With results from 87 S&P 500 members already out, we are off to a strong start in Q1 earnings season.

The earnings and revenue growth rates and the proportion of positive earnings surprises are tracking materially above historical periods. Positive revenue surprises aren’t as numerous as we had seen at this stage in the preceding earnings season, but are nevertheless tracking in-line with historical levels.

Estimates for the current period (2018 Q2) haven’t moved much since the Q1 earnings season got underway, but that will likely start showing up this week as move into the heart of the earnings season, with more than 680 companies reporting March quarter results, including 178 S&P 500 members. By the end of this week, we will have seen Q1 results from more than half of the S&P 500 members. With more than 35% S&P 500 members on deck to report results this week, we will have representation from every sector, but the notable ones are below.

Monday, April 23^rd: We have 10 index members reporting results today, with Google’s parent Alphabet GOOGL as the key report coming after the market’s close. The search giant is expected to earn $9.21 per share on $24.29 billion in revenues, up +9.2% and +20.7% from the year-earlier period, respectively. The revisions trend has been negative, with the current Zacks Consensus EPS of $9.21 down from $9.27 a month back.

The stock has struggled since the weaker than expected results for the preceding period on February 1^st, with the stock lagging the broader Tech sector this year. Alphabet shares are up +3% in the year-to-date period vs. +5.6% gain for the sector and +1.3% gain for the S&P 500 index.

Tuesday, April 24^th: We have 33 index members on deck to report results this day, with Caterpillar (CAT Quick QuoteCAT - Free Report) , Verizon (VZ Quick QuoteVZ - Free Report) , Coca Cola (KO Quick QuoteKO - Free Report) and 3M (MMM Quick QuoteMMM - Free Report) as the notable reports, all in the morning session.

Caterpillar shares have struggled as trade issues have taken center stage, with the stock down -2.1% in the year-to-date period vs. +1.2% gain for the S&P 500 index. The company is expected to earn $2.11 per share on $11.6 billion in revenues, up +64.8% and +17.9% from the year-earlier period, respectively. Estimates have been going up, with the current $2.11 EPS estimate up $2.07 a month back and $1.76 three months back.   

Wednesday, April 25^th: A busy day on the reporting front, with 49 index members on deck report quarterly results, including Boeing (BA Quick QuoteBA - Free Report) in the morning and Facebook after the market’s close.

Facebook is expected to earn $1.36 per share on $11.5 billion in revenues, up +10.5% and +42.7% from the year-earlier period, respectively. The company’s tally of daily active users will be of as much importance to the market as its top- and bottom-line results. Also important will be engagement level following the Cambridge Analytica scandal and the impact the privacy issue may have on ad revenues. Facebook shares have lagged the Tech sector this year, with the stock down -5.4% in the year-to-date period vs. +5.7% gain for the sector.

Thursday, April 26^th: A very busy day, with 68 S&P 500 members reporting March-quarter results, with Amazon (AMZN Quick QuoteAMZN - Free Report) , Starbucks (SBUX Quick QuoteSBUX - Free Report) , Microsoft (MSFT Quick QuoteMSFT - Free Report) and Intel (INTC Quick QuoteINTC - Free Report) among some of the very major reporters this day.

Amazon is expected to earn $1.19 per share on $50.2 billion in revenues, representing year-over-year change of a decline of -19.6% and gain of +40.4%, respectively. The company has long ‘trained’ the market not to look for earnings performance in its quarterly results, and that will likely be case this time around.

The key factor will be overall revenues and performance of the company’s cloud business, Amazon Web Services (AWS). The stock has been a strong performer this year, up +30.7% in the year-to-date period, though President Trump’s persistent negative tweets continue to be a headline issue.

Friday, April 27^th: Exxon (XOM Quick QuoteXOM - Free Report) and Chevron (CVX Quick QuoteCVX - Free Report) are the notable companies of the 16 S&P 500 members reporting results Friday morning. Exxon is expected to earn $1.20 per share on $67.3 billion in revenues, up +26.3% and +6.4% from the year-earlier level, respectively. Both the stocks have made gains in recent days on favorable crude oil momentum, but they remain in negative territory this year (-5% for XOM and -1.4% for CVX).

Q1 Earnings Season Scorecard (as of Friday, April 20^th)

Total earnings for the 87 S&P 500 members that have reported results already are up +25% from the same period last year on +10.7% higher revenues, with 82.8% beating EPS estimates and 67.8% beating revenue estimates. The proportion of companies beating both EPS and revenue estimates is 62.1%.

To put these results in a historical context, the charts below compare the results thus far with what we had seen from the same group of 87 index members in other recent periods.

