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The market has justifiably taken a sigh of relief about the picture emerging from the Q4 earnings season. Not that the earnings picture is great, but rather that it is not as bad as many in the market had feared ahead of the start of this earnings season.
Plenty of reports are still to come, with this week alone bringing in more than 500 earnings releases, including 98 from S&P 500 members. But with results from 235 S&P 500 members already out, the trends established already will most likely carry through the rest of this reporting cycle.
We will share the current scorecard and what’s on deck this week a little later, but let’s first point out the key trends that we have seen from the Q4 results through Friday, February 1st.
First, growth is decelerating. This isn’t a surprise, as we knew already that Q4 growth would be materially below the pace set in the first three quarters of the year.
Total earnings for the 113 index members that have reported are up +13.7% from the same period last year on +6.7% higher revenues. Earnings and revenue growth for the same cohort of companies had been +23.5% and +9.8% in the preceding earnings season, respectively. The comparison chart below puts this growth deceleration in a historical context for these 235 index members.
The growth pace is on track to decelerate even further in the current and coming quarters, as we will show a little later.
Second, companies appear to be struggling to beat consensus EPS estimates.
For the 235 index members that have reported results already, 66.8% are beating EPS estimates and only 63.4% are beating revenue estimates. For the same cohort of companies, the proportion of positive EPS and revenue surprises was 77.9% and 62.1% in the Q3 earnings season, respectively.
The comparison charts below put the Q4 beats percentages in a historical context for these 235 companies.
The lag on this front earlier on was more notable on the revenues side, with revenue beats tracking below historical periods. But as you can see above, EPS beats are even more notably tracking below historical periods. The fact is that the Q4 EPS beats percentage is the lowest in more than 3 years.
With Q4 positive surprises this hard to come by, one would reasonably assume that perhaps estimates had been too high. We know that wasn’t the case as estimates for the quarter had fallen the most of any other recent periods.
Third, estimates for 2019 Q1 and full-year 2019 are coming down in a major way, with the Q1 growth rate now in negative territory.
The chart below shows how estimates for 2019 Q1 have evolved since late-November 2018.
The negative revisions to 2019 Q1 estimates are along the same lines that we saw ahead of the start of the Q4 earnings season as well. Estimates for full-year 2019 have been coming down as well, as the chart below shows.
This chart is tracking consensus earnings growth expectations since the second half of 2018 got underway. As you can see, estimates were effectively unchanged during the September quarter, but they have been on a consistent downtrend since early October. Many in the market suspect that estimates have further to drop before stabilizing.
Key Earnings Reports This Week
We have more than 500 companies coming out with quarterly reports this week, including 98 S&P 500 members.
Monday, February 4th: Google’s parent Alphabet (GOOGL - Free Report) will be the more prominent of the 13 S&P 500 members reporting results on Monday. With two-thirds of the Tech sector’s market capitalization in the S&P 500 index having already reported Q4 results, the Alphabet release will be the last major earnings report for this space. The search giant is expected to have earned $11.08 in earnings per share on $31.28 billion in revenues, up +14.2% and +20.9% from the same period last year, respectively. The stock was up following the last two earnings reports and has been an active participant in the post-Christmas rally.
Tuesday, February 5th: We have 25 index members reporting results on Tuesday, of which 12 will come out before the market’s open and the rest after the market’s close. There is no shortage of big-name reporters today, but Disney (DIS - Free Report) will be the day’s highlight as it comes out with results after the market’s close. In addition to actual results, the earnings call will likely include updates on the company’s pending purchase of 21st Century Fox (FOXA).
Another notable company reporting after the market’s close on Tuesday is Snap (SNAP - Free Report) , with the struggling social-media player expected to have lost 8 cents per share on $376.6 million in revenues, up +38.5% and +31.8% from the year-earlier period, respectively. The stock was down following each of the last three quarterly releases and has been a big time laggard, likely providing for an easy set up for a positive surprise.
Wednesday, February 6th: We have 19 S&P 500 members reporting results on Wednesday, with General Motors (GM) and Spotify (SPOT - Free Report) in the morning and Chipotle Mexican Grill (CMG) after the market’s close as the major reporters.
Thursday, February 7st: Twitter and GrubHub will be the more notable reports on a very busy reporting day when 34 S&P 500 members are reporting results.
Friday, February 8th: Alcoa spin-off Arconic will be one of the 7 index members on deck to report Q4 results on Friday.
