Chicago, IL – June 05, 2015 – Zacks Director of Research Sheraz Mian says, "Estimates for the current period have come down quite a bit since the quarter got underway." Looking Ahead to Q2 Earnings Season With only a few earnings reports still to come, the Q1 earnings season is essentially over. The focus will shift in the coming days to the 2015 Q2 earnings season, as companies with fiscal quarters ending in May start coming out with results. We count these companies, which includes such major players like Adobe (ADBE), Nike (NKE) and FedEx (FDX), as part of our Q2 tally. By the time Alcoa ( AA) reports on July 8th, we will have seen Q2 results from about two dozen S&P members that have fiscal quarters ending in May.
Estimates for the current period have come down quite a bit since the quarter got underway. This decrease is in-line with the trend that we have been seeing quarter after quarter for more than two years now.
As was the case in Q1, the Energy sector remains the biggest drag on Q2 estimates. Total Energy sector earnings are expected to be down -65.1% from the same period last year on -40.6% lower revenues. If we exclude the Energy sector from Q2 estimates, total earnings for the S&P 500 index would be barely in the positive territory (up +0.3%). The growth picture isn’t expected to improve in any meaningful way in the coming quarters either. Q1 Scorecard (as of June 4th, 2015)
Total earnings for the 498 S&P 500 members that have reported results already are up +2.4% on -3.3% revenues, with 62.0% beating EPS estimates and only 42.4% coming ahead of top-line expectations.
As we have stated repeatedly in this space since the start of the Q1 reporting cycle, this is weak performance compared to what we have seen from the same group of 498 S&P 500 members in other recent periods. ( Please note that we provide the scorecard for the Russell 2000 index on page 16 of the detailed report).
The two side-by-side charts below give a historical context to the results thus far – by comparing the Q1 earnings & revenue growth rates (left-hand side chart) and earnings & revenue beat ratios (right-hand side chart) with what these same companies achieved in the preceding quarter as well as the 4-quarter average. Three things stand out as we look at the results thus far:
First , the revenue weakness is very notable. We knew that growth will be problematic in Q1, so the weak revenue growth rate of -3.3% compared to other recent periods isn’t that surprising. But the very low proportion of companies beating revenue estimates is surprising and likely indicative that the growth backdrop has been even weaker than what was reflected in consensus estimates.
Second , the earnings growth rate (+2.4%) is also weak relative to what we saw from the same group of companies in 2014 Q4 and the 4-quarter average. While the Finance sector has been a positive growth contributor, the Energy sector’s impact has been in the opposite direction. Excluding contribution of these two sectors, the Q1 growth picture still compares to unfavorably other recent periods. Third , as has been the norm in recent quarters, management guided lower for the current and following quarters. As a result, estimates for the current quarter, which had fallen quite a bit already in solidarity with the Q1 estimate cuts, came down even more over the last couple of months.
The dollar issue has added to the Energy sector’s woes and some concerns about the U.S. economic picture in bringing down this year’s estimates. Current consensus estimates show earnings growth for the S&P 500 to be in the negative for the first three quarters of the year, with the growth rate for the full-year now modestly in the negative. The expectation is that the growth picture starts improving in the last quarter of the year, with the growth pace ramping up to double-digit rates in 2016.
Note : Want more articles from this author? Scroll up to the top of this article and click the FOLLOW AUTHOR button to get an email each time a new article is published.
To see the full Earnings Trends article, please click here. Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Click here to subscribe to this free newsletter today. 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 ADOBE SYSTEMS (ADBE): Free Stock Analysis Report NIKE INC-B (NKE): Free Stock Analysis Report FEDEX CORP (FDX): Free Stock Analysis Report ALCOA INC (AA): Free Stock Analysis Report To read this article on Zacks.com click here.
|