For Immediate Release
Chicago, IL – April 25, 2019 – Zacks Director of Research Sheraz Mian says, “Tough comparisons to last year when margins got a one-time boost from the tax legislation coupled with the rise in payroll, materials and transportation expenses are weighing on margins.”
Earnings Picture Good, Not Great
Note: The following is an excerpt from this week’s Earnings 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:
- The market’s favorable reaction to otherwise mixed Q1 results suggests that many in the market feared a much weaker showing. In other words, lowered expectations are helping actual results look better than they actually are.
- Total earnings for the 131 S&P 500 members that have reported results already are up 2.3% on +4.8% higher revenues, with 81.7% beating EPS estimates and 58% beating revenue estimates.
- Other than Q1 EPS beats that are tracking above what we had seen for the same group of 131 index members, the performance thus far is weaker than what we have been seeing from this group of companies in other recent periods.
- For the Finance sector, we now have Q1 results from 52.9% of the sector’s market cap in the index. Total earnings for these Finance companies are up +1.2% on 0.4% higher revenues, with 77.8% beating EPS estimates and 52.8% beating revenue estimates.
- Looking at Q1 as a whole, total S&P 500 earnings are expected to decline -2.3% from the same period last year on +4.7% higher revenues and 80 basis points of compression in net margins. Earnings growth is expected to be negative for 9 of the 16 Zacks sectors, with Technology and Energy as the biggest drags.
- If we do get an earnings decline in Q1, it will be the first year-over-year decline since 2016 Q2. Driving the Q1 earnings decline is margin pressures across all major sectors even as revenues continue to grow.
- Tough comparisons to last year when margins got a one-time boost from the tax legislation coupled with the rise in payroll, materials and transportation expenses are weighing on margins.
- Technology sector earnings are expected to decline -8.3% from the same period last year on +2.7% higher revenues, with the semiconductor space as the biggest drag. Excluding the Tech sector’s weak growth in Q1, total earnings for the rest of the index would be down by -0.5% from the year-earlier period.
- For the small-cap S&P 600 index, we now have Q1 results from 83 index members. Total earnings for these 83 companies are down -0.2% from the same period last year on 4.2% higher revenues, with 57.8% beating EPS estimates and 38.6% beating revenue estimates.
- Looking at Q1 as a whole for the small-cap index, total Q1 earnings are expected to be down -11.9% from the same period last year on +3.5% higher revenues.
- For full-year 2019, total earnings for the S&P 500 index are expected to be up +1.9% on +3.2% higher revenues, which would follow the +23.3% earnings growth on +9.3% higher revenues in 2018. Double-digit growth is expected to resume in 2020, with earnings expected to be up +11.2% that year.
- Estimates for 2019 Q2 and full-year 2019 have come down, with the current +1.9% growth rate for full-year 2019 is down from +9.8% in early October 2018.
- The implied ‘EPS’ for the index, calculated using current 2019 P/E of 17.9X and index close, as of April 23rd, is $161.88. Using the same methodology, the index ‘EPS’ works out to $180.02 for 2020 (P/E of 16.1X). The multiples for 2019 and 2020 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.
We now have Q1 results from 131 S&P 500 members that combined account for 31.5% of the index’s total market capitalization. Total earnings for these 131 index members are up +2.3% from the same period last year on +4.8% higher revenues, with 81.7% beating EPS estimates and 58.0% beating revenue estimates.
The growth picture is notably tracking below what we had seen from the same companies in the past. But that is not a surprise, as we knew all along that growth was drastically coming down from the preceding quarters’ level. Positive EPS surprises are tracking above what we had seen from the companies in the preceding quarter, while revenue surprises are tracking notably below other recent periods.
The results thus far weighted towards the Finance sector, with results from 52.9% of the sector’s market capitalization in the S&P 500 index already out. Total earnings for these Finance sector companies are up +1.2% on 0.4% higher revenues, with 77.8% beating EPS estimates and 52.8% beating revenue estimates.
In terms of the market’s reaction to these Finance sector results, JPMorgan JPM and Citigroup C shares went up while Goldman Sachs GS and Wells Fargo WFC were down. The chart below shows the sector’s Q1 results in the context what we had seen from these Finance sector companies in the past.
Follow us on Twitter: https://twitter.com/zacksresearch
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.
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
Wells Fargo & Company (WFC) : Free Stock Analysis Report
JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
Citigroup Inc. (C) : Free Stock Analysis Report
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research