Q4 Earnings Season Scorecard (as of Feb 1st, 2019)
We now have Q4 results from 235 S&P 500 members that combined account for 64% of the index’s total market capitalization. Total earnings for these 235 index members are up +13.7% from the same period last year on +6.7% higher revenues, with 66.4% beating EPS estimates and 63.4% beating revenue estimates.
The table below shows the current scorecard.
We mentioned earlier how companies are struggling to beat consensus estimates. The second last column of the scorecard table above shows the blended beats percentage; this is the proportion of these 235 index members that have beaten both EPS and revenue estimates.
The chart below puts the 46% blended beats percentage in a historical context.
For Q4 as a whole, combining the actual results from the 235 index members that have reported with estimates for the still-to-come 265 companies, total earnings for the S&P 500 index are expected to be up +12.8% from the same period last year on +5.9% higher revenues, which would follow the +25.7% earnings growth on +8.5% higher revenues in 2018 Q3.
Earnings growth is expected to be in double digits for 8 of the 16 Zacks sectors, with Energy (+90.5% growth), Finance (+17.4%), Construction (+23%) and Transportation (+29.3%) as the strongest growth. Tech sector earnings are expected to decelerate meaningfully in Q4, up +5.9%, after back-to-back quarters of very strong growth.
Four sectors are expected to have lower earnings in Q4 relative to the year-earlier period, namely Conglomerates (-7.4% decline), Autos (-15.3%), Utilities (-7.7%) and Basic Materials (-1.4%)
The table below shows the summary picture for Q4, contrasted with what was actually achieved in the preceding earnings season.
The chart below shows Q4 earnings and revenue growth expectations contrasted with what is expected in the following three quarters and actual results in the preceding 4 quarters.
As you can see in the chart below, the growth pace is expected to decelerate materially from what we saw in the first three quarters of the year.
The chart below shows the same data on a rolling 4-quarter basis.
Whether we look at the growth picture on a quarterly basis or on a rolling quarter basis, there is no doubt that growth peak is now behind us. The question now is how much estimates for the coming quarters have still to come down. And the answer to that question will depend on the evolving economic backdrop that we discussed at the start.
For more details about the overall earnings picture, the Q4 earnings season and expectations for the coming periods, please check our weekly Earnings Trends report.
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.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
Image: Bigstock
Q4 Earnings Picture Better Than Feared
The market has justifiably taken a sigh of relief about the picture emerging from the Q4 earnings season. Not that the earnings picture is great, but rather that it is not as bad as many in the market had feared ahead of the start of this earnings season.
Plenty of reports are still to come, with this week alone bringing in more than 500 earnings releases, including 98 from S&P 500 members. But with results from 235 S&P 500 members already out, the trends established already will most likely carry through the rest of this reporting cycle.
We will share the current scorecard and what’s on deck this week a little later, but let’s first point out the key trends that we have seen from the Q4 results through Friday, February 1st.
First, growth is decelerating. This isn’t a surprise, as we knew already that Q4 growth would be materially below the pace set in the first three quarters of the year.
Total earnings for the 113 index members that have reported are up +13.7% from the same period last year on +6.7% higher revenues. Earnings and revenue growth for the same cohort of companies had been +23.5% and +9.8% in the preceding earnings season, respectively. The comparison chart below puts this growth deceleration in a historical context for these 235 index members.
The growth pace is on track to decelerate even further in the current and coming quarters, as we will show a little later.
Second, companies appear to be struggling to beat consensus EPS estimates.
For the 235 index members that have reported results already, 66.8% are beating EPS estimates and only 63.4% are beating revenue estimates. For the same cohort of companies, the proportion of positive EPS and revenue surprises was 77.9% and 62.1% in the Q3 earnings season, respectively.
The comparison charts below put the Q4 beats percentages in a historical context for these 235 companies.
The lag on this front earlier on was more notable on the revenues side, with revenue beats tracking below historical periods. But as you can see above, EPS beats are even more notably tracking below historical periods. The fact is that the Q4 EPS beats percentage is the lowest in more than 3 years.
With Q4 positive surprises this hard to come by, one would reasonably assume that perhaps estimates had been too high. We know that wasn’t the case as estimates for the quarter had fallen the most of any other recent periods.
Third, estimates for 2019 Q1 and full-year 2019 are coming down in a major way, with the Q1 growth rate now in negative territory.
The chart below shows how estimates for 2019 Q1 have evolved since late-November 2018.
The negative revisions to 2019 Q1 estimates are along the same lines that we saw ahead of the start of the Q4 earnings season as well. Estimates for full-year 2019 have been coming down as well, as the chart below shows.
This chart is tracking consensus earnings growth expectations since the second half of 2018 got underway. As you can see, estimates were effectively unchanged during the September quarter, but they have been on a consistent downtrend since early October. Many in the market suspect that estimates have further to drop before stabilizing.
Key Earnings Reports This Week
We have more than 500 companies coming out with quarterly reports this week, including 98 S&P 500 members.
Monday, February 4th: Google’s parent Alphabet (GOOGL - Free Report) will be the more prominent of the 13 S&P 500 members reporting results on Monday. With two-thirds of the Tech sector’s market capitalization in the S&P 500 index having already reported Q4 results, the Alphabet release will be the last major earnings report for this space. The search giant is expected to have earned $11.08 in earnings per share on $31.28 billion in revenues, up +14.2% and +20.9% from the same period last year, respectively. The stock was up following the last two earnings reports and has been an active participant in the post-Christmas rally.
Tuesday, February 5th: We have 25 index members reporting results on Tuesday, of which 12 will come out before the market’s open and the rest after the market’s close. There is no shortage of big-name reporters today, but Disney (DIS - Free Report) will be the day’s highlight as it comes out with results after the market’s close. In addition to actual results, the earnings call will likely include updates on the company’s pending purchase of 21st Century Fox (FOXA).
Another notable company reporting after the market’s close on Tuesday is Snap (SNAP - Free Report) , with the struggling social-media player expected to have lost 8 cents per share on $376.6 million in revenues, up +38.5% and +31.8% from the year-earlier period, respectively. The stock was down following each of the last three quarterly releases and has been a big time laggard, likely providing for an easy set up for a positive surprise.
Wednesday, February 6th: We have 19 S&P 500 members reporting results on Wednesday, with General Motors (GM) and Spotify (SPOT - Free Report) in the morning and Chipotle Mexican Grill (CMG) after the market’s close as the major reporters.
Thursday, February 7st: Twitter and GrubHub will be the more notable reports on a very busy reporting day when 34 S&P 500 members are reporting results.
Friday, February 8th: Alcoa spin-off Arconic will be one of the 7 index members on deck to report Q4 results on Friday.
Q4 Earnings Season Scorecard (as of Feb 1st, 2019)
We now have Q4 results from 235 S&P 500 members that combined account for 64% of the index’s total market capitalization. Total earnings for these 235 index members are up +13.7% from the same period last year on +6.7% higher revenues, with 66.4% beating EPS estimates and 63.4% beating revenue estimates.
The table below shows the current scorecard.
We mentioned earlier how companies are struggling to beat consensus estimates. The second last column of the scorecard table above shows the blended beats percentage; this is the proportion of these 235 index members that have beaten both EPS and revenue estimates.
The chart below puts the 46% blended beats percentage in a historical context.
For Q4 as a whole, combining the actual results from the 235 index members that have reported with estimates for the still-to-come 265 companies, total earnings for the S&P 500 index are expected to be up +12.8% from the same period last year on +5.9% higher revenues, which would follow the +25.7% earnings growth on +8.5% higher revenues in 2018 Q3.
Earnings growth is expected to be in double digits for 8 of the 16 Zacks sectors, with Energy (+90.5% growth), Finance (+17.4%), Construction (+23%) and Transportation (+29.3%) as the strongest growth. Tech sector earnings are expected to decelerate meaningfully in Q4, up +5.9%, after back-to-back quarters of very strong growth.
Four sectors are expected to have lower earnings in Q4 relative to the year-earlier period, namely Conglomerates (-7.4% decline), Autos (-15.3%), Utilities (-7.7%) and Basic Materials (-1.4%)
The table below shows the summary picture for Q4, contrasted with what was actually achieved in the preceding earnings season.
The chart below shows Q4 earnings and revenue growth expectations contrasted with what is expected in the following three quarters and actual results in the preceding 4 quarters.
As you can see in the chart below, the growth pace is expected to decelerate materially from what we saw in the first three quarters of the year.
The chart below shows the same data on a rolling 4-quarter basis.
Whether we look at the growth picture on a quarterly basis or on a rolling quarter basis, there is no doubt that growth peak is now behind us. The question now is how much estimates for the coming quarters have still to come down. And the answer to that question will depend on the evolving economic backdrop that we discussed at the start.
For more details about the overall earnings picture, the Q4 earnings season and expectations for the coming periods, please check our weekly Earnings Trends report.
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.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
See Stocks Today >>