We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
We continue to see the picture that emerged from the Q4 earnings season as not great, but it is not bad either. Results have turned out to be better than many in the market had feared ahead of the start of this earnings season.
We knew that the period of very strong growth was now behind us. But the steady negative revisions to earnings estimates for the current and coming quarters have left growth expectations for the first half of 2019 barely in positive territory. This negative-revisions trend is a function of uncertainty about global economic growth, with a host of leading companies in different industries citing weakness in China, Europe and elsewhere as the driver of lower guidance.
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 15th.
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 394 companies that have reported through Friday, February 15th, are +12.9% from the same period last year on +7.6% higher revenues. Earnings and revenue growth for the same cohort of companies had been +25.1% and +9.5% in the preceding earnings season, respectively.
The comparison chart below puts this growth deceleration in a historical context for these 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 394 index members that have reported results already, 66.5% are beating EPS estimates and 62.4% are beating revenue estimates. For the same cohort of companies, the proportion of positive EPS and revenue surprises was 78.4% and 62.4% in the Q3 earnings season, respectively.
The proportion of these 394 index members beating both EPS and revenue estimates is 45.7%, which compares to 52.5% for the same group of companies in the preceding reporting cycle and 12-quarter average of 53.7%.
The revenue beats percentage is on the weak side relative to historical periods, but the lag on the EPS beats percentage side is particularly noteworthy. The fact is that the Q4 EPS beats percentage is the lowest in more than 5 years.
The comparison chart below puts the Q4 blended beats percentage in a historical context for these 235 companies:
With Q4 positive surprises this hard to come by, one would reasonably assume that perhaps estimates had been too high. But we know that’s not 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 and Q2 barely positive.
The chart below shows how estimates for 2019 Q1 have evolved since late-November 2018:
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. And estimates for full-year 2019 have been coming down, as the chart below shows:
This chart has been 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 400 companies coming out with quarterly reports this week, including 49 S&P 500 members. The Retail and Utilities sectors are the only ones that have a sizable number of reports still to come, and this week brings in plenty of reports from these sectors.
Tuesday, February 19th: We have 16 index members reporting results on Tuesday, of which 8 will come out before the market’s open and the rest after the close. Wal-Mart (WMT - Free Report) is the notable report on the Tuesday morning docket, with the retail giant expected to have flat earnings of $1.33 per share on +2.2% higher revenues of $139.3 billion.
The stock was down after the last earnings release and has struggled over the past year, lagging the broader market. Wal-Mart has made good headway in its digital strategy, but its purchase of India’s Flipkart has emerged as a headwind.
Wednesday, February 20th: We have 17 S&P 500 members reporting results on Wednesday, with CVS Health (CVS - Free Report) as the notable company in the morning session and Agilent (A - Free Report) after the market’s close.
Thursday, February 21st: Hewlett-Packard Enterprises (HPE - Free Report) and Kraft-Heinz (KHC - Free Report) are the more notable of the 14 index members reporting results on Thursday.
China’s Bidu (BIDU - Free Report) is another notable report coming out on Thursday
Q4 Earnings Season Scorecard (as of Feb 15th, 2019)
We now have Q4 results from 394 S&P 500 members that combined account for 85.6% of the index’s total market capitalization. Total earnings for these index members are +12.9% from the same period last year on +7.6% higher revenues, with 66.5% beating EPS estimates and 62.4% beating revenue estimates.
The table below shows the current scorecard:
For Q4 as a whole, combining the actual results from the 394 index members that have reported with estimates for the still-to-come companies, total earnings for the S&P 500 index are expected to be up +13.4% from the same period last year on +6.7% 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 9 of the 16 Zacks sectors, with Energy (+99.9% growth), Finance (+14.1%), Construction (+22.4%) and Transportation (+29.3%) the strongest. Tech sector earnings are on track to decelerate meaningfully in Q4, +7.6%, 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%), Autos (-9.3%), Utilities (-7.8%) and Basic Materials (-1.5%).
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 3 quarters and actual results in the preceding 4 quarters.