As mentioned earlier, earnings and revenue growth rate and the proportion of positive EPS surprises is tracking above what we have been seeing from the same group of 87 index members. But revenue surprises aren’t as widespread as was the case in the preceding earnings season.

In other words, the revenue growth momentum that we have been seeing over the last couple of earnings seasons is still in place, but revenue surprises are tracking below what we had seen in the preceding period and only in-line with the 4-quarter period, as the chart below shows:

Finance Sector Scorecard (as of Friday, April 20^th)

We now have Q1 results from 29 of the 98 Finance sector companies in the S&P 500 index. Keep in mind, however, that these 29 companies account for 52.5% of the sector’s total market capitalization in the index.

Total earnings for these 29 Finance companies are up +27.8% from the same period last year on +9.1% higher revenue growth, with 89.7% beating EPS estimates and 51.7% beating revenue estimates. The comparison charts below put the results thus far in a historical context:

As you can see in the chart above, the sector’s growth picture is materially tracking above what we have been seeing in recent years, reflecting the combined effect of tax cuts, higher interest rates and more ‘normal’ capital market activity. The right-hand side chart shows that earnings surprises are very numerous, but revenue surprises are on the weak side.

For the quarter as a whole, total Finance sector earnings are expected to be up +27% from the same period last year on +5.4% higher revenues. This would follow +0.6% earnings growth in 2017 Q4 on +4% higher revenues.

The sector’s earnings growth momentum is expected to continue in the coming quarters as well, as the chart below shows:

Please note that the sector’s strong growth in Q1 and beyond isn’t a function of easy comparisons, but actual growth. You can see this in the dollar value of total sector earnings in the chart below:

Expectations for 2018 Q1 as a Whole

Looking at Q1 as a whole, combining the actual results that have come out with estimates for the still-to-come companies, total earnings for the S&P 500 index expected to be up +18.3% from the same period last year on +7.7% higher revenues. This would follow the +13.4% earnings growth on +8.6% revenue growth in the 2017 Q4 earnings season, the best quarterly performance in more than 6 years.

The chart below shows 2018 Q1 earnings growth expectations contrasted with what is expected in the following three quarters and actual results in the preceding 5 quarters. As you can see, the growth pace is expected to accelerate in Q2 and continue in the following quarters:

As you can imagine, expectations for full-year 2018 are for an impressive showing, with total earnings for the S&P 500 index expected to be +18% from the year-earlier level on +5.3% higher revenues. If achieved, this will be the highest annual growth pace for the index since 2010.

The table below shows the summary picture for 2018 Q1, contrasted with what was actually achieved in the preceding period:

As you can see, the Energy sector remains a big growth contributor in Q1, with total earnings for the sector expected to be up +59.6% from the year-earlier period on +15.9% higher revenues. But growth for the quarter would still be in double-digits even on an ex-Energy basis (last row in the table above).

What is driving the strong Q1 growth isn’t the Energy sector, but rather the breadth of growth across all sectors, with double-digit earnings growth for 11 out of the 16 Zacks sectors, including Technology and Finance.

For the Technology sector, total Q1 earnings are expected to be up +20.9% on +11.5% higher revenues, which would follow the sector’s impressive +24.2% earnings growth on +11.1% higher revenue growth.

The Finance sector, which sat out the preceding quarter with an essentially flat showing, total Q1 earnings are expected to be up +27% from the same period last year on +5.4% higher revenues.

Driving the Finance sector’s strong growth in Q1 and beyond is the combined effect of tax cuts, higher interest rates and an improved domestic growth environment. Finance sector’s earnings were only up +1.2% in full-year 2017 and in low single digits in the three years prior to that, but are on expected to be up an impressive +25.5% in full-year 2018.

The Technology sector, on the other hand, has already been on stronger ground, with full-year 2017 earnings for the sector up +15.8% and expected to be up +17.3% in 2018. The enterprise spending environment was expected to improve this year even before the tax cuts, with the tax windfall expected to give a much needed boost to those trends. On top of these we have the existing secular trends in cloud computing, artificial intelligence and big data that are expected to remain growth areas in the space.

Please note that Technology and Finance aren’t just any two sectors out of the 16 in the S&P 500 index; these two sectors combined are the twin pillars of index’s total profitability, bringing in more than 40% of the index’s total earnings this year. The Energy sector’s outlook has improved, but the sector simply lacks the heft of these two. The Energy sector is expected to bring in about 5% of the index’s total earnings this year.

Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks.com and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.

Here is a list of the 682 companies including 178 S&P 500 and reporting this week: