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Zacks Earnings Trends Highlights: J.P. Morgan, Citigroup, Apple And Microsoft

Published 07/27/2016, 09:30 PM
Updated 07/09/2023, 06:31 AM

For Immediate Release

Chicago, IL – July 28, 2016 – Zacks Director of Research Sheraz Mian says, "Actual earnings results are turning out to be less bad relative to expectations, with the growth pace modestly improving."

Q2 Earnings: Modest Improvement Continues

The following is an excerpt from this week's Earnings Trends piece. To access the full Earnings Trends article, please click here.

The Q2 earnings season is in full swing with results from 208 S&P 500 members accounting for 50.5% of the index’s total market capitalization already out. As has been the trend in other recent quarters, growth continues to be problematic, with Q2 on track to be the 5th quarter in a row of negative earnings growth for the S&P 500 index. That said, actual results are turning out to be less bad relative to expectations, with the growth pace modestly improving from the prior quarter’s level. Importantly, while estimates for the current period (2016 Q3) have started coming down, they are not falling by as much as was the case at the comparable stage in the prior earnings season.

Total earnings for the 208 index members that have reported results are down -4.7% from the same period last year on +0.4% higher revenues, with 73.1% beating EPS estimates and 51.9% coming ahead of top-line expectations.

The takeaways are:

First , the earnings growth remains negative and weaker compared to the 4- and 12-quarter averages, but it is an improvement over what we saw in the preceding quarter.

Second , revenue growth is not only positive, but also tracking above what we saw from this group of 208 S&P 500 members in 2016 Q1 and the average for the preceding four quarters.

Third , positive EPS surprises for this group of companies are tracking below the 4-quareter average, but slightly above the preceding quarter and the 12-quarter average. This suggests that estimates may not have been that low after all.

Fourth , positive revenue surprises are moderately tracking below other historical periods.

This trend of modest improvement in the earnings picture relative to the preceding quarter started with the Finance sector whenJ.P. Morgan (JPM), Citigroup (NYSE:C) ( C) and host of others positively surprised and the trend has continued with other sectors as well, including Technology where Apple (NASDAQ:AAPL) (AAPL), Microsoft (NASDAQ:MSFT) ( MSFT) and a number of other operators came out with signs of improvement in their results.

For Q2 as a whole, combining the actual results from the 208 index members with estimates from the still-to-come 292 companies, total earnings are expected to be down -3.5% from the same period last year on -0.4% lower revenues. The blended Q2 growth rate has started improving as companies come out with better than expected results (the growth rate was -6.2% three weeks ago).

On an ex-Energy basis, the blended Q2 earnings growth is now -0.1%. If the trend that we are seeing from the 208 index members remains in place through the end this reporting season, then the ex-Energy growth pace for the quarter will most likely be in the positive.

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