As you can see, 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 includeEarnings Trends and Earnings Preview.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
3 Things to Know About Q4 Earnings Season
We continue to see the picture that emerged from the Q4 earnings season as not great, but it is not bad either. Results have turned out to be better than many in the market had feared ahead of the start of this earnings season.
We knew that the period of very strong growth was now behind us. But the steady negative revisions to earnings estimates for the current and coming quarters have left growth expectations for the first half of 2019 barely in positive territory. This negative-revisions trend is a function of uncertainty about global economic growth, with a host of leading companies in different industries citing weakness in China, Europe and elsewhere as the driver of lower guidance.
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 15th.
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 394 companies that have reported through Friday, February 15th, are +12.9% from the same period last year on +7.6% higher revenues. Earnings and revenue growth for the same cohort of companies had been +25.1% and +9.5% in the preceding earnings season, respectively.
The comparison chart below puts this growth deceleration in a historical context for these 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 394 index members that have reported results already, 66.5% are beating EPS estimates and 62.4% are beating revenue estimates. For the same cohort of companies, the proportion of positive EPS and revenue surprises was 78.4% and 62.4% in the Q3 earnings season, respectively.
The proportion of these 394 index members beating both EPS and revenue estimates is 45.7%, which compares to 52.5% for the same group of companies in the preceding reporting cycle and 12-quarter average of 53.7%.
The revenue beats percentage is on the weak side relative to historical periods, but the lag on the EPS beats percentage side is particularly noteworthy. The fact is that the Q4 EPS beats percentage is the lowest in more than 5 years.
The comparison chart below puts the Q4 blended beats percentage in a historical context for these 235 companies:
With Q4 positive surprises this hard to come by, one would reasonably assume that perhaps estimates had been too high. But we know that’s not 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 and Q2 barely positive.
The chart below shows how estimates for 2019 Q1 have evolved since late-November 2018:
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. And estimates for full-year 2019 have been coming down, as the chart below shows:
This chart has been 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 400 companies coming out with quarterly reports this week, including 49 S&P 500 members. The Retail and Utilities sectors are the only ones that have a sizable number of reports still to come, and this week brings in plenty of reports from these sectors.
Tuesday, February 19th: We have 16 index members reporting results on Tuesday, of which 8 will come out before the market’s open and the rest after the close. Wal-Mart (WMT - Free Report) is the notable report on the Tuesday morning docket, with the retail giant expected to have flat earnings of $1.33 per share on +2.2% higher revenues of $139.3 billion.
The stock was down after the last earnings release and has struggled over the past year, lagging the broader market. Wal-Mart has made good headway in its digital strategy, but its purchase of India’s Flipkart has emerged as a headwind.
Wednesday, February 20th: We have 17 S&P 500 members reporting results on Wednesday, with CVS Health (CVS - Free Report) as the notable company in the morning session and Agilent (A - Free Report) after the market’s close.
Thursday, February 21st: Hewlett-Packard Enterprises (HPE - Free Report) and Kraft-Heinz (KHC - Free Report) are the more notable of the 14 index members reporting results on Thursday.
China’s Bidu (BIDU - Free Report) is another notable report coming out on Thursday
Q4 Earnings Season Scorecard (as of Feb 15th, 2019)
We now have Q4 results from 394 S&P 500 members that combined account for 85.6% of the index’s total market capitalization. Total earnings for these index members are +12.9% from the same period last year on +7.6% higher revenues, with 66.5% beating EPS estimates and 62.4% beating revenue estimates.
The table below shows the current scorecard:
For Q4 as a whole, combining the actual results from the 394 index members that have reported with estimates for the still-to-come companies, total earnings for the S&P 500 index are expected to be up +13.4% from the same period last year on +6.7% 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 9 of the 16 Zacks sectors, with Energy (+99.9% growth), Finance (+14.1%), Construction (+22.4%) and Transportation (+29.3%) the strongest. Tech sector earnings are on track to decelerate meaningfully in Q4, +7.6%, 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%), Autos (-9.3%), Utilities (-7.8%) and Basic Materials (-1.5%).
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 3 quarters and actual results in the preceding 4 quarters.
As you can see, 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.