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Earnings Season Update: July 26, 2019

Written by John Butters | Jul 26, 2019

To date, 44% of the companies in the S&P 500 have reported actual results for Q2 2019. In terms of earnings, the percentage of companies reporting actual EPS above estimates (77%) is above the five-year average. In aggregate, companies are reporting earnings that are 5.4% above the estimates, which is also above the five-year average. In terms of sales, the percentage of companies (61%) reporting actual sales above estimates is above the five-year average. In aggregate, companies are reporting sales that are 1.2% above estimates, which is also above the five-year average.

The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings decline for the second quarter is -2.6% today, which is smaller than the earnings decline of -3.4% last week*. Positive earnings surprises reported by companies in multiple sectors (led by the Information Technology sector) were responsible for the decrease in the overall earnings decline during the week. If -2.6% is the actual decline for the quarter, it will mark the first time the index has reported two straight quarters of year-over-year declines in earnings since Q1 2016 and Q2 2016. Five sectors are reporting year-over-year growth in earnings, led by the Health Care and Financials sectors. Six sectors are reporting a year-over-year decline in earnings, led by the Materials, Industrials, Energy, and Information Technology sectors.

The blended revenue growth rate for the second quarter is 4.0% today, which is above the revenue growth rate of 3.6% last week. Positive revenue surprises reported by companies in multiple sectors (led by the Energy sector) were responsible for the increase in the overall revenue growth rate during the week. If 4.0% is the final growth rate for the quarter, it will mark the lowest revenue growth rate for the index since Q3 2016 (2.7%). Seven sectors are reporting year-over-year growth in revenues, led by the Communication Services and Health Care sectors. Three sectors are reporting a year-over-year decline in revenues, led by the Materials sector. One sector (Industrials) is reporting no growth (0%) in revenue.

Looking at the second half of 2019, analysts see a decline in earnings for the third quarter followed by mid-single-digit earnings growth in the fourth quarter.

The forward 12-month P/E ratio is 17.1, which is above the five-year average and above the 10-year average.

During the upcoming week, 168 S&P 500 companies (including seven Dow 30 components) are scheduled to report results for the second quarter.

*The earnings decline of -3.4% published in today’s report for last week (July 19) is different than the -1.9% published in last week’s report due to changes made to the estimates for Boeing for Q2 after publication.  At publication time last week, the mean EPS estimate for Boeing for Q2 excluded the charges the company announced in relation to the 737 MAX grounding. After publication of the report, the basis of the mean EPS estimate for Boeing was changed to include the charges. This change in the basis of the estimate to include the charges is mainly responsible for the difference in the earnings decline published in last week’s report (-1.9%) and today’s report (-3.4) for July 19.