For Immediate Release
Chicago, IL – June 27, 2019 – Zacks Director of Research Sheraz Mian says, “Estimates for Q2 have come down, but the magnitude of negative revisions remains below the comparable periods of other recent quarters.”
Earnings Growth Challenges to Persist
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Here are the key points:
- The growth picture is not expected to improve in the June quarter, which would follow the roughly flat finish in Q1. Driving this growth challenge, which is expected to persist through Q3, is a combination of tough comparisons and moderating economic growth.
- Total Q2 earnings for the S&P 500 index are expected to be down -2.9% from the year-earlier period on +4.3% higher revenues. This would follow the -0.2% earnings growth on +4.5% higher revenues in Q1.
- Estimates for Q2 have come down, but the magnitude of negative revisions remains below the comparable periods of other recent quarters. The -2.9% decline currently expected is down from flat growth in late-March.
- Q2 earnings growth is expected to be negative for 8 of the 16 Zacks sectors, with Technology, Aerospace, Basic Materials, Construction and Conglomerates as double-digit decliners.
- The Q2 reporting cycle will (unofficially) get underway with the big bank results in mid-July, but the earnings season has actually gotten underway already, with results from 14 S&P 500 members already out. All of these companies have fiscal quarters ending in May, which we count as part of the Q2 tally.
- For the small-cap S&P 600 index, total Q2 earnings are expected to be -8.8% below the year-earlier level on +3.3% higher revenues. This compares to -18.5% decline in Q1 earnings on +4.0% higher revenues.
- For full-year 2019, total earnings for the S&P 500 index are expected to be up +0.9% on +2.6% higher revenues, which would follow the +23.3% earnings growth on +9.2% higher revenues in 2018. Double-digit growth is expected to resume in 2020, with earnings expected to be up +10.7% that year.
- The implied ‘EPS’ for the index, calculated using current 2019 P/E of 17.9X and index close, as of June 25th, is $163.39. Using the same methodology, the index ‘EPS’ works out to $180.94 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.
Q2 Earnings Season Expectations
We are a couple of weeks away from the big banks (unofficially) kicking-off the Q2 earnings season. It is only in the run up to these bank releases that everyone starts paying attention to start of another earnings season. From our standpoint, however, the 2019 Q2 earnings season has actually gotten underway already.
The recent quarterly releases from Lennar LEN, FedEx FDX, Micron MU for these companies’ fiscal quarters ending in May, which we count as part of our June-quarter tally. The fact is that by the time the big banks come around to report June-quarter results in mid-July, we will have seen such Q2 results from almost two dozen S&P 500 members already.
Tough comparisons to last year when growth was boosted by the tax cut legislation were all along expected to weigh on earnings growth in 2019. Moderating U.S. economic growth and notable slowdowns in other major global economic regions are having a further negative impact. Uncertainty about the global trade regime and growing resort to tariffs are not helping matters either.
As a result, earnings were essentially flat in the first quarter of 2019 and no significant improvement is expected in the growth trajectory in the June quarter either. In fact, this trend of flat to negative growth is expected to persist through the September quarter, with current consensus estimates looking for positive growth resuming in the last quarter of the year. But Q4 is still far from away and a lot can happen between now and then.
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