earnings on +4.3% higher revenues.
For full-year 2019, total earnings for the S&P 500 index are now barely in positive territory, up +0.3% on +2.3% higher revenues. This would follow the +23.3% earnings growth on +9.2% higher revenues in 2018. Strong growth is expected to resume in 2020, with earnings expected to be up +10.2% that year.
The implied ‘EPS’ for the index, calculated using current 2019 P/E of 18.5X and index close, as of July 23rd, is $162.44. Using the same methodology, the index ‘EPS’ works out to $179.99 for 2020 (P/E of 16.8X). The multiples for 2019 and 2020 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.
Q2 Earnings Season Scorecard(as of July 24th, 2019)
We now have Q2 results from 138 S&P 500 members that combined account for 35.7% of the index’s total market capitalization. Total earnings for these 138 index members are up 2.8% from the same period last year on +3.4% higher revenues, with 79.0% beating EPS estimates and 59.4% beating revenue estimates.
The earnings and revenue growth for these 138 index members is modestly below what we saw from this same sample of results in the preceding period. The growth pace is materially below what we had seen in earlier periods, but we knew that already.
Positive EPS surprises are about in-line with historical trends, while revenue beats percentages are modestly below historical levels. It is reasonable to interpret these results as suggesting that estimates were likely reasonable ahead of the start of this reporting cycle.
Importantly, a number of major companies have guided lower for the current and coming quarters. If this trend continues, we will likely a bigger drop in estimates for Q3 than we saw ahead of the start of the Q2 earnings season.
The trade issue has become a recurring theme, with Caterpillar CAT becoming the latest operator to cite this as a reason lowered guidance. We earlier saw JPMorgan JPM and other major banks explain the tepid growth in corporate lending as partly due to corporate clients holding back on their spending plans as a result of the trade uncertainty. Railroad operator CSX Corp. CSX had earlier lowered its outlook for the year as the company expected shipping volumes from its industrial customers to remain under pressure as a result of the trade overhang.
Estimates for the current period (2019 Q3) have been steadily coming down.
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