For Immediate Release
Chicago, IL – July 11, 2019 – Zacks Director of Research Sheraz Mian says, “Total Q2 earnings for the S&P 500 index are expected to be down -3.3% from the year-earlier period on +4.0% higher revenues. This would follow the -0.2% earnings decline on +4.5% higher revenues in Q1.”
Previewing Q2 Earnings Season
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:
- Earnings growth is not expected to improve in the Q2 earnings season either, with the growth challenge reflecting a combination of tough comparisons and moderating economic growth.
- Total Q2 earnings for the S&P 500 index are expected to be down -3.3% from the year-earlier period on +4.0% higher revenues. This would follow the -0.2% earnings decline on +4.5% higher revenues in Q1.
- With earnings growth in Q1 modestly in negative territory, another earnings decline this earnings season will make it two consecutive quarters of earnings declines for the S&P 500 index.
- Estimates for Q2 have come down, but the magnitude of negative revisions remains below the comparable periods of other recent quarters. The -3.3% 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 results from the big bank, but the earnings season has actually gotten underway already, with results from 22 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 -9.0% below the year-earlier level on +3.4% higher revenues. This compares to -18.1% decline in Q1 earnings on +4.5% higher revenues.
- For full-year 2019, total earnings for the S&P 500 index are expected to be up +0.7% on +2.4% 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 +10.5% that year.
- The implied ‘EPS’ for the index, calculated using current 2019 P/E of 18.4X and index close, as of July 9th, is $162.37. Using the same methodology, the index ‘EPS’ works out to $179.52 for 2020 (P/E of 16.6X). 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
The big banks are on track to (unofficially) kick-off the Q2 earnings season in the coming days, but the reporting cycle reporting cycle has actually gotten underway already.
The recent quarterly releases from Pepsi PEP, FedEx FDX, Nike NKE and others were 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, 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.
Earnings growth was essentially flat in the March quarter (actually down -0.2%) and the expectation is for a -3.3% decline in the June quarter. Earnings growth is expected to be in negative territory in Q3 as well (down -1.6%), with positive growth expected to resume only in last quarter of the year.
Driving this weak growth picture is tough comparisons due to the huge boost to profitability in the year-earlier period.
The market appears to have accepted the deceleration in growth this year in the hope that growth resumes from next year onwards. It is in the context of these lowered expectations that the modest estimate cuts to Q2 estimates appear reassuring.
The key issue will be if expectations for the second half of the year and beyond hold or come down as we move through the remainder of the year. Analysts have not made any significant downward adjustments to their estimates in response to the ongoing trade dispute, likely in the hope that the issue will eventually get resolved. That said, the trade uncertainty has been a major negative for overall market sentiment.
This Could Be the Fastest Way to Grow Wealth in 2019
Research indicates one sector is poised to deliver a crop of the best-performing stocks you'll find anywhere in the market. Breaking news in this space frequently creates quick double- and triple-digit profit opportunities.
These companies are changing the world – and owning their stocks could transform your portfolio in 2019 and beyond. Recent trades from this sector have generated +98%, +119% and +164% gains in as little as 1 month.
Click here to see these breakthrough stocks now >>
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
Pepsico, Inc. (PEP) : Free Stock Analysis Report
NIKE, Inc. (NKE) : Free Stock Analysis Report
FedEx Corporation (FDX) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research