Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Q2 Earnings Season In Rearview Mirror

Published 08/29/2014, 01:15 AM
Updated 07/09/2023, 06:31 AM

The following is an excerpt from this weeks Earnings Trends article.  To see the full article, please click here.

The 2014 Q2 earnings season is effectively in the books now, though results from 6 S&P 500 members are still awaited. The focus lately has been on the weak Retail sector results notwithstanding, this earnings season turned out to be better relative to other recent reporting periods.

Not only are total earnings for the S&P 500 on track to reach a new all-time quarterly record, but Q2’s earnings growth strength has been broad-based and driven by top-line gains, not just cost cutting. Importantly, estimates for the current period haven’t fallen as much as has been the trend in other recent quarters.

Total earnings for the 494 S&P 500 members that have reported Q2 results already are up +8.1% from the same period last year on +4.4% higher revenues, with 65.3% beating EPS estimates and 61.9% coming out with positive revenue surprises. This is better performance than we have seen in other recent reporting cycles.

We have two sets of charts below – one compares the earnings and revenue growth rates for these 494 companies with what these same companies reported in 2014 Q1 and the 4-quarter average and the second chart compares the beat ratios for these companies.

Growth is Better

Q2 Earnings Growth 

The aggregate growth picture is actually even better once the Finance sector’s anemic growth numbers are excluded. Excluding Finance, total earnings for the companies that have reported results are up +10.1% from the same period last year on +4.7% higher revenues.  

And More Positive Revenue Surprises

Q2 Earnings & Revenues 

The composite picture for Q2, combining the actual results from the 494 S&P 500 members that have reported with estimates for the still-to-come 6 companies, shows total earnings reaching a new all-time quarterly record, and increasing by +8.1% from the same period last year on +4.4% higher revenues. This is a material improvement over the preceding quarter, when total earnings and revenues were essentially flat.

Estimates for the 2014 Q3 have started coming down, with the current +3.5% total earnings growth expected in the current period down from +6.3% at the start of the quarter. But the magnitude of negative revisions in Q3 thus far is the lowest we have seen in more than a year. The chart below compares the magnitude of negative revision to 2014 Q3 estimates over the first eight weeks of the quarter to negative revisions over comparable periods in the preceding 5 quarters.

2013 Q3 Revisions Compared   

The -1.1% decline in the magnitude of total earnings for Q3 over the first eight weeks of the quarter is the lowest decline that we have seen in comparable periods over the preceding 5 quarters. If sustained over the next reporting season (Q3 earnings season), this will represent a material improvement in the corporate earnings picture.

Key Points

  • The 2014 Q2 earnings season is presenting a much improved picture of the overall earnings picture relative to what we have become used to seeing in recent quarters.
  • Total earnings for the 494 S&P 500 members that have reported results are up +8.1% on +4.4% higher revenues, with 65.3% beating EPS estimates and 61.9% coming ahead of revenue estimates. This is better performance than we have saw from the same group of companies in recent quarters, with the revenue beat ratio notably impressive.
  • The Retail sector’s results have been no better than what we have been seeing in other recent quarters. Total earnings for the 97.7% of retail sector companies in the S&P 500 that have reported results are up +2.6% on +5.5% higher revenues. Most of the sector leaders like Wal-Mart Stores Inc (NYSE:WMT), Target Corporation (NYSE:TGT), Macy's Inc (NYSE:M) and others have guided lower for the current period.
  • Growth from the Technology sector has been the best in many recent quarters, with total earnings up +12.1% on +5.9% higher revenues. Other sectors with strong earnings performance include Medical (Up +15.8%), Construction (+14.2%), Utilities (+12.3%), Aerospace (+10.7%), Transportation (+11.5%), and Energy (+12.4%).
  • The Medical sector’s +15.8% earnings growth on +12.4% higher revenues is primarily due to strength at Gilead Sciences Inc (NASDAQ:GILD), but most of the sector companies have also come out with positive earnings and revenue beats. Easy comparisons at Verizon Communications Inc (NYSE:VZ) account for the Utilities sector’s strong growth numbers.   
  • The composite Q2 picture for the S&P 500, combining the actual results from the 494 companies with estimates for the 6 still to come, is for earnings to be up +8.1% from the same period last year, on +4.4% higher revenues and 34 basis points in higher margins.
  • The Q2 earnings is moving along nicely for the small-cap space as well, with results from 568 S&P 600 members or 94.7% of the index’s total membership already out. Total earnings for these 568 index members are up +12.4% on +9.4% higher revenues, with 49.1% beating EPS estimates and 38.0% coming ahead of top-line expectations.
  • The beat ratios for these 568 S&P 600 members are lower relative to what we have seen from this same group of companies in other recent quarters, but the earnings and revenue growth rates compare favorably to historical levels.

Original post